ProShares may distribute net investment income earned by the funds, if any, on a quarterly basis. Some ProShares will make capital gain distributions. Distribution information will be posted on our web site.

All ETFs are required by IRS regulations to distribute substantially all of their net investment income and capital gains to shareholders at least annually. Many ETFs make regular income distributions as well as capital gain distributions.

However, many ETFs are touted as tax-efficient investment vehicles because the methods used to operate them result in few, if any, capital gains. It is important to understand that ProShares are not run-of-the-mill ETFs since we offer investors access to short and magnified exposure to indexes or benchmarks. The investment instruments we use to get this exposure may generate capital gains—which we would then be required to distribute to shareholders.

The distribution process has three important dates:

Ex-Date. On this date, the ETF will trade without its dividend with the first reported trade. That means the ETF’s NAV will drop by the amount of the distribution on the morning of the ex-date. Even though the NAV is affected, shareholders who bought the shares before the ex-date have not lost the dividend amount, because they will receive the cash distribution. The ex-date is usually the second business day before the record date.

Record Date. This is the date on which ProShares determines the shareholders of record. An investor must be listed as a holder of record to ensure the right of a distribution payout.

Pay Date. This is the date on which ProShares pays a distribution to the holder of record. This date is usually a couple of days after the record date.

Because you hold ProShares through a brokerage account, you must request this service, if offered, from your brokerage firm. Your brokerage firm is also responsible for other services, such as account statements, confirmations of your purchases and sales of ProShares, and year-end tax information. It also will be responsible for ensuring that you receive shareholder reports and other communications from ProShares.

Net investment income results from the funds holding debt securities, money market instruments and/or dividend-producing equity securities. These instruments pay income to the ETFs that are then required to be distributed (net of expenses) to shareholders.

Capital gains are distributed primarily as a result of the sale/maturity/termination of financial instruments that ProShares holds.

Short ProShares may use derivative products, including futures contracts and/or swap agreements, to obtain short exposure to indexes or benchmarks. These derivatives generally provide the fund with the desired short exposure to an index or benchmark. As a result, the fund has cash available to invest in debt securities and/or money market instruments which generally earn prevailing interest rates. This investment strategy allows ProShares to pass on income (net of expenses) to shareholders.

Net investment income and short-term capital gains will be reported as ordinary income on 1099s that brokers send out. Long-term capital gains will be reported as mutual fund capital gains.

Volatility, Commodity, Currency and Managed Futures ProShares issue K-1s instead of 1099s. For more information, please see Taxation FAQs for Volatility, Commodity, Currency and Managed Futures ProShares.

Trading shares of ProShares ETFs will also generate tax consequences and transaction expenses. The above material is not intended to be tax advice. The tax consequences of dividend distributions may vary by individual taxpayer. Please consult your tax professional or financial adviser for more information with regard to your specific situation.