ProShares Files For UltraPro and UltraPro Short 3X Leverage Of S&P 500 ETF’s (ETF: UPRO, SPXU)

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June 24, 2009 3:39pm ETF BASIC NEWS NYSE:SPXU

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ProShares filed to launch an exchange-traded fund seeking to provide 300% of the daily returns of the S&P 500. Proshares also requested approval from the SEC for a new ETF that would give investors 300% short exposure of the index. The Funds are to trade as follows: ProShares UltraPro S&P500 Ticker: UPRO, ProShares UltraPro Short S&P500 Ticker: SPXU.


As filed with the Securities and Exchange Commission on June 23, 2009

Overview of Investment Objectives, Principal Investment Strategies and Risks

Important Information About the Funds

The UltraPro and UltraPro Short ProShares offered in this Prospectus (each, a “Fund” and together, the “Funds”) seek leveraged or inverse leveraged investment results for a single day only, not for longer periods. This means that the return of a Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from the return of the index times the investment objective multiple over that period. Thus, the return for investors who invest for a period longer than one trading day may not be 300% (or -300%) of the performance of the S&P 500 Index for that period.

In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark.

The Funds are different from most exchange-traded funds in that they seek leveraged or inverse leveraged returns and only on a daily basis. The Funds also are riskier than similarly benchmarked exchange-traded funds that do not use leverage. Accordingly, they may not be suitable for all investors. They should be used only by knowledgeable investors who understand the potential consequences of seeking daily leveraged investment results. Shareholders should actively monitor their investments.

Investment Objectives

Each Fund is designed to seek daily investment results that, before fees and expenses, correspond to the performance of a daily benchmark such as a multiple of the daily price performance, or a multiple of the inverse (opposite) of the daily price performance, of an index or security. UltraPro ProShares are designed to correspond to triple (300%) the daily performance of an underlying index. UltraPro Short ProShares are designed to correspond to triple (300%) the inverse of the daily performance of an underlying index. The Funds do not seek to achieve their stated investment objective over a period of time greater than one day. Each Fund’s investment objective is non-fundamental, meaning it may be changed by the Board of Trustees of ProShares Trust (the “Board”), without the approval of Fund shareholders. Each Fund reserves the right to substitute a different index or security for the index underlying its benchmark.

Principal Investment Strategies

In seeking to achieve each 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 a Fund should hold to approximate the performance of its benchmark. The Funds employ investment techniques that ProShare Advisors believes should simulate the movement of their respective benchmarks.

A Fund may hold 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 trans-
action 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, a 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 Funds 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 Funds. Each 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 Funds do not take temporary defensive positions.

At the close of the markets each trading day, each Fund will seek to position its portfolio so that a Fund’s exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will determines whether a Fund’s portfolio needs to be re-positioned.

For example, if the Index has risen on a given day, net assets of an UltraPro ProShares should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of an UltraPro ProShares should fall, meaning the Fund’s exposure will need to be reduced. Similarly, if the Index has risen on a given day, net assets of an UltraPro Short ProShares should fall, meaning that the Fund’s short exposure will need to be reduced. Conversely, if the Index has fallen on a given day, net assets of an UltraPro Short ProShares should rise, meaning the Fund’s short exposure will need to be increased.

Strategies Specific to the UltraPro ProShares

Each UltraPro ProShares invests in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily return characteristics as triple (300%) the daily return of the underlying index.

  •   Equity Securities are securities that include common stock, preferred stock, depositary receipts, convertible securities and rights and warrants. Stocks represent an ownership interest in a corporation.

  •   Financial Instruments (including derivatives) are investment contracts whose value is derived from the value of an underlying asset, interest rate or index. Each UltraPro ProShares may invest in financial instruments as a substitute for investing directly in stocks or bonds in order to gain exposure to the underlying index. Financial instruments may also be used to produce economically “leveraged” investment results. Use of financial instruments may involve costs, in addition to transaction costs, and suitable financial instruments may not be available in all circumstances. Financial instruments include: 

  – Futures Contracts and Options on Futures Contracts Futures or futures contracts are contracts to pay a fixed price for an agreed-upon amount of commodities or securities, or the cashvalue of the commodities or securities on an agreed-upon date.  

  – Swap Agreements Swap agreements are two-party contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (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.  

  – Options on Securities and Stock Indices and Investments Covering Such Positions Option contracts grant one party a right, for a price, either to buy or sell a security or futures contract at a fixed price during a specified period or on a specified day. A call option gives one the right to buy a security or futures contract at an agreed-upon price on or before a certain date. A put option gives one the right to sell a security or futures contract at an agreed-upon price on or before a certain date.  

  •   Investments in Other Investment Companies Each Fund may invest in the securities of other investment companies, including exchange traded funds, to the extent that such an investment would be consistent with the requirements of the Investment Company Act of 1940, as amended (the “1940 Act”) or any exemptive order issued by the U.S. Securities and Exchange Commission (the “SEC”). If a 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 a 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. A 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, and any other applicable investment limitations.

The Funds are subject to the SEC “names rule” (Rule 35d-1 under the 1940 Act). Accordingly, each Fund commits to invest at least 80% of its assets (i.e., net assets plus borrowings for investment purposes) in equity securities contained in the underlying index and/or financial instruments that, in combination, should have similar economic characteristics.

In addition, the UltraPro ProShares may use other securities, financial instruments and techniques in pursuit of its investment objective. Assets of the UltraPro ProShares not invested in equity securities or financial instruments may be invested in debt instruments and/or money market instruments, including repurchase agreements.

Strategies Specific to the UltraPro Short ProShares

The UltraPro Short ProShares invest in financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily return characteristics as the inverse (opposite) or a multiple of the inverse of the underlying index. These instruments include:  

  •   Financial Instruments (including derivatives) are investment contracts whose value is derived from the value of an underlying asset, interest rate or index and may be used to produce economically “leveraged” investment results. Use of financial instruments may involve costs, in addition to transaction costs, and suitable financial instruments may not be available in all circumstances. Financial instruments include:  

  – Futures Contracts and Options on Futures Contracts Futures or futures contracts are contracts to pay a fixed price for an agreed-upon amount of commodities or securities, or the cash value of the commodities or securities on an agreed-upon date.  

  – Swap Agreements Swap agreements are two-party contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (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 a purchase or sale of a specific quantity of a commodity, security, foreign currency or other financial instrument 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. 

Full SEC Document Can Be Found: HERE


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