As filed with the Securities and Exchange Commission on September 26, 2022

Registration No. 333-262730

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Pre-Effective

Amendment No. 2

to

Post-Effective

Amendment No. 1

to

FORM S-3

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

PROSHARES TRUST II

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   6221   87-6284802
(State of Organization)  

(Primary Standard Industrial

Classification Code Number)

  

(I.R.S. Employer

Identification Number)

7272 Wisconsin Avenue 21st Floor

Bethesda, Maryland 20814

(240) 497-6400

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Michael L. Sapir

c/o ProShare Capital Management LLC

7272 Wisconsin Avenue 21st Floor

Bethesda, Maryland 20814

(240) 497-6400

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Michael M. Philipp

c/o Morgan, Lewis & Bockius LLP

77 West Wacker Drive

Chicago, Illinois 60601

  

Richard F. Morris

c/o ProShare Capital Management LLC

7272 Wisconsin Avenue 01st Floor

Bethesda, MD 20814

 

 

Approximate date of commencement of proposed sale to the public:

As promptly as practicable after the effective date of this Registration Statement.

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box:  ☐

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box.  ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box.  ☐

If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

ProShares Ultra Bloomberg Crude Oil

 

Large accelerated filer   ☐    Accelerated filer   ☒
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company   ☐

Emerging growth company

  

☐

     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

ProShares UltraShort Bloomberg Crude Oil

 

Large accelerated filer   ☐    Accelerated filer   ☒
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company   ☐

Emerging growth company

  

☐

     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

ProShares Ultra Gold

 

Large accelerated filer   ☐    Accelerated filer   ☒
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company   ☐

Emerging growth company

  

☐

     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

ProShares Ultra Silver

 

Large accelerated filer   ☐    Accelerated filer   ☒
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company   ☐

Emerging growth company

  

☐

     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

The information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.Subject to completion, September 27, 2022
PROSHARES TRUST II
Common Units of Beneficial Interest
 
Fund
Benchmark
ProShares Ultra Bloomberg Crude Oil (UCO)
Bloomberg Commodity Balanced WTI Crude Oil IndexSM
ProShares UltraShort Bloomberg Crude Oil (SCO)
Bloomberg Commodity Balanced WTI Crude Oil IndexSM
ProShares Ultra Gold (UGL)
Bloomberg Gold SubindexSM
ProShares Ultra Silver (AGQ)
Bloomberg Silver SubindexSM
ProShares Trust II (the “Trust”) is a Delaware statutory trust organized into separate series. The Trust may from time to time offer to sell common units of beneficial interest (“Shares”) of any or all of the series of the Trust listed above (each, a “Fund” and collectively, the “Funds”) or other series of the Trust. Shares represent units of fractional undivided beneficial interest in and ownership of a series of the Trust. Each Fund’s Shares are offered on a continuous basis. The Shares of each Fund are listed for trading on NYSE Arca, Inc. (the “Exchange”) under the ticker symbol shown above next to each Fund’s name. Please note that the Trust has series other than the Funds.
Each of the Funds is “geared” which means that each has an investment objective to seek daily investment results, before fees and expenses, that correspond either to a multiple (2x) or an inverse multiple (-2x) of the performance of a benchmark for a single day, not for any other period. A “single day” is measured from the time a Fund calculates its respective net asset value (“NAV”) to the time of the Fund’s next NAV calculation. The NAV calculation times for the Funds typically range from 1:25 p.m. to 4:00 p.m. (Eastern Time). Please see the section entitled “Summary—Creation and Redemption Transactions” for additional details on the NAV calculation times for the Funds.
In order to achieve its investment objective, each of the Funds intends to invest in financial instruments (“Financial Instruments”) in the manner and to the extent described herein. Financial Instruments are instruments whose value is derived from the value of an underlying asset, rate or benchmark (such asset, rate or benchmark, a “Reference Asset”) and include futures contracts, swap agreements, forward contracts, option contracts, and other instruments. The Funds will not invest directly in any commodities or currencies.
The ProShares Ultra Bloomberg Crude Oil (the “Ultra Crude Oil Fund”) and the ProShares UltraShort Bloomberg Crude Oil (the “UltraShort Crude Oil Fund”) may be collectively referred to herein as the “Oil Funds.” The ProShares Ultra Gold (the “Ultra Gold Fund”) and the ProShares Ultra Silver (the “Ultra Silver Fund) may be collectively referred to herein as the “Precious Metals Funds.” The Precious Metals Funds and the Ultra Crude Oil Fund may be referred to herein as an “Ultra Fund” or “Ultra Funds.” UltraShort Crude Oil Fund may be referred to herein as an “UltraShort Fund.”
INVESTING IN THE SHARES INVOLVES SIGNIFICANT RISKS. PLEASE REFER TO “RISK FACTORS” BEGINNING ON PAGE 12.
THE FUNDS PRESENT SIGNIFICANT RISKS NOT APPLICABLE TO OTHER TYPES OF FUNDS. THE FUNDS ARE NOT APPROPRIATE FOR ALL INVESTORS. THE FUNDS USE LEVERAGE AND ARE RISKIER THAN SIMILARLY BENCHMARKED EXCHANGE-TRADED FUNDS THAT DO NOT USE LEVERAGE. AN INVESTOR SHOULD ONLY CONSIDER AN INVESTMENT IN A FUND IF HE OR SHE UNDERSTANDS THE CONSEQUENCES OF SEEKING DAILY
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LEVERAGED OR DAILY INVERSE LEVERAGED INVESTMENT RESULTS, INCLUDING THE IMPACT OF COMPOUNDING ON FUND PERFORMANCE.
THE RETURN OF A FUND FOR A PERIOD LONGER THAN A SINGLE DAY IS THE RESULT OF ITS RETURN FOR EACH DAY COMPOUNDED OVER THE PERIOD AND USUALLY WILL DIFFER IN AMOUNT AND POSSIBLY EVEN DIRECTION FROM THE FUND’S STATED MULTIPLE TIMES THE RETURN OF THE FUND’S BENCHMARK FOR THE SAME PERIOD. THESE DIFFERENCES CAN BE SIGNIFICANT.
THE FUNDS’ INVESTMENTS MAY BE ILLIQUID AND/OR HIGHLY VOLATILE AND THE FUNDS MAY EXPERIENCE LARGE LOSSES FROM BUYING, SELLING OR HOLDING SUCH INVESTMENTS. AN INVESTOR IN ANY OF THE FUNDS COULD POTENTIALLY LOSE THE FULL PRINCIPAL VALUE OF HIS/HER INVESTMENT WITHIN A SINGLE DAY.
SHAREHOLDERS WHO INVEST IN THE FUNDS SHOULD ACTIVELY MANAGE AND MONITOR THEIR INVESTMENTS, AS FREQUENTLY AS DAILY.
Each Ultra Fund seeks daily investment results, before fees and expenses, that correspond to two times (2x) the performance of its benchmark for a single day, not for any other period. The UltraShort Fund seeks daily investment results, before fees and expenses, that correspond to two times the inverse (-2x) of the performance of its benchmark for a single day, not for any other period. The return of a Fund for a period longer than a single day is the result of its return for each day compounded over the period and usually will differ in amount and possibly even direction from the Fund’s stated multiple times the return of the Fund’s benchmark for the same period. These differences can be significant. Daily compounding of a Fund’s investment returns can dramatically and adversely affect its longer-term performance, especially during periods of high volatility. Volatility has a negative impact on Fund returns and the volatility of a Fund’s benchmark may be at least as important to the Fund’s return as the return of the Fund’s benchmark.
Each of the Funds uses leverage and should produce returns for a single day that are more volatile than that of its respective benchmark. For example, the return for a single day of an Ultra Fund with a 2x multiple should be approximately two times as volatile for a single day as the return of a fund with an objective of matching the same benchmark. The return for a single day of the UltraShort Fund with a -2x multiple should be approximately two times as volatile for a single day as the inverse of the return of a fund with an objective of matching the same benchmark.
Each Fund will distribute to shareholders a Schedule K-1 that will contain information regarding the income and expenses of the Fund.
NEITHER THE TRUST NOR ANY FUND IS A MUTUAL FUND OR ANY OTHER TYPE OF INVESTMENT COMPANY AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE “1940 ACT”), AND NEITHER IS SUBJECT TO REGULATION THEREUNDER. SHAREHOLDERS DO NOT HAVE THE PROTECTIONS ASSOCIATED WITH OWNERSHIP OF SHARES IN AN INVESTMENT COMPANY REGISTERED UNDER THE 1940 ACT. SEE RISK FACTOR ENTITLED “SHAREHOLDERS DO NOT HAVE THE PROTECTIONS ASSOCIATED WITH OWNERSHIP OF SHARES IN AN INVESTMENT COMPANY REGISTERED UNDER THE 1940 ACT IN PART ONE OF THIS PROSPECTUS FOR MORE INFORMATION.
Each Fund continuously offers and redeems Shares only in large blocks of Shares known as “Creation Units”, each of which consists of 50,000 Shares. Only Authorized Participants (as defined herein) may purchase and redeem Shares from a Fund and then only in Creation Units. An Authorized Participant is an entity that has entered into an Authorized Participant Agreement with the Trust and ProShare Capital Management LLC (the “Sponsor”). Shares are offered to Authorized Participants in Creation Units at each Fund’s respective NAV. Authorized Participants may then offer to the public, from time to time, Shares from any Creation Unit they create at a per-Share market price. The form of Authorized Participant Agreement and the related Authorized Participant Procedures Handbook set forth the terms and conditions under which an Authorized Participant may purchase or redeem a Creation Unit. Authorized Participants will not receive from any Fund, the Sponsor, or any of their affiliates, any fee or other compensation in connection with their sale of Shares to the public. An Authorized Participant may receive commissions or fees from investors who purchase Shares through their commission or fee-based brokerage accounts.
These securities have not been approved or disapproved by the United States Securities and Exchange Commission (the “SEC”) or any state securities commission nor has the SEC or any state securities commission passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
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THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
[], 2022
The Shares are neither interests in nor obligations of the Sponsor, Wilmington Trust Company, or any of their respective affiliates. The Shares are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.
This Prospectus has two parts: the offered series disclosure and the general pool disclosure. These parts are bound together and are incomplete if not distributed together to prospective participants.
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED TO THIS POOL, AT PAGES 66 THROUGH 68, AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGES 66 THROUGH 68.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGES 12 THROUGH 44.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.
SWAPS TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A PARTICULAR SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK, COUNTERPARTY CREDIT RISK, FUNDING RISK, LIQUIDITY RISK, AND OPERATIONAL RISK.
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HIGHLY CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE LIQUIDITY RISK, WHICH MAY RESULT IN A SUSPENSION OF REDEMPTIONS. HIGHLY LEVERAGED TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL GAINS OR LOSSES IN VALUE AS A RESULT OF RELATIVELY SMALL CHANGES IN THE VALUE OR LEVEL OF AN UNDERLYING OR RELATED MARKET FACTOR. IN EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED WITH A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT A SWAP TRANSACTION MAY, IN CERTAIN INSTANCES, BE MODIFIED OR TERMINATED ONLY BY MUTUAL CONSENT OF THE ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON INDIVIDUALLY NEGOTIATED TERMS. THEREFORE, IT MAY NOT BE POSSIBLE FOR THE COMMODITY POOL OPERATOR TO MODIFY, TERMINATE, OR OFFSET THE POOL’S OBLIGATIONS OR THE POOL’S EXPOSURE TO THE RISKS ASSOCIATED WITH A TRANSACTION PRIOR TO ITS SCHEDULED TERMINATION DATE.
THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE REGISTRATION STATEMENT OF THE TRUST. INVESTORS CAN READ AND COPY THE ENTIRE REGISTRATION STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SEC IN WASHINGTON, D.C.
THE TRUST WILL FILE QUARTERLY AND ANNUAL REPORTS WITH THE SEC. INVESTORS CAN READ AND COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE FACILITIES IN WASHINGTON, D.C. PLEASE CALL THE SEC AT 1-800-SEC-0330 FOR FURTHER INFORMATION.
THE FILINGS OF THE TRUST ARE POSTED AT THE SEC WEBSITE AT WWW.SEC.GOV.
REGULATORY NOTICES
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST, ANY OF THE FUNDS, THE SPONSOR, THE AUTHORIZED PARTICIPANTS OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY OFFER, SOLICITATION, OR SALE OF THE SHARES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION, OR SALE IS NOT AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER, SOLICITATION, OR SALE.
AUTHORIZED PARTICIPANTS MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN TRANSACTING IN SHARES. SEE “PLAN OF DISTRIBUTION” IN PART TWO OF THIS PROSPECTUS.
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PROSHARES TRUST II
Table of Contents 
 
Page
PART ONE
OFFERED SERIES DISCLOSURE
SUMMARY
4
Important Information About the Funds
4
Overview
5
The Oil Funds
5
The Precious Metals Funds
5
Purchases and Sales in the Secondary Market
6
Creation and Redemption Transactions
6
Breakeven Amounts
7
Important Tax Information
7
RISK FACTOR SUMMARY
8
Risks Related to All Funds
8
Risks Related to the Oil Funds and Precious Metals Funds
9
RISK FACTORS
10
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
38
DESCRIPTION OF EACH FUND’S BENCHMARK
39
Bloomberg Commodity Balanced WTI Crude Oil IndexSM
39
Information About the Index Licensor
40
DESCRIPTION OF THE PRECIOUS METALS FUNDS’ BENCHMARKS
41
Bloomberg Gold SubindexSM
41
Information About the Index Licensor
42
Bloomberg Silver SubindexSM
42
Information About the Index Licensor
43
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
43
Investment Objectives
43
PERFORMANCE OF THE OFFERED COMMODITY POOLS OPERATED BY THE COMMODITY POOL OPERATOR
51
MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
54
CHARGES
55
Breakeven Table
55
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
57
Status of the Funds
58
U.S. Shareholders
59
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Page
PART TWO
GENERAL POOL DISCLOSURE
 
PERFORMANCE OF THE OTHER COMMODITY POOLSOPERATED BY THE COMMODITY POOL OPERATOR
68
USE OF PROCEEDS
77
WHO MAY SUBSCRIBE
77
CREATION AND REDEMPTION OF SHARES
77
Creation Procedures
78
Redemption Procedures
79
Creation and Redemption Transaction Fee
80
Special Settlement
80
LITIGATION
80
DESCRIPTION OF THE SHARES; THE FUNDS; CERTAIN MATERIALTERMS OF THE TRUST AGREEMENT
81
Description of the Shares
81
Principal Office; Location of Records; Fiscal Year
81
The Funds
81
The Trustee
82
The Sponsor
82
Duties of the Sponsor
85
Ownership or Beneficial Interest in the Funds
85
Management; Voting by Shareholders
85
Recognition of the Trust and the Funds in Certain States
85
Possible Repayment of Distributions Received by Shareholders
86
Shares Freely Transferable
86
Book-Entry Form
86
Reports to Shareholders
86
Net Asset Value (“NAV”)
86
Indicative Optimized Portfolio Value (“IOPV”)
87
Termination Events
87
DISTRIBUTIONS
87
THE ADMINISTRATOR
87
THE CUSTODIAN
87
THE TRANSFER AGENT
88
THE DISTRIBUTOR
88
Description of SEI
88
THE SECURITIES DEPOSITORY; BOOK-ENTRY ONLY SYSTEM; GLOBAL SECURITY
88
SHARE SPLITS OR REVERSE SPLITS
89
CONFLICTS OF INTEREST
89
MATERIAL CONTRACTS
90
Administration and Accounting Agreement
90
Transfer Agency and Service Agreement
90
Custody Agreement
91
Distribution Agreement
91
PURCHASES BY EMPLOYEE BENEFIT PLANS
91
General
91
“Plan Assets”
92
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Page
Ineligible Purchasers
92
PLAN OF DISTRIBUTION
93
Buying and Selling Shares
93
Authorized Participants
93
Likelihood of Becoming a Statutory Underwriter
93
General
93
LEGAL MATTERS
94
EXPERTS
94
WHERE INVESTORS CAN FIND MORE INFORMATION
94
RECENT FINANCIAL INFORMATION AND ANNUAL REPORTS
94
PRIVACY POLICY
95
The Trust’s Commitment to Investors
95
The Information the Trust Collects About Investors
95
How the Trust Handles Investors’ Personal Information
95
How the Trust Safeguards Investors’ Personal Information
95
INCORPORATION BY REFERENCE OF CERTAIN DOCUMENTS
95
FUTURES COMMISSION MERCHANTS
97
Litigation and Regulatory Disclosure Relating to FCMs
97
Margin Levels Expected to be Held at the FCMs
167
SWAP COUNTERPARTIES
167
Litigation and Regulatory Disclosure Relating to Swap Counterparties
167
APPENDIX A—GLOSSARY OF DEFINED TERMS
A-1
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PART ONE
OFFERED SERIES DISCLOSURE
SUMMARY
Investors should read the following summary together with the more detailed information in this Prospectus before investing in Shares of any of the Funds, including the information under the caption “Risk Factors,” and all exhibits to this Prospectus and the information incorporated by reference in this Prospectus, including the financial statements and the notes to those financial statements in the Trust’s Annual Report on Form 10-K, and the Quarterly Reports on Form 10-Q, and Current Reports, if any, on Form 8-K. Please see the section entitled “Incorporation by Reference of Certain Documents” in Part Two of this Prospectus. Investors should also read any updated Prospectus, supplements to this Prospectus, notices and press releases, and other important information about the Funds which are posted on the Sponsor’s website at www.ProShares.com.
For ease of reference, any references throughout this Prospectus to various actions taken by any or all of the Funds are actually actions taken by the Trust on behalf of such Funds.
The definitions of capitalized terms used in this Prospectus can be found in the Glossary of Defined Terms in Appendix A and throughout this Prospectus.
Important Information About the Funds
 
THE FUNDS PRESENT SIGNIFICANT RISKS NOT APPLICABLE TO OTHER TYPES OF FUNDS. THE FUNDS ARE NOT APPROPRIATE FOR ALL INVESTORS. THE FUNDS USE LEVERAGE AND ARE RISKIER THAN SIMILARLY BENCHMARKED EXCHANGE-TRADED FUNDS THAT DO NOT USE LEVERAGE. AN INVESTOR SHOULD ONLY CONSIDER AN INVESTMENT IN A FUND IF HE OR SHE UNDERSTANDS THE CONSEQUENCES OF SEEKING DAILY LEVERAGED OR DAILY INVERSE LEVERAGED INVESTMENT RESULTS, INCLUDING THE IMPACT OF COMPOUNDING ON FUND PERFORMANCE.
THE RETURN OF A FUND FOR A PERIOD LONGER THAN A SINGLE DAY IS THE RESULT OF ITS RETURN FOR EACH DAY COMPOUNDED OVER THE PERIOD AND USUALLY WILL DIFFER IN AMOUNT AND POSSIBLY EVEN DIRECTION FROM THE FUND’S STATED MULTIPLE TIMES THE RETURN OF THE FUND’S BENCHMARK FOR THE SAME PERIOD. THESE DIFFERENCES CAN BE SIGNIFICANT.
THE FUNDS’ INVESTMENTS MAY BE ILLIQUID AND/OR HIGHLY VOLATILE AND THE FUNDS MAY EXPERIENCE LARGE LOSSES FROM BUYING, SELLING OR HOLDING SUCH INVESTMENTS. AN INVESTOR IN ANY OF THE FUNDS COULD POTENTIALLY LOSE THE FULL PRINCIPAL VALUE OF HIS/HER INVESTMENT WITHIN A SINGLE DAY.
SHAREHOLDERS WHO INVEST IN THE FUNDS SHOULD ACTIVELY MANAGE AND MONITOR THEIR INVESTMENTS,
AS FREQUENTLY AS DAILY. 
Each Ultra Fund seeks daily investment results, before fees and expenses, that correspond to two times (2x) the performance of its benchmark for a single day, not for any other period. The UltraShort Fund seeks daily investment results, before fees and expenses, that correspond to two times the inverse (-2x) of the performance of its benchmark for a single day, not for any other period. The return of a Fund for a period longer than a single day is the result of its return for each day compounded over the period and usually will differ in amount and possibly even direction from the Fund’s stated multiple times the return of the Fund’s benchmark for the same period. These differences can be significant. Daily compounding of a Fund’s investment returns can dramatically and adversely affect its longer-term performance especially during periods of high volatility.
Volatility has a negative impact on Fund performance and the volatility of a Fund’s benchmark may be at least as important to the Fund’s return as the return of the Fund’s benchmark. Each of the Funds uses leverage and should produce returns for a single day that are more volatile than that of its benchmark. For example, the return for a single day of an Ultra Fund with a 2x multiple should be approximately two times as volatile for a single day as the return of a fund with an objective of matching the same benchmark. The return for a single day of the UltraShort
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Fund with a -2x multiple should be approximately two times as volatile for a single day as the inverse of the return of a fund with an objective of matching the same benchmark.
Current geopolitical events, such as Russia’s invasion of Ukraine, have had, and may continue to have, an impact on certain commodities markets, particularly the market for crude oil, commodity futures markets, including futures on crude oil, and the prices of the Oil Funds. Russia is a significant global exporter of crude oil. The Russian invasion of Ukraine caused a significant disruption to Russia’s energy exports when large oil companies announced that they would cease operations in Russia and traders boycotted Russian oil. The invasion’s impact on other commodity markets, such as the gold and silver markets, has been less significant. WTI crude oil prices for the remainder of 2022 are expected to be significantly higher than in comparison to past years. In the first half of 2022, crude oil prices in the EU rose approximately 36% and crude oil prices in the U.S. rose approximately 42%. The EU receives about 67% of its crude oil from Russian pipelines and approximately 70% of that flows through Ukraine. Germany receives roughly 12% of its crude oil from Russia, which is a reduction from 35% since the onset of the war. Russia is the 3rd largest producer of crude oil globally after the U.S. and Saudi Arabia, accounting for 10% of total global crude oil supply in 2020. Ukraine is a meaningful transporter of Russia’s crude oil. Crude oil prices are expected to ease in 2023 as new supplies become available and demand decreases. The average daily trading volume for gold and silver futures contracts since the Russian invasion began has remained generally flat as compared to average daily trading volumes prior to the Russian invasion, while the average daily trading volume for WTI crude oil futures contracts has declined by approximately 20% since the Russian invasion. The average daily trading volume for shares of the UltraShort Crude Oil Fund, the Ultra Crude Oil Fund and the Ultra Gold Fund have increased approximately 250%, 20% and 15%, respectively, since the Russian invasion began, while the average daily trading volume for shares of the Ultra Silver Fund has remained relatively consistent since the Russian invasion began. As of the date of this Prospectus, WTI crude oil futures are in backwardation, gold futures and silver futures are in contango.
Overview
Each Fund is listed below along with its respective benchmark:
The Oil Funds 
Fund Name
Benchmark*
ProShares Ultra Bloomberg Crude Oil
Bloomberg Commodity Balanced WTI Crude Oil IndexSM
ProShares UltraShort Bloomberg Crude Oil
Bloomberg Commodity Balanced WTI Crude Oil IndexSM
*
Prior to September 17, 2020 each Oil Fund’s benchmark was the Bloomberg WTI Crude Oil SubindexSM (the “Prior Oil Benchmark”). The performance of each Oil Fund prior to September 17, 2020 is based on the performance of the Prior Oil Benchmark.
The Precious Metals Funds 
Fund Name
Benchmark
ProShares Ultra Gold
Bloomberg Gold SubindexSM
ProShares Ultra Silver
Bloomberg Silver SubindexSM
Each “Ultra Fund” seeks daily investment results, before fees and expenses, that correspond to two times (2x) the performance of its benchmark for a single day. The “UltraShort Fund” seeks daily investment results, before fees and expenses, that correspond to two times the inverse (-2x) of the performance of its benchmark for a single day. The Funds do not seek to achieve their stated objective over a period greater than a single day. A “single day” is measured from the time the Fund calculates its net asset value (“NAV”) to the time of the Fund’s next NAV calculation.
Each Fund seeks to engage in daily rebalancing to position its portfolio so that its exposure to its benchmark is consistent with its daily investment objective. The impact of changes to the value of a Fund’s benchmark each day will affect whether such Fund’s portfolio needs to be rebalanced. For example, if the UltraShort Fund’s benchmark has risen on a given day, net assets of such Fund should fall (assuming there were no Creation Units issued). As a result, inverse exposure will need to be decreased. Conversely, if the UltraShort Fund’s benchmark has fallen on
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a given day, net assets of such Fund should rise (assuming there were no Creation Unit redemptions). As a result, inverse exposure will need to be increased. For Ultra Funds, the Fund’s long exposure will need to be increased on days when such Fund’s benchmark rises (assuming there were no Creation Units redeemed) and decreased on days when such Fund’s benchmark falls (assuming there were no Creation Units issued). The time and manner in which a Fund rebalances its portfolio may vary from day to day at the discretion of the Sponsor depending upon market conditions and other circumstances.
 
DAILY REBALANCING AND THE COMPOUNDING OF EACH DAY’S RETURN OVER TIME MEANS THAT THE RETURN OF EACH FUND FOR A PERIOD LONGER THAN A SINGLE DAY WILL BE THE RESULT OF EACH DAY’S RETURNS COMPOUNDED OVER THE PERIOD, WHICH WILL VERY LIKELY DIFFER FROM TWO TIMES (2X) OR TWO TIMES THE INVERSE (-2X) OF THE RETURN OF THE FUND’S BENCHMARK FOR THE SAME PERIOD. A FUND WILL LOSE MONEY IF ITS BENCHMARK’S PERFORMANCE IS FLAT OVER TIME, AND A FUND CAN LOSE MONEY REGARDLESS OF THE PERFORMANCEOF ITS BENCHMARK, AS A RESULT OF DAILY REBALANCING, THE BENCHMARK’S VOLATILITY, COMPOUND
ING, AND OTHER FACTORS. 
All Funds
Each of the Funds intends to invest in Financial Instruments to gain the appropriate amount of exposure to its benchmark in the manner and to the extent described herein. “Financial Instruments” are instruments whose value is derived from the value of an underlying asset, rate or benchmark (such asset, rate or benchmark, a “Reference Asset”) and include futures contracts, swap agreements, forward contracts, option contracts, and other instruments. The Funds will not invest directly in any commodities or currencies.
In seeking to achieve the Funds’ investment objectives, the Sponsor uses a mathematical approach to investing. Using this approach, the Sponsor determines the type, quantity and mix of Financial Instruments that the Sponsor believes, in combination, should produce daily returns consistent with the Funds’ objectives.
The Funds are not actively managed by traditional methods (e.g., by effecting changes in the composition of a portfolio on the basis of judgments relating to economic, financial and market conditions with a view toward obtaining positive results under all market conditions). Each Fund seeks to remain fully invested at all times in Financial Instruments and money market instruments that, in combination, provide exposure to its underlying benchmark consistent with its investment objective, even during periods in which the benchmark is flat or moving in a manner that may cause the value of the Fund to decline.
The Sponsor has the authority to change a Fund’s investment objective, benchmark or investment strategy at any time, or to terminate the Trust or a Fund, in each case, without shareholder approval or advance notice, subject to applicable regulatory requirements.
For example, in 2020 the Sponsor modified certain of the Oil Funds’ investment strategies in response to global developments, including unprecedented price volatility in the markets for crude oil and crude oil futures contracts and related Financial Instruments, and the imposition of exchange position limits on each Oil Fund’s investment in futures contracts. As a result of these changes, for the period April 27, 2020 through September 17, 2020, the Oil Funds invested in longer dated futures contracts than the futures contracts included in their benchmark at the time (i.e., the Prior Oil Benchmark).
ProShare Capital Management LLC, a Maryland limited liability company, serves as the Trust’s Sponsor and commodity pool operator. The principal office of the Sponsor and the Funds is located at 7272 Wisconsin Avenue, 21st Floor, Bethesda, Maryland 20814. The telephone number of the Sponsor and each of the Funds is (240) 497-6400.
Purchases and Sales in the Secondary Market
The Shares of each Fund are listed on NYSE Arca, Inc. (the “Exchange”) under the ticker symbols shown on the front cover of this Prospectus. Secondary market purchases and sales of Shares are subject to ordinary brokerage commissions and charges.
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Creation and Redemption Transactions
Only an Authorized Participant may purchase (i.e., create) or redeem Shares with the Funds. Authorized Participants may create and redeem Shares only in large blocks of Shares known as “Creation Units”, each of which consists of 50,000 Shares. An “Authorized Participant” is an entity that has entered into an Authorized Participant Agreement with the Trust and the Sponsor. Creation Units are offered to Authorized Participants at each Fund’s NAV. Creation Units in a Fund are expected to be created when there is sufficient demand for Shares in such Fund that the market price per Share is at a premium to the NAV per Share. Authorized Participants will likely sell such Shares to the public at prices that are expected to reflect, among other factors, the trading price of the Shares of such Fund and the supply of and demand for the Shares at the time of sale. Similarly, it is expected that Creation Units in a Fund will be redeemed when the market price per Share of such Fund is at a discount to the NAV per Share. The Sponsor expects that the exploitation of such arbitrage opportunities by Authorized Participants and their clients will tend to cause the public trading price of the Shares to track the NAV per Share of a Fund over time, though there can be no guarantees this will be the case. Retail investors seeking to purchase or sell Shares on any day effect such transactions in the secondary market at the market price per Share, rather than in connection with the creation or redemption of Creation Units.
A creation transaction, which is subject to acceptance by SEI Investments Distribution Co. (“SEI” or the “Distributor”), generally takes place when an Authorized Participant deposits a specified amount of cash (unless as provided otherwise in this Prospectus) in exchange for a specified number of Creation Units. Similarly, Shares can be redeemed only in Creation Units, generally for cash (unless as provided otherwise in this Prospectus). Except when aggregated in Creation Units, Shares are not redeemable. The prices at which creations and redemptions occur are based on the next calculation of the NAV after an order is received in proper form, as described in the Authorized Participant Agreement and the related Authorized Participant Procedures Handbook. From time to time the Sponsor, in its sole discretion, may impose limits on the number of Creation Units that may be created each day by each Authorized Participant, or on the total number of Creation Units that may be created by all Authorized Participants on such day, or may suspend the purchase and/or redemption of Creation Units altogether. For example, the Sponsor may impose such limits or suspension if it believes doing so would help a Fund manage its portfolio, such as by allowing a Fund to comply with counterparty or position limits, or to manage or otherwise comply with Share registration requirements, or in response to significant and/or rapid increases in the size of a Fund as a result of an increase in creation activity. The manner by which Creation Units are purchased and redeemed is governed by the terms of this Prospectus, the Authorized Participant Agreement and Authorized Participant Procedures Handbook. Creation and redemption orders are not effective until accepted by the Distributor and may be rejected or revoked. By placing a purchase order, an Authorized Participant agrees to deposit cash (unless as provided otherwise in this Prospectus) with The Bank of New York Mellon (“BNYM”, the “Custodian”, the “Transfer Agent” and the “Administrator”), acting in its capacity as custodian of the Funds.
Creation and redemption transactions must be placed each day with SEI by the create/redeem cut-off time (stated below) to receive that day’s NAV. The Sponsor may require orders to be placed earlier if, for example, the Exchange or other exchange material to the valuation or operation of such Fund closes before such cut-off time. Because the primary trading session for the commodities and/or futures contracts underlying certain of the Funds have different closing (or fixing) times than U.S. Equity markets, the create/redeem cut-off time and NAV calculation time for each Fund may differ. See the section entitled “Net Asset Value” for additional information about the NAV calculations. 
Fund
Create/Redeem Cut-off
NAV Calculation Time
ProShares Ultra Silver (AGQ)
1:00 p.m. (Eastern Time)
1:25 p.m. (Eastern Time)
ProShares Ultra Gold (UGL)
1:00 p.m. (Eastern Time)
1:30 p.m. (Eastern Time)
ProShares Ultra Bloomberg Crude Oil (UCO)
2:00 p.m. (Eastern Time)
2:30 p.m. (Eastern Time)
ProShares UltraShort Bloomberg Crude Oil (SCO)
2:00 p.m. (Eastern Time)
2:30 p.m. (Eastern Time)
Breakeven Amounts
A Fund will be profitable only if returns from the Fund’s investments exceed its “breakeven amount.” Estimated breakeven amounts are set forth in the table below. The estimated breakeven amounts represent the estimated amount of trading income that each Fund would need to achieve during one year to offset the Fund’s estimated fees, costs and expenses, net of any interest income earned by the Fund on its investments. Estimated amounts do not represent actual results, which may be different. It is not possible to predict whether a Fund will break even at the end of the first twelve months of an investment or any other period. See “Charges—Breakeven Table,” beginning on page 66, for more detailed tables showing Breakeven Amounts. 
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Fund Name
Breakeven Amount
(% Per Annum of
Average
Daily NAV)*
Assumed
Selling
Price
Per Share*
Breakeven Amount
($ for the
Assumed Selling
Price Per Share)*
ProShares Ultra Bloomberg Crude Oil
0.82%
$40.00
$0.32
ProShares UltraShort Bloomberg Crude Oil
0.72%
$25.00
$0.18
ProShares Ultra Gold
0.74%
$55.00
$0.39
ProShares Ultra Silver
0.83%
$25.00
$0.21
*
The breakeven analysis set forth in this table assumes that the Shares have a constant NAV equal to the amount shown. The amount approximates the NAV of such shares based on recent NAV history as of June 30, 2022, rounded to the nearest $5. The actual NAV of each Fund differs and is likely to change on a daily basis. The numbers in this chart have been rounded to the nearest 0.01.
Important Tax Information
Please note that each Fund will distribute to each shareholder a Schedule K-1 that will contain information regarding the shareholder’s share of income and expense items of the Fund. Schedule K-1 is a complex form and shareholders may find that preparing tax returns may require additional time or may require the assistance of an accountant or other tax preparer, at an additional expense to the shareholder.
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RISK FACTOR SUMMARY
Risks Related to All Funds
•The use of leveraged or inverse leveraged positions increases risk and could result in the total loss of an investor’s investment within a single day.
•Due to the compounding of daily returns, each Fund’s returns over periods longer than a single day will likely differ in amount and possibly even direction from the Fund’s stated multiple times the return of its benchmark for such period.
•Intraday price performance of Fund shares will likely differ from the Fund’s stated multiple times the performance of its benchmark for such day.
•There is no guarantee that any Fund will achieve its investment objective.
•Historical average volatility does not predict future volatility, which may be significantly higher or lower than historical averages.
•In order to achieve a high degree of correlation with their applicable underlying benchmarks, the Funds seek to rebalance their portfolios daily to keep exposure consistent with their respective investment objectives.
•Each Fund seeks to achieve its investment objective even during periods when the performance of the Fund’s benchmark is flat or when the benchmark is moving in a manner that may cause the value of the Fund to decline.
•Shareholders’ tax liability may exceed cash distributions on the Shares.
•Investors in the Funds may be exposed to various tax risks, as described in further detail below.
•Potential negative impact from rolling futures positions; there have been extended periods in the past where the investment strategies utilized by the Funds have caused significant and sustained losses.
•The number of underlying components included in a Fund’s benchmark may impact the volatility of such benchmark, which could adversely affect an investment in the Shares.
•Possible illiquid markets may cause or exacerbate losses: the large size of the positions the Funds may acquire increases these risks.
•Changes implemented by the benchmark provider that affect the composition and valuation of the benchmark could negatively impact the performance of the benchmark and therefore the performance of the Funds.
•The particular benchmark used by a Fund may underperform other asset classes and may underperform other indices or benchmarks based upon the same underlying Reference Asset.
•A Fund may change its investment objective, benchmark and investment strategies, and/or may terminate, at any time without shareholder approval.
•Financial markets, including the benchmark and Financial Instruments used by a Fund and Fund Shares may be subject to unusual trading activity, volatility, and potential fraud and/or manipulation by third parties, which could have a negative impact on the performance of the benchmark and the Fund or the liquidity and price of Fund Shares.
•Historical correlation trends between Fund benchmarks and other asset classes may not continue or may reverse, limiting or eliminating any potential diversification or other benefit from owning a Fund.
•Benchmark changes and market transactions, including the daily rebalancing of futures contracts by the Funds may have a significant impact on the performance of the benchmark and the Funds and the trading, liquidity and price of Fund Shares.
•The lack of active trading markets for the Shares may result in losses upon the sale of such Shares.
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•Investors may be adversely affected by redemption or creation orders that are subject to postponement, limits, suspension or rejection under certain circumstances.
•Purchases Creation Units by Authorized Participants may be limited or suspended by the Sponsor in its sole discretion. For example, the Sponsor may limit or suspend the purchase of Creation Units if it believes doing so would help a Fund manage its portfolio such as by allowing it to comply with counterparty or position limits, or to manage or otherwise comply with Share registration requirements, or in response to significant and/or rapid increases in the size of a Fund as a result of an increase in creation activity. This may, among other things, cause Fund Shares to trade at a premium to NAV or otherwise have a negative impact on the liquidity and trading of Fund shares.
•The NAV per Share may not correspond to the market price per Share.
•Investors may be adversely affected by an overstatement or understatement of a Fund’s NAV due to the valuation method employed or errors in the NAV calculation.
•The liquidity of the Shares may also be affected by the withdrawal from participation of Authorized Participants, which could adversely affect the market price of the Shares.
•Shareholders that are not Authorized Participants may only purchase or sell their Shares in secondary trading markets, and the conditions associated with trading in secondary markets may adversely affect investors’ investment in the Shares.
•A Fund’s listing exchange may halt trading in the Shares of a Fund which would adversely impact investors’ ability to sell Shares and could lead to investor losses.
•Shareholders do not have the protections associated with ownership of shares in an investment company registered under the 1940 Act.
•Regulatory and exchange daily price limits, position limits and accountability levels may cause the Sponsor restrict the creation of Creation Units, which could have a negative impact on the operation of each Fund, prevent a Fund from achieving its investment objective, and disrupt secondary market trading of Fund Shares.
•The use of futures contracts may expose the Funds to liquidity and other risks, which could result in significant loss to the Funds.
•Margin requirements and position limits applicable to futures contracts and swaps and the availability of and market required by swap counterparties may limit a Fund’s ability to achieve sufficient exposure and prevent a Fund from achieving its investment objective.
•The insolvency of a futures commission merchant (“FCM”) or clearinghouse or the failure of an FCM or clearinghouse to properly segregate Fund assets held as margin on futures transactions may result in losses to the Funds.
•A Fund’s performance could be adversely affected if an FCM reduces its internal risk limits for the Fund.
•The use of swap agreements may expose the Funds to liquidity risk, counterparty credit risk and other risks, which could result in significant loss to the Funds.
•The use of derivatives, such as swap agreements and forward contracts, exposes the Funds to counterparty credit risks.
•The use of options strategies may expose the Funds to significant loss and liquidity, counterparty and other risks. The use of an options strategy is costly and may not protect a Fund.
•Natural disasters and public health disruptions, such as the COVID-19 virus (including any variants), may have a significant negative impact on the performance of each Fund.
•In response to Russia’s invasion of Ukraine in February 2022 and the ongoing conflict between those two countries, the U.S. and other countries, as well as the European Union, have issued broad-ranging economic sanctions designed to impose severe pressure on Russia’s economy. Such sanctions, and the conflict generally, may have adverse effects on regional and global economic markets, and may result in increased volatility and could have a negative impact on the performance of a Fund and its or the liquidity and price of Fund Shares.
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Risks Related to the Oil Funds and Precious Metals Funds
•A number of factors may have a negative impact on the price of commodities, such as oil, gold and silver, and the price of Financial Instruments based on such commodities.
•The Oil Funds are linked to an index of crude oil futures contracts, and are not directly linked to the “spot” price of crude oil. Oil futures contracts may perform very differently from the spot price of crude oil.
•The Precious Metals Funds do not hold gold or silver bullion. Rather, the Precious Metals Funds use Financial Instruments to gain exposure to gold or silver bullion. Using Financial Instruments to obtain exposure to gold or silver bullion may cause tracking error and subject the Precious Metals Funds to the effects of contango and backwardation as described herein.
•There have been times where WTI crude oil futures contracts experience “extraordinary contango or extraordinary backwardation.” For example, in April 2020, the market for crude oil futures contracts experienced a period of “extraordinary contango” (the spot price for a commodity is significantly lower than the price of the futures contract in that commodity) that resulted in a negative price in the May 2020 WTI crude oil futures contract. If all or a significant portion of the futures contracts held by the Oil Funds at a future date were to reach a negative price, investors in any such Fund could lose their entire investment.
•Russia’s Invasion of Ukraine Could Have a Severe Adverse Effect on Certain Commodities Markets, Particularly Crude Oil Markets.
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RISK FACTORS
Investing in the Funds involves significant risks not applicable to other types of investments. The Funds may be highly volatile and you could potentially lose the full principal value of your investment within a single day. Before you decide to purchase any Shares, you should consider carefully the risks described below together with all of the other information included in this Prospectus, as well as information found in documents incorporated by reference in this Prospectus. These risk factors may be amended, supplemented or superseded from time to time by risk factors contained in any periodic report, prospectus supplement, post-effective amendment or in other reports filed with the SEC in the future.
The assets that the Funds invest in can be highly volatile and the Funds may experience sudden and large losses when buying, selling or holding such instruments; you can lose all of your investment within a single day.
Investments linked to commodity or currency markets can be highly volatile compared to investments in traditional securities and the Funds may experience sudden and large losses. 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, periods of recession and/or sustained elevated inflation, natural disasters (including disease, epidemics and pandemics) and changes in interest rates or inflation rates. High volatility may have an adverse impact on the performance of the Funds. An investor in any of the Funds could potentially lose the full principal value of his or her investment within a single day.
 
Important Information about the Oil Funds.Global developments affecting crude oil markets and the markets for crude oil futures contracts and related Financial Instruments, have caused unprecedented volatility. This has resulted in, among other things, a negative price for the May 2020 WTI crude oil futures contract and significant volatility in the performance and trading price of each Oil Fund. Investors in oil-related products, including the Oil Funds, could suffer rapid and significant losses on their investments, including the possibility of total loss, especially in light of recent market conditions. For example, if all or a significant portion of the futures contracts held by the Ultra Crude Oil Fund at a future date were to reach a negative price, investors in the Fund could lose their entire investment with little or no warning. If such event were to occur, and the price of WTI crude oil futures contracts subsequently reversed, investors in the Short Crude Oil Fund could suffer
significant losses or lose their entire investment.  
The use of leveraged or inverse leveraged positions increases risk and could result in the total loss of an investor’s investment within a single day.
Each Fund utilizes leverage in seeking to achieve its investment objective and will lose more money in market environments adverse to its daily investment objective than funds that do not employ leverage. The use of leveraged and/or inverse leveraged positions increases risk and could result in the total loss of an investor’s investment within a single day. The more a Fund invests in leveraged positions, the more this leverage will magnify any losses on those investments. A Fund’s investments in leveraged positions generally requires a small investment relative to the amount of investment exposure assumed. As a result, such investments may give rise to losses that far exceed the amount invested in those instruments.
For example, because the Ultra Funds and the UltraShort Fund offered hereby include a two times (2x) or a two times inverse (-2x) multiplier, a single-day movement in the benchmark for one of these Funds approaching 50% at any point in the day could result in the total loss or almost total loss of an investment in such Fund if that movement is contrary to the investment objective of the Fund. This would be the case with downward single-day or intraday movements in the underlying benchmark of an Ultra Fund or upward single day or intraday movements in the benchmark of an UltraShort Fund even if the underlying benchmark maintains a level greater than zero at all times and even if the benchmark subsequently moves in an opposite direction, eliminating all or a portion of the prior adverse movement. It is not possible to predict when sudden large changes in the daily movement of a benchmark may occur.
Due to the compounding of daily returns, each Fund’s returns over periods longer than a single day will likely differ in amount and possibly even direction from the Fund’s stated multiple times the return of its benchmark for such period.
Each of the Funds is “geared” which means that each has an investment objective to seek daily investment results, before fees and expenses, that correspond either to two times (2x) or two times the inverse (-2x) of the performance of a benchmark for a single day, not for any
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other period. A single day is measured from the time a Fund calculates its respective NAV to the time of the Fund’s next NAV calculation. The NAV calculation times for the Funds typically range from 1:25 p.m. to 4:00 p.m. (Eastern Time); please see the section entitled “Summary—Creation and Redemption Transactions” for additional details on the NAV calculation times for the Funds. The return of a Fund for a period longer than a single day is the result of its return for each day compounded over the period, and usually will differ from two times (2x) or two times the inverse (-2x) of the return of the Fund’s benchmark for the same period. Compounding is the cumulative effect of applying investment gains and losses and income to the principal amount invested over time. Gains or losses experienced over a given period will increase or reduce the principal amount invested from which the subsequent period’s returns are calculated. The effects of compounding will likely cause the performance of a Fund to differ from the Fund’s stated multiple times the return of its benchmark for the same period. The effect of compounding becomes more pronounced as benchmark volatility and holding period increase. The impact of compounding will impact each shareholder differently depending on the period of time an investment in a Fund is held and the volatility of the benchmark during the holding period of an investment in the Fund.
A Fund will lose money if its benchmark’s performance is flat over time, and a Fund can lose money regardless of the performance of an underlying benchmark, as a result of daily rebalancing, the benchmark’s volatility, compounding and other factors. Longer holding periods, higher benchmark volatility, inverse exposure and greater leverage each affect the impact of compounding on a Fund’s returns. Daily compounding of a Fund’s investment returns can dramatically and adversely affect performance, especially during periods of high volatility. Volatility has a negative impact on Fund performance and the volatility of a Fund’s benchmark may be at least as important to a Fund’s return for a period as the return of the benchmark.
Each Ultra Fund and UltraShort Fund uses leverage and should produce returns for a single day that are more volatile than that of its benchmark. For example, the return for a single day of an Ultra Fund with a 2x multiple should be approximately two times as volatile for a single day as the return of a fund with an objective of matching the performance of the same benchmark. The return for a single day of an UltraShort Fund with a -2x multiple should be approximately two times as volatile for a single day as the inverse of the return of a fund with an objective of matching the performance of the same benchmark.
The Funds are not appropriate for all investors and present different risks than other funds. The Funds use leverage and are riskier than similarly benchmarked exchange-traded funds that do not use leverage. An investor should only consider an investment in a Fund if he or she understands the consequences of seeking daily leveraged or daily inverse leveraged investment results for a single day. Shareholders who invest in the Funds should actively manage and monitor their investments, as frequently as daily.
The hypothetical examples below illustrate how daily geared fund returns can behave for periods longer than a single day. Each involves a hypothetical fund XYZ that seeks returns that are two times (2x) the daily performance of benchmark XYZ, before fees and expenses. On each day, fund XYZ performs in line with its objective (two times (2x) the benchmark’s daily performance before fees and expenses). Notice that, in the first example (showing an overall benchmark loss for the period), over the entire seven-day period, the fund’s total return is more than two times (2x) the loss of the period return of the benchmark. For the seven-day period, benchmark XYZ lost 3.26% while fund XYZ lost 7.01% (versus -6.52% (or 2 x -3.26%)). 
 
Benchmark XYZ
Fund XYZ
Level
Daily
Performance
Daily
Performance
Net Asset
Value
Start
100.00
 
 
$100.00
Day 1
97.00
-3.00%
-6.00%
$94.00
Day 2
99.91
3.00%
6.00%
$99.64
Day 3
96.91
-3.00%
-6.00%
$93.66
Day 4
99.82
3.00%
6.00%
$99.28
Day 5
96.83
-3.00%
-6.00%
$93.32
Day 6
99.73
3.00%
6.00%
$98.92
Day 7
96.74
-3.00%
-6.00%
$92.99
Total Return
 
-3.26%
-7.01%
 
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Similarly, in another example (showing an overall benchmark gain for the period), over the entire seven-day period, the fund’s total return is considerably less than two times (2x) that of the period return of the benchmark. For the seven-day period, benchmark XYZ gained 2.72% while fund XYZ gained 4.86% (versus 5.44% (or 2 × 2.72%)). 
 
Benchmark XYZ
Fund XYZ
Level
Daily
Performance
Daily
Performance
Net Asset
Value
Start
100.00
 
 
$100.00
Day 1
103.00
3.00%
6.00%
$106.00
Day 2
99.91
-3.00%
-6.00%
$99.64
Day 3
102.91
3.00%
6.00%
$105.62
Day 4
99.82
-3.00%
-6.00%
$99.28
Day 5
102.81
3.00%
6.00%
$105.24
Day 6
99.73
-3.00%
-6.00%
$98.92
Day 7
102.72
3.00%
6.00%
$104.86
Total Return
 
2.72%
4.86%
 
These effects are caused by compounding, which exists in all investments, but has a more significant impact in geared funds. In general, during periods of higher benchmark volatility, compounding will cause an Ultra Fund’s returns for periods longer than a single day to be less than two times (2x) the return of its benchmark (or less than two times the inverse (-2x) of the return of its benchmark for the UltraShort Fund). This effect becomes more pronounced as volatility increases. Conversely, in periods of lower benchmark volatility (particularly when combined with higher benchmark returns), an Ultra Fund’s returns over longer periods can be greater than two times (2x) the return of its benchmark (or greater than two times the inverse (-2x) of the return of its benchmark for the UltraShort Fund). Actual results for a particular period are also dependent on the magnitude of the benchmark return in addition to the benchmark volatility. Similar effects exist for the UltraShort Fund, and the significance of these effects may be even greater with such inverse leveraged or leveraged funds.
The graphs that follow illustrate this point. Each of the graphs shows a simulated hypothetical one-year performance of a benchmark compared with the performance of a geared fund that perfectly achieves its geared daily investment objective. The graphs demonstrate that, for periods greater than a single day, a geared fund is likely to underperform or overperform (but not match) the benchmark performance (or the inverse of the benchmark performance) times the multiple stated as the daily fund objective. Investors should understand the consequences of holding daily rebalanced funds for periods longer than a single day and should actively manage and monitor their investments, as frequently as daily. A one-year period is used solely for illustrative purposes. Deviations from the benchmark return (or the inverse of the benchmark return) times the fund multiple can occur over periods as short as two days (each day as measured from NAV to NAV) and may also occur in periods of a single day, or even intra-day. To isolate the impact of daily leveraged or inverse leveraged exposure, these graphs assume: a) no fund expenses or transaction costs; b) borrowing/lending rates of zero percent (to obtain required leveraged or inverse leveraged exposure) and cash reinvestment rates of zero percent; and c) the fund consistently maintaining perfect exposure (-2x or 2x) as of the fund’s NAV time each day. If these assumptions were different, the fund’s performance would be different than that shown. If fund expenses, transaction costs and financing expenses greater than zero percent were included, the fund’s performance would also be different than shown. Each of the graphs also assumes a volatility rate of 37% which is an approximate average of the five-year historical volatility rate of the most volatile benchmark referenced herein (the daily performance of Bloomberg Commodity Balanced WTI Crude Oil Index) as June 30, 2022. A benchmark’s volatility rate is a statistical measure of the magnitude of fluctuations in its returns.HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS. NO REPRESENTATION IS BEING MADE THAT ANY BENCHMARK OR FUND WILL OR IS LIKELY TO ACHIEVE GAINS OR LOSSES SIMILAR TO THOSE SHOWN OR WILL EXPERIENCE VOLATILITY SIMILAR TO THAT SHOWN. THE INFORMATION PROVIDED IN THE CHART BELOW IS FOR ILLUSTRATIVE PURPOSES ONLY.
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One-Year Simulation; Benchmark Flat (0%)
(Annualized Benchmark Volatility 37%)
 
The graph above shows a scenario where the benchmark, which exhibits day-to-day volatility, is flat or trendless over the year (i.e., provides a return of 0% over the course of the year), but the Ultra Fund (2x) and the UltraShort Fund (-2x) are both down.
One-Year Simulation; Benchmark Down 30%
(Annualized Benchmark Volatility 37%)
 
The graph above shows a scenario where the benchmark, which exhibits day-to-day volatility, is down over the year, but the Ultra Fund (2x) is down less than two times the benchmark and the UltraShort Fund (-2x) is up less than two times the inverse of the benchmark.HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS. NO REPRESENTATION IS BEING MADE THAT ANY BENCHMARK OR FUND WILL OR IS LIKELY TO ACHIEVE
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GAINS OR LOSSES SIMILAR TO THOSE SHOWN OR WILL EXPERIENCE VOLATILITY SIMILAR TO THAT SHOWN. THE INFORMATION PROVIDED IN THE CHART BELOW IS FOR ILLUSTRATIVE PURPOSES ONLY.
One-Year Simulation; Benchmark Up 30%
(Annualized Benchmark Volatility 37%)
 
The graph above shows a scenario where the benchmark, which exhibits day-to-day volatility, is up over the year, but the Ultra Fund (2x) is up less than two times the benchmark and the UltraShort Fund (-2x) is down more than two times the inverse of the benchmark.
The historical five-year average volatility of the benchmarks utilized by the Funds ranges from 14.85% to 36.75% as of June 30, 2022, as set forth in the table below. 
Benchmark
Historical
Five-Year
Average Volatility
Rate as of
June 30, 2022
Bloomberg Commodity Balanced WTI Crude Oil SubindexSM*
36.75%
Bloomberg Gold SubindexSM
14.85%
Bloomberg Silver SubindexSM
29.63%
*
Prior to September 17, 2020, each Oil Fund’s benchmark was the Bloomberg WTI Crude Oil Subindex (sometimes referred to herein as the “Prior Oil Index”). Effective September 17, 2020, each Oil Fund’s benchmark is the Bloomberg Commodity Balanced WTI Crude Oil IndexSM
Historical average volatility does not predict future volatility, which may be significantly higher or lower than historical averages.
Fund performance for periods greater than a single day can be estimated given any set of assumptions for the following factors: a) benchmark volatility; b) benchmark performance; c) period of time; d) financing rates associated with leveraged exposure; and e) other Fund expenses. The tables below illustrate the impact of two factors that affect a geared fund’s performance: benchmark volatility and benchmark return. Benchmark volatility is a statistical measure of the magnitude of fluctuations in the returns of a benchmark and is calculated as the standard deviation of the natural logarithms of one plus the benchmark return (calculated daily), multiplied by the square root of the number of trading days per year (assumed to be 252). The tables show estimated fund returns for a number of combinations of benchmark volatility and
-16
benchmark return over a one-year period. To isolate the impact of daily leveraged or inverse leveraged exposure, these graphs assume: a) no fund expenses or transaction costs; b) borrowing/lending rates of zero percent (to obtain required leveraged or inverse leveraged exposure) and cash reinvestment rates of zero percent; and c) the fund consistently maintaining perfect exposure (2x or -2x) as of the fund’s NAV time each day. If these assumptions were different, the fund’s performance would be different than that shown. If fund expenses, transaction costs and financing expenses were included, the fund’s performance would be different than that shown.
The first table below shows an example in which a geared fund has an investment objective to correspond (before fees and expenses) to two times (2x) the daily performance of a benchmark. The geared fund could incorrectly be expected to achieve a 20% return on a yearly basis if the benchmark return was 10%, absent the effects of compounding. However, as the table shows, with a benchmark volatility of 40%, such a fund would return 3.1%. In the charts below, shaded areas represent those scenarios where a geared fund with the investment objective described will outperform (i.e., return more than) the benchmark performance times the stated multiple in the fund’s investment objective; conversely, areas not shaded represent those scenarios where the fund will underperform (i.e., return less than) the benchmark performance times the multiple stated as the daily fund objective.HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS. NO REPRESENTATION IS BEING MADE THAT ANY BENCHMARK OR FUND WILL OR IS LIKELY TO ACHIEVE GAINS OR LOSSES SIMILAR TO THOSE SHOWN OR WILL EXPERIENCE VOLATILITY SIMILAR TO THAT SHOWN. THE INFORMATION PROVIDED IN THE CHART BELOW IS FOR ILLUSTRATIVE PURPOSES ONLY.
Estimated Fund Return Over One Year When the Fund’s Objective is to Seek Daily Investment Results, Before Fees and Expenses, that Correspond to Two Times (2x) the Performance of a Benchmark for a Single Day. 
One Year
Benchmark
Performance
Two Times (2x)
One Year
Benchmark
Performance
Benchmark Volatility
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
-60%
-120%
-84.0%
-84.0%
-84.2%
-84.4%
-84.6%
-85.0%
-85.4%
-85.8%
-86.4%
-86.9%
-87.5%
-88.2%
-88.8%
-89.5%
-90.2%
-55%
-110%
-79.8%
-79.8%
-80.0%
-80.2%
-80.5%
-81.0%
-81.5%
-82.1%
-82.7%
-83.5%
-84.2%
-85.0%
-85.9%
-86.7%
-87.6%
-50%
-100%
-75.0%
-75.1%
-75.2%
-75.6%
-76.0%
-76.5%
-77.2%
-77.9%
-78.7%
-79.6%
-80.5%
-81.5%
-82.6%
-83.6%
-84.7%
-45%
-90%
-69.8%
-69.8%
-70.1%
-70.4%
-70.9%
-71.6%
-72.4%
-73.2%
-74.2%
-75.3%
-76.4%
-77.6%
-78.9%
-80.2%
-81.5%
-40%
-80%
-64.0%
-64.1%
-64.4%
-64.8%
-65.4%
-66.2%
-67.1%
-68.2%
-69.3%
-70.6%
-72.0%
-73.4%
-74.9%
-76.4%
-77.9%
-35%
-70%
-57.8%
-57.9%
-58.2%
-58.7%
-59.4%
-60.3%
-61.4%
-62.6%
-64.0%
-65.5%
-67.1%
-68.8%
-70.5%
-72.3%
-74.1%
-30%
-60%
-51.0%
-51.1%
-51.5%
-52.1%
-52.9%
-54.0%
-55.2%
-56.6%
-58.2%
-60.0%
-61.8%
-63.8%
-65.8%
-67.9%
-70.0%
-25%
-50%
-43.8%
-43.9%
-44.3%
-45.0%
-46.0%
-47.2%
-48.6%
-50.2%
-52.1%
-54.1%
-56.2%
-58.4%
-60.8%
-63.1%
-65.5%
-20%
-40%
-36.0%
-36.2%
-36.6%
-37.4%
-38.5%
-39.9%
-41.5%
-43.4%
-45.5%
-47.7%
-50.2%
-52.7%
-55.3%
-58.1%
-60.8%
-15%
-30%
-27.8%
-27.9%
-28.5%
-29.4%
-30.6%
-32.1%
-34.0%
-36.1%
-38.4%
-41.0%
-43.7%
-46.6%
-49.6%
-52.6%
-55.7%
-10%
-20%
-19.0%
-19.2%
-19.8%
-20.8%
-22.2%
-23.9%
-26.0%
-28.3%
-31.0%
-33.8%
-36.9%
-40.1%
-43.5%
-46.9%
-50.4%
-5%
-10%
-9.8%
-10.0%
-10.6%
-11.8%
-13.3%
-15.2%
-17.5%
-20.2%
-23.1%
-26.3%
-29.7%
-33.3%
-37.0%
-40.8%
-44.7%
0%
0%
0.0%
-0.2%
-1.0%
-2.2%
-3.9%
-6.1%
-8.6%
-11.5%
-14.8%
-18.3%
-22.1%
-26.1%
-30.2%
-34.5%
-38.7%
5%
10%
10.3%
10.0%
9.2%
7.8%
5.9%
3.6%
0.8%
-2.5%
-6.1%
-10.0%
-14.1%
-18.5%
-23.1%
-27.7%
-32.5%
10%
20%
21.0%
20.7%
19.8%
18.3%
16.3%
13.7%
10.6%
7.0%
3.1%
-1.2%
-5.8%
-10.6%
-15.6%
-20.7%
-25.9%
15%
30%
32.3%
31.9%
30.9%
29.3%
27.1%
24.2%
20.9%
17.0%
12.7%
8.0%
3.0%
-2.3%
-7.7%
-13.3%
-19.0%
20%
40%
44.0%
43.6%
42.6%
40.8%
38.4%
35.3%
31.6%
27.4%
22.7%
17.6%
12.1%
6.4%
0.5%
-5.6%
-11.8%
25%
50%
56.3%
55.9%
54.7%
52.8%
50.1%
46.8%
42.8%
38.2%
33.1%
27.6%
21.7%
15.5%
9.0%
2.4%
-4.3%
30%
60%
69.0%
68.6%
67.3%
65.2%
62.4%
58.8%
54.5%
49.5%
44.0%
38.0%
31.6%
24.9%
17.9%
10.8%
3.5%
35%
70%
82.3%
81.8%
80.4%
78.2%
75.1%
71.2%
66.6%
61.2%
55.3%
48.8%
41.9%
34.7%
27.2%
19.4%
11.7%
40%
80%
96.0%
95.5%
94.0%
91.6%
88.3%
84.1%
79.1%
73.4%
67.0%
60.1%
52.6%
44.8%
36.7%
28.5%
20.1%
45%
90%
110.3%
109.7%
108.2%
105.6%
102.0%
97.5%
92.2%
86.0%
79.2%
71.7%
63.7%
55.4%
46.7%
37.8%
28.8%
50%
100%
125.0%
124.4%
122.8%
120.0%
116.2%
111.4%
105.6%
99.1%
91.7%
83.8%
75.2%
66.3%
57.0%
47.5%
37.8%
55%
110%
140.3%
139.7%
137.9%
134.9%
130.8%
125.7%
119.6%
112.6%
104.7%
96.2%
87.1%
77.5%
67.6%
57.5%
47.2%
60%
120%
156.0%
155.4%
153.5%
150.3%
146.0%
140.5%
134.0%
126.5%
118.1%
109.1%
99.4%
89.2%
78.6%
67.8%
56.8%
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS. NO REPRESENTATION IS BEING MADE THAT ANY BENCHMARK OR FUND WILL OR IS LIKELY TO ACHIEVE GAINS OR LOSSES SIMILAR TO THOSE SHOWN OR WILL EXPERIENCE VOLATILITY SIMILAR TO THAT SHOWN. THE INFORMATION PROVIDED IN THE CHART BELOW IS FOR ILLUSTRATIVE PURPOSES ONLY.
-17
Estimated Fund Return Over One Year When the Fund’s Objective is to Seek Daily Investment Results, Before Fees and Expenses, that Correspond to Two Times the Inverse (-2x) of the Performance of a Benchmark for a Single Day. 
One Year
Benchmark
Performance
Two Times
Inverse (-2x) of
One Year
Benchmark
Performance
Benchmark Volatility
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
-60%
120%
525.0%
520.3%
506.5%
484.2%
454.3%
418.1%
377.1%
332.8%
286.7%
240.4%
195.2%
152.2%
112.2%
76.0%
43.7%
-55%
110%
393.8%
390.1%
379.2%
361.6%
338.0%
309.4%
277.0%
242.0%
205.6%
169.0%
133.3%
99.3%
67.7%
39.0%
13.5%
-50%
100%
300.0%
297.0%
288.2%
273.9%
254.8%
231.6%
205.4%
177.0%
147.5%
117.9%
88.9%
61.4%
35.8%
12.6%
-8.0%
-45%
90%
230.6%
228.1%
220.8%
209.0%
193.2%
174.1%
152.4%
128.9%
104.6%
80.1%
56.2%
33.4%
12.3%
-6.9%
-24.0%
-40%
80%
177.8%
175.7%
169.6%
159.6%
146.4%
130.3%
112.0%
92.4%
71.9%
51.3%
31.2%
12.1%
-5.7%
-21.8%
-36.1%
-35%
70%
136.7%
134.9%
129.7%
121.2%
109.9%
96.2%
80.7%
63.9%
46.5%
28.9%
11.8%
-4.5%
-19.6%
-33.4%
-45.6%
-30%
60%
104.1%
102.6%
98.1%
90.8%
81.0%
69.2%
55.8%
41.3%
26.3%
11.2%
-3.6%
-17.6%
-30.7%
-42.5%
-53.1%
-25%
50%
77.8%
76.4%
72.5%
66.2%
57.7%
47.4%
35.7%
23.1%
10.0%
-3.2%
-16.0%
-28.3%
-39.6%
-49.9%
-59.1%
-20%
40%
56.3%
55.1%
51.6%
46.1%
38.6%
29.5%
19.3%
8.2%
-3.3%
-14.9%
-26.2%
-36.9%
-46.9%
-56.0%
-64.1%
-15%
30%
38.4%
37.4%
34.3%
29.4%
22.8%
14.7%
5.7%
-4.2%
-14.4%
-24.6%
-34.6%
-44.1%
-53.0%
-61.0%
-68.2%
-10%
20%
23.5%
22.5%
19.8%
15.4%
9.5%
2.3%
-5.8%
-14.5%
-23.6%
-32.8%
-41.7%
-50.2%
-58.1%
-65.2%
-71.6%
-5%
10%
10.8%
10.0%
7.5%
3.6%
-1.7%
-8.1%
-15.4%
-23.3%
-31.4%
-39.6%
-47.7%
-55.3%
-62.4%
-68.8%
-74.5%
0%
0%
0.0%
-0.7%
-3.0%
-6.5%
-11.3%
-17.1%
-23.7%
-30.8%
-38.1%
-45.5%
-52.8%
-59.6%
-66.0%
-71.8%
-77.0%
5%
-10%
-9.3%
-10.0%
-12.0%
-15.2%
-19.6%
-24.8%
-30.8%
-37.2%
-43.9%
-50.6%
-57.2%
-63.4%
-69.2%
-74.5%
-79.1%
10%
-20%
-17.4%
-18.0%
-19.8%
-22.7%
-26.7%
-31.5%
-36.9%
-42.8%
-48.9%
-55.0%
-61.0%
-66.7%
-71.9%
-76.7%
-81.0%
15%
-30%
-24.4%
-25.0%
-26.6%
-29.3%
-32.9%
-37.3%
-42.3%
-47.6%
-53.2%
-58.8%
-64.3%
-69.5%
-74.3%
-78.7%
-82.6%
20%
-40%
-30.6%
-31.1%
-32.6%
-35.1%
-38.4%
-42.4%
-47.0%
-51.9%
-57.0%
-62.2%
-67.2%
-72.0%
-76.4%
-80.4%
-84.0%
25%
-50%
-36.0%
-36.5%
-37.9%
-40.2%
-43.2%
-46.9%
-51.1%
-55.7%
-60.4%
-65.1%
-69.8%
-74.2%
-78.3%
-82.0%
-85.3%
30%
-60%
-40.8%
-41.3%
-42.6%
-44.7%
-47.5%
-50.9%
-54.8%
-59.0%
-63.4%
-67.8%
-72.0%
-76.1%
-79.9%
-83.3%
-86.4%
35%
-70%
-45.1%
-45.5%
-46.8%
-48.7%
-51.3%
-54.5%
-58.1%
-62.0%
-66.0%
-70.1%
-74.1%
-77.9%
-81.4%
-84.6%
-87.4%
40%
-80%
-49.0%
-49.4%
-50.5%
-52.3%
-54.7%
-57.7%
-61.1%
-64.7%
-68.4%
-72.2%
-75.9%
-79.4%
-82.7%
-85.6%
-88.3%
45%
-90%
-52.4%
-52.8%
-53.8%
-55.5%
-57.8%
-60.6%
-63.7%
-67.1%
-70.6%
-74.1%
-77.5%
-80.8%
-83.8%
-86.6%
-89.1%
50%
-100%
-55.6%
-55.9%
-56.9%
-58.5%
-60.6%
-63.2%
-66.1%
-69.2%
-72.5%
-75.8%
-79.0%
-82.1%
-84.9%
-87.5%
-89.8%
55%
-110%
-58.4%
-58.7%
-59.6%
-61.1%
-63.1%
-65.5%
-68.2%
-71.2%
-74.2%
-77.3%
-80.3%
-83.2%
-85.9%
-88.3%
-90.4%
60%
-120%
-60.9%
-61.2%
-62.1%
-63.5%
-65.4%
-67.6%
-70.2%
-73.0%
-75.8%
-78.7%
-81.5%
-84.2%
-86.7%
-89.0%
-91.0%
The foregoing tables are intended to isolate the effect of benchmark volatility and benchmark performance on the return of leveraged or inverse leveraged funds. The Funds’ actual returns may be greater or less than the returns shown above.
Correlation and Performance Risks
While the Funds seek to meet their investment objectives, there is no guarantee they will do so. Factors that may affect a Fund’s ability to meet its investment objective include: (1) the Sponsor’s ability to purchase and sell Financial Instruments in a manner that correlates to a Fund’s objective, including the Sponsor’s ability to enter into new positions and contracts to replace exposure that has been reduced or terminated by a counterparty or otherwise; (2) an imperfect correlation between the performance of the Financial Instruments held by a Fund and the performance of the applicable benchmark; (3) bid-ask spreads on such Financial Instruments; (4) fees, expenses, transaction costs, financing costs and margin requirements associated with the use of Financial Instruments and commission costs; (5) holding or trading Financial Instruments in a market that has become illiquid or disrupted; (6) a Fund’s Share prices being rounded to the nearest cent and/or valuation methodologies; (7) changes to a benchmark that are not disseminated in advance; (8) the need to conform a Fund’s portfolio holdings to comply with investment restrictions or policies, position limits and accountability levels, and regulatory or tax law requirements; (9) early or unanticipated closings of the markets on which the holdings of a Fund trade, limiting or preventing the Fund from executing intended portfolio transactions; (10) accounting standards; (11) differences caused by a Fund obtaining exposure to only a representative sample of the components of a benchmark, overweighting or underweighting certain components of a benchmark or obtaining exposure to assets that are not included in a benchmark; (12) large movements of assets into and/or out of a Fund, particularly late in the day; (13) significant and/or rapid increases in the size of the Fund as a result of an increase in creation activity that cause the Fund to approach or reach Share registration limits, position or accountability limits, and (14) events such as natural disasters (including disease, epidemics and pandemics) that can be highly disruptive to economies, markets and companies including, but not limited to, the Sponsor and third party service providers.
-18
In order to achieve a high degree of correlation with their applicable underlying benchmarks, the Funds seek to rebalance their portfolios daily to keep exposure consistent with their respective investment objectives. A Fund’s ability to achieve or maintain such exposure may be limited by a number of factors. For example, being materially under- or overexposed to the benchmarks may prevent a Fund from achieving a high degree of correlation with their applicable underlying benchmarks. Market disruptions or closures, large movements of assets into or out of the Funds, regulatory restrictions, market volatility, illiquidity, margin requirements, accountability levels, position limits, and daily price fluctuation limits set by the exchanges and other factors will adversely affect a Fund’s ability to adjust exposure to requisite levels. The target amount of a Fund’s portfolio exposure may be impacted by changes to the value of its benchmark each day. Other things being equal, more significant movement in the value of its benchmark, up or down, will require more significant adjustments to a Fund’s portfolio. Because of this, it is unlikely that the Funds will be perfectly exposed (i.e., 2x or -2x, as applicable) at the end of each day, and the likelihood of being materially under- or overexposed is higher on days when the benchmark levels are volatile at or near the close of the trading day.
The time and manner in which a Fund rebalances its portfolio may vary from day to day at the discretion of the Sponsor depending upon market conditions and other circumstances. Unlike other funds that do not rebalance their portfolios as frequently, each Fund may be subject to increased trading costs associated with daily portfolio rebalancings. The effects of these trading costs have been estimated and included in the Breakeven Table. See “Charges—Breakeven Table” below.
 
Important Information about the Oil Funds. In 2020, the Sponsor modified certain of the Oil Funds’ investment strategies in response to global developments, including unprecedented price volatility in the markets for crude oil and crude oil futures contracts and related Financial Instruments, and the imposition of exchange position limits on each Oil Fund’s investment in futures contracts. Specifically, for the period April 27, 2020 through September 17, 2020, the Oil Funds invested in longer dated futures contracts than the futures contracts included in their benchmark at the time (i.e., the Prior Oil Benchmark). On September 17, 2020, each Oil Fund switched to a new benchmark, the Bloomberg Commodity Balanced WTI Crude Oil Index. Except as otherwise described herein, each Oil Fund intends to seek daily investment results, before fees and expenses, that correspond either to a multiple (2x) or an inverse multiple (-2x), as applicable, of the performance of the
Bloomberg Commodity Balanced WTI Crude Oil Index for a single day, not for any other period. 
Intraday Price/Performance of Fund Shares Will Likely Differ from the Fund’s Stated Daily Multiple Times the Performance of its Benchmark for Such Day.
The intraday performance of Shares of a Fund traded in the secondary market generally will be different from the performance of the Fund when measured from one NAV calculation-time to the next. When Shares are bought intraday, the performance of such Shares relative to its benchmark until the Fund’s next NAV calculation likely will be greater than or less than the Fund’s stated daily multiple times the performance of its benchmark. These differences can be significant.
The amount of the discount or premium in the trading price of the Shares relative to their NAV may be influenced by non-concurrent trading hours between the Exchange (the exchange on which the Shares trade) and the exchanges on which futures contracts trade. While the Shares are expected to trade on the Exchange until 4:00 p.m. (Eastern time), liquidity in the markets for the futures contracts in which the Funds seek to invest is expected to be reduced whenever the principal markets for those contracts are closed. As a result, trading spreads, and the resulting premium or discount on Shares, may widen during these gaps in market trading hours and the value of the Fund’s holdings may vary, perhaps significantly. Whether Shares will trade above, below or at a price equal to the value of the Fund’s holdings cannot be predicted.
If an investor purchases Shares when a Fund’s secondary market price is higher than the Fund’s NAV, or sells Shares when a Fund’s secondary market price is lower than the Fund’s NAV, such investment may not be as profitable as the investment would have been if the secondary market price was equal to the Fund’s NAV.
Natural Disasters and Public Health Disruptions, such as the COVID-19 Virus, May Have a Significant Negative Impact on the Performance of Each Fund.
Natural or environmental disasters, such as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including public health disruptions, pandemics and epidemics (for example, the novel coronavirus COVID-19 including its variants), have been and may continue to be highly disruptive to economies and markets. These conditions have recently led, and may continue to lead, to increased or extreme market volatility, illiquidity and significant market losses. Such natural disaster
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and health crises could exacerbate political, social, and economic risks, and result in significant breakdowns, delays, shutdowns, social isolation, civil unrest, periods of high unemployment, shortages in and disruptions to the medical care and consumer goods and services industries, and other disruptions to important global, local and regional supply chains affected, with potential corresponding results on the operating performance of the Funds and their investments. For example, the U.S. federal government, along with state and local governments, have adopted various laws and regulations in response to the COVID-19 pandemic, the effects and results of which are uncertain. 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 accuracy of economic projections. Further, such events can be highly disruptive to economies and markets, significantly disrupt the operations of individual companies (including, but not limited to, the Funds, the Funds’ Sponsor and third party service providers), sectors, industries, markets, securities and commodity exchanges, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value of the Funds’ investments. These factors can cause extreme market volatility, illiquidity, exchange trading suspensions and market closures. For example, market factors may adversely affect the price and liquidity of the Funds’ investments and potentially increase margins and collateral requirements in ways that have a significant negative impact on Fund performance or make it difficult, or impossible, for a Fund to achieve its investment objective. Under these circumstances, a Fund could have difficulty finding counterparties to transactions, entering or exiting positions at favorable prices and could incur significant losses. Further, Fund counterparties may close out positions with the Funds without notice, at unfavorable times or unfavorable prices, or may choose to transaction on a more limited basis (or not at all). In such cases, it may be difficult or impossible for a Fund to achieve the desired investment exposure with its investment objective. These conditions also can impact the ability of the Funds to complete creation and redemption transactions and disrupt Fund trading in the secondary market. For example, market factors may adversely affect the price and liquidity of the Funds’ investments and potentially increase margin and collateral requirements in ways that have a significant negative impact on Fund performance or make it difficult, or impossible, for a Fund to achieve its investment objective. Under these circumstances, a Fund could have difficulty finding counterparties to transactions, entering or exiting positions at favorable prices and could incur significant losses. Further, Fund counterparties may close out positions with the Funds without notice, at unfavorable times or unfavorable prices, or may choose to transact on a more limited basis (or not at all). In such cases, it may be difficult or impossible for a Fund to achieve the desired investment exposure consistent with its investment objective. These conditions also can impact the ability of the Funds to complete creation and redemption transactions and disrupt Fund trading in the secondary market.
The outbreak of COVID-19 (including any variants), or any future epidemic or pandemic similar to COVID-19, SARS, H1N1, or MERS, could have a significant adverse impact on the Funds and their investments, could adversely affect the Funds’ ability to fulfill its investment objectives, and could result in significant losses to the Funds. The extent of the impact of any outbreak on the performance of the Funds and their investments depend on many factors, including the duration and scope of such outbreak, the development and distribution of treatments and vaccines for viruses such as COVID-19, the extent of any such outbreak’s disruption to important global, regional and local supply chains and economic markets, and the impact of such outbreak on overall supply and demand, investor liquidity, consumer confidence and levels of economic activity, all of which are highly uncertain and cannot be predicted.
Additionally, 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. A widespread crisis, such as the COVID-19 pandemic, may also affect the global economy in ways that cannot necessarily be foreseen at the current time. How long such events will last and whether they will continue or recur cannot be predicted. Impacts from these events could have significant impact on a Fund’s performance, and the value of an investment in the Fund may decline significantly.
On February 24, 2022, Russia commenced a military attack on Ukraine. The ongoing hostilities between the two countries could result in more widespread conflict and could have a severe adverse effect on the region, the markets for gold, silver, oil, natural gas and other commodities, and the price of Financial Instruments based on such commodities, and other markets. In addition, sanctions imposed on Russia by the United States and other countries, and any sanctions imposed in the future could have a significant adverse impact on the Russian economy and related markets. The price and liquidity of the Financial Instruments in which each Fund invests may fluctuate widely as a result of the conflict and related events. How long such conflict and related events will last and whether it will escalate further cannot be predicted. Impacts from the conflict and related events could have significant impact on a Fund’s performance, and the value of an investment in the Fund may decline significantly.
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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 leveraged and inverse funds offered by ProShares. 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.
Risk that Current Assumptions and Expectations Could Become Outdated As a Result of Global Economic Shocks
The onset of the novel coronavirus (COVID-19) has caused significant shocks to global financial markets and economies, with many governments taking extreme actions in an attempt to slow and contain the spread of COVID-19. 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. Financial markets across the globe are experiencing severe distress at least equal to what was experienced during the global financial crisis in 2008. U.S. equity markets entered a bear market in the fastest such move in the history of U.S. financial markets in March 2020. Contemporaneous with the onset of the COVID-19 pandemic in the U.S., crude oil markets experienced shocks to the supply of and demand for crude oil. This led to an oversupply of crude oil, which impacted the price of crude oil and futures contracts on crude oil and caused historic volatility in the market for crude oil and crude oil futures contracts. In April 2020, these market conditions contributed to a period of “extraordinary contango” that resulted in a negative price in the May 2020 WTI crude oil futures contract. If all or a significant portion of the futures contracts held by the Ultra Crude Oil Fund at a future date were to reach a negative price, investors in the Fund could lose their entire investment. If such event were to occur, and the price of WTI crude oil futures contracts subsequently reversed, investors in the Short Crude Oil Fund could suffer significant losses or lose their entire investment. The effects of rolling futures contracts under extraordinary contango market conditions generally are more exaggerated than rolling futures contracts under contango market conditions and can result in significant losses. These and other global economic shocks as a result of the COVID-19 pandemic may cause the underlying assumptions and expectations concerning the investments, operations and performance of the Funds and secondary market trading of Fund Shares to become inaccurate or outdated quickly, resulting in significant and unexpected losses.
Each Fund seeks to achieve its investment objective even during periods when the performance of the Fund’s benchmark is flat or when the benchmark is moving in a manner that may cause the value of the Fund to decline.
The Funds are not actively managed by traditional methods (e.g., by effecting changes in the composition of a portfolio on the basis of judgments relating to economic, financial and market considerations with a view toward obtaining positive results under all market conditions). Each Fund seeks to remain fully invested at all times in Financial Instruments and money market instruments that, in combination, provide exposure to its benchmark consistent with its investment objective. This is the case even during periods in which the benchmark is flat or moving in a manner which causes the value of a Fund to decline. A Fund can lose money regardless of the performance of an underlying benchmark, due to the effects of daily rebalancing, volatility, compounding and other risk factors.
 
Important Information about the Oil Funds. In 2020, the Sponsor modified certain of the Oil Funds’ investment strategies in response to global developments, including unprecedented price volatility in the markets for crude oil and crude oil futures contracts and related Financial Instruments, and the imposition of exchange position limits on each Oil Fund’s investment in futures contracts. For the period April 27, 2020 through September 17, 2020, the Oil Funds invested in longer dated futures contracts than the futures contracts included in their benchmark at the time (i.e., the Prior Oil Benchmark). To the extent an Oil Fund has exposure to longer (or shorter) dated futures contracts not included in its benchmark, the daily performance of such Oil Fund should be expected to differ from two times (2x), or two times the inverse (-2x), as applicable, of the daily performance of its benchmark. These differences could be significant. Further, when an Oil Fund is exposed to longer-dated futures contracts, the daily performance of the Fund should be expected to deviate to a greater extent from the “spot” price of WTI
crude oil than if the Fund had exposure to a shorter-dated futures contract. 
Risks Specific to the Oil and Precious Metals Markets and Funds
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A number of factors may have a negative impact on the price of commodities, such as oil, gold and silver, and the price of Financial Instruments based on such commodities.
With regard to the Oil Funds and the Precious Metals Funds, a number of factors may affect the price of these commodities and, in turn, the Financial Instruments and other assets, if any, owned by such a Fund, including, but not limited to:
•Natural or environmental disasters or public health crisis, such as the COVID-19 pandemic, could result in sudden and large fluctuations in the supply of and demand for crude oil. For example, contemporaneous with the onset of the COVID-19 pandemic in the U.S., crude oil markets experienced shocks to supply of and demand for crude oil, which dramatically impacted the price of crude oil and futures contracts on crude oil and caused extreme volatility in the crude oil markets and crude oil futures markets. In April 2020, extraordinary market conditions in the crude oil markets caused a period of “extraordinary contango” that resulted in a negative price in the May 2020 WTI crude oil futures contract. The effects of rolling futures contracts under extraordinary contango market conditions generally are more exaggerated than rolling futures contracts under contango market conditions and could cause significant losses. If all or a significant portion of the futures contracts held by the Ultra Crude Oil Fund at a future date were to reach a negative price, investors in the Fund could lose their entire investment. If such event were to occur, and the price of WTI crude oil futures contracts subsequently reversed, investors in the Short Crude Oil Fund could suffer significant losses or lose their entire investment.
•During April 2020, the collapse of demand for fuel as a result of economic conditions relating to COVID-19 and other factors created an oversupply of crude oil production that rapidly filled most available oil storage facilities. As a result, market participants who contractually promised to buy and take delivery of crude oil were unable to store the crude oil and were at risk of default under the terms of the May 2020 WTI crude oil futures contract. The scarcity in storage was widespread, and some market participants took the extreme measure of selling their futures contracts at a negative price (effectively paying another market participant to accept their crude oil). As a result, for the first time in history, crude oil futures contracts traded below zero. If all or a significant portion of the futures contracts held by the Ultra Crude Oil Fund at a future date were to reach a negative price, investors in the Fund could lose their entire investment. If such event were to occur, and the price of WTI crude oil futures contracts subsequently reversed, investors in the Short Crude Oil Fund could suffer significant losses or lose their entire investment. The oversupply of oil may continue, impacting futures contracts for other delivery months. Such circumstances may arise as a result of a number of factors, including the following: (1) disruptions in oil pipelines and other means to get oil out of storage and delivered to refineries (as might occur due to infrastructure deterioration, work stoppages, or weather/disaster); (2) any agreement by oil producing nations regarding production limits, or (3) potential government intervention (in the form of grants or other aid) to keep oil producers, and the workers they employ, in service. It is not possible to predict if or when these economic conditions will reverse.
•The price of futures contracts can change quickly and without warning. If the price of WTI crude oil futures contracts in the future were to decline significantly or reach a negative price, investors in the Ultra Crude Oil Fund could suffer significant losses or lose their entire investment.
•Extreme market volatility and economic turbulence in the first part of 2020 has led to FCMs increasing margin requirements for certain futures contracts, including nearer-dated WTI crude oil and other oil futures contracts. Some FCMs may impose trading limitations, whether in the form of limits or prohibitions on trading oil futures contracts. If the Oil Funds are subject to increased margin requirements, they will incur increased costs and may not be able to achieve desired exposure. The Oil Funds may not be able to achieve their investment objective if they become subject to heightened margin requirements or trading limitations.
•In light of the extraordinary market circumstances in the first part of 2020, other exchange traded products that provide investors with exposure to oil have liquidated or halted issuing creation units. With less available investment options, the Oil Funds’ may experience greater-than-normal investment activity. Such activity could disrupt the Oil Funds’ Creation Unit process. Such activity could also increase the Oil Funds need to achieve additional investment exposure, which could be limited by margin requirements, position limits or trading limitations. Additionally, outflows or liquidations in other commodity pooled investment vehicles may result downward price pressure on the related futures contracts as the commodity pools liquidate positions.
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•With regard to the Oil Funds, nations with centralized or nationalized oil production and organizations such as the Organization of Petroleum Exporting Countries (“OPEC”) control large physical quantities of crude oil. The purchase or sale by one of these institutions in large amounts could potentially cause a change in prices for that commodity. Tension between the governments of the United States or other countries and oil exporting nations, civil unrest and sabotage, the ability of members of OPEC and other nations to agree upon and maintain oil prices and production levels, and fluctuations in the reserve capacity of crude oil can and have had a significant impact on the supply and demand for oil, oil process and the price, liquidity and volatility of oil futures contracts.
•With regard to the Oil Funds, the exploration and production of crude oil, are uncertain processes with many risks. The cost of drilling, completing and operating wells for crude oil is often uncertain, and a number of factors can delay or prevent drilling operations or production of crude oil, including (1) unexpected drilling conditions, (2) pressure or irregularities in formations, (3) equipment failures or repairs, (4) fires or other accidents, (5) adverse weather conditions, (6) pipeline ruptures, spills or other supply disruptions, and (7) shortages or delays in the availability of drilling rigs and the delivery of equipment.
•With regard to the Oil Funds, competition from clean power companies, fluctuations in the supply and demand of alternative energy fuels, energy conservation, changes in consumer preferences regarding the use of renewable energy sources to replace fossil fuels, and tax and other government regulations can significantly affect the prices of oil.
•Significant increases or decreases in the available supply of a physical commodity due to natural, technological or other factors. Natural factors would include depletion of known cost-effective sources for a commodity or the impact of severe weather or other natural events on the ability to produce or distribute the commodity. Technological factors, such as increases in availability created by new or improved extraction, refining and processing equipment and methods or decreases caused by failure or unavailability of major refining and processing equipment (for example, shutting down or constructing oil refineries), also materially influence the supply of the commodity. General economic conditions in the world or in a major region, such as population growth rates, periods of civil unrest, government austerity programs, periods of recession or other periods of low or negative economic growth, periods of sustained elevated inflation, or currency exchange rate fluctuations may affect prices of underlying commodities.
•The exploration and production of commodities are uncertain processes with many risks. The cost of extraction, completing and operating wells / mines is often uncertain, and a number of factors can delay or prevent operations or production of commodities, including: (1) unexpected extraction or drilling conditions; (2) pressure or irregularities in formations; (3) equipment failures or repairs; (4) fires or other accidents; (5) adverse weather conditions; (6) pipeline ruptures, spills or other supply disruptions; and (7) shortages or delays in the availability of extraction delivery equipment.
•Significant increases or decreases in the demand for a physical commodity due to natural, technological or other factors. Natural factors would include such events as unusual climatological or health conditions (such as disease or pandemics) impacting the demand for commodities. Technological or other factors may include such developments as substitutes or new uses for particular commodities or changes in the demand for particular commodities. General economic conditions in the world or in a major region, such as population growth rates, periods of civil unrest, government austerity programs, or currency exchange rate fluctuations may affect prices of underlying commodities. For example, gold and silver are used in a wide range of industrial applications and demand for gold and silver is driven by, among other things, demand for jewelry. An economic downturn could have a negative impact on gold and silver demand and, consequently, their prices.
•A significant change in the attitude of speculators and investors towards a commodity, or in the commodity hedging activities of commodity producers. Should the speculative community take a negative or positive view towards any given commodity, or if there is an increase or decrease in the level of hedge activity of commodity producing companies, countries and/or organizations, such action could cause a change in world prices of any given commodity.
•Large purchases or sales of physical commodities by the official sector. Governments and large institutions have large commodities holdings or may establish major commodities positions. For example, a significant portion of the aggregate world precious metals holdings is owned by governments, central banks and related institutions. Similarly, nations with centralized or
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nationalized energy production organizations may control large physical quantities of certain commodities. The purchase or sale by one of these institutions in large amounts could potentially cause a change in prices for that commodity.
•Political activity such as the adoption of and changes to legislation, imposition of regulations, or entry into trade treaties, as well as political disruptions caused by societal breakdown, insurrection, terrorism, pandemics, sabotage and/or war may greatly influence commodities prices.
•The recent proliferation of commodity-linked, exchange-traded products and their unknown effect on the commodity markets.
•The prices, supply and demand for gold and silver may also be impacted by changes in interest rates, inflation, and other local or regional market conditions, as well as by investor confidence. There can be no assurance that either gold or silver will maintain its long-term value in terms of future purchasing power. As of the date of this prospectus, gold and silver prices are at or near historically high levels. Gold and silver prices are volatile and subject to sudden, and unpredictable price movements, including reversals. Gold and silver markets also have historically experienced extended periods of flat or declining prices. There can be no assurance that either gold or silver prices will maintain their price levels as of the date of this prospectus.
Each of these factors could have a negative impact on the value of the Funds. These factors interrelate in complex ways, and the effect of one factor on the market value of a Fund may offset or enhance the effect of another factor.
Russia’s Invasion of Ukraine Could Have a Severe Adverse Effect on Certain Commodities Markets, Particularly Crude Oil Markets
Current geopolitical events, such as Russia’s invasion of Ukraine, have had, and may continue to have, an impact on certain commodities markets, particularly the market for crude oil, commodity futures markets, including futures on crude oil, and the prices of the Oil Funds. Russia is a significant global exporter of crude oil. The Russian invasion of Ukraine caused a significant disruption to Russia’s energy exports when large oil companies announced that they would cease operations in Russia and traders boycotted Russian oil. The invasion’s impact on other commodity markets, such as the gold and silver markets, has been less significant. WTI crude oil prices for the remainder of 2022 are expected to be significantly higher than in comparison to past years. In the first half of 2022, crude oil prices in the EU rose approximately 36% and crude oil prices in the U.S. rose approximately 42%. The EUreceives about 67% of its crude oil from Russian pipelines and approximately 70% of that flows through Ukraine. Germany receives roughly 12% of its crude oil from Russia, which is a reduction from 35% since the onset of the war. Russia is the 3rd largest producer of crude oil globally after the U.S. and Saudi Arabia, accounting for 10% of total global crude oil supply in 2020. Ukraine is a meaningful transporter of Russia’s crude oil. Crude oil prices are expected to ease in 2023 as new supplies become available and demand decreases. The average daily trading volume for gold and silver futures contracts since the Russian invasion began has remained generally flat as compared to average daily trading volumes prior to the Russian invasion, while the average daily trading volume for WTI crude oil futures contracts has declined by approximately 20% since the Russian invasion. The average daily trading volume for shares of the UltraShort Crude Oil Fund, the Ultra Crude Oil Fund and the Ultra Gold Fund have increased approximately 250%, 20% and 15%,respectively, since the Russian invasion began, while the average daily trading volume for shares of the Ultra Silver Fund has remained relatively consistent since the Russian invasion began. As of the date of this Prospectus, WTI crude oil futures are in backwardation, gold futures and silver futures are in contango.
Generally speaking, the price of the Oil Funds corresponds to U.S. market price movements of the underlying futures contracts associated with the Bloomberg Commodity Balanced WTI Crude Oil IndexSM. Many complex factors affect the crude oil futures markets, including seasonality, the COVID-19 pandemic, Russia’s invasion of Ukraine, and overall supply and demand, among others. The average daily trading volume for shares of the UltraShort Crude Oil Fund and the Ultra Crude Oil Fund have increased approximately 250% and 20%, respectively, since the Russian invasion began.
The invasion’s impact on other commodities markets, such as the gold and silver markets, has been less significant. In the case of gold and silver markets, Russia is not a meaningful exporter of gold and silver and metals can easily be diverted to alternative export markets. However, over a longer-term outlook, gold prices could be affected by the Bank of Russia’s policies, with prices experiencing a material decrease if the Bank of Russia engages in large gold sales. The invasion has minimally impacted trading volume in the gold and silver futures markets, with trading volume in these futures markets decreasing from 2020 to 2022. The average daily trading volume for gold and silver futures contracts since the Russian invasion began has remained generally flat as compared to average daily trading volumes prior to the Russian invasion. The average daily trading volume for shares of the Ultra Gold Fund has increased approximately 15% since the Russian invasion
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began, while the average daily trading volume for shares of the Ultra Silver Fund has remained relatively consistent since the Russian invasion began. Like the crude oil futures and the Oil Funds’ benchmark index, the gold and silver futures contracts and the Bloomberg Gold SubindexSM and the Bloomberg Silver SubindexSM, respectively, were similarly correlated.
As of the date of this Prospectus, gold and silver futures are in contango and WTI crude oil futures are in backwardation. See “Potential negative impact from rolling futures positions; there have been extended periods in the past where the investment strategies utilized by the Funds have caused significant and sustained losses.”
The Oil Funds are linked to an index of crude oil futures contracts, and are not directly linked to the “spot” price of crude oil. Oil futures contracts may perform very differently from the spot price of crude oil.
The Oil Funds are not directly linked to the “spot” price of crude oil. The price of a futures contract reflects the expected value of the commodity upon delivery in the future, whereas the spot price of a commodity reflects the immediate delivery values of the commodity. While prices of swaps, futures contracts and other derivatives contracts are related to the prices of an underlying cash market (i.e., the “spot” market), they may not be well correlated and have typically performed very differently. Crude oil futures contracts typically perform very differently from, and commonly underperform, the spot price of crude oil due to current (and future expectations of) factors such as storage costs, geopolitical risks, interest charges incurred to finance the purchase of the commodity, and expectations concerning supply and demand for the commodity. Derivatives contract prices may not be correlated to spot market prices and may be substantially lower or higher than the spot market prices for a number of reasons, including as a result of differences in derivatives contract terms or as supply, demand or other economic or regulatory factors become more pronounced in either the cash or derivatives markets. For example, contemporaneous with the onset of the COVID-19 pandemic in the U.S., crude oil markets experienced shocks to supply of and demand for crude oil, which dramatically impacted the price of crude oil and futures contracts on crude oil and caused extreme volatility of the crude oil markets. Further, in April 2020, extraordinary market conditions in the crude oil markets caused a period of “extraordinary contango” that resulted in a negative price in the May 2020 WTI crude oil futures contract. If any futures contract held by the Ultra Crude Oil Fund at a future date were to reach a negative price, investors in the Fund could lose their entire investment. If such event were to occur, and the price of WTI crude oil futures contracts subsequently reversed, investors in the Short Crude Oil Fund could suffer significant losses or lose their entire investment. The effects of rolling futures contracts under extraordinary contango market conditions generally are more exaggerated than rolling futures contracts under contango market conditions and may cause significant losses. In addition, to the extent an Oil Fund has exposure to longer-dated crude oil futures contracts or other Financial Instruments, the performance of the Fund should be expected to deviate to a greater extent from the “spot” price of crude oil than if the Fund had exposure to shorter-dated futures contracts or Financial Instruments. For these and other reasons, the Oil Funds should be expected to perform very differently from the spot price of crude oil and may underperform investments that are linked to the “spot” price of crude oil.
The Oil Funds may invest in Financial Instruments and/or use investment strategies that could cause a Fund’s daily performance to differ from two times (2x), or two times the inverse (-2x), as applicable, of the daily performance of its benchmark.
Although each Oil Fund generally seeks to obtain exposure to the WTI crude oil futures contacts included in its benchmark in a manner designed to achieve its respective investment objective, there can be no guarantee an Oil Fund will be able to do so. For example, a number of conditions, such as significant market volatility or illiquidity, high margin requirements, accountability levels, position limits, benchmark changes and a lack of available counterparties, have had and could continue to have a negative impact on an Oil Fund’s ability to maintain the desired exposure and achieve its investment objective. For these reasons, each Oil Fund may invest in longer (or shorter) dated futures contracts than those included in its benchmark based on the Sponsor’s analysis of factors such as current or expected market volatility, margin and/or collateral requirements, and the liquidity and cost of establishing and maintaining such positions.
For example, in 2020 the Sponsor modified certain of the Oil Funds’ investment strategies in response to global developments, including unprecedented price volatility in the markets for crude oil and crude oil futures contracts and related Financial Instruments, and the imposition of exchange position limits on each Oil Fund’s investment in futures contracts. As a result of these changes, for the period April 27, 2020 through September 17, 2020, the Oil Funds invested in longer dated futures contracts than the futures contracts included in their benchmark at the time (i.e., the Prior Oil Benchmark). To the extent an Oil Fund has exposure to longer (or shorter) dated futures contracts not included in its benchmark, the daily performance of such Oil Fund should be expected to differ from two times (2x), or two times the inverse (-2x), as applicable, of the daily performance of its benchmark. These differences could be significant. Further, when an Oil Fund is exposed to longer-dated futures contracts, the performance of the Fund should be expected to deviate to a greater extent from the “spot” price of WTI crude
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oil than if the Fund had exposure to a shorter-dated futures contract and may underperform investments that are linked to the “spot” price of crude oil. On September 17, 2020, each Oil Fund switched to a new benchmark, the Bloomberg Commodity Balanced WTI Crude Oil Index. Except as otherwise described herein, each Oil Fund intends to seek daily investment results, before fees and expenses, that correspond either to a multiple (2x) or an inverse multiple (-2x), as applicable, of the performance of the Bloomberg Commodity Balanced WTI Crude Oil Index for a single day, not for any other period.
Each Oil Fund also may invest in crude oil-related Financial Instruments, such as futures contracts on other crude oil benchmarks or indices, options on crude oil futures contracts and non-exchange traded (“over-the-counter” or “OTC”) transactions that are based on the price of crude oil, crude oil benchmarks or crude oil futures contracts. The use of these investment strategies could have a negative impact on the Oil Funds due to, among other things, potentially increased costs of trading in alternative instruments or the inability to obtain the desired exposure and could cause a Fund to perform in a manner not consistent with its investment objective.
The Precious Metals Funds do not hold gold or silver bullion. Rather, the Precious Metals Funds use Financial Instruments to gain exposure to gold or silver bullion. Using Financial Instruments to obtain exposure to gold or silver bullion may cause tracking error and subject the Precious Metals Funds to the effects of contango and backwardation as described herein.
Using Financial Instruments such as swaps, options, forwards and futures in an effort to replicate the performance of gold or silver bullion may cause tracking error, which is the divergence between the price behavior of a position and that of a benchmark. While prices of Financial Instruments are related to the prices of an underlying cash market (i.e., the “spot” market), they may not be perfectly correlated and typically have performed differently. In addition, the use of forward or futures contracts exposes a Fund to risks associated with “rolling” as described herein (forward contracts are subject to the same risks as rolling futures contracts), including the possibility that contango or backwardation can occur. Gold and silver historically exhibit contango markets during most periods. The existence of historically prevalent contango markets would be expected to adversely affect the Precious Metals Funds. In April 2020, the market for crude oil futures contracts experienced a period of “extraordinary contango” that resulted in a negative price in the May 2020 WTI crude oil futures contract. It is possible that the futures contracts held by the Precious Metals Funds also may experience periods of extraordinary contango in the future. Alternatively, the existence of backwardated markets would be expected to be beneficial to the Precious Metals Funds.
Risks Related to All Funds
Potential negative impact from rolling futures positions; there have been extended periods in the past where the investment strategies utilized by the Funds have caused significant and sustained losses.
Each Fund intends to, or may, have exposure to futures contracts and each Fund is subject to risks related to “rolling” such futures contracts, which is the process by which a Fund closes out a futures position prior to its expiration month and purchases an identical futures contract with a later expiration date. The Funds do not intend to hold futures contracts through expiration, but instead intend to “roll” their respective positions as they approach expiration. The contractual obligations of a buyer or seller holding a futures contract to expiration may be satisfied by settling in cash as designated in the contract specifications. As explained further below, the price of futures contracts further from expiration may be higher (a condition known as “contango”) or lower ( a condition known as “backwardation”), which can impact the Funds’ returns.
When the market for these futures contracts is such that the prices are higher in the more distant delivery months than in the nearer delivery months, the sale during the course of the rolling process of the more nearby futures contract would take place at a price that is lower than the price of the more distant futures contract. This pattern of higher prices for longer expiration futures contracts is often referred to as “contango.” Alternatively, when the market for these futures contracts is such that the prices are higher in the nearer months than in the more distant months, the sale during the course of the rolling process of the more nearby futures contract would take place at a price that is higher than the price of the more distant futures contract. This pattern of higher prices for shorter expiration futures contracts is referred to as “backwardation.” The presence of contango in certain futures contracts at the time of rolling would be expected to adversely affect the Funds with long positions, and positively affect the Funds with short positions. Similarly, the presence of backwardation in certain futures contracts at the time of rolling such contracts would be expected to adversely affect the Funds with short positions and positively affect the Funds with long positions.
There have been extended periods in which contango or backwardation have existed in the futures contract markets for various types of futures contracts, and such periods can be expected to occur in the future. These extended periods have caused in the past, and may cause in the
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future, significant losses, and these periods can have as much or more impact over time than movements in the level of a Fund’s benchmark. Additionally, because of the frequency with which the Funds may roll futures contracts, the impact of such contango or backwardation on Fund performance may be greater than it would have been if the Funds rolled futures contracts less frequently.
There have been times where WTI crude oil futures contracts experience “extraordinary contango or extraordinary backwardation.” For example, in April 2020, the market for crude oil futures contracts experienced a period of “extraordinary contango” that resulted in a negative price in the May 2020 WTI crude oil futures contract. The futures contracts held by the Funds may experience a period of extraordinary contango or backwardation in the future. If all or a significant portion of the futures contracts held by an Ultra Fund at a future date were to reach a negative price, investors in such Fund could lose their entire investment. Conversely, investors in an UltraShort Fund could suffer significant losses or lose their entire investment if prices reverse or were subject to extraordinary backwardation. The effects of rolling futures contracts under extraordinary contango or backwardation market conditions generally are more exaggerated than rolling futures contracts under more typical contango or backwardation market conditions. Either scenario may result in significant losses.
Each Fund seeks to achieve its investment objective even during periods when the performance of the Fund’s benchmark is flat or when the benchmark is moving in a manner that may cause the value of the Fund to decline.
The Funds are not actively managed by traditional methods (e.g., by effecting changes in the composition of a portfolio on the basis of judgments relating to economic, financial and market considerations with a view toward obtaining positive results under all market conditions). Each Fund seeks to remain fully invested at all times in Financial Instruments and money market instruments that, in combination, provide exposure to its benchmark consistent with its investment objective. This is the case even during periods in which the benchmark is flat or moving in a manner which causes the value of a Fund to decline. A Fund can lose money regardless of the performance of an underlying benchmark, due to the effects of daily rebalancing, volatility, compounding and other risk factors.
The number of underlying components included in a Fund’s benchmark may impact the volatility of such benchmark, which could adversely affect an investment in the Shares.
The number of underlying components in a Fund’s benchmark may impact the volatility of such benchmark, which could adversely affect an investment in the Shares. For example, certain of the Funds’ benchmarks are concentrated in terms of the number and type of commodities and currencies represented, and some of the benchmarks consist solely of a single commodity or currency exchange rate. Investors should be aware that other benchmarks are more diversified in terms of both the number and variety of investments included. Concentration in fewer components may result in a greater degree of volatility in a benchmark and the Fund which corresponds to that benchmark under specific market conditions and over time.
Possible illiquid markets may cause or exacerbate losses.
Financial Instruments and/or markets may be illiquid. In such cases and during such times it may be difficult or impossible to buy or sell a position at the desired price. For example, it may be difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. Market disruptions or volatility can also make it difficult for a Fund to buy or sell a position or find a swap or forward contract counterparty willing to transact at a reasonable price and sufficient size. Illiquid markets and/or Financial Instruments may cause losses, which could be significant, for the Funds. The large size of the positions which the Funds may acquire increases the risk of illiquidity by both making their positions more difficult to liquidate and increasing the losses incurred while trying to do so. Any type of disruption or illiquidity will potentially be exacerbated due to the fact that each Fund typically invests in Financial Instruments related to a single benchmark, which is highly concentrated. 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 with respect to some Financial Instruments and have a negative impact on Fund performance. During periods of market illiquidity, including periods of market disruption and volatility, it may be difficult or impossible for a Fund to buy or sell futures contracts or other Financial Instruments or for investors to buy or sell Fund Shares at desired prices or at all.
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Fees are charged regardless of a Fund’s returns and may result in depletion of assets.
The Funds are subject to the fees and expenses described herein which are payable irrespective of a Fund’s returns, as well as the effects of commissions, trading spreads, and embedded financing, borrowing costs and fees associated with swaps, forwards, futures contracts, and costs relating to the purchase of U.S. Treasury securities or similar high credit quality, short-term fixed-income or similar securities. Additional charges may include other fees as applicable. These fees and expenses have a negative impact on Fund returns.
For the Funds linked to a benchmark, changes implemented by the benchmark provider that affect the composition and valuation of the benchmark could negatively impact the performance of the Funds.
The Funds are linked to benchmarks maintained by third-party providers that are unaffiliated with the Funds or the Sponsor. There can be no guarantee or assurance that the methodology used by the third-party provider to create the benchmark will result in a Fund achieving high, or even positive, returns. The policies implemented by each benchmark provider concerning the calculation or the composition of a benchmark could affect the value of a benchmark and, therefore, the value of such Funds’ Shares. A benchmark provider may change the composition of the benchmark, or make other methodological changes that could change the value of a benchmark. Additionally, a benchmark provider may alter, discontinue or suspend calculation or dissemination of a benchmark. Any of these actions could adversely affect the value of Shares of a Fund using that benchmark. There is no guarantee the methodology underlying the benchmark will be free from error. Benchmark providers have no obligation to consider Fund shareholder interests in calculating or revising a benchmark. Each of these factors could have a negative impact on the performance of the Funds.
Calculation of a benchmark may not be possible or feasible under certain events or circumstances that are beyond the reasonable control of the Sponsor, which in turn may adversely impact both the benchmark and/or the Shares, as applicable. Additionally, benchmark calculations are subject to error and may be disrupted by rollover disruptions, rebalancing disruptions and/or market emergencies, which may have a negative impact on the performance of the Funds.
The particular benchmark used by a Fund may underperform other asset classes and may underperform other indices or benchmarks based upon the same underlying Reference Asset.
The Funds are linked to benchmarks maintained by third-party providers unaffiliated with the Funds or the Sponsor. There can be no guarantee or assurance that the methodology used by the third-party provider to create the benchmark will result in a Fund achieving high, or even positive, returns. Further, there can be no guarantee that the methodology underlying the benchmark or the daily calculation of the benchmark will be free from error. It is also possible that the value of the benchmark or its underlying Reference Asset may be subject to intentional manipulation by third-party market participants. The particular benchmark used by each Fund may underperform other asset classes and may underperform other indices or benchmarks based upon the same underlying Reference Asset. Each of these factors could have a negative impact on the performance of a Fund.
Financial markets, including the Financial Instruments used by a Fund, and Fund Shares may be subject to unusual trading activity, volatility, and potential fraud and/or manipulation by third parties.
Financial markets, including the Financial Instruments in which the Funds invest, and Fund Shares can be highly volatile and the Funds may experience sudden and large movements in price. Unusual trading activity that is unrelated to economic fundamentals, including activity that is considered market fraud and/or manipulation or excessive speculation, or significant and/or rapid increases in the size of a Fund as a result of an increase in creation activity can potentially lead to unusual movements in the prices of Financial Instruments in which the Fund invests as well as the price of Fund Shares and increase the risk of investing in such Financial Instruments and in Fund Shares. 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 disruption of the orderly functioning of markets, lead to significant market volatility and cause the value of a Fund and/or the Financial Instruments held by a Fund to fluctuate quickly and without warning. Such fluctuations could be significant and could be temporary or last for longer periods of time. High volatility may have an adverse impact on the performance of the Funds. The widespread demand for a commodity, currency, or security may cause price increases in the commodity, currency, or security, which could result in an increased demand for Shares. A Fund experiencing significant and rapid growth could potentially experience difficulty achieving appropriate exposure in response to significant increases in Fund assets, which could cause a Fund to limit or suspend purchases of Creation
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Units. Any limitation or suspension of Creation Units, among other things, could cause a Fund’s Shares to trade at a premium, widen trading spreads, or otherwise disrupt secondary market trading in a Fund’s Shares. Increases in the price of Financial Instruments and a Fund’s Shares as a result of the condition described above are subject to significant and unexpected reversals. An investor in any of the Funds could potentially lose the full principal value of his or her investment within a single day.
A Fund may change its investment objective, benchmark and investment strategies, and/or may terminate, at any time without shareholder approval.
The Sponsor has the authority to change a Fund’s investment objective, benchmark or investment strategy at any time, or to terminate the Trust or a Fund, in each case, without shareholder approval or advance notice, subject to applicable regulatory requirements. Although such changes may be subject to applicable regulatory approvals, the Sponsor may determine to operate a Fund in accordance with its new investment objective, benchmark or investment strategy while the applicable approvals, if any, are pending. Such changes may expose shareholders to losses on their investments in a Fund. When a Fund’s assets are sold as part of the Fund’s termination, the resulting proceeds distributed to shareholders may be less than those that could have been realized in a sale outside of a termination context.
 
Important Information about the Oil Funds. In 2020, the Sponsor modified certain of the Oil Funds’ investment strategies in response to global developments, including unprecedented price volatility in the markets for crude oil and crude oil futures contracts and related Financial Instruments, and the imposition of exchange position limits on each Oil Fund’s investment in futures contracts.
Prior to September 17, 2020 the Bloomberg WTI Crude Oil SubindexSM was each Oil Fund’s benchmark. Each Oil Fund changed its benchmark from the Prior Oil Benchmark to the New Oil Index on September 17, 2020. The New Oil Index tracks longer-dated futures contracts than the Prior Oil Benchmark. The performance of an Oil Fund should be expected to deviate to a greater extent from the “spot” price of WTI crude oil (which neither Fund seeks to track) than if the Fund had exposure to a shorter-dated futures contract or continued to use the Prior Oil Benchmark as its benchmark. WTI crude oil futures contracts (and thus each Oil Fund) typically perform very differently from the “spot” price of WTI crude oil. The performance of each Oil Fund therefore will very likely differ in amount, and possibly even direction, from the
performance of the “spot” price of WTI crude oil. 
There may be circumstances that could prevent or make it impractical for a Fund to operate in a manner consistent with its investment objective and investment strategies.
There may be circumstances outside the control of the Sponsor and/or a Fund that could prevent or make it impractical to rebalance such Fund’s portfolio investments, to process purchase or redemption orders, or to otherwise operate the Fund in a manner consistent with its investment objective and investment strategies. Examples of such circumstances include: market disruptions; significant or extreme market volatility, particularly late in the trading day; difficulty achieving appropriate exposure in response to significant increases in Fund assets; natural disasters (including disease, epidemics and pandemics); public service disruptions or utility problems such as those caused by fires, floods, extreme weather conditions, and power outages resulting in telephone, telecopy, and computer failures; market conditions or activities causing trading halts; systems failures involving computer or other information systems affecting the aforementioned parties, as well as the Depository Trust Company (“DTC”), the National Securities Clearing Corporation (“NSCC”), or any other participant in the trading or operations of a Fund; and similar extraordinary events.
While the Sponsor has implemented and tested a business continuity plan and a disaster recovery plan designed to address circumstances such as those above, these and other circumstances may prevent a Fund from being operated in a manner consistent with its investment objective and/or investment strategies and could cause significant losses to the Funds.
The Funds use investment techniques that may be considered aggressive.
Some investment techniques of the Funds, such as their use of Financial Instruments, may be considered aggressive. Risks associated with Financial Instruments include potentially dramatic price changes (losses) in the value of the instruments and imperfect correlations between the price of the contract and the underlying Reference Asset. The use of Financial Instruments may increase the volatility of a Fund and may involve a small investment of cash relative to the magnitude of the risk assumed.
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Historical correlation trends between Fund benchmarks and other asset classes may not continue or may reverse, limiting or eliminating any potential diversification or other benefit from owning a Fund.
To the extent that an investor purchases a Fund seeking diversification benefits based on the historic correlation (whether positive or negative) between the returns of the Fund or its underlying benchmark and other asset classes, such historic correlation may not continue or may reverse itself. In this circumstance, the diversification or other benefits sought may be limited or non-existent. The diversification or other benefits sought by an investor in a Fund may also become limited or cease to exist if the Sponsor determines to change the Fund’s benchmark or otherwise modify the Fund’s investment objective or investment strategy.
Changes to a Benchmark and Daily Rebalancing of the Geared Funds May Impact Trading in the Underlying Futures Contracts.
Changes to a benchmark and daily rebalancing may cause the Geared Funds to adjust their portfolio positions. This trading activity will contribute to the trading volume of the underlying futures contracts and may adversely affect the market price of such underlying futures contracts.
The lack of active trading markets for the Shares may result in losses upon the sale of such Shares.
Although the Shares are publicly listed and traded on the Exchange, there can be no guarantee that an active trading market for the Shares will develop or be maintained. If investors need to sell their Shares at a time when an active market for such Shares does not exist, the price investors receive for their Shares, assuming that investors are able to sell them at all, likely will be lower than the price that investors would receive if an active market did exist.
Investors may be adversely affected by redemption or creation orders that are subject to postponement, suspension or rejection under certain circumstances.
In respect of any Fund, the Sponsor may, in its sole discretion, limit or suspend the right of creation or redemption or may postpone the redemption or purchase settlement date. For example, the Sponsor may limit or suspend purchases or postpone settlement for (1) any period during which the Exchange or any other exchange, marketplace or trading center, deemed to affect the normal operations (e.g., valuation) of such Fund, is closed, or when trading is restricted or suspended on such exchanges in any of the Funds’ Financial Instruments or underlying Reference Assets, (2) any period during which an emergency exists as a result of which the fulfillment of a purchase order or the redemption distribution is not reasonably practicable, or (3) such other period as the Sponsor determines, in its sole discretion, to be appropriate for the protection of the Fund, the shareholders of the Fund or otherwise in the interest of such Fund (for example, in response to, or anticipation of, a period of significant and/or rapid increases in the size of a Fund as a result of an increase in creation activity). In addition, a Fund will reject a redemption order if the order is not in proper form as described in the Authorized Participant Agreement or if the fulfillment of the order might be unlawful. Any such limitation, postponement, suspension or rejection could adversely affect a redeeming Authorized Participant. For example, the resulting delay may adversely affect the value of the Authorized Participant’s redemption proceeds if the NAV of a Fund declines during the period of delay. The Funds disclaim any liability for any loss or damage that may result from any such limitation, postponement, suspension or rejection. Investors should be aware that during any period where creations or redemptions have been limited, postponed, suspended or rejected, the public trading price per Share of a Fund may be materially different from the NAV per Share of the Fund (i.e., the secondary market price may trade at a material premium or discount to NAV), the bid-ask spreads on a Fund’s Shares may widen, and/or the number of Shares on which quotes may be available could decrease. These events could increase the trading costs to investors, cause a Fund to not perform consistent with its investment objective, and otherwise result in significant losses for investors.
Purchases of a Fund’s Creation Units may be limited or suspended which may prevent a Fund from achieving appropriate exposure.
In situations where a Fund may have difficulty achieving, or be unable to achieve, appropriate exposure in response to significant increases, or anticipated significant increases, in Fund assets, a Fund may place upper limits or other restrictions on the number of Creation Units Authorized Participants may purchase or may suspend purchases of Creation Units altogether. The Funds disclaim any liability for any loss or damage that may result from any such suspension or limits. The Sponsor expects that such limits or suspensions will not impact the ability of Authorized Participants to redeem Creation Units during such period.
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As a result of such limits or suspension, secondary market trading of a Fund’s Shares may be halted or disrupted. Investors should be aware that during periods in which the purchase of Creation Units is suspended or limited, the public trading price per Share of a Fund may be materially different from the NAV per Share of the Fund (i.e., the secondary market price may trade at a material premium or discount to NAV), the bid-ask spreads on a Fund’s Shares may widen, and/or the number of Shares on which quotes may be available could decrease. These events could increase the trading costs to investors, could cause a Fund’s trading price to not perform consistent with its investment objective and otherwise lead to significant losses for the Fund and investors. These conditions could reverse suddenly and without warning when the suspension or limitation on Authorized Participants’ ability to purchase Creation Units is lifted or modified, causing losses for Fund investors.
The NAV per Share may not correspond to the market price per Share.
The NAV per Share of a Fund changes as fluctuations occur in the market value of the Fund’s portfolio. Investors should be aware that the public trading price per Share of a Fund may be substantially different from the NAV per Share of the Fund (i.e., the secondary market price may trade at a substantial premium or discount to NAV). The price at which an investor may be able to sell Shares at any time, especially in times of market volatility, may be significantly less than the NAV per Share of the Fund at the time of sale. Consequently, an Authorized Participant may be able to create or redeem a Creation Unit of a Fund at a discount or a premium to the public trading price per Share of that Fund.
Authorized Participants or their customers may have an opportunity to realize a profit if they can purchase a Creation Unit at a discount to the public trading price of the Shares of a Fund or can redeem a Creation Unit at a premium over the public trading price of the Shares of a Fund. The Sponsor expects that the exploitation of such arbitrage opportunities by Authorized Participants and their clients and customers will tend to cause the public trading price to track the NAV per Share of the Funds closely over time.
Investors who purchase Fund Shares in the secondary market and pay a premium purchase price over a Fund’s indicative optimized performance value (“IOPV”) could incur significant losses in the event such investor sells such Fund Shares at a time when such premium is no longer present in the marketplace.
The value of a Share may be influenced by non-concurrent trading hours between the Exchange and the market in which the Financial Instruments (or related Reference Assets) held by a Fund are traded. The Shares of each Fund trade on the Exchange from 9:30 a.m. to 4:00 p.m. (Eastern Time). The Financial Instruments (and/or the related Reference Assets) held by a particular Fund, however, have earlier fixing or settlement times. Consequently, liquidity in the Financial Instruments (and/or the Reference Assets) may be reduced after such fixing or settlement time. As a result, during the time when the Exchange is open for trading but after the applicable fixing or settlement time of an underlying component, trading spreads and the resulting premium or discount on the Shares of a Fund may widen, and, therefore, may increase the difference between the price of the Shares of a Fund and the NAV of such Shares. Also, during the time when the Exchange is open for trading but the Fund’s NAV has already been determined, there could be market developments or other events that cause or exacerbate the difference between the price of the Shares of such Funds in the secondary market and the NAV of such Shares or otherwise have a negative impact on the value of an investment in the Shares.
Investors may be adversely affected by an overstatement or understatement of a Fund’s NAV due to the valuation method employed or errors in the NAV calculation.
Under normal circumstances, the NAV of a Fund reflects the value of the Financial Instruments held by the Fund, as of the time the NAV is calculated. The NAV of the Funds includes, in part, any unrealized profits or losses on open Financial Instrument positions. In certain circumstances (e.g., if the Sponsor believes market quotations do not accurately reflect fair value of an investment, or a trading halt closes an exchange or market early), the Sponsor may, in its sole discretion, choose to determine a fair value price as the basis for determining the market value of such position for such day. The fair value of an investment determined by the Sponsor may be different from other value determinations of the same investment. Such fair value prices generally would be determined based on available inputs about the current value of the underlying Reference Assets and would be based on principles that the Sponsor deems fair and equitable. A swap counterparty may have the right to close out a Fund’s position due to the occurrence of certain events (for example, if the counterparty is unable to hedge its obligations to the Fund, or if the Fund defaults on certain terms of the swap agreement, or if there is a material decline in the Fund’s benchmark on a particular day) and request immediate payment of amounts owed by the Fund under the agreement. If the level of a Fund’s benchmark has a dramatic intraday move, the terms of the swap agreement may permit the counterparty to immediately close out a transaction with the Fund at a price set by the
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counterparty, which may not represent fair market value. A swap counterparty may also have the right to close out a Fund’s position for no reason, in some cases with same day notice. The valuation method used to calculate NAV or errors in calculation of a Fund’s NAV may cause the Fund’s NAV to be overstated or understated and may affect the performance of the Fund and the value of an investment in the Shares.
Trading on exchanges outside the United States is generally not subject to U.S. regulation and may result in different or diminished investor protections.
To the extent that a Fund places trades on exchanges outside the United States, trading on such exchanges is generally not regulated by any U.S. governmental agency and may involve certain risks not applicable to trading on U.S. exchanges, including different or diminished investor protections. In trading contracts denominated in currencies other than U.S. dollars, the Shares are subject to the risk of adverse exchange rate movements between the dollar and the functional currencies of such contracts. Investors could incur substantial losses from trading on foreign exchanges which such investors would not have otherwise been subject had the Funds’ trading been limited to U.S. markets.
Competing claims of intellectual property rights may adversely affect the Funds and an investment in the Shares.
The Sponsor believes that it has obtained all required licenses or the appropriate consent of all necessary parties with respect to the intellectual property rights necessary to operate the Funds. However, other third parties could allege ownership as to such rights and may bring legal action asserting their claims. The expenses in litigating, negotiating, cross-licensing or otherwise settling such claims may adversely affect the Funds. Additionally, as a result of such action, a Fund could potentially change its investment objective, benchmark or investment strategies. Each of these factors could have a negative impact on the performance of the Funds.
The liquidity of the Shares may also be affected by the withdrawal from participation of Authorized Participants, which could adversely affect the market price of the Shares.
In the event that one or more Authorized Participants which have substantial interests in the Shares withdraw from participation, the liquidity of the Shares will likely decrease, which could adversely affect the market price of the Shares and result in investors incurring a loss on their investment.
Shareholders that are not Authorized Participants may only purchase or sell their Shares in secondary trading markets, and the conditions associated with trading in secondary markets may adversely affect investors’ investment in the Shares.
Only Authorized Participants may create or redeem Creation Units. All other investors that desire to purchase or sell Shares must do so through the Exchange or in other markets, if any, in which the Shares may be traded. Shares may trade at a premium or discount to NAV per Share.
The Exchange may halt trading in the Shares of a Fund which would adversely impact investors’ ability to sell Shares.
Trading in Shares of a Fund may be halted by the Exchange due to market conditions or, in light of the applicable Exchange rules and procedures. In addition, trading is subject to trading halts caused by market volatility pursuant to “circuit breaker” rules that require trading to be halted for a specified period based on a specified decline or rise in a market index (e.g., the Dow Jones Industrial Average) or in the price of a Fund’s Shares. There can be no assurance that the requirements necessary to maintain the listing of the Shares of a Fund will continue to be met or will remain unchanged.
Shareholders do not have the protections associated with ownership of shares in an investment company registered under the 1940 Act.
The Funds are not subject to registration or regulation under the 1940 Act. Consequently, shareholders do not have the regulatory protections provided to investors in investment companies registered under the 1940 Act. These protections include, but are not limited to, provisions in the 1940 Act that limit transactions with affiliates, prohibit the suspension of redemptions (except under limited circumstances), require a board of directors that must include disinterested directors, limit leverage, impose a fiduciary duty on the fund’s manager with respect to the receipt of compensation for services, require shareholder approval for certain fundamental changes, limit sales loads, and require proper valuation of fund assets.
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The value of the Shares will be adversely affected if the Funds are required to indemnify Wilmington Trust Company (the “Trustee”) and/or the Sponsor.
Under the Trust Agreement, the Trustee and the Sponsor each has the right to be indemnified for any liability or expense incurred without gross negligence or willful misconduct. That means the Sponsor may require the assets of a Fund to be sold in order to cover losses or liability suffered by it or by the Trustee. Any such sale would decrease the value of an investment in an impacted Fund.
Although the Shares are limited liability investments, certain circumstances, such as the bankruptcy of a Fund could increase a shareholder’s liability.
The Shares are limited liability investments; investors may not lose more than the amount that they invest plus any gains or income recognized on their investment. However, shareholders could be required, as a matter of bankruptcy law, to return to the estate of a Fund any distribution they received at a time when such Fund was in fact insolvent or in violation of the Trust Agreement.
A court could potentially conclude that the assets and liabilities of one Fund are not segregated from those of another series of the Trust and may thereby potentially expose assets in a Fund to the liabilities of another series of the Trust.
Each series of the Trust is a separate series of a Delaware statutory trust and not itself a separate legal entity. Section 3804(a) of the Delaware Statutory Trust Act, as amended (the “DSTA”), provides that if certain provisions are in the formation and governing documents of a statutory trust organized in series, and if separate and distinct records are maintained for any series and the assets associated with that series are held in separate and distinct records (directly or indirectly, including through a nominee or otherwise) and accounted for in such separate and distinct records separately from the other assets of the statutory trust, or any series thereof, then the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular series are enforceable against the assets of such series only, and not against the assets of the statutory trust generally or any other series thereof, and none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the statutory trust generally or any other series thereof shall be enforceable against the assets of such series. The Sponsor is not aware of any court case that has interpreted Section 3804(a) of the DSTA or provided any guidance as to what is required for compliance. The Sponsor maintains separate and distinct records for each series and accounts for them separately, but it is possible a court could conclude that the methods used did not satisfy Section 3804(a) of the DSTA and thus potentially expose assets of a Fund to the liabilities of another series of the Trust.
Due to the increased use of technologies, intentional and unintentional cyber-attacks pose operational and information security risks.
With the increased use of technologies such as the Internet and the dependence on computer systems to perform necessary business functions, the Funds and their service providers are susceptible to operational and information security 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 denial-of-service attacks on websites. Cyber security failures or breaches of a Fund’s third party service provider (including, but not limited to, index providers, the administrator and transfer agent) or the issuers of securities in which the Funds invest, 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, regulatory fines, penalties, reputational damage, 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 Funds and their shareholders could be negatively impacted as a result. While the Funds have established business continuity plans and systems to prevent such cyber-attacks, there are inherent limitations in such plans and risk management systems including the possibility that certain risks have not been identified. Furthermore, the Funds cannot control the cyber security plans and systems of each Fund’s service providers, market makers, Authorized Participants or issuers of securities in which each Fund invests.
Investors cannot be assured of the Sponsor’s continued services, the discontinuance of which may be detrimental to the Funds.
Investors cannot be assured that the Sponsor will be able to continue to service the Funds for any length of time. If the Sponsor discontinues its activities on behalf of the Funds, the Funds may be adversely affected, as there may be no entity servicing the Funds for a period
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of time. If the Sponsor’s registrations with the CFTC or memberships in the National Futures Association (the “NFA”) were revoked or suspended, the Sponsor would no longer be able to provide services and/or to render advice to the Funds. If the Sponsor were unable to provide services and/or advice to the Funds, the Funds would be unable to pursue their investment objectives unless and until the Sponsor’s ability to provide services and advice to the Funds was reinstated or a replacement for the Sponsor as commodity pool operator could be found. Such an event could result in termination of the Funds.
It may not be possible to gain exposure to the benchmarks using exchange-traded Financial Instruments in the future.
The Funds intend to utilize exchange-traded Financial Instruments. It may not be possible to gain exposure to the benchmarks with these Financial Instruments in the future. If these Financial Instruments cease to be traded on regulated exchanges, they may be replaced with Financial Instruments traded on trading facilities that are subject to lesser degrees of regulation or, in some cases, no substantive regulation. As a result, trading in such Financial Instruments, and the manner in which prices and volumes are reported by the relevant trading facilities, may not be subject to the provisions of, and the protections afforded by, the Commodity Exchange Act, as amended (the “CEA”), or other applicable statutes and related regulations that govern trading on regulated U.S. futures exchanges, or similar statutes and regulations that govern trading on regulated U.K. futures exchanges. In addition, many electronic trading facilities have only recently initiated trading and do not have significant trading histories. As a result, the trading of contracts on such facilities, and the inclusion of such contracts in a benchmark, may be subject to certain risks not presented by U.S. or U.K. exchange-traded futures contracts, including risks related to the liquidity and price histories of the relevant contracts.
Regulatory changes or actions, including the implementation of new legislation, may alter the operations and profitability of the Funds.
The U.S. derivatives markets and market participants have been subject to comprehensive regulation, not only by the CFTC but also by self-regulatory organizations, including the NFA and the exchanges on which the derivatives contracts are traded and/or cleared. The regulation of commodity interest transactions and markets, including under the Dodd-Frank Act, is a rapidly changing area of law and is subject to ongoing modification by governmental and judicial action. In particular, the Dodd-Frank Act has expanded the regulation of markets, market participants and financial instruments. The regulatory regime under the Dodd-Frank Act has imposed additional compliance and legal burdens on participants in the markets for futures and other commodity interests. For example, under the Dodd-Frank Act new capital and risk requirements have been imposed on market intermediaries. Those requirements may cause the cost of trading to increase for market participants, like the Funds, that must interact with those intermediaries to carry out their trading activities. These increased costs can detract from the Funds’ performance.
As with any regulated activity, changes in regulations may have unexpected results. For example, changes in the amount or quality of the collateral that traders in derivatives contracts are required to provide to secure their open positions, or in the limits on number or size of positions that a trader may have open at a given time, may adversely affect the ability of the Funds to enter into certain transactions that could otherwise present lucrative opportunities. Considerable regulatory attention has been focused on non-traditional investment pools which are publicly distributed in the United States. There is a possibility of future regulatory changes altering, perhaps to a material extent, the nature of an investment in the Funds or the ability of the Funds to continue to implement their investment strategies.
In addition, the SEC, CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily price limits and the suspension of trading. The regulation of swaps, forwards and futures transactions in the United States is a rapidly changing area of law and is subject to modification by government and judicial action. The effect of any future regulatory change on the Funds is impossible to predict, but could be substantial and adverse.
In particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) has made and will continue to make sweeping changes to the way in which the U.S. financial system is supervised and regulated. Title VII of the Dodd Frank Act sets forth a legislative framework for OTC derivatives, including certain Financial Instruments, such as swaps, in which certain of the Funds may invest. Title VII of the Dodd-Frank Act makes broad changes to the OTC derivatives market, grants significant new authority to the SEC and the CFTC to regulate OTC derivatives and market participants, and, pursuant to regulations that have been and will continue to be adopted by the regulators, requires the clearing and exchange trading of many types of OTC derivatives transactions.
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Pursuant to regulations adopted by the CFTC, swap dealers are required to be registered and are subject to various regulatory requirements, including, but not limited to, margin, recordkeeping, reporting and various business conduct requirements, as well as minimum financial capital requirements.
Pursuant to the Dodd-Frank Act, regulations adopted by the CFTC and the federal banking regulators that are now in effect require swap dealers to post and collect margin (comprised of specified liquid instruments and subject to a required haircut) in connection with a Fund’s trading of swaps that are not traded on an exchange or cleared by a clearinghouse. These requirements may increase the amount of collateral the Funds are required to provide and the costs associated with providing such collateral.
Swap agreements submitted for clearing are subject to minimum margin requirements set by the relevant clearinghouse, as well as margin requirements mandated by the CFTC, SEC and/or federal banking regulators. Swap dealers also typically demand the unilateral ability to increase a Fund’s collateral requirements for swap agreements that are cleared by a clearinghouse beyond any regulatory and clearinghouse minimums. Such requirements may make it more difficult and costly for investment funds, such as the Funds, to enter into customized transactions. They may also render certain investment strategies in which a Fund might otherwise engage impossible or so costly that they will no longer be economical to implement. If a Fund decides to execute swap agreements through an exchange or swap execution facility, the Fund would be subject to the rules of the exchange or swap execution facility, which would bring additional risks and liabilities, and potential requirements under applicable regulations and under rules of the relevant exchange or swap execution facility.
With respect to cleared OTC derivatives, a Fund will not face a clearinghouse directly but rather will do so through a swap dealer that is registered with the CFTC or SEC and that acts as a clearing member. A Fund may face the indirect risk of the failure of another clearing member customer to meet its obligations to its clearing member. This risk could arise due to a default by the clearing member on its obligations to the clearinghouse triggered by a customer’s failure to meet its obligations to the clearing member.
Swap dealers also are required to post margin to the clearinghouses through which they clear their swaps with customers instead of using such margin in their operations, as was widely permitted before Dodd-Frank. This has increased and will continue to increase swap dealers’ costs, and these increased costs are generally passed through to other market participants such as the Funds in the form of higher upfront and mark-to-market margin, less favorable trade pricing, and the imposition of new or increased fees, including clearing account maintenance fees.
While certain regulations have been promulgated and are already in effect, the full impact of the Dodd-Frank Act on any of the Funds remains uncertain. The legislation and the related regulations that have been and may be promulgated in the future may negatively impact a Fund’s ability to meet its investment objective either through limits on its investments or requirements imposed on it or any of its counterparties. In particular, new requirements, including capital requirements and mandatory clearing of OTC derivatives transactions, which may increase derivative counterparties’ costs and are expected to generally be passed through to other market participants in the form of higher upfront and mark-to-market margin, less favorable trade pricing, and the imposition of new or increased fees, including clearinghouse account maintenance fees, may increase the cost of a Fund’s investments and the cost of doing business, which could adversely affect investors.
Regulatory bodies outside the U.S. have also passed or proposed, or may propose in the future, legislation similar to that proposed by Dodd-Frank or other legislation containing other restrictions that could adversely impact the liquidity of and increase costs of participating in the commodities markets. For example, the European Union Markets in Financial Instruments Directive (Directive 2014/65/EU) and Markets in Financial Instruments Regulation (Regulation (EU) No 600/2014) (together “MiFID II”), which has applied since January 3, 2018, governs the provision of investment services and activities in relation to, as well as the organized trading of, financial instruments such as shares, bonds, units in collective investment schemes and derivatives. In particular, MiFID II requires European Union (the “EU”) Member States to apply position limits to the size of a net position which a person can hold at any time in commodity derivatives traded on EU trading venues and in “economically equivalent” OTC contracts. By way of further example, the European Market Infrastructure Regulation (Regulation (EU) No 648/2012, as amended) (“EMIR”) introduced certain requirements in respect of OTC derivatives including: (i) the mandatory clearing of OTC derivative contracts declared subject to the clearing obligation; (ii) risk mitigation techniques in respect of OTC derivative contracts that are not cleared by a clearinghouse, including the mandatory margining of such contracts; and (iii) reporting and recordkeeping requirements in respect of all derivatives contracts. In the event that the requirements under EMIR and MiFID II apply, these are expected to increase the cost of transacting derivatives.
In addition, regulations adopted by U.S. federal banking regulators will require certain bank-regulated swap dealer counterparties and certain of their affiliates and subsidiaries, including swap dealers, to include in certain financial contracts, including many derivatives contracts,
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such as swap agreements, terms that delay or restrict the rights of counterparties, such as a Fund, to terminate such contracts, foreclose upon collateral, exercise other default rights or restrict transfers of credit support in the event that the counterparty and/or its affiliates are subject to certain types of resolution or insolvency proceedings. Similar regulations and laws have been adopted in the UK and the EU that apply to the Funds’ counterparties located in those jurisdictions. It is possible that these new requirements could adversely affect the Funds’ ability to terminate existing derivatives agreements or to realize amounts to be received under such agreements.
CFTC rules do not apply to all of the physically settled forward contracts entered into by the Funds. Investors, therefore, may not receive the protection of CFTC regulation or the statutory scheme of the CEA in connection with each Fund’s physically settled forward contracts. The lack of regulation in these markets could expose investors to significant losses under certain circumstances, including in the event of trading abuses or financial failure by participants.
Regulatory and exchange daily price limits, position limits and accountability levels may have a negative impact on the operation and performance of each Fund.
Many U.S. futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day by regulations referred to as “daily price fluctuation limits” or “daily limits.” Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the trading day. Derivatives contract prices could move to a limit for several consecutive trading days with little or no trading thereby preventing prompt liquidation of or entry into derivatives positions and potentially subjecting the Fund to substantial losses or periods in which the Fund does not create additional Creation Units.
In addition, the CFTC, U.S. futures exchanges and certain non-U.S. exchanges have established limits referred to as “speculative position limits” or “accountability levels” on the maximum net long or short futures positions that any person may hold or control in futures contracts traded on U.S. and certain non-U.S. exchanges. The CFTC’s rules require that all accounts owned or managed by an entity that is responsible for such accounts’ trading decisions, their principals and their affiliates be aggregated for position limits. The CFTC amended these aggregation rules in December 2016.
In connection with these limits, the Dodd-Frank Act amended the Commodity Exchange Act, and as a result, the CFTC has adopted regulations establishing speculative position limits applicable to regulated futures and OTC derivatives and impose aggregate speculative position limits across regulated U.S. futures, OTC positions and certain futures contracts traded on non-U.S. exchanges. The CFTC has sought to amend its position limits rules for several years and on October 15, 2020 the CFTC adopted rules on position limits with respect to the 25 physical delivery commodity futures contracts and options on futures, as well as to swaps that are economically equivalent to such contracts and futures and options thereon that are directly or indirectly linked to the price of such contracts or to the same commodity underlying such contracts (e.g., cash-settled look-a-like futures).
Exchanges may establish accountability levels applicable to futures contracts instead of position limits. An accountability level is not a strict limit, but when a person holds or controls a position in excess of a position accountability level, the relevant exchange may convert the accountability level to a limit based on information that it collects from the person as to the person’s investment intentions and strategy as part of the position accountability process and market conditions. In addition, the relevant exchange may order a person who holds or controls a position in excess of a position accountability level not to further increase its position, to comply with any prospective limit that exceeds the size of the position owned or controlled, or to reduce any open position that exceeds the position accountability level if the exchange determines that such action is necessary to maintain an orderly market. Position accountability levels could adversely affect each of the Fund’s ability to establish and maintain positions in commodity futures contracts to which such levels apply, if the Funds were to trade in such contracts. Such an outcome could adversely affect each of the Fund’s ability to pursue its investment objective.
Currently, the Sponsor and the Funds are subject to position limits and accountability levels established by the CFTC and exchanges. Accordingly, the Sponsor and the Funds may be required to reduce the size of outstanding positions or be restricted from entering into new positions that would otherwise be taken for the Fund or not trade in certain markets on behalf of the Fund in order to comply with those limits or any future limits established by the CFTC and the relevant exchanges. These restrictions, if implemented, could limit the ability of each Fund to invest in additional futures contracts, add to existing positions in the desired amount, or create additional Creation Units and could otherwise have a significant negative impact on Fund operations and secondary market trading.
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In May and June 2020, the Sponsor engaged in discussions with the CME regarding position limits in September 2020 WTI oil futures contracts with respect to the Oil Funds. Any limitation on positions for particular oil futures contracts could limit the Oil Funds’ ability to increase their oil futures contracts to the extent needed to achieve their respective investment objectives and may force the Funds to seek to obtain exposure to economically similar contracts through alternative instruments, if available. This could have a negative impact on the Oil Funds due to potentially increased costs of trading in alternative instruments or the inability to obtain the desired exposure. In May 2020, in response to a notice directing the Oil Funds to not exceed a designated position accountability level in the September 2020 WTI crude oil futures contracts, and to help manage the impact of unprecedented price volatility in the markets for crude oil and crude oil futures contracts and related Financial Instruments, and other market conditions, each Oil Fund repositioned its portfolio in early May to have approximately 2/3 of its portfolio exposed to the September 2020 WTI crude oil futures contract and approximately 1/3 of its portfolio exposed to the December 2020 crude oil futures contract. In July 2020, in anticipation of the Prior Oil Benchmark’s upcoming roll, and in order to help manage the impact of recent extraordinary conditions and volatility in the markets for crude oil and related Financial Instruments, each Oil Fund repositioned its portfolio in early July to have approximately 1/3 of its portfolio exposed to the October 2020 WTI crude oil futures contract, approximately 1/3 of its portfolio exposed to the November 2020 WTI crude oil futures contract, and approximately 1/3 of its portfolio exposed to the December 2020 crude oil futures contract. In August 2020, in anticipation of the Prior Oil Benchmark’s upcoming roll, and in order to help manage the impact of recent extraordinary conditions and volatility in the markets for crude oil and related Financial Instruments, each Oil Fund repositioned its portfolio in early August to have approximately 2/3 of its portfolio exposed to the December 2020 WTI crude oil futures contract, and approximately 1/3 of its portfolio exposed to the June 2021 crude oil futures contract. To the extent an Oil Fund has exposure to a WTI crude oil futures contract not included in its benchmark, the performance of such Oil Fund should not be expected to correspond to two times (2x), or two times the inverse (-2x), as applicable, of the daily performance of its benchmark, and such Fund’s performance could differ significantly from its stated investment objective. Further, when an Oil Fund is exposed to longer-dated futures contracts, the performance of the Fund should be expected to deviate to a greater extent from the “spot” price of WTI crude oil than if the Fund had exposure to a shorter-dated futures contract.
In addition, the Sponsor may be required to liquidate certain open positions in order to ensure compliance with the speculative position limits at unfavorable prices, which may result in substantial losses for the relevant Funds. There also can be no assurance that the Sponsor will liquidate positions held on behalf of all the Sponsor’s accounts, including any proprietary accounts, in a proportionate manner. In the event the Sponsor chooses to liquidate a disproportionate number of positions held on behalf of any of the Funds at unfavorable prices, such Funds may incur substantial losses and the value of the Shares may be adversely affected.
A person is generally required by CFTC or exchange rules, as applicable, to aggregate all positions in accounts as to which the person has 10% or greater ownership or control. However, CFTC and exchange rules provide certain exemptions from this requirement. For example, a person is not required to aggregate positions in multiple accounts that it owns or controls if that person is able to satisfy the requirements of an exemption from aggregation of those accounts, including, where available, the independent account controller exemption. Any failure to comply with the independent account controller exemption or another exemption from the aggregation requirement could obligate the Sponsor to aggregate positions in multiple accounts under its control, which could include the Funds and other commodity pools or accounts under the Sponsor’s control. In such a scenario, the Funds may not be able to obtain exposure to one or more Financial Instruments necessary to pursue their investment objectives, or they may be required to liquidate existing futures contract positions in order to comply with a limit. Such an outcome could adversely affect each of the Fund’s ability to pursue its investment objective or achieve favorable performance.
The Funds are currently subject to position limits and accountability levels and may be subject to new or more restrictive position limits or accountability levels in the future. A Fund that experiences significant and/or rapid increases in size may reach position limits or accountability levels and/or become subject to daily limits. Funds reaching or approaching such limits would be unable or limited in their ability to establish new futures positions or add to existing positions until they were back below such limits and their ability to engage in future transactions on a going-forward basis could be severely limited. This could prevent each Fund from achieving its investment objective and otherwise have a significant negative impact on the performance of each Fund. To the extent a Fund reaches or approaches position limits or accountability levels, such a Fund may limit or suspend the purchase of Creation Units since the Fund may be unable to invest the cash received from such Creation Units in sufficient futures transactions to meet its investment objective. As discussed elsewhere herein, the limitation or suspension of Creation Unit purchases could cause a Fund’s Shares to trade at significant premiums or discounts and otherwise disrupt secondary market trading of Fund Shares.
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If a Fund approached or reached a position limit, accountability level or daily limit, the Sponsor would likely seek to cause the Fund to invest in swap transactions that provide exposure to the benchmark or components of the benchmark. There can be no guarantees that this strategy would be successful or that a Fund would achieve sufficient exposure through swap transactions to achieve its investment objective. In addition, the Trust or the Sponsor may apply to the CFTC or to the relevant exchanges for relief from certain position limits, accountability levels and daily limits. There can be no guarantee that the CFTC or relevant exchange would grant such a request. If the Trust or Sponsor is unable to obtain such relief, a Fund’s ability to invest in additional futures contracts, achieve its investment objective, and issue new Creation Units would be limited as described herein.
The Funds and the Sponsor are subject to extensive legal and regulatory requirements.
The Funds are subject to a comprehensive scheme of regulation under the federal commodity futures trading and securities laws, as well as futures exchange rules and the rules and listing standards for their Shares. Each Fund and the Sponsor could each be subject to sanctions for a failure to comply with those requirements, which could adversely affect the Fund’s financial performance and its ability to pursue its investment objectives. Each Fund is subject to significant disclosure, internal control, governance, and financial reporting requirements because its Shares are publicly traded.
For example, the Funds are responsible for establishing and maintaining internal controls over financial reporting. Under this requirement, the Funds must adopt, implement and maintain an internal control system designed to provide reasonable assurance to its management regarding the preparation and fair presentation of published financial statements. The Funds are also required to adopt, implement, and maintain disclosure controls and procedures that are designed to ensure information required to be disclosed by the Funds in reports that they file or submit to the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC. There is a risk that the Funds’ internal controls over financial reporting and disclosure controls and procedures could fail to operate as designed or otherwise fail to satisfy SEC requirements. Such a failure could result in the reporting or disclosure of incorrect information or a failure to report information on a timely basis. Such a failure could be to the disadvantage of shareholders and could expose the Funds to penalties or otherwise adversely affect each of the Fund’s status under the federal securities laws and SEC regulations. Any internal control system, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective may provide only reasonable assurance with respect to financial statement preparation and presentation and other disclosure matters.
In addition, the SEC, CFTC, and exchanges are empowered to intervene in their respective markets in response to extreme market conditions. Those interventions could adversely affect the Funds’ ability to pursue their investment objectives and could lead to losses for the Funds and their shareholders.
The discontinuance of the U.S. dollar London interbank offered rate (LIBOR) could cause or contribute to market volatility and could affect the market value and/or liquidity of the Funds’ investments.
Shareholders should be aware that (i) relevant regulatory announcements about the phase out of LIBOR, (ii) the possibility of changes being made to the basis on which LIBOR is calculated and published (or its ceasing to be published), (iii) uncertainty as to whether or how any alternative reference rate may replace LIBOR, (iv) the ability of the Funds’ third-party service providers and/or counterparties to support and process the Funds’ investments based on an alternative reference rate, and (v) any other actions taken by the ICE Benchmark Administration, the Financial Conduct Authority (the “FCA”) or any other entity with respect to LIBOR or its replacement (if any), could cause or contribute to market volatility and could negatively affect the market value, availability and/or liquidity of the Funds’ investments. The unavailability or replacement of LIBOR may affect the valuation of certain Fund investments. Any pricing adjustments to a Fund’s investments resulting from a substitute reference rate may also adversely affect the Fund’s performance and/or NAV. However, it is not possible at this time to predict or ascertain what precise impact these will have on the Funds.
The use of futures contracts may expose the Funds to liquidity and other risks, which could result in significant loss to the Funds.
Risks of futures contracts include: (i) an imperfect correlation between the value of the futures contract and the underlying commodity or commodity index; (ii) possible lack of a liquid secondary market; (iii) the inability to close a futures contract when desired; (iv) losses caused by unanticipated market movements, which may be significant; (v) an obligation for a Fund to make daily cash payments to maintain its required margin, particularly at times when the Fund may have insufficient cash or must sell investments to meet those margin requirements; (vi) the possibility that a failure to close a position may result in a Fund receiving an illiquid commodity; (vii) unfavorable execution prices from rapid
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selling; and (viii) inability to achieve desired exposure because of position limits or accountability levels. The use of futures contracts exposes a Fund to risks associated with “rolling” as described herein, including the possibility that contango or backwardation can occur. In addition, futures contracts may be subject to contractual or other restrictions on resale and may lack readily available markets for resale.
Margin requirements and position limits applicable to futures contracts may limit a Fund’s ability to achieve sufficient exposure and prevent a Fund from achieving its investment objective.
Each Fund may enter into written agreements with one or more FCMs governing the terms of the Fund’s futures transactions cleared by such FCM. Because futures contracts typically require only a relatively small initial investment, they may involve a high degree of leverage. A Fund must provide margin when it invests in a futures contract. Such margin requirements are subject to change suddenly and without warning at any time during the term of the contract and could be substantial in the event of adverse price movements or volatility. High margin requirements could prevent a Fund from obtaining sufficient exposure to futures contracts and may prevent or have a significant adverse impact on a Fund’s ability to achieve its investment objective. If a margin call is not met within a reasonable time, an FCM may close out a Fund’s position which may prevent the Fund from achieving its investment objective. If a Fund has insufficient cash to meet daily margin requirements, it may need to sell Financial Instruments at a time when such sales are disadvantageous. An FCM’s failure to return required margin to a Fund on a timely basis may cause the Fund to delay redemption settlement dates and/or restrict, postpone or limit the right of redemption and could also have a negative impact on a Fund’s ability to achieve its investment objective.
Exchanges impose futures contract position limits and accountability levels on the Funds and the Funds may be subject to new or more restrictive position limits or accountability levels in the future. If a Fund reaches a position limit or accountability level or becomes subject to a daily limit, its ability to issue new Creation Units or reinvest in additional commodity futures contracts may be limited to the extent these restrictions limit its ability to establish new futures positions, add to existing positions, or otherwise transact in futures.
 
Important Information About Oil Funds.Investments in futures contracts, including WTI crude oil futures contracts, are subject to position accountability levels and position limits set by the listing exchange for such contracts – the New York Mercantile Exchange or “NYMEX.” Accountability and position limits may have a negative impact on an Oil Fund’s ability to achieve the appropriate portfolio exposure, thereby having a negative impact on Fund performance, decreasing a Fund’s correlation to the performance of its benchmark and otherwise preventing a Fund from achieving its investment objective.
The Oil Funds received notice from the exchange on May 1, 2020 directing the Funds to not exceed an exchange-designated position accountability level in the September 2020 WTI crude oil futures contracts. In response to this notice, and to help manage the impact of unprecedented price volatility in the markets for crude oil and crude oil futures contracts and related Financial Instruments, and other market
conditions, each Oil Fund repositioned its portfolio in early May 2020. 
Certain of the FCMs utilized by the Funds may impose their own “position limits”, or risk limits, on the Funds. Any such risk limits restrict the amount of exposure to futures contracts that a Fund can obtain through such FCMs. These risk limits may, for example, be imposed as a result of significant and/or rapid increases in the size of the Fund as a result of an increase in creation activity. As a result, a Fund may need to transact through a number of FCMs in order to achieve its investment objective. If enough FCMs are not willing to transact with a Fund, or if the risk limits imposed by such FCMs do not provide sufficient exposure, the Fund may not be able to achieve its investment objective. In addition, in such instances, a Fund may limit or suspend the purchase of Creation Units since the Fund may be unable to invest the cash received from such Creation Unit in sufficient futures transactions to meet its investment objective. As discussed elsewhere herein, the limitation or suspension of Creation Units could cause a Fund’s Shares to trade at significant premiums or discounts and otherwise disrupt secondary market trading of Fund Shares.
Futures markets are highly volatile, and may become more volatile during periods of general market and/or economic volatility, and the use of or exposure to futures contracts may increase volatility of a Fund’s NAV.
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The insolvency of an FCM or clearinghouse or the failure of an FCM or clearinghouse to properly segregate Fund assets held as margin on futures transactions may result in losses to the Funds.
The CEA requires FCMs to segregate client assets received as margin on futures transactions from their own proprietary assets. However, in the event of the FCM’s bankruptcy or if an FCM fails to properly segregate Fund assets deposited as margin, a Fund may not be able to recover any assets held by the FCM, or may recover only a limited portion of such assets.
Furthermore, customer funds held at a clearinghouse in connection with any futures contracts are permitted to be held in a commingled omnibus account that does not identify the name of the clearing member’s individual customers. A clearinghouse may use assets held in such accounts to satisfy payment obligations of a defaulting customer of the FCM to the clearinghouse. As a result, in the event of a default of one or more of the FCM’s other clients together with the bankruptcy or insolvency of the FCM, a Fund may not be able to recover the assets deposited by the FCM on behalf of the Fund with the clearinghouse.
In the event of a bankruptcy or insolvency of any exchange or a clearinghouse, a Fund could experience a loss of the funds deposited through its FCM as margin with the clearinghouse, a loss of any profits on its open positions on the exchange, and the loss of unrealized profits on its closed positions on the exchange.
A Fund’s performance could be adversely affected if an FCM reduces its internal risk limits for the Fund.
CFTC rules require clearing member FCMs to establish risk-based limits on position and order size. As a result, the Trust’s FCMs may be required or may choose to reduce their internal limits on the size of the positions they will execute or clear for the Funds, and the Funds’ ability to transact in futures contracts could be reduced or eliminated. Under these circumstances, the Trust may seek to use additional FCMs, which may increase the costs for the Funds, make the Funds’ trading less efficient or more prone to error, or adversely affect the value of the Shares. If enough FCMs are not willing to transact with a Fund, it may not be possible for the Fund to transact in futures contracts or to invest in other Financial Instruments necessary to achieve the desired exposure consistent with the Fund’s investment objective.
The use of swap agreements may expose the Funds to liquidity risk, counterparty credit risk and other risks, which could result in significant loss to the Funds.
Each Fund may enter into swaps referencing its benchmark or particular futures contracts comprising its benchmark. Swaps are contracts between two parties who agree to exchange the returns on, among other things, a particular predetermined security, commodity, interest rate or index for a fixed or floating rate of return with reference to a predetermined notional amount of money. The Funds trade swaps that are not cleared by a clearinghouse. There are no limitations on the percentage of its assets a Fund may invest in swaps with a particular counterparty. A swap counterparty or affiliate thereof may be an Authorized Participant or shareholder of one or more Funds. Swap agreements do not have uniform terms. A swap counterparty may have the right to close out a Fund’s position due to the occurrence of certain events (for example, if a counterparty is unable to hedge its obligations to a Fund, or if the Fund defaults on certain terms of the swap agreement, or if there is a material decline in the Fund’s benchmark on a particular day) and request immediate payment of amounts owed by the Fund under the agreement. If the level of a Fund’s benchmark has a dramatic intraday move, the terms of the swap agreement may permit the counterparty to immediately close out a transaction with the Fund at a price set by the counterparty, which may not represent fair market value. A swap counterparty may also have the right to close out a Fund’s position for no reason, in some cases with same day notice. The valuation method used to calculate NAV or errors in calculation of a Fund’s NAV may cause the Fund’s NAV to be overstated or understated and may affect the performance of the Fund and the value of an investment in the Shares.
Because a swap counterparty may stop trading with a Fund, in some cases with same day notice, a Fund may need to transact through a number of swap counterparties in order to achieve its investment objective. If enough swap counterparties are not willing to transact with a Fund, it may not be possible for the Fund to enter into another swap or to invest in other Financial Instruments necessary to achieve the desired exposure consistent with the Fund’s objective. This, in turn, may prevent the Fund from achieving its investment objective, particularly if the level of the Fund’s benchmark reverses all or part of an intraday move by the end of the day. In addition, in such instances, a Fund may limit or suspend the purchase of Creation Units since the Fund may be unable to invest the cash received from such Creation Units through swap transactions and other Financial Instruments in a manner designed to meet its investment objective. As discussed elsewhere herein, the limitation or suspension of Creation Unit purchases could cause a Fund’s Shares to trade at significant premiums or discounts and otherwise disrupt secondary market trading of the Fund’s Shares.
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The Funds have sought to mitigate these risks by typically entering into transactions only with major, global financial institutions, generally requiring that swap counterparties agree to post collateral for the benefit of the Fund, marked to market daily, subject to certain minimum thresholds. Notwithstanding the use of collateral arrangements, to the extent any collateral provided to such Fund is insufficient or there are delays in accessing the collateral, the Fund will be exposed to possibly significant costs and delays in recovering such amounts. The swap counterparty’s failure to return collateral to such Fund on a timely basis may cause the Fund to delay redemption settlement dates and/or restrict, postpone or limit the right of redemption. If the swap counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties or other reasons, such Fund could suffer significant losses on these contracts and the value of an investor’s investment in the Fund may decline.
Each Oil Fund and Precious Metals Fund may, but is not required to, seek to use swap agreements that limit losses (i.e., have “floors”) or are otherwise designed to prevent the Fund’s net asset value from going to or below zero. Use of such swap agreements will not prevent an Oil Fund or a Precious Metals Fund from losing value, and their use may not prevent the Fund’s NAV from going to or below zero. Rather, it is intended to allow an Oil Fund or a Precious Metals Fund to preserve a small portion of its value in the event of significant movements in its benchmark or Financial Instruments based on its benchmark. There can be no guarantee that use of such swap agreements will be successful. Each Fund will incur additional costs as a result of using such swap agreements. Use of swap agreements designed to limit losses may also place “caps” or “ceilings” on performance and could significantly limit Fund gains, could cause a Fund to perform in a manner not consistent with its investment objective, and could otherwise have a significant impact on Fund performance.
Margin requirements for swaps may limit a Fund’s ability to achieve sufficient exposure and prevent a Fund from achieving its investment objective.
Margin requirements imposed by a swap counterparty are subject to change and could be substantial, especially in the event of adverse price movements. High margin requirements could prevent a Fund from obtaining sufficient exposure to swap agreements and may adversely affect a Fund’s ability to achieve its investment objective. If a Fund has insufficient cash to meet its margin requirements, the Fund may need to sell Financial Instruments at a time when such sales are disadvantageous. A Fund’s use of swaps involves counterparty credit risk – i.e., the risk that a counterparty is or is perceived to be unwilling or unable to make timely payments or otherwise meet its contractual obligations. Regulators impose margin requirements applicable to swaps that are not cleared by a clearinghouse relating to the amount of initial margin, the timing of margin transfers, and the calculation of margin requirements. Although a Fund is not directly subject to these requirements, when a Fund’s counterparty is subject to these requirements, the swaps between the Fund and that counterparty are subject to these margin requirements, and collateral is required to be exchanged between the Fund and the counterparty to account for any changes in the value of such swaps. It is possible that in the future these rules could apply to the Funds, may result in significant operational burdens and costs to a Fund, and may impair the Fund’s ability to achieve its investment objective.
The use of derivatives, such as swap agreements and forward contracts, exposes the Funds to counterparty credit risks.
Each Fund may use derivatives such as swap agreements and forward contracts (collectively referred to herein as “derivatives”) in the manner described herein as a means to achieve their respective investment objectives. Use of derivatives exposes the Funds to the credit risk of the counterparty to a derivative transaction.
Derivative transactions may be “cleared” or “uncleared.” In the case of derivatives that are not cleared by a clearinghouse, the Funds will be subject to the credit risk of the counterparty to the transaction – typically a single bank or financial institution. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties or other reasons, a Fund could suffer significant losses on these contracts and the value of an investor’s investment in a Fund may decline.
In the case of derivatives that are cleared by a clearinghouse, the Funds will have credit risk to the clearinghouse in a similar manner as the Funds would for futures contracts. The counterparty risk for these derivatives transactions is generally lower than for derivatives transactions that are not cleared by a clearinghouse. Once a transaction is cleared, the clearinghouse is substituted and is the Fund’s counterparty for the derivative transaction. The clearinghouse guarantees the performance of the other side of the derivative transaction. Nevertheless, some risk remains, as there is no assurance that the clearinghouse, or its members, will satisfy their obligations to a Fund.
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The use of options strategies may expose the Funds to significant loss and liquidity, counterparty and other risks.
Options transactions may be considered speculative in nature and may be highly leveraged. Certain options transactions may subject the writer (seller) to unlimited risk of loss in the event of an increase in the price of the contract to be purchased or delivered. The value of a Fund’s options transactions, if any, will be affected by, among other things, changes in the value of a Fund’s underlying benchmark relative to the strike price, changes in interest rates, changes in the actual and implied volatility of the Fund’s underlying benchmark, and the remaining time to until the options expire, or any combination thereof. The value of the options should not be expected to increase or decrease at the same rate as the level of the Fund’s underlying benchmark, which may contribute to tracking error. Options may be less liquid than certain other securities. A Fund’s ability to trade options will be dependent on the willingness of counterparties to trade such options with the Fund. In a less liquid market for options, a Fund may have difficulty closing out certain option positions at desired times and prices. A Fund may experience substantial downside from specific option positions and certain option positions may expire worthless. Over-the-counter options generally are not assignable except by agreement between the parties concerned, and no party or purchaser has any obligation to permit such assignments. The over-the-counter market for options is relatively illiquid, particularly for relatively small transactions. The use of options transactions exposes a Fund to liquidity risk and counterparty credit risk, and in certain circumstances may expose the Fund to unlimited risk of loss. The Funds may buy and sell options on futures contracts, which may present even greater volatility and risk of loss.
Use of options strategies may be costly and may not be successful.
Each Fund may buy and sell options in order to achieve exposure to the markets. An option is a contract that gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity or other instrument at a specific (or strike) price within a specified period of time, regardless of the market price of that instrument. As the buyer of a call or put option, a Fund may lose the entire premium paid for the option if the value of the security underlying the option does not rise above the call strike price, or fall below the put strike price, which means the option will expire worthless. As a seller (writer) of a call or put option, a Fund will tend to lose money if the value of the underlying security rises above the call strike price or falls below the put strike price. A Fund’s losses are potentially large in written put or call transactions. In addition to futures contracts, the principal futures exchanges offer a number of listed options on futures contracts. Options on futures contracts offer market participants another type of Financial Instrument to use in managing exposure to the relevant commodity market. A Fund may purchase options on futures contracts on these exchanges in pursuing its investment objective. Further, in addition to Financial Instruments such as futures contracts and options on futures contracts, there also exists an active nonexchange-traded market in derivatives tied to various commodities.
In addition, each Fund may, but is not required to, seek to use options strategies that limit losses (i.e., have “floors”) or are otherwise designed to prevent the Fund’s net asset value from going to or below zero. Use of such options strategies will not prevent a Fund from losing value, and their use may not prevent the Fund’s NAV from going to or below zero. Rather, it is intended to allow a Fund to preserve a small portion of its value in the event of significant movements in its benchmark or Financial Instruments based on its benchmark. There can be no guarantee that use of such options strategies will be successful. Each Fund will incur additional costs as a result of using such options strategies. Use of options strategies designed to limit losses may also place “caps” or “ceilings” on performance and could significantly limit Fund gains, could cause a Fund to perform in a manner not consistent with its investment objective, and could otherwise have a significant impact on Fund performance.
A Fund will incur additional transaction, compliance and other costs as a result of using options strategies. The use of options may be considered aggressive, may not prevent a Fund from losing value, and may not prevent a Fund’s NAV from decreasing to or below zero. There can be no guarantee that a Fund will be able to implement options strategies, continue to use options strategies, or that options strategies will be successful. Use of an options strategy could cause a Fund to perform in a manner not consistent with its investment objective and could otherwise have a negative impact on Fund performance.
Shareholders’ tax liability may exceed cash distributions on the Shares.
Shareholders of each Fund may be subject to U.S. federal income taxation and, in some cases, state, local, or foreign income taxation on their share of the Fund’s taxable income, whether or not they receive cash distributions from the Fund. Each Fund does not currently expect to make distributions with respect to capital gains or ordinary income. Accordingly, shareholders of a Fund will not receive cash distributions equal to their share of the Fund’s taxable income or the tax liability that results from such income. A Fund’s income, gains, losses and deductions are
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allocated to shareholders on a monthly basis. If you own Shares in a Fund at the beginning of a month and sell them during the month, you are generally still considered a shareholder through the end of that month.
The U.S. Internal Revenue Service (the “IRS”) could adjust or reallocate items of income, gain, deduction, loss and credit with respect to the Shares if the IRS does not accept the assumptions or conventions utilized by the Fund.
U.S. federal income tax rules applicable to partnerships, which each Fund is anticipated to be treated as under the Internal Revenue Code of 1986, as amended (the “Code”), are complex and their application is not always clear. Moreover, the rules generally were not written for, and in some respects are difficult to apply to, publicly traded interests in partnerships. The Funds apply certain assumptions and conventions intended to comply with the intent of the rules and to report income, gain, deduction, loss and credit to shareholders in a manner that reflects the shareholders’ economic gains and losses, but these assumptions and conventions may not comply with all aspects of the applicable Regulations (as defined below). It is possible therefore that the IRS will successfully assert that these assumptions or conventions do not satisfy the technical requirements of the Code or the Treasury regulations promulgated thereunder (the “Regulations”) and will require that items of income, gain, deduction, loss and credit be adjusted or reallocated in a manner that could be adverse to investors.
Shareholders will receive partner information tax returns on Schedule K-1, which could increase the complexity of tax returns.
The partner information tax returns on Schedule K-1, which the Funds will distribute to shareholders, will contain information regarding the income items and expense items of the Funds. If you have not received Schedules K-1 from other investments, you may find that preparing your tax return may require additional time, or it may be necessary for you to retain an accountant or other tax preparer, at an additional expense to you, to assist you in the preparation of your return.
Shareholders of each Fund may recognize significant amounts of ordinary income and short-term capital gain.
Due to the investment strategy of the Funds, the Funds may realize and pass through to shareholders significant amounts of ordinary income and short-term capital gains as opposed to long-term capital gains, the latter of which are generally taxed at a preferential rate. A Fund’s income, gains, losses and deductions are allocated to shareholders on a monthly basis. If you own Shares in a Fund at the beginning of a month and sell them during the month, the Fund will generally still consider you a shareholder through the end of that month.
A Fund may be liable for U.S. federal income tax on any “imputed underpayment” of tax resulting from an adjustment as a result of an IRS audit. The amount of the imputed underpayment generally includes increases in allocations of items of income or gains to any shareholder and decreases in allocations of items of deduction, loss, or credit to any shareholder without any offset for any corresponding reductions in allocations of items of income or gain to any shareholder or increases in allocations of items of deduction, loss, or credit to any shareholder. If a Fund is required to pay any U.S. federal income taxes on any imputed underpayment, the resulting tax liability would reduce the net assets of the Fund and would likely have an adverse impact on the value of the Shares. Under certain circumstances, a Fund may be eligible to make an election to cause the shareholders to take into account the amount of any imputed underpayment, including any interest and penalties. However, there can be no assurance that such election will be made or effective. If the election is made, the Fund would be required to provide shareholders who owned beneficial interests in the Shares in the year to which the adjusted allocations relate with a statement setting forth their proportionate shares of the adjustment (“Adjustment Statements”). Those shareholders would be required to take the adjustment into account in the taxable year in which the Adjustment Statements are issued.
A Fund could be treated as a corporation for federal income tax purposes, which may substantially reduce the value of its Shares.
Each Fund has received an opinion of counsel that, under current U.S. federal income tax laws, such will be treated as a partnership that is not taxable as a corporation for U.S. federal income tax purposes, provided that, inter alia, (i) at least 90 percent of such Fund’s annual gross income will be derived from qualifying income which includes dividends, interest, capital gains from the sale or other disposition of stocks and debt instruments and, in the case of a partnership a principal activity of which is the buying and selling of commodities or certain positions with respect to commodities, income and gains derived from certain swap agreements or regulated futures or forward contracts with respect to commodities, (ii) such Fund is organized and operated in accordance with its governing agreements and applicable law and (iii) such Fund does not elect to be taxed as a corporation for federal income tax purposes. Although the Sponsor anticipates that each Fund has satisfied and will continue to satisfy the “qualifying income” requirement for all of its taxable years, such result cannot be assured. The Funds have not requested
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and will not request any ruling from the IRS with respect to their classification that each Fund is treated as a partnership not taxable as a corporation for federal income tax purposes. If the IRS were to successfully assert that a Fund is taxable as a corporation for federal income tax purposes in any taxable year, rather than passing through its income, gains, losses and deductions proportionately to shareholders, such Fund would be subject to tax on its net income for the year at the 21% corporate tax rate. In addition, although each Fund does not currently intend to make distributions with respect to Shares, any distributions would be taxable to shareholders as dividend income. Taxation of a Fund as a corporation could materially reduce the after-tax return on an investment in Shares and could substantially reduce the value of the Shares.
Shareholders will not be eligible for the deduction for qualified publicly traded partnership income.
For taxable years beginning before January 1, 2026, there is a 20% deduction for “qualified publicly traded partnership income” within the meaning of Section 199A(e)(4) of the Code. In general, “qualified publicly traded partnership income” for this purpose is an item of income, gain, deduction or loss that is effectively connected with a United States trade or business and includable in determining taxable income for the year, but does not include certain investment income. It is currently not expected that a Fund’s income will be eligible for such deduction because as discussed below, although the matter is not free from doubt, each Fund believes that the activities directly conducted by the Fund will not result in the Fund being engaged in a trade or business within the United States. Potential investors should consult their tax advisors regarding the availability of such deduction for their allocable share of a Fund’s items of income, gain, deduction and loss.
PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS AND COUNSEL WITH RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE SHARES OF A FUND; SUCH TAX CONSEQUENCES MAY DIFFER IN RESPECT OF DIFFERENT INVESTORS.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus and the documents incorporated by reference in this Prospectus contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “1933 Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “1934 Act”), that are subject to risks and uncertainties. Investors can identify these forward-looking statements by the use of expressions such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “plan,” “project,” “should,” “estimate,” “seek” or any negative or other variations on such expression. These forward-looking statements are based on information currently available to the Sponsor and are subject to a number of risks, uncertainties and other factors, both known, such as those described in “Risk Factors” and elsewhere in this Prospectus and the documents incorporated by reference in this Prospectus, and unknown, that could cause the actual results, performance, prospects or opportunities of the Funds to differ materially from those expressed in, or implied by, these forward-looking statements.
Except as expressly required by federal securities laws, the Trust assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Investors should not place undue reliance on any forward-looking statements.
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DESCRIPTION OF EACH FUND’S BENCHMARK
Bloomberg Commodity Balanced WTI Crude Oil IndexSM
The investment objective of each Oil Fund is to seek daily investment results, before fees and expenses, that correspond to two times (2x) or two times the inverse (-2x), as applicable, of the daily performance of the Bloomberg Commodity Balanced WTI Crude Oil IndexSM (sometimes referred to herein as the “New Oil Index”). Prior to September 17, 2020 each Oil Fund’s benchmark was the Bloomberg WTI Crude Oil SubindexSM. The Bloomberg Commodity Balanced WTI Crude Oil Index seeks to track the performance of three separate contract schedules for West Texas Intermediate (“WTI”) Crude Oil futures traded on NYMEX. The contract schedules are equally-weighted in the New Oil Index (1/3 each) at each semi-annual reset in March and September. At each semi-annual reset date, one-third of the New Oil Index is designated to follow a monthly roll schedule. Each month this portion of the New Oil Index rolls from the current futures contract (called “Lead” by Bloomberg, and which expires one month out) into the following month’s contract (called “Next” by Bloomberg and which expires two months out). The second portion of the New Oil Index is always designated to be in a June contract, and follows an annual roll schedule in March of each year in which the June contract expiring in the current year is rolled into the June contract expiring the following year. The remaining portion is always designated to be in a December contract, and follows an annual roll schedule in September of each year in which the December contract expiring in the current year is rolled into the December contract expiring the following year. The weighting (i.e., percentage) of each of the three contract schedules included in the New Oil Index fluctuate above or below one-third between the semi-annual reset dates due to changing futures prices and the impact of rolling the futures positions. As a result, the weighting of each contract in the New Oil Index will “drift” away from equal weighting. The New Oil Index reflects the cost of rolling the futures contracts included in the New Oil Index, without regard to income earned on cash positions. The New Oil Index is not linked to the “spot” price of WTI crude oil. Futures contracts may perform very differently from the spot price of crude oil.
The following table indicates for the next 12 months the futures contacts that are expected to comprise the Bloomberg Commodity Balanced WTI Crude Oil Index and the futures contracts expected to be held by each Oil Fund, except as otherwise described herein. 
During the month of
The Bloomberg Commodity Balanced WTI
Crude Oil Index will roll on the second and
third business days of the month and
beginning on the fourth business day of the
month are expected to be comprised of the
following WTI crude oil futures contracts*
The weighting of the WTI crude oil futures
contracts comprising the New Oil Index is
reset to its target weight of 1/3, 1/3 and 1/3 at
the close of business on the 3rd business day
of
January (Current Year)
April (Current Year)
June (Current Year)
December (Current Year)
 
February (Current Year)
May (Current Year)
June (Current Year)
December (Current Year)
 
March (Current Year)
June (Current Year)
December (Current Year)
June (Following Year)
March (Current Year)
April (Current Year)
July (Current Year)
December (Current Year)
June (Following Year)
 
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May (Current Year)
August (Current Year)
December (Current Year)
June (Following Year)
 
June (Current Year)
September (Current Year)
December (Current Year)
June (Following Year)
 
July (Current Year)
October (Current Year)
December (Current Year)
June (Following Year)
 
August (Current Year)
November (Current Year)
December (Current Year)
June (Following Year)
 
September (Current
Year)
December (Current Year)
June (Following Year)
December (Following Year)
September (Current Year)
October (Current Year)
January (Following Year)
June (Following Year)
December (Following Year)
 
November (Current
Year)
February (Following Year)
June (Following Year)
December (Following Year)
 
December (Current
Year)
March (Following Year)
June (Following Year)
December (Following Year)
 
*
The methodology for determining the composition of the New Oil Index and for calculating its level may be changed at any time by Bloomberg without notice.
How Bloomberg treats “Market Disruption Events”. Bloomberg determines whether or not a Market Disruption Event exists. If a Market Disruption Event occurs, Blomberg may postpone the roll of certain futures contracts used to calculate the Oil Index and/or take other action. If a Market Disruption Event occurs or is occurring that Bloomberg determines, in its sole discretion, materially affects the New Oil Index, Bloomberg may defer or suspend the calculation and publication of the New Oil Index and any other information relating to the New Oil Index until the next business day on which such disruption event is not continuing.
Changes to the Methodology. Bloomberg may change the Methodology at any time and from time to time. Bloomberg reviews the New Oil Index (both the rules of construction and data inputs) on a periodic basis, not less frequently than annually, to determine whether they continue to reasonably measure the intended underlying market interest, the economic reality or otherwise align with their stated objective. More frequent reviews may result from extreme market events and/or material changes to the applicable underlying market interests. Bloomberg can, among other things, change the composition, weightings or the manner or timing of the publication of the values of the New Oil Index at any time during the year if Bloomberg deems such changes to be necessary Bloomberg has no obligation to take the needs of any parties to transactions involving the New Oil Index (including, but not limited to, the Oil Funds or investors in the Oil Funds) into consideration when reweighting or making any other changes to the New Oil Index. Material changes related to the New Oil Index will be made available in
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advance to affected stakeholders whose input will be solicited. The stakeholder engagement will set forth the rationale for any proposed changes as well as the timeframe and process for responses. Bloomberg endeavours to provide at least two weeks for review prior to any material change going into effect. In the event of exigent market circumstances, this period may be shorter. Subject to obligations of confidentiality, stakeholder feedback and Bloomberg’s responses are accessible upon request. Because the New Oil Index is a strategy index and not a widely-available benchmark index, such stakeholder engagement is conducted on a bespoke basis rather than a more open and public consultation that might be more appropriate for a benchmark index. In determining whether a change to the New Oil Index is material, Bloomberg considers the following factors: (a) the economic and financial impact of the change; (b) whether the change affects the original purpose of the New Oil Index; and/or (c) whether the change is consistent with the overall objective of the New Oil Index and the underlying market interest it seeks to measure.
The daily performance of the New Oil Index is published by Bloomberg Finance L.P. and is available under the Bloomberg ticker symbol: BCBCLI Index.
Information About the Index Licensor
“BLOOMBERG®”, “BLOOMBERG WTI CRUDE OIL SUBINDEXSM” AND “BLOOMBERG COMMODITY BALANCED WTI CRUDE OIL INDEXSM” ARE SERVICE MARKS OF BLOOMBERG FINANCE L.P. AND ITS AFFILIATES (COLLECTIVELY, “BLOOMBERG”) AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY PROSHARES TRUST II (THE “LICENSEE”).
The Oil Funds are not sponsored, endorsed, sold or promoted by Bloomberg or any of their subsidiaries or affiliates. Bloomberg makes no representation or warranty, express or implied, to the owners of or counterparties to the Oil Funds or any member of the public regarding the advisability of investing in securities or commodities generally or in the Oil Funds particularly. The only relationship of Bloomberg to the Licensee is the licensing of certain trademarks, trade names and service marks and of the Bloomberg WTI Crude Oil SubindexSM and Bloomberg Commodity Balanced WTI Crude Oil IndexSM which is determined, composed and calculated by BISL without regard to the Licensee or the Oil Funds. Bloomberg has no obligation to take the needs of the Licensee or the owners of the Oil Funds into consideration in determining, composing or calculating the Bloomberg WTI Crude Oil SubindexSM or the Bloomberg Commodity Balanced WTI Crude Oil IndexSM. Bloomberg is not responsible for or has not participated in the determination of the timing of, prices at, or quantities of the Oil Funds to be issued or in the determination or calculation of the equation by which the Oil Funds are to be converted into cash. Bloomberg shall have no obligation or liability, including, without limitation, to Oil Funds’ customers, in connection with the administration, marketing or trading of the Oil Funds.
The Prospectus relates only to the Oil Funds and does not relate to the exchange-traded physical commodities underlying any of the Bloomberg WTI Crude Oil SubindexSM or the Bloomberg Commodity Balanced WTI Crude Oil IndexSM components. Purchasers of the Oil Funds should not conclude that the inclusion of a futures contract in the Bloomberg WTI Crude Oil SubindexSM or Bloomberg Commodity Balanced WTI Crude Oil IndexSM is any form of investment recommendation of the futures contract or the underlying exchange-traded physical commodity by Bloomberg. The information in the Prospectus regarding the Bloomberg WTI Crude Oil SubindexSM and Bloomberg Commodity Balanced WTI Crude Oil IndexSM components has been derived solely from publicly available documents. Bloomberg has made no due diligence inquiries with respect to the Bloomberg WTI Crude Oil SubindexSM or the Bloomberg Commodity Balanced WTI Crude Oil IndexSM components in connection with the Oil Funds. Bloomberg makes no representation that these publicly available documents or any other publicly available information regarding the Bloomberg WTI Crude Oil SubindexSM or the Bloomberg Commodity Balanced WTI Crude Oil IndexSM components, including without limitation a description of factors that affect the prices of such components, are accurate or complete.
BLOOMBERG DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE BLOOMBERG WTI CRUDE OIL SUBINDEXSM OR THE BLOOMBERG COMMODITY BALANCED WTI CRUDE OIL INDEXSM OR ANY DATA RELATED THERETO AND BLOOMBERG SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. BLOOMBERG MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE LICENSEE, OWNERS OF THE OIL FUNDS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BLOOMBERG WTI CRUDE OIL SUBINDEXSM OR THE BLOOMBERG COMMODITY BALANCED WTI CRUDE OIL INDEXSM OR ANY DATA RELATED THERETO. BLOOMBERG MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE BLOOMBERG WTI CRUDE OIL SUBINDEXSM OR THE BLOOMBERG COMMODITY BALANCED WTI CRUDE OIL INDEXSM OR ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, TO THE MAXIMUM EXTENT ALLOWED BY
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LAW, BLOOMBERG, ITS LICENSORS, AND ITS AND THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, AGENTS, SUPPLIERS, AND VENDORS SHALL HAVE NO LIABILITY OR RESPONSIBILITY WHATSOEVER FOR ANY INJURY OR DAMAGES WHETHER DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR OTHERWISE ARISING IN CONNECTION WITH THE OIL FUNDS OR THE BLOOMBERG WTI CRUDE OIL SUBINDEXSM OR THE BLOOMBERG COMMODITY BALANCED WTI CRUDE OIL INDEXSM OR ANY DATA OR VALUES RELATING THERETO WHETHER ARISING FROM THEIR NEGLIGENCE OR OTHERWISE, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF.
DESCRIPTION OF THE PRECIOUS METALS FUNDS’ BENCHMARKS
Bloomberg Gold SubindexSM
The Ultra Gold Fund seeks daily investment results, before fees and expenses, that correspond to two times (2x) the daily performance of the Bloomberg Gold SubindexSM (the “Gold Subindex”), a subindex of the Bloomberg Commodity Index. The Gold Subindex is intended to reflect the performance of gold, as measured by the price of COMEX gold futures contracts, including the impact of rolling, without regard to income earned on cash positions. The Gold Subindex is not directly linked to the “spot price” of gold. Futures contracts may perform very differently from the spot price of gold.
The Gold Subindex is based on the gold component of the Bloomberg Commodity Index and tracks what is known as a rolling futures position. Unlike equities, which entitle the holder to a continuing stake in a corporation, commodity futures contracts specify a delivery date for the underlying physical commodity or its cash equivalent. The Gold Subindex is a “rolling index,” which means that the Gold Subindex does not take physical possession of any commodities. An investor with a rolling futures position is able to avoid delivering (or taking delivery of) underlying physical commodities while maintaining exposure to those commodities. The roll occurs over a period of five Bloomberg Commodity Index business days in pre-determined months according to the Bloomberg Commodity Index contract schedule, generally beginning on the sixth business day of the month and ending on the tenth business day. Each day during the roll period, approximately 20% of the expiring futures position will be rolled into a new contract with a longer-dated expiry, increasing from 0% to 20%, 40%, 60%, 80% and finally 100%. The Gold Subindex will reflect the performance of its underlying silver futures contracts, including the impact of rolling, without regard to the income earned on cash positions.
The methodology for determining the composition of the Gold Subindex and for calculating its level may be changed at any time by Bloomberg without notice.
The daily performance of the Gold Subindex is published by Bloomberg Finance L.P. and is available under the Bloomberg ticker symbol: BCOMGC.
Information About the Index Licensor
“BLOOMBERG®”, AND “BLOOMBERG GOLD SUBINDEXSM” ARE SERVICE MARKS OF BLOOMBERG FINANCE L.P. AND ITS AFFILIATES, INCLUDING BLOOMBERG INDEX SERVICES LIMITED (“BISL”), THE ADMINISTRATOR OF THE INDICES (COLLECTIVELY, “BLOOMBERG”) AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY THE LICENSEE.
The Ultra Gold Fund is not sponsored, endorsed, sold or promoted by Bloomberg. Bloomberg makes no representation or warranty, express or implied, to the owners of or counterparties to the Ultra Gold Fund or any member of the public regarding the advisability of investing in securities or commodities generally or in the Ultra Gold Fund particularly. The only relationship of Bloomberg to the Licensee is the licensing of certain trademarks, trade names and service marks and of the Gold Subindex which is determined, composed and calculated by BISL without regard to the Licensee or the Ultra Gold Fund. Bloomberg has no obligation to take the needs of the Licensee or the owners of the Ultra Gold Fund into consideration in determining, composing or calculating the Gold Subindex. Bloomberg is not responsible for or has not participated in the determination of the timing of, prices at, or quantities of the Ultra Gold Fund to be issued or in the determination or calculation of the equation by which the Ultra Gold Fund are to be converted into cash. Bloomberg shall have no obligation or liability, including, without limitation, to the Ultra Gold Fund’s customers, in connection with the administration, marketing or trading of the Ultra Gold Fund.
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The Prospectus relates only to the Ultra Gold Fund and does not relate to the exchange-traded physical commodities underlying any of the Gold Subindex components. Purchasers of the Ultra Gold Fund should not conclude that the inclusion of a futures contract in the Gold Subindex is any form of investment recommendation of the futures contract or the underlying exchange-traded physical commodity by Bloomberg. The information in the Prospectus regarding the Bloomberg Gold Subindex components has been derived solely from publicly available documents. Bloomberg has made no due diligence inquiries with respect to the Gold Subindex components in connection with the Ultra Gold Fund. Bloomberg makes no representation that these publicly available documents or any other publicly available information regarding the Gold Subindex components, including without limitation a description of factors that affect the prices of such components, are accurate or complete.
BLOOMBERG DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE BLOOMBERG GOLD SUBINDEX OR ANY DATA RELATED THERETO AND BLOOMBERG SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. BLOOMBERG MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE LICENSEE, OWNERS OF THE ULTRA GOLD FUND OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BLOOMBERG GOLD SUBINDEX OR ANY DATA RELATED THERETO. BLOOMBERG MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE BLOOMBERG GOLD SUBINDEX OR ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, TO THE MAXIMUM EXTENT ALLOWED BY LAW, BLOOMBERG, ITS LICENSORS, AND ITS AND THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, AGENTS, SUPPLIERS, AND VENDORS SHALL HAVE NO LIABILITY OR RESPONSIBILITY WHATSOEVER FOR ANY INJURY OR DAMAGES WHETHER DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR OTHERWISE ARISING IN CONNECTION WITH THE ULTRA GOLD FUND OR THE BLOOMBERG GOLD SUBINDEX OR ANY DATA OR VALUES RELATING THERETO WHETHER ARISING FROM THEIR NEGLIGENCE OR OTHERWISE, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF.
Bloomberg Silver SubindexSM
The Ultra Silver Fund seeks daily investment results, before fees and expenses, that correspond to two times (2x) the daily performance of the Bloomberg Silver SubindexSM (the “Silver Subindex”), a subindex of the Bloomberg Commodity Index. The Silver Subindex is intended to reflect the performance of silver, as measured by the price of COMEX silver futures contracts, including the impact of rolling, without regard to income earned on cash positions. The Silver Subindex is not directly linked to the “spot price” of silver. Futures contracts may perform very differently from the spot price of silver.
The Silver Subindex is based on the silver component of the Bloomberg Commodity Index and tracks what is known as a rolling futures position. Unlike equities, which entitle the holder to a continuing stake in a corporation, commodity futures contracts specify a delivery date for the underlying physical commodity or its cash equivalent. The Silver Subindex is a “rolling index,” which means that the Silver Subindex does not take physical possession of any commodities. An investor with a rolling futures position is able to avoid delivering (or taking delivery of) underlying physical commodities while maintaining exposure to those commodities. The roll occurs over a period of five Bloomberg Commodity Index business days in pre-determined months according to the Bloomberg Commodity Index contract schedule, generally beginning on the sixth business day of the month and ending on the tenth business day. Each day during the roll period, approximately 20% of the expiring futures position will be rolled into a new contract with a longer-dated expiry, increasing from 0% to 20%, 40%, 60%, 80% and finally 100%. The Silver Subindex will reflect the performance of its underlying silver futures contracts, including the impact of rolling, without regard to the income earned on cash positions.
The methodology for determining the composition of the Silver Subindex and for calculating its level may be changed at any time by Bloomberg without notice.
The daily performance of the Silver Subindex is published by Bloomberg Finance L.P. and is available under the Bloomberg ticker symbol: BCOMSI.
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Information About the Index Licensor
“BLOOMBERG®”, AND “BLOOMBERG SILVER SUBINDEX SM” ARE SERVICE MARKS OF BLOOMBERG FINANCE L.P. AND ITS AFFILIATES, INCLUDING BLOOMBERG INDEX SERVICES LIMITED (“BISL”), THE ADMINISTRATOR OF THE INDICES (COLLECTIVELY “BLOOMBERG”) AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY THE LICENSEE.
The Ultra Silver Fund is not sponsored, endorsed, sold or promoted by Bloomberg. Bloomberg make no representation or warranty, express or implied, to the owners of or counterparties to the Ultra Silver Fund or any member of the public regarding the advisability of investing in securities or commodities generally or in the Ultra Silver Fund particularly. The only relationship of Bloomberg to the Licensee is the licensing of certain trademarks, trade names and service marks and of the Silver Subindex which is determined, composed and calculated by BISL without regard to the Licensee or the Ultra Silver Fund. Bloomberg has no obligation to take the needs of the Licensee or the owners of the Ultra Silver Fund into consideration in determining, composing or calculating the Silver Subindex. Bloomberg is not responsible or has not participated in the determination of the timing of, prices at, or quantities of the Ultra Silver Fund to be issued or in the determination or calculation of the equation by which the Ultra Silver Fund are to be converted into cash. Bloomberg shall have no obligation or liability, including, without limitation, to the Ultra Silver Fund’s customers, in connection with the administration, marketing or trading of the Ultra Silver Fund.
The Prospectus relates only to the Ultra Silver Fund and does not relate to the exchange-traded physical commodities underlying any of the Silver Subindex components. Purchasers of the Ultra Silver Fund should not conclude that the inclusion of a futures contract in the Silver Subindex is any form of investment recommendation of the futures contract or the underlying exchange-traded physical commodity by Bloomberg. The information in the Prospectus regarding the Silver Subindex components has been derived solely from publicly available documents. Bloomberg has made no due diligence inquiries with respect to the Silver Subindex components in connection with the Ultra Silver Fund. Bloomberg makes no representation that these publicly available documents or any other publicly available information regarding the Bloomberg Silver Subindex components, including without limitation a description of factors that affect the prices of such components, are accurate or complete.
BLOOMBERG DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE BLOOMBERG SILVER SUBINDEX OR ANY DATA RELATED THERETO AND BLOOMBERG SHALL NOT HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. BLOOMBERG MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE LICENSEE, OWNERS OF THE ULTRA SILVER FUND OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BLOOMBERG SILVER SUBINDEX OR ANY DATA RELATED THERETO. BLOOMBERG MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE BLOOMBERG SILVER SUBINDEX OR ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, TO THE MAXIMUM EXTENT ALLOWED BY LAW, BLOOMBERG, ITS LICENSORS, AND ITS AND THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, AGENTS, SUPPLIERS, AND VENDORS SHALL HAVE NO LIABILITY OR RESPONSIBILITY WHATSOEVER FOR ANY INJURY OR DAMAGES WHETHER DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR OTHERWISE ARISING IN CONNECTION WITH THE ULTRA SILVER FUND OR THE BLOOMBERG SILVER SUBINDEX OR ANY DATA OR VALUES RELATING THERETO WHETHER ARISING FROM THEIR NEGLIGENCE OR OTHERWISE, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF.
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
Investment Objectives
Investment Objective of the “Ultra Funds”: Each “Ultra” Fund seeks daily investment results, before fees and expenses, that correspond to two times (2x) the daily performance of its benchmark. The Ultra Funds do not seek to achieve their stated objectives over a period greater than a single day. A “single day” is measured from the time an Ultra Fund calculates its respective NAV to the time of the Ultra Fund’s next NAV calculation.
If an Ultra Fund is successful in meeting its objective, its value on a given day, before fees and expenses, should gain approximately two times as much on a percentage basis as the level of its corresponding benchmark when the benchmark rises. Conversely, its value on a given
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day, before fees and expenses, should lose approximately two times as much on a percentage basis as the level of its corresponding benchmark when the benchmark declines. Each Ultra Fund acquires long exposure through any one of or combinations of Financial Instruments, such that each Ultra Fund typically has exposure intended to approximate two times (2x) its corresponding benchmark at the time of its NAV calculation.
Investment Objective of the “UltraShort Fund”: The “UltraShort” Fund seeks daily investment results, before fees and expenses, that correspond to two times the inverse (-2x) of the daily performance of its benchmark. The UltraShort Fund does not seek to achieve their stated objectives over a period greater than a single day. A “single day” is measured from the time the UltraShort Fund calculates its respective NAV to the time of the UltraShort Fund’s next NAV calculation.
If the UltraShort Fund is successful in meeting its objective, its value on a given day, before fees and expenses, should gain approximately two times as much on a percentage basis as the level of its corresponding benchmark when the benchmark declines. Conversely, its value on a given day, before fees and expenses, should lose approximately two times as much on a percentage basis as the level of its corresponding benchmark when the benchmark rises. The UltraShort Fund acquires inverse exposure through any one of or combinations of Financial Instruments, such that the UltraShort Fund typically has exposure intended to approximate two times the inverse (-2x) of its corresponding benchmark at the time of its NAV calculation.
There can be no assurance that any Fund will achieve its investment objective or avoid substantial losses. The Funds do not seek to achieve their stated investment objectives over a period of time greater than a single day because mathematical compounding prevents the Funds from achieving such results. Results for the Funds over periods of time greater than a single day should not be expected to be a simple multiple (2x) or inverse multiple (-2x) of the period return of the corresponding benchmark and will likely differ in amount and possibly even direction from the Fund’s stated multiple times the return of the benchmark over time. These differences can be significant. A Fund will lose money if its benchmark’s performance is flat over time, and a Fund can lose money regardless of the performance of an underlying benchmark, as a result of daily rebalancing, the benchmark’s volatility and compounding. Daily compounding of a Fund’s investment returns can dramatically and adversely affect its longer-term performance during periods of high volatility. Volatility has a negative impact on Fund performance and may be at least as important to a Fund’s return for a period as the return of the Fund’s underlying benchmark.
Principal Investment Strategies
In seeking to achieve the Funds’ investment objectives, the Sponsor uses a mathematical approach to investing. Using this approach, the Sponsor determines the type, quantity and mix of investment positions that the Sponsor believes, in combination should produce daily returns consistent with the Funds’ objectives.
Investment Strategies of the Oil Funds:
Each of the Oil Funds seeks to meet its investment objective by investing, under normal market conditions, in any one of, or combinations of, Financial Instruments (including swap agreements, futures contracts, forward contracts, and option contracts) based on WTI sweet, light crude oil. The investment strategies used by the Oil Funds and the types and mix of Financial Instruments in which the Oil Funds may invest vary daily at the discretion of the Sponsor. The Oil Funds will not invest directly in oil.
Although each Oil Fund generally seeks to obtain exposure to the WTI crude oil futures contacts included in its benchmark in a manner designed to achieve its respective investment objective, there can be no guarantee an Oil Fund will be able to do so. A number of conditions, such as significant market volatility or illiquidity, high margin requirements, accountability levels, position limits, benchmark changes and a lack of available counterparties, have had and could continue to have a negative impact on an Oil Fund’s ability to maintain the desired exposure and achieve its investment objective.
For these reasons, each Oil Fund may invest in longer (or shorter) dated futures contracts than those included in its benchmark based on the Sponsor