Friday, August 29, 2014




Joe Rogan - What is Reality





The Mind - Alan Watts






Monday, August 4, 2014


ETN prospectus highlights. UVXY

 

"Each of the Funds is “geared” in the sense that each has an investment objective to correspond (before fees and expenses) to a multiple (i.e., 2x) or an inverse multiple (i.e., -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 7:00 a.m. to 4:00 p.m. (Eastern Time); please see the section entitled “Summary—Creation and Redemption Transactions” on pages 3-4 for additional details on the NAV calculation times for the Funds. The Funds do not currently intend to invest directly in any commodities or currencies. Rather, the Funds will attempt to gain exposure to the applicable commodity futures index, commodity or currency benchmark through investments in Financial Instruments (i.e., instruments whose value is derived from the value of an
underlying asset,...."
 
What is Net Asset Value?
What Are Intraday Values?


An ETF's intraday value (also abbreviated as IOPV or IIV
1) is an estimated fair value of its holdings based on the most recent prices of its underlying securities and other assets. Intraday values are typically updated every 15 seconds and should closely approximate the net asset value (NAV) of an ETF throughout the trading day. ETF intraday values are calculated by an exchange (e.g., the NYSE Arca) and are distributed through quote services.

For example, here’s how to get intraday values (as well as closing prices and benchmark quotes) on two popular quote services, Yahoo Finance and Bloomberg terminals:
Obtaining Intraday Values
ETFs have separate ticker symbols for their intraday values (usually, it’s the ticker with ".IV" added as an extension). In addition, most of the quote services that carry intraday values—not all do—require their own unique keystrokes for obtaining ETF intraday values. These keystrokes sometimes differ from the intraday value ticker.


Intraday Values (IOPVs/IIVs) and Benchmarks for ETFs Have Their Own Ticker Symbols



Ticker symbolTo get quotes on Yahoo Finance*To get quotes on Bloomberg
ProShares ETFXXXXXXXXX <equity> <go>
ProShares ETF
Intraday Value
XXX.IV^XXX-IVXXXIV <index> <go>
ProShares ETF index orbenchmarkZZZZ^ZZZZZZZZ <index> <go>


THINKORSWIM UVXY.IV  or VXX.IV for NET ASSET VALUE.
NET ASSET Value is the starting point to fully explain more of how ETF(N) (p) function and work. This became very clear to anyone who can remember the TVIX smack down then they said they were no longer going to issue new shares and traded like a close end fund.  Here is a short video and a snippet from another web page touching on the issuance of shares. 



The take away is that shares are created and destroyed with the fund from AP's and then also trade in the open market. 
there is an clear arb opportunity here that is mentioned in the UVXY prospectus, which is really a benefit for the market that these things are arbed back in line.. TOS users can view this by VXX-VXX.IV or UVXY-UVXY.IV into a chart. The recorded data doesn't show this getting out of line for more then around 2 percent at most on average, and even this figure can be explained by a tracking lag of 15 seconds for NAV calculation.  
 
Flex Shares has this to say on the creation of ETF shares.


"

Overview


Unit investment trusts (UITs) and open-end ETFs continuously offer shares through a daily in-kind purchase and sale (creation and redemption) process that reflects demand and increases transparency. Creations and redemptions occur at prices based on the next calculation of the net asset value (NAV), enabling market makers to match even slight premiums and discounts to the NAV.

The process involves only a few large investors, known as authorized participants (APs). APs are typically large institutional organizations, such as market makers or specialists. Only APs can create or redeem units.

In a creation transaction, an AP assembles a portfolio of stocks and turns them over to the fund in exchange for new ETF shares. Similarly, for redemption transactions, authorized participants deliver ETF shares to the fund in return for the underlying portfolio of stocks.

No cash changes hands during the in-kind process. Each day the fund’s underlying holdings are disclosed to the public.

ETF vs. Open-Ended Mutual Fund


A traditional open-end mutual fund structure has one level of trading activity (see Figure 1). Investors exchange cash for shares in the fund based on the net asset value (NAV) or offering price calculated at the end of each business day1. Investors can make transactions each business day after that price is posted and only at that day’s price.


By contrast, ETFs have two levels of trading activity – primary and secondary. This distinction is vital to understanding how an ETF works (see Figure 2).


EFT Primary Market Creation/Redemption
In the primary market, APs exchange a published basket of securities in-kind plus a published cash component in exchange for ETF shares. These baskets are generally very large, and one creation or redemption unit is equal to a fixed number of ETF shares. The ratio varies by product, but is usually 50,000 ETF shares per unit.

Net Asset Value

Basket (securities) + Non-Basket (cash component) = PCF = NAV


A single creation unit consists of the published basket of securities plus a cash component to equal the NAV per unit. From a bottom-up perspective, the non-basket (cash component) is primarily comprised of dividend and tax accruals, expense accruals, cash and restricted securities. Restricted securities could be odd lots that don’t fit into the basket, or securities that are for some reason restricted from trading.

Creations and redemptions occur at the end-of-day NAV, where the value of the securities basket plus the cash component equals the NAV, so there is no dilution to existing shareholders. The published securities basket along with the published cash component is called the portfolio composition file (PCF) and is distributed to AP and market data vendors as well as service providers.

Intraday Value


The intraday value of the underlying PCF on a per-share basis is called the indicative optimized portfolio value, or IOPV. For each ETF, Bloomberg (a financial market information firm) provides a ticker for the ETF shares, the IOPV and the underlying index. The IOPV value represents the underlying basket of securities plus the cash component and is updated every 15 seconds through the trading day. The IOPV helps market participants relate the value of the fund and its underlying securities to the value of the ETF shares trading in the secondary market on the exchange.

Arbitrage and ETF Pricing


Arbitrage activity not only seeks to efficiently match the outstanding supply of shares with demand, but also eliminates trading at large premiums or discounts to the NAV. This helps support closer tracking between the exchange-listed ETF shares and the fund’s NAV.

Most analyses comparing the costs of using futures versus holding underlying securities versus ETFs consider only the case of an investor limited to transacting at the ETF share level. However, the economics of two different ETF transactions must be considered.

If the investor is an AP, he or she is faced with a situation in which futures, securities and ETFs are fungible. That is, if you buy either futures or the underlying securities, you can easily convert to ETF shares via creation units. (This assumes that a liquid futures contract exists on the same index and the market's price at the same time.)

This creates the arbitrage opportunity relationship that forces ETF shares in the secondary market to trade relatively in-line with their underlying securities. Three examples illustrate this relationship.

  • Example 1: ETF shares look cheaper than futures or underlying securities. Investor (AP) decision: consider ETF shares.
  • Example 2: Underlying securities look cheaper than futures or ETF shares. Investor (AP) decision: buy securities, convert to a creation unit and end up holding ETF shares.
  • Example 3: Futures look cheaper than underlying securities or ETF shares. Investor (AP) decision: buy futures, exchange for securities, convert to a creation unit and wind up with ETF shares.

These examples have been included only as hypothetical illustrations and not as a comprehensive list of possible relationship dynamics between the primary and secondary markets.

The assumptions of fungible futures and same-time trading/pricing do not hold in international markets or in some U.S. markets due to differences in market hours. Where that is the case, premiums and discounts tend to exist intraday and revert day-over-day. In addition, markets affected by a Stamp Tax (the United Kingdom being most notable) can cause certain markets to always trade with a rich basis to the IOPV. This effect results from taxes incurred during the creation process when buying the basket of underlying securities.

Additional Considerations


Management fees – which accrue over time – reduce the total return received from holding ETF shares relative to futures or a basket of actual securities. Expense ratios of ETF shares vary based on the particular fund, with more specialized exposures costing more.
Back to PROSPECTUS.
 
 
Each Fund continuously offers and redeems its Shares in blocks of 50,000 Shares, (each such block, a
“Creation Unit”). Only Authorized Participants 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 of the Funds 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 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.
 
Each Fund seeks to engage in daily rebalancing to position its portfolio so that its exposure to its benchmark is consistent with such Fund’s daily investment objective. The impact of the benchmark’s movements during the day will affect whether a particular Fund’s portfolio needs to be repositioned. For example, if an UltraShort Fund’s benchmark has risen on a given day, net assets of such Fund should fall. As a result, inverse exposure will need to be decreased. Conversely, if an UltraShort Fund’s benchmark has fallen on a given day, net assets of such Fund should rise. 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 and decreased on days when such
Fund’s benchmark falls. 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 period. A Fund will lose money if its benchmark’s performance is flat over time, and it is possible for a Fund to lose money over time regardless of the performance of an underlying benchmark, as a result of daily rebalancing, the benchmark’s volatility and compounding
 
 
Only an Authorized Participant may purchase (i.e., create) or redeem Creation Units in the Funds. 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 and are expected to fall between the NAV and the trading
price of 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 and customers will tend to cause the public trading price of the Shares to track the NAV per Share of a Fund closely over time. Retail investors seeking to purchase or sell Shares on any day are expected to 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.
 
Drag...  This was the most important part of the prospectus due to compounding effect, and futures rolling.
 
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 to double the daily performance of benchmark XYZ. 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 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%

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 double 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 x 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 results for periods longer than a single day to be less than two times (2x) the return of the benchmark (or less than two times the inverse (-2x) of the return of the benchmark for the UltraShort Funds). 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 higher than two times (2x) the return of the benchmark. Actual results for a particular period, before fees and expenses, are also dependent on the magnitude of the benchmark return in addition to the benchmark volatility.
Similar effects exist for the UltraShort Funds, and the significance of these effects may be even greater with such inverse 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 shorter than a single day (when measured intraday as opposed to NAV to NAV). See “—Intraday Price/ Performance Risk” below for additional details. 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 (to obtain
required leverage 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 39%, which is an approximate average of the five-year historical volatility rate of the most volatile benchmark referenced herein (the daily performance of silver bullion as measured by the U.S. dollar fixing price for delivery in London). A benchmark’s volatility rate
is a statistical measure of the magnitude of fluctuations in its returns.
 One Year Benchmark Return
One-Year Simulation; Benchmark Flat (0%)
(Annualized Benchmark Volatility 39%)
Benchmark Return 0.0% +2X Fund Return -14.0%
-2X Fund Return -36.9%
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 Benchmark Return
One-Year Simulation; Benchmark Down 31%
(Annualized Benchmark Volatility 39%)
Benchmark Return -31.0% +2X Fund Return -59.2%
-2X Fund Return 33.3%
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.


 
 One Year Benchmark Return
One-Year Simulation; Benchmark Up 31%
(Annualized Benchmark Volatility 39%)
Benchmark Return 31.0% +2X Fund Return 47.5%
-2X Fund Return -63.3%
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 9.79% to
39.29%, as set forth in the table below.


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 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 leverage 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 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.



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 significantly greater or less than the returns shown above as a result of any of the factors discussed above or under the below risk factor describing correlation risks.

Correlation 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; (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 associated with the use of Financial Instruments and
commission costs; (5) holding Financial Instruments traded 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 or regulatory or tax law requirements; (9) early and unanticipated closings of the markets on which the holdings of a Fund trade, resulting in the inability of the Fund to execute intended portfolio transactions; (10) accounting standards; and (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.
 

 
 
This is a good time to leave the prospectus and go to other published material to help understand the compounding effects before adding the second aspect of the futures roll.
 

Compounding with conventional investments:

Let’s take a hypothetical look at how compounding affects conventional investment returns in upward-trending, downward-trending and volatile markets.


When “10% + 10% = 21%” 
In an upward-trending market, compounding can result in longer-term returns that are greater than the sum of the individual daily returns. An investor who starts with $100 in an investment that rises 10% a day for two consecutive days would have $121, or a 21% gain (not 20%).
When “-10% + -10% = -19%” 
In a downward-trending market, compounding can also result in longer-term returns that are less negative than the sum of the individual daily returns. An investor who starts with $100 in an investment that declines 10% a day for two consecutive days would have $81, or a 19% loss (not -20%). This is because day two’s loss is calculated on day one’s lower ending balance of $90, not the original $100.
When “10% + -10% = -1%” 
In a volatile market, compounding can result in longer-term returns that are less than the sum of the individual daily returns. An investor who starts with $100 in an investment that rises 10% on one day and declines 10% the next would have $99, or a 1% loss (not 0%). Day two’s loss is calculated on day one’s larger ending value after its gain.
- See more at: http://www.proshares.com/funds/performance/the_universal_effects_of_compounding.html#sthash.hbrnZ9Vu.dpuf
 
FUTURES ROLL


For the ETF/N/P to achieve a double leverage effect intra day, they need to replicate that performance, typically with a financial derivative - Options, Swaps of Futures. UVXY achieves this with both front and back month futures contracts that are rolled and re weighted daily.

There is a benefit to the issuer if the product is in Contango (they are selling something more expensive and replacing it with some cheaper in notional value. The inverse is true with Backwardation, as the rolling feature will cost them daily.

Back to Prospectus.

In addition, the use of Financial Instruments causes the need to roll futures or forward contracts as described above and the resulting 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 Ultra Funds. Alternatively, the existence of backwardated markets would be expected to adversely impact the UltraShort Funds.
Potential negative impact from rolling futures positions.

The Commodity Index Funds and Commodity Funds invest in or have exposure to futures contracts and are subject to risks related to rolling. 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. Alternatively, futures contracts may be closed out prior to expiration by making an offsetting sale or purchase of an identical futures contract on the same or linked exchange before the designated date of settlement. Once this date is reached, the futures contract “expires.” As the futures contracts held by these Funds near expiration, they are generally closed out and replaced by contracts with a later expiration. This process is referred to as “rolling.” Such Funds do not intend to hold futures contracts through expiration, but instead to “roll” their respective positions. When the market for these 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 contract would take place at a price that is lower than the price of the more distant contract. This pattern of higher futures prices for longer expiration futures contracts is often referred to as “contango.” Alternatively, when the market for these 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 contract would take place at a price that is higher than the price of the more distant contract. This pattern of higher futures prices of 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 has 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 in the past and can in the future cause significant losses for the Funds, and these periods can have as much or more impact over time than movements in the level of a Fund’s benchmark.

 Some Interesting Warnings.
 
Investors may be adversely affected by redemption or creation orders that are subject to postponement, suspension or rejection under certain circumstances. A Fund may, in its discretion, suspend the right of creation or redemption or may postpone the redemption or purchase settlement date, for (1) any period during which the Exchange or any other exchange, marketplace or trading center, deemed to affect the normal operations of the Funds, is closed, or when trading is restricted or
suspended or restricted on such exchanges in any of the Funds’ futures contracts, (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 to be necessary for the protection of the shareholders of the Funds. 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 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 suspension or postponement. Suspension of creation privileges may adversely impact how the Shares are traded and arbitraged on the secondary market, which could cause them to trade at levels materially different (premiums and discounts) from the fair value of their underlying holdings.
 
 
There can be no assurance that any Fund will achieve its investment objective or avoid substantial losses.