the performance of the Merrill Lynch Factor Model — Exchange Series index. The Index, established by Merrill Lynch International, seeks to maintain a high correlation with hedge fund beta, as measured by the HFRI Fund Weighted Composite Index (the “HFRI”). The HFRI is designed to reflect hedge fund industry performance through construction of an equally weighted composite of over 2000 constituent funds. In seeking to maintain a high correlation with the HFRI, the Index utilizes a systematic model to establish, each month, weighted long or short (or, in certain cases, long or flat) positions in six underlying factors (“Factors”). The six Factors which comprise the Index are the (1) S&P 500 Total Return Index, (2) the ProShares UltraShort Euro ETF, (3) the MSCI EAFE US Dollar Net Total Return Index, (4) the MSCI Emerging Markets Free US Dollar Net Total Return Index (“MSCI Emerging Markets”), (5) the Russell 2000 Total Return Index (“Russell 2000”) and (6) one-month USD LIBOR. The Index is not comprised of, and the Fund does not invest in, any hedge fund or group of hedge funds. The Index is published under the Bloomberg ticker symbol “[MLEIFCTRX].”
No trading symbol was mentioned in the initial filing, although they did disclose an expected expense ratio of .95%.
Principal Investment Strategies
In seeking to achieve the Fund’s investment objective, ProShare Advisors uses a mathematical approach to investing. Using this approach, ProShare Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund employs investment techniques that ProShare Advisors believes should simulate the movement of their respective benchmarks.
The Fund may gain exposure to only a representative sample of the securities in the underlying Index, which is intended to have aggregate characteristics similar to those of the underlying Index. This “sampling” process typically involves selecting a representative sample of securities in an index principally to enhance liquidity and reduce transaction costs while seeking to maintain high correlation with, and similar aggregate characteristics (e.g., market capitalization and industry weightings) to, the underlying Index. In addition, the Fund may obtain exposure to components not included in the underlying Index, invest in securities that are not included in the underlying Index or overweight or underweight certain components contained in the underlying Index.
ProShare Advisors does not invest the assets of the Fund in securities or financial instruments based on ProShare Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis, or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or financial instruments that provide exposure to its underlying index without regard to market conditions, trends or direction. The Fund does not take temporary defensive positions.
Strategies Specific to the Fund
The Fund invests in equity securities and/or derivatives that ProShare Advisors believes, in combination, should have similar return characteristics as the return of the Index.
- Equity Securities — The Fund invests in common stock issued by public companies.
- Exchange-Traded Securities — The Fund may invest in the exchange-traded securities of certain investment vehicles. These exchange-traded securities principally include:
- Trust Securities — The Fund may invest in exchange-traded common units of beneficial interest of one or more separate series of exchange-traded trusts, including trusts sponsored by ProShares Capital Management, LLC, an affiliate of ProShares Advisors.
- Investments in Other Investment Companies — The Fund may invest in exchange-traded funds (ETFs), including ETFs sponsored by ProShares Advisors, to the extent that such an investment would be consistent with the requirements of the 1940 Act or any exemptive order issued by the U.S. Securities and Exchange Commission (the “SEC”). If the Fund invests in, and thus is a shareholder of, another investment company, the Fund’s shareholders will indirectly bear the Fund’s proportionate share of the fees and expenses paid by such other investment company, including advisory fees, in addition to both the management fees payable directly by the Fund to the Fund’s own investment adviser and the other expenses that the Fund bears directly in connection with the Fund’s own operations.
Because most exchange traded funds are investment companies, absent exemptive relief, investment in such funds generally would be limited under applicable federal statutory provisions. Those provisions restrict the Fund’s investment in the shares of another investment company to up to 5% of its assets (which may represent no more than 3% of the securities of such other investment company) and limit aggregate investments in all investment companies to 10% of assets. The Fund may invest in certain exchange traded funds in excess of the statutory limit in reliance on an exemptive order issued to those entities and pursuant to procedures approved by the Board provided that it complies with the conditions of the exemptive relief, as they may be amended from time to time, and any other applicable investment limitations.
- Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in, or making short sales of, the securities underlying the Index. Derivatives include:
- Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.
- Forward Contracts — Forward contracts are two-party contracts entered into with dealers or financial institutions where the purchase or sale of a specific quantity of a commodity, security, foreign currency or other financial instrument is agreed upon at a set price, with delivery and settlement at a specified future date. Forward contracts may also be structured for cash settlement, rather than physical delivery.
- Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities on an agreed-upon date.
- Depositary Receipts (“DRs”) — The Fund may invest in depositary receipts, which include American Depositary Receipts (“ADRs”), Global Depositary Receipts (“GDRs”), and New York Shares (“NYSs”).
- ADRs represent the right to receive securities of foreign issuers deposited in a bank or trust company. ADRs are an alternative to purchasing the underlying securities in their national markets and currencies. Investment in ADRs has certain advantages over direct investment in the underlying foreign securities because: (i) ADRs are U.S. dollar-denominated investments that are easily transferable and for which market quotations are readily available, and (ii) issuers whose securities are represented by ADRs are generally subject to auditing, accounting and financial reporting standards similar to those applied to domestic issuers.
- GDRs are receipts for shares in a foreign-based corporation traded in capital markets around the world. While ADRs permit foreign corporations to offer shares to American citizens, GDRs allow companies in Europe, Asia, the United States and Latin America to offer shares in many markets around the world.
- A NYS is a share of New York registry, representing equity ownership in a non-U.S. company, allowing for a part of the capital of the company to be outstanding in the U.S. and part in the home market. It is issued by a U.S. transfer agent and registrar on behalf of the company and created against the cancellation of the local share by the local registrar. One NYS is always equal to one ordinary share. NYS programs are typically managed by the same banks that manage ADRs, as the mechanics of the instrument are very similar. NYSs are used primarily by Dutch companies.
- Short Sales — In seeking to achieve its investment objective and as part of their principal investment strategies, the Fund also may engage in short sale transactions (or enter into derivative transactions such as swap agreements which create exposure similar to a short sale transaction) with respect to equity securities (including shares of exchange-traded funds) to the extent permitted by the 1940 Act. A short sale is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that security will decline. To complete such a transaction, the Fund must borrow the security to make delivery to the buyer. The Fund is then obligated to replace the security borrowed by borrowing the same security from another lender, purchasing it at the market price at the time of replacement or paying the lender an amount equal to the cost of purchasing the security. The price at such time may be more or less than the price at which the security was sold by the Fund. Until the security is replaced, the Fund is required to repay the lender any dividends it receives or interest which accrues on the security during the period of the loan. To borrow the security, the Fund also may be required to pay a premium, which would increase the cost of the security sold. The net proceeds of the short sale will be retained by the broker, to the extent necessary to meet the margin requirements, until the short position is closed out. The Fund also will incur costs in making short sales or entering into derivative transactions which provide short sale exposure for the Fund. The Fund also may make short sales “against the box,” i.e., when a security identical to or convertible or exchangeable into one owned by the Fund is borrowed and sold short.
For the full filing click: HERE
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