ProShares Sets Reverse Splits for Nine ETFs
Effective April 15, 2010
- What is a reverse split?
- Which ProShares are subject to reverse splits and what ratios? What are the new CUSIPs?
- How many shares of each fund will be received as a result of the reverse splits?
- When will the reverse splits take place?
- Why has ProShares decided to reverse split the shares of these funds?
- Will ProShares reverse splits create any taxable events?
- What will happen to a sale of affected fund shares before April 15, 2010?
- What will happen to a purchase of affected fund shares before April 15, 2010?
- What will happen to shares of affected funds bought or sold on or after April 15, 2010?
- Will the ticker symbols of reverse split funds change?
- Will a reverse split affect a limit or Good 'Til Canceled (GTC) order?
- For Authorized Participants, how will the reverse splits affect the timing for purchasing or redeeming creation units for UltraShort Silver or UltraShort Gold?
What is a reverse split?
A reverse split reduces the number of shares outstanding of a fund, and results in a proportionate increase in the NAV and price per share for that fund. A reverse split does not change the value of investors' assets. For example in a 1:5 reverse split, every five pre-split shares held by an investor will be replaced with one post-split share, which will be priced five times higher than the pre-split shares.
Which ProShares are subject to reverse splits and what ratios? What are the new CUSIPs?
Funds subject to reverse splits effective on April 15, 2010:
| Ticker | Fund | Split Ratio | Old CUSIP | New CUSIP |
|---|---|---|---|---|
| DUG | UltraShort Oil & Gas | 1:5 | 74347R586 | 74347X591 |
| EEV | UltraShort MCSI Emerging Markets | 1:5 | 74347R354 | 74347X575 |
| FXP | UltraShort FTSE/Xinhua China 25 | 1:5 | 74347R321 | 74347X567 |
| GLL | UltraShort Gold | 1:5 | 74347W700 | 74347W718 |
| SMN | UltraShort Basic Materials | 1:5 | 74347R651 | 74347X617 |
| SRS | UltraShort Real Estate | 1:5 | 74347R552 | 74347X583 |
| URE | Ultra Real Estate | 1:5 | 74347R677 | 74347X625 |
| UYG | Ultra Financials | 1:10 | 74347R743 | 74347X633 |
| ZSL | UltraShort Silver | 1:10 | 74347W833 | 74347W726 |
How many shares of each fund will be received as a result of the reverse splits?
The number of shares to be received will be different for each fund, depending upon the fund's split ratio (see Table for split ratios).
For example, ProShares UltraShort Oil & Gas (DUG) will undergo a 1 for 5 reverse split and ProShares Ultra Financial (UYG) will undergo a 1 for 10 reverse split. This means, for every 5 shares of DUG, an investor will receive 1 share; and for every 10 shares of UYG, an investor will receive 1 share. As a result of these reverse splits, share prices will be adjusted proportionately higher.
Here are examples illustrating how 1-for-5 and 1-for-10 reverse splits work:
Example of 1-for-5 reverse split:
| Period | # of Shares Owned |
Hypothetical NAV | Value of Shares |
|---|---|---|---|
| Pre-Split | 100 | $ 9.0 | $900.00 |
| Post-Split | 20 | $45.0 | $900.00 |
Example of 1-for-10 reverse split:
| Period | # of Shares Owned |
Hypothetical NAV | Value of Shares |
|---|---|---|---|
| Pre-Split | 100 | $ 5.0 | $500.00 |
| Post-Split | 10 | $50.0 | $500.00 |
On the Effective Date, shareholders will own fewer shares but the price per share will be proportionately higher. As a result, the value of an investment will not change. If the reverse split results in a fractional share, the fund will pay cash-in-lieu of that fractional share.
When will the reverse splits take place?
After the close of the markets on April 14, 2010, each of the funds will effect reverse splits of its issued and outstanding shares, in the indicated ratios. As a result, the number of issued and outstanding shares will decrease. Shareholders of record will participate in the reverse splits. Shares will begin trading on NYSE Arca on a split‐adjusted basis on April 15, 2010.
Why has ProShares decided to reverse split the shares of these funds?
For funds with lower nominal prices, bid-ask spreads represent a higher percentage of the transaction price than for higher-priced funds, increasing both costs and volatility — even when the spread is tight.
For example, a penny spread on a $5 stock is 20 basis points (0.2%),* while a penny spread on a $50 stock is two basis points (0.02%) — one tenth the amount for the lower priced stock. Further, commissions charged by brokers who assess their clients on a per-share basis may be smaller, as investors will need to buy or sell fewer shares to meet their investment goals.
ProShares believes the reverse splits will adjust the share prices to a more cost-efficient level for the Funds' shareholders, and therefore it is in our shareholders' best interest to do so.
* One basis point equals one-hundredth of a percentage point. So a 1% change is the same as a 100 basis point change, and a 0.01% change is the same as a change of 1 basis point.
Will ProShares reverse splits create any taxable events?
It is possible that taxable events could be created for some shareholders.
For shareholders who hold a quantity of shares that is not an exact multiple of the reverse split ratio (for example: a multiple of 5 for a 1-for-5 split, or a multiple of 10 for a 1-for-10 split), the reverse splits will result in the creation of fractional shares. Unfortunately, fractional shares cannot trade on NYSE Arca, or on any other exchange on which ProShares trade. As a result, post-split fractional shares will be redeemed for cash-in-lieu. This transaction may cause some shareholders to realize gains or losses, which could be taxable events for those shareholders.
What will happen to a sale of affected fund shares before April 15, 2010?
There is no impact from the reverse split. Since the sale would take place before the reverse split, the transaction would be executed at the pre-split price and quantity.
What will happen to a purchase of affected fund shares before April 15, 2010?
Since the purchase would take place before the reverse split, the transaction would be executed at the pre-split price and quantity. If these shares are not sold before April 15, 2010, they will be affected by the reverse split, meaning you will ultimately hold fewer shares of higher value for an equivalent total dollar value.
What will happen to shares of affected funds bought or sold on or after April 15, 2010?
These transactions will occur at the higher post reverse split prices. For example, if you are selling all shares of a fund affected by a 1:10 reverse split where you had held 100 shares pre-split, you would then be selling 10 shares to close out the position on April 15th or later.
Will the ticker symbols of reverse split funds change?
No. The tickers symbols of the funds undergoing reverse splits will not change. However, the funds CUSIPs will change, please see table above.
Will a reverse split affect a limit or Good 'Til Canceled (GTC) order?
Yes. Reverse splits will cancel limit and GTC orders. Investors should replace these orders and adjust them to the post split price. Please note that reverse splits may also affect orders for options.
For Authorized Participants, how will the reverse splits affect the timing for purchasing or redeeming creation units for UltraShort Silver or UltraShort Gold?
Because these funds strike their net asset values at 7:00 a.m. (Eastern time) and 10:00 a.m. (Eastern time), respectively, we thought it important to clarify when purchases and redemptions of creation units for these funds will first be done on a post-reverse split basis and when the IIV files for these funds will first reflect post-reverse split values.
ProShares UltraShort Silver:
Purchase and redemption orders for creation units of ProShares UltraShort Silver made prior to 6:00 a.m. (Eastern time) on April 14, 2010 will be transacted at pre-reverse split values. Purchase and redemption orders for creation units of the fund made after 8:00 a.m. (Eastern time) on April 14, 2010 will be transacted at post-reverse split values. The fund's net asset value struck at 7:00 a.m. (Eastern time) on April 15, 2010 will reflect post-reverse split values.
For example, a single create/redeem order entered in UltraShort Silver prior to 6 a.m. on April 14, 2010, will have a total value of approximately $182,000 (based on 4/12 prices). A single order placed after 8 a.m. on 4/14 (for 4/15 NAV) for the same fund will have a total value of approximately $1.82m. While the create/redeem size is affected as of 8 a.m. on 4/14, the IIV file will not show adjusted shares outstanding until 4/15 and fund shares will trade at the pre-split price in the secondary market during the 4/14 trading day.
The IIV file for ProShares UltraShort Silver that will be posted in the morning (Eastern time) on April 14, 2010 will reflect pre-reverse split values. The IIV file for the fund that is posted in the morning (Eastern time) on April 15, 2010 will reflect post-reverse split values.
ProShares UltraShort Gold:
Purchase and redemption orders for creation units of ProShares UltraShort Gold made prior to 9:00 a.m. (Eastern time) on April 14, 2010 will be transacted at pre-reverse split values. Purchase and redemption orders for creation units of the fund made after 11:00 a.m. (Eastern time) on April 14, 2010 will be transacted at post-reverse split values. The fund’s net asset value struck at 10:00 a.m. (Eastern time) on April 15, 2010 will reflect post-reverse split values.
For example, a single create/redeem order entered in UltraShort Gold prior to 9 a.m. on April 14, 2010, will have a total value of approximately $497,000 (based on 4/12 prices). A single order placed after 11 a.m. on 4/14 (for 4/15 NAV) for the same fund will have a total value of approximately $2.485m.
The IIV file for ProShares UltraShort Gold that is posted on the night of April 14, 2010, will reflect the post-reverse split values.