Partnerships are pass-through entities. The income and expenses of each Volatility, Commodity, Currency and Managed Futures ProShares ETF flow through to its shareholders. (This differs from mutual funds and most ETFs—registered under the Investment Company Act of 1940—which pass through taxable income and capital gains in the form of distributions reported on a Form 1099.) Each shareholder of a Volatility, Commodity, Currency or Managed Futures ProShares ETF is directly responsible for reporting their pro rata portion of income, gains, losses, deductions or other taxable events in the ETF for the calendar year.

While investors may incur trading profits or losses through buying and selling Volatility, Commodity, Currency or Managed Futures ProShares, they are also subject to tax on their portion of any income or gains passed through by the Trust. In addition to income and gains, Volatility, Commodity, Currency and Managed Futures ProShares can also pass through losses, which shareholders may use to reduce their personal taxes. The tax treatment of income, gains or losses depends on the Fund’s underlying positions, for example:

• Volatility, Commodity, Currency and Managed Futures ProShares will earn income from debt securities and overnight investments. An investor’s pro rata portion of that income will be taxed at the investor’s ordinary income tax rate.
• Volatility, Commodity, Currency and Managed Futures ProShares will invest in a range of derivative instruments, including futures and forward contracts. In general, open futures positions will be marked to market, with their gains and losses reportable as 60% long-term and 40% short-term. The reporting of gains and losses may vary depending on the specifics of a contract.
• Commodity and Currency ProShares also enter into swap agreements and non-currency forwards that generally produce capital gains/losses that are likely short-term in character.

Monthly financial statements in accordance with Generally Accepted Accounting Principles (GAAP) for each Volatility, Commodity, Currency and Managed Futures ProShares ETF will be posted on our website on each fund’s Overview page. Be sure to consult your financial adviser or a tax professional for advice as to your particular tax situation.

Unlike mutual funds and most ETFs, Volatility, Commodity, Currency and Managed Futures ProShares are not expected to make distributions with respect to capital gains or income. Volatility, Commodity, Currency and Managed Futures ProShares are treated as partnerships for tax purposes, so an investor’s allocated share of a Fund’s income, gains, losses and deductions are reported on a Schedule K-1. Investors will not receive a Form 1099-DIV issued by most mutual funds and other ETFs which itemizes the taxable distributions received by the investor.

From a tax perspective, any distributions from Volatility, Commodity, Currency or Managed Futures ProShares that might occur will be characterized as nontaxable return of capital (lowering the investor’s cost basis). Additionally, each investor’s allotment of Volatility, Commodity, Currency or Managed Futures ProShares taxable income, as reported on the Schedule K-1, should increase or decrease the investor’s cost basis.

Monthly GAAP financial statements for each Volatility, Commodity, Currency and Managed Futures ProShares ETF are posted on our website on each fund’s Overview page.

Your pro rata portion is determined by the number of shares of the ETF you hold or have held and the duration for which you’ve held them. If you own shares in a Volatility, Commodity, Currency or Managed Futures ProShares ETF at the beginning of a month and sell them during the month, you may still be responsible for and allocated a pro rata portion of income, gains, losses and deductions that were realized during the full month in which you sold your shares.

Income, gains, losses and expenses are generally reported on the Schedule K-1 we send you and should be included on your tax return. How many shares you’ve held and the duration for which you’ve held them determines the portion of any income, gains or losses allocated to you through the K-1. Be sure to consult with a tax professional and/or your financial adviser.

Any gains or losses on your sales of shares should usually be reported on your tax return. In addition to any sales of shares reported on your Form 1099-B from your broker, the Sales Schedule portion of the Schedule K-1 we send you will reflect any sales of your Volatility, Commodity, Currency or Managed Futures ProShares ETF investments. It will also reflect related adjustments to your tax basis. The Sales Schedule includes a worksheet to help you calculate your total gains or losses. Be sure to consult with a tax professional and/or your financial adviser.

Note: A Fund’s income, gains, losses and deductions are allocated to shareholders on a monthly basis. If you own shares in a Volatility, Commodity, Currency or Managed Futures ProShares ETF 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.

We generally expect to mail Schedules K-1 in mid-March. We have to gather information regarding ownership interests bought and sold during the year from the firms that sell our products. Once received, the information must be reviewed for accuracy and processed, and only then can we print the Schedules K-1. We understand the impact any delays have on our investors who need to file their taxes, and we take many steps to facilitate prompt delivery of the Schedules K-1. Notice will be posted on our website at proshares.com should there be any delay in our expected delivery.

As an investor in Volatility, Commodity, Currency or Managed Futures ProShares, each investor accounts for their pro rata portion of income or losses in the ETF on an annual basis—regardless of whether that income, gain or loss is distributed or not. How many shares you’ve held and the duration for which you’ve held them determines the portion of any income, gains or losses allocated to you through the K-1.

Shareholders with questions about their Schedule K-1 can visit the Volatility, Commodity, Currency and Managed Futures ProShares tax package support website where they can:

• Sign up for an email alert to notify you when your tax package is available.
• View your prior year tax schedules.
• Print your tax package including instructions.
• Download a file of your Schedule K-1 information that can be imported into select tax software.
• Request changes to incorrect information.

In addition, shareholders will find contact information for our Tax Package Support Team. Please note that our Tax Package Support staff is not qualified to give tax advice or answer questions regarding your particular tax situation. Please refer these questions to your tax advisor.

You can sign up now to receive your future tax information up to one week faster and eliminate the need for mailing a paper K-1. Simply locate your investment(s) on www.taxpackagesupport.com/proshares. register your email address and choose the option to Eliminate Paper K-1s.

By choosing to eliminate paper K-1s, investor tax information will bypass the U.S. Postal Service and be delivered securely through the website. You will even be notified via email the instant the K-1s are available. You will have the option of saving the electronic version of your tax information to your personal computer and/or printing a hard copy.

The tax calculations found within the tax package you received are based on purchase and sale information obtained from brokers and various reporting sources. If the information provided by these sources is incorrect, the information reported to you, as well as the information reported to the Internal Revenue Service, may also be incorrect. If your ownership records do not agree with the transactions reported on the Ownership Schedule contained in the tax package, please visit the Volatility, Commodity, Currency and Managed Futures ProShares tax package support website for information on how to obtain a corrected K-1.

We do not expect any UBTI. If there is UBTI, it will be detailed on the Schedule K-1 in box 20 with the letter V indicated.

The prospectus for Volatility, Commodity, Currency and Managed Futures ProShares (ProShares Trust II) may be obtained here, or by contacting ProShares at 866-PRO-5125 (866-776-5125), or by writing to us at 7501 Wisconsin Avenue, Suite 1000, East Tower, Bethesda MD 20814.

This material is not intended to be tax advice. For all tax matters related to investing in Volatility, Commodity, Currency and Managed Futures ProShares ETFs, be sure to consult with a tax professional or your financial adviser. Tax consequences may vary by individual taxpayer.

Volatility, Commodity, Currency and Managed Futures ProShares are a series of exchange traded funds that operate as commodity pools as defined in the Commodity Exchange Act. Because they do not invest in securities, Volatility, Commodity, Currency and Managed Futures ProShares are not regulated as investment companies under the Investment Company Act of 1940 and are not afforded its protections, although their public offering is subject to SEC review.