PROSPECTUS October
1,
2022
|
BITO |
Bitcoin
Strategy ETF |
ProShares Bitcoin Strategy ETF is
listed on NYSE Arca (“Exchange”).
Neither the Securities and Exchange
Commission, the Commodity Futures Trading
Commission, nor any state securities commission has approved or disapproved of
these securities or passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
PROSHARES TRUSTDistributor: SEI Investments Distribution Co.
4 :: Bitcoin
Strategy ETF 
PROSHARES.COM
|
|
|
|
|
|
|
Management
Fees |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
Bitcoin
Strategy ETF :: 5PROSHARES.COM
6 :: Bitcoin
Strategy ETF
PROSHARES.COM
Bitcoin
Strategy ETF :: 7PROSHARES.COM
8 :: Bitcoin
Strategy ETF
PROSHARES.COM
Management
The Fund is advised
by ProShare Advisors. Alexander Ilyasov, Senior Portfolio Manager, and George
Banian, Portfolio Manager, have jointly and primarily managed the Fund since
October 2021 and March 2022, respectively.
Purchase
and Sale of Fund Shares
The
Fund will issue and redeem shares only to Authorized Participants (typically
broker-dealers) in exchange for cash in large blocks, known as Creation Units.
Shares of the Fund may only be purchased and sold by retail investors in
secondary market transactions through broker-dealers or other financial
intermediaries. Shares of the Fund are listed for trading on a national
securities exchange and because shares trade at market prices rather than NAV,
shares of the Fund may trade at a price greater than NAV (premium) or less than
NAV (discount). In addition to brokerage commissions, investors incur the costs
of the difference between the highest price a buyer is willing to pay to
purchase shares of the Funds (bid) and the lowest price a seller is willing to
accept for shares of the Fund (ask) when buying or selling shares in the
secondary market (the “bid-ask spread”). The bid-ask spread varies over time for
Fund shares based on trading volume and market liquidity. Recent information,
including information about a Fund’s NAV, market price, premiums and discounts,
and bid-ask spreads, is included on the Fund’s website
(www.proshares.com).
Tax
Information
Income and capital
gains distributions you receive from the Fund generally are subject to
federal income taxes and may also be subject to state and local taxes. The Fund
intends to distribute income, if any, monthly, and capital gains, if any, at
least annually.
10 :: INVESTMENT
OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
PROSHARES.COM
This
section contains additional details about the Fund’s investment
objective, principal investment strategies and related risks.
Investment
Objective
The Fund seeks
capital appreciation.
The
Fund’s investment objective is non-fundamental, meaning it may be changed
by the Board of Trustees (“Board”), without the approval of Fund
shareholders.
Principal
Investment Strategies
The
Fund seeks to provide capital appreciation primarily through managed
exposure to bitcoin futures contracts. The
Fund does not invest directly in bitcoin.
In seeking to
achieve the Fund’s investment objective, ProShare Advisors LLC (“ProShare
Advisors” or the “Advisor”) takes into consideration, among other things, the
relative liquidity of and costs associated with bitcoin futures contracts as
well as regulatory requirements imposed by the Securities and Exchange
Commission, the CFTC, the listing exchanges and
the Internal Revenue Service. The Fund generally seeks to remain fully invested
at all times in investments that, in combination, provide exposure to bitcoin
futures without regard to market conditions, trends, or direction.
The Fund does not
take temporary defensive positions. The Fund will generally hold its
bitcoin-related investments during periods in which the value of bitcoin and
bitcoin futures are flat or declining as well as during periods in which the
value of bitcoin and bitcoin futures are rising. For example, if the Fund’s
bitcoin-related investments are declining in value, the Fund generally will not
exit its positions except as needed to meet redemption requests.
Bitcoin
Bitcoin
is a digital asset which serves as the unit of account on an open-source,
decentralized, peer-to-peer computer network. Bitcoin may be used to pay for
goods and services, stored for future use, or converted to a government-issued
currency. As of the date of this Prospectus, the adoption of bitcoin for these
purposes has been limited. The value of bitcoin is not backed by any government,
corporation, or other identified body.
The
value of bitcoin is determined in part by the supply of (which is limited),
and demand for, bitcoin in the markets for exchange that have been organized to
facilitate the trading of bitcoin. By design, the supply of bitcoin is limited
to 21 million bitcoins. As of the date of this Prospectus, there are
approximately 19 million bitcoins in circulation.
Bitcoin
is maintained on the decentralized, open source, peer-to-peer computer network
(the “Bitcoin Network”). No single entity owns or operates the Bitcoin Network.
The Bitcoin Network is accessed through software and governs bitcoin’s creation
and movement. The source code for the Bitcoin Network,
often
referred to as the Bitcoin Protocol, is open-source, and anyone can
contribute to its development.
The
Bitcoin Network
The
infrastructure of the Bitcoin Network is collectively maintained by participants in
the Bitcoin Network, which include miners, developers, and users. Miners
validate transactions and are currently compensated for that service in bitcoin.
Developers maintain and contribute updates to the Bitcoin Network’s source code
often referred to as the Bitcoin Protocol. Users access the Bitcoin Network
using open-source software. Anyone can be a user, developer, or
miner.
Bitcoin
is maintained on a digital transaction ledger commonly known as a
“blockchain.” A blockchain is a type of shared and continually reconciled
database, stored in a decentralized manner on the computers of certain users of
the digital asset and is protected by cryptography. The Bitcoin Blockchain
contains a record and history for each bitcoin transaction.
New
bitcoin is created by “mining.” Miners use specialized computer software
and hardware to solve a highly complex mathematical problem presented by the
Bitcoin Protocol. The first miner to successfully solve the problem is permitted
to add a block of transactions to the Bitcoin Blockchain. The new block is then
confirmed through acceptance by a majority of users who maintain versions of the
blockchain on their individual computers. Miners that successfully add a block
to the Bitcoin Blockchain are automatically rewarded with a fixed amount of
bitcoin for their effort plus any transaction fees paid by transferors whose
transactions are recorded in the block. This reward system is the means by which
new bitcoin enter circulation and is the mechanism by which versions of the
blockchain held by users on a decentralized network are kept in
consensus.
The
Bitcoin Protocol
The
Bitcoin Protocol is an open source project with no official company or group in
control. Anyone can review the underlying code and suggest changes. There are,
however, a number of individual developers that regularly contribute to a
specific distribution of bitcoin software known as the “Bitcoin Core.”
Developers of the Bitcoin Core loosely oversee the development of the source
code. There are many other compatible versions of the bitcoin software, but
Bitcoin Core is the most widely adopted and currently provides the de facto
standard for the Bitcoin Protocol. The core developers are able to access, and
can alter, the Bitcoin Network source code and, as a result, they are
responsible for quasi-official releases of updates and other changes to the
Bitcoin Network’s source code.
However,
because bitcoin has no central authority, the release of updates to the
Bitcoin Network’s source code by the core developers does not guarantee that the
updates will be automatically adopted by the other participants. Users and
miners
INVESTMENT
OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED
RISKS :: 11
PROSHARES.COM
must
accept any changes made to the source code by downloading the proposed
modification and that modification is effective only with respect to those
bitcoin users and miners who choose to download it. As a practical matter, a
modification to the source code becomes part of the Bitcoin Network only if it
is accepted by participants that collectively have a majority of the processing
power on the Bitcoin Network.
If
a modification is accepted by only a percentage of users and miners, a division
will occur such that one network will run the pre-modification source code and
the other network will run the modified source code. Such a division is known as
a “fork.”
Bitcoin
Futures
A
futures contract is a standardized contract traded on, or subject to the rules
of, an exchange to buy or sell a specified type and quantity of a particular
underlying asset at a designated price. Futures contracts are traded on a wide
variety of underlying assets, including bitcoin, bonds, interest rates,
agricultural products, stock indexes, currencies, digital assets, energy,
metals, economic indicators and statistical measures. The contract unit (i.e.,
the total amount of the underlying asset referenced in each futures contract)
and calendar term of futures contracts on a particular underlying asset are
identical and are not subject to any negotiation, other than with respect to
price and the number of contracts traded between the buyer and seller. Futures
contracts expire on a designated date, referred to as the “expiration
date.”
The Fund generally
deposits cash (also known as “margin”) with an FCM for its open positions
in futures contracts. The margin requirements or position limits may be based on
the notional exposure (i.e., the total dollar value of exposure) of the futures
contracts or the number of futures contracts purchased. The FCM, in turn,
generally transfers such deposits to the clearing house to protect the clearing
house against non-payment by the Fund. “Variation Margin” is the amount of cash
that each party agrees to pay to or receive from the other to reflect the daily
fluctuation in the value of the futures contract. The clearing house becomes
substituted for each counterparty to a futures contract and, in effect,
guarantees performance. In addition, the FCM may require the Fund to deposit
additional collateral in excess of the clearing house’s requirements for the
FCM’s own protection. Margin requirements for CME Bitcoin Futures are
substantially higher than margin requirements for many other types of futures
contracts.
CME Bitcoin Futures
commenced trading on the CME Globex electronic trading platform on
December 17, 2017, under the ticker symbol “BTC.” CME Micro Bitcoin Futures
commenced trading on the CME Globex electronic trading platform on May 3, 2021,
under the ticker symbol “MBT.” CME Bitcoin Futures and CME Micro Bitcoin Futures
are cash-settled in U.S. dollars, based on the final settlement value of the CME
CF Bitcoin Reference Rate (“BRR”).
Rolling
of the Bitcoin Futures
Futures contracts
expire on a designated date, referred to as the “expiration date.” The Fund
generally seeks to invest in “front-month” CME Bitcoin Futures contracts but may
invest in back-month, cash-settled bitcoin futures contracts. “Front-month”
contracts are the monthly contracts with the nearest expiration date. Back-month
bitcoin futures contracts are those with longer times to maturity. CME Bitcoin
Futures are cash-settled on their expiration date unless they are “rolled” prior
to expiration. The Fund intends to “roll” its CME Bitcoin Futures prior to
expiration. Typically, the Fund will roll to the next “nearby” CME Bitcoin
Futures. The “nearby” contracts are those contracts with the next closest
expiration date.
Investment
in the Cayman Subsidiary
The Fund expects to
gain exposure to bitcoin futures contracts by investing a portion of its
assets in a wholly-owned subsidiary of the Fund organized under the laws of the
Cayman Islands, the ProShares Bitcoin Strategy Portfolio (the “Portfolio”). The
Portfolio will be managed and advised by ProShare Advisors LLC and overseen by
the Portfolio’s board of directors.
Equity
Securities of Bitcoin-Related Companies
If the Fund is
unable to obtain the desired exposure to bitcoin futures contracts because it is
approaching or has exceeded position limits or accountability levels or because
of liquidity or other constraints, the Advisor intends to take such action as it
believes appropriate and in the best interest of the Fund. This may include, among other things, investing in
equity securities of “bitcoin-related companies.” For these purposes,
bitcoin-related companies are companies listed on a U.S. stock exchange that the
Advisor believes provide returns that generally correspond, or are closely
related, to the performance of bitcoin or bitcoin futures. For example, the Fund
may invest in U.S. listed companies engaged in digital asset mining or offering
digital asset trading platforms.
Please see
“Principal Investment Strategies” in the Fund’s Summary Prospectus for more detail
about the financial instruments in which the Fund invests.
Additional
Information Regarding Principal Risks
Like
all investments, investing in the Fund entails risks. The factors most likely
to have a significant impact on the Fund’s portfolio are called “principal
risks.” The principal risks for the Fund are described in the Fund’s Summary
Prospectus and additional information regarding certain of these risks, as well
as information related to other potential risks to which the Fund may be
subjected, is provided below. The principal risks are intended to provide
information about the factors likely to have a significant adverse impact on the
Fund’s returns and consequently the value of an investment in the Fund. The
risks are presented in an order intended to facilitate readability and their
order does not imply that the realization of one risk is more likely to occur
than another risk or likely to have a greater adverse impact than another risk.
The
12 :: INVESTMENT
OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
PROSHARES.COM
Statement
of Additional Information (“SAI”) contains additional information about
the Fund, investment strategies and related risks. The Fund may be subject to
other risks in addition to those identified as principal risks.
•Bitcoin
and Bitcoin Futures Risk – Investments
linked to bitcoin can be highly volatile compared to investments in traditional
securities and the Fund may experience sudden and large losses. The markets for
bitcoin and bitcoin futures may become illiquid. These markets may fluctuate
widely based on a variety of factors including changes in overall market
movements, political and economic events, wars, acts of terrorism, natural
disasters (including disease, epidemics and pandemics) and changes in interest
rates or inflation rates. An investor should be prepared to lose the full
principal value of their investment suddenly and without warning.
A number of factors
impact the price and
market for bitcoin and bitcoin futures.
○Supply
and demand for bitcoin – It is believed
that speculators and investors who seek to profit from trading and holding
bitcoin currently account for a significant portion of bitcoin demand. Such
speculation regarding the potential future appreciation in the price of bitcoin
may artificially inflate or deflate the price of bitcoin. Market fraud and/or
manipulation and other fraudulent trading practices such as the intentional
dissemination of false or misleading information (e.g., false rumors) can, among
other things, lead to a disruption of the orderly functioning of markets,
significant market volatility, and cause the value of bitcoin futures to
fluctuate quickly and without warning.
○Supply
and demand for bitcoin futures contracts – The price for bitcoin futures
contracts is based on a number of factors, including the supply of and the
demand for bitcoin futures contracts. Market conditions and expectations,
position limits and accountability levels, collateral requirements, the
availability of counterparties and other factors each can impact the supply of
and demand for bitcoin futures contracts. Recently, increased demand paired with
supply constraints and other factors caused bitcoin futures to trade at a
significant premium to the “spot” price of bitcoin. Demand, including demand
resulting from the purchase, or anticipated purchase, of bitcoin futures
contracts by the Fund or other entities may increase that premium, perhaps
significantly. It is not possible to predict when such conditions will arise or
whether or for how long such conditions would continue. To the extent the Fund
purchases bitcoin futures contracts at a premium and the premium declines, the
value of an investment in the Fund also should be expected to
decline.
○Adoption
and use of bitcoin – The continued
adoption of bitcoin will require growth in its usage as a means of payment. Even
if growth in bitcoin adoption continues in the near or medium-term, there is no
assurance that bitcoin
usage
will continue to grow over the long-term. A contraction in the use of
bitcoin may result in a lack of liquidity, increased volatility in and a
reduction to the price of bitcoin.
○The
regulatory environment relating to bitcoin and bitcoin
futures
– The regulation of bitcoin, digital assets and related products and services
continues to evolve. The inconsistent and sometimes conflicting regulatory
landscape may make it more difficult for bitcoin businesses to provide services,
which may impede the growth of the bitcoin economy and have an adverse effect on
consumer adoption of bitcoin. There is a possibility of future regulatory change
altering, perhaps to a material extent, the ability to buy and sell bitcoin and
bitcoin futures. Similarly, future regulatory changes could impact the ability
of the Fund to achieve its investment objective or alter the nature of an
investment in the Fund or the ability of the Fund to continue to operate as
planned.
○Margin
requirements,
position
limits,
and
accountability levels applicable to bitcoin futures contracts – Margin levels for bitcoin futures
contracts are substantially higher than the margin requirements for more
established futures contracts. Additionally, the FCMs utilized by the Fund may
impose margin requirements in addition to those imposed by the exchanges. Margin
requirements are subject to change, and may be raised in the future by the
exchanges and the FCMs. High margin requirements could prevent the Fund from
obtaining sufficient exposure to bitcoin futures and may adversely affect its
ability to achieve its investment objective. Additionally, the CME has
established position limits on the maximum number of contracts that may be held
or controlled and accountability levels that if reached would allow the CME to
exercise greater scrutiny and control over the Fund’s positions. These positions
are aggregated across all investment products managed by the Advisor, which
includes Bitcoin Strategy ProFund and ProShares Bitcoin Strategy ETF. Further,
FCMs utilized by the Fund will generally impose limits on the amount of exposure
to futures contracts the Fund can obtain through such FCMs. If the Fund cannot
obtain sufficient exposure through its FCMs, the Fund may not be able to achieve
its investment objective.
○Largely
unregulated marketplace – Bitcoin, the
Bitcoin Network and the bitcoin trading venues are relatively new and, in most
cases, largely unregulated. As a result of this lack of regulation, individuals,
or groups may engage in insider trading, fraud or market manipulation with
respect to bitcoin. Such manipulation could cause investors in bitcoin to lose
money, possibly the entire value of their investments. Over the past several
years, a number of bitcoin trading venues have been closed due to fraud, failure
or security breaches. The nature of the assets held at bitcoin trading venues
make them appealing targets for hackers and a number of bitcoin trading
INVESTMENT
OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED
RISKS :: 13
PROSHARES.COM
venues
have been victims of cybercrimes and other fraudulent activity.
These activities have caused significant, in some cases total, losses for
bitcoin investors. Investors in bitcoin may have little or no recourse should
such theft, fraud or manipulation occur. There is no central registry showing
which individuals or entities own bitcoin or the quantity of bitcoin that is
owned by any particular person or entity. There are no regulations in place that
would prevent a large holder of bitcoin or a group of holders from selling their
bitcoins, which could depress the price of bitcoin, or otherwise attempting to
manipulate the price of bitcoin or the Bitcoin Network. Events that reduce user
confidence in bitcoin, the Bitcoin Network and the fairness of bitcoin trading
venues could have a negative impact on the price of bitcoin and the value of an
investment in the Fund.
○Cybersecurity – As a digital
asset bitcoin is subject to the risk that malicious actors will exploit flaws in
its code or structure that will allow them to, among other things, steal bitcoin
held by others, control the blockchain, steal personally identifying
information, or issue significant amounts of bitcoin in contravention of the
Bitcoin Protocols. The occurrence of any of these events is likely to have a
significant adverse impact on the price and liquidity of bitcoin and bitcoin
futures contracts and therefore the value of an investment in the Fund.
Additionally, the Bitcoin Network’s functionality relies on the Internet. A
significant disruption of Internet connectivity affecting large numbers of users
or geographic areas could impede the functionality of the Bitcoin Network. Any
technical disruptions or regulatory limitations that affect Internet access may
have an adverse effect on the Bitcoin Network, the price of bitcoin and the
value of an investment in the Fund.
○Declining
mining compensation – Transactions in
bitcoin are processed by miners which are primarily compensated in bitcoin based
on a declining payment schedule and, in some instances, by voluntary fees paid
by participants. If this compensation is not sufficient to incentivize miners to
process transactions, the confirmation process for transactions may slow and the
Bitcoin Network may become more vulnerable to malicious actors. These and
similar events may have a significant adverse effect on the price and liquidity
of bitcoin and the value of an investment in the Fund.
○Forks – The open source
nature of the Bitcoin Protocol permits any developer to review the underlying
code and suggest changes. If some users and miners adopt a change while others
do not and that change is not compatible with the existing software, a fork
occurs. Several forks have already occurred in the Bitcoin Network resulting in
the creation of new, separate digital assets. Which fork will be considered to
be bitcoin for purposes of the BRR is determined by CF Benchmarks. Forks and
similar
events could adversely effect the price and liquidity of bitcoin and the
value of an investment in the Fund.
○Costs
of rolling futures contracts – Futures contracts with a longer
term to expiration may be priced higher than futures contracts with a shorter
term to expiration, a relationship called “contango.” Conversely, futures
contracts with a longer term to expiration may be priced lower than futures
contracts with a shorter term to expiration, a relationship called
“backwardation.” When rolling futures contracts that are in contango, the Fund
may sell the expiring bitcoin futures at a lower price and buy a longer-dated
bitcoin futures at a higher price. When rolling futures contracts that are in
backwardation, the Fund may sell the expiring bitcoin futures at a higher price
and buy the longer-dated bitcoin futures at a lower price. The price difference
between the expiring contract and longer-dated contract associated with rolling
bitcoin futures is typically substantially higher than the price difference
associated with rolling other futures contracts. Bitcoin futures have
historically experienced extended periods of contango. Contango in the bitcoin
futures market may have a significant adverse impact on the performance of the
Fund and may cause bitcoin futures to underperform spot bitcoin. Both contango
and backwardation may limit or prevent the Fund from achieving its investment
objective. Additionally because of the frequency with which the Fund may roll
futures contracts, the impact of contango or backwardation on Fund performance
may be greater than it would have been if the Fund rolled futures contracts less
frequently. The impact of both contango and backwardation may also be greater to
the extent the Fund invests in back-month futures contracts.
○Liquidity
risk –
The market for bitcoin futures contracts is still developing and may be subject
to periods of illiquidity. During such times it may be difficult or impossible
to buy or sell a position at the desired price. Market disruptions or volatility
can also make it difficult to find a counterparty willing to transact at a
reasonable price and sufficient size. Illiquid markets may cause losses, which
could be significant. The large size of the positions which the Fund may acquire
increases the risk of illiquidity, may make its positions more difficult to
liquidate, and may increase the losses incurred while trying to do so. It is
also possible that, if the Fund’s assets become significant relative to the
overall market, the large size of its positions potentially could impact futures
contracts prices and contribute to illiquidity. Limits imposed by
counterparties, exchanges or other regulatory organizations, such as
accountability levels, position limits and daily price fluctuation limits, may
contribute to a lack of liquidity and have a negative impact on Fund
performance. During periods of market illiquidity, including periods of market
disruption and
14 :: INVESTMENT
OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
PROSHARES.COM
volatility, it may
be difficult or impossible for the Fund to buy or sell bitcoin
futures at desired prices or at all.
○Bitcoin
Tax risk – Tax
treatment of bitcoin transactions is uncertain, but may require additional tax
reporting that could discourage the use of bitcoin.
○Environmental
risk –
Bitcoin mining currently requires computing hardware that consumes large amounts
of electricity. By way of electrical power generation, many bitcoin miners rely
on fossil fuels to power their operations. Public perception of the impact of
bitcoin mining on climate change may reduce demand for bitcoin and increase the
likelihood of regulation that limits bitcoin mining or restricts energy usage by
bitcoin miners. Such events could have a negative impact on the price of
bitcoin, bitcoin futures, and the performance of the Fund.
•Risks
Associated with the Use of Derivatives — The Fund will
obtain exposure to bitcoin through derivatives (i.e., bitcoin futures
contracts). Investing in derivatives may be considered aggressive and may expose
the Fund to risks different from, or possibly greater than, the risks associated
with investing directly in the reference asset(s) underlying the derivative. The
use of derivatives may result in larger losses or smaller gains than directly
investing in securities. The risks of using derivatives include: 1) the risk
that there may be imperfect correlation between the price of the financial
instruments and movements in the prices of the reference asset(s); 2) the risk
that an instrument is mispriced; 3) credit or counterparty risk on the amount
the Fund expects to receive from a counterparty; 4) the risk that securities
prices, interest rates and currency markets will move adversely and the Fund
will incur significant losses; 5) the risk that the cost of holding a financial
instrument might exceed its total return; and 6) the possible absence of a
liquid secondary market for a particular instrument and possible exchange
imposed price fluctuation limits, either of which may make it difficult or
impossible to adjust the Fund’s position in a particular instrument when
desired. Each of these factors may prevent the Fund from achieving its
investment objective and may increase the volatility (i.e., fluctuations) of the
Fund’s returns. Because derivatives often require limited initial investment,
the use of derivatives also may expose the Fund to losses in excess of those
amounts initially invested.
•Borrowing
Risk –
The Fund may borrow for investment purposes using reverse repurchase agreements.
Reverse repurchase agreements are financing arrangements that involve sales by
the Fund of portfolio securities concurrently with an agreement by the Fund to
repurchase the same securities at a later date at a fixed price. Reverse
repurchase agreements do not mitigate the Fund’s risk that the market value of
the securities the Fund is obligated to repurchase
under the agreement
may decline below the repurchase price. The Fund may enter into both
exchange traded and over-the-counter reverse repurchase agreements. The cost of
borrowing may reduce the Fund’s return. Borrowing may cause the Fund to
liquidate positions to under adverse market conditions to satisfy its repayment
obligations. Borrowing increases the risk of loss and may increase the
volatility of the Fund.
•Subsidiary
Investment Risk —
Changes in the laws of the United States and/or the Cayman Islands, under which
the Fund and the Subsidiary are organized, respectively, could result in the
inability of the Fund to operate as intended and could negatively affect the
Fund and its shareholders. The Fund complies with the provisions of the 1940 Act
governing investment policies, capital structure, and leverage on an aggregate
basis with the Subsidiary.
•Counterparty
Risk — The Fund will be
subject to credit risk (i.e., the risk that a counterparty is unwilling or
unable to make timely payments or otherwise meet its contractual obligations)
with respect to the amount the Fund expects to receive from counterparties to
financial instruments (including derivatives and repurchase agreements) entered
into by the Fund. The Fund generally structures the agreements such that either
party can terminate the contract without penalty prior to the termination date.
If a counterparty terminates a contract, the Fund may not be able to invest in
other derivatives to achieve the desired exposure, or achieving such exposure
may be more expensive. The Fund may be negatively impacted if a counterparty
becomes bankrupt or otherwise fails to perform its obligations under such an
agreement. The Fund may experience significant delays in obtaining any recovery
in a bankruptcy or other reorganization proceeding and the Fund may obtain only
limited recovery or may obtain no recovery in such circumstances. In order to
attempt to mitigate potential counterparty credit risk, the Fund typically
enters into transactions with major financial institutions.
The
Fund also seeks to mitigate risks by generally requiring that the
counterparties agree to post collateral for the benefit of the Fund, marked to
market daily, in an amount approximately equal to what the counterparty owes the
Fund, subject to certain minimum thresholds. To the extent any such collateral
is insufficient or there are delays in accessing the collateral, the Fund will
be exposed to the risks described above, including possible delays in recovering
amounts as a result of bankruptcy proceedings.
The
counterparty to an exchange-traded futures contract is subject to the
credit risk of the clearing house and the futures commission merchant (“FCM”)
through which it holds its position. Specifically, the FCM or the clearing house
could fail to perform its obligations, causing significant losses to the Fund.
For example, the Fund could lose margin payments it has deposited with an FCM as
well as
INVESTMENT
OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED
RISKS :: 15
PROSHARES.COM
any
gains owed but not paid to the Fund, if the FCM or clearing house
becomes insolvent or otherwise fails to perform its obligations. Credit risk of
market participants with respect to derivatives that are centrally cleared is
concentrated in a few clearing houses and it is not clear how an insolvency
proceeding of a clearing house would be conducted and what impact an insolvency
of a clearing house would have on the financial system. Under current Commodity
Futures Trading Commission (“CFTC”) regulations, a FCM maintains customers’
assets in a bulk segregated account. If a FCM fails to do so, or is unable to
satisfy a substantial deficit in a customer account, its other customers may be
subject to risk of loss of their funds in the event of that FCM’s bankruptcy. In
that event, in the case of futures, the FCM’s customers are entitled to recover,
even in respect of property specifically traceable to them, only a proportional
share of all property available for distribution to all of that FCM’s customers.
In addition, if the FCM does not comply with the applicable regulations, or in
the event of a fraud or misappropriation of customer assets by the FCM, the Fund
could have only an unsecured creditor claim in an insolvency of the FCM with
respect to the margin held by the FCM. FCMs are also required to transfer to the
clearing house the amount of margin required by the clearing house, which amount
is generally held in an omnibus account at the clearing house for all customers
of the FCM.
In
addition, the Fund may enter into futures contracts and repurchase
agreements with a limited number of counterparties, which may increase the
Fund’s exposure to counterparty credit risk. The Fund does not specifically
limit its counterparty risk with respect to any single counterparty. Further,
there is a risk that no suitable counterparties are willing to enter into, or
continue to enter into, transactions with the Fund and, as a result, the Fund
may not be able to achieve its investment objective. Contractual provisions and
applicable law may prevent or delay the Fund from exercising its rights to
terminate an investment or transaction with a financial institution experiencing
financial difficulties, or to realize on collateral, and another institution may
be substituted for that financial institution without the consent of the Fund.
If the credit rating of a counterparty to a futures contract and/or repurchase
agreement declines, the Fund may nonetheless choose or be required to keep
existing transactions in place with the counterparty, in which event the Fund
would be subject to any increased credit risk associated with those
transactions. Also, in the event of a counterparty’s (or its affiliate’s)
insolvency, the possibility exists that the Fund’s ability to exercise remedies,
such as the termination of transactions, netting of obligations and realization
on collateral, could be stayed or eliminated under special resolution regimes
adopted in the United States, the European Union and various other
jurisdictions. Such regimes provide government authorities with broad authority
to intervene when a financial institution is experiencing financial difficulty.
In particular, the regulatory authorities could
reduce, eliminate,
or convert to equity the liabilities to the Fund of a counterparty who is
subject to such proceedings in the European Union or the United Kingdom
(sometimes referred to as a “bail in”).
•Bitcoin-Related
Company Risk — If the Fund is
unable to obtain the desired exposure to bitcoin futures contracts because it is
approaching or has exceeded position limits or because of liquidity or other
constraints, the Fund may invest in equity securities of “bitcoin-related
companies.” There can be no assurance that the returns of bitcoin-related
companies will correspond, or be closely-related, to the performance of bitcoin
or bitcoin futures. Bitcoin-related companies face rapid changes in technology,
intense competition including the development and acceptance of competing
platforms or technologies, loss or impairment of intellectual property rights,
cyclical economic patterns, shifting consumer preferences, evolving industry
standards, adverse effects of changes to a network’s or software’s protocols, a
rapidly changing regulatory environment, and dependency on certain key personnel
(including highly skilled financial services professionals and software
engineers). Bitcoin-related companies may be susceptible to operational and
information security risks including those associated with hardware or software
failures, interruptions, or delays in service by third party vendors, and
security breaches. Certain bitcoin-related companies may be subject to the risks
associated with investing directly in digital assets, including cryptocurrencies
and crypto tokens.
•Inflation
Risk — Inflation rates
may change frequently and drastically as a result of various factors, including
unexpected shifts in the domestic or global economy, and a Fund’s investments
may not keep pace with inflation, which may result in losses to a Fund’s
investors. Recently, there have been signs of inflationary price movements. As
such, fixed income securities markets may experience heightened levels of
interest rate volatility and liquidity risk.
•Market
Price Variance Risk — Individual shares
of the Fund can be bought and sold in the secondary market at market prices
rather than at NAV. There is no guarantee that an active secondary market will
develop for shares of the Fund, which may also cause NAV and market price to
vary significantly. The market price of the Fund’s shares will fluctuate in
response to changes in the value of the Fund’s holdings, supply and demand for
shares and other market factors. ProShare Advisors cannot predict whether shares
will trade above, below or at a price equal to the value of the Fund’s holdings.
Differences between secondary market prices and the value of the Fund’s holdings
may be due largely to supply and demand forces in the secondary market, which
may not be the same forces as those influencing prices for securities or
financial instruments held by the Fund at a particular time. In addition, there
may be times when the market price and the NAV of the Fund’s shares
16 :: INVESTMENT
OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
PROSHARES.COM
vary
significantly, such as during periods of market volatility, and a shareholder
may trade shares at a premium or a discount to the Fund’s NAV and may receive
less than the value of the Fund’s holdings when you sell those
shares.
The
Fund may have a limited number of financial institutions that may act as
Authorized Participants or market markers. Only Authorized Participants who have
entered into agreements with the Fund’s distributor may engage in creation or
redemption transactions directly with the Fund. If some or all of these
Authorized Participants exit the business or are unable to process creation
and/or redemption orders, and no other Authorized Participant is willing or able
to create and redeem Fund shares, shares may trade at a discount to NAV (and may
even face trading halts or delisting). Similar effects may result if market
makers exit the business or are unable to continue making markets in the shares.
Further, while the creation/redemption feature is designed to make it likely
that shares normally will trade at prices correlated to the price of the Fund’s
portfolio holdings, disruptions to creations and redemptions, including
disruptions at market makers, Authorized Participants or market participants, or
during periods of significant market volatility, among other factors, may result
in market prices that differ significantly from NAV. Investors purchasing and
selling shares in the secondary market may not experience investment results
based on the price of their shares in the secondary market. The market price of
shares, like the price of any exchange-traded security, includes a “bid-ask
spread” charged by the exchange specialist, market makers or other participants
that trade the particular security. In times of severe market disruption or
during after-hours trading, the bid-ask spread often increases significantly.
This means that shares may trade at a discount to the value of the Fund’s
holdings, and the discount is likely to be greatest when the price of shares is
falling fastest, which may be the time that you most want to sell your shares.
The Fund’s investment results are measured based upon the daily NAV of the
Fund.
•Tax
Risk — In order to
qualify for the special tax treatment accorded a RIC and its shareholders, the
Fund must derive at least 90% of its gross income for each taxable year from
“qualifying income,” meet certain asset diversification tests at the end of each
taxable quarter, and meet annual distribution requirements. The Fund’s pursuit
of its investment strategies will potentially be limited by the Fund’s intention
to qualify for such treatment and could adversely affect the Fund’s ability to
so qualify. The Fund may make certain investments, the treatment of which for
these purposes is unclear. In particular, direct investments by the Fund in
futures are not expected to produce qualifying income for purposes of the Fund’s
qualification as a RIC. The Fund, however, expects to gain exposure to futures
and generate qualifying income by investing a portion of its assets in a
wholly-owned subsidiary of the Fund organized under the laws of the Cayman
Islands. To comply with the asset diversification test applicable to a RIC, the
Fund will
limit its
investments in such subsidiary to 25% of the Fund’s total assets at the end of
each tax quarter. The Fund may, however, exceed this amount from time to time if
the Advisor believes doing so is in the best interests of the Fund, provided,
however, that the Fund intends to continue to comply with the asset
diversification test applicable to RICs. If the Fund’s investments in the
subsidiary were to exceed 25% of the Fund’s total assets at the end of a tax
quarter, the Fund may no longer be eligible to be treated as a RIC. The Advisor
will carefully monitor the Fund’s investments in the subsidiary to ensure that
no more than 25% of the Fund’s assets are invested in the subsidiary at the end
of each tax quarter. The Fund intends to invest in complex derivatives for which
there is not clear guidance from the Internal Revenue Service (“IRS”) as to the
calculation of such investments under the asset diversification test applicable
to RICs. There are no assurances that the IRS will agree with the Fund’s
calculation under the asset diversification test which could cause the Fund to
fail to qualify as a RIC.
If,
in any year, the Fund were to fail to qualify for the special tax treatment
accorded a RIC and its shareholders, and were ineligible to or were not to cure
such failure, the Fund would be taxed in the same manner as an ordinary
corporation subject to U.S. federal income tax on all its income at the fund
level. The resulting taxes could substantially reduce the Fund’s net assets and
the amount of income available for distribution. In addition, in order to
requalify for taxation as a RIC, the Fund could be required to recognize
unrealized gains, pay substantial taxes and interest, and make certain
distributions. Please see the Statement of Additional Information for more
information.
Other
Risks
In
addition to the risks noted above, many other factors may also affect the
value of an investment in the Fund, such as market conditions, interest rates
and other economic, political or financial developments. The impact of these
developments on the Fund will depend upon the types of investments in which the
Fund invests, the Fund’s level of investment in particular issuers and other
factors, including the financial condition, industry, economic sector and
location of such issuers. The SAI contains additional information about the
Fund, its investment strategies and related risks. The Fund may be subject to
other risks in addition to those identified as principal risks.
•Natural
Disaster/Epidemic Risk — Natural or
environmental disasters, such as earthquakes, fires, floods, hurricanes,
tsunamis and other severe weather-related phenomena generally, and widespread
disease, including pandemics and epidemics (for example, the novel coronavirus
COVID-19), have been and can be highly disruptive to economies and markets and
have recently led, and may continue to lead, to increased market volatility and
significant market losses. Such natural disaster and health crises could
exacerbate political, social, and economic risks, and result in
INVESTMENT
OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED
RISKS :: 17
PROSHARES.COM
significant
breakdowns, delays, shutdowns, social isolation, and other
disruptions to important global, local and regional supply chains affected, with
potential corresponding results on the operating performance of the Fund and its
investments. A climate of uncertainty and panic, including the contagion of
infectious viruses or diseases, may adversely affect global, regional, and local
economies and reduce the availability of potential investment opportunities, and
increases the difficulty of performing due diligence and modeling market
conditions, potentially reducing the accuracy of financial projections. Under
these circumstances, the Fund may have difficulty achieving its investment
objectives which may adversely impact Fund performance. Further, such events can
be highly disruptive to economies and markets, significantly disrupt the
operations of individual companies (including, but not limited to, the Fund’s
investment advisor, third party service providers, and counterparties), sectors,
industries, markets, securities and commodity exchanges, currencies, interest
and inflation rates, credit ratings, investor sentiment, and other factors
affecting the value of the Fund’s investments. These factors can cause
substantial market volatility, exchange trading suspensions and closures,
changes in the availability of and the margin requirements for certain
instruments, and can impact the ability of the Fund to complete redemptions and
otherwise affect Fund performance and Fund trading in the secondary market. A
widespread crisis would also affect the global economy in ways that cannot
necessarily be foreseen. How long such events will last and whether they will
continue or recur cannot be predicted. Impacts from these events could have a
significant impact on the Fund’s performance, resulting in losses to your
investment.
•Risk
that Current Assumptions and Expectations Could Become Outdated as a Result of
Global Economic Shock —
The onset of the novel coronavirus (COVID-19) has caused significant shocks to
global financial markets and economies, with many governments taking extreme
actions to slow and contain the spread of COVID-19 (including any variants).
These actions have had, and likely will continue to have, a severe economic
impact on global economies as economic activity in some instances has
essentially ceased. The global economic shocks being experienced as of the date
hereof may cause the underlying assumptions and expectations of the Fund to
quickly become outdated or inaccurate, resulting in significant
losses.
Additionally, other
public health issues, war, military conflicts, sanctions, acts of terrorism,
sustained elevated inflation, supply chain issues or other events could have a
significant negative impact on global financial markets and economies. Russia’s
recent military incursions in Ukraine have led to, and may lead to additional
sanctions being levied by the United States, European Union and other countries
against Russia. Russia’s military incursion and the resulting sanctions could
adversely affect global energy and financial markets and thus could affect the
value of the
Fund’s investments,
even beyond any direct exposure the Fund may have to the region or to
adjoining geographic regions. The extent and duration of the military action,
sanctions and resulting market disruptions are impossible to predict, but could
have a severe adverse effect on the region, including significant negative
impacts on the economy and the markets for certain securities and commodities,
such as oil and natural gas. How long such tensions and related events will last
cannot be predicted. These tensions and any related events could have
significant impact on the Fund performance and the value of an investment in the
Fund.
•Risks
of Government Regulation —The Financial Industry Regulatory
Authority (“FINRA”) issued a notice on March 8, 2022 seeking comment on measures
that could prevent or restrict investors from buying a broad range of public
securities designated as “complex products”—which could include the
cryptocurrency funds offered by ProShare Advisors. The ultimate impact, if any,
of these measures remains unclear. However, if regulations are adopted, they
could, among other things, prevent or restrict investors’ ability to buy the
funds.
•Cash
and Cash Equivalents Risk — Cash and cash equivalents,
including money market instruments, may be adversely affected by market and
economic events. Adverse economic, political or other developments affecting
issuers of money market instruments; or defaults by transaction counterparties
may also have a negative impact on the performance of such instruments. Each of
these could have a negative impact on the performance of the Fund.
•Cybersecurity
Risk —
With the increased use of technologies such as the Internet and the dependence
on computer systems to perform necessary business functions, the Fund,
Authorized Participants, service providers and the relevant listing exchange are
susceptible to operational, information security and related “cyber” risks. In
general, cyber incidents can result from deliberate attacks or unintentional
events. Cyber attacks include, but are not limited to gaining unauthorized
access to digital systems for purposes of misappropriating assets or sensitive
information, corrupting data, or causing operational disruption. Cyber attacks
may also be carried out in a manner that does not require gaining unauthorized
access, such as causing among other behaviors, stealing or corrupting data
maintained online or digitally, and denial of service attacks on websites.
Cybersecurity failures or breaches of the Fund’s third party service provider
(including, but not limited to, index providers, the administrator and transfer
agent) or the issuers of securities and/or financial instruments in which the
Fund invests, have the ability to cause disruptions and impact business
operations, potentially resulting in financial losses, the inability of Fund
shareholders to transact business, violations of applicable privacy and other
laws. For instance, cyber attacks may interfere with the processing of
shareholder transactions, impact the
18 :: INVESTMENT
OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
PROSHARES.COM
Fund’s
ability to calculate its NAV, cause the release of private shareholder
information or confidential Fund information, impede trading, cause reputational
damage, and subject the Fund to regulatory fines, penalties or financial losses,
reimbursement or other compensation costs, and/or additional compliance costs.
In addition, substantial costs may be incurred in order to prevent any cyber
incidents in the future. The Fund and its shareholders could be negatively
impacted as a result. While the Fund or its service providers may have
established business continuity plans and systems designed to guard against such
cyber attacks or adverse effects of such attacks, there are inherent limitations
in such plans and systems including the possibility that certain risks have not
been identified, in large part because different unknown threats may emerge in
the future. Similar types of cybersecurity risks also are present for issuers of
securities in which the Fund invests, which could result in material adverse
consequences for such issuers, and may cause the Fund’s investments in such
securities to lose value. In addition, cyber attacks involving a counterparty to
the Fund could affect such a counterparty’s ability to meets it obligations to
the Fund, which may result in losses to the Fund and its shareholders. ProShare
Advisors and the Trust do not control the cybersecurity plans and systems put in
place by third party service providers, and such third party service providers
may have no or limited indemnification obligations to ProShare Advisors or the
Fund.
•Operational
Risk —
The Fund, its service providers, Authorized Participants, and the relevant
listing exchange are subject to operational risks arising from, among other
things, human error, systems and technology errors and disruptions, failed or
inadequate controls, and fraud. These errors may adversely affect the Fund’s
operations, including its ability to execute its investment process, calculate
or disseminate its NAV or intraday indicative optimized portfolio value in a
timely manner, and process creations or redemptions. While the Fund seeks to
minimize such events through controls and oversight, there may still be failures
and the Fund may be unable to recover any damages associated with such failures.
These failures may have a material adverse effect on the Fund’s
returns.
•Trading
Risks — The shares of
the Fund are listed for trading on the listing exchange identified on the cover of this Prospectus, may be
listed or traded on U.S. and non-U.S. stock exchanges other than such exchange,
and may trade on an electronic communications network. Nevertheless, there can
be no assurance that an active trading market for such shares will develop or be
maintained. Trading in shares of the Fund on an exchange may be halted due to
market conditions or for reasons that, in the view of an exchange, make trading
in shares inadvisable. In addition, trading in shares of the Fund on an exchange
is subject to trading halts caused by extraordinary market volatility pursuant
to exchange “circuit breaker” rules. There can be no assurance that the
requirements of the exchange necessary to
maintain
the listing of the Fund will continue to be met or will remain
unchanged or that the shares of the Fund will trade with any volume, or at all,
on any stock exchange or other venue.
Precautionary
Notes
A
Precautionary Note to Retail Investors — The Depository
Trust Company (“DTC”), a limited trust company and securities depositary that
serves as a national clearinghouse for the settlement of trades for its
participating banks and broker-dealers, or its nominee will be the registered
owner of all outstanding shares of the Fund. Your ownership of shares will be
shown on the records of DTC and the DTC Participant broker through whom you hold
the shares. PROSHARES TRUST WILL NOT HAVE ANY RECORD OF YOUR OWNERSHIP. Your
account information will be maintained by your broker, who will provide you with
account statements, confirmations of your purchases and sales of shares, and tax
information. Your broker also will be responsible for furnishing certain cost
basis information and ensuring that you receive shareholder reports and other
communications from the Fund whose shares you own. Typically, you will receive
other services (e.g., average cost information) only if your broker offers these
services.
A
Precautionary Note to Purchasers of Creation Units — You should be
aware of certain legal risks unique to investors purchasing Creation Units
directly from the issuing Fund. Because new shares from the Fund may be issued
on an ongoing basis, a “distribution” of that Fund’s shares could be occurring
at any time. As a dealer, certain activities on your part could, depending on
the circumstances, result in your being deemed a participant in the
distribution, in a manner that could render you a statutory underwriter and
subject you to the prospectus delivery and liability provisions of the
Securities Act of 1933. For example, you could be deemed a statutory underwriter
if you purchase Creation Units from an issuing Fund, break them down into the
constituent shares, and sell those shares directly to customers, or if you
choose to couple the creation of a supply of new shares with an active selling
effort involving solicitation of secondary market demand for shares. Whether a
person is an underwriter depends upon all of the facts and circumstances
pertaining to that person’s activities, and the examples mentioned here should
not be considered a complete description of all the activities that could cause
you to be deemed an underwriter. Dealers who are not “underwriters,” but are
participating in a distribution (as opposed to engaging in ordinary secondary
market transactions), and thus dealing with shares as part of an “unsold
allotment” within the meaning of Section 4(3)(C) of the Securities Act, will be
unable to take advantage of the prospectus delivery exemption provided by
Section 4(3) of the Securities Act.
The
Trust reserves the absolute right to reject a purchase order. For example,
the Trust may reject a purchase order if (a) the order is not in proper form;
(b) the purchaser or group of purchasers, upon obtaining the Shares ordered,
would own 80% or more of the currently outstanding Shares of the Fund;
INVESTMENT
OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED
RISKS :: 19
PROSHARES.COM
(c)
acceptance of the purchase transaction order would have certain adverse tax
consequences to the Fund; (d) the acceptance of the purchase transaction order
would, in the opinion of counsel, be unlawful; (e) the acceptance of the
purchase order transaction would otherwise, in the discretion of the Trust or
ProShare Advisors, have an adverse effect on the Trust or the rights of
beneficial owners; (f) the value of a Cash Purchase Amount exceeds a purchase
authorization limit extended to an Authorized Participant by the Custodian and
the Authorized Participant has not deposited an amount in excess of such
purchase authorization with the Custodian prior to the relevant cut-off time for
the Fund on the transmittal date; or (g) in the event that circumstances outside
the control of the Trust, the Distributor and ProShare Advisors make it
impractical to process purchase orders. The Trust will notify a prospective
purchaser of its rejection of the order.
A
Precautionary Note to Investment Companies — For purposes of the Investment
Company Act of 1940 (the “1940 Act”), the Fund is a registered investment
company, and the acquisition of the Fund’s shares by other investment companies
is subject to the restrictions of Section 12(d)(1) thereof. Any investment
company considering purchasing shares of the Fund in amounts that would cause it
to exceed the restrictions of Section 12(d)(1) should contact the
Trust. Rule 12d1-4 under the 1940 Act
permits investments in acquired funds in excess of the limits of Section 12(d)(1)
subject to certain conditions.
Among these conditions, prior to a fund acquiring securities
of another fund exceeding the limits of Section 12(d)(1), the acquiring fund must enter into
a
“Fund of Funds
Investment Agreement” with the acquired fund setting forth the material terms of
the
arrangement.
A
Precautionary Note Regarding Unusual Circumstances — ProShares Trust
can, in its discretion, postpone payment of redemption proceeds for any period
during which: (1) the Exchange is closed other than customary weekend and
holiday closings; (2) trading on Exchange is restricted; (3) any emergency
circumstances exist, as determined by the SEC; (4) the SEC by order permits for
the protection of shareholders of the Fund; and (5) for up to 14 calendar days
for any Fund holding non-U.S. investments during a period of an international
local holiday, as further described in the SAI.
A
Precautionary Note Regarding Regulatory Initiatives — There is a
possibility of future regulatory changes altering, perhaps to a material extent,
the nature of an investment in the Fund or the ability of the Fund to continue
to implement their investment strategies.
Portfolio
Holdings Information
A
description of the Trust’s policies and procedures with respect to the
disclosure of the Fund’s portfolio holdings is available in the SAI.
MANAGEMENT
OF PROSHARES TRUST :: 21
PROSHARES.COM
Board
of Trustees and Officers
The
Board is responsible for the general supervision of the Fund. The officers
of the Trust are responsible for the day-to-day operations of the
Fund.
Investment
Advisor
ProShare Advisors,
located at 7272 Wisconsin Avenue, 21st Floor, Bethesda, Maryland 20814,
serves as the investment adviser to the Fund and provides investment advice and
management services to the Fund. ProShare Advisors oversees the investment and
reinvestment of the assets in the Fund. Pursuant to an Investment Advisory and
Management Agreement between ProShare Advisors and the Trust on behalf of the
Fund, ProShare Advisors is responsible for substantially all expenses of the
Fund (and substantially all expenses of any wholly owned subsidiary of the Fund,
if any) except, without limitation, interest expenses (except that ProShare
Advisors will pay net interest expenses incurred in connection with investments
in reverse repurchase agreements), taxes, brokerage and certain other
transaction costs (except that ProShare Advisors will pay any net account or
similar fees charged by futures commission merchants), legal expenses, fees and
expenses related to securities lending, compensation and expenses of the
Independent Trustees, compensation and expenses of counsel to the Independent
Trustees, compensation and expenses of the Trust’s chief compliance officer and
his or her staff, future distribution fees or expenses, and extraordinary
expenses. For its investment advisory and management services, the Fund pays
ProShare Advisors a fee at an annualized rate of 0.95% of its average daily net
assets. A discussion regarding the basis for
the Board approving the investment advisory agreement for the Fund is in the
Trust’s most recent semi-annual report to shareholders dated
November 30, 2021, or in the Trust’s most
recent annual report to shareholders dated May 31, 2022 or in the Trust’s
semi-annual or annual report to shareholders that covers the period during which
the approval occurred.
During the year ended
May
31, 2022, the Fund paid ProShare
Advisors fees in the following amounts as a percentage of net assets: 0.95%
Portfolio
Management
The
following individuals have responsibility for the day-to-day management of the
Fund as set forth in the Summary Prospectus relating to the Fund. The Portfolio
Managers’ business experience for the past five years is listed below.
Additional information about the Portfolio Managers’ compensation, other
accounts managed by the Portfolio Managers and their ownership of other
investment companies can be found in the SAI.
Alexander
Ilyasov, ProShare Advisors:
Senior Portfolio Manager since October 2013 and Portfolio Manager from November
2009 through September 2013. ProFund Advisors LLC: Senior Portfolio Manager
since October 2013 and Portfolio Manager from November 2009 through September
2013. ProShare
Capital
Management LLC: Senior Portfolio Manager since August
2016.
George
Banian, ProShare
Advisors: Portfolio Manager since February 2022, Associate Portfolio Manager
from August 2016 to February 2022, Senior Portfolio Analyst from
December 2010 to August 2016, Portfolio Analyst from December 2007
to December 2010. ProFund Advisors: Portfolio Manager since February
2022, Associate Portfolio Manager from
July 2021 to February 2022.
Other
Service Providers
SEI
Investments Distribution Co. (the “Distributor”), located at One Freedom
Valley Drive, Oaks, PA 19456, acts as the distributor and principal underwriter
in all fifty states and the District of Columbia. JPMorgan Chase Bank, N.A.
(“JPMorgan”), located at One Beacon Street, 19th Floor, Boston, MA 02108, acts
as the administrator to the Fund, providing operational and certain
administrative services. In addition, JPMorgan acts as the Custodian and Index
Receipt Agent. Citi Fund Services Ohio, Inc. (“Citi”), located at 4400 Easton
Commons, Suite 200, Columbus, Ohio 43219, provides regulatory administration
services to the Trust.
Additional
Information
The
Trust enters into contractual arrangements with various parties who provide
services to the Fund including, ProShare Advisors, the Fund’s administrator and
fund accounting agent, custodian, transfer agent, and distributor. Shareholders
are not parties to, or intended (or “third-party”) beneficiaries of, any of
those contractual arrangements, and those contractual arrangements are not
intended to create in any individual shareholder or group of shareholders any
right to enforce them against the service providers or to seek any remedy under
them against the service providers, either directly or on behalf of the
Trust.
This
Prospectus provides information concerning the Trust and the Fund that
you should consider in determining whether to purchase shares of the Fund. None
of this Prospectus, the SAI or any contract that is an exhibit to the Trust’s
registration statement, is intended to, nor does it, give rise to an agreement
or contract between the Trust or the Fund and any investor, or give rise to any
contract or other rights in any individual shareholder, group of shareholders or
other person than any rights conferred explicitly by federal or state securities
laws that may not be waived.
A shareholder may bring derivative
action on behalf of the Trust only if the shareholder or shareholders first make
a pre-suit demand upon the Trustees to bring the subject action unless an effort
to cause the Trustees to bring such action is excused. A demand on the Trustees
shall only be excused if a majority of the Board of Trustees, or a majority of
any committee established to consider such action, has a personal financial
interest in the action at issue. A Trustee shall not be deemed to have a
personal financial interest in an action or
22 :: MANAGEMENT
OF PROSHARES TRUST
PROSHARES.COM
otherwise be
disqualified from ruling a shareholder demand by virtue of the
fact that such Trustee receives remuneration from their service on the Board of
Trustees of the Trust or on the boards of one or more investment companies with
the same or an affiliated investment advisor or underwriter.
Determination
of NAV
The
NAV per share of the Fund is computed by dividing the value of the net
assets of the Fund (i.e., the value of its total assets less total liabilities)
by its total number of shares outstanding. Expenses and fees are accrued daily
and taken into account for purposes of determining NAV. The NAV of the Fund is
calculated by JPMorgan and is generally determined each business day as of the
close of regular trading on the exchange on which the shares of the Fund are
listed (typically calculated as of 4:00 p.m. Eastern Time).
Securities
and other assets are generally valued at their market value using
information provided by a pricing service or market quotations. Securities that
are listed or traded on a stock exchange or the Nasdaq or National Market System
are generally valued at the closing price, if available, on the exchange or
market where the security is principally traded (including the Nasdaq Official
Closing Price). Short-term securities are generally valued using market prices
or at amortized cost. Routine valuation of certain derivatives is performed
using procedures approved by the Board.
When a market price
is not readily available, securities and other assets are valued at fair
value in good faith. The Board has designated ProShares Advisors as “valuation designee” to perform fair
value determinations for all of the Funds’ investments for which market
quotations are not readily available (or are deemed unreliable). The
Board shall oversee ProShare Advisors’ fair value determinations and its
performance as valuation designee. The use of a
fair valuation methodology may be appropriate if, for example:
(i) ProShare Advisors believes market quotations do not accurately reflect fair
value of an investment; (ii) ProShare Advisors believes an investment’s value
has been materially affected by events occurring after the close of the exchange
or market on which the investment is principally traded (for example, a foreign
exchange or market); (iii) a trading halt closes an exchange or market early; or
(iv) other events result in an exchange or market delaying its normal close.
Fair valuation has the risk that the valuation may be higher or lower than the
securities might actually command if the Fund sold them. In those circumstances,
certain derivatives linked to an index may be valued based on the performance of
one or more U.S. ETFs or instruments that reflect the values of the securities
in such index. See the Statement of Additional Information for more
details.
To
the extent the Fund’s portfolio investments trade in markets on days or at times
when the Fund is not open for business or when the primary exchange for the
shares is not open, the value of the Fund’s assets may vary, shareholders may
not be able to purchase or sell Fund shares and Authorized Participants may not
be able to create or redeem Creation Units. In addition, certain portfolio
investments may not be traded
on
days or at times the Fund is open for business. In particular, calculation of the
NAV of the Fund may not take place contemporaneously with the determination of
the prices of foreign securities used in NAV calculations.
Exchanges are open
every week, Monday through Friday, except when the following holidays
are celebrated: New Year’s Day, Martin Luther King, Jr. Day (the third Monday in
January), President’s Day (the third Monday in February), Good Friday, Memorial
Day (the last Monday in May), Juneteenth, Independence Day, Labor Day (the first
Monday in September), Thanksgiving Day (the fourth Thursday in November) and
Christmas Day. An Exchange may close early on the business day before each of
these holidays and on the day after Thanksgiving Day. Exchange holiday schedules
are subject to change without notice. If the exchange or market on which the
Fund’s investments are primarily traded closes early, the NAV may be calculated
prior to its normal calculation time. Creation/redemption transaction order time
cutoffs would also be accelerated.
Distributions
As
a shareholder on the Fund record date, you will earn a share of the
investment income and net realized capital gains, if any, derived from the
Fund’s direct security holdings and derivative instruments. You will receive
such earnings as either an income dividend or a capital gains distribution. The
Fund intends to declare and distribute net investment income, if any, and net
realized capital gains, if any, to its shareholders at least annually. Subject
to Board approval, some or all of any net realized capital gains distribution
may be declared payable in either additional shares of the distributing Fund or
in cash.
Distributions
may be declared and paid more frequently to comply with the
distribution requirements of the Internal Revenue Code or for other
reasons.
Dividend
Reinvestment Services
As
noted above under “Distributions”, the Fund may declare a distribution from
net realized capital gains to be payable in additional shares or cash. Even if
the Fund does not declare a distribution to be payable in shares, brokers may
make available to their customers who own shares the DTC book-entry dividend
reinvestment service. If this service is available and used, dividend
distributions of both income and capital gains will automatically be reinvested
in additional whole shares of the same Fund. Without this service, investors
would have to take their distributions in cash. To determine whether the
dividend reinvestment service is available and whether there is a commission or
other charge for using this service, please consult your broker.
Frequent
Purchases and Redemptions of Shares
The
Board has not adopted a policy of monitoring for frequent purchases and
redemptions of shares that appear to attempt to take advantage of potential
arbitrage opportunities. The Board believes this is appropriate because ETFs,
such as the
MANAGEMENT
OF PROSHARES TRUST :: 23
PROSHARES.COM
Fund,
are intended to be attractive to arbitrageurs, as trading activity is critical
to ensuring that the market price of shares remains at or close to
NAV.
Taxes
The
following is certain general information about taxation of the
Fund:
•The Fund intends
to qualify for treatment as a RIC for U.S. federal income tax
purposes. In order to so qualify, the Fund must meet certain tests with respect
to the sources and types of its income, the nature and diversification of its
assets, and the timing and amount of its distributions.
•If the Fund
qualifies for treatment as a RIC, it is not subject to federal
income tax on net investment income and net realized capital gains that the Fund
timely distributes to its shareholders. If the Fund were to fail to so qualify,
and were ineligible to or otherwise did not cure such failure, its taxable
income and gains would be subject to tax at the Fund level, and distributions
from earnings and profits would be taxable to shareholders as ordinary
income.
•Investments by the
Fund in futures are subject to numerous special and complex tax rules.
These rules could affect the amount, timing or character of the distributions to
shareholders by the Fund. In addition, because the application of these rules
may be uncertain under current law, an adverse determination or future IRS
guidance with respect to these rules may affect whether the Fund has made
sufficient distributions, and otherwise satisfied the relevant requirements, to
maintain its qualification as a RIC and avoid fund-level tax.
•Investments
by the Fund in debt obligations issued or purchased at a discount and
certain derivative instruments could cause the Fund to recognize taxable income
in excess of the cash generated by such investments, potentially requiring the
Fund to dispose of investments (including when otherwise disadvantageous to do
so) in order to meet its distribution requirements, and such investments could
affect the amount, timing or character of the income distributed to shareholders
by the Fund. Investments by the Fund in shares of other investment companies
could affect the amount, timing or character of the Fund’s distributions to
shareholders relative to the Fund’s distributions had it invested directly in
the securities held by the other investment companies.
•In order to
qualify for the special tax treatment accorded a RIC and its shareholders, the Fund
must derive at least 90% of its gross income for each taxable year from
“qualifying income,” meet certain asset diversification tests at the end of each
taxable quarter, and meet an annual distribution requirement. The Fund’s pursuit of
its investment strategies will potentially be limited by the Fund’s intention to
qualify for such treatment and could adversely affect the Fund’s ability to so
qualify. The Fund may make certain investments, the treatment of which for these
pur
poses
is unclear. If, in any year, the Fund were to fail to qualify for the
special tax treatment accorded a RIC and its shareholders, and were ineligible
to or were not to cure such failure, the Fund would be taxed in the same manner
as an ordinary corporation subject to U.S. federal income tax on all its income
at the fund level. The resulting taxes could substantially reduce the Fund’s net
assets and the amount of income available for distribution. In addition, in
order to requalify for taxation as a RIC, the Fund could be required to
recognize unrealized gains, pay substantial taxes and interest, and make certain
distributions. Please see the Statement of Additional Information for more
information.
Taxable
investors should be aware of the following basic tax
points:
•Distributions
are taxable to you for federal income tax purposes whether you receive
them in cash or reinvest them in additional shares.
•Distributions
declared in October, November or December of one year payable
to shareholders of record in such month and paid by the end of January of the
following year are taxable for federal income tax purposes as if received on
December 31 of the calendar year in which the distributions were
declared.
•Any distributions
from income or short-term capital gains that you receive generally are
taxable to you as ordinary dividends for federal income tax purposes. Ordinary
dividends you receive that the Fund reports as “qualified dividend income” may
be taxed at the same rates as long-term capital gains, but will not be
considered long-term capital gains for other federal income tax purposes,
including the calculation of net capital losses. The Fund’s investment strategy
may significantly limit its ability to distribute dividends as “qualified
dividend income.”
•Any
distributions of net long-term capital gains are taxable to you for federal
income tax purposes as long-term capital gains includible in net capital gain
and taxable to individuals at reduced rates, no matter how long you have owned
your Fund shares.
•Distributions
from net realized capital gains may vary considerably from year to year
as a result of the Fund’s normal investment activities and cash
flows.
•The Code generally
imposes a 3.8% contribution tax on the “net
investment income” of certain individuals, trusts and estates to the extent
their income exceeds certain threshold amounts. For these purposes, “net
investment income” generally includes, among other things, (i) distributions
paid by the Fund of ordinary dividends and capital gain dividends, and (ii) any
net gain from the sale, redemption or exchange of Fund shares. Shareholders are
advised to consult their tax advisors regarding the possible implications of
this additional tax on their investment in the Fund.
24 :: MANAGEMENT
OF PROSHARES TRUST
PROSHARES.COM
•A
sale or exchange of Fund shares is a taxable event. This means that you may
have a capital gain to report as income, or a capital loss to report as a
deduction, when you complete your federal income tax return.
•Dividend
and capital gain distributions that you receive, as well as your gains
or losses from any sale or exchange of Fund shares, may be subject to state and
local income taxes.
•Dividends
paid to a shareholder that is not a “United States person” within the
meaning of the Code (such a shareholder, a “foreign person”) that the Fund
properly reports as capital gain dividends, short-term capital gain dividends or
interest -related dividends, each as further defined in the SAI, are not subject
to withholding of U.S. federal income tax, provided that certain other
requirements are met. The Fund (or intermediary, as applicable) is permitted,
but is not required, to report any part of its dividends as are eligible for
such treatment. The Fund’s dividends other than those the Fund properly reports
as capital gain dividends, short-term capital gain dividends or interest-related
dividends generally will be subject to withholding of U.S. federal income tax at
a rate of 30% (or lower applicable treaty rate). Special tax considerations may
apply to foreign persons investing in the Fund. Please see the SAI for more
information.
•The Fund’s income
from or the proceeds of dispositions of its non-U.S. investments may be
subject to withholding and other taxes imposed by foreign countries, which will
reduce the Fund’s return on and taxable distributions in respect of its non-U.S.
investments. Tax conventions between certain countries and the United States may
reduce or eliminate these taxes. If more than 50% of the value of the Fund’s
total assets at the close of a taxable year consists of foreign securities, the
Fund will be eligible to elect to “pass through” to you foreign income taxes
that it has paid. If this election is made, you will be required to include your
share of those taxes in gross income as a distribution from the Fund and you
generally will be allowed to claim a credit (or a deduction, if you itemize
deductions) for these amounts on your federal U.S. income tax return, subject to
certain limitations.
•By
law, a percentage of your distributions and proceeds will generally be
withheld if you have not provided a taxpayer identification number or social
security number, have underreported dividend or interest income or have failed
to certify to the Fund or its agent that you are not subject to this
withholding.
In
addition, taxable investors who purchase or redeem Creation Units should be
aware of the following:
•A
person who exchanges securities for Creation Units generally will recognize a
gain or loss equal to the difference between the market value of the Creation
Units at the time of the exchange and the exchanger’s aggregate basis in the
securities surrendered and any cash amount paid.
•A person who
exchanges Creation Units for securities generally will recognize a gain or loss equal
to the difference between the exchanger’s basis in the Creation Units and the
aggregate market value of the securities received and any cash received.
However, all or a portion of any loss a person realizes upon an exchange of
Creation Units for securities will be disallowed by the IRS if such person
purchases other substantially identical shares of the Fund within 30 days before
or after the exchange. In such case, the basis of the newly purchased shares
will be adjusted to reflect the disallowed loss.
Note:
This Prospectus provides general U.S. federal income tax information
only. Your investment in the Fund may have other tax implications. If you are
investing through a tax-deferred retirement account, such as an individual
retirement account (IRA), special tax rules apply. Please consult your tax
advisor for detailed information about the Fund’s tax consequences for you. See
“Taxation” in the SAI for more information.
Premium/Discount
Information
The
Trust’s website (www.proshares.com) has information about the premiums
and discounts for the Fund. Premiums or discounts are the differences between
the NAV and market price of the Fund on a given day, generally at the time NAV
is calculated. A premium is the amount that the Fund is trading above the NAV. A
discount is the amount that the Fund is trading below the NAV.
Escheatment
Many
states have unclaimed property rules that provide for transfer to the
state (also known as “escheatment”) of unclaimed property under various
circumstances. These circumstances include inactivity (e.g., no owner-intiated
contact for a certain period), returned mail (e.g., when mail sent to a
shareholder is returned by the post office as undeliverable), or a combination
of both inactivity and returned mail. Unclaimed or inactive accounts may be
subject to escheatment laws, and the Fund and the Fund’s transfer agent will not
be liable to shareholders and their representatives for good faith compliance
with those laws.
Distribution
(12b-1) Plan
Under a Rule 12b-1
Distribution Plan (the “Plan”) adopted by the Board, the Fund may pay the
distributor and financial intermediaries, such as broker-dealers and investment
advisors, up to 0.25% on an annualized basis of the average daily net assets of
the Fund as reimbursement or compensation for distribution related activities
with respect to the Fund. Because these fees would be paid out of the Fund’s
assets on an on-going basis, over time these fees would increase the cost of
your investment and may cost you more than paying other types of sales charges.
For the prior fiscal year, no payments were made by the Fund under the Plan. No
payments have yet been authorized by the Board, nor are any such expected to be
made by the Fund under the Plan during the current fiscal year.
25
PROSHARES.COM
Financial Highlights
The following tables are intended
to help you understand the financial history of the Fund for the past five
years (or since inception, if shorter).
Certain information reflects financial results of a single share. The total
return information represents the rate of return and the per share operating
performance that an investor would have earned (or lost) on an investment in the
Fund, assuming reinvestment of all dividends and distributions. This information has
been derived from information audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
whose report, along with the financial statements of the Fund, appears in the Annual Report of the
Fund and is available upon request.
26 :: FINANCIAL
HIGHLIGHTS
PROSHARES.COM
ProShares
Trust Financial Highlights
FOR THE PERIODS
INDICATED
|
|
SELECTED
DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS
INDICATED |
| ||||||||||||||||
|
|
PER SHARE OPERATING
PERFORMANCE |
RATIOS/SUPPLEMENTAL
DATA | ||||||||||||||||
|
|
INVESTMENT
OPERATIONS |
DISTRIBUTIONS |
|
TOTAL
RETURN(c)
|
RATIOS TO AVERAGE NET
ASSETS(f)
|
SUPPLEMENTAL
DATA | ||||||||||||
|
|
Net asset
value,
beginning
of
period |
Net
investment
income
(loss)(a)
|
Net
realized
and
unrealized
gains
(losses) on
investments |
Transaction
fees(b)
|
Total from
investment
operations |
Net
investment
income |
Net
realized
gains |
Tax
return
of
capital |
Total
distributions |
Net
asset
value,
end of
period |
Net
asset
value(d)
|
Market
value(e)
|
Expenses
before
expense
reduc-
tions |
Expenses
net of
waivers,
if
any |
Net
investment
income
(loss)
before
expense
reductions |
Net
investment
income
(loss) net
of waivers,
if
any |
Net
assets,
end of
period
(000) |
Portfolio
turnover
rate(c)(g)
|
|
Bitcoin
Strategy ETF† | ||||||||||||||||||
|
October
18, 2021*
through
May 31,
2022 |
$40.00 |
$(0.15) |
$(20.20) |
$0.01 |
$(20.34) |
$— |
$— |
$— |
$— |
$19.66 |
(50.85)% |
(50.93)% |
0.96% |
0.96% |
(0.88)% |
(0.88)% |
$823,923 |
232% |
*
Commencement of investment
operations.
†
Consolidated Statement of Financial
Highlights.
(a)
Per share net investment income
(loss) has been calculated using the average daily shares
method.
(b)
Includes transaction fees associated
with the issuance and redemption of Creation Units.
(c)
Not annualized for periods less than
one year.
(d)
Net asset value total return is
calculated assuming an initial investment made at the net asset value at the
beginning of the period, reinvestment of all dividends and distributions at net
asset value during the period, if any, and redemption on the last day of the
period at net asset value. This percentage is not an indication of the
performance of a shareholder’s investment in the Fund based on market value due
to differences between the market price of the shares and the net asset value
per share of the Fund.
(e)
Market value total return is
calculated assuming an initial investment made at the market value at the
beginning of the period, reinvestment of all dividends and distributions at net
asset value during the period, if any, and redemption on the last day of the
period at market value. Market value is determined by the composite closing
price. Composite closing security price is defined as the last reported sale
price from any primary listing market (e.g., NYSE and NASDAQ) or participating
regional exchanges or markets. The composite closing price is the last reported
sale price from any of the eligible sources, regardless of volume and not an
average price and may have occurred on a date prior to the close of the
reporting period. Market value may be greater or less than net asset value,
depending on the Fund’s closing price on the listing market.
(f)
Annualized for periods less than one
year.
(g)
Portfolio turnover rate is calculated
without regard to instruments having a maturity of less than one year from
acquisition or derivative instruments (including swap agreements and futures
contracts). The portfolio turnover rate can be high and volatile due to the
sales and purchases of fund shares during the period. In-Kind transactions are
not included in the portfolio turnover calculations.