Item 1 in this Annual Report on Form 10-K, each “Ultra” Fund seeks daily investment results (before fees and expenses) that correspond to two times (2x) the daily performance of its corresponding benchmark. Each “Short” Fund seeks daily investment results (before fees and expenses) that correspond to the inverse (-1x) of the daily performance of its corresponding benchmark. Each “UltraShort” Fund seeks daily investment results (before fees and expenses) that correspond to two times the inverse (-2x) of the daily performance of its corresponding benchmark. The “UltraPro Short” Fund will seek daily investment results (before fees and expenses) that correspond to three times the inverse (-3x) of the daily performance of its corresponding benchmark. Daily performance is measured from the calculation of one NAV to the next. Each of the Funds generally invests or will invest in Financial Instruments (i.e., instruments whose value is derived from the value of an underlying asset, rate or index, including futures contracts, swap agreements, forward contracts and other instruments) as a substitute for investing directly in commodities, currencies, or spot volatility products in order to gain exposure to the commodity futures index, currency exchange rate, equity volatility index or applicable commodity or financial futures contracts. Financial Instruments also are used to produce economically “leveraged”, “inverse” or “inverse leveraged” investment results for the Geared Funds. As noted in Item 1 in this Annual Report on Form 10-K, as of December 31, 2012, each of the New Funds had not commenced investment operations; therefore, this management’s discussion and analysis of financial condition and results of operations does not include results of operations for the New Funds.
Each Geared Fund seeks or will seek investment results for a single day only, not for longer periods. This is different from most exchange-traded funds and means that the return of such Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, and usually will differ from 2x, -1x, -2x or -3x, of the return of the Geared Fund’s benchmark for that period. Longer holding periods, higher benchmark volatility, inverse exposure and greater leverage each affect the impact of compounding on a Geared Fund’s returns. Daily compounding of a Geared Fund’s investment returns can dramatically and adversely affect its longer-term performance during periods of high volatility. Geared Funds are riskier than similarly benchmarked exchange-traded funds that are not geared. Accordingly, these funds may not be suitable for all investors and should be used only by knowledgeable investors who understand the potential consequences of seeking daily, leveraged, inverse or inverse leveraged investment results. Shareholders who invest in the Geared Funds should actively manage and monitor their investments, as frequently as daily.
The Matching VIX Funds and the Managed Futures Funds 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 indices, commodities or currencies, a significant portion of the NAV of each Fund is held in cash and/or U.S. Treasury Securities, agency securities, or other high credit quality short-term fixed-income or similar securities (such as shares of money market funds, bank deposits, bank money market accounts, certain variable rate-demand notes and repurchase agreements collateralized by government securities, whether denominated in U.S. dollars or the applicable foreign currency with respect to a Currency Fund). A portion of these investments may be posted as collateral in connection with swap agreements and each Fund’s trading in
futures and forward contracts. The percentage that U.S. Treasury bills and other short-term fixed-income securities bear to the shareholders’ equity of each Fund varies from period to period as the market values of the underlying swaps, futures contracts and forward contracts change. During the years ended December 31, 2012, 2011 and 2010, each of the Funds earned interest income as follows:
Each Fund’s underlying swaps, futures and forward contracts, as applicable, may be, subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons. For example, swaps and forward contracts are not traded on an exchange, do not have uniform terms and conditions, and in general are not transferable without the consent of the counterparty. In the case of futures contracts, commodity exchanges may limit fluctuations in certain futures contract prices during a single day by regulations referred to as “daily limits.” During a single day, no futures trades may be executed at prices beyond the daily limit. Once the price of a futures contract has increased or decreased by an amount equal to the daily limit, positions in such futures contracts can neither be taken nor liquidated unless the traders are willing to effect trades at or within the limit. Futures contract prices have occasionally moved to the daily limit for several consecutive days with little or no trading. Such market conditions could prevent a Fund from promptly liquidating its futures positions.
Entry into swap agreements or forward contracts may further impact liquidity because these contractual agreements are executed “off-exchange” between private parties and, therefore, the time required to offset or “unwind” these positions may be greater than that for exchange-traded instruments. This potential delay could be exacerbated to the extent a counterparty is not a United States person.
The large size of the positions in which a Fund may acquire increases the risk of illiquidity by both making their positions more difficult to liquidate and increasing the losses incurred while trying to do so. Any type of disruption or illiquidity will potentially be exacerbated due to the fact that the Funds will typically invest in Financial Investments related to one benchmark, which in many cases is highly concentrated.
Because each Fund may enter into swaps and may trade futures and forward contracts, its capital is at risk due to changes in the value of these contracts (market risk) or the inability of counterparties to perform under the terms of the contracts (credit risk).
Results of Operations for the Year Ended December 31, 2012 Compared to the Years Ended December 31, 2011 and December 31, 2010
ProShares Ultra DJ-UBS Commodity
Fund Performance
The following table provides summary performance information for the Fund for the years ended December 31, 2012, 2011 and 2010:
During the year ended December 31, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 350,014 outstanding Shares at December 31, 2011 to 250,014 outstanding shares at December 31, 2012. The decrease in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones-UBS Commodity Index. By comparison, during the year ended December 31, 2011, the decrease in the Fund’s NAV resulted primarily from a decrease from 500,014 outstanding Shares at December 31, 2010 to 350,014 outstanding Shares at December 31, 2011. The decrease in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones-UBS Commodity Index. By comparison, during the year ended December 31, 2010, the decrease in the Fund’s NAV resulted from a decrease from 700,014 outstanding Shares at December 31, 2009 to 500,014 outstanding Shares at December 31, 2010. The decrease in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones-UBS Commodity Index.
For the years ended December 31, 2012, 2011 and 2010, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark. The Fund’s per Share NAV decrease of 5.8% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 28.8% for the year ended December 31, 2011, was primarily due to a lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2012. The Fund’s per Share NAV decrease of 28.8% for the year ended December 31, 2011, as compared to the Fund’s per Share NAV increase of 29.0% for the year ended December 31, 2010, was primarily due to depreciation in the value of the assets of the Fund during the year ended December 31, 2011.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on September 14, 2012 at $29.39 per Share and reached its low for the year on June 1, 2012 at $20.71 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on April 29, 2011 at $41.87 per Share and reached its low for the year on December 15, 2011 at $24.32 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per Share NAV reached its high for the year on December 31, 2010 at $36.37 per Share and reached its low for the year on June 4, 2010 at $21.14 per Share.
The benchmark’s decline of 1.1% for the year ended December 31, 2012, as compared to the benchmark’s decline of 13.3% for the year ended December 31, 2011, can be attributed to a lesser depreciation of the underlying components of the index during the year ended December 31, 2012. By comparison, the benchmark’s decline of 13.3% for the year ended December 31, 2011, as compared to the benchmark’s rise of 16.8% for the year ended December 31, 2010, can be attributed to a depreciation of the underlying components of the index during the year ended December 31, 2011.
Net Income/Loss
The following table provides summary income information for the Fund for the years ended December 31, 2012, 2011 and 2010:
The Fund’s net income increased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a lesser depreciation of the underlying components of the index, notably Crude Oil, during the year ended December 31, 2011. By comparison, the Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a depreciation of the underlying components of the index, notably Crude Oil, during the year ended December 31, 2011.
ProShares UltraShort DJ-UBS Commodity*
Fund Performance
The following table provides summary performance information for the Fund for the years ended December 31, 2012, 2011 and 2010:
During the year ended December 31, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 159,997 outstanding shares at December 31, 2011 to 59,997 outstanding Shares at December 31, 2012. The decrease in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow Jones-UBS Commodity Index. By comparison, during the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 30,003 outstanding Shares at December 31, 2010 to 159,997 outstanding shares at December 31, 2011. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow Jones-UBS Commodity Index. By comparison, during the year ended December 31,
2010, the decrease in the Fund’s NAV resulted primarily from a decrease from 40,003 outstanding Shares at December 31, 2009 to 30,003 outstanding shares at December 31, 2010. The decrease in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow Jones-UBS Commodity Index.
For the years ended December 31, 2012, 2011 and 2010, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark. The Fund’s per Share NAV decrease of 5.0% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV increase of 18.6% for the year ended December 31, 2011, was primarily due to depreciation in the value of the assets of the Fund in conjunction with significant volatility in outstanding shares during the year ended December 31, 2012. The Fund’s per Share NAV increase of 18.6% for the year ended December 31, 2011, as compared to the Fund’s per Share NAV decrease of 34.3% for the year ended December 31, 2010, was primarily due to appreciation in the value of the assets of the Fund during the year ended December 31, 2011.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on June 1, 2012 at $68.06 per Share and reached its low for the year on September 14, 2012 at $46.01 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on December 15, 2011 at $60.83 per Share and reached its low for the year on April 29, 2011 at $39.91 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per Share NAV reached its high for the year on June 4, 2010 at $90.42 per Share and reached its low for the year on December 31, 2010 at $48.00 per Share.
The benchmark’s decline of 1.1% for the year ended December 31, 2012, as compared to the benchmark’s decline of 13.3% for the year ended December 31, 2011, can be attributed to a lesser depreciation of the underlying components of the index during the year ended December 31, 2012. The benchmark’s decline of 13.3% for the year ended December 31, 2011, as compared to the benchmark’s rise of 16.8% for the year ended December 31, 2010, can be attributed to depreciation of the underlying components of the index during the year ended December 31, 2011.
Net Income/Loss
The following table provides summary income information for the Fund for the years ended December 31, 2012, 2011 and 2010:
The Fund’s net income increased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a lesser depreciation of the underlying components of the index, notably Crude Oil, in conjunction with a significant decrease in outstanding shares, during the year ended December 31, 2012. By comparison, the Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to depreciation of the underlying components of the index, notably Crude Oil, in conjunction with a significant increase in outstanding shares, during the year ended December 31, 2011.
* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share split for the ProShares UltraShort DJ-UBS Commodity Fund.
ProShares Ultra DJ-UBS Crude Oil*
Fund Performance
The following table provides summary performance information for the Fund for the years ended December 31, 2012, 2011 and 2010:
During the year ended December 31, 2012, the increase in the Fund’s NAV resulted primarily from an increase from 6,149,170 outstanding Shares at December 31, 2011 to 16,449,170 outstanding Shares at December 31, 2012. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones-UBS WTI Crude Oil Subindex. By comparison, during the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 4,562,504 outstanding Shares at December 31, 2010 to 6,149,170 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones-UBS WTI Crude Oil Subindex. By comparison, during the year ended December 31, 2010, the decrease in the Fund’s NAV resulted primarily from a decrease from 6,412,504 outstanding Shares at December 31, 2009 to 4,562,504 outstanding Shares at December 31, 2010. The decrease in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones-UBS WTI Crude Oil Subindex.
For the years ended December 31, 2012, 2011 and 2010, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark. The Fund’s per Share NAV decrease of 28.1% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 18.2% for the year ended December 31, 2011, was primarily due to a relatively greater depreciation in the value of the assets of the Fund during the year ended December 31, 2012. The Fund’s per Share NAV decrease of 18.2% for the year ended December 31, 2011, as compared to the Fund’s per Share NAV decrease of 1.0% for the year ended December 31, 2010, was primarily due to a relatively greater depreciation in the value of the assets of the Fund during the year ended December 31, 2011.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on February 24, 2012 at $49.25 per Share and reached its low for the year on June 28, 2012 at $23.36 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on April 29, 2011 at $63.90 per Share and reached its low for the year on October 4, 2011 at $24.90 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per Share NAV reached its high for the year on May 3, 2010 at $57.29 per Share and reached its low for the year on August 24, 2010 at $33.45 per Share.
The benchmark’s decline of 11.8% for the year ended December 31, 2012, as compared to the benchmark’s decline of 3.7% for the year ended December 31, 2011, can be attributed to a greater decrease in the price of WTI Crude Oil during the year ended December 31, 2012. By comparison, the benchmark’s decline of 3.7% for the year ended December 31, 2011, as compared to the benchmark’s rise of 3.8% for the year ended December 31, 2010, can be attributed to a decrease in the price of WTI Crude Oil during the year ended December 31, 2011.
Net Income/Loss
The following table provides summary income information for the Fund for the years ended December 31, 2012, 2011 and 2010:
The Fund’s net income decreased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a greater decrease in the price of WTI Crude Oil during the year ended December 31, 2012. By comparison, the Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a decrease in the price of WTI Crude Oil during the year ended December 31, 2011.
* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share split for the ProShares Ultra DJ-UBS Crude Oil Fund.
ProShares UltraShort DJ-UBS Crude Oil*
Fund Performance
The following table provides summary performance information for the Fund for the years ended December 31, 2012, 2011 and 2010:
During the year ended December 31, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 3,719,944 outstanding Shares at December 31, 2011 to 2,219,944 outstanding Shares at December 31, 2012. The decrease in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow Jones-UBS WTI Crude Oil Subindex. By comparison, during the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 2,600,003 outstanding Shares at December 31, 2010 to 3,719,944 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow Jones-UBS WTI Crude Oil Subindex. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted from an increase from 1,120,003 outstanding Shares at December 31, 2009 to 2,600,003 outstanding Shares at December 31, 2010. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow Jones-UBS WTI Crude Oil Subindex.
For the years ended December 31, 2012, 2011 and 2010, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark. The Fund’s per Share NAV increase of 3.8% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 23.7% for the year ended December 31, 2011, was primarily due to appreciation in the value of the assets of the Fund during the year ended December 31, 2012. The Fund’s per Share NAV decrease of 23.7% for the year ended December 31, 2011, as compared to the Fund’s per Share NAV decrease of 25.7% for the year ended December 31, 2010, was primarily due to a relatively lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2011.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on June 28, 2012 at $60.49 per Share and reached its low for the year on October 9, 2012 at $31.27 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on October 4, 2011 at $70.55 per Share and reached its low for the year on April 29, 2011 at $36.11 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per Share NAV reached its high for the year on May 25, 2010 at $90.21 per Share and reached its low for the year on December 31, 2010 at $50.85 per Share.
The benchmark’s decline of 11.8% for the year ended December 31, 2012, as compared to the benchmark’s decline of 3.7% for the year ended December 31, 2011, can be attributed to a greater decrease in the price of WTI Crude Oil during the year ended December 31, 2012. By comparison, the benchmark’s decline of 3.7% for the year ended December 31, 2011, as compared to the benchmark’s rise of 3.8% for the year ended December 31, 2010, can be attributed to a decrease in the price of WTI Crude Oil during the year ended December 31, 2011.
Net Income/Loss
The following table provides summary income information for the Fund for the years ended December 31, 2012, 2011 and 2010:
The Fund’s net income decreased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a greater increase in the price of WTI Crude Oil, in conjunction with a significant decrease in outstanding shares, during the year ended December 31, 2012. By comparison, the Fund’s net income increased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a decrease in the price of WTI Crude Oil during the year ended December 31, 2011.
* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share split for the ProShares UltraShort DJ-UBS Crude Oil Fund.
ProShares Ultra DJ-UBS Natural Gas*
Since the Fund commenced investment operations on October 4, 2011, a comparison of the Fund’s results of operations for the year ended December 31, 2010 has not been provided. In addition, since the Fund commenced investment operations on October 4, 2011, the Fund’s results of operations for the period ended December 31, 2011 may not be meaningful.
Fund Performance
The following table provides summary performance information for the Fund for the year ended December 31, 2012 and from commencement of operations to December 31, 2011:
During the year ended December 31, 2012, the increase in the Fund’s NAV resulted primarily from an increase from 40,002 outstanding Shares at December 31, 2011 to 1,869,941 outstanding Shares at December 31, 2012. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones-UBS Natural Gas SubindexSM. By comparison, during the period ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 2 outstanding Shares at October 4, 2011 to 40,002 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones-UBS Natural Gas SubindexSM.
For the year ended December 31, 2012 and the period ended December 31, 2011, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark. The Fund’s per Share NAV decrease of 61.7% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 49.0% for the period ended December 31, 2011, was primarily due to a greater depreciation in the value of the assets of the Fund during the year ended December 31, 2012.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on January 4, 2012 at $109.49 per Share and reached its low for the year on April 19, 2012 at $29.42 per Share. By comparison, during the period ended December 31, 2011, the Fund’s per Share NAV reached its high for the period on October 4, 2011 at $200.00 per Share and reached its low for the period on December 30, 2011 at $101.98 per Share.
The benchmark’s decline of 30.6% for the year ended December 31, 2012, as compared to the benchmark’s decline of 27.7% for the period ended December 31, 2011 can be attributed to a greater decrease in the price of Henry Hub Natural Gas during the year ended December 31, 2012.
Net Income/Loss
The following table provides summary income information for the Fund for the year ended December 31, 2012 and the period from commencement of operations to December 31, 2011:
The Fund’s net income decreased for the year ended December 31, 2012, as compared to the period ended December 31, 2011, primarily due to a greater decrease in the price of Henry Hub Natural Gas during the year ended December 31, 2012.
* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share split for the ProShares Ultra DJ-UBS Natural Gas Fund.
ProShares UltraShort DJ-UBS Natural Gas*
Since the Fund commenced investment operations on October 4, 2011, a comparison of the Fund’s results of operations for the year ended December 31, 2010 has not been provided. In addition, since the Fund commenced investment operations on October 4, 2011, the Fund’s results of operations for the period ended December 31, 2011 may not be meaningful.
Fund Performance
The following table provides summary performance information for the Fund for the year ended December 31, 2012 and from commencement of operations to December 31, 2011:
During the year ended December 31, 2012, the increase in the Fund’s NAV resulted primarily from an increase from 300,030 outstanding Shares at December 31, 2011 to 500,030 outstanding Shares at December 31, 2012. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow Jones-UBS Natural Gas SubindexSM. By comparison, during the period ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 30 outstanding Shares at October 4, 2011 to 300,030 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow Jones-UBS Natural Gas SubindexSM.
For the year ended December 31, 2012 and the period ended December 31, 2011, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark. The Fund’s per Share NAV increase of 7.3% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV increase of 78.5% for the period ended December 31, 2011, was primarily due to a lesser appreciation in the value of the assets of the Fund during the year ended December 31, 2012.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on April 19, 2012 at $61.42 per Share and reached its low for the year on November 23, 2012 at $18.10 per Share. By comparison, during the period ended December 31, 2011, the Fund’s per Share NAV reached its high for the period on December 30, 2011 at $23.81 per Share and reached its low for the period on October 14, 2011 at $13.25 per Share.
The benchmark’s decline of 30.6% for the year ended December 31, 2012, as compared to the benchmark’s decline of 27.7% for the period ended December 31, 2011 can be attributed to a greater decrease in the price of Henry Hub Natural Gas during the year ended December 31, 2012.
Net Income/Loss
The following table provides summary income information for the Fund for the year ended December 31, 2012 and from commencement of operations to December 31, 2011:
The Fund’s net income decreased for the year ended December 31, 2012, as compared to the period ended December 31, 2011, primarily due to a greater decrease in the price of Henry Hub Natural Gas in conjunction with a significant increase in outstanding shares, during the year ended December 31, 2012.
* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the Share split for the ProShares UltraShort DJ-UBS Natural Gas Fund.
ProShares Ultra Gold
Fund Performance
The following table provides summary performance information for the Fund for the years ended December 31, 2012, 2011 and 2010:
During the year ended December 31, 2012, the increase in the Fund’s NAV resulted from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The increase in the Fund’s NAV was offset by a decrease from 4,300,014 outstanding Shares at December 31, 2011 to 4,000,014 outstanding Shares at December 31, 2012. By comparison, during the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 3,750,014 outstanding Shares at December 31, 2010 to 4,300,014 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted primarily from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The increase in the Fund’s NAV also resulted in part from an increase from 3,550,014 outstanding Shares at December 31, 2009 to 3,750,014 outstanding Shares at December 31, 2010.
For the years ended December 31, 2012, 2011 and 2010, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark. The Fund’s per Share NAV increase of 10.4% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV increase of 9.7% for the year ended December 31, 2011, was primarily due to the greater appreciation in the value of the assets of the Fund during the year ended December 31, 2012. The Fund’s per Share NAV increase of 9.7% for the year ended December 31, 2011, as compared to the Fund’s per Share NAV increase of 57.0% for the year ended December 31, 2010, was primarily due to a relatively lesser appreciation in the value of the assets of the Fund during the year ended December 31, 2011.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on February 28, 2012 at $101.40 per Share and reached its low for the year on May 30, 2012 at $74.51 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on September 6, 2011 at $120.56 per Share and reached its low for the year on January 28, 2011 at $60.68 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per Share NAV reached its high for the year on November 9, 2010 at $71.39 per Share and reached its low for the year on February 5, 2010 at $41.35 per Share.
The benchmark’s rise of 8.3% for the year ended December 31, 2012, as compared to the benchmark’s rise of 8.9% for the year ended December 31, 2011, can be attributed to a lesser increase in the price of spot gold in U.S. Dollar terms during the year ended December 31, 2012. By comparison, the benchmark’s rise of 8.9% for the year ended December 31, 2011, as compared to the benchmark’s rise of 29.2% for the year ended December 31, 2010, can be attributed to a relatively lesser increase in the price of spot gold in U.S. Dollar terms during the year ended December 31, 2011.
Net Income/Loss
The following table provides summary income information for the Fund for the years ended December 31, 2012, 2011 and 2010:
The Fund’s net income increased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to an increase in the price of spot gold in U.S. Dollar terms, in conjunction with a higher average shares outstanding, during the year ended December 31, 2012. By comparison, the Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a relatively lesser increase in the price of spot gold in U.S. Dollar terms during the year ended December 31, 2011.
ProShares UltraShort Gold*
Fund Performance
The following table provides summary performance information for the Fund for the years ended December 31, 2012, 2011and 2010:
During the year ended December 31, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 2,397,475 outstanding Shares at December 31, 2011 to 1,446,978 outstanding Shares at December 31, 2012. The decrease in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. By comparison, during the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 684,975 outstanding Shares at December 31, 2010 to 2,397,475 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted from an increase from 322,501 outstanding Shares at December 31, 2009 to 684,975 outstanding Shares at December 31, 2010. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London.
For the years ended December 31, 2012, 2011 and 2010, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark. The Fund’s per Share NAV decrease of 22.8% for the year ended December 31, 2012, as compared the Fund’s per Share NAV decrease of 27.1% for the
year ended December 31, 2011, was primarily due to a relatively lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2012. The Fund’s per Share NAV decrease of 27.1% for the year ended December 31, 2011, as compared to the Fund’s per Share NAV decrease of 45.9% for the year ended December 31, 2010, was primarily due to a relatively lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2011.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on May 30, 2012 at $77.48 per Share and reached its low for the year on October 4, 2012 at $55.30 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on January 28, 2011 at $128.39 per Share and reached its low for the year on September 6, 2011 at $58.07 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per Share NAV reached its high for the year on February 5, 2010 at $217.87 per Share and reached its low for the year on December 7, 2010 at $112.27 per Share.
The benchmark’s rise of 8.3% for the year ended December 31, 2012, as compared to the benchmark’s rise of 8.9% for the year ended December 31, 2011, can be attributed to a lesser increase in the price of spot gold in U.S. Dollar terms during the year ended December 31, 2012. By comparison, the benchmark’s rise of 8.9% for the year ended December 31, 2011, as compared to the benchmark’s rise of 29.2% during the year ended December 31, 2010, can be attributed to a relatively lesser increase in the price of spot gold in U.S. Dollar terms during the year ended December 31, 2011.
Net Income /Loss
The following table provides summary income information for the Fund for the years ended December 31, 2012, 2011 and 2010:
The Fund’s net income decreased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a lesser increase in the price of spot gold in U.S. Dollar terms, in conjunction with a significant decrease in outstanding Shares, during the year ended December 31, 2012. By comparison, the Fund’s net income increased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a relatively lesser increase in the price of spot gold in U.S. Dollar terms.
* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share split for the ProShares UltraShort Gold Fund.
ProShares Ultra Silver*
Fund Performance
The following table provides summary performance information for the Fund for the years ended December 31, 2012, 2011 and 2010:
During the year ended December 31, 2012, the increase in the Fund’s NAV resulted primarily from an increase from 14,050,028 outstanding Shares at December 31, 2011 to 17,400,028 outstanding Shares at December 31, 2012. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London. During the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 7,000,028 outstanding Shares at December 31, 2010 to 14,050,028 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted primarily from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London. The increase in the Fund’s NAV also resulted in part from an increase from 5,100,028 outstanding Shares at December 31, 2009 to 7,000,028 outstanding Shares at December 31, 2010.
For the years ended December 31, 2012, 2011 and 2010, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark. The Fund’s per Share NAV decrease of 0.5% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 44.7% for the year ended December 31, 2011, was primarily due to relatively lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2012. The Fund’s per Share NAV decrease of 44.7% for the year ended December 31, 2011, as compared to the Fund’s per Share NAV increase of 174.1% for the year ended December 31, 2010, was primarily due to a depreciation in the value of the assets of the Fund during the year ended December 31, 2011.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on February 29, 2012 at $73.52 per Share and reached its low for the year on July 12, 2012 at $35.76 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on April 28, 2011 at $184.61 per Share and reached its low for the year on December 29, 2011 at $37.42 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per Share NAV reached its high for the year on December 30, 2010 at $78.47 per Share and reached its low for the year on February 8, 2010 at $22.20 per Share.
The benchmark’s rise of 6.3% for the year ended December 31, 2012, as compared to the benchmark’s decline of 8.0% for the year ended December 31, 2011, can be attributed to an increase in the price of spot silver in U.S. Dollar terms during the year ended December 31, 2012. The benchmark’s decline of 8.0% for the year ended December 31, 2011, as compared to the benchmark’s rise of 80.3% for the year ended December 31, 2010, can be attributed to a decrease in the price of spot silver in U.S. Dollar terms during the year ended December 31, 2011.
Net Income/Loss
The following table provides summary income information for the Fund for the years ended December 31, 2012, 2011 and 2010:
The Fund’s net income increased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to an increase in the price of spot silver in U.S. Dollar terms during the year ended December 31, 2012. By comparison, the Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a decrease in the price of spot silver in U.S. Dollar terms during the year ended December 31, 2011.
* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share split for the ProShares Ultra Silver Fund.
ProShares UltraShort Silver*
Fund Performance
The following table provides summary performance information for the Fund for the years ended December 31, 2012, 2011 and 2010:
During the year ended December 31, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 3,218,874 outstanding Shares at December 31, 2011 to 1,958,489 outstanding Shares at December 31, 2012. The decrease in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London. By comparison, during the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 496,496 outstanding Shares at December 31, 2010 to 3,218,874 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted from an increase from 68,500 outstanding Shares at December 31, 2009 to 496,496 outstanding Shares at December 31, 2010. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London.
For the years ended December 31, 2012, 2011 and 2010, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark. The Fund’s per Share NAV decrease of 33.0% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 61.6% for the year ended December 31, 2011, was primarily due to a lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2012. The Fund’s per Share NAV decrease of 61.6% for the year ended December 31, 2011, as compared to the Fund’s per Share NAV decrease of 78.8% for the year ended December 31, 2010, was primarily due to a relatively lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2011.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on January 3, 2012 at $73.38 per Share and reached its low for the year on October 4, 2012 at $39.13 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on January 25, 2011 at $255.54 per Share and reached its low for the year on August 22, 2011 at $54.63 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per Share NAV reached its high for the year on February 8, 2010 at $1,135.15 per Share and reached its low for the year on December 30, 2010 at $198.69 per Share.
The benchmark’s rise of 6.3% for the year ended December 31, 2012, as compared to the benchmark’s decline of 8.0% for the year ended December 31, 2011, can be attributed to an increase in the price of spot silver in U.S. Dollar terms during the year ended December 31, 2012. The benchmark’s decline of 8.0% for the year ended December 31, 2011, as compared to the benchmark’s rise of 80.3% for the year ended December 31, 2010, can be attributed to a decrease in the price of spot silver in U.S. Dollar terms during the year ended December 31, 2011.
Net Income/Loss
The following table provides summary income information for the Fund for the years ended December 31, 2012, 2011 and 2010:
The Fund’s net income increased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to an increase in the price of spot silver in U.S. Dollar terms, in conjunction with a significant decrease in outstanding shares, during the year ended December 31, 2012. By comparison, the Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a decrease in the price of spot silver in U.S. Dollar terms in conjunction with significant fluctuations in outstanding shares during the year ended December 31, 2011.
* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share splits for the ProShares UltraShort Silver Fund.
ProShares Ultra Australian Dollar
Since the Fund commenced investment operations on July 17, 2012, comparisons of the Fund’s results of operations for the years ended December 2011 and 2010 have not been provided. In addition, since the Fund commenced investment operations on July 17, 2012, the Fund’s results of operations for the period ended December 31, 2012 may not be meaningful.
Fund Performance
The following table provides summary performance information for the Fund from commencement of operations to December 31, 2012:
During the period ended December 31, 2012, the increase in the Fund’s NAV resulted primarily from an increase from 5 outstanding Shares at July 17, 2012 to 100,005 outstanding Shares at December 31, 2012. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the Australian Dollar versus the U.S. Dollar.
For the period ended December 31, 2012, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark.
During the period ended December 31, 2012, the Fund’s per Share NAV reached its high for the period on December 14, 2012 at $42.82 per Share and reached its low for the period on September 5, 2012 at $39.29 per Share.
The benchmark’s rise of 0.6% for the period ended December 31, 2012, can be attributed to an increase in the value of the Australian Dollar versus the U.S. Dollar during the period ended December 31, 2012.
Net Income/Loss
The following table provides summary income information for the period ended December 31, 2012:
ProShares UltraShort Australian Dollar
Since the Fund commenced investment operations on July 17, 2012, comparisons of the Fund’s results of operations for the years ended December 2011 and 2010 have not been provided. In addition, since the Fund commenced investment operations on July 17, 2012, the Fund’s results of operations for the period ended December 31, 2012 may not be meaningful.
Fund Performance
The following table provides summary performance information for the Fund from commencement of operations to December 31, 2012:
During the period ended December 31, 2012, the increase in the Fund’s NAV resulted primarily from an increase from 5 outstanding Shares at July 17, 2012 to 100,005 outstanding Shares at December 31, 2012. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the spot price of the Australian Dollar versus the U.S. Dollar.
For the period ended December 31, 2012, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark.
During the period ended December 31, 2012, the Fund’s per Share NAV reached its high for the period on September 5, 2012 at $40.44 per Share and reached its low for the period on December 14, 2012 at $36.68 per Share.
The benchmark’s rise of 0.6% for the period ended December 31, 2012, can be attributed to an increase in the value of the Australian Dollar versus the U.S. Dollar during the period ended December 31, 2012.
Net Income/Loss
The following table provides summary income information for the period ended December 31, 2012:
ProShares Ultra Euro
Fund Performance
The following table provides summary performance information for the Fund for the years ended December 31, 2012, 2011 and 2010:
During the year ended December 31, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 400,014 outstanding Shares at December 31, 2011 to 200,014 outstanding Shares at December 31, 2012. The decrease in the Fund’s NAV was offset by cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the Euro versus the U.S. Dollar. By comparison, during the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 300,014 outstanding Shares at December 31, 2010 to 400,014 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the Euro versus the U.S. Dollar. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted primarily from an increase from 250,014 outstanding Shares at December 31, 2009 to 300,014 outstanding Shares at December 31, 2010. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the Euro versus the U.S. Dollar.
For the years ended December 31, 2012, 2011 and 2010, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark. The Fund’s per Share NAV increase of 1.9% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 7.3% for the year ended December 31, 2011, was primarily due to an appreciation in the value of the assets held by the Fund during the year ended December 31, 2012. The Fund’s per Share NAV decrease of 7.3% for the year ended December 31, 2011, as compared to the Fund’s per Share NAV decrease of 14.5% for the year ended December 31, 2010, was primarily due to a relatively lower depreciation in the value of the assets held by the Fund during the year ended December 31, 2011.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on February 24, 2012 at $25.78 per Share and reached its low for the year on July 24, 2012 at $20.56 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on May 3, 2011
at $31.63 per Share and reached its low for the year on December 28, 2011 at $23.88 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per Share NAV reached its high for the year on January 11, 2010 at $30.98 per Share and reached its low for the year on June 7, 2010 at $20.70 per Share.
The benchmark’s rise of 2.0% for the year ended December 31, 2012, as compared to the benchmark’s decline of 3.2% for the year ended December 31, 2011, can be attributed to an increase in the value of the Euro versus the U.S. Dollar during the year ended December 31, 2012. By comparison, the benchmark’s decline of 3.2% for the year ended December 31, 2011, as compared to the benchmark’s decline of 6.6% for the year ended December 31, 2010, can be attributed to a relatively lower decrease in the value of the Euro versus the U.S. Dollar during the year ended December 31, 2011.
Net Income/Loss
The following table provides summary income information for the Fund for the years ended December 31, 2012, 2011 and 2010:
The Fund’s net income increased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a rise in the value of the Euro versus the U.S. Dollar during the year ended December 31, 2012. By comparison, the Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a decrease in the value of the Euro versus the U.S. Dollar in conjunction with a significant increase in outstanding shares during the year ended December 31, 2011.
ProShares Short Euro
Since the Fund commenced investment operations on June 26, 2012, comparisons of the Fund’s results of operations for the years ended December 2011 and 2010 have not been provided. In addition, since the Fund commenced investment operations on June 26, 2012, the Fund’s results of operations for the period ended December 31, 2012 may not be meaningful.
Fund Performance
The following table provides summary performance information for the Fund from commencement of operations to December 31, 2012:
During the period ended December 31, 2012, the increase in the Fund’s NAV resulted from an increase from 5 outstanding Shares at June 26, 2012 to 100,005 outstanding Shares at December 31, 2012. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to the inverse of the daily performance of the spot price of the Euro versus the U.S. Dollar.
For the period ended December 31, 2012, the Fund’s daily performance had a statistical correlation over 0.99 of the inverse of the daily performance of its benchmark.
During the period ended December 31, 2012, the Fund’s per Share NAV reached its high for the period on July 24, 2012 at $41.33 per Share and reached its low for the period on December 20, 2012 at $37.50 per Share.
The benchmark’s rise of 5.6% for the period ended December 31, 2012, can be attributed to an increase in the value of the Euro versus the U.S. Dollar during the period ended December 31, 2012.
Net Income/Loss
The following table provides summary income information for the Fund from commencement of operations to December 31, 2012:
ProShares UltraShort Euro
Fund Performance
The following table provides summary performance information for the Fund for the years ended December 31, 2012, 2011 and 2010:
During the year ended December 31, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 54,100,014 outstanding Shares at December 31, 2011 to 27,700,014 outstanding Shares at December 31, 2012. The decrease in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the spot price of the Euro versus the U.S. Dollar. By comparison, during the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 21,900,014 outstanding Shares at December 31, 2010 to 54,100,014 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the spot price of the Euro versus the U.S. Dollar. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted primarily from an increase from 5,400,014 outstanding Shares at December 31, 2009 to 21,900,014 outstanding Shares at December 31, 2010. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the spot price of the Euro versus the U.S. Dollar.
For the years ended December 31, 2012, 2011 and 2010, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark. The Fund’s per Share NAV decrease of 6.5% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV increase of 0.2% for the year ended December 31, 2011, was primarily due to a depreciation in the value of the assets held by the Fund during the year ended December 31, 2012. The Fund’s per Share NAV increase of 0.2% for the year ended December 31, 2011, as compared to the Fund’s per Share NAV increase of 8.7% for the year ended December 31, 2010, was primarily due to a depreciation in the value of the assets held by the Fund during the year ended December 31, 2011.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on July 24, 2012 at $22.94 per Share and reached its low for the year on February 24, 2012 at $18.67 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on January 7, 2011 at $21.74 per Share and reached its low for the year on May 3, 2011 at $16.22 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per Share NAV reached its high for the year on June 7, 2010 at $26.39 per Share and reached its low for the year on January 11, 2010 at $18.14 per Share.
The benchmark’s rise of 2.0% for the year ended December 31, 2012, as compared to the benchmark’s decline of 3.2% for the year ended December 31, 2011, can be attributed to an increase in the value of the Euro versus the U.S. Dollar during the year ended December 31, 2012. By comparison, the benchmark’s decline of 3.2% for the year ended December 31, 2011, as compared to the benchmark’s decline of 6.6% for the year ended December 31, 2010, can be attributed to a relatively lower decrease in the value of the Euro versus the U.S. Dollar during the year ended December 31, 2011.
Net Income/Loss
The following table provides summary income information for the Fund for the years ended December 31, 2012, 2011 and 2010:
The Fund’s net income decreased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a rise in the value of the Euro versus the U.S. Dollar during the year ended December 31, 2012. By comparison, the Fund’s net income increased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a decrease in the value of the Euro versus the U.S. Dollar in conjunction with a significant increase in outstanding shares during the year ended December 31, 2011.
ProShares Ultra Yen
Fund Performance
The following table provides summary performance information for the Fund for the years ended December 31, 2012, 2011 and 2010:
There was no net change in the Fund’s outstanding Shares from December 31, 2011 to December 31, 2012. The decrease in the Fund’s NAV resulted from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2012. By comparison, during the year ended December 31, 2011, there was no net change in the Fund’s outstanding shares from December 31, 2010 to December 31, 2011. The increase in the Fund’s NAV resulted from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2011. By comparison, during the year ended December 31, 2010, there was no net change in the Fund’s outstanding shares from December 31, 2009 to December 31, 2010. The increase in the Fund’s NAV resulted from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2010.
For the years ended December 31, 2012, 2011 and 2010, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark. The Fund’s per Share NAV decrease of 22.7% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV increase of 8.9% for the year ended December 31, 2011, was primarily due to a depreciation in the value of the assets held by the Fund during the year ended December 31, 2012. By comparison, the Fund’s per Share NAV increase of 8.9% for the year ended December 31, 2011, as compared to the Fund’s per Share NAV increase of 28.1% for the year ended December 31, 2010, was primarily due to a relatively lower appreciation in the value of the assets held by the Fund during the year ended December 31, 2011.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on February 2, 2012 at $37.15 per Share and reached its low for the year on December 31, 2012 at $28.18 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on October 28, 2011 at $37.86 per Share and reached its low for the year on April 6, 2011 at $30.09 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per Share NAV reached its high for the year on October 29, 2010 at $34.24 per Share and reached its low for the year on May 3, 2010 at $25.14 per Share.
The benchmark’s decline of 11.3% for the year ended December 31, 2012, as compared to the benchmark’s rise of 5.5% for the year ended December 31, 2011, can be attributed to a decline in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2011. By comparison, the benchmark’s rise of 5.5% for the year ended December 31, 2011, as compared to the benchmark’s rise of 14.6% for the year ended December 31, 2010, can be attributed to a relatively lower increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2011.
Net Income/Loss
The following table provides summary income information for the Fund for the years ended December 31, 2012, 2011 and 2010:
The Fund’s net income decreased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a decrease in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2012. By comparison, the Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a relatively lower increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2011.
ProShares UltraShort Yen*
Fund Performance
The following table provides summary performance information for the Fund for the years ended December 31, 2012, 2011 and 2010:
During the year ended December 31, 2012, the increase in the Fund’s NAV resulted primarily from an increase from 5,399,294 outstanding Shares at December 31, 2011 to 8,049,294 outstanding Shares at December 31, 2012. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar. By comparison, during the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 4,416,671 outstanding Shares at December 31, 2010 to 5,399,294 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted from an increase from 1,050,005 outstanding Shares at December 31, 2009 to 4,416,671 outstanding Shares at December 31, 2010. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar.
For the years ended December 31, 2012, 2011 and 2010, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark. The Fund’s per Share NAV increase of 23.9% for the year ended December 31, 2012, as compared to the decrease of 12.9% for the year ended December 31, 2011, was primarily due to an appreciation in the value of the assets held by the Fund during the year ended December 31, 2012. The Fund’s per Share NAV decrease of 12.9% for the year ended December 31, 2011, as compared to the Fund’s per Share NAV decrease of 26.8% for the year ended December 31, 2010, was primarily due to a relatively lower depreciation in the value of the assets held by the Fund during the year ended December 31, 2011.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on December 31, 2012 at $50.76 per Share and reached its low for the year on February 2, 2012 at $40.08 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on April 6, 2011 at $51.44 per Share and reached its low for the year on October 28, 2011 at $39.80 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per Share NAV reached its high for the year on May 3, 2010 at $65.56 per Share and reached its low for the year on October 29, 2010 at $46.39 per Share.
The benchmark’s decline of 11.3% for the year ended December 31, 2012, as compared to the benchmark’s rise of 5.5% for the year ended December 31, 2011, can be attributed to a decline in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2012. By comparison, the benchmark’s rise of 5.5% for the year ended December 31, 2011, as compared to the benchmark’s rise of 14.6% for the year ended December 31, 2010, can be attributed to a relatively lower increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2011.
Net Income/Loss
The following table provides summary income information for the Fund for the years ended December 31, 2012, 2011 and 2010:
The Fund’s net income increased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to an increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2012. By comparison, the Fund’s net income increased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a relatively lower increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2011.
* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share split for the ProShares UltraShort Yen Fund.
ProShares Ultra VIX Short-Term Futures ETF*
Since the Fund commenced investment operations on October 3, 2011, a comparison of the Fund’s results of operations for the year ended December 31, 2010 has not been provided. In addition, since the Fund commenced investment operations on October 3, 2011, the Fund’s results of operations for the period ended December 31, 2011 may not be meaningful.
Fund Performance
The following table provides summary performance information for the Fund for the year ended December 31, 2012 and from commencement of operations to December 31, 2011:
During the year ended December 31, 2012, the increase in the Fund’s NAV resulted from an increase from 13,334 outstanding Shares at December 31, 2011 to 4,208,081 outstanding Shares at December 31, 2012. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the S&P 500 VIX Short-Term Futures Index. By comparison, during the period ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 0 outstanding Shares at October 3, 2011 to 13,334 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the S&P 500 VIX Short-Term Futures Index.
For the year ended December 31, 2012 and the period ended December 31, 2011, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark. The Fund’s per Share NAV decrease of 97.3% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 69.1% for the period ended December 31, 2011, was primarily due to a greater decline in prices of the first and second month VIX futures during the year ended December 31, 2012.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on January 3, 2012 at $649.02 per Share and reached its low for the year on December 18, 2012 at $17.77 per Share. By comparison, during the period ended December 31, 2011, the Fund’s per Share NAV reached its high for the period on October 3, 2011 at $2,400 per Share and reached its low for the period on December 21, 2011 at $632.19 per Share.
The benchmark’s decline of 77.9% for the year ended December 31, 2012, as compared to the benchmark’s decline of 37.9% for the period ended December 31, 2011, can be attributed to declining prices of the near-term futures contracts on the VIX futures curve during the year ended December 31, 2012.
Net Income/Loss
The following table provides summary income information for the Fund for the year ended December 31, 2012 and from commencement of operations to December 31, 2011:
The Fund’s net income decreased for the year ended December 31, 2012, as compared to the period ended December 31, 2011, primarily due to a higher asset base and declining futures prices during the year ended December 31, 2012.
* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share splits for the ProShares Ultra VIX Short-Term Futures ETF.
ProShares VIX Short-Term Futures ETF
Since the Fund commenced investment operations on January 3, 2011, a comparison of the Fund’s results of operations for the year ended December 31, 2010 has not been provided.
Fund Performance
The following table provides summary performance information for the Fund for the year ended December 31, 2012 and from commencement of operations to December 31, 2011:
During the year ended December 31, 2012, the increase in the Fund’s NAV resulted primarily from an increase from 400,005 outstanding Shares at December 31, 2011 to 8,200,005 outstanding Shares at December 31, 2012. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to the daily performance of the S&P 500 VIX Short-Term Futures Index. By comparison, during the period ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 5 outstanding Shares at January 3, 2011 to 400,005 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to the daily performance of the S&P 500 VIX Short-Term Futures Index.
For the year ended December 31, 2012 and the period ended December 31, 2011, the Fund’s daily performance had a statistical correlation over 0.99 of the daily performance of its benchmark. The Fund’s per Share NAV decrease of 78.0% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 4.5% for the period ended December 31, 2011, was primarily due to a greater decline in prices of the first and second month VIX futures during the year ended December 31, 2012.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on January 3, 2012 at $71.63 per Share and reached its low for the year on December 18, 2012 at $15.13 per Share. By comparison, during the period ended December 31, 2011, the Fund’s per Share NAV reached its high for the period on October 3, 2011 at $123.77 per Share and reached its low for the period on July 7, 2011 at $43.15 per Share.
The benchmark’s decline of 77.9% for the year ended December 31, 2012, as compared to the benchmark’s decline of 2.1% for the period ended December 31, 2011, can be attributed to a decline in prices of the near-term futures contracts on the VIX futures curve during the year ended December 31, 2012.
Net Income/Loss
The following table provides summary income information for the Fund for the year ended December 31, 2012 and from commencement of operations to December 31, 2011:
The Fund’s net income decreased for the year ended December 31, 2012, as compared to the period ended December 31, 2011, primarily due to a higher asset base and declining futures prices during the year ended December 31, 2012.
ProShares Short VIX Short-Term Futures ETF*
Since the Fund commenced investment operations on October 3, 2011, a comparison of the Fund’s results of operations for the year ended December 31, 2010 has not been provided. In addition, since the Fund commenced investment operations on October 3, 2011, the Fund’s results of operations for the period ended December 31, 2011 may not be meaningful.
Fund Performance
The following table provides summary performance information for the Fund for the year ended December 31, 2012 and from commencement of operations to December 31, 2011:
During the year ended December 31, 2012, the increase in the Fund’s NAV resulted primarily from an increase from 300,020 outstanding Shares at December 31, 2011 to 1,250,020 outstanding Shares at December 31, 2012. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to the inverse of the daily performance of the S&P 500 VIX Short-Term Futures Index. By comparison, during the period ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 20 outstanding Shares at October 3, 2011 to 300,020 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to the inverse of the daily performance of the S&P 500 VIX Short-Term Futures Index.
For the year ended December 31, 2012 and the period ended December 31, 2011, the Fund’s daily performance had a statistical correlation over 0.99 of the inverse of the daily performance of its benchmark. The Fund’s per Share NAV increase of 155.7% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV increase of 29.3% for the period ended December 31, 2011, was primarily due to a greater decline in prices of the first and second month VIX futures during the year ended December 31, 2012.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on December 18, 2012 at $78.51 per Share and reached its low for the year on January 3, 2012 at $27.48 per Share. By comparison, during the period ended December 31, 2011, the Fund’s per Share NAV reached its high for the period on October 28, 2011 at $29.20 per Share and reached its low for the period on November 25, 2011 at $19.39 per Share.
The benchmark’s decline of 77.9% for the year ended December 31, 2012, as compared to the benchmark’s decline of 37.9% for the period ended December 31, 2011 can be attributed to declining prices of the near-term futures contracts on the VIX futures curve during the year ended December 31, 2012.
Net Income/Loss
The following table provides summary income information for the Fund for the year ended December 31, 2012 and from commencement of operations to December 31, 2011:
The Fund’s net income increased for the year ended December 31, 2012, as compared to the period ended December 31, 2011, primarily due to a higher asset base and declining futures prices during the year ended December 31, 2012.
* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the Share split for the ProShares Short VIX Short-Term Futures ETF.
ProShares VIX Mid-Term Futures ETF
Since the Fund commenced investment operations on January 3, 2011, a comparison of the Fund’s results of operations for the year ended December 31, 2010 has not been provided.
Fund Performance
The following table provides summary performance information for the Fund for the year ended December 31, 2012 and from commencement of operations to December 31, 2011:
During the year ended December 31, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 1,225,005 outstanding Shares at December 31, 2011 to 1,075,005 outstanding Shares at December 31, 2012. The decrease in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to the daily performance of the S&P 500 VIX Mid-Term Futures Index. By comparison, during the period ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 5 outstanding Shares at January 3, 2011 to 1,225,005 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to the daily performance of the S&P 500 VIX Mid-Term Futures Index.
For the year ended December 31, 2012 and the period ended December 31, 2011, the Fund’s daily performance had a statistical correlation over 0.99 of the daily performance of its benchmark. The Fund’s per Share NAV decrease of 53.2% for the year ended December 31, 2012, as compared to the decrease of 7.3% for the period ended December 31, 2011, was primarily due to a greater depreciation in the value of the assets of the Fund during the year ended December 31, 2012.
During the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on January 3, 2012 at $71.93 per Share and reached its low for the year on December 18, 2012 at $32.79 per Share. By comparison, during the period ended December 31, 2011, the Fund’s per Share NAV reached its high for the period on October 3, 2011 at $92.26 per Share and reached its low for the period on July 7, 2011 at $57.37 per Share.
The benchmark’s decline of 52.9% for the year ended December 31, 2012, as compared to the benchmark’s decline of 6.3% for the period ended December 31, 2011, can be attributed to a greater decline in prices of the futures contracts that made up the S&P 500 VIX Mid-Term Futures Index during the year ended December 31, 2012.
Net Income/Loss
The following table provides summary income information for the Fund for the year ended December 31, 2012 and from commencement of operations to December 31, 2011:
The Fund’s net income decreased for the year ended December 31, 2012, as compared to the period ended December 31, 2011, primarily due to a higher asset base and declining futures prices during the year ended December 31, 2012.
Off-Balance Sheet Arrangements and Contractual Obligations
As of February 28, 2013, 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” in this Annual Report on
Form 10-K.
Credit Risk
When a Fund enters into swap agreements, futures contracts or forward contracts, the Fund is exposed to credit risk that the counterparty to the contract will not meet its obligations.
The counterparty for futures contracts traded on United States and most foreign futures exchanges is the clearing house associated with the particular exchange. In general, clearing houses are backed by their corporate members who may be required to share in the financial burden resulting from the nonperformance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearing house is not backed by the clearing members (i.e., some foreign exchanges, which may become applicable in the future), it may be backed by a consortium of banks or other financial institutions.
Swap and forward agreements are contracted for directly with counterparties. There can be no assurance that any counterparty, clearing member or clearing house will meet its obligations to a Fund.
Swap agreements do not generally involve the delivery of underlying assets either at the outset of a transaction or upon settlement. Accordingly, if the counterparty to a swap agreement defaults, the Fund’s risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive, if any. Swap counterparty risk is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovery collateral posted in segregated tri-party accounts at the Fund’s custodian bank.
Forward agreements do not involve the delivery of assets at the onset of a transaction, but may be settled physically in the underlying asset if such contracts are held to expiration, particularly in the case of currency forwards. Thus, prior to settlement, if the counterparty to a forward contract defaults, a Fund’s risk of loss will generally consist of the net amount of payments that the Fund is contractually entitled to receive, if any. However, if physically settled forwards are held until expiration (presently, there is no plan to do this), at the time of settlement, a Fund may be at risk for the full notional value of the forward contracts depending on the type of settlement procedures used.
The Sponsor attempts to minimize certain of these market and credit risks by normally:
•
executing and clearing trades with creditworthy counterparties, as determined by the Sponsor;
•
limiting the outstanding amounts due from counterparties to the Funds;
•
not posting margin directly with a counterparty;
•
generally requiring that the counterparty posts collateral in amounts approximately equal to that owed to the Funds, as marked to market;
•
limiting the amount of margin or premium posted at a FCM; and
•
ensuring that deliverable contracts are not held to such a date when delivery of the underlying asset could be called for.
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.
Critical Accounting Policies
The Trust’s and the Funds’ critical accounting policies are as follows:
Preparation of the financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of appropriate accounting rules and guidance, as well as the use of estimates. The Trust’s and the Funds’ application of these policies involves judgments and actual results may differ from the estimates used.
Each Fund has significant exposure to Financial Instruments. The Funds hold a significant portion of their assets in swaps, futures or forward contracts, all of which are recorded on a trade date basis and at fair value in the financial statements, with changes in fair value reported in the Statements of Operations.
The use of fair value to measure Financial Instruments, with related unrealized gains or losses recognized in earnings in each period, is fundamental to the Trust’s and the Funds’ financial statements. The fair value of a Financial Instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).
For financial reporting purposes, the Leveraged Funds, the Short Euro Fund and the VIX Funds value or will value transactions based upon the final closing price in their primary markets. Accordingly, the investment valuations in these financial statements may differ from those used in the calculation of certain Leveraged Funds’, the Short Euro Fund’s and VIX Funds’ final creation/redemption NAV for the year ended December 31, 2012.
Short-term investments are valued at amortized cost which approximates fair value. For financial reporting purposes, short-term investments are valued at their market price using information provided by a third-party pricing service or market quotations.
Derivatives (e.g., futures, swaps and forward agreements) are generally valued using independent sources and/or agreements with counterparties or other procedures as determined by the Sponsor. Futures contracts, except for those entered into by the Gold, Silver, Australian Dollar and Short Euro Funds, are generally valued at the last settled price on the applicable exchange on which that future trades. Futures contracts entered into by the Gold, Silver, Australian Dollar and Short Euro Funds are valued at the last sales price prior to the time at which the NAV per Share of a Fund is determined. For financial reporting purposes, all futures contracts are valued at last settled price. If there was no sale on that day, and for non-exchange-traded derivatives, the Sponsor may in its sole discretion choose to determine a fair value price as the basis for determining the market value of such position for such day. Such fair value prices would be generally determined based on available inputs about the current value of the underlying financial instrument or commodity and would be based on principles that the Sponsor deems fair and equitable so long as such principles are consistent with normal industry standards. When market closing prices are not available, the Sponsor may fair value an asset of a Fund pursuant to the policies the Sponsor has adopted, which are consistent with normal industry standards.
Fair value pricing may require subjective determinations about the value of an investment. While each Leveraged and VIX Fund’s policy is intended to result in a calculation of the Leveraged or the VIX Fund’s NAV that fairly reflects investment values as of the time of pricing, the Leveraged and the VIX Funds cannot ensure that fair values determined by the Sponsor or persons acting at their direction would accurately reflect the price that the Leveraged
or the VIX Fund could obtain for an investment if it were to dispose of that investment as of the time of pricing (for instance, in a forced or distressed sale). The prices used by the Leveraged or the VIX Fund may differ from the value that would be realized if the investments were sold and the differences could be material to the financial statements.
The Funds disclose the fair value of their investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. See Note 2 in the Financial Statements in this Annual Report on Form 10-K for further information.
Discounts on short-term securities purchased are amortized and reflected as Interest Income in the Statements of Operations.
Realized gains (losses) and changes in unrealized gain (loss) on open positions are determined on a specific identification basis and recognized in the Statements of Operations in the period in which the contract is closed or the changes occur, respectively.
Each Fund pays or will pay its respective brokerage commissions, including applicable exchange fees, NFA fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with trading activities for each Fund’s investment in U.S. Commodity Futures Trading Commission regulated investments. Brokerage commissions on futures contracts are recognized on a half-turn basis. The Sponsor is currently paying the brokerage commissions on the VIX futures contracts for the Matching VIX Funds.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Since the ProShares Ultra Australian Dollar Fund, ProShares UltraShort Australian Dollar Fund and ProShares Short Euro Fund were conducting operations for only a portion of the year ended December 31, 2012, comparisons of positions in certain Financial Instruments held by each of ProShares Ultra Australian Dollar Fund, ProShares UltraShort Australian Dollar Fund and ProShares Short Euro Fund for the year ended December 31, 2011 have not been provided. As of December 31, 2012, each of the New Funds had not commenced investment operations; therefore, this quantitative and qualitative disclosures about market risk does not include comparisons of positions in certain Financial Instruments for the New Funds.
Quantitative Disclosure
Commodity Price Sensitivity
Each of the Commodity Funds and the Commodity Index Funds is exposed to commodity price risk through its holdings of Financial Instruments. The following tables provide information about each of the Commodity Funds’ and the Commodity Index Funds’ Financial Instruments, which were sensitive to commodity price risk. As of December 31, 2012 and 2011, each of the Commodity Funds and the Commodity Index Funds’ positions were as follows:
ProShares Ultra DJ-UBS Commodity:
As of December 31, 2012 and 2011, the ProShares Ultra DJ-UBS Commodity Fund was exposed to commodity price risk through its holding of swap agreements linked to the Dow Jones-UBS Commodity Index. The following tables provide information about the Fund’s swap positions as of December 31, 2012 and 2011, which were sensitive to commodity price risk.
Swap Agreements as of December 31, 2012
Swap Agreements as of December 31, 2011
The December 31, 2012 and 2011 swap notional values are calculated by multiplying units times the closing level of the Index. These notional values will increase (decrease) proportionally with increases (decreases) in the level of the Index. Additional gains (losses) associated with these contracts will be equal to any such subsequent increases (decreases) in notional value, before accounting for spreads or financing costs associated with the swaps. The Fund will generally attempt to adjust its positions in Financial Instruments each day to have $2.00 of exposure to the Index for every $1.00 of net assets. While the above information properly represents the then current commodity price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the return of the Index and multiplying by two. See “Item 1A.
Item 7 in this Annual Report on Form 10-K, these adjustments are done through the use of various Financial Instruments. No attempt is made to adjust market exposure in order to avoid changes to the benchmark that would cause the Funds to lose value. Factors common to all Funds that may require portfolio re-positioning are create/redeem activity and index rebalances.
For Geared Funds, the impact of the index’s movements during the day also affects whether the Fund’s portfolio needs to be re-positioned. For example, if the index for an Ultra Fund has risen on a given day, net assets of the Fund should rise. As a result, the Fund’s long exposure will need to be increased to the extent there are not offsetting factors such as redemption activity. Conversely, if the index has fallen on a given day, net assets of an Ultra Fund should fall. As a result, the Fund’s long exposure will generally need to be decreased. Net assets for Short Funds, UltraShort Funds or UltraPro Short Funds will generally decrease when the index rises on a given day, meaning the Fund’s short exposure may need to be decreased. Conversely if the index has fallen on a given day, a Short Fund’s, an UltraShort Fund’s or an UltraPro Short Fund’s assets should rise. As a result, the Fund’s short exposure may need to be increased.
The use of certain Financial Instruments introduces counterparty risk. A Fund will be subject to credit risk with respect to the amount it expects to receive from counterparties to Financial Instruments entered into by the Fund. A Fund may be negatively impacted if a counterparty fails to perform its obligations. Each Fund intends to enter into swap and forward agreements only with major global financial institutions that meet certain credit quality standards and monitoring policies. Each Fund may use various techniques to minimize credit risk including early termination or reset and payment, limiting the net amount due from any individual counterparty, and generally requiring that the counterparty post collateral with respect to amounts owed to the Funds, marked to market daily.
Most Financial Instruments held by the Funds are “unfunded” meaning that the Fund will obtain exposure to the corresponding benchmark while still being in possession of its original cash assets. The cash positions that result from use of such Financial Instruments are held in a manner to minimize both interest rate and credit risk. During the reporting period, cash positions were maintained in a non-interest bearing demand deposit account. The Funds also invest a portion of this cash in cash equivalents (such as shares of money market funds, bank deposits, bank money market accounts, certain variable rate-demand notes and repurchase agreements collateralized by government securities).
Item 8. Financial Statements and Supplementary Data.
Statement of Operations for the three month periods ended March 31, 2012 and 2011, June 30, 2012 and 2011, September 30, 2012 and 2011, and December 31, 2012 and 2011, and the years ended December 31, 2012 and 2011 for each Fund, as applicable.
PROSHARES ULTRA DJ-UBS COMMODITY
PROSHARES ULTRASHORT DJ-UBS COMMODITY
PROSHARES ULTRA DJ-UBS CRUDE OIL
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
PROSHARES ULTRA DJ-UBS NATURAL GAS
PROSHARES ULTRASHORT DJ-UBS NATURAL GAS
PROSHARES ULTRA GOLD
PROSHARES ULTRASHORT GOLD
PROSHARES ULTRA SILVER
PROSHARES ULTRASHORT SILVER
PROSHARES ULTRA AUSTRALIAN DOLLAR
PROSHARES ULTRASHORT AUSTRALIAN DOLLAR
PROSHARES ULTRA EURO
PROSHARES SHORT EURO
PROSHARES ULTRASHORT EURO
PROSHARES ULTRA YEN
PROSHARES ULTRASHORT YEN
PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
PROSHARES VIX SHORT-TERM FUTURES ETF
PROSHARES SHORT VIX SHORT-TERM FUTURES ETF
PROSHARES VIX MID-TERM FUTURES ETF
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.
* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Under the supervision and with the participation of the principal executive officer and principal financial officer of the Trust, Trust management has evaluated the effectiveness of the Trust’s and the Funds’ disclosure controls and procedures, and have concluded that the disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the 1934 Act) of the Trust and the Funds were effective, as of December 31, 2012, including providing reasonable assurance that information required to be disclosed in the reports that the Trust files or submits under the 1934 Act on behalf of the Trust and the Funds is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that such information is accumulated and communicated to the duly authorized officers of the Trust as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
The Trust’s management takes responsibility for establishing and maintaining adequate internal control over financial reporting of the Trust and the Funds, as defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act. The Trust’s and the Funds’ internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Trust and the Funds; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Trust’s and the Funds’ receipts and expenditures are being made only in accordance with appropriate authorizations of management of the Trust on behalf of the Trust and the Funds; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Trust’s or the Funds’ assets that could have a material effect on the Trust’s or the Funds’ financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The principal executive officer and principal financial officer of the Trust assessed the effectiveness of the Trust’s and the Funds’ internal control over financial reporting as of December 31, 2012. Their assessment included an evaluation of the design of the Trust’s and the Funds’ internal control over financial reporting and testing of the operational effectiveness of their internal control over financial reporting. In making its assessment, the Trust’s management has utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its report entitled Internal Control - Integrated Framework. Based on their assessment and those criteria, the principal executive officer and principal financial officer of the Trust concluded that the Trust’s and the Funds’ internal control over financial reporting was effective as of December 31, 2012.
The effectiveness of the Trust’s and the Funds’ internal control over financial reporting as of December 31, 2012 has been audited by PricewaterhouseCoopers LLP, the independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in the Trust’s or the Funds’ internal control over financial reporting that occurred during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Trust’s or the Funds’ internal control over financial reporting.
Certifications
The certifications by the Principal Executive Officer and Principal Financial Officer of the Trust required by Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, which are filed or furnished as exhibits to this Annual Report on Form 10-K, apply both to the Trust taken as a whole and each Fund, and the Principal Executive Officer and Principal Financial Officer of the Trust are certifying both as to the Trust taken as a whole and each Fund.
Item 9B. Other Information.
Not applicable.
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
The Sponsor
ProShare Capital Management LLC is the Sponsor of the Trust and the Funds. The Sponsor has exclusive management and control of all aspects of the business of the Funds. The Trustee has no duty or liability to supervise the performance of the Sponsor, nor will the Trustee have any liability for the acts or omissions of the Sponsor.
As of December 31, 2012, the Sponsor served 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
As of December 31, 2012, the Sponsor served as both commodity pool operator and commodity trading advisor of the Trust and the Funds. The Sponsor is registered as a commodity pool operator with the CFTC and is a member in good standing of the NFA. The Sponsor’s membership with the NFA was originally approved on June 11, 1999. It withdrew its 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. On February 19, 2013, the Sponsor’s commodity trading advisor registration was withdrawn. The Sponsor’s registration as a commodity pool operator was originally approved on June 11, 1999. It withdrew its registration as a commodity pool operator on August 30, 2000 but later re-applied and had its registration subsequently approved on November 28, 2007. Its registration as a commodity pool operator is currently effective. As a registered commodity pool operator, with respect to the Trust, the Sponsor must comply with various regulatory requirements under the CEA, and the rules and regulations of the CFTC and the NFA, including investor protection requirements, antifraud prohibitions, disclosure requirements, and reporting and recordkeeping requirements. The Sponsor is also subject to periodic inspections and audits by the CFTC and NFA. Its principal place of business is 7501 Wisconsin Avenue, Suite 1000, Bethesda, Maryland 20814 and its telephone number is (240) 497-6400. The registration of the Sponsor with the CFTC and its membership in the NFA must not be taken as an indication that either the CFTC or the NFA has recommended or approved the Sponsor, the Trust and the Funds.
In its capacity as a commodity pool operator, the Sponsor is an organization which operates or solicits funds for commodity pools; that is, an enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts.
Executive Officers of the Trust and Principals and Significant Employees of the Sponsor
Name
Position
Michael L. Sapir
Chief Executive Officer and Principal of the Sponsor
Louis M. Mayberg
Principal Executive Officer of the Trust; Chief Financial Officer and Principal of the Sponsor
William E. Seale
Principal of the Sponsor
Sapir Family Trust
Principal of the Sponsor
Northstar Trust
Principal of the Sponsor
Edward J. Karpowicz
Principal Financial Officer of the Trust
Todd B. Johnson*
Chief Investment Officer and Principal of the Sponsor
Howard S. Rubin
Director, Portfolio Management and Associated Person of the Sponsor
Michael S. Neches
Senior Portfolio Manager and Associated Person of the Sponsor
Jeffrey A. Ploshnick
Senior Portfolio Manager and Associated Person of the Sponsor
Ryan T. Dofflemeyer
Portfolio Manager and Associated Person of the Sponsor
Lisa P. Johnson
Principal of the Sponsor
Victor M. Frye
Principal of the Sponsor
* Denotes principal of the Sponsor who supervises persons who participate in making trading decisions for the Funds.
The following is a biographical summary of the business experience of the executive officers of the Trust and the principals and significant employees of the Sponsor.
ProFund Advisors LLC (“PFA”) and ProShare Advisors LLC (“PSA”) are investment advisers registered under the Investment Advisers Act of 1940. PFA is also a commodity trading advisor registered under the CEA.
Michael L. Sapir, Chairman, Chief Executive Officer and a listed principal of the Sponsor since August 14, 2008; Chairman, Chief Executive Officer and a member of PFA since April 1997, and a listed principal of PFA since November 26, 2012; and Chairman, Chief Executive Officer and a member of PSA since January 2005. 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 listed principal of PFA since November 26, 2012; 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 50 years old.
William E. Seale, Ph.D., a member of the Sponsor and a listed principal of the Sponsor since June 11, 1999; a member of PFA since April 1997; and a member of PSA since April 2005. Dr. Seale served as Chief Investment Officer of PFA from January 2003 to July 2005 and from October 2006 to June 2008 and Director of Portfolio from January 1997 to January 2003. Dr. Seale served as Chief Investment Officer of PSA from October 2006 to June 2008. In these roles, Dr. Seale’s responsibilities included oversight of the investment management activities of the respective entities. Dr. Seale is a former commissioner of the CFTC.
Sapir Family Trust, a listed principal of the Sponsor. The Sapir Family Trust has ownership interest in the Sponsor and PSA. The Sapir Family Trust has passive ownership interest in the Sponsor and exercises no management authority over the Funds.
Northstar Trust, a listed principal of the Sponsor. Northstar Trust has ownership interest in the Sponsor and PFA. Northstar Trust has passive ownership interest in the Sponsor and exercises no management authority over the Funds.
Edward J. Karpowicz, Principal Financial Officer of the Trust since July 2008. Mr. Karpowicz has been employed by PFA since July 2002 as Vice President of Financial Administration. Mr. Karpowicz is 49 years old.
Todd B. Johnson, a registered associated person of the Sponsor since January 29, 2010, a listed principal of the Sponsor since January 16, 2009 and Chief Investment Officer of the Sponsor since February 27, 2009. In this role, Mr. Johnson’s responsibilities include
oversight of the investment management activities of the Sponsor. Mr. Johnson has served as Chief Investment Officer of PSA and PFA since December 2008 and has been registered as an associated person of PFA since December 5, 2012 and listed as a principal of PFA since November 26, 2012. Mr. Johnson served from 2002 to December 2008 at World Asset Management (a financial services firm), working as President and Chief Investment Officer from January 2006 to December 2008, and as Managing Director and Chief Investment Officer of Quantitative Investments of Munder Capital Management, an asset management firm, from January 2002 to December 2005.
Howard S. Rubin, CFA, a registered associated person and an NFA associate member of the Sponsor since July 14, 2008 and Director, Portfolio Management of the Sponsor since December 1, 2009. In these roles, Mr. Rubin’s responsibilities include day-to-day portfolio management of the Funds. Mr. Rubin has been registered as an associated person of PFA since December 5, 2012. Mr. Rubin has served as Senior Portfolio Manager of PSA since December 2007 and Senior Portfolio Manager of the Sponsor from November 27, 2008 through November 30, 2009. Mr. Rubin has also served as Senior Portfolio Manager of PFA since November 2004 and Portfolio Manager of PFA from April 2000 through November 2004. Mr. Rubin holds the Chartered Financial Analyst (CFA) designation.
Michael S. Neches, a registered associated person and an NFA associate member of the Sponsor since November 16, 2011, and Senior Portfolio Manager of the Sponsor since June 27, 2012. In these roles, Mr. Neches’ responsibilities include day-to-day portfolio management of the Commodity Index Funds, Commodity Funds and, when launched, the Managed Futures Funds. Mr. Neches has been registered as an associated person of PFA since December 5, 2012. Mr. Neches also serves as a Senior Portfolio Manager of PSA since December 2009; served as Associate Portfolio Manager from January 2007 through November 2009; and served as Portfolio Analyst from November 2004 through December 2006.
Jeffrey A. Ploshnick, a registered associated person and an NFA associate member of the Sponsor since April 12, 2011 and Senior Portfolio Manager of the Sponsor since April 12, 2011. In these roles, Mr. Ploshnick’s responsibilities include day-to-day portfolio management of the Currency Funds. Mr. Ploshnick has been registered as an associated person of PFA since December 5, 2012. Mr. Ploshnick has also served as a Senior Portfolio Manager of PFA since May 2007 and served as Portfolio Manager from February 2001 to April 2007. Mr. Ploshnick also serves as a senior portfolio manager of PSA since March 2011.
Ryan T. 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 has been registered as an associated person of PFA since December 5, 2012. Mr. Dofflemeyer also serves as a Portfolio Manager of PFA since August 2007 and was a Portfolio Analyst between October 2003 to August 2007. In addition, Mr. Dofflemeyer also serves as Portfolio Manager for Horizon BetaPro Funds (investment funds) since May 2008 and Portfolio Manager of PSA since March 2010. Mr. Dofflemeyer worked as a Research Assistant for the Investment Company Institute (investment funds trade organization) from September 2001 to August 2003.
Lisa P. Johnson, a listed principal of the Sponsor since November 11, 2008 and a listed principal of PFA since November 26, 2012. Ms. Johnson’s responsibilities include the review and approval of advertising material of the Sponsor. Ms. Johnson has been employed with ProFunds Distributors Inc. (“PDI”) since April 2008 as Head of Compliance. Prior to her employment with PDI, Ms. Johnson was the Senior Corporate Compliance Officer for ICMA Retirement Corporation (a financial services company) where she was employed from February 2005 to April 2008. She served as Senior Compliance Officer for Delaware Investments (a financial services firm) from January 2001 to February 2005. Ms. Johnson is FINRA registered and holds Series 7, 24 and 63 licenses. She also possesses a Certified Regulatory and Compliance Professional designation, from the NASD Institute at Wharton.
Victor M. Frye, a listed principal of the Sponsor since December 2, 2008 and a listed principal of PFA since November 26, 2012. 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 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. Executive Compensation.
The Funds have no employees or directors and are managed by the Sponsor. None of the officers of the Trust, or the members or officers of the Sponsor receive compensation from the Funds.
The Sponsor receives or will receive a monthly Management Fee from each Fund, with the exception of each Matching VIX Fund and each Managed Futures Fund, equal to 0.95% annually of the average daily net asset value per share at the end of each month. The Sponsor receives a monthly Management Fee from each Matching VIX Fund equal to 0.85% annually of the average daily net asset value per share at the end of each month. The Sponsor will receive a monthly Management Fee from each Managed Futures Fund equal to 0.75% annually of the average daily net asset value per share at the end of each month. During the first year of each Fund’s operations, the Sponsor will waive the Management Fee to the extent that such amounts cumulatively exceed the offering costs incurred by each Fund. For the year ended December 31, 2012, the following represents Management Fees earned by the Sponsor:
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Not applicable.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
See “Item 11. Executive Compensation” in this Annual Report on Form 10-K.
Item 14. Principal Accounting Fees and Services.
(1) to (4). Fees for services performed by PricewaterhouseCoopers LLP (“PwC”) for the years ended December 31, 2012 and 2011 were as follows:
Audit fees for the year ended December 31, 2012 consist of fees paid to PwC for the audit of the Funds’ December 31, 2012 annual financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2012, for the review of the financial statements included in each Form 10-Q, and for the audits of financial statements included with registration statements. Audit fees for the year ended December 31, 2011 consist of fees paid to PwC for the audit of the Funds’ December 31, 2011 annual financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011, for the review of the financial statements included in each Form 10-Q, and for the audits of financial statements included with registration statements. 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, 2012 or 2011 were attributable to work performed by persons other than the principal accountant’s full-time, permanent employees.
Part IV
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, 2012
Index
Report of Independent Registered Public Accounting Firm
To the Shareholders of ProShares Trust II
In our opinion, the accompanying combined and individual statements of financial condition and the related combined and, with respect to the individual funds designated with (a), (b), (c) and (e) in the listing below, individual statements of operations, of changes in shareholders’ equity and of cash flows, present fairly, in all material respects, the combined financial position of the ProShares Trust II as of December 31, 2012 and 2011, and the individual financial positions of each of the following twenty-four funds comprising the ProShares Trust II:
Proshares Ultra DJ-UBS Commodity (a)
Proshares Short Euro (c)
Proshares Ultra Short DJ-UBS Commodity (a)
Proshares Ultra Short Euro (a)
Proshares Ultra DJ-UBS Crude Oil (a)
Proshares Ultra ProShort Euro (d)
Proshares Ultra Short DJ-UBS Crude Oil (a)
Proshares Ultra Yen (a)
ProShares Ultra Natural Gas (b)
Proshares Ultra Short Yen (a)
ProShares Ultra Short Natural Gas (b)
ProShares Ultra VIX Short-Term Futures (e)
Proshares Ultra Gold (a)
ProShares VIX Short-Term Futures (b)
Proshares Ultra Short Gold (a)
ProShares Short VIX Short-Term Futures ETF (b)
Proshares Ultra Silver (a)
ProShares VIX Mid-Term Futures (e)
Proshares Ultra Short Silver (a)
ProShares Managed Futures Strategy (f)
Proshares Ultra Australian Dollar (c)
ProShares Commodity Managed Futures Strategy (f)
Proshares UltraShort Australian Dollar (c)
Proshares Ultra Euro (a)
ProShares Trust II (“combined”) (a)
(a) A Statement of Financial Condition is presented as of December 31, 2012 and 2011, and the results of operations and cash flows are presented for each of the three years in the period ended December 31, 2012.
(b) A Statement of Financial Condition is presented as of December 31, 2012 and 2011, and the results of operations and cash flows are presented for the year ended December 31, 2012 and for the period from April 5, 2011 (inception) through December 31, 2011.
(c) A Statement of Financial Condition is presented as of December 31, 2012 and 2011, and the results of operations and cash flows are presented for the year ended December 31, 2012.
(d) Fund has not commenced operations and only a Statement of Financial Condition is presented as of December 31, 2012.
(e) A Statement of Financial Condition is presented as of December 31, 2012 and 2011, and the results of operations and cash flows are presented for the years ended December 31, 2012 and 2011.
(f) Fund has not commenced operations and only a Statement of Financial Condition is presented as of December 31, 2012 and 2011.
(collectively, the “Trust”) at December 31, 2012, and with respect to the individual funds designated with (a), (b), (c), (e), and (f) also as of December 31, 2011, and the combined and, with respect to the individual funds designated with (a), (b), (c) and (e), individual results of their operations and their cash flows, for the respective periods in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the combined Trust and each of the individual funds maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Trust’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the combined Trust and each of the individual fund financial statements and on the combined Trust’s and each of the individual fund’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the 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
Baltimore, Maryland
March 1, 2013
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, 2012
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS COMMODITY
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS COMMODITY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS COMMODITY
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS COMMODITY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Purchased
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
 Cash collateral in the amount of $23,356,627 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Purchased
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
 Cash collateral in the amount of $14,202,793 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Sold
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
 Cash collateral in the amount of $4,401,374 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Sold
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
 Cash collateral in the amount of $9,078,683 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS NATURAL GAS
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS NATURAL GAS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Purchased
 Cash collateral in the amount of $10,264,090 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS NATURAL GAS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Purchased
 Cash collateral in the amount of $725,409 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS NATURAL GAS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM APRIL 5, 2011 (INCEPTION)
TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS NATURAL GAS
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM APRIL 5, 2011 (INCEPTION)
TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS NATURAL GAS
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM APRIL 5, 2011 (INCEPTION)
TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS NATURAL GAS
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS NATURAL GAS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Sold
 Cash collateral in the amount of $1,795,030 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS NATURAL GAS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Sold
 Cash collateral in the amount of $1,439,775 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS NATURAL GAS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND
FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS NATURAL GAS
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2012 AND
FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS NATURAL GAS
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND
FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011
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, 2012
Futures Contracts Purchased
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $14,850 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRA GOLD
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Purchased
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $22,950 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRA GOLD
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA GOLD
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA GOLD
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
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, 2012
Futures Contracts Sold
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $14,850 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT GOLD
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Sold
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $17,770 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT GOLD
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT GOLD
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT GOLD
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
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, 2012
Futures Contracts Purchased
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $24,200 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRA SILVER
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Purchased
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $49,950 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRA SILVER
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA SILVER
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA SILVER
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Sold
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $24,200 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Sold
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $43,140 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA AUSTRALIAN DOLLAR
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRA AUSTRALIAN DOLLAR
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Purchased
 Cash collateral in the amount of $158,400 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
See accompanying notes to financial statements.
PROSHARES ULTRA AUSTRALIAN DOLLAR*
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on July 17, 2012, the Statement of Operations for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES ULTRA AUSTRALIAN DOLLAR*
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on July 17, 2012, the only activity for the year ended December 31, 2011 was the initial seeding of the Fund, as such the Statement of Changes in Shareholder’s Equity for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES ULTRA AUSTRALIAN DOLLAR*
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on July 17, 2012, the only activity for the year ended December 31, 2011 was the initial seeding of the Fund, as such the Statement of Cash Flows for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT AUSTRALIAN DOLLAR
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT AUSTRALIAN DOLLAR
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Sold
 Cash collateral in the amount of $144,540 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT AUSTRALIAN DOLLAR*
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on July 17, 2012, the statement of operations for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT AUSTRALIAN DOLLAR*
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on July 17, 2012, the statement of changes in shareholder’s equity for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT AUSTRALIAN DOLLAR*
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on July 17, 2012, the statement of cash flows for the year ended December 31, 2011 has not been provided.
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, 2012
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, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRA EURO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
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, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRA EURO
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA EURO
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA EURO
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES SHORT EURO
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES SHORT EURO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Sold
 Cash collateral in the amount of $63,250 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
See accompanying notes to financial statements.
PROSHARES SHORT EURO*
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on June 26, 2012, the Statement of Operations for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES SHORT EURO*
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on June 26, 2012, the only activity for the year ended December 31, 2011 was the initial seeding of the Fund, as such the Statement of Changes in Shareholder’s Equity for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES SHORT EURO*
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on June 26, 2012, the only activity for the year ended December 31, 2011 was the initial seeding of the Fund, as such the statement of cash flows for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
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, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
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, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRAPRO SHORT EURO*
STATEMENT OF FINANCIAL CONDITION
* As of December 31, 2012, ProShares UltraPro Short Euro had seed capital, but had not commenced investment operations. See Note 1.
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, 2012
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, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRA YEN
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
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, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRA YEN
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA YEN
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA YEN
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
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, 2012
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, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT YEN
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
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, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT YEN
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT YEN
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT YEN
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Purchased
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
 Cash collateral in the amount of $38,727,007 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Purchased
 Cash collateral in the amount of $6,303,800 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
See accompanying notes to financial statements.
PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2012
See accompanying notes to financial statements.
PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2012
See accompanying notes to financial statements.
PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2012
See accompanying notes to financial statements.
PROSHARES VIX SHORT-TERM FUTURES ETF
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES VIX SHORT-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Purchased
 Cash collateral in the amount of $34,109,998 was pledged to cover margin requirements for open futures contracts as of December 31, 2012
See accompanying notes to financial statements.
PROSHARES VIX SHORT-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Purchased
 All or partial amount segregated as collateral for futures contracts.
See accompanying notes to financial statements.
PROSHARES VIX SHORT-TERM FUTURES ETF
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
See accompanying notes to financial statements.
PROSHARES VIX SHORT-TERM FUTURES ETF
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
See accompanying notes to financial statements.
PROSHARES VIX SHORT-TERM FUTURES ETF
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
See accompanying notes to financial statements.
PROSHARES SHORT VIX SHORT-TERM FUTURES ETF
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES SHORT VIX SHORT-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Sold
 Cash collateral in the amount of $20,731,497 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
See accompanying notes to financial statements.
PROSHARES SHORT VIX SHORT-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Sold
 Cash collateral in the amount of $2,252,358 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
See accompanying notes to financial statements.
PROSHARES SHORT VIX SHORT-TERM FUTURES ETF
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM APRIL 5, 2011 (INCEPTION)
TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES SHORT VIX SHORT-TERM FUTURES ETF
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM APRIL 5, 2011 (INCEPTION)
TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES SHORT VIX SHORT-TERM FUTURES ETF
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM APRIL 5, 2011 (INCEPTION)
TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES VIX MID-TERM FUTURES ETF
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES VIX MID-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Purchased
 Cash collateral in the amount of $7,830,000 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
See accompanying notes to financial statements.
PROSHARES VIX MID-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Purchased
 All or partial amount segregated as collateral for futures contracts.
See accompanying notes to financial statements.
PROSHARES VIX MID-TERM FUTURES ETF
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
See accompanying notes to financial statements.
PROSHARES VIX MID-TERM FUTURES ETF
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
See accompanying notes to financial statements.
PROSHARES VIX MID-TERM FUTURES ETF
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
See accompanying notes to financial statements.
PROSHARES MANAGED FUTURES STRATEGY*
STATEMENT OF FINANCIAL CONDITION
* As of December 31, 2012 and 2011, ProShares Managed Futures Strategy had seed capital, but had not commenced investment operations. See Note 1.
See accompanying notes to financial statements.
PROSHARES COMMODITY MANAGED FUTURES STRATEGY*
STATEMENT OF FINANCIAL CONDITION
* As of December 31, 2012 and 2011, ProShares Commodity Managed Futures Strategy had seed capital, but had not commenced investment operations. 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, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES TRUST II
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
* Amount includes $6,600 of redemptions related to de-registration of certain Funds. See Note 1.
See accompanying notes to financial statements.
PROSHARES TRUST II
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
* Amount includes $1,079,526 of offering cost related to de-registration of certain Funds. See Note 1.
** Amount includes $6,600 of redemptions related to de-registration of certain Funds. See Note 1.
See accompanying notes to financial statements.
PROSHARES TRUST II
NOTES TO FINANCIAL STATEMENTS
December 31, 2012
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”). As of December 31, 2012, the following twenty-one series of the Trust have commenced investment operations: (i) ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Natural Gas, ProShares UltraShort DJ-UBS Natural Gas, ProShares Ultra Gold, ProShares UltraShort Gold, ProShares Ultra Silver, ProShares UltraShort Silver, ProShares Ultra Australian Dollar, ProShares UltraShort Australian Dollar, ProShares Ultra Euro, ProShares UltraShort Euro, ProShares Ultra Yen and ProShares UltraShort Yen (each, a “Leveraged Fund” and together with ProShares UltraPro Short Euro (listed below), the “Leveraged Funds”); (ii) ProShares Short Euro (the “Short Euro Fund”); (iii) ProShares Ultra VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF (each, a “Geared VIX Fund” and collectively, the “Geared VIX Funds”); and (iv) ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF (each, a “Matching VIX Fund” and collectively, the “Matching VIX Funds”). Each of the Funds listed above issues common units of beneficial interest (“Shares”), which represent units of fractional undivided beneficial interest in and ownership of only that Leveraged Fund, Short Euro Fund, Geared VIX Fund or Matching VIX Fund. The Shares of each Leveraged Fund, the Short Euro Fund, each Geared VIX Fund and each Matching VIX Fund are listed on the New York Stock Exchange Archipelago (“NYSE Arca”). The Leveraged Funds, the Short Euro Fund and the Geared VIX Funds, are collectively referred to as the “Geared Funds” in these Notes to Financial Statements. The Geared VIX Funds and the Matching VIX Funds are collectively referred to as the “VIX Funds” in these Notes to Financial Statements.
The Trust registered shares for thirty-two additional series: (i) ProShares Short DJ-UBS Natural Gas and ProShares Short Gold (collectively, the “Short Funds”); (ii) ProShares UltraShort VIX Short-Term Futures ETF, ProShares Ultra VIX Mid-Term Futures ETF, ProShares Short VIX Mid-Term Futures ETF and ProShares UltraShort VIX Mid-Term Futures ETF (collectively, the “New Geared VIX Funds”); (iii) ProShares Managed Futures Strategy and ProShares Commodity Managed Futures Strategy (each, a “Managed Futures Fund” and collectively, the “Managed Futures Funds”); (iv) ProShares Financial Managed Futures Strategy; (v) ProShares UltraPro Australian Dollar, ProShares Short Australian Dollar, ProShares UltraPro Short Australian Dollar, ProShares UltraPro Canadian Dollar, ProShares Ultra Canadian Dollar, ProShares Short Canadian Dollar, ProShares UltraShort Canadian Dollar, ProShares UltraPro Short Canadian Dollar, ProShares UltraPro Euro, ProShares UltraPro Short Euro, ProShares UltraPro Swiss Franc, ProShares Ultra Swiss Franc, ProShares Short Swiss Franc, ProShares UltraShort Swiss Franc, ProShares UltraPro Short Swiss Franc, ProShares UltraPro Yen, ProShares Short Yen and ProShares UltraPro Short Yen; and (vi) ProShares UltraPro U.S. Dollar, ProShares Ultra U.S. Dollar, ProShares Short U.S. Dollar, ProShares UltraShort U.S. Dollar and ProShares UltraPro Short U.S. Dollar (collectively, the “Currency Index Funds”). ProShares UltraPro Short Euro and the Managed Futures Funds are collectively referred to herein as the “New Funds”.
On June 25, 2012, the registered offerings for ProShares UltraPro Australian Dollar, ProShares Short Australian Dollar, ProShares UltraPro Short Australian Dollar, ProShares UltraPro Canadian Dollar, ProShares Short Canadian Dollar, ProShares UltraPro Short Canadian Dollar, ProShares UltraPro Euro, ProShares UltraPro Short Euro, ProShares UltraPro Swiss Franc, ProShares Short Swiss Franc, ProShares UltraPro Short Swiss Franc, ProShares UltraPro Yen, ProShares UltraPro Short Yen and each Currency Index Fund, each of which had never been publicly offered, were terminated. On June 26, 2012, the registered offerings for the Short Funds and the New Geared VIX Funds, each of which had never been publicly offered, were terminated. On September 28, 2012, the registered offerings for ProShares Ultra Canadian Dollar, ProShares UltraShort Canadian Dollar, ProShares Ultra Swiss Franc, ProShares UltraShort Swiss Franc and ProShares Short Yen, each of which had never been publicly offered, were terminated. On December 5, 2012, a new offering of ProShares UltraPro Short Euro was registered on a Form S-1 Registration Statement (No. 333-185288). On January 30, 2013, the registered offering for ProShares Financial Managed Futures Strategy, which had never been publicly offered, was terminated. Thus, as of December 31, 2012, the only Funds that have registered amounts, in addition to the twenty-one series of the Trust that have commenced investment operations, are the New Funds.
As of December 31, 2012, each of the New Funds had seed capital, but none of the New Funds had commenced investment operations; therefore, these Financial Statements do not include Schedules of Investments, Statements of Operations, Statements of Changes in Shareholders’ Equity or Statements of Cash Flows for the New Funds.
The Trust had no operations prior to November 24, 2008, other than matters relating to its organization, the registration of each series under the Securities Act of 1933, as amended, and the sale and issuance to ProShare Capital Management LLC (the “Sponsor”) of fourteen Shares at an aggregate purchase price of $350 in each of the following Funds: ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra Gold, ProShares UltraShort Gold, ProShares Ultra Silver, ProShares UltraShort Silver, ProShares Ultra Euro, ProShares UltraShort Euro, ProShares Ultra Yen and ProShares UltraShort Yen.
Eight of the Funds, ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra Euro, ProShares UltraShort Euro, ProShares Ultra Yen and ProShares UltraShort Yen, commenced trading on the NYSE Arca on November 25, 2008. Four of the Funds, ProShares Ultra Gold, ProShares UltraShort Gold, ProShares Ultra Silver, and ProShares UltraShort Silver, commenced trading on the NYSE Arca on December 3, 2008. Two of the Funds, ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF, commenced trading on the NYSE Arca on January 3, 2011. Two of the Funds, ProShares Ultra VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF, commenced trading on the NYSE Arca on October 3, 2011. Two of the Funds, ProShares Ultra DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS Natural Gas, commenced trading on the NYSE Arca on October 4, 2011. One of the Funds, ProShares Short Euro, commenced trading on the NYSE Arca on June 26, 2012. Two of the Funds, ProShares Ultra Australian Dollar and ProShares UltraShort Australian Dollar, commenced trading on the NYSE Arca on July 17, 2012. As of December 31, 2012, the New Funds have not yet commenced trading.
Groups of Funds are collectively referred to in several different ways. References to “Ultra Funds,” “Short Funds,” “UltraShort Funds” or UltraPro Short Funds” refer to the different Funds based upon their investment objectives, but without distinguishing among the Funds’ benchmarks. References to “Commodity Index Funds”, “Commodity Funds” and “Currency Funds” refer to the different Funds according to their general benchmark categories without distinguishing among the Funds’ investment objectives or Fund-specific benchmarks. References to “VIX Funds” refer to the different Funds based upon their investment objective and their general benchmark categories. References to “Managed Futures Funds” refer to the different Funds according to which index the Fund intends to gain exposure.
Each “Ultra” Fund seeks daily investment results (before fees and expenses) that correspond to two times (2x) the daily performance of its corresponding benchmark. Each “Short” Fund seeks daily investment results (before fees and expenses) that correspond to the inverse (-1x) of the daily performance of its corresponding benchmark. Each “UltraShort” Fund seeks daily investment results (before fees and expenses) that correspond to two times the inverse (-2x) of the daily performance of its corresponding benchmark. The “UltraPro Short” Fund will seek daily investment results (before fees and expenses) that correspond to three times the inverse (-3x) of the daily performance of its corresponding benchmark. Daily performance is measured from the calculation of one NAV to the next. Each of the Funds generally invests in Financial Instruments (i.e., instruments whose value is derived from the value of an underlying asset, rate or index, including futures contracts, swap agreements, forward contracts and other instruments) as a substitute for investing directly in commodities, currencies, or spot volatility products in order to gain exposure to the commodity futures index, commodity, currency exchange rate, equity volatility index or applicable commodity or financial futures contracts. Financial Instruments also are used to produce economically “leveraged”, “inverse” or “inverse leveraged” investment results for the Geared Funds. Each Matching VIX Fund seeks results (before fees and expenses), both over a single day and over time, that match the performance of the S&P 500 VIX Short-Term Futures Index (the “Short-Term VIX Index”) or the S&P 500 VIX Mid-Term Futures Index (the “Mid-Term VIX Index”) (each a “VIX Futures Index”). Each Geared VIX Fund seeks daily investment results (before fees and expenses) that correspond to a multiple or the inverse of the daily performance of a benchmark. Each VIX Fund intends to obtain exposure to its benchmark by investing primarily in futures contracts (“VIX futures contracts”) based on the Chicago Board Options Exchange (“CBOE”) Volatility Index (the “VIX”). The Managed Futures Funds will seek to provide investment results (before fees and expenses) that correspond to the performance of the S&P Dynamic Futures Index (the “DFI”) or the S&P Dynamic Commodities Futures Index (the “DCFI” or “Sub-Index”). Each Managed Futures Fund intends to obtain exposure to the DFI or to the DCFI, as applicable, by primarily investing in unleveraged positions in U.S. exchange-traded futures contracts on sixteen different tangible commodities (the “Commodity Futures Contracts”) or futures contracts on eight different financials, such as major currencies and U.S. Treasury securities (the “Financial Futures Contracts” and together with the Commodity Futures Contracts, the “Index Components”).
The Geared Funds do not seek to achieve their stated investment objective over a period of time greater than a single day because mathematical compounding prevents the Geared Funds from achieving such results. Accordingly, results over periods of time greater than a single day should not be expected to be a simple multiple (e.g., 2x, -1, -2x or -3x) of the period return of the corresponding benchmark and will likely differ significantly. The Matching VIX Funds and the Managed Futures 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, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS Natural Gas each have a benchmark that is an index designed to track the performance of commodity futures contracts, as applicable. 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.
Renaming of Index
Effective as of January 2, 2012, the official name for the Dow Jones-UBS Crude Oil SubindexSM (Ticker: DJUBSCL) changed to the Dow Jones-UBS WTI Crude Oil SubindexSM. The ticker did not change as a result of the name change.
Share Splits and Reverse Share Splits
The table below includes Share splits and reverse Share splits for the Funds during the years ended December 31, 2010, 2011 and 2012. The ticker symbols for these Funds did not change, and each Fund continues to trade on the NYSE Arca.
The reverse splits were applied retroactively for all periods presented, reducing the number of Shares outstanding for each of ProShares UltraShort Gold, ProShares UltraShort Silver, ProShares UltraShort DJ-UBS Commodity, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort Yen, ProShares Ultra VIX Short-Term Futures ETF and ProShares Ultra DJ-UBS Natural Gas, and resulted in a proportionate increase in the price per Share and per Share information of each such Fund. Therefore, the reverse splits did not change the aggregate net asset value of a shareholder’s investment at the time of the reverse split.
The splits were applied retroactively for all periods presented, increasing the number of Shares outstanding for ProShares Ultra Silver, ProShares UltraShort DJ-UBS Natural Gas and ProShares Short VIX Short-Term Futures ETF, and resulted in a proportionate decrease in the price per Share and per Share information of each such Fund. Therefore, the splits did not change the aggregate net asset value of a shareholder’s investment at the time of the split.
NOTE 2-SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by each Fund, as applicable, in preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Use of Estimates & Indemnifications
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in these financial statements. Actual results could differ from those estimates.
In the normal course of business, the Trust enters into contracts that contain a variety of representations which provide general indemnifications. The Trust’s maximum exposure under these arrangements cannot be known; however, the Trust expects any risk of loss to be remote.
Basis of Presentation
Pursuant to rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), audited financial statements are presented for the Trust as a whole, as the SEC registrant, and for each Fund individually. The debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular Fund shall be enforceable only against the assets of such Fund and not against the assets of the Trust generally or any other Fund. Accordingly, the assets of one Fund of the Trust include only those funds and other assets that are paid to, held by or distributed to the Trust for the purchase of Shares in that Fund.
Statement of Cash Flows
The cash amount shown in the Statements of Cash Flows is the amount reported as cash in the Statement of Financial Condition dated December 31, 2012 and 2011, and represents non-segregated cash with the custodian and does not include short-term investments.
Final Net Asset Value for Fiscal Period
The times of the calculation of the Leveraged Funds’, the Short Euro Fund’s, the Geared VIX Funds’ and the Matching VIX Funds’ final net asset value for creation and redemption of fund shares for the year ended December 31, 2012 were as follows. All times are Eastern Standard Time:
NAV Calculation Time
NAV Calculation Date
Ultra Silver, UltraShort Silver
7:00 a.m.
December 31
Ultra Gold, UltraShort Gold
10:00 a.m.
December 28
Ultra DJ-UBS Commodity, UltraShort DJ-UBS Commodity
3:00 p.m.
December 31
Ultra DJ-UBS Crude Oil, UltraShort DJ-UBS Crude Oil
2:30 p.m.
December 31
Ultra DJ-UBS Natural Gas, UltraShort DJ-UBS Natural Gas
2:30 p.m.
December 31
Ultra Australian Dollar, UltraShort Australian Dollar
4:00 p.m.
December 31
Ultra Euro, Short Euro, UltraShort Euro
4:00 p.m.
December 31
Ultra Yen, UltraShort Yen
4:00 p.m.
December 31
Ultra VIX Short-Term Futures ETF, VIX Short-Term Futures ETF, Short VIX Short-Term Futures ETF
4:15 p.m.
December 31
VIX Mid-Term Futures ETF
4:15 p.m.
December 31
Although the Leveraged Funds’, the Short Euro Fund’s, the Geared VIX Funds’ and the Matching VIX Funds’ shares may continue to trade on secondary markets subsequent to the calculation of the final NAV, these times represent the final opportunity to transact in creation or redemption units for the year ended December 31, 2012.
Market value per share is determined at the close of the NYSE Arca and may be later than when the Funds’ NAV per share is calculated.
For financial reporting purposes, the Leveraged Funds, the Short Euro Fund, the VIX Funds value transactions based upon the final closing price in their primary markets. Accordingly, the investment valuations in these financial statements may differ from those used in the calculation of certain Leveraged Funds’, the Short Euro Fund’s, and the VIX Funds’ final creation/redemption NAV for the year ended December 31, 2012.
Investment Valuation
Short-term investments are valued at amortized cost which approximates fair value. For financial reporting purposes, short-term investments are valued at their market price using information provided by a third-party pricing service or market quotations. In each of these situations, valuations are typically categorized as Level I in the fair value hierarchy.
Derivatives (e.g., futures contracts swap agreements, forward agreements and foreign currency forward contracts) are generally valued using independent sources and/or agreements with counterparties or other procedures as determined by the Sponsor. Futures contracts, except for those entered into by the Gold, Silver, Australian Dollar and Short Euro Funds, are generally valued at the last settled price on the applicable exchange on which that future trades. Futures contracts entered into by the Gold, Silver, Australian Dollar and Short Euro Funds are valued at the last sales price prior to the time at which the NAV per Share of a Fund is determined. For financial reporting purposes, all futures contracts are valued at the last settled price. Futures contracts valuations are typically categorized as Level I in the fair value hierarchy. Swap agreements, forward agreements and foreign currency forward contracts valuations are typically categorized as Level II in the fair value hierarchy. If there was no sale on that day, and for non-exchange-traded derivatives, the Sponsor may in its sole discretion choose to determine a fair value price as the basis for determining the market value of such position for such day. Such fair value prices would be generally determined based on available inputs about the current value of the underlying financial instrument or commodity and would be based on principles that the Sponsor deems fair and equitable so long as such principles are consistent with normal industry standards. When market closing prices are not available, the Sponsor may fair value an asset of a Fund pursuant to the policies the Sponsor has adopted, which are consistent with normal industry standards. Depending on the source and relevant significance of valuation inputs, these instruments may be classified as Level II or Level III in the fair value hierarchy.
Fair value pricing may require subjective determinations about the value of an investment. While the Leveraged Funds’, the Short Euro Fund’s and the VIX Funds’ policies are intended to result in a calculation of a Leveraged Fund’s, the Short Euro Fund’s or a VIX Fund’s NAV that fairly reflects investment values as of the time of pricing, a Leveraged Fund, the Short Euro Fund or a VIX Fund cannot ensure that fair values determined by the Sponsor or persons acting at their direction would accurately reflect the price that a Fund could obtain for an investment if it were to dispose of that investment as of the time of pricing (for instance, in a forced or distressed sale). The prices used by a Leveraged Fund, the Short Euro Fund or a VIX Fund may differ from the value that would be realized if the investments were sold and the differences could be material to the financial statements.
Fair Value of Financial Instruments
The Funds disclose the fair value of their investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The disclosure requirements establish a fair value hierarchy that distinguishes between: (1) market participant assumptions developed based on market data obtained from sources independent of the Funds (observable inputs); and (2) the Funds’ own assumptions about market participant assumptions developed based on the best information available under the circumstances (unobservable inputs). The three levels defined by the disclosure requirements hierarchy are as follows:
Level I-Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level II-Inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly. Level II assets include the following: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).
Level III-Unobservable pricing input at the measurement date for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.
In some instances, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest input level that is significant to the fair value measurement in its entirety.
Fair value measurements also require additional disclosure when the volume and level of activity for the asset or liability have significantly decreased, as well as when circumstances indicate that a transaction is not orderly.
The following table summarizes the valuation of investments at December 31, 2012 using the fair value hierarchy:
At December 31, 2012, there were no Level III portfolio investments for which significant unobservable inputs were used to determine fair value.
The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those securities.
The following table summarizes the valuation of investments at December 31, 2011 using the fair value hierarchy:
At December 31, 2011, there were no Level III portfolio investments for which significant unobservable inputs were used to determine fair value.
The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those securities.
Investment Transactions and Related Income
Investment transactions are recorded on the trade date. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized appreciation/depreciation on open contracts are reflected in the Statements of Financial Condition and changes in the unrealized appreciation/depreciation between periods are reflected in the Statements of Operations. Discounts on short-term securities purchased are amortized and reflected as Interest Income in the Statements of Operations.
Brokerage Commissions and Fees
Each Fund pays or will pay its respective brokerage commissions, including applicable exchange fees, National Futures Association (“NFA”) fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with trading activities for each Fund’s investment in U.S. Commodity Futures Trading Commission regulated investments. The effects of trading spreads, financing costs/fees associated with Financial Instruments, and costs relating to the purchase of U.S. Treasury securities or similar high credit quality short-term fixed-income or similar securities would also be borne by the Funds. Brokerage commissions on futures contracts are recognized on a half-turn basis. For the year ended December 31, 2012, the Sponsor paid and is currently paying brokerage commissions on VIX futures contracts for the Matching VIX Funds.
Federal Income Tax
Each Fund is registered as a series of a Delaware statutory trust and is or will be treated as a partnership for U.S. federal income tax purposes. Accordingly, no Fund expects to incur U.S. federal income tax liability; rather, each beneficial owner of a Fund’s Shares is or will be required to take into account its allocable share of its Fund’s income, gain, loss, deductions and other items for its Fund’s taxable year ending with or within the beneficial owner’s taxable year.
Management of the Funds has reviewed all open tax years and major jurisdictions (i.e. the last four tax year ends and the interim tax period since then, as applicable) and concluded that there is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns. The Funds are also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. On an ongoing basis, management will monitor its tax positions taken under the interpretation to determine if adjustments to conclusions are necessary based on factors including, but not limited to, on-going analysis of tax law, regulation, and interpretations thereof.
New Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-11 “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”) requiring disclosure of both gross and net information related to offsetting and related arrangements enabling users of its financial statements to understand the effect of those arrangements on the entity’s financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. ASU 2011-11 is effective for interim and annual periods beginning on or after January 1, 2013. Adoption of ASU 2011-11 will have no effect on the Funds’ net assets. At this time, management is evaluating any impact ASU 2011-11 may have on the Funds’ financial statements disclosures.
NOTE 3-INVESTMENTS
Short-Term Investments
The Funds may purchase U.S. Treasury Bills, agency securities, and other high-credit quality short-term fixed income or similar securities with original maturities of one year or less. A portion of these investments may be posted as collateral in connection with swap agreements and/or used as collateral for a Fund’s trading in futures and forward contracts.
Accounting for Derivative Instruments
In seeking to achieve each Fund’s investment objective, the Sponsor uses a mathematical approach to investing. Using this approach, the Sponsor determines the type, quantity and mix of investment positions, including derivative positions, which the Sponsor believes in combination should produce returns consistent with a Fund’s objective.
All open derivative positions at period-end for each Fund are disclosed in the Schedule of Investments and the notional value of these open positions relative to the shareholders’ equity of each Fund is generally representative of the notional value of open positions to shareholders’ equity throughout the reporting period for each respective Fund. The volume associated with derivative positions varies on a daily basis as each Fund transacts derivative contracts in order to achieve the appropriate exposure, as expressed in notional value, in comparison to shareholders’ equity consistent with each Fund’s investment objective.
Following is a description of the derivative instruments used by the Funds during the reporting period, including the primary underlying risk exposures related to each instrument type.
Futures Contracts
The Funds enter into futures contracts to gain exposure to changes in the value of, or as a substitute for investing directly in (or shorting), an underlying index, currency or commodity. A futures contract obligates the seller to deliver (and the purchaser to accept) the future delivery of a specified quantity and type of asset at a specified time and place. The contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying commodity, if applicable, or by making an offsetting sale or purchase of an identical futures contract on the same or linked exchange before the designated date of delivery, or by cash settlement at expiration of contract.
Upon entering into a futures contract, each Fund is required to deposit and maintain as collateral at least such initial margin as required by the exchange on which the transaction is effected. The initial margin is segregated as cash balances with brokers for futures contracts, as disclosed in the Statements of Financial Condition, and is restricted as to its use. The Funds that enter into futures contracts maintain collateral at the broker in the form of cash. Pursuant to the futures contract, each Fund generally agrees to receive from or pay to the broker(s) an amount of cash equal to the daily fluctuation in value of the futures contract. Such receipts or payments are known as variation margin and are recorded by each Fund as unrealized gains or losses. Each Fund will realize a gain or loss upon closing of a futures transaction.
Futures contracts involve, to varying degrees, elements of market risk (specifically commodity price risk or equity market volatility risk) and exposure to loss in excess of the amount of variation margin. The face or contract amounts reflect the extent of the total exposure each Fund has in the particular classes of instruments. Additional risks associated with the use of futures contracts are imperfect correlation between movements in the price of the futures contracts and the market value of the underlying index or commodity and the possibility of an illiquid market for a futures contract. With futures
contracts, there is minimal but some counterparty risk to the Funds since futures contracts are exchange-traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures contracts, guarantees the futures contracts against default. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified times during the day. Futures contracts prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting a Fund to substantial losses. If trading is not possible, or if a Fund determines not to close a futures position in anticipation of adverse price movements, the Fund will be required to make daily cash payments of variation margin. The risk of the Fund will be unable to close out a futures position will be minimized by entering into such transactions on a national exchange with an active and liquid secondary market.
Swap Agreements
Certain of the Funds enter into swap agreements for purposes of pursuing their investment objectives or as a substitute for investing directly in (or shorting) an underlying index, currency or commodity, or to create an economic hedge against a position. Swap agreements are two-party contracts entered into primarily with major global financial institutions 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, although a financing spread or fee is normally still applied. Transaction or commission costs are reflected in the benchmark level at which the transaction is entered into. The gross returns to be exchanged are calculated with respect to a notional amount and the benchmark returns to which the swap is linked. Swap agreements do not involve the delivery of underlying instruments.
Generally, swap agreements entered into by the Funds calculate and settle the obligations of the parties to the agreement on a “net basis” with a single payment. Consequently, each Fund’s current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of such obligations (or rights) (the “net amount”). In a typical swap agreement entered into by a Matching VIX Fund or an Ultra Fund, the Matching VIX Fund or Ultra Fund would be entitled to settlement payments in the event the benchmark increases and would be required to make payments to the swap counterparties in the event the benchmark decreases, adjusted for any transaction costs or trading spreads on the notional amount the Funds may pay. In a typical swap agreement entered into by a Short Fund, an UltraShort Fund or the UltraPro Short Fund, the Short Fund, UltraShort Fund or the UltraPro Short Fund would be required to make payments to the swap counterparties in the event the benchmark increases and would be entitled to settlement payments in the event the benchmark decreases, adjusted for any transaction costs or trading spreads on the notional amount the Funds may pay.
The net amount of the excess, if any, of each Fund’s obligations over its entitlements with respect to each swap agreement is accrued on a daily basis and an amount of cash and/or securities having an aggregate NAV at least equal to such accrued excess is maintained for the benefit of the counterparty in a segregated account by the Funds’ Custodian. The net amount of the excess, if any, of each Fund’s entitlements over its obligations with respect to each 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 for the benefit of the Fund in a segregated account by the Fund’s Custodian. Until a swap agreement is settled in cash, the gain or loss on the notional amount less any transaction costs or trading spreads payable by each Fund on the notional amount are recorded as “unrealized appreciation or depreciation on swap agreements” and, when cash is exchanged, the gain or loss realized is recorded as “realized gains or losses on swap agreements.” Swap agreements are generally valued at the last settled price of the benchmark referenced index.
The Trust, on behalf of a Fund, may enter into agreements with certain counterparties for derivative transactions. These agreements contain various conditions, events of default, termination events, covenants and representations. The triggering of certain events or the default on certain terms of the agreement could allow a party to terminate a transaction under the agreement and request immediate payment in an amount equal to the net positions owed the party under the agreement. This could cause a Fund to have to enter into a new transaction with the same counterparty, enter into a transaction with a different counterparty or seek to achieve its investment objective through any number of different investments or investment techniques.
Swap agreements involve, to varying degrees, elements of market risk (commodity price risk) and exposure to loss in excess of the unrealized gain/loss reflected. The notional amounts reflect the extent of the total investment exposure each Fund has under the swap agreement, which may exceed the NAV of each Fund. Additional risks associated with the use of swap agreements are imperfect correlations between movements in the notional amount and the price of the underlying reference index and the inability of counterparties to perform. Each Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. A Fund will typically enter into swap agreements only with major global financial institutions. The creditworthiness of each of the firms that is a party to a swap agreement is monitored by the Sponsor. The Sponsor may use various techniques to minimize credit risk including early termination and payment, using different counterparties, limiting the net amount due from any individual counterparty and generally requiring collateral to be posted by the counterparty in an amount approximately equal to that owed to the Funds. All of the outstanding swap agreements at December 31, 2012 contractually terminate within one month but may be terminated without penalty by either party daily. Upon termination, the Fund is entitled to pay or receive the “unrealized appreciation or depreciation” amount.
The Funds, as applicable, collateralize swap agreements by segregating or designating cash and/or certain securities as indicated on the Statements of Financial Condition or Schedules of Investments. As noted above, such collateral is held for the benefit of the counterparty in a segregated tri-party account at the Custodian to protect the counterparty against non-payment by the Funds. In the event of a default by the counterparty, the Funds will seek withdrawal of this collateral from the segregated account and may incur certain costs in exercising its right with respect to the collateral.
If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Funds may experience significant delays in obtaining any recovery in a bankruptcy or other reorganizational proceeding. The Funds may obtain only limited recovery or may obtain no recovery in such circumstances.
The Funds remain subject to credit risk with respect to the amount they expect to receive from counterparties. However, the Funds have sought to mitigate these risks by generally requiring that the counterparties for each Fund agree to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to what the counterparty owes the Fund, subject to certain minimum thresholds. In the event of the bankruptcy of a counterparty, the Fund will have direct access to the collateral received from the counterparty, generally as of the day prior to the bankruptcy, because there is a one day time lag between the Fund’s request for collateral and the delivery of such collateral. To the extent any such collateral is insufficient, the Funds will be exposed to counterparty risk as described above, including the possible delays in recovering amounts as a result of bankruptcy proceedings. As of December 31, 2012, the collateral posted by counterparties consisted of cash and U.S. Treasury securities.
Forward Contracts
Certain of the Funds enter into forward contracts for purposes of pursuing their investment objectives and as a substitute for investing directly in (or shorting) commodities and/or currencies. A forward contract is an agreement between two parties to purchase or sell a specified quantity of an asset at or before a specified date in the future at a specified price. Forward contracts are typically traded in the over-the-counter (“OTC”) markets and all details of the contract are negotiated between the counterparties to the agreement. Accordingly, the forward contracts are valued by reference to the contracts traded in the OTC markets.
The contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying commodity or currency, establishing an opposite position in the contract and recognizing the profit or loss on both positions simultaneously on the delivery date or, in some instances, paying a cash settlement before the designated date of delivery. The forward contracts are adjusted by the daily fluctuation of the underlying commodity or currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Forward contracts are, in general, not cleared or guaranteed by a third party. The Funds may collateralize forward commodity contracts by segregating or designating cash and/or certain securities as indicated on their Statements of Financial Condition or Schedules of Investments. Such collateral is held for the benefit of the counterparty in a segregated tri-party account at the Custodian to protect the counterparty against non-payment by the Funds. In the event of a default by the counterparty, the Funds will seek withdrawal of this collateral from the segregated account and may incur certain costs in exercising its right with respect to the collateral. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Funds may experience significant delays in obtaining any recovery in a bankruptcy or other reorganizational proceeding. The Funds may obtain only limited recovery or may obtain no recovery in such circumstances.
The Funds remain subject to credit risk with respect to the amount they expect to receive from counterparties. However, the Funds have sought to mitigate these risks by generally requiring that the counterparties for each Fund agree to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to what the counterparty owes the Fund, subject to minimum thresholds. In the event of the bankruptcy of a counterparty, the Fund will have direct access to the collateral received from the counterparty, generally as of the day prior to the bankruptcy, because there is a one day time lag between the Fund’s request for collateral and the delivery of such collateral. To the extent any such collateral is insufficient, the Funds will be exposed to counterparty risk as described above, including the possible delays in recovering amounts as a result of bankruptcy proceedings. As of December 31, 2012, the collateral posted by counterparties consisted of cash and U.S. Treasury securities.
Participants in trading foreign exchange forward contracts often do not require margin deposits, but rely upon internal credit limitations and their judgments regarding the creditworthiness of their counterparties. In recent years, however, many OTC market participants in foreign exchange trading have begun to require their counterparties to post margin.
A Fund will typically enter into forward contracts only with major global financial institutions. The creditworthiness of each of the firms that is a party to a forward contract is monitored by the Sponsor.
Fair Value of Derivative Instruments
as of December 31, 2012
Fair Value of Derivative Instruments
as of December 31, 2011
* 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, 2012
The Effect of Derivative Instruments on the Statements of Operations
For the year ended December 31, 2011
The Effect of Derivative Instruments on the Statements of Operations
For the year ended December 31, 2010
NOTE 4-AGREEMENTS
Management Fee
Each Leveraged Fund, the Short Euro Fund and each Geared VIX Fund pays or will pay the Sponsor a Management Fee, monthly in arrears, in an amount equal to 0.95% per annum of its average daily NAV of such Fund. Each Matching VIX Fund pays the Sponsor a Management Fee, monthly in arrears, in an amount equal to 0.85% per annum of its average daily NAV of such Fund. Each Managed Futures Fund will pay the Sponsor a Management Fee monthly in arrears, in an amount equal to 0.75% per annum of its average daily NAV of such Fund. The Sponsor did not and will not charge its fee in the first year of operation of each Fund in an amount equal to the organization and offering costs. The Sponsor reimbursed or will reimburse each Fund to the extent that its offering costs exceed the Management Fee for the first year of operations. The Management Fee is or will be paid in consideration of the Sponsor’s services as commodity pool operator and commodity trading advisor, and for managing the business and affairs of the Funds. From the Management Fee, the Sponsor pays or will pay the fees and expenses of the Administrator, Custodian, Distributor, ProFunds Distributors, Inc. (“PDI”), an affiliated broker-dealer of the Sponsor, Transfer Agent and any index licensors for the Funds , the routine operational, administrative and other ordinary expenses of each Fund, and the normal and expected expenses incurred in connection with the continuous offering of Shares of each Fund after the commencement of its trading operations, including, but not limited to, expenses such as tax preparation expenses, legal fees not in excess of $100,000 per annum, ongoing SEC registration fees not exceeding 0.021% per annum of the NAV of a Fund and Financial Industry Regulatory Authority (“FINRA”) filing fees, individual K-1 preparation and mailing fees not exceeding 0.10% per annum of the net assets of a Fund, and report preparation and mailing expenses. For the year ended December 31, 2012, the Sponsor paid and is currently paying brokerage commissions on VIX futures contracts for the Matching VIX Funds. Each Fund incurs and pays, and each New Fund will incur and pay, its non-recurring and unusual fees and expenses.
The Administrator
The Sponsor and the Trust, for itself and on behalf of each Fund, has appointed Brown Brothers Harriman & Co. (“BBH&Co.”) as the Administrator of the Funds, and the Sponsor, the Trust, on its own behalf and on behalf of each Fund, and BBH&Co. have entered into an Administrative Agency Agreement (the “Administration Agreement”) in connection therewith. Pursuant to the terms of the Administration Agreement and under the supervision and direction of the Sponsor and the Trust, BBH&Co. prepares and files certain regulatory filings on behalf of the Funds. BBH&Co. may also perform other services for the Funds pursuant to the Administration Agreement as mutually agreed upon by the Sponsor, the Trust and BBH&Co. from time to time. Pursuant to the terms of the Administration Agreement, BBH&Co. also serves as the Transfer Agent of the Funds. The Administrator’s fees are or will be paid on behalf of the Funds by the Sponsor.
The Custodian
BBH&Co. serves as the Custodian of the Funds, and the Trust, on its own behalf and on behalf of each Fund, and BBH&Co. have entered into a Custodian Agreement in connection therewith. Pursuant to the terms of the Custodian Agreement, BBH&Co. is responsible for the holding and safekeeping of assets delivered to it by the Funds, and performing various administrative duties in accordance with instructions delivered to BBH&Co. by the Funds. The Custodian’s fees are or will be paid on behalf of the Funds by the Sponsor.
The Distributor
SEI Investments Distribution Co. (“SEI”), serves as Distributor of the Funds and assists the Sponsor and the Administrator with certain functions and duties relating to distribution and marketing, including taking creation and redemption orders, consulting with the marketing staff of the Sponsor and its affiliates with respect to compliance with the requirements of FINRA and/or the NFA in connection with marketing efforts, and reviewing and filing of marketing materials with FINRA and/or the NFA. SEI retains all marketing materials separately for each Fund, at c/o SEI, One Freedom Valley Drive, Oaks, PA 19456. The Sponsor, on behalf of each Fund, has entered into a Distribution Services Agreement with SEI.
Routine Operational, Administrative and Other Ordinary Expenses
The Sponsor pays or will pay all of the routine operational, administrative and other ordinary expenses of each Fund generally, as determined by the Sponsor including, but not limited to, fees and expenses of the Administrator, Custodian, Distributor, PDI, Transfer Agent, accounting and auditing fees and expenses, tax preparation expenses, legal fees not in excess of $100,000 per annum, ongoing SEC registration fees not exceeding 0.021% per annum of the NAV of a Fund, FINRA filing fees, individual Schedule K-1 preparation and mailing fees not exceeding 0.10% per annum of the NAV of a Fund, and report preparation and mailing expenses.
Non-Recurring Fees and Expenses
Each Fund pays or will pay all non-recurring and unusual fees and expenses, if any, as determined by the Sponsor. Non-recurring and unusual fees and expenses are fees and expenses such as legal claims and liabilities, litigation costs or indemnification or other material expenses which are not currently anticipated obligations of the Funds. Such fees and expenses are those that are non-recurring, unexpected or unusual in nature.
NOTE 5-ORGANIZATION AND OFFERING COSTS
Organization and offering costs are expensed as incurred and offering costs will be amortized by the Funds over a twelve month period on a straight-line basis beginning once the fund commences operations. The Sponsor did not and will not charge its Management Fee in the first year of operations of any Fund in an amount equal to the organization and offering costs. The Sponsor reimbursed or will reimburse each Leveraged Fund, the Short Euro Fund and each Geared VIX Fund, to the extent that its organization and offering costs exceeded 0.95% of its average daily NAV for the first year of operations. The Sponsor reimbursed each Matching VIX Fund if its organization and offering costs exceeded 0.85% of its average daily NAV for the first year of operations. The Sponsor will reimburse each Managed Futures Fund to the extent that its offering costs exceed 0.75% of its average daily NAV for the first year of operations.
At December 31, 2012, amounts payable for offering costs are reflected in the Statement of Financial Condition for each New Fund.
NOTE 6-CREATION AND REDEMPTION OF CREATION UNITS
Each Fund issues and redeems or will issue and redeem shares from time to time, but only in one or more Creation Units. A Creation Unit is or will be a block of 50,000 Shares of a Geared Fund or a Managed Futures Fund and 25,000 Shares of a Matching VIX Fund. Creation Units may be created or redeemed only by Authorized Participants. As a result of the Share splits and reverse Share splits as described in Note 1, certain redemptions as disclosed in the Statements of Changes in Shareholders’ Equity reflect payment of fractional share balances on beneficial shareholder accounts.
Except when aggregated in Creation Units, the Shares are not redeemable securities. Retail investors, therefore, generally will not be able to purchase or redeem Shares directly from or with a Fund. Rather, most retail investors will purchase or sell Shares in the secondary market with the assistance of a broker. Thus, some of the information contained in these Notes to Financial Statements-such as references to the Transaction Fees imposed on purchases and redemptions-is not relevant to retail investors.
Transaction Fees on Creation and Redemption Transactions
The manner by which Creation Units are purchased or redeemed is dictated by the terms of the Authorized Participant Agreement and Authorized Participant Handbook. By placing a purchase order, an Authorized Participant agrees to: (1) deposit cash with the Custodian; and (2) if permitted by the Sponsor in its sole discretion, enter into or arrange for an exchange of futures contract for related position or block trade whereby the Authorized Participant would also transfer to such Fund a number and type of exchange-traded futures contracts at or near the closing settlement price for such contracts on the purchase order date.
Authorized Participants may pay a fixed transaction fee of up to $500 in connection with each order to create or redeem a Creation Unit in order to compensate BBH&Co., as the Administrator, the Custodian and the Transfer Agent of each Fund and its Shares, for services in processing the creation and redemption of Creation Units and to offset the costs of increasing or decreasing derivative
positions. Authorized Participants also may pay a variable transaction fee to the Fund of up to 0.10% of the value of the Creation Unit that is purchased or redeemed unless the transaction fee is waived or otherwise adjusted by the Sponsor. The Sponsor provides such Authorized Participant with prompt notice in advance of any such waiver or adjustment of the transaction fee. Authorized Participants may sell the Shares included in the Creation Units they purchase from the Funds to other investors in the secondary market.
Transaction fees for the years ended December 31, 2012, 2011 and 2010, 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 period ended December 31, 2012:
Ultra ProShares
For the Year Ended December 31, 2012
* See Note 1 of these Notes to Financial Statements.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
UltraShort ProShares
For the Period Ended December 31, 2012
* See Note 1 of these Notes to Financial Statements.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
New Currency and VIX ProShares
For the Period Ended December 31, 2012
+ From commencement of operations, July 17, 2012, through December 31, 2012.
++ From commencement of operations, June 26, 2012, through December 31, 2012.
* 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.
^ Percentages are not annualized for the period ended December 31, 2012.
The returns for a share outstanding for 2011 are calculated based on the initial offering price upon commencement of investment operations of $40.0000 for ProShares Ultra Australian Dollar, UltraShort Australian Dollar and Short Euro.
** Percentages are annualized.
Selected data for a Share outstanding throughout the period ended December 31, 2011:
Ultra ProShares
For the Period Ended December 31, 2011
* See Note 1 of these Notes to Financial Statements.
+ For the year ended December 31, 2011.
++ From commencement of operations, October 4, 2011, through December 31, 2011.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
^ Percentages are not annualized for the period ended December 31, 2011.
The returns for a share outstanding for 2011 are calculated based on the initial offering price upon commencement of investment operations of $40.0000.
** Percentages are annualized.
UltraShort ProShares
For the Period Ended December 31, 2011
* See Note 1 of these Notes to Financial Statements.
+ For the year ended December 31, 2011.
++ From commencement of operations, October 4, 2011, through December 31, 2011.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
^ Percentages are not annualized for the period ended December 31, 2011.
The returns for a share outstanding for 2011 are calculated based on the initial offering price upon commencement of investment operations of $40.0000.
** Percentages are annualized.
VIX ProShares
For the Period Ended December 31, 2011
* See Note 1 of these Notes to Financial Statements.
+ From commencement of operations, October 3, 2011, through December 31, 2011.
++ From commencement of operations, January 3, 2011, through December 31, 2011.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
^ Percentages are not annualized for the period ended December 31, 2011.
The returns for a share outstanding for 2011 are calculated based on the initial offering price upon commencement of investment operations of $40.0000 for ProShares Ultra VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF and $80.0000 for ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF.
** Percentages are annualized.
Selected data for a Share outstanding throughout the year ended December 31, 2010:
Ultra ProShares
For the Year Ended December 31, 2010
* See Note 1 of these Notes to Financial Statements.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
UltraShort ProShares
For the Year Ended December 31, 2010
* See Note 1 of these Notes to Financial Statements.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
NOTE 8-RISK
Correlation and Compounding Risk
The Geared Funds do not seek to achieve their stated investment objective over a period of time greater than a single day (as measured from NAV calculation time to NAV calculation time). The return of a Geared Fund for a period longer than a single day is the result of its return for each day compounded over the period and usually will differ from two times (2x), the inverse (-1x), two times the inverse (-2x) or three times the inverse (-3x) of the return of the Geared Fund’s benchmark for the period. A Fund will lose money if its index performance is flat over time, and it is possible for a Geared Fund to lose money over time even if the performance of its index increases (or decreases in the case of Short, UltraShort or UltraPro Short Funds), as a result of daily rebalancing, the benchmark’s volatility and compounding. Longer holding periods, higher index volatility, inverse exposure and greater leverage each affect the impact of compounding on a Fund’s returns. Daily compounding of a Geared Fund’s investment returns can dramatically and adversely affect its longer-term performance during periods of high volatility. Volatility may be at least as important to a Geared Fund’s return for a period as the return of the Fund’s underlying index. The Matching VIX Funds and Managed Futures Funds seek to achieve their stated investment objective both over a single day and over time.
Each Ultra, UltraShort or UltraPro Short Fund uses leverage and should produce daily returns that are more volatile than that of its benchmark. For example, the daily return of an Ultra Fund with a 2x multiple should be approximately two times as volatile on a daily basis as is the return of a fund with an objective of matching the same benchmark. The daily return of a Short, UltraShort Fund or UltraPro Short Fund is designed to return the inverse (-1), two times the inverse (-2x) or three times the inverse (-3x) of the return that would be expected of a fund with an objective of matching the same benchmark. The Geared Funds are not appropriate for all investors and present different risks than other funds. The Leveraged Funds use leverage and are riskier than similarly benchmarked exchange-traded funds that do not use leverage. An investor should only consider an investment in a Geared Fund if he or she understands the consequences of seeking daily leveraged, daily inverse or daily inverse leveraged investment results. Daily objective geared funds, if used properly and in conjunction with the investor’s view on the future direction and volatility of the markets, can be useful tools for investors who want to manage their exposure to various markets and market segments and who are willing to monitor and/or periodically rebalance their portfolios. Shareholders who invest in the Funds should actively manage and monitor their investments, as frequently as daily.
While the Funds expect to meet their investment objectives, several factors may affect their ability to do so. Among these factors are: (1) the Sponsor’s ability to purchase and sell Financial Instruments in a manner that correlates to a Fund’s objective; (2) an imperfect correlation between the performance of Financial Instruments held by a Fund and the performance of the applicable benchmarks; (3) bid-ask spreads on such instruments; (4) fees, expenses, transaction costs, financing costs associated with the use of derivatives and commission costs; (5) holding instruments traded in a market that has become illiquid or disrupted; (6) a Fund’s Share prices being rounded to the nearest cent and/or valuation methodology; (7) changes to a benchmark index that are not disseminated in advance; (8) the need to conform a Fund’s portfolio holdings to comply with investment restrictions or policies or regulatory or tax law requirements; (9) early and unanticipated closings of the markets on which the holdings of a Fund trade, resulting in the inability of the Fund to execute intended portfolio transactions; and (10) accounting standards.
A number of factors may affect a Geared Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that a Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent a Geared Fund from achieving its investment objective. In order to achieve a high degree of correlation with their underlying benchmarks, the Geared Funds seek to rebalance their portfolios daily to keep exposure consistent with their investment objectives. Being materially under- or over-exposed to the benchmark may prevent such Funds from achieving a high degree of correlation with such benchmark. Market disruptions or closure, large amounts of assets into or out of the Geared Funds, regulatory restrictions or extreme market volatility will adversely affect such Funds’ ability to adjust exposure to requisite levels. The target amount of portfolio exposure is impacted dynamically by the benchmarks’ movements during each day. Because of this, it is unlikely that the Geared Funds will be perfectly exposed (i.e., 2x, -1x, -2x or -3x, as applicable) to its benchmark at the end of each day, and the likelihood of being materially under- or over-exposed is higher on days when the benchmark levels are volatile near the close of the trading day. In addition, unlike other funds that do not rebalance their portfolios as frequently, each Geared Fund may be subject to increased trading costs associated with daily portfolio rebalancing in order to maintain appropriate exposure to the underlying benchmarks.
Counterparty Risk
Certain of the Funds will use swap agreements and/or forward contracts as a means to achieve their respective investment objectives. Such Funds will use either swap agreements and/or forward contracts referencing their respective benchmarks. These Funds may also invest in other swap agreements or forward contracts if such instruments tend to exhibit trading prices or returns that correlate with the benchmark or a component of the benchmark and will further the investment objective of the Fund. Certain Funds may invest in swap agreements or forward contracts if position accountability rules or position limits are reached with respect to specific futures contracts or the market for a specific futures contract experiences emergencies (e.g., natural disaster, terrorist attack or an act of God) or disruptions (e.g., a trading halt or a flash crash) that prevent the Funds from obtaining the appropriate amount of investment exposure to the affected futures contract or certain other futures contracts. Although unlikely, those Funds, under these circumstances, could have 100% exposure to swap agreements or forward contracts.
Swap agreements and forward contracts are generally traded over the counter and are essentially unregulated by the CFTC. Investors, therefore, do not receive the protection of CFTC regulation or the statutory scheme of the CEA in connection with each Fund’s swap agreements or forward contracts. The lack of regulation in these markets could expose investors to significant losses under certain circumstances including in the event of trading abuses or financial failure by participants.
Unlike in futures contracts, the counterparty to swap agreements or forward contracts is generally a single bank or other financial institution, rather than a clearing organization backed by a group of financial institutions. As a result, a Fund is subject to credit risk with respect to the amount it expects to receive from counterparties to swaps and forward contracts entered into as part of that Fund’s principal investment strategy. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, a Fund could suffer significant losses on these contracts and the value of an investor’s investment in a Fund may decline.
The Funds have sought to mitigate these risks by generally requiring that the counterparties for each Fund agree to post collateral for the benefit of the Fund, marked to market daily, subject to certain minimum thresholds; however there are no limitations on the percentage of its assets each Fund may invest in swap agreements or forward contracts with a particular counterparty. To the extent any such collateral is insufficient or there are delays in accessing the collateral, the Funds will be exposed to counterparty risk as described above, including possible delays in recovering amounts as a result of bankruptcy proceedings. The Funds typically enter into transactions only with major global financial institutions.
Swaps or forward contracts are less liquid than futures contracts because they are not traded on an exchange, do not have uniform terms and conditions, and are generally entered into based upon the creditworthiness of the parties and the availability of credit support, such as collateral, and in general, are not transferable without the consent of the counterparty.
If the level of the Fund’s benchmark has a dramatic intraday move that would cause a material decline in the Fund’s NAV, the terms of the swap may permit the counterparty to immediately close out the transaction with the Fund. In that event, it may not be possible for the Fund to enter into another swap agreement or to invest in other Financial Instruments necessary to achieve the desired exposure consistent with the Fund’s objective. This, in turn, may prevent the Fund from achieving its investment objective, particularly if the level of the Fund’s benchmark reverses all or part of its intraday move by the end of the day.
Each counterparty and/or any of its affiliates may be an Authorized Participant or shareholder of a Fund.
Although the counterparty to a futures contract is often a clearing organization backed by a group of financial institutions, there may also be instances in which the counterparty could fail to perform its obligations, causing significant losses to a Fund.
Leverage Risk
The Leveraged Funds may utilize leverage in seeking to achieve their respective investment objectives and will lose more money in market environments adverse to their respective daily investment objectives than funds that do not employ leverage. The use of leveraged and/or inverse leveraged positions could result in the total loss of an investor’s investment.
For example, because the Ultra Funds, UltraShort Funds and UltraPro Short Fund include a two times (2x), a two times the inverse (-2x) or a three times the inverse (-3x) multiplier, a single-day movement in the relevant benchmark approaching 50% at any point in the day (for an Ultra or UltraShort Fund) or 33% (for the UltraPro Short Fund) could result in the total loss or almost total loss of an investor’s investment if that movement is contrary to the investment
objective of the Fund in which an investor has invested, even if such Fund’s benchmark subsequently moves in an opposite direction, eliminating all or a portion of the movement. This would be the case with downward single-day or intraday movements in the underlying benchmark of an Ultra Fund or upward single-day or intraday movements in the benchmark of an UltraShort or UltraPro Short Fund, even if the underlying benchmark maintains a level greater than zero at all times.
Liquidity Risk
Financial Instruments cannot always be liquidated at the desired price. It is difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. A market disruption can also make it difficult to liquidate a position or find a swap or forward contract counterparty at a reasonable cost. Market illiquidity may cause losses for the Funds. The large size of the positions which the Funds may acquire increases the risk of illiquidity by both making their positions more difficult to liquidate and increasing the losses incurred while trying to do so. Any type of disruption or illiquidity will potentially be exacerbated due to the fact that the Funds will typically invest in Financial Instruments related to one benchmark, which in many cases is highly concentrated.
“Contango” and “Backwardation” Risk
In Funds that hold futures contracts, as the futures contracts near expiration, they are generally replaced by contracts that have a later expiration. Thus, for example, a contract purchased and held in August 2012 may specify an October 2012 expiration. For an Ultra Fund and a Matching VIX Fund, as that contract nears expiration, it may be replaced by selling the October 2012 contract and purchasing the contract expiring in December 2012. This process is referred to as “rolling.” Rolling may have a positive or negative impact on performance. For example, historically, the prices of certain types of futures contracts have frequently been higher for contracts with shorter-term expirations than for contracts with longer-term expirations, which is referred to as “backwardation.” In these circumstances, absent other factors, the sale of the October 2012 contract would take place at a price that is higher than the price at which the December 2012 contract is purchased, thereby creating a gain in connection with rolling. While certain types of futures contracts have historically exhibited consistent periods of backwardation, backwardation will likely not exist in these markets at all times. The presence of contango (where prices of contracts are higher in the distant delivery months than in the nearer delivery months due to the costs of long-term storage of a physical commodity prior to delivery or other factors) in certain futures contracts at the time of rolling would be expected to adversely affect an Ultra Fund or a Matching VIX Fund that invests in such futures, and positively affect a Short Fund or an UltraShort Fund that invests in such futures. Similarly, the presence of backwardation in certain futures contracts at the time of rolling such contracts would be expected to adversely affect the Short Funds and UltraShort Funds, and positively affect the Ultra Funds and Matching VIX Funds.
Since the introduction of VIX futures contracts, there have frequently been periods where VIX futures prices reflect higher expected volatility levels further out in time. This can result in a loss from “rolling” the VIX futures to maintain the constant weighted average maturity of the VIX Futures Index. Losses from exchanging a lower priced VIX future for a higher priced longer-term future in the rolling process would adversely affect the value of each VIX Futures Index and, accordingly, decrease the return of the Ultra VIX Short-Term Futures ETF and the Matching VIX Funds.
Gold and silver historically exhibit persistent “contango” markets rather than backwardation. Natural gas, like crude oil, moves in and out of backwardation and contango but historically has been in contango most commonly. It is generally believed this is because the market needs to build inventories for most of the year in order to have enough storage to make it through a normal winter. Periods of backwardation are typically thought to be caused by demand shocks or supply shortages such as an unusually cold winter or a hurricane.
NOTE 9-LEGAL PROCEEDINGS
The Trust and certain principals of the Sponsor have been named as defendants (along with several other parties) in a consolidated class action lawsuit filed in the United States District Court for the Southern District of New York, styled In re ProShares Trust Securities Litigation, Civ. No. 09-cv-6935. The complaint, as amended, alleged that the defendants violated Sections 11 and 15 of the Securities Act of 1933 by including untrue statements of material fact and omitting material facts in the Registration Statement for one or more ProShares ETFs and allegedly failing to adequately disclose the Funds’ investment objectives and risks. The six Funds of the Trust named in the complaint were 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. On September 10, 2012, the District Court issued an Opinion and Order dismissing the class action lawsuit in its entirety. On December 17, 2012, the plaintiffs filed an appeal brief to the United States Court of Appeals for the Second Circuit. The Trust believes the complaint is without merit and that the anticipated outcome will not adversely impact the operation of the Trust or any of its Funds. Accordingly, no loss contingency has been recorded in the balance sheet and the amount of loss, if any, cannot be reasonably estimated at this time.
NOTE 10-SUBSEQUENT EVENTS
Management has evaluated the possibility of subsequent events existing in the Trust’s and the Funds’ financial statements through the date the financial statements were issued. The subsequent events were as follows:
The Dow Jones-UBS Commodity IndexSM (the “Dow Jones-UBS”) is comprised of 5 different commodity sectors: energy, livestock, industrial metals, precious metals and agriculture. Prior to January 2013, these five sectors tracked futures contracts prices of 20 specific commodities: natural gas, WTI crude oil, brent crude, unleaded gasoline, heating oil, live cattle, lean hogs, wheat, corn, soybeans, soybean oil, aluminum, copper, zinc, nickel, gold, silver, sugar, cotton and coffee. In January 2013, the Dow Jones-UBS added two additional commodities: Hard Red Winter Wheat (KBWT) and soybean meal. The Dow Jones-UBS is designed to minimize concentration in any one commodity or sector. Prior to January 2013, no single commodity could constitute less than 2% or more than 15% of the index. In January 2013, the 2% floor was eliminated and commodities in the index may have target weights lower than 2%. No related group of commodities (e.g., energy, precious metals, livestock or grains) may constitute more than 33% of the index as of the annual reweighting of the components. The Dow Jones-UBS family of indices also includes ten sub-indexes that group commodities based on type, as well as single commodity sub-indexes representing each of the commodities that are currently tracked by the Dow Jones-UBS.
As of January 2013, the target weightings of all Dow Jones-UBS components are:
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
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.
Item 8. Financial Statements and Supplementary Data.
Statement of Operations for the three month periods ended March 31, 2012 and 2011, June 30, 2012 and 2011, September 30, 2012 and 2011, and December 31, 2012 and 2011, and the years ended December 31, 2012 and 2011 for each Fund, as applicable.
PROSHARES ULTRA DJ-UBS COMMODITY
PROSHARES ULTRASHORT DJ-UBS COMMODITY
PROSHARES ULTRA DJ-UBS CRUDE OIL
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
PROSHARES ULTRA DJ-UBS NATURAL GAS
PROSHARES ULTRASHORT DJ-UBS NATURAL GAS
PROSHARES ULTRA GOLD
PROSHARES ULTRASHORT GOLD
PROSHARES ULTRA SILVER
PROSHARES ULTRASHORT SILVER
PROSHARES ULTRA AUSTRALIAN DOLLAR
PROSHARES ULTRASHORT AUSTRALIAN DOLLAR
PROSHARES ULTRA EURO
PROSHARES SHORT EURO
PROSHARES ULTRASHORT EURO
PROSHARES ULTRA YEN
PROSHARES ULTRASHORT YEN
PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
PROSHARES VIX SHORT-TERM FUTURES ETF
PROSHARES SHORT VIX SHORT-TERM FUTURES ETF
PROSHARES VIX MID-TERM FUTURES ETF
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.
* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K.
Item 9.
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 Trust’s and the Funds’ disclosure controls and procedures, and have concluded that the disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the 1934 Act) of the Trust and the Funds were effective, as of December 31, 2012, including providing reasonable assurance that information required to be disclosed in the reports that the Trust files or submits under the 1934 Act on behalf of the Trust and the Funds is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that such information is accumulated and communicated to the duly authorized officers of the Trust as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
The Trust’s management takes responsibility for establishing and maintaining adequate internal control over financial reporting of the Trust and the Funds, as defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act. The Trust’s and the Funds’ internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Trust and the Funds; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Trust’s and the Funds’ receipts and expenditures are being made only in accordance with appropriate authorizations of management of the Trust on behalf of the Trust and the Funds; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Trust’s or the Funds’ assets that could have a material effect on the Trust’s or the Funds’ financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The principal executive officer and principal financial officer of the Trust assessed the effectiveness of the Trust’s and the Funds’ internal control over financial reporting as of December 31, 2012. Their assessment included an evaluation of the design of the Trust’s and the Funds’ internal control over financial reporting and testing of the operational effectiveness of their internal control over financial reporting. In making its assessment, the Trust’s management has utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its report entitled Internal Control - Integrated Framework. Based on their assessment and those criteria, the principal executive officer and principal financial officer of the Trust concluded that the Trust’s and the Funds’ internal control over financial reporting was effective as of December 31, 2012.
The effectiveness of the Trust’s and the Funds’ internal control over financial reporting as of December 31, 2012 has been audited by PricewaterhouseCoopers LLP, the independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in the Trust’s or the Funds’ internal control over financial reporting that occurred during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Trust’s or the Funds’ internal control over financial reporting.
Certifications
The certifications by the Principal Executive Officer and Principal Financial Officer of the Trust required by Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, which are filed or furnished as exhibits to this Annual Report on Form 10-K, apply both to the Trust taken as a whole and each Fund, and the Principal Executive Officer and Principal Financial Officer of the Trust are certifying both as to the Trust taken as a whole and each Fund.
Item 9B.
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 the Funds. The Trustee has no duty or liability to supervise the performance of the Sponsor, nor will the Trustee have any liability for the acts or omissions of the Sponsor.
As of December 31, 2012, the Sponsor served 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
As of December 31, 2012, the Sponsor served as both commodity pool operator and commodity trading advisor of the Trust and the Funds. The Sponsor is registered as a commodity pool operator with the CFTC and is a member in good standing of the NFA. The Sponsor’s membership with the NFA was originally approved on June 11, 1999. It withdrew its 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. On February 19, 2013, the Sponsor’s commodity trading advisor registration was withdrawn. The Sponsor’s registration as a commodity pool operator was originally approved on June 11, 1999. It withdrew its registration as a commodity pool operator on August 30, 2000 but later re-applied and had its registration subsequently approved on November 28, 2007. Its registration as a commodity pool operator is currently effective. As a registered commodity pool operator, with respect to the Trust, the Sponsor must comply with various regulatory requirements under the CEA, and the rules and regulations of the CFTC and the NFA, including investor protection requirements, antifraud prohibitions, disclosure requirements, and reporting and recordkeeping requirements. The Sponsor is also subject to periodic inspections and audits by the CFTC and NFA. Its principal place of business is 7501 Wisconsin Avenue, Suite 1000, Bethesda, Maryland 20814 and its telephone number is (240) 497-6400. The registration of the Sponsor with the CFTC and its membership in the NFA must not be taken as an indication that either the CFTC or the NFA has recommended or approved the Sponsor, the Trust and the Funds.
In its capacity as a commodity pool operator, the Sponsor is an organization which operates or solicits funds for commodity pools; that is, an enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts.
Executive Officers of the Trust and Principals and Significant Employees of the Sponsor
Name
Position
Michael L. Sapir
Chief Executive Officer and Principal of the Sponsor
Louis M. Mayberg
Principal Executive Officer of the Trust; Chief Financial Officer and Principal of the Sponsor
William E. Seale
Principal of the Sponsor
Sapir Family Trust
Principal of the Sponsor
Northstar Trust
Principal of the Sponsor
Edward J. Karpowicz
Principal Financial Officer of the Trust
Todd B. Johnson*
Chief Investment Officer and Principal of the Sponsor
Howard S. Rubin
Director, Portfolio Management and Associated Person of the Sponsor
Michael S. Neches
Senior Portfolio Manager and Associated Person of the Sponsor
Jeffrey A. Ploshnick
Senior Portfolio Manager and Associated Person of the Sponsor
Ryan T. Dofflemeyer
Portfolio Manager and Associated Person of the Sponsor
Lisa P. Johnson
Principal of the Sponsor
Victor M. Frye
Principal of the Sponsor
* Denotes principal of the Sponsor who supervises persons who participate in making trading decisions for the Funds.
The following is a biographical summary of the business experience of the executive officers of the Trust and the principals and significant employees of the Sponsor.
ProFund Advisors LLC (“PFA”) and ProShare Advisors LLC (“PSA”) are investment advisers registered under the Investment Advisers Act of 1940. PFA is also a commodity trading advisor registered under the CEA.
Michael L. Sapir, Chairman, Chief Executive Officer and a listed principal of the Sponsor since August 14, 2008; Chairman, Chief Executive Officer and a member of PFA since April 1997, and a listed principal of PFA since November 26, 2012; and Chairman, Chief Executive Officer and a member of PSA since January 2005. 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 listed principal of PFA since November 26, 2012; 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 50 years old.
William E. Seale, Ph.D., a member of the Sponsor and a listed principal of the Sponsor since June 11, 1999; a member of PFA since April 1997; and a member of PSA since April 2005. Dr. Seale served as Chief Investment Officer of PFA from January 2003 to July 2005 and from October 2006 to June 2008 and Director of Portfolio from January 1997 to January 2003. Dr. Seale served as Chief Investment Officer of PSA from October 2006 to June 2008. In these roles, Dr. Seale’s responsibilities included oversight of the investment management activities of the respective entities. Dr. Seale is a former commissioner of the CFTC.
Sapir Family Trust, a listed principal of the Sponsor. The Sapir Family Trust has ownership interest in the Sponsor and PSA. The Sapir Family Trust has passive ownership interest in the Sponsor and exercises no management authority over the Funds.
Northstar Trust, a listed principal of the Sponsor. Northstar Trust has ownership interest in the Sponsor and PFA. Northstar Trust has passive ownership interest in the Sponsor and exercises no management authority over the Funds.
Edward J. Karpowicz, Principal Financial Officer of the Trust since July 2008. Mr. Karpowicz has been employed by PFA since July 2002 as Vice President of Financial Administration. Mr. Karpowicz is 49 years old.
Todd B. Johnson, a registered associated person of the Sponsor since January 29, 2010, a listed principal of the Sponsor since January 16, 2009 and Chief Investment Officer of the Sponsor since February 27, 2009. In this role, Mr. Johnson’s responsibilities include
oversight of the investment management activities of the Sponsor. Mr. Johnson has served as Chief Investment Officer of PSA and PFA since December 2008 and has been registered as an associated person of PFA since December 5, 2012 and listed as a principal of PFA since November 26, 2012. Mr. Johnson served from 2002 to December 2008 at World Asset Management (a financial services firm), working as President and Chief Investment Officer from January 2006 to December 2008, and as Managing Director and Chief Investment Officer of Quantitative Investments of Munder Capital Management, an asset management firm, from January 2002 to December 2005.
Howard S. Rubin, CFA, a registered associated person and an NFA associate member of the Sponsor since July 14, 2008 and Director, Portfolio Management of the Sponsor since December 1, 2009. In these roles, Mr. Rubin’s responsibilities include day-to-day portfolio management of the Funds. Mr. Rubin has been registered as an associated person of PFA since December 5, 2012. Mr. Rubin has served as Senior Portfolio Manager of PSA since December 2007 and Senior Portfolio Manager of the Sponsor from November 27, 2008 through November 30, 2009. Mr. Rubin has also served as Senior Portfolio Manager of PFA since November 2004 and Portfolio Manager of PFA from April 2000 through November 2004. Mr. Rubin holds the Chartered Financial Analyst (CFA) designation.
Michael S. Neches, a registered associated person and an NFA associate member of the Sponsor since November 16, 2011, and Senior Portfolio Manager of the Sponsor since June 27, 2012. In these roles, Mr. Neches’ responsibilities include day-to-day portfolio management of the Commodity Index Funds, Commodity Funds and, when launched, the Managed Futures Funds. Mr. Neches has been registered as an associated person of PFA since December 5, 2012. Mr. Neches also serves as a Senior Portfolio Manager of PSA since December 2009; served as Associate Portfolio Manager from January 2007 through November 2009; and served as Portfolio Analyst from November 2004 through December 2006.
Jeffrey A. Ploshnick, a registered associated person and an NFA associate member of the Sponsor since April 12, 2011 and Senior Portfolio Manager of the Sponsor since April 12, 2011. In these roles, Mr. Ploshnick’s responsibilities include day-to-day portfolio management of the Currency Funds. Mr. Ploshnick has been registered as an associated person of PFA since December 5, 2012. Mr. Ploshnick has also served as a Senior Portfolio Manager of PFA since May 2007 and served as Portfolio Manager from February 2001 to April 2007. Mr. Ploshnick also serves as a senior portfolio manager of PSA since March 2011.
Ryan T. 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 has been registered as an associated person of PFA since December 5, 2012. Mr. Dofflemeyer also serves as a Portfolio Manager of PFA since August 2007 and was a Portfolio Analyst between October 2003 to August 2007. In addition, Mr. Dofflemeyer also serves as Portfolio Manager for Horizon BetaPro Funds (investment funds) since May 2008 and Portfolio Manager of PSA since March 2010. Mr. Dofflemeyer worked as a Research Assistant for the Investment Company Institute (investment funds trade organization) from September 2001 to August 2003.
Lisa P. Johnson, a listed principal of the Sponsor since November 11, 2008 and a listed principal of PFA since November 26, 2012. Ms. Johnson’s responsibilities include the review and approval of advertising material of the Sponsor. Ms. Johnson has been employed with ProFunds Distributors Inc. (“PDI”) since April 2008 as Head of Compliance. Prior to her employment with PDI, Ms. Johnson was the Senior Corporate Compliance Officer for ICMA Retirement Corporation (a financial services company) where she was employed from February 2005 to April 2008. She served as Senior Compliance Officer for Delaware Investments (a financial services firm) from January 2001 to February 2005. Ms. Johnson is FINRA registered and holds Series 7, 24 and 63 licenses. She also possesses a Certified Regulatory and Compliance Professional designation, from the NASD Institute at Wharton.
Victor M. Frye, a listed principal of the Sponsor since December 2, 2008 and a listed principal of PFA since November 26, 2012. 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 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, or the members or officers of the Sponsor receive compensation from the Funds.
The Sponsor receives or will receive a monthly Management Fee from each Fund, with the exception of each Matching VIX Fund and each Managed Futures Fund, equal to 0.95% annually of the average daily net asset value per share at the end of each month. The Sponsor receives a monthly Management Fee from each Matching VIX Fund equal to 0.85% annually of the average daily net asset value per share at the end of each month. The Sponsor will receive a monthly Management Fee from each Managed Futures Fund equal to 0.75% annually of the average daily net asset value per share at the end of each month. During the first year of each Fund’s operations, the Sponsor will waive the Management Fee to the extent that such amounts cumulatively exceed the offering costs incurred by each Fund. For the year ended December 31, 2012, 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” in 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, 2012 and 2011 were as follows:
Audit fees for the year ended December 31, 2012 consist of fees paid to PwC for the audit of the Funds’ December 31, 2012 annual financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2012, for the review of the financial statements included in each Form 10-Q, and for the audits of financial statements included with registration statements. Audit fees for the year ended December 31, 2011 consist of fees paid to PwC for the audit of the Funds’ December 31, 2011 annual financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011, for the review of the financial statements included in each Form 10-Q, and for the audits of financial statements included with registration statements. 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, 2012 or 2011 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, 2012
Index
Report of Independent Registered Public Accounting Firm
To the Shareholders of ProShares Trust II
In our opinion, the accompanying combined and individual statements of financial condition and the related combined and, with respect to the individual funds designated with (a), (b), (c) and (e) in the listing below, individual statements of operations, of changes in shareholders’ equity and of cash flows, present fairly, in all material respects, the combined financial position of the ProShares Trust II as of December 31, 2012 and 2011, and the individual financial positions of each of the following twenty-four funds comprising the ProShares Trust II:
Proshares Ultra DJ-UBS Commodity (a)
Proshares Short Euro (c)
Proshares Ultra Short DJ-UBS Commodity (a)
Proshares Ultra Short Euro (a)
Proshares Ultra DJ-UBS Crude Oil (a)
Proshares Ultra ProShort Euro (d)
Proshares Ultra Short DJ-UBS Crude Oil (a)
Proshares Ultra Yen (a)
ProShares Ultra Natural Gas (b)
Proshares Ultra Short Yen (a)
ProShares Ultra Short Natural Gas (b)
ProShares Ultra VIX Short-Term Futures (e)
Proshares Ultra Gold (a)
ProShares VIX Short-Term Futures (b)
Proshares Ultra Short Gold (a)
ProShares Short VIX Short-Term Futures ETF (b)
Proshares Ultra Silver (a)
ProShares VIX Mid-Term Futures (e)
Proshares Ultra Short Silver (a)
ProShares Managed Futures Strategy (f)
Proshares Ultra Australian Dollar (c)
ProShares Commodity Managed Futures Strategy (f)
Proshares UltraShort Australian Dollar (c)
Proshares Ultra Euro (a)
ProShares Trust II (“combined”) (a)
(a) A Statement of Financial Condition is presented as of December 31, 2012 and 2011, and the results of operations and cash flows are presented for each of the three years in the period ended December 31, 2012.
(b) A Statement of Financial Condition is presented as of December 31, 2012 and 2011, and the results of operations and cash flows are presented for the year ended December 31, 2012 and for the period from April 5, 2011 (inception) through December 31, 2011.
(c) A Statement of Financial Condition is presented as of December 31, 2012 and 2011, and the results of operations and cash flows are presented for the year ended December 31, 2012.
(d) Fund has not commenced operations and only a Statement of Financial Condition is presented as of December 31, 2012.
(e) A Statement of Financial Condition is presented as of December 31, 2012 and 2011, and the results of operations and cash flows are presented for the years ended December 31, 2012 and 2011.
(f) Fund has not commenced operations and only a Statement of Financial Condition is presented as of December 31, 2012 and 2011.
(collectively, the “Trust”) at December 31, 2012, and with respect to the individual funds designated with (a), (b), (c), (e), and (f) also as of December 31, 2011, and the combined and, with respect to the individual funds designated with (a), (b), (c) and (e), individual results of their operations and their cash flows, for the respective periods in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the combined Trust and each of the individual funds maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Trust’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the combined Trust and each of the individual fund financial statements and on the combined Trust’s and each of the individual fund’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the 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
Baltimore, Maryland
March 1, 2013
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, 2012
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS COMMODITY
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS COMMODITY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS COMMODITY
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS COMMODITY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Purchased
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
 Cash collateral in the amount of $23,356,627 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Purchased
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
 Cash collateral in the amount of $14,202,793 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Sold
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
 Cash collateral in the amount of $4,401,374 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Sold
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
 Cash collateral in the amount of $9,078,683 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS NATURAL GAS
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS NATURAL GAS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Purchased
 Cash collateral in the amount of $10,264,090 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS NATURAL GAS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Purchased
 Cash collateral in the amount of $725,409 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS NATURAL GAS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM APRIL 5, 2011 (INCEPTION)
TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS NATURAL GAS
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM APRIL 5, 2011 (INCEPTION)
TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS NATURAL GAS
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM APRIL 5, 2011 (INCEPTION)
TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS NATURAL GAS
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS NATURAL GAS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Sold
 Cash collateral in the amount of $1,795,030 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS NATURAL GAS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Sold
 Cash collateral in the amount of $1,439,775 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS NATURAL GAS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND
FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS NATURAL GAS
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2012 AND
FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS NATURAL GAS
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND
FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011
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, 2012
Futures Contracts Purchased
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $14,850 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRA GOLD
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Purchased
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $22,950 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRA GOLD
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA GOLD
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA GOLD
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
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, 2012
Futures Contracts Sold
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $14,850 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT GOLD
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Sold
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $17,770 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT GOLD
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT GOLD
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT GOLD
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
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, 2012
Futures Contracts Purchased
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $24,200 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRA SILVER
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Purchased
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $49,950 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRA SILVER
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA SILVER
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA SILVER
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Sold
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $24,200 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Sold
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
 Cash collateral in the amount of $43,140 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA AUSTRALIAN DOLLAR
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRA AUSTRALIAN DOLLAR
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Purchased
 Cash collateral in the amount of $158,400 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
See accompanying notes to financial statements.
PROSHARES ULTRA AUSTRALIAN DOLLAR*
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on July 17, 2012, the Statement of Operations for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES ULTRA AUSTRALIAN DOLLAR*
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on July 17, 2012, the only activity for the year ended December 31, 2011 was the initial seeding of the Fund, as such the Statement of Changes in Shareholder’s Equity for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES ULTRA AUSTRALIAN DOLLAR*
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on July 17, 2012, the only activity for the year ended December 31, 2011 was the initial seeding of the Fund, as such the Statement of Cash Flows for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT AUSTRALIAN DOLLAR
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT AUSTRALIAN DOLLAR
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Sold
 Cash collateral in the amount of $144,540 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT AUSTRALIAN DOLLAR*
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on July 17, 2012, the statement of operations for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT AUSTRALIAN DOLLAR*
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on July 17, 2012, the statement of changes in shareholder’s equity for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT AUSTRALIAN DOLLAR*
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on July 17, 2012, the statement of cash flows for the year ended December 31, 2011 has not been provided.
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, 2012
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, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRA EURO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
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, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRA EURO
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA EURO
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA EURO
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES SHORT EURO
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES SHORT EURO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Sold
 Cash collateral in the amount of $63,250 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
See accompanying notes to financial statements.
PROSHARES SHORT EURO*
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on June 26, 2012, the Statement of Operations for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES SHORT EURO*
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on June 26, 2012, the only activity for the year ended December 31, 2011 was the initial seeding of the Fund, as such the Statement of Changes in Shareholder’s Equity for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES SHORT EURO*
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2012
* Since the Fund commenced investment operations on June 26, 2012, the only activity for the year ended December 31, 2011 was the initial seeding of the Fund, as such the statement of cash flows for the year ended December 31, 2011 has not been provided.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
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, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
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, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRAPRO SHORT EURO*
STATEMENT OF FINANCIAL CONDITION
* As of December 31, 2012, ProShares UltraPro Short Euro had seed capital, but had not commenced investment operations. See Note 1.
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, 2012
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, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRA YEN
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
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, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRA YEN
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA YEN
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA YEN
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
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, 2012
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, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT YEN
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
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, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT YEN
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT YEN
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRASHORT YEN
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Purchased
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
 Cash collateral in the amount of $38,727,007 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* For swap agreements, a positive amount represents “long” exposure to the benchmark index. A negative amount represents “short” exposure to the benchmark index.
See accompanying notes to financial statements.
PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Purchased
 Cash collateral in the amount of $6,303,800 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
See accompanying notes to financial statements.
PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2012
See accompanying notes to financial statements.
PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2012
See accompanying notes to financial statements.
PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2012
See accompanying notes to financial statements.
PROSHARES VIX SHORT-TERM FUTURES ETF
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES VIX SHORT-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Purchased
 Cash collateral in the amount of $34,109,998 was pledged to cover margin requirements for open futures contracts as of December 31, 2012
See accompanying notes to financial statements.
PROSHARES VIX SHORT-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Purchased
 All or partial amount segregated as collateral for futures contracts.
See accompanying notes to financial statements.
PROSHARES VIX SHORT-TERM FUTURES ETF
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
See accompanying notes to financial statements.
PROSHARES VIX SHORT-TERM FUTURES ETF
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
See accompanying notes to financial statements.
PROSHARES VIX SHORT-TERM FUTURES ETF
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
See accompanying notes to financial statements.
PROSHARES SHORT VIX SHORT-TERM FUTURES ETF
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES SHORT VIX SHORT-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Sold
 Cash collateral in the amount of $20,731,497 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
See accompanying notes to financial statements.
PROSHARES SHORT VIX SHORT-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Sold
 Cash collateral in the amount of $2,252,358 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
See accompanying notes to financial statements.
PROSHARES SHORT VIX SHORT-TERM FUTURES ETF
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM APRIL 5, 2011 (INCEPTION)
TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES SHORT VIX SHORT-TERM FUTURES ETF
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM APRIL 5, 2011 (INCEPTION)
TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES SHORT VIX SHORT-TERM FUTURES ETF
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND PERIOD FROM APRIL 5, 2011 (INCEPTION)
TO DECEMBER 31, 2011
See accompanying notes to financial statements.
PROSHARES VIX MID-TERM FUTURES ETF
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES VIX MID-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
Futures Contracts Purchased
 Cash collateral in the amount of $7,830,000 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
See accompanying notes to financial statements.
PROSHARES VIX MID-TERM FUTURES ETF
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
Futures Contracts Purchased
 All or partial amount segregated as collateral for futures contracts.
See accompanying notes to financial statements.
PROSHARES VIX MID-TERM FUTURES ETF
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
See accompanying notes to financial statements.
PROSHARES VIX MID-TERM FUTURES ETF
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
See accompanying notes to financial statements.
PROSHARES VIX MID-TERM FUTURES ETF
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
See accompanying notes to financial statements.
PROSHARES MANAGED FUTURES STRATEGY*
STATEMENT OF FINANCIAL CONDITION
* As of December 31, 2012 and 2011, ProShares Managed Futures Strategy had seed capital, but had not commenced investment operations. See Note 1.
See accompanying notes to financial statements.
PROSHARES COMMODITY MANAGED FUTURES STRATEGY*
STATEMENT OF FINANCIAL CONDITION
* As of December 31, 2012 and 2011, ProShares Commodity Managed Futures Strategy had seed capital, but had not commenced investment operations. 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, 2012, 2011 AND 2010
See accompanying notes to financial statements.
PROSHARES TRUST II
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
* Amount includes $6,600 of redemptions related to de-registration of certain Funds. See Note 1.
See accompanying notes to financial statements.
PROSHARES TRUST II
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
* Amount includes $1,079,526 of offering cost related to de-registration of certain Funds. See Note 1.
** Amount includes $6,600 of redemptions related to de-registration of certain Funds. See Note 1.
See accompanying notes to financial statements.
PROSHARES TRUST II
NOTES TO FINANCIAL STATEMENTS
December 31, 2012
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”). As of December 31, 2012, the following twenty-one series of the Trust have commenced investment operations: (i) ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Natural Gas, ProShares UltraShort DJ-UBS Natural Gas, ProShares Ultra Gold, ProShares UltraShort Gold, ProShares Ultra Silver, ProShares UltraShort Silver, ProShares Ultra Australian Dollar, ProShares UltraShort Australian Dollar, ProShares Ultra Euro, ProShares UltraShort Euro, ProShares Ultra Yen and ProShares UltraShort Yen (each, a “Leveraged Fund” and together with ProShares UltraPro Short Euro (listed below), the “Leveraged Funds”); (ii) ProShares Short Euro (the “Short Euro Fund”); (iii) ProShares Ultra VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF (each, a “Geared VIX Fund” and collectively, the “Geared VIX Funds”); and (iv) ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF (each, a “Matching VIX Fund” and collectively, the “Matching VIX Funds”). Each of the Funds listed above issues common units of beneficial interest (“Shares”), which represent units of fractional undivided beneficial interest in and ownership of only that Leveraged Fund, Short Euro Fund, Geared VIX Fund or Matching VIX Fund. The Shares of each Leveraged Fund, the Short Euro Fund, each Geared VIX Fund and each Matching VIX Fund are listed on the New York Stock Exchange Archipelago (“NYSE Arca”). The Leveraged Funds, the Short Euro Fund and the Geared VIX Funds, are collectively referred to as the “Geared Funds” in these Notes to Financial Statements. The Geared VIX Funds and the Matching VIX Funds are collectively referred to as the “VIX Funds” in these Notes to Financial Statements.
The Trust registered shares for thirty-two additional series: (i) ProShares Short DJ-UBS Natural Gas and ProShares Short Gold (collectively, the “Short Funds”); (ii) ProShares UltraShort VIX Short-Term Futures ETF, ProShares Ultra VIX Mid-Term Futures ETF, ProShares Short VIX Mid-Term Futures ETF and ProShares UltraShort VIX Mid-Term Futures ETF (collectively, the “New Geared VIX Funds”); (iii) ProShares Managed Futures Strategy and ProShares Commodity Managed Futures Strategy (each, a “Managed Futures Fund” and collectively, the “Managed Futures Funds”); (iv) ProShares Financial Managed Futures Strategy; (v) ProShares UltraPro Australian Dollar, ProShares Short Australian Dollar, ProShares UltraPro Short Australian Dollar, ProShares UltraPro Canadian Dollar, ProShares Ultra Canadian Dollar, ProShares Short Canadian Dollar, ProShares UltraShort Canadian Dollar, ProShares UltraPro Short Canadian Dollar, ProShares UltraPro Euro, ProShares UltraPro Short Euro, ProShares UltraPro Swiss Franc, ProShares Ultra Swiss Franc, ProShares Short Swiss Franc, ProShares UltraShort Swiss Franc, ProShares UltraPro Short Swiss Franc, ProShares UltraPro Yen, ProShares Short Yen and ProShares UltraPro Short Yen; and (vi) ProShares UltraPro U.S. Dollar, ProShares Ultra U.S. Dollar, ProShares Short U.S. Dollar, ProShares UltraShort U.S. Dollar and ProShares UltraPro Short U.S. Dollar (collectively, the “Currency Index Funds”). ProShares UltraPro Short Euro and the Managed Futures Funds are collectively referred to herein as the “New Funds”.
On June 25, 2012, the registered offerings for ProShares UltraPro Australian Dollar, ProShares Short Australian Dollar, ProShares UltraPro Short Australian Dollar, ProShares UltraPro Canadian Dollar, ProShares Short Canadian Dollar, ProShares UltraPro Short Canadian Dollar, ProShares UltraPro Euro, ProShares UltraPro Short Euro, ProShares UltraPro Swiss Franc, ProShares Short Swiss Franc, ProShares UltraPro Short Swiss Franc, ProShares UltraPro Yen, ProShares UltraPro Short Yen and each Currency Index Fund, each of which had never been publicly offered, were terminated. On June 26, 2012, the registered offerings for the Short Funds and the New Geared VIX Funds, each of which had never been publicly offered, were terminated. On September 28, 2012, the registered offerings for ProShares Ultra Canadian Dollar, ProShares UltraShort Canadian Dollar, ProShares Ultra Swiss Franc, ProShares UltraShort Swiss Franc and ProShares Short Yen, each of which had never been publicly offered, were terminated. On December 5, 2012, a new offering of ProShares UltraPro Short Euro was registered on a Form S-1 Registration Statement (No. 333-185288). On January 30, 2013, the registered offering for ProShares Financial Managed Futures Strategy, which had never been publicly offered, was terminated. Thus, as of December 31, 2012, the only Funds that have registered amounts, in addition to the twenty-one series of the Trust that have commenced investment operations, are the New Funds.
As of December 31, 2012, each of the New Funds had seed capital, but none of the New Funds had commenced investment operations; therefore, these Financial Statements do not include Schedules of Investments, Statements of Operations, Statements of Changes in Shareholders’ Equity or Statements of Cash Flows for the New Funds.
The Trust had no operations prior to November 24, 2008, other than matters relating to its organization, the registration of each series under the Securities Act of 1933, as amended, and the sale and issuance to ProShare Capital Management LLC (the “Sponsor”) of fourteen Shares at an aggregate purchase price of $350 in each of the following Funds: ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra Gold, ProShares UltraShort Gold, ProShares Ultra Silver, ProShares UltraShort Silver, ProShares Ultra Euro, ProShares UltraShort Euro, ProShares Ultra Yen and ProShares UltraShort Yen.
Eight of the Funds, ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra Euro, ProShares UltraShort Euro, ProShares Ultra Yen and ProShares UltraShort Yen, commenced trading on the NYSE Arca on November 25, 2008. Four of the Funds, ProShares Ultra Gold, ProShares UltraShort Gold, ProShares Ultra Silver, and ProShares UltraShort Silver, commenced trading on the NYSE Arca on December 3, 2008. Two of the Funds, ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF, commenced trading on the NYSE Arca on January 3, 2011. Two of the Funds, ProShares Ultra VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF, commenced trading on the NYSE Arca on October 3, 2011. Two of the Funds, ProShares Ultra DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS Natural Gas, commenced trading on the NYSE Arca on October 4, 2011. One of the Funds, ProShares Short Euro, commenced trading on the NYSE Arca on June 26, 2012. Two of the Funds, ProShares Ultra Australian Dollar and ProShares UltraShort Australian Dollar, commenced trading on the NYSE Arca on July 17, 2012. As of December 31, 2012, the New Funds have not yet commenced trading.
Groups of Funds are collectively referred to in several different ways. References to “Ultra Funds,” “Short Funds,” “UltraShort Funds” or UltraPro Short Funds” refer to the different Funds based upon their investment objectives, but without distinguishing among the Funds’ benchmarks. References to “Commodity Index Funds”, “Commodity Funds” and “Currency Funds” refer to the different Funds according to their general benchmark categories without distinguishing among the Funds’ investment objectives or Fund-specific benchmarks. References to “VIX Funds” refer to the different Funds based upon their investment objective and their general benchmark categories. References to “Managed Futures Funds” refer to the different Funds according to which index the Fund intends to gain exposure.
Each “Ultra” Fund seeks daily investment results (before fees and expenses) that correspond to two times (2x) the daily performance of its corresponding benchmark. Each “Short” Fund seeks daily investment results (before fees and expenses) that correspond to the inverse (-1x) of the daily performance of its corresponding benchmark. Each “UltraShort” Fund seeks daily investment results (before fees and expenses) that correspond to two times the inverse (-2x) of the daily performance of its corresponding benchmark. The “UltraPro Short” Fund will seek daily investment results (before fees and expenses) that correspond to three times the inverse (-3x) of the daily performance of its corresponding benchmark. Daily performance is measured from the calculation of one NAV to the next. Each of the Funds generally invests in Financial Instruments (i.e., instruments whose value is derived from the value of an underlying asset, rate or index, including futures contracts, swap agreements, forward contracts and other instruments) as a substitute for investing directly in commodities, currencies, or spot volatility products in order to gain exposure to the commodity futures index, commodity, currency exchange rate, equity volatility index or applicable commodity or financial futures contracts. Financial Instruments also are used to produce economically “leveraged”, “inverse” or “inverse leveraged” investment results for the Geared Funds. Each Matching VIX Fund seeks results (before fees and expenses), both over a single day and over time, that match the performance of the S&P 500 VIX Short-Term Futures Index (the “Short-Term VIX Index”) or the S&P 500 VIX Mid-Term Futures Index (the “Mid-Term VIX Index”) (each a “VIX Futures Index”). Each Geared VIX Fund seeks daily investment results (before fees and expenses) that correspond to a multiple or the inverse of the daily performance of a benchmark. Each VIX Fund intends to obtain exposure to its benchmark by investing primarily in futures contracts (“VIX futures contracts”) based on the Chicago Board Options Exchange (“CBOE”) Volatility Index (the “VIX”). The Managed Futures Funds will seek to provide investment results (before fees and expenses) that correspond to the performance of the S&P Dynamic Futures Index (the “DFI”) or the S&P Dynamic Commodities Futures Index (the “DCFI” or “Sub-Index”). Each Managed Futures Fund intends to obtain exposure to the DFI or to the DCFI, as applicable, by primarily investing in unleveraged positions in U.S. exchange-traded futures contracts on sixteen different tangible commodities (the “Commodity Futures Contracts”) or futures contracts on eight different financials, such as major currencies and U.S. Treasury securities (the “Financial Futures Contracts” and together with the Commodity Futures Contracts, the “Index Components”).
The Geared Funds do not seek to achieve their stated investment objective over a period of time greater than a single day because mathematical compounding prevents the Geared Funds from achieving such results. Accordingly, results over periods of time greater than a single day should not be expected to be a simple multiple (e.g., 2x, -1, -2x or -3x) of the period return of the corresponding benchmark and will likely differ significantly. The Matching VIX Funds and the Managed Futures 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, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS Natural Gas each have a benchmark that is an index designed to track the performance of commodity futures contracts, as applicable. 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.
Renaming of Index
Effective as of January 2, 2012, the official name for the Dow Jones-UBS Crude Oil SubindexSM (Ticker: DJUBSCL) changed to the Dow Jones-UBS WTI Crude Oil SubindexSM. The ticker did not change as a result of the name change.
Share Splits and Reverse Share Splits
The table below includes Share splits and reverse Share splits for the Funds during the years ended December 31, 2010, 2011 and 2012. The ticker symbols for these Funds did not change, and each Fund continues to trade on the NYSE Arca.
The reverse splits were applied retroactively for all periods presented, reducing the number of Shares outstanding for each of ProShares UltraShort Gold, ProShares UltraShort Silver, ProShares UltraShort DJ-UBS Commodity, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort Yen, ProShares Ultra VIX Short-Term Futures ETF and ProShares Ultra DJ-UBS Natural Gas, and resulted in a proportionate increase in the price per Share and per Share information of each such Fund. Therefore, the reverse splits did not change the aggregate net asset value of a shareholder’s investment at the time of the reverse split.
The splits were applied retroactively for all periods presented, increasing the number of Shares outstanding for ProShares Ultra Silver, ProShares UltraShort DJ-UBS Natural Gas and ProShares Short VIX Short-Term Futures ETF, and resulted in a proportionate decrease in the price per Share and per Share information of each such Fund. Therefore, the splits did not change the aggregate net asset value of a shareholder’s investment at the time of the split.
NOTE 2-SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by each Fund, as applicable, in preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Use of Estimates & Indemnifications
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in these financial statements. Actual results could differ from those estimates.
In the normal course of business, the Trust enters into contracts that contain a variety of representations which provide general indemnifications. The Trust’s maximum exposure under these arrangements cannot be known; however, the Trust expects any risk of loss to be remote.
Basis of Presentation
Pursuant to rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), audited financial statements are presented for the Trust as a whole, as the SEC registrant, and for each Fund individually. The debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular Fund shall be enforceable only against the assets of such Fund and not against the assets of the Trust generally or any other Fund. Accordingly, the assets of one Fund of the Trust include only those funds and other assets that are paid to, held by or distributed to the Trust for the purchase of Shares in that Fund.
Statement of Cash Flows
The cash amount shown in the Statements of Cash Flows is the amount reported as cash in the Statement of Financial Condition dated December 31, 2012 and 2011, and represents non-segregated cash with the custodian and does not include short-term investments.
Final Net Asset Value for Fiscal Period
The times of the calculation of the Leveraged Funds’, the Short Euro Fund’s, the Geared VIX Funds’ and the Matching VIX Funds’ final net asset value for creation and redemption of fund shares for the year ended December 31, 2012 were as follows. All times are Eastern Standard Time:
NAV Calculation Time
NAV Calculation Date
Ultra Silver, UltraShort Silver
7:00 a.m.
December 31
Ultra Gold, UltraShort Gold
10:00 a.m.
December 28
Ultra DJ-UBS Commodity, UltraShort DJ-UBS Commodity
3:00 p.m.
December 31
Ultra DJ-UBS Crude Oil, UltraShort DJ-UBS Crude Oil
2:30 p.m.
December 31
Ultra DJ-UBS Natural Gas, UltraShort DJ-UBS Natural Gas
2:30 p.m.
December 31
Ultra Australian Dollar, UltraShort Australian Dollar
4:00 p.m.
December 31
Ultra Euro, Short Euro, UltraShort Euro
4:00 p.m.
December 31
Ultra Yen, UltraShort Yen
4:00 p.m.
December 31
Ultra VIX Short-Term Futures ETF, VIX Short-Term Futures ETF, Short VIX Short-Term Futures ETF
4:15 p.m.
December 31
VIX Mid-Term Futures ETF
4:15 p.m.
December 31
Although the Leveraged Funds’, the Short Euro Fund’s, the Geared VIX Funds’ and the Matching VIX Funds’ shares may continue to trade on secondary markets subsequent to the calculation of the final NAV, these times represent the final opportunity to transact in creation or redemption units for the year ended December 31, 2012.
Market value per share is determined at the close of the NYSE Arca and may be later than when the Funds’ NAV per share is calculated.
For financial reporting purposes, the Leveraged Funds, the Short Euro Fund, the VIX Funds value transactions based upon the final closing price in their primary markets. Accordingly, the investment valuations in these financial statements may differ from those used in the calculation of certain Leveraged Funds’, the Short Euro Fund’s, and the VIX Funds’ final creation/redemption NAV for the year ended December 31, 2012.
Investment Valuation
Short-term investments are valued at amortized cost which approximates fair value. For financial reporting purposes, short-term investments are valued at their market price using information provided by a third-party pricing service or market quotations. In each of these situations, valuations are typically categorized as Level I in the fair value hierarchy.
Derivatives (e.g., futures contracts swap agreements, forward agreements and foreign currency forward contracts) are generally valued using independent sources and/or agreements with counterparties or other procedures as determined by the Sponsor. Futures contracts, except for those entered into by the Gold, Silver, Australian Dollar and Short Euro Funds, are generally valued at the last settled price on the applicable exchange on which that future trades. Futures contracts entered into by the Gold, Silver, Australian Dollar and Short Euro Funds are valued at the last sales price prior to the time at which the NAV per Share of a Fund is determined. For financial reporting purposes, all futures contracts are valued at the last settled price. Futures contracts valuations are typically categorized as Level I in the fair value hierarchy. Swap agreements, forward agreements and foreign currency forward contracts valuations are typically categorized as Level II in the fair value hierarchy. If there was no sale on that day, and for non-exchange-traded derivatives, the Sponsor may in its sole discretion choose to determine a fair value price as the basis for determining the market value of such position for such day. Such fair value prices would be generally determined based on available inputs about the current value of the underlying financial instrument or commodity and would be based on principles that the Sponsor deems fair and equitable so long as such principles are consistent with normal industry standards. When market closing prices are not available, the Sponsor may fair value an asset of a Fund pursuant to the policies the Sponsor has adopted, which are consistent with normal industry standards. Depending on the source and relevant significance of valuation inputs, these instruments may be classified as Level II or Level III in the fair value hierarchy.
Fair value pricing may require subjective determinations about the value of an investment. While the Leveraged Funds’, the Short Euro Fund’s and the VIX Funds’ policies are intended to result in a calculation of a Leveraged Fund’s, the Short Euro Fund’s or a VIX Fund’s NAV that fairly reflects investment values as of the time of pricing, a Leveraged Fund, the Short Euro Fund or a VIX Fund cannot ensure that fair values determined by the Sponsor or persons acting at their direction would accurately reflect the price that a Fund could obtain for an investment if it were to dispose of that investment as of the time of pricing (for instance, in a forced or distressed sale). The prices used by a Leveraged Fund, the Short Euro Fund or a VIX Fund may differ from the value that would be realized if the investments were sold and the differences could be material to the financial statements.
Fair Value of Financial Instruments
The Funds disclose the fair value of their investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The disclosure requirements establish a fair value hierarchy that distinguishes between: (1) market participant assumptions developed based on market data obtained from sources independent of the Funds (observable inputs); and (2) the Funds’ own assumptions about market participant assumptions developed based on the best information available under the circumstances (unobservable inputs). The three levels defined by the disclosure requirements hierarchy are as follows:
Level I-Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level II-Inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly. Level II assets include the following: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).
Level III-Unobservable pricing input at the measurement date for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.
In some instances, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest input level that is significant to the fair value measurement in its entirety.
Fair value measurements also require additional disclosure when the volume and level of activity for the asset or liability have significantly decreased, as well as when circumstances indicate that a transaction is not orderly.
The following table summarizes the valuation of investments at December 31, 2012 using the fair value hierarchy:
At December 31, 2012, there were no Level III portfolio investments for which significant unobservable inputs were used to determine fair value.
The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those securities.
The following table summarizes the valuation of investments at December 31, 2011 using the fair value hierarchy:
At December 31, 2011, there were no Level III portfolio investments for which significant unobservable inputs were used to determine fair value.
The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those securities.
Investment Transactions and Related Income
Investment transactions are recorded on the trade date. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized appreciation/depreciation on open contracts are reflected in the Statements of Financial Condition and changes in the unrealized appreciation/depreciation between periods are reflected in the Statements of Operations. Discounts on short-term securities purchased are amortized and reflected as Interest Income in the Statements of Operations.
Brokerage Commissions and Fees
Each Fund pays or will pay its respective brokerage commissions, including applicable exchange fees, National Futures Association (“NFA”) fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with trading activities for each Fund’s investment in U.S. Commodity Futures Trading Commission regulated investments. The effects of trading spreads, financing costs/fees associated with Financial Instruments, and costs relating to the purchase of U.S. Treasury securities or similar high credit quality short-term fixed-income or similar securities would also be borne by the Funds. Brokerage commissions on futures contracts are recognized on a half-turn basis. For the year ended December 31, 2012, the Sponsor paid and is currently paying brokerage commissions on VIX futures contracts for the Matching VIX Funds.
Federal Income Tax
Each Fund is registered as a series of a Delaware statutory trust and is or will be treated as a partnership for U.S. federal income tax purposes. Accordingly, no Fund expects to incur U.S. federal income tax liability; rather, each beneficial owner of a Fund’s Shares is or will be required to take into account its allocable share of its Fund’s income, gain, loss, deductions and other items for its Fund’s taxable year ending with or within the beneficial owner’s taxable year.
Management of the Funds has reviewed all open tax years and major jurisdictions (i.e. the last four tax year ends and the interim tax period since then, as applicable) and concluded that there is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns. The Funds are also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. On an ongoing basis, management will monitor its tax positions taken under the interpretation to determine if adjustments to conclusions are necessary based on factors including, but not limited to, on-going analysis of tax law, regulation, and interpretations thereof.
New Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-11 “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”) requiring disclosure of both gross and net information related to offsetting and related arrangements enabling users of its financial statements to understand the effect of those arrangements on the entity’s financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. ASU 2011-11 is effective for interim and annual periods beginning on or after January 1, 2013. Adoption of ASU 2011-11 will have no effect on the Funds’ net assets. At this time, management is evaluating any impact ASU 2011-11 may have on the Funds’ financial statements disclosures.
NOTE 3-INVESTMENTS
Short-Term Investments
The Funds may purchase U.S. Treasury Bills, agency securities, and other high-credit quality short-term fixed income or similar securities with original maturities of one year or less. A portion of these investments may be posted as collateral in connection with swap agreements and/or used as collateral for a Fund’s trading in futures and forward contracts.
Accounting for Derivative Instruments
In seeking to achieve each Fund’s investment objective, the Sponsor uses a mathematical approach to investing. Using this approach, the Sponsor determines the type, quantity and mix of investment positions, including derivative positions, which the Sponsor believes in combination should produce returns consistent with a Fund’s objective.
All open derivative positions at period-end for each Fund are disclosed in the Schedule of Investments and the notional value of these open positions relative to the shareholders’ equity of each Fund is generally representative of the notional value of open positions to shareholders’ equity throughout the reporting period for each respective Fund. The volume associated with derivative positions varies on a daily basis as each Fund transacts derivative contracts in order to achieve the appropriate exposure, as expressed in notional value, in comparison to shareholders’ equity consistent with each Fund’s investment objective.
Following is a description of the derivative instruments used by the Funds during the reporting period, including the primary underlying risk exposures related to each instrument type.
Futures Contracts
The Funds enter into futures contracts to gain exposure to changes in the value of, or as a substitute for investing directly in (or shorting), an underlying index, currency or commodity. A futures contract obligates the seller to deliver (and the purchaser to accept) the future delivery of a specified quantity and type of asset at a specified time and place. The contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying commodity, if applicable, or by making an offsetting sale or purchase of an identical futures contract on the same or linked exchange before the designated date of delivery, or by cash settlement at expiration of contract.
Upon entering into a futures contract, each Fund is required to deposit and maintain as collateral at least such initial margin as required by the exchange on which the transaction is effected. The initial margin is segregated as cash balances with brokers for futures contracts, as disclosed in the Statements of Financial Condition, and is restricted as to its use. The Funds that enter into futures contracts maintain collateral at the broker in the form of cash. Pursuant to the futures contract, each Fund generally agrees to receive from or pay to the broker(s) an amount of cash equal to the daily fluctuation in value of the futures contract. Such receipts or payments are known as variation margin and are recorded by each Fund as unrealized gains or losses. Each Fund will realize a gain or loss upon closing of a futures transaction.
Futures contracts involve, to varying degrees, elements of market risk (specifically commodity price risk or equity market volatility risk) and exposure to loss in excess of the amount of variation margin. The face or contract amounts reflect the extent of the total exposure each Fund has in the particular classes of instruments. Additional risks associated with the use of futures contracts are imperfect correlation between movements in the price of the futures contracts and the market value of the underlying index or commodity and the possibility of an illiquid market for a futures contract. With futures
contracts, there is minimal but some counterparty risk to the Funds since futures contracts are exchange-traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures contracts, guarantees the futures contracts against default. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified times during the day. Futures contracts prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting a Fund to substantial losses. If trading is not possible, or if a Fund determines not to close a futures position in anticipation of adverse price movements, the Fund will be required to make daily cash payments of variation margin. The risk of the Fund will be unable to close out a futures position will be minimized by entering into such transactions on a national exchange with an active and liquid secondary market.
Swap Agreements
Certain of the Funds enter into swap agreements for purposes of pursuing their investment objectives or as a substitute for investing directly in (or shorting) an underlying index, currency or commodity, or to create an economic hedge against a position. Swap agreements are two-party contracts entered into primarily with major global financial institutions 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, although a financing spread or fee is normally still applied. Transaction or commission costs are reflected in the benchmark level at which the transaction is entered into. The gross returns to be exchanged are calculated with respect to a notional amount and the benchmark returns to which the swap is linked. Swap agreements do not involve the delivery of underlying instruments.
Generally, swap agreements entered into by the Funds calculate and settle the obligations of the parties to the agreement on a “net basis” with a single payment. Consequently, each Fund’s current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of such obligations (or rights) (the “net amount”). In a typical swap agreement entered into by a Matching VIX Fund or an Ultra Fund, the Matching VIX Fund or Ultra Fund would be entitled to settlement payments in the event the benchmark increases and would be required to make payments to the swap counterparties in the event the benchmark decreases, adjusted for any transaction costs or trading spreads on the notional amount the Funds may pay. In a typical swap agreement entered into by a Short Fund, an UltraShort Fund or the UltraPro Short Fund, the Short Fund, UltraShort Fund or the UltraPro Short Fund would be required to make payments to the swap counterparties in the event the benchmark increases and would be entitled to settlement payments in the event the benchmark decreases, adjusted for any transaction costs or trading spreads on the notional amount the Funds may pay.
The net amount of the excess, if any, of each Fund’s obligations over its entitlements with respect to each swap agreement is accrued on a daily basis and an amount of cash and/or securities having an aggregate NAV at least equal to such accrued excess is maintained for the benefit of the counterparty in a segregated account by the Funds’ Custodian. The net amount of the excess, if any, of each Fund’s entitlements over its obligations with respect to each 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 for the benefit of the Fund in a segregated account by the Fund’s Custodian. Until a swap agreement is settled in cash, the gain or loss on the notional amount less any transaction costs or trading spreads payable by each Fund on the notional amount are recorded as “unrealized appreciation or depreciation on swap agreements” and, when cash is exchanged, the gain or loss realized is recorded as “realized gains or losses on swap agreements.” Swap agreements are generally valued at the last settled price of the benchmark referenced index.
The Trust, on behalf of a Fund, may enter into agreements with certain counterparties for derivative transactions. These agreements contain various conditions, events of default, termination events, covenants and representations. The triggering of certain events or the default on certain terms of the agreement could allow a party to terminate a transaction under the agreement and request immediate payment in an amount equal to the net positions owed the party under the agreement. This could cause a Fund to have to enter into a new transaction with the same counterparty, enter into a transaction with a different counterparty or seek to achieve its investment objective through any number of different investments or investment techniques.
Swap agreements involve, to varying degrees, elements of market risk (commodity price risk) and exposure to loss in excess of the unrealized gain/loss reflected. The notional amounts reflect the extent of the total investment exposure each Fund has under the swap agreement, which may exceed the NAV of each Fund. Additional risks associated with the use of swap agreements are imperfect correlations between movements in the notional amount and the price of the underlying reference index and the inability of counterparties to perform. Each Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. A Fund will typically enter into swap agreements only with major global financial institutions. The creditworthiness of each of the firms that is a party to a swap agreement is monitored by the Sponsor. The Sponsor may use various techniques to minimize credit risk including early termination and payment, using different counterparties, limiting the net amount due from any individual counterparty and generally requiring collateral to be posted by the counterparty in an amount approximately equal to that owed to the Funds. All of the outstanding swap agreements at December 31, 2012 contractually terminate within one month but may be terminated without penalty by either party daily. Upon termination, the Fund is entitled to pay or receive the “unrealized appreciation or depreciation” amount.
The Funds, as applicable, collateralize swap agreements by segregating or designating cash and/or certain securities as indicated on the Statements of Financial Condition or Schedules of Investments. As noted above, such collateral is held for the benefit of the counterparty in a segregated tri-party account at the Custodian to protect the counterparty against non-payment by the Funds. In the event of a default by the counterparty, the Funds will seek withdrawal of this collateral from the segregated account and may incur certain costs in exercising its right with respect to the collateral.
If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Funds may experience significant delays in obtaining any recovery in a bankruptcy or other reorganizational proceeding. The Funds may obtain only limited recovery or may obtain no recovery in such circumstances.
The Funds remain subject to credit risk with respect to the amount they expect to receive from counterparties. However, the Funds have sought to mitigate these risks by generally requiring that the counterparties for each Fund agree to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to what the counterparty owes the Fund, subject to certain minimum thresholds. In the event of the bankruptcy of a counterparty, the Fund will have direct access to the collateral received from the counterparty, generally as of the day prior to the bankruptcy, because there is a one day time lag between the Fund’s request for collateral and the delivery of such collateral. To the extent any such collateral is insufficient, the Funds will be exposed to counterparty risk as described above, including the possible delays in recovering amounts as a result of bankruptcy proceedings. As of December 31, 2012, the collateral posted by counterparties consisted of cash and U.S. Treasury securities.
Forward Contracts
Certain of the Funds enter into forward contracts for purposes of pursuing their investment objectives and as a substitute for investing directly in (or shorting) commodities and/or currencies. A forward contract is an agreement between two parties to purchase or sell a specified quantity of an asset at or before a specified date in the future at a specified price. Forward contracts are typically traded in the over-the-counter (“OTC”) markets and all details of the contract are negotiated between the counterparties to the agreement. Accordingly, the forward contracts are valued by reference to the contracts traded in the OTC markets.
The contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying commodity or currency, establishing an opposite position in the contract and recognizing the profit or loss on both positions simultaneously on the delivery date or, in some instances, paying a cash settlement before the designated date of delivery. The forward contracts are adjusted by the daily fluctuation of the underlying commodity or currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Forward contracts are, in general, not cleared or guaranteed by a third party. The Funds may collateralize forward commodity contracts by segregating or designating cash and/or certain securities as indicated on their Statements of Financial Condition or Schedules of Investments. Such collateral is held for the benefit of the counterparty in a segregated tri-party account at the Custodian to protect the counterparty against non-payment by the Funds. In the event of a default by the counterparty, the Funds will seek withdrawal of this collateral from the segregated account and may incur certain costs in exercising its right with respect to the collateral. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Funds may experience significant delays in obtaining any recovery in a bankruptcy or other reorganizational proceeding. The Funds may obtain only limited recovery or may obtain no recovery in such circumstances.
The Funds remain subject to credit risk with respect to the amount they expect to receive from counterparties. However, the Funds have sought to mitigate these risks by generally requiring that the counterparties for each Fund agree to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to what the counterparty owes the Fund, subject to minimum thresholds. In the event of the bankruptcy of a counterparty, the Fund will have direct access to the collateral received from the counterparty, generally as of the day prior to the bankruptcy, because there is a one day time lag between the Fund’s request for collateral and the delivery of such collateral. To the extent any such collateral is insufficient, the Funds will be exposed to counterparty risk as described above, including the possible delays in recovering amounts as a result of bankruptcy proceedings. As of December 31, 2012, the collateral posted by counterparties consisted of cash and U.S. Treasury securities.
Participants in trading foreign exchange forward contracts often do not require margin deposits, but rely upon internal credit limitations and their judgments regarding the creditworthiness of their counterparties. In recent years, however, many OTC market participants in foreign exchange trading have begun to require their counterparties to post margin.
A Fund will typically enter into forward contracts only with major global financial institutions. The creditworthiness of each of the firms that is a party to a forward contract is monitored by the Sponsor.
Fair Value of Derivative Instruments
as of December 31, 2012
Fair Value of Derivative Instruments
as of December 31, 2011
* 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, 2012
The Effect of Derivative Instruments on the Statements of Operations
For the year ended December 31, 2011
The Effect of Derivative Instruments on the Statements of Operations
For the year ended December 31, 2010
NOTE 4-AGREEMENTS
Management Fee
Each Leveraged Fund, the Short Euro Fund and each Geared VIX Fund pays or will pay the Sponsor a Management Fee, monthly in arrears, in an amount equal to 0.95% per annum of its average daily NAV of such Fund. Each Matching VIX Fund pays the Sponsor a Management Fee, monthly in arrears, in an amount equal to 0.85% per annum of its average daily NAV of such Fund. Each Managed Futures Fund will pay the Sponsor a Management Fee monthly in arrears, in an amount equal to 0.75% per annum of its average daily NAV of such Fund. The Sponsor did not and will not charge its fee in the first year of operation of each Fund in an amount equal to the organization and offering costs. The Sponsor reimbursed or will reimburse each Fund to the extent that its offering costs exceed the Management Fee for the first year of operations. The Management Fee is or will be paid in consideration of the Sponsor’s services as commodity pool operator and commodity trading advisor, and for managing the business and affairs of the Funds. From the Management Fee, the Sponsor pays or will pay the fees and expenses of the Administrator, Custodian, Distributor, ProFunds Distributors, Inc. (“PDI”), an affiliated broker-dealer of the Sponsor, Transfer Agent and any index licensors for the Funds , the routine operational, administrative and other ordinary expenses of each Fund, and the normal and expected expenses incurred in connection with the continuous offering of Shares of each Fund after the commencement of its trading operations, including, but not limited to, expenses such as tax preparation expenses, legal fees not in excess of $100,000 per annum, ongoing SEC registration fees not exceeding 0.021% per annum of the NAV of a Fund and Financial Industry Regulatory Authority (“FINRA”) filing fees, individual K-1 preparation and mailing fees not exceeding 0.10% per annum of the net assets of a Fund, and report preparation and mailing expenses. For the year ended December 31, 2012, the Sponsor paid and is currently paying brokerage commissions on VIX futures contracts for the Matching VIX Funds. Each Fund incurs and pays, and each New Fund will incur and pay, its non-recurring and unusual fees and expenses.
The Administrator
The Sponsor and the Trust, for itself and on behalf of each Fund, has appointed Brown Brothers Harriman & Co. (“BBH&Co.”) as the Administrator of the Funds, and the Sponsor, the Trust, on its own behalf and on behalf of each Fund, and BBH&Co. have entered into an Administrative Agency Agreement (the “Administration Agreement”) in connection therewith. Pursuant to the terms of the Administration Agreement and under the supervision and direction of the Sponsor and the Trust, BBH&Co. prepares and files certain regulatory filings on behalf of the Funds. BBH&Co. may also perform other services for the Funds pursuant to the Administration Agreement as mutually agreed upon by the Sponsor, the Trust and BBH&Co. from time to time. Pursuant to the terms of the Administration Agreement, BBH&Co. also serves as the Transfer Agent of the Funds. The Administrator’s fees are or will be paid on behalf of the Funds by the Sponsor.
The Custodian
BBH&Co. serves as the Custodian of the Funds, and the Trust, on its own behalf and on behalf of each Fund, and BBH&Co. have entered into a Custodian Agreement in connection therewith. Pursuant to the terms of the Custodian Agreement, BBH&Co. is responsible for the holding and safekeeping of assets delivered to it by the Funds, and performing various administrative duties in accordance with instructions delivered to BBH&Co. by the Funds. The Custodian’s fees are or will be paid on behalf of the Funds by the Sponsor.
The Distributor
SEI Investments Distribution Co. (“SEI”), serves as Distributor of the Funds and assists the Sponsor and the Administrator with certain functions and duties relating to distribution and marketing, including taking creation and redemption orders, consulting with the marketing staff of the Sponsor and its affiliates with respect to compliance with the requirements of FINRA and/or the NFA in connection with marketing efforts, and reviewing and filing of marketing materials with FINRA and/or the NFA. SEI retains all marketing materials separately for each Fund, at c/o SEI, One Freedom Valley Drive, Oaks, PA 19456. The Sponsor, on behalf of each Fund, has entered into a Distribution Services Agreement with SEI.
Routine Operational, Administrative and Other Ordinary Expenses
The Sponsor pays or will pay all of the routine operational, administrative and other ordinary expenses of each Fund generally, as determined by the Sponsor including, but not limited to, fees and expenses of the Administrator, Custodian, Distributor, PDI, Transfer Agent, accounting and auditing fees and expenses, tax preparation expenses, legal fees not in excess of $100,000 per annum, ongoing SEC registration fees not exceeding 0.021% per annum of the NAV of a Fund, FINRA filing fees, individual Schedule K-1 preparation and mailing fees not exceeding 0.10% per annum of the NAV of a Fund, and report preparation and mailing expenses.
Non-Recurring Fees and Expenses
Each Fund pays or will pay all non-recurring and unusual fees and expenses, if any, as determined by the Sponsor. Non-recurring and unusual fees and expenses are fees and expenses such as legal claims and liabilities, litigation costs or indemnification or other material expenses which are not currently anticipated obligations of the Funds. Such fees and expenses are those that are non-recurring, unexpected or unusual in nature.
NOTE 5-ORGANIZATION AND OFFERING COSTS
Organization and offering costs are expensed as incurred and offering costs will be amortized by the Funds over a twelve month period on a straight-line basis beginning once the fund commences operations. The Sponsor did not and will not charge its Management Fee in the first year of operations of any Fund in an amount equal to the organization and offering costs. The Sponsor reimbursed or will reimburse each Leveraged Fund, the Short Euro Fund and each Geared VIX Fund, to the extent that its organization and offering costs exceeded 0.95% of its average daily NAV for the first year of operations. The Sponsor reimbursed each Matching VIX Fund if its organization and offering costs exceeded 0.85% of its average daily NAV for the first year of operations. The Sponsor will reimburse each Managed Futures Fund to the extent that its offering costs exceed 0.75% of its average daily NAV for the first year of operations.
At December 31, 2012, amounts payable for offering costs are reflected in the Statement of Financial Condition for each New Fund.
NOTE 6-CREATION AND REDEMPTION OF CREATION UNITS
Each Fund issues and redeems or will issue and redeem shares from time to time, but only in one or more Creation Units. A Creation Unit is or will be a block of 50,000 Shares of a Geared Fund or a Managed Futures Fund and 25,000 Shares of a Matching VIX Fund. Creation Units may be created or redeemed only by Authorized Participants. As a result of the Share splits and reverse Share splits as described in Note 1, certain redemptions as disclosed in the Statements of Changes in Shareholders’ Equity reflect payment of fractional share balances on beneficial shareholder accounts.
Except when aggregated in Creation Units, the Shares are not redeemable securities. Retail investors, therefore, generally will not be able to purchase or redeem Shares directly from or with a Fund. Rather, most retail investors will purchase or sell Shares in the secondary market with the assistance of a broker. Thus, some of the information contained in these Notes to Financial Statements-such as references to the Transaction Fees imposed on purchases and redemptions-is not relevant to retail investors.
Transaction Fees on Creation and Redemption Transactions
The manner by which Creation Units are purchased or redeemed is dictated by the terms of the Authorized Participant Agreement and Authorized Participant Handbook. By placing a purchase order, an Authorized Participant agrees to: (1) deposit cash with the Custodian; and (2) if permitted by the Sponsor in its sole discretion, enter into or arrange for an exchange of futures contract for related position or block trade whereby the Authorized Participant would also transfer to such Fund a number and type of exchange-traded futures contracts at or near the closing settlement price for such contracts on the purchase order date.
Authorized Participants may pay a fixed transaction fee of up to $500 in connection with each order to create or redeem a Creation Unit in order to compensate BBH&Co., as the Administrator, the Custodian and the Transfer Agent of each Fund and its Shares, for services in processing the creation and redemption of Creation Units and to offset the costs of increasing or decreasing derivative
positions. Authorized Participants also may pay a variable transaction fee to the Fund of up to 0.10% of the value of the Creation Unit that is purchased or redeemed unless the transaction fee is waived or otherwise adjusted by the Sponsor. The Sponsor provides such Authorized Participant with prompt notice in advance of any such waiver or adjustment of the transaction fee. Authorized Participants may sell the Shares included in the Creation Units they purchase from the Funds to other investors in the secondary market.
Transaction fees for the years ended December 31, 2012, 2011 and 2010, 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 period ended December 31, 2012:
Ultra ProShares
For the Year Ended December 31, 2012
* See Note 1 of these Notes to Financial Statements.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
UltraShort ProShares
For the Period Ended December 31, 2012
* See Note 1 of these Notes to Financial Statements.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
New Currency and VIX ProShares
For the Period Ended December 31, 2012
+ From commencement of operations, July 17, 2012, through December 31, 2012.
++ From commencement of operations, June 26, 2012, through December 31, 2012.
* 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.
^ Percentages are not annualized for the period ended December 31, 2012.
The returns for a share outstanding for 2011 are calculated based on the initial offering price upon commencement of investment operations of $40.0000 for ProShares Ultra Australian Dollar, UltraShort Australian Dollar and Short Euro.
** Percentages are annualized.
Selected data for a Share outstanding throughout the period ended December 31, 2011:
Ultra ProShares
For the Period Ended December 31, 2011
* See Note 1 of these Notes to Financial Statements.
+ For the year ended December 31, 2011.
++ From commencement of operations, October 4, 2011, through December 31, 2011.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
^ Percentages are not annualized for the period ended December 31, 2011.
The returns for a share outstanding for 2011 are calculated based on the initial offering price upon commencement of investment operations of $40.0000.
** Percentages are annualized.
UltraShort ProShares
For the Period Ended December 31, 2011
* See Note 1 of these Notes to Financial Statements.
+ For the year ended December 31, 2011.
++ From commencement of operations, October 4, 2011, through December 31, 2011.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
^ Percentages are not annualized for the period ended December 31, 2011.
The returns for a share outstanding for 2011 are calculated based on the initial offering price upon commencement of investment operations of $40.0000.
** Percentages are annualized.
VIX ProShares
For the Period Ended December 31, 2011
* See Note 1 of these Notes to Financial Statements.
+ From commencement of operations, October 3, 2011, through December 31, 2011.
++ From commencement of operations, January 3, 2011, through December 31, 2011.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
^ Percentages are not annualized for the period ended December 31, 2011.
The returns for a share outstanding for 2011 are calculated based on the initial offering price upon commencement of investment operations of $40.0000 for ProShares Ultra VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF and $80.0000 for ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF.
** Percentages are annualized.
Selected data for a Share outstanding throughout the year ended December 31, 2010:
Ultra ProShares
For the Year Ended December 31, 2010
* See Note 1 of these Notes to Financial Statements.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
UltraShort ProShares
For the Year Ended December 31, 2010
* See Note 1 of these Notes to Financial Statements.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
NOTE 8-RISK
Correlation and Compounding Risk
The Geared Funds do not seek to achieve their stated investment objective over a period of time greater than a single day (as measured from NAV calculation time to NAV calculation time). The return of a Geared Fund for a period longer than a single day is the result of its return for each day compounded over the period and usually will differ from two times (2x), the inverse (-1x), two times the inverse (-2x) or three times the inverse (-3x) of the return of the Geared Fund’s benchmark for the period. A Fund will lose money if its index performance is flat over time, and it is possible for a Geared Fund to lose money over time even if the performance of its index increases (or decreases in the case of Short, UltraShort or UltraPro Short Funds), as a result of daily rebalancing, the benchmark’s volatility and compounding. Longer holding periods, higher index volatility, inverse exposure and greater leverage each affect the impact of compounding on a Fund’s returns. Daily compounding of a Geared Fund’s investment returns can dramatically and adversely affect its longer-term performance during periods of high volatility. Volatility may be at least as important to a Geared Fund’s return for a period as the return of the Fund’s underlying index. The Matching VIX Funds and Managed Futures Funds seek to achieve their stated investment objective both over a single day and over time.
Each Ultra, UltraShort or UltraPro Short Fund uses leverage and should produce daily returns that are more volatile than that of its benchmark. For example, the daily return of an Ultra Fund with a 2x multiple should be approximately two times as volatile on a daily basis as is the return of a fund with an objective of matching the same benchmark. The daily return of a Short, UltraShort Fund or UltraPro Short Fund is designed to return the inverse (-1), two times the inverse (-2x) or three times the inverse (-3x) of the return that would be expected of a fund with an objective of matching the same benchmark. The Geared Funds are not appropriate for all investors and present different risks than other funds. The Leveraged Funds use leverage and are riskier than similarly benchmarked exchange-traded funds that do not use leverage. An investor should only consider an investment in a Geared Fund if he or she understands the consequences of seeking daily leveraged, daily inverse or daily inverse leveraged investment results. Daily objective geared funds, if used properly and in conjunction with the investor’s view on the future direction and volatility of the markets, can be useful tools for investors who want to manage their exposure to various markets and market segments and who are willing to monitor and/or periodically rebalance their portfolios. Shareholders who invest in the Funds should actively manage and monitor their investments, as frequently as daily.
While the Funds expect to meet their investment objectives, several factors may affect their ability to do so. Among these factors are: (1) the Sponsor’s ability to purchase and sell Financial Instruments in a manner that correlates to a Fund’s objective; (2) an imperfect correlation between the performance of Financial Instruments held by a Fund and the performance of the applicable benchmarks; (3) bid-ask spreads on such instruments; (4) fees, expenses, transaction costs, financing costs associated with the use of derivatives and commission costs; (5) holding instruments traded in a market that has become illiquid or disrupted; (6) a Fund’s Share prices being rounded to the nearest cent and/or valuation methodology; (7) changes to a benchmark index that are not disseminated in advance; (8) the need to conform a Fund’s portfolio holdings to comply with investment restrictions or policies or regulatory or tax law requirements; (9) early and unanticipated closings of the markets on which the holdings of a Fund trade, resulting in the inability of the Fund to execute intended portfolio transactions; and (10) accounting standards.
A number of factors may affect a Geared Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that a Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent a Geared Fund from achieving its investment objective. In order to achieve a high degree of correlation with their underlying benchmarks, the Geared Funds seek to rebalance their portfolios daily to keep exposure consistent with their investment objectives. Being materially under- or over-exposed to the benchmark may prevent such Funds from achieving a high degree of correlation with such benchmark. Market disruptions or closure, large amounts of assets into or out of the Geared Funds, regulatory restrictions or extreme market volatility will adversely affect such Funds’ ability to adjust exposure to requisite levels. The target amount of portfolio exposure is impacted dynamically by the benchmarks’ movements during each day. Because of this, it is unlikely that the Geared Funds will be perfectly exposed (i.e., 2x, -1x, -2x or -3x, as applicable) to its benchmark at the end of each day, and the likelihood of being materially under- or over-exposed is higher on days when the benchmark levels are volatile near the close of the trading day. In addition, unlike other funds that do not rebalance their portfolios as frequently, each Geared Fund may be subject to increased trading costs associated with daily portfolio rebalancing in order to maintain appropriate exposure to the underlying benchmarks.
Counterparty Risk
Certain of the Funds will use swap agreements and/or forward contracts as a means to achieve their respective investment objectives. Such Funds will use either swap agreements and/or forward contracts referencing their respective benchmarks. These Funds may also invest in other swap agreements or forward contracts if such instruments tend to exhibit trading prices or returns that correlate with the benchmark or a component of the benchmark and will further the investment objective of the Fund. Certain Funds may invest in swap agreements or forward contracts if position accountability rules or position limits are reached with respect to specific futures contracts or the market for a specific futures contract experiences emergencies (e.g., natural disaster, terrorist attack or an act of God) or disruptions (e.g., a trading halt or a flash crash) that prevent the Funds from obtaining the appropriate amount of investment exposure to the affected futures contract or certain other futures contracts. Although unlikely, those Funds, under these circumstances, could have 100% exposure to swap agreements or forward contracts.
Swap agreements and forward contracts are generally traded over the counter and are essentially unregulated by the CFTC. Investors, therefore, do not receive the protection of CFTC regulation or the statutory scheme of the CEA in connection with each Fund’s swap agreements or forward contracts. The lack of regulation in these markets could expose investors to significant losses under certain circumstances including in the event of trading abuses or financial failure by participants.
Unlike in futures contracts, the counterparty to swap agreements or forward contracts is generally a single bank or other financial institution, rather than a clearing organization backed by a group of financial institutions. As a result, a Fund is subject to credit risk with respect to the amount it expects to receive from counterparties to swaps and forward contracts entered into as part of that Fund’s principal investment strategy. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, a Fund could suffer significant losses on these contracts and the value of an investor’s investment in a Fund may decline.
The Funds have sought to mitigate these risks by generally requiring that the counterparties for each Fund agree to post collateral for the benefit of the Fund, marked to market daily, subject to certain minimum thresholds; however there are no limitations on the percentage of its assets each Fund may invest in swap agreements or forward contracts with a particular counterparty. To the extent any such collateral is insufficient or there are delays in accessing the collateral, the Funds will be exposed to counterparty risk as described above, including possible delays in recovering amounts as a result of bankruptcy proceedings. The Funds typically enter into transactions only with major global financial institutions.
Swaps or forward contracts are less liquid than futures contracts because they are not traded on an exchange, do not have uniform terms and conditions, and are generally entered into based upon the creditworthiness of the parties and the availability of credit support, such as collateral, and in general, are not transferable without the consent of the counterparty.
If the level of the Fund’s benchmark has a dramatic intraday move that would cause a material decline in the Fund’s NAV, the terms of the swap may permit the counterparty to immediately close out the transaction with the Fund. In that event, it may not be possible for the Fund to enter into another swap agreement or to invest in other Financial Instruments necessary to achieve the desired exposure consistent with the Fund’s objective. This, in turn, may prevent the Fund from achieving its investment objective, particularly if the level of the Fund’s benchmark reverses all or part of its intraday move by the end of the day.
Each counterparty and/or any of its affiliates may be an Authorized Participant or shareholder of a Fund.
Although the counterparty to a futures contract is often a clearing organization backed by a group of financial institutions, there may also be instances in which the counterparty could fail to perform its obligations, causing significant losses to a Fund.
Leverage Risk
The Leveraged Funds may utilize leverage in seeking to achieve their respective investment objectives and will lose more money in market environments adverse to their respective daily investment objectives than funds that do not employ leverage. The use of leveraged and/or inverse leveraged positions could result in the total loss of an investor’s investment.
For example, because the Ultra Funds, UltraShort Funds and UltraPro Short Fund include a two times (2x), a two times the inverse (-2x) or a three times the inverse (-3x) multiplier, a single-day movement in the relevant benchmark approaching 50% at any point in the day (for an Ultra or UltraShort Fund) or 33% (for the UltraPro Short Fund) could result in the total loss or almost total loss of an investor’s investment if that movement is contrary to the investment
objective of the Fund in which an investor has invested, even if such Fund’s benchmark subsequently moves in an opposite direction, eliminating all or a portion of the movement. This would be the case with downward single-day or intraday movements in the underlying benchmark of an Ultra Fund or upward single-day or intraday movements in the benchmark of an UltraShort or UltraPro Short Fund, even if the underlying benchmark maintains a level greater than zero at all times.
Liquidity Risk
Financial Instruments cannot always be liquidated at the desired price. It is difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. A market disruption can also make it difficult to liquidate a position or find a swap or forward contract counterparty at a reasonable cost. Market illiquidity may cause losses for the Funds. The large size of the positions which the Funds may acquire increases the risk of illiquidity by both making their positions more difficult to liquidate and increasing the losses incurred while trying to do so. Any type of disruption or illiquidity will potentially be exacerbated due to the fact that the Funds will typically invest in Financial Instruments related to one benchmark, which in many cases is highly concentrated.
“Contango” and “Backwardation” Risk
In Funds that hold futures contracts, as the futures contracts near expiration, they are generally replaced by contracts that have a later expiration. Thus, for example, a contract purchased and held in August 2012 may specify an October 2012 expiration. For an Ultra Fund and a Matching VIX Fund, as that contract nears expiration, it may be replaced by selling the October 2012 contract and purchasing the contract expiring in December 2012. This process is referred to as “rolling.” Rolling may have a positive or negative impact on performance. For example, historically, the prices of certain types of futures contracts have frequently been higher for contracts with shorter-term expirations than for contracts with longer-term expirations, which is referred to as “backwardation.” In these circumstances, absent other factors, the sale of the October 2012 contract would take place at a price that is higher than the price at which the December 2012 contract is purchased, thereby creating a gain in connection with rolling. While certain types of futures contracts have historically exhibited consistent periods of backwardation, backwardation will likely not exist in these markets at all times. The presence of contango (where prices of contracts are higher in the distant delivery months than in the nearer delivery months due to the costs of long-term storage of a physical commodity prior to delivery or other factors) in certain futures contracts at the time of rolling would be expected to adversely affect an Ultra Fund or a Matching VIX Fund that invests in such futures, and positively affect a Short Fund or an UltraShort Fund that invests in such futures. Similarly, the presence of backwardation in certain futures contracts at the time of rolling such contracts would be expected to adversely affect the Short Funds and UltraShort Funds, and positively affect the Ultra Funds and Matching VIX Funds.
Since the introduction of VIX futures contracts, there have frequently been periods where VIX futures prices reflect higher expected volatility levels further out in time. This can result in a loss from “rolling” the VIX futures to maintain the constant weighted average maturity of the VIX Futures Index. Losses from exchanging a lower priced VIX future for a higher priced longer-term future in the rolling process would adversely affect the value of each VIX Futures Index and, accordingly, decrease the return of the Ultra VIX Short-Term Futures ETF and the Matching VIX Funds.
Gold and silver historically exhibit persistent “contango” markets rather than backwardation. Natural gas, like crude oil, moves in and out of backwardation and contango but historically has been in contango most commonly. It is generally believed this is because the market needs to build inventories for most of the year in order to have enough storage to make it through a normal winter. Periods of backwardation are typically thought to be caused by demand shocks or supply shortages such as an unusually cold winter or a hurricane.
NOTE 9-LEGAL PROCEEDINGS
The Trust and certain principals of the Sponsor have been named as defendants (along with several other parties) in a consolidated class action lawsuit filed in the United States District Court for the Southern District of New York, styled In re ProShares Trust Securities Litigation, Civ. No. 09-cv-6935. The complaint, as amended, alleged that the defendants violated Sections 11 and 15 of the Securities Act of 1933 by including untrue statements of material fact and omitting material facts in the Registration Statement for one or more ProShares ETFs and allegedly failing to adequately disclose the Funds’ investment objectives and risks. The six Funds of the Trust named in the complaint were 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. On September 10, 2012, the District Court issued an Opinion and Order dismissing the class action lawsuit in its entirety. On December 17, 2012, the plaintiffs filed an appeal brief to the United States Court of Appeals for the Second Circuit. The Trust believes the complaint is without merit and that the anticipated outcome will not adversely impact the operation of the Trust or any of its Funds. Accordingly, no loss contingency has been recorded in the balance sheet and the amount of loss, if any, cannot be reasonably estimated at this time.
NOTE 10-SUBSEQUENT EVENTS
Management has evaluated the possibility of subsequent events existing in the Trust’s and the Funds’ financial statements through the date the financial statements were issued. The subsequent events were as follows:
The Dow Jones-UBS Commodity IndexSM (the “Dow Jones-UBS”) is comprised of 5 different commodity sectors: energy, livestock, industrial metals, precious metals and agriculture. Prior to January 2013, these five sectors tracked futures contracts prices of 20 specific commodities: natural gas, WTI crude oil, brent crude, unleaded gasoline, heating oil, live cattle, lean hogs, wheat, corn, soybeans, soybean oil, aluminum, copper, zinc, nickel, gold, silver, sugar, cotton and coffee. In January 2013, the Dow Jones-UBS added two additional commodities: Hard Red Winter Wheat (KBWT) and soybean meal. The Dow Jones-UBS is designed to minimize concentration in any one commodity or sector. Prior to January 2013, no single commodity could constitute less than 2% or more than 15% of the index. In January 2013, the 2% floor was eliminated and commodities in the index may have target weights lower than 2%. No related group of commodities (e.g., energy, precious metals, livestock or grains) may constitute more than 33% of the index as of the annual reweighting of the components. The Dow Jones-UBS family of indices also includes ten sub-indexes that group commodities based on type, as well as single commodity sub-indexes representing each of the commodities that are currently tracked by the Dow Jones-UBS.
As of January 2013, the target weightings of all Dow Jones-UBS components are:
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
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.