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Registration Nos. 333-28339
811-08239
As filed with the Securities and Exchange Commission on October 29, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. 3 (X)
Post-Effective Amendment No. ___ ( )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 3 (X)
PROFUNDS
(Exact Name of Registrant as Specified in Charter)
7900 Wisconsin Avenue, Suite 300
Bethesda, Maryland 20814
(Address of Principal Executive Offices) (Zip Code)
(301) 657-1970
(Registrant's Telephone Number, Including Area Code)
Michael L. Sapir, Chairman with a copy to:
ProFund Advisors LLC George O. Martinez, Esq
7900 Wisconsin Avenue, Suite 300 BISYS Fund Services
Bethesda, Maryland 20814 3435 Stelzer Road
(Name and Address of Agent for Service of Process) Columbus, Ohio 43219
Approximate Date of Commencement of the Proposed Public Offering of the
Securities:
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
hereby elects to register an indefinite number of shares of beneficial interest.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until 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 the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
Cash Management Portfolio has also executed this Registration Statement.
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PROFUNDS
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
Form N-1A Item No. Location in Registration Statement
------------------ ----------------------------------
Part A: Information Required in Prospectus
------------------------------------------
1. Cover Page Outside Front Cover Page of Prospectus
2. Synopsis Overview; Fees and Expenses
3. Condensed Financial Information Not Applicable
4. General Description of Registrant General Information about the Trust;
Investment Objectives; Investment
Policies and Techniques; Special
Considerations
5. Management of the Fund Management of the Trust
6. Capital Stock and Other Securities Dividends and Distributions; Taxes
7. Purchase of Securities Being Offered Shareholders Guide
8. Redemption or Repurchase Shareholders Guide
9. Legal Proceedings Not Applicable
Part B: Information Required in
Statement of Additional Information
-----------------------------------
10. Cover Page Outside Front Cover Page of Statement
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Policies and Techniques
14. Management of the Registrant Management of ProFunds
15. Control Persons and Principal Principal Holders of the Trust
Holders of Securities
16. Investment Advisory and Other Management of ProFunds
Services
17. Brokerage Allocation and Brokerage Portfolio Transactions
18. Capital Stock and Other Securities Not Applicable
19. Purchase, Redemption, and Not Applicable
Pricing of Securities Being Offered
20. Tax Status Not Applicable
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21. Underwriters Management of the Trust
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
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PART A
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SUBJECT TO COMPLETION
OCTOBER ___, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROFUNDS
7900 Wisconsin Avenue, Suite 300
Bethesda, Maryland 20814
(888) 776-5717 (Registered Investment Advisers Only)
(888) PRO-FNDS ((888) 776-3637) (For All Others)
This prospectus describes six ProFunds. Each ProFund offers two classes
of shares: Adviser Shares and Investor Shares. The ProFunds may be used by
professional money managers and investors as part of an asset-allocation or
market-timing investment strategy or to create specified investment exposure to
a particular segment of the securities market or to hedge an existing investment
portfolio. Sales are made without any sales charge at net asset value. Each
non-money-market ProFund seeks investment results that correspond each day to a
specified benchmark. The ProFunds may be used independently or in combination
with each other as part of an overall investment strategy. Additional ProFunds
may be created from time to time.
The following are the non-money market ProFunds and their benchmarks:
FUND BENCHMARK
Bull ProFund S&P 500 Composite Stock Price Index(TM)
("S&P 500 Index")
UltraBull ProFund Twice (200%) the performance of the S&P 500
Index
Bear ProFund Inverse (opposite) of the performance of
the S&P 500 Index
UltraBear ProFund Twice (200%) of the inverse (opposite) of
the performance of the S&P 500 Index
UltraOTC ProFund Twice (200%) of the performance of the
NASDAQ 100 Index
The ProFunds also include the Money Market ProFund. The Money Market
ProFund seeks a high level of current income consistent with liquidity and
preservation of capital through investment in high quality money market
instruments. UNLIKE OTHER MUTUAL FUNDS (AND THE OTHER PROFUNDS), THE MONEY
MARKET PROFUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS
INVESTABLE ASSETS IN THE CASH MANAGEMENT PORTFOLIO (THE "PORTFOLIO"), A SEPARATE
INVESTMENT COMPANY WITH AN IDENTICAL INVESTMENT OBJECTIVE. THE PERFORMANCE OF
THE MONEY MARKET PROFUND WILL CORRESPOND DIRECTLY TO THE INVESTMENT PERFORMANCE
OF THE PORTFOLIO. SHARES OF THE MONEY MARKET PROFUND ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, AND ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND AN
INVESTMENT IN THIS PROFUND IS NEITHER INSURED NOR GUARANTEED BY THE UNITED
STATES GOVERNMENT. THE MONEY MARKET PROFUND SEEKS TO MAINTAIN A CONSTANT $1.00
NET ASSET VALUE PER SHARE, ALTHOUGH THIS CANNOT BE ASSURED.
The ProFunds involve special risks, some not traditionally associated
with mutual funds. Investors should carefully review and evaluate these risks in
considering an investment in the ProFunds to determine whether an investment in
the ProFunds is appropriate. None of the ProFunds alone constitutes a balanced
investment plan and the non-money market ProFunds are not intended for investors
whose principal objective is current income or preservationof capital. See
"Special Risk Considerations." Because of the inherent risks in any investment,
there can be no assurance that the ProFunds' investment objectives will be
achieved.
Investors should read this Prospectus and retain it for future
reference. This Prospectus is designed to set forth concisely the information an
investor should know about the ProFunds before investing. A Statement of
Additional Information, dated October ___, 1997, containing additional
information about ProFunds has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. A copy of this Statement of
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Additional Information is available, without charge, upon request to ProFunds at
the address above or by telephoning ProFunds at the telephone numbers above.
INVESTMENT ADVISORS
PROFUND ADVISORS LLC BANKERS TRUST COMPANY
BULL PROFUND; ULTRABULL PROFUND; CASH MANAGEMENT PORTFOLIO
BEAR PROFUND; ULTRABEAR
PROFUND; ULTRAOTC PROFUND
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October , 1997
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TABLE OF CONTENTS
[to be filed by amendment pursuant to Rule 497c]
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OVERVIEW
PROFUNDS
Each ProFund has its own distinct investment objective. There is, of
course, no guarantee that any mutual fund will achieve its investment objective.
The investment objectives of the ProFunds are as follows:
The Bull ProFund and the UltraBull ProFund. The Bull ProFund's investment
objective is to provide investment returns that correspond to the performance of
the Standard & Poor's 500 Composite Stock Price Index. The UltraBull ProFund's
investment objective is to provide investment returns that correspond to 200% of
the performance of the S&P 500 Index. The UltraBull ProFund should gain more
than the Bull ProFund when the prices of the securities in the S&P 500 Index
rise and lose more when such prices decline.
The Bear ProFund and the UltraBear ProFund. The Bear ProFund's investment
objective is to provide investment results that will inversely correlate to the
performance of the S&P 500 Index. The UltraBear ProFund's investment objective
is to provide investment results that will inversely correlate to 200% of the
performance of the S&P 500 Index.
If the Bear ProFund is successful in meeting its objective, the net asset
value of Bear ProFund shares will increase in direct proportion to any decrease
in the level of the S&P 500 Index. Conversely, the net asset value of Bear
ProFund shares will decrease in direct proportion to any increases in the level
of the S&P 500 Index. The net asset value of shares of the UltraBear ProFund
should increase or decrease approximately twice as much as does that of the Bear
ProFund on any given day.
The UltraOTC ProFund. The investment objective of the UltraOTC ProFund is
to provide investment results that correspond to 200% of the performance of the
NASDAQ 100 Index. The NASDAQ 100 Index includes 100 of the largest non-financial
domestic companies listed on the NASDAQ National Market tier of The NASDAQ Stock
Market.
The Money Market ProFund. The Money Market ProFund seeks, as its investment
objective, a high level of current income consistent with liquidity and
preservation of capital. To achieve its objective, the Money Market ProFund
invests all of its investable assets in the Portfolio, which has the same
investment objective as the Money Market ProFund. This two-tiered investment
approach is commonly referred to as a master-feeder fund structure. See "Special
Information Concerning Master-Feeder Fund Structure."
* * *
A discussion of each ProFund's investment objective(s) and policies is
provided below under "Investment Objectives and Policies", "Investment
Techniques" and "General Information about the Trust -- Fundamental Policies".
SPECIAL RISK CONSIDERATIONS
The ProFunds present certain risks to investors, some that are usually not
associated with mutual funds, which are discussed below and elsewhere in this
Prospectus. Investors should carefully review and evaluate these risks in
considering an investment in the ProFunds to determine whether an investment in
the ProFunds is appropriate. This discussion should be read in conjunction with
the rest of the prospectus and "Special Considerations."
The ProFunds expect that a substantial portion of the assets of the
ProFunds will be derived from professional money managers and investors who
intend to invest in the ProFunds as part of their tactical investment
strategies. These investors are likely to redeem or exchange their ProFund
shares frequently to take advantage of anticipated changes in market conditions.
The strategies employed by ProFund shareholders may result in considerable
assets
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moving in and out of the ProFunds. Consequently, the ProFunds expect that the
ProFunds will experience unusually high portfolio turnover. This portfolio
turnover will likely cause higher expenses and additional costs. Additionally, a
high portfolio turnover may adversely affect the ability of a ProFund to meet
its investment objective. For further information concerning the portfolio
turnover of the ProFunds, see "Investment Objectives and Policies" in this
Prospectus.
Shareholders in the Bear ProFund and the UltraBear ProFund should lose
money while prices of the securities in the S&P 500 Index increase. This is the
opposite likely result expected of investing in a traditional equity mutual fund
in a generally rising stock market.
Investors in the UltraBull ProFund and the UltraBear ProFund employ
leveraged investment techniques. Investors in these ProFunds will experience
magnified losses in market conditions that are adverse to their investment
objectives.
While the ProFunds do not expect that their returns over the course of a
year will deviate adversely from their respective current benchmarks by more
than 10%, certain factors may affect their ability to achieve this correlation.
The ProFunds (other than the Money Market ProFund) may engage in certain
aggressive investment techniques, which may include engaging in short sales and
transactions in futures contracts and options on securities, stock indexes, and
futures contracts. Employing these techniques requires special skills and
knowledge. Also, there may be periods when the ProFunds may not be able to
liquidate their positions. These and other risks are more fully discussed under
"Investment Objectives and Policies" and "Investment Techniques and Other
Investment Policies."
Each non-money-market ProFund is a "non-diversified" series of the
ProFunds. A ProFund is considered "non-diversified" because a relatively high
percentage of the ProFund's assets may be invested in the securities of a
limited number of issuers, primarily within the same economic sector. Such
ProFund's portfolio securities, therefore, may be more susceptible to any single
economic, political, or regulatory occurrence than the portfolio securities of a
more diversified investment company. See "Risk Considerations" for a discussion
of these factors.
PURCHASES, REDEMPTIONS, AND EXCHANGES OF TRUST SHARES
The shares of the ProFunds may be purchased and redeemed, without any sales
or redemption charge, at the next determined net asset value per share of the
ProFund. Purchases of shares may be made by check or wire transfer.
The minimum initial investment in the ProFunds for investors who have
engaged a registered investment adviser with discretionary authority over the
shareholder's account is $5,000. The minimum is $15,000 for all other
shareholders.
Shares of any of the ProFunds may be exchanged at any time for shares of
the same class of any other ProFund, without any charge, on the basis of their
relative net asset values next computed.
See "Shareholders Guide" for more information about buying, exchanging and
redeeming ProFund shares.
Investment Advisors
The investment advisor of the non-money market ProFunds is ProFund Advisors
LLC (the "Advisor"). The Advisor is located in Bethesda, Maryland. See
"Management of the ProFunds." The investment advisor of the Portfolio is Bankers
Trust Company ("Bankers Trust"), a wholly-owned subsidiary of Bankers Trust New
York Corporation.
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ADMINISTRATOR, TRANSFER AGENT, FUND ACCOUNTING AGENT AND CUSTODIAN
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS") acts
as Administrator to the ProFunds. ProFunds Advisers LLC, pursuant to a separate
Administration Agreement, performs certain administrative and shareholder
services on behalf of the ProFunds. BISYS Funds Services, Inc. ("BFSI"), an
affiliate of BISYS, acts as transfer agent and fund accounting agent for the
ProFunds, for which it receives additional fees. UMB Bank, N.A. serves as the
custodian of the ProFunds' securities and other assets.
FEES AND EXPENSES
FEE TABLES
----------
The following table illustrates all expenses and fees that a shareholder of
the ProFunds' INVESTOR Shares will incur in the first year of operations:
<TABLE>
<CAPTION>
MONEY
BULL ULTRABULL BEAR ULTRABEAR ULTRAOTC MARKET
PROFUND PROFUND PROFUND PROFUND PROFUND PROFUND
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Sales Load Imposed On Purchases None None None None None None
Sales Load Imposed On Reinvested
Dividends None None None None None None
Deferred Sales Load None None None None None None
Redemption Fees (1) None None None None None None
Exchange Fees None None None None None None
Annual Fund Operating Expenses:
Advisory Fees 0.75% 0.75% 0.75% 0.75% 0.75% 0.15%(2)
12b-1 Fees None None None None None None
Other Expenses(3)(4) 0.66% 0.66% 0.66% 0.66% 0.66% 0.82%
Total ProFund Operating Expenses 1.41% 1.41% 1.41% 1.41% 1.41% 0.97%
</TABLE>
The following table illustrates all expenses and fees that a shareholder of
the ProFunds' Adviser Shares will incur in the first year of operations:
<TABLE>
<CAPTION>
MONEY
BULL ULTRABULL BEAR ULTRABEAR ULTRAOTC MARKET
PROFUND PROFUND PROFUND PROFUND PROFUND PROFUND
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None None None None None None
Sales Load Imposed on Reinvested
Dividends None None None None None None
Deferred Sales Load None None None None None None
Redemption Fees (1) None None None None None None
Exchange Fees None None None None None None
Annual Fund Operating Expenses:
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees 0.75% 0.75% 0.75% 0.75% 0.75% 0.15%(2)
12b-1 Fees None None None None None None
Other Expenses(3)(4) 1.66% 1.66% 1.66% 1.66% 1.66% 1.82%
Total ProFund Operating Expenses 2.41% 2.41% 2.41% 2.41% 2.41% 1.97%
</TABLE>
1) The ProFunds charge $15 for each wire transfer of redemption proceeds; this
charge may be waived at the discretion of the ProFunds.
2) The Portfolio pays Bankers Trust a .15% advisory fee, of which the Money
Market ProFund bears its pro rata portion. The Trust's Board of Trustees
believes that the aggregate per share expenses of the Money Market ProFund
and the Portfolio will be approximately equal to the expenses the Fund
would incur if its assets were invested directly in money market
securities.
3) Based on estimated expenses to be incurred in the ProFunds' first year of
operations. Other expenses include fees of .15% (.35% in the case of the
Money Market ProFund) for administration and shareholder services, and in
the case of the Portfolio, an administration and services fee of .05%. The
fee under each ProFund's Shareholder Services Plan is calculated on the
basis of the average net assets of each ProFund's Adviser Shares at an
annual rate not to exceed 1.00%.
4) Without waiver of administration fees, "Other Expenses" and "Total
Operating Expenses" would be 0.71% and 1.46%, respectively, for the
Investor Class and 0.71% and 2.46%, respectively, for the Adviser Class of
the non-money market ProFunds. In the case of the Money Market ProFund,
without waiver of administration fees, the amounts would be 0.87% and
1.02%, respectively for the Investor Class and 0.87% and 2.02%,
respectively for the Adviser Class.
EXAMPLES
- --------
Assuming hypothetical investments of $1,000 in Investor Shares of each of
the ProFunds, a 5% annual return, and redemption at the end of each time period,
an investor in each of the ProFunds would pay operating expenses as follows:
1 Year 3 Years
Bull ProFund $14 $45
UltraBull ProFund 14 45
Bear ProFund 14 45
UltraBear ProFund 14 45
UltraOTC ProFund 14 45
Money Market ProFund 10 31
Assuming hypothetical investments of $1,000 in Adviser Shares of each of
the ProFunds, a 5% annual return, and redemption at the end of each time period,
an investor in each of the ProFunds would pay operating expenses as follows:
1 Year 3 Years
Bull ProFund $24 $75
UltraBull ProFund 24 75
Bear ProFund 24 75
UltraBear ProFund 24 75
UltraOTC ProFund 24 75
Money Market ProFund 20 62
The preceding tables of fees and expenses are provided to assist investors
in understanding the various costs and expenses which may be borne directly or
indirectly by an investor in each of the ProFunds' Adviser Shares and Investor
Shares. The fees and expenses of the Money Market ProFund reflect the expenses
of both that ProFund and its pro rata share of the expenses of the Portfolio.
The percentages shown above are based on estimates. The 5% assumed annual return
is for comparison purposes only. For a more complete discussion of the fees
connected with an investment in the ProFunds and the services provided to the
ProFunds, see "Management of the ProFunds" in this Prospectus and in the
Statement of Additional Information. THE PRECEDING EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
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SHAREHOLDERS GUIDE
HOW TO INVEST IN THE PROFUNDS
GENERAL
The shares of each ProFund are offered at the net asset value per share
next computed after receipt of the investor's order. No sales charges are
imposed on initial or subsequent investments in a ProFund. See "Determination of
Net Asset Value".
MINIMUM INVESTMENT
The minimum initial investment in the ProFunds for investors who have
engaged a registered investment adviser with discretionary authority over the
shareholder's account is $5,000. For all other shareholder accounts
("Self-Directed Accounts"), the minimum initial investment in the ProFunds is
$15,000. These minimums apply to retirement plan accounts and are determined
based upon the total investment in all ProFunds. ProFunds, at its discretion,
may accept lesser amounts in certain circumstances. There is no minimum amount
for subsequent investments, other than those made pursuant to the automatic
investment plan, in a ProFund. ProFunds reserves the right to reject or refuse,
at ProFunds' discretion, any order for the purchase of a ProFund's shares in
whole or in part.
HOW TO INVEST BY MAIL
Fill out an application and make out a check payable to "ProFunds." Mail
the check along with the application to:
ProFunds
P.O. Box 182800
Columbus, OH 43218-2800
HOW TO INVEST BY WIRE TRANSFER
New accounts opened by Self-Directed Accounts with initial minimum
purchases of $50,000 and by registered investment advisers, may use the
following procedures. First, fill out an application and fax the completed
application, along with the request for a confirmation number to the ProFunds at
(800) 782-4797. Once you have received your confirmation number, you must
then request that your bank wire transfer the purchase amount to the applicable
ProFund along with the following instructions:
Request a wire transfer to:
UMB BANK, N.A.
Routing Number:
For Account of ProFunds
Account Number:
YOUR NAME
YOUR CONFIRMATION NUMBER
After instructing your bank to transfer money by wire, call the ProFunds at
888-PRO-FNDS and inform the ProFunds as to the amount that you have transferred
and the name of the bank sending the transfer. Wire transfer requests may be
made between 8:00 AM and 9:00 PM Eastern Time. However, wire transfers must be
received by 3:30 PM Eastern Time to receive that day's net asset value. Wire
transfer requests received after 3:30 PM Eastern Time are deemed to be received
on the next business day of ProFunds and will be placed at the next determined
net asset value on the next business day. If the primary exchange or market on
which a ProFund transacts business closes early, the above cut-off time will be
thirty minutes prior to the close of such exchange or market. Your bank
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may charge a fee for such services. Instructions, written or telephonic, given
to ProFunds for wire transfer requests do not constitute a purchase order until
the wire transfer has been received by ProFunds. ProFunds is not liable for any
loss incurred due to a wire transfer not having been received.
PURCHASE THROUGH SECURITIES DEALERS
Investments in the ProFunds may be made through securities dealers who have
the responsibility to transmit orders promptly and who may charge a processing
fee.
HOW TO EXCHANGE SHARES OF THE PROFUNDS
Shares of any ProFunds may be exchanged, without any charge, for shares of
the same class of any other ProFunds on the basis of the respective net asset
values of the shares involved. Exchanges may be made by letter or by telephone
at the address or numbers indicated on the cover of this Prospectus. Telephone
requests may be made between 8:00 AM and 9:00 PM Eastern Time. However,
telephone exchanges must be received by 3:45 PM Eastern Time to receive that
day's net asset value. Exchange requests received after 3:45 PM Eastern Time are
deemed to be received on the next business day of ProFunds and will receive the
next determined net asset value on the next business day. If the primary
exchange or market on which a ProFund transacts business closes early, the above
cut-off time will be fifteen minutes prior to the close of such exchange or
market.
Exchanges with respect to Self-Directed Accounts must be for at least
$1,000 or 100% of the account value for the ProFund, whichever is less, from
which the transfer is made. See "Special Information Regarding Telephone
Requests for Redemptions and Exchanges".
To implement an exchange, shareholders must provide the following
information:
-- Name and telephone number;
-- Account name and number;
-- Taxpayer identification number;
-- Number of or percentage of shares or dollar value of shares to be
exchanged;
-- The name of the ProFunds from which the exchange is to be made; and
-- The name of the ProFunds to which the exchange is to be made.
The privilege to initiate exchange transactions by telephone will be made
available to ProFund shareholders automatically. Exchanges may only be made
between identically registered accounts. The exchange privilege is available
only in states where the exchange legally may be made and may be modified or
discontinued at any time. In addition, see "Special Information Regarding
Written and Telephone Requests for Redemptions and Exchanges" regarding
instructions received by telephone.
HOW TO WITHDRAW MONEY (REDEEM SHARES)
GENERAL
An investor can withdraw all or any portion of his investment by redeeming
ProFund shares at the next-determined net asset value per share after receipt of
the order. Withdrawals may be made by letter or by telephone at the address or
numbers indicated on the cover of this Prospectus. Telephone requests for
redemptions may be made between 8:00 AM and 9:00 PM Eastern Time. However,
telephone redemptions must be received by 3:45 PM Eastern Time to receive that
day's net asset value. Redemption requests received after 3:45 PM Eastern Time
are deemed to be received on the next business day of ProFunds and will be
placed at the next determined net asset value on the next business day. If the
primary exchange or market on which a ProFund transacts business closes early,
the above cut-off time will be thirty minutes prior to the close of such
exchange or market.
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The privilege to initiate redemption transactions by telephone will be made
available to ProFund shareholders automatically. Redemptions from Self-Directed
Accounts must be for at least $1,000 or 100% of the account value for the
ProFund, whichever is less, from which the transfer is made.
Payment of the redemption proceeds will be made within seven days after the
ProFunds' receipt of the request for redemption. For investments that have been
made by check, payment on withdrawal requests will be delayed until the
ProFunds' transfer agent is reasonably satisfied that the purchase payment has
been collected by the ProFunds (which may require up to 15 business days). An
investor may avoid a delay in receiving redemption proceeds by purchasing shares
with a certified check.
WIRE OF WITHDRAWALS
Shareholders may request payment by wire of withdrawal proceeds from a
ProFund. The ProFunds charge $15 for each wire transfer of redemption proceeds;
this charge may be waived at the discretion of the ProFunds.
DRAFT CHECKS
Investors may elect to redeem shares of the Money Market ProFund by draft
check (minimum check - $500) made payable to the order of any person or
institution. Upon the ProFunds' receipt of a completed signature card, investors
will be supplied with draft checks which are drawn on the Money Market ProFund's
account. There is a $25 charge for each stop payment request on the draft
checks. Investors are subject to the same rules and regulations that banks apply
to checking accounts. A Money Market ProFund account may not be closed by draft
check. This option is not available to IRA shareholders.
REDEMPTIONS TO THIRD PARTY OR OTHER ADDRESS
Telephone redemptions are sent only to the address of record of the
redeeming investor or to bank accounts specified by the redeeming investor in
his account application. If the investor desires payment of redemption proceeds
to a third party or to a location other than the investor's address of record or
a bank account specified in the investor's account application, this request
must be in writing, and the investor's signature must be guaranteed by a
commercial bank, a broker, dealer, municipal securities dealer, municipal
securities broker, government securities dealer, or government securities
broker, a credit union, a national securities exchange, registered securities
association, or clearing agency, or a savings association.
SPECIAL INFORMATION REGARDING TELEPHONE REQUESTS FOR REDEMPTIONS AND EXCHANGES
When acting on telephone instructions believed to be genuine, the ProFunds
will not be liable for any loss resulting from a fraudulent telephone
transaction request and the investor will bear the risk of any such loss. The
ProFunds will employ reasonable procedures to confirm the telephone instructions
are genuine; and if the ProFunds do not employ such procedures, then the
ProFunds may be liable for any losses due to unauthorized or fraudulent
instructions. The ProFunds follow specific procedures for transactions initiated
by telephone, including, among others, requiring some form of personal form of
identification prior to acting upon instructions received by telephone,
providing written confirmation not later than 5 business days after such
transaction and/or tape recording of telephone instructions.
Investors also should be aware that telephone redemptions or exchanges may
be difficult to implement in a timely manner during periods of drastic economic
or market changes. If such conditions occur, redemption or exchange orders can
be made by mail. Telephone redemption and exchange privileges may be terminated
or modified by the ProFunds at any time.
HOW TO MAKE AUTOMATIC INVESTMENTS, EXCHANGES AND WITHDRAWALS
Investors may also purchase and redeem ProFund shares by arranging
systematic monthly, bimonthly, quarterly or annual investments into the
ProFunds(the "Automatic Investment Plan"), and redemptions from the ProFunds
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(the "Automatic Withdrawal Plan"). The minimum investment amounts are $1,000 per
transfer and minimum withdrawal amounts are $500 per transfer. These minimums
are waived for IRA shareholders 70-1/2 or older. Additionally, investors may
exchange, on a regular basis, shares of the Money Market ProFund for shares of
other ProFunds through ProFunds' Automatic Exchange Plan. For more information,
including terms and conditions, about automatic investment, exchange and
withdrawal features, please call the ProFunds at 888-PRO-FNDS.
DIVIDENDS AND DISTRIBUTIONS
GENERAL
All income dividends and capital gains distributions of each ProFund
automatically will be reinvested in additional shares of the ProFund at the net
asset value calculated on the ex-dividend date, unless an investor has requested
otherwise in writing. Dividends and distributions of a ProFund are taxable to
the shareholders of the ProFund, as discussed below under "Taxes," whether such
dividends and distributions are reinvested in additional shares of the ProFund
or received in cash. Statements of account will be sent to the ProFund
shareholders at least quarterly.
ALL PROFUNDS EXCEPT MONEY MARKET PROFUND
The ProFunds other than the Money Market ProFund intend to distribute
annually any net investment income and net realized capital gains to
shareholders. The ProFunds may declare a special distribution for any of these
ProFunds if the ProFunds believe that such a distribution would be in the best
interests of its shareholders.
MONEY MARKET PROFUND
Shares begin accruing dividends on the day the purchase order is received
in proper form by the Transfer Agent, and continue to earn dividends through the
day before a redemption order for such shares is processed by the Transfer
Agent. The Money Market ProFund ordinarily (i) declares dividends of net
investment income (and net short-term capital gains, if any) for shares of the
Money Market ProFund on a daily basis and (ii) distributes such dividends to
shareholders of the Money Market ProFund on a monthly basis. Net realized
capital gains will be distributed annually. The Money Market ProFund's net
investment income consists of its share of the Portfolio's dividends and
interest (including discount) accrued on its securities, less applicable
expenses. The Money Market ProFund, however, may revise this dividend and
distribution policy, postpone the payment of dividends thereunder, or take any
other action necessary with respect thereto in order to facilitate, to the
extent possible, the maintenance by the Money Market ProFund of a constant net
asset value per share of $1.00.
TAX-SHELTERED RETIREMENT PLANS
ProFunds sponsors IRAs which enable individuals to establish their own
retirement program (including spousal IRAs, Rollover IRAs, SEP IRAs and Simple
IRAs). Fund-sponsored retirement plans are charged an annual $15.00 maintenance
fee and receive tax reporting services. In addition, investors in the following
retirement plans are eligible to invest in ProFunds:
-- Keogh Accounts - Defined Contribution Plans (Profit-Sharing Plans)
-- Keogh Accounts
-- Money Purchase Plans
-- Pension Plans
-- Internal Revenue Code Section 403(b) Plans
All ProFunds' IRA distribution requests must be made in writing to the
transfer agent. Any additional deposits to the ProFunds must distinguish the
type and year of the contribution.
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For more information on ProFunds IRAs, or any other retirement plan, please
call the ProFunds at 888-PRO-FNDS. Shareholders are advised to consult a tax
adviser on ProFunds IRA contribution and withdrawal requirements and
restrictions.
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MISCELLANEOUS
INVOLUNTARY REDEMPTIONS OF SMALL ACCOUNTS
Because of the administrative expense of handling small accounts, the
ProFunds reserve the right to redeem involuntarily an investor's account,
including a retirement account, which falls below the applicable minimum
investment in total value in the ProFunds due to redemptions. In addition, both
a request for a partial redemption by an investor whose account balance is below
the minimum investment and a request for a partial redemption by an investor
that would bring the account balance below the minimum investment will be
treated as a request by the investor for a complete redemption of that account.
Investors holding shares in a retirement account should be aware that any
redemption from a retirement account may result in tax consequences including,
but not limited to, a 10% penalty on the amount withdrawn if the shareholder is
under the age of 59-1/2. Shareholders should consult with their tax advisers if
they are not familiar with such tax consequences. The ProFunds reserve the right
to modify their minimum investment requirements and the corresponding amounts
below which involuntary redemptions may be effected.
SUSPENSION OF REDEMPTIONS
The right of redemption may be suspended, or the date of payment postponed:
(i) for any period during which the New York Stock Exchange ("NYSE"), the
Federal Reserve Bank of New York (the "New York Fed"), the NASDAQ or the Chicago
Mercantile Exchange ("CME"), as appropriate, is closed (other than customary
weekend or holiday closings) or trading on the NYSE, the NASDAQ, or the CME, as
appropriate, is restricted; (ii) for any period during which an emergency exists
so that disposal of a ProFund's investments or the determination of its net
assetvalue is not reasonably practicable; or (iii) for such other periods as the
Securities and Exchange Commission (the "Commission"), by order, may permit for
protection of the ProFunds' investors.
"UNDELIVERABLE" OR "UNCASHED" DIVIDEND CHECKS
If you elect to receive distribution in cash and checks (1) are returned
and marked as "undeliverable" or (2) remain uncashed for six months, your cash
election will be changed automatically and your future dividend and capital
gains distributions will be reinvested in the ProFunds at the per share net
asset value determined as of the date of payment of the distribution. In
addition, any undeliverable checks or checks that remain uncashed for six months
will be canceled and will be reinvested in the ProFunds at the per share net
asset value determined as of the date of cancellation.
TRANSACTION CHARGES
In addition to charges described elsewhere in this Prospectus, the ProFunds
also may make a charge of $25 for items returned for insufficient or
uncollectible funds.
NO CERTIFICATES
In the interest of economy and convenience, physical certificates
representing a ProFund's shares are not issued. Shares of each ProFund are
recorded on a register by the ProFunds' transfer agent.
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SPECIAL CONSIDERATIONS
The ProFunds present certain risks, some not typically associated with
mutual funds. Shareholders should consider the special factors discussed below
that are associated with the investment policies of the ProFunds in determining
the appropriateness of investing in the ProFunds.
PORTFOLIO TURNOVER
The ProFunds anticipate that their investors, as part of an
asset-allocation or market-timing investment strategy, will frequently exchange
their shares of a particular ProFund for shares in other ProFunds pursuant to
theexchange policy, the ProFunds (see "How to Exchange Shares of ProFunds"),
which would cause that ProFund to experience high portfolio turnover. A higher
portfolio turnover rate would likely involve correspondingly greater brokerage
commissions and other expenses which would be borne by the ProFunds. In
addition, a ProFund's portfolio turnover level may adversely affect the ability
of the ProFund to achieve its investment objective. Pursuant to the formula
prescribed by the Commission, the portfolio turnover rate for each ProFund is
calculated without regard to instruments, including options and futures
contracts, having a maturity of less than one year. The Bull ProFund, the
UltraBull ProFund, the Bear ProFund and the UltraBear ProFund typically hold
most of their investments in short-term options and futures contracts which are
excluded for purposes of computing portfolio turnover. Therefore, based on the
Commission's portfolio turnover formula, each of these ProFunds expects a
portfolio turnover rate of approximately 0%.
TRACKING ERROR
While the ProFunds do not expect that their returns over a year will
deviate adversely from their respective benchmarks by more than ten percent,
several factors may affect their ability to achieve this correlation. Among
these factors are: (1) ProFund expenses, including brokerage (which may be
increased by high portfolio turnover) and the cost of the investment techniques
employed by the ProFunds; (2) less than all of the securities in the benchmark
being held by a ProFund and securities not included in the benchmark being held
by a ProFund; (3) an imperfect correlation between the performance of
instruments held by a ProFund, such as futures contracts and options, and the
performance of the underlying securities in the cash market; (4) bid-ask spreads
(the effect of which may be increased by portfolio turnover); (5) a ProFund
holds instruments traded in a market that has become illiquid or disrupted; (6)
ProFund share prices being rounded to the nearest cent; (7) changes to the
benchmark index that are not disseminated in advance; (8) the need to conform a
ProFund's portfolio holdings to comply with investment restrictions or policies
or regulatory or tax law requirements, and (9) early and unanticipated closings
of the markets on which the holdings of a ProFund trade, resulting in the
inability of the ProFund to execute intended portfolio transactions. While a
close correlation of any ProFund to its benchmark may be achieved on any single
trading day, over time the cumulative percentage increase or decrease in the net
asset value of the shares of a ProFund may diverge significantly from the
cumulative percentage decrease or increase in the benchmark due to a compounding
effect.
AGGRESSIVE INVESTMENT TECHNIQUES
Each of the ProFunds (other than the Money Market ProFund) may engage in
certain aggressive investment techniques which may include engaging in short
sales and transactions in futures contracts and options on securities,
securities indexes, and futures contracts. These ProFunds expect that they will
primarily use these techniques in seeking to achieve their objectives and that a
significant portion (up to 100%) of the assets of these ProFunds will be held in
liquid instruments in a segregated account by these ProFunds as "cover" for
these investment techniques.
Participation in the options or futures markets by a ProFund involves
distinct investment risks and transaction costs. Risks inherent in the use of
options, futures contracts, and options on futures contracts include: (1)
adverse changes in the value of such instruments; (2) imperfect correlation
between the price of options and futures contracts and options thereon and
movements in the price of the underlying securities, index, or futures
contracts; (3) the fact that the skills needed to use these strategies are
different from those needed to select portfolio securities;
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and (4) the possible absence of a liquid secondary market for any particular
instrument at any time. For further information regarding these investment
techniques, see "Investment Techniques and Other Investment Policies."
LEVERAGE
The Ultra Bull ProFund and the Ultra Bear ProFund intend to regularly use
leveraged investment techniques in pursuing their investment objectives.
Utilization of leveraging involves special risks and should be considered
speculative. Leverage exists when a ProFund achieves the right to a return on a
capital base that exceeds the investment the ProFund has invested. Leverage
creates the potential for greater capital gains to shareholders of these
ProFunds during favorable market conditions and the risk of magnified capital
losses during adverse market conditions. Leverage should cause higher volatility
of the net asset values of these ProFunds' shares. Leverage may involve the
creation of a liability that does not entail any interest costs or the creation
of a liability that requires the ProFund to pay interest which would decrease
the ProFund's total return to shareholders. If these ProFunds achieve their
investment objectives, during adverse market conditions, shareholders should
experience a loss of approximately twice the amount they would have incurred had
these ProFunds not been leveraged.
NON-DIVERSIFIED STATUS
Each non-money-market ProFund is a "non-diversified" series. A non-money
market ProFund is considered "non-diversified" because a relatively high
percentage of the ProFund's assets may be invested in the securities of a
limited number of issuers, primarily within the same economic sector. That
ProFund's portfolio securities, therefore, may be more susceptible to any single
economic, political, or regulatory occurrence than the portfolio securities of a
more diversified investment company. A ProFund's classification as a
"non-diversified" investment company means that the proportion of the ProFund's
assets that may be invested in the securities of a single issuer is not limited
by the Investment Company Act of 1940 (the "1940 Act"). The Trust, however,
intends to seek to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code, which imposes diversification requirements on these
ProFunds that are less restrictive than the requirements applicable to the
"diversified" investment companies under the 1940 Act.
INVESTMENT OBJECTIVES
GENERAL
The ProFunds may be used by professional money managers and investors as
part of an asset-allocation or market-timing investment strategy or to create
specified investment exposure to a particular segment of the securities market
or to hedge an existing investment portfolio. Except for the Money Market
ProFund, each ProFund seeks investment results that correspond each day to a
specified benchmark. The ProFunds may be used independently or in combination
with each other as part of an overall investment strategy. Additional ProFunds
may be created from time to time.
Fundamental securities analysis is not generally used by the Advisor in
seeking to correlate with the respective benchmarks. Rather, the Advisor
primarily uses statistical and quantitative analysis to determine the
investments the ProFund makes and techniques it employs. While the Advisor
attempts to minimize any "tracking error" (that statistical measure of the
difference between the investment results of a ProFund and the performance of
its benchmark), certain factors will tend to cause the ProFunds' investment
results to vary from a perfect correlation to its benchmark. The ProFunds,
however, do not expect that their total returns will vary adversely from their
respective current benchmarks by more than ten percent over the course of a
year. See "Special Considerations."
It is the policy of the non-money-market ProFunds to pursue their
investment objectives of correlating with their benchmarks regardless of market
conditions, to remain nearly fully invested and not to take defensive positions.
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BENCHMARKS OF THE PROFUNDS
The S&P 500 Index. Standard & Poor's Corporation chooses the 500 stocks
composing the S&P 500 Index on the basis of market values and industry
diversification. Most of the stocks in the S&P 500 Index are issued by the
500largest companies, in terms of the aggregate market value of their
outstanding stock, and such companies are generally listed on the NYSE.
Additional stocks that are not among the 500 largest market value stocks are
included in the S&P 500 Index for diversification purposes. The S&P 500 Index as
referred to in this Prospectus does not include the effect of dividends paid on
the stock of the companies included in the index. S&P will not be a sponsor of,
or in any other way be affiliated with, the ProFunds.
The NASDAQ 100 Index. The NASDAQ 100 Index includes 100 of the largest
non-financial domestic companies listed on the NASDAQ National Market tier of
The NASDAQ Stock Market. Launched in January 1985, each security in the Index is
proportionately represented by its market capitalization in relation to the
total market value of the NASDAQ 100 Index. The NASDAQ 100 Index reflects
NASDAQ's largest growth companies across major industry groups. All index
components have a minimum market capitalization of $500 million, and an average
daily trading volume of at least 100,000 shares. NASDAQ will not be a sponsor
of, or in any other way be affiliated with, the ProFunds.
THE BULL PROFUND AND ULTRABULL PROFUND
The investment objective of the Bull ProFund is to provide investment
returns that correspond to the performance of the S&P 500 Index. The investment
objective of the UltraBull ProFund is to provide investment returns that
correspond to 200% of the performance of the S&P 500 Index. These ProFunds seek
to achieve this correlation on each trading day. Under their investment
objectives, the UltraBull ProFund should produce greater gains to investors when
the S&P 500 Index rises and greater losses when the S&P 500 Index declines over
the corresponding gain or loss of the Bull ProFund.
In attempting to achieve their objectives, the Bull ProFund and the
UltraBull ProFund expect that a substantial portion of their respective assets
usually will be devoted to employing certain specialized investment techniques.
These techniques include engaging in certain transactions in stock index futures
contracts, options on stock index futures contracts, and options on securities
and stock indexes. The amount of any gain or loss on an investment technique may
be affected by any premium or amounts in lieu of dividends or interest income
the ProFund pays or receives as the result of the transaction. These ProFunds
may also invest in shares of individual securities which are expected to track
the S&P 500 Index.
THE BEAR PROFUND AND ULTRABEAR PROFUND
The Bear ProFund and the UltraBear ProFund are designed to allow investors
to speculate on anticipated decreases in the S&P 500 Index or to hedge an
existing portfolio of securities or mutual fund shares. The Bear ProFund's
investment objective is to provide investment results that will inversely
correlate to the performance (100%) of the S&P 500 Index. The UltraBear
ProFund's investment objective is to provide investment results that will
inversely correlate to 200% of the performance of the S&P 500 Index. These
ProFunds seek to achieve this inverse correlation on each trading day.
If the Bear ProFund achieved a perfect inverse correlation for any single
trading day, the net asset value of the shares of the Bear ProFund would
increase for that day in direct proportion to any decrease in the level of the
S&P 500 Index. Conversely, the net asset value of the shares of the Bear ProFund
would decrease for that day in direct proportion to any increase in the level of
the S&P 500 Index for that day. The net asset value of the UltraBear ProFund on
the same days would increase or decrease approximately twice as much as the
price change of the Bear ProFund.
For example, if the S&P 500 Index were to decrease by 1% on a particular
day, investors in the Bear ProFund should experience a gain in net asset value
of approximately 1% for that day. The UltraBear ProFund should realize an
increase of approximately 2% of its net asset value on the same day. Conversely,
if the S&P 500 Index were to
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increase by 1% by the close of business on a particular trading day, investors
in the Bear ProFund and the UltraBear ProFund would experience a loss in net
asset value of approximately 1% and 2%, respectively.
Due to the nature of the Bear ProFund and the UltraBear ProFund, investors
in these ProFunds could experience substantial losses during sustained periods
of rising equity prices, with losses to investors in the UltraBear ProFund
approximately twice as much as the losses to investors in the Bear Fund.
In pursuing its investment objective, the Bear ProFund generally does not
invest in traditional securities, such as common stock of operating companies.
Rather, the Bear ProFund employs certain investment techniques, including
engaging in short sales and in certain transactions in stock index futures
contracts, options on stock index futures contracts, and options on securities
and stock indexes.
Under these techniques, the Bear ProFund and the UltraBear ProFund will
generally incur a loss if the price of the underlying security or index
increases between the date of the employment of the technique and the date on
which the ProFund terminates the position. These ProFunds will generally realize
a gain if the underlying security or index declines in price between those
dates. The amount of any gain or loss on an investment technique may be affected
by any premium or amounts in lieu of dividends or interest that the ProFund pays
or receives as the result of the transaction.
THE ULTRAOTC PROFUND
The investment objective of the UltraOTC ProFund is to provide investment
results that correspond to 200% of the performance of the NASDAQ 100 Index.
The UltraOTC ProFund does not intend to hold the 100 securities included in
the NASDAQ 100 Index. Instead, the UltraOTC ProFund intends to engage in
transactions on stock index futures contracts, options on stock index futures
contracts, and options on securities and stock indexes. As a nonfundamental
policy, the UltraOTC ProFund will invest, under normal conditions, at least 65%
of its total assets in the foregoing securities, instruments and transactions.
Companies whose securities are traded on the over-the-counter ("OTC")
markets generally have smaller market capitalization or are newer companies than
those listed on the NYSE or the American Stock Exchange (the "AMEX"). OTC
companies often have limited product lines, or relatively new products or
services, and may lack established markets, depth of experienced management, or
financial resources and the ability to generate funds. The securities of these
companies may have limited marketability and may be more volatile in price than
securities of larger capitalized or more well-known companies. Among the reasons
for the greater price volatility of securities of certain smaller OTC companies
are the less certain growth prospects of comparably smaller firms, the lower
degree of liquidity in the OTC markets for such securities, and the greater
sensitivity of smaller capitalized companies to changing economic conditions
than larger capitalized, exchange-traded securities. Conversely, because many of
these OTC securities may be overlooked by investors and undervalued in the
marketplace, there is potential for significant capital appreciation.
THE MONEY MARKET PROFUND
The Money Market ProFund seeks a high level of current income consistent
with liquidity and preservation of capital through investment in high quality
money market instruments. The Money Market ProFund offers investors a convenient
means of diversifying their holdings of short-term securities while relieving
those investors of the administrative burdens typically associated with
purchasing and holding these instruments, such as coordinating maturities and
reinvestments, providing for safekeeping and maintaining detailed records. High
quality, short-term instruments may result in a lower yield than instruments
with a lower quality and a longer term.
The Money Market ProFund seeks to achieve its investment objective by
investing the assets of the Money Market ProFund in the Portfolio, which has the
same investment objective as the Money Market ProFund and is managed by Bankers
Trust Company ("Bankers Trust"), 280 Park Avenue, New York, New York. There can
be no
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assurances that the investment objective of either the Money Market ProFund or
the Portfolio will be achieved. The investment objective of the Money Market
ProFund and the Portfolio is a fundamental policy and may not be changed without
the approval of the Money Market ProFund's shareholders or the Portfolio's
investors, respectively. See "Special Information Concerning Master-Feeder Fund
Structure" herein.
The Portfolio invests in money market instruments, including corporate debt
obligations, U.S. government securities, bank obligations and repurchase
agreements. See "Investment Techniques--Cash Management Portfolio" discussion of
the Portfolio's investment policies. The Portfolio follows practices which
enable the Money Market ProFund to attempt to maintain a $1.00 share price:
limiting average maturity of the securities held by the Portfolio to 90 days or
less; buying securities which mature in 397 days or less; and buying only high
quality securities with minimal credit risks. Of course, the Money Market
ProFund cannot guarantee a $1.00 share price, but these practices help to
minimize any price fluctuations that might result from rising or declining
interest rates. While the Portfolio invests in high quality money market
securities, you should be aware that your investment is not without risk. All
money market instruments can change in value when interest rates or an issuer's
creditworthiness changes.
INVESTMENT POLICIES AND TECHNIQUES
FUTURES CONTRACTS AND RELATED OPTIONS
The ProFunds (other than the Money Market ProFund) may purchase or sell
stock index futures contracts and options thereon as a substitute for a
comparable market position in the underlying securities. The ProFunds anticipate
that that they will primarily engage in transactions in futures contracts and
related options on the Chicago Mercantile Exchange (the "CME").
A futures contract obligates the seller to deliver (and the purchaser to
take delivery of) the specified commodity on the expiration date of the
contract. A stock index futures contract obligates the seller to deliver (and
the purchaser to take) an amount of cash equal to a specific dollar amount
multiplied by the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made.
When a ProFund purchases a put or call option on a futures contract, the
ProFund pays a premium for the right to sell or purchase the underlying futures
contract for a specified price upon exercise at any time during the option
period. By writing (selling) a put or call option on a futures contract, a
ProFund receives a premium in return for granting to the purchaser of the option
the right to sell to or buy from the ProFund the underlying futures contract for
a specified price upon exercise at any time during the option period.
Whether a ProFund realizes a gain or loss from futures activities depends
generally upon movements in the underlying commodity. The extent of the
ProFund's loss from an unhedged short position in futures contracts or from
writing options on futures contracts is potentially unlimited. The ProFunds may
engage in related closing transactions with respect to options on futures
contracts. The ProFunds will only engage in transactions in futures contracts
and options thereupon that are traded on a United States exchange or board of
trade.
When a ProFund purchases or sells a stock index futures contract, or sells
an option thereon, the ProFund "covers" its position. To cover its position, a
ProFund may enter into an offsetting position or maintain with its custodian
bank (and mark-to-market on a daily basis) a segregated account consisting of
liquid instruments that, when added to any amounts deposited with a futures
commission merchant as margin, are equal to the market value of the futures
contract or otherwise "cover" its position.
Although the ProFunds intend to sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid market
will exist for any particular contract at any particular time. Many futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. 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
day. Futures contract prices could move to the limit for several consecutive
trading days with little or no trading, thereby preventing prompt
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liquidation of futures positions and potentially subjecting a ProFund to
substantial losses. If trading is not possible, or if a ProFund determines not
to close a futures position in anticipation of adverse price movements, the
ProFund will be required to make daily cash payments of variation margin. The
risk that the ProFund will be unable to close out a futures position will be
minimized by entering into such transactions on a national exchange with an
active and liquid secondary market.
INDEX OPTIONS TRANSACTIONS
The ProFunds (other than the Money Market ProFund) may purchase and write
options on stock indexes to create investment exposure consistent with their
investment objectives, hedge or limit the exposure of their positions and to
create synthetic money market positions. See "Taxes" herein.
A stock index fluctuates with changes in the market values of the stocks
included in the index. Options on stock indexes give the holder the right to
receive an amount of cash upon exercise of the option. Receipt of this cash
amount will depend upon the closing level of the stock index upon which the
option is based being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash received, if
any, will be the difference between the closing price of the index and the
exercise price of the option, multiplied by a specified dollar multiple. The
writer (seller) of the option is obligated, in return for the premiums received
from the purchaser of the option, to make delivery of this amount to the
purchaser. All settlements of index options transactions are in cash.
Index options are subject to substantial risks, including the risk of
imperfect correlation between the option price and the value of the underlying
securities composing the stock index selected and the risk that there might not
be a liquid secondary market for the option. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether a ProFund will realize a gain or loss from the
purchase or writing (sale) of options on an index depends upon movements in the
level of stock prices in the stock market generally or, in the case of certain
indexes, in an industry or market segment, rather than upon movements in the
price of a particular stock. Whether a ProFund will realize a profit or loss by
the use of options on stock indexes will depend on movements in the direction of
the stock market generally or of a particular industry or market segment. This
requires different skills and techniques than are required for predicting
changes in the price of individual stocks. A ProFund will not enter into an
option position that exposes the ProFund to an obligation to another party,
unless the ProFund either (i) owns an offsetting position in securities or other
options and/or (ii) maintains with the ProFund's custodian bank liquid
instruments that, when added to the premiums deposited with respect to the
option, are equal to the market value of the underlying stock index not
otherwise covered.
OPTIONS ON SECURITIES
The ProFunds (other than the Money Market ProFund), may buy options and
write (sell) options on securities. By buying a call option, a ProFund has the
right, in return for a premium paid during the term of the option, to buy the
securities underlying the option at the exercise price. By writing (selling) a
call option and receiving a premium, a ProFund becomes obligated during the term
of the option to deliver the securities underlying the option at the exercise
price if the option is exercised. By buying a put option, a ProFund has the
right, in return for a premium paid during the term of the option, to sell the
securities underlying the option at the exercise price. By writing a put option,
a ProFund becomes obligated during the term of the option to purchase the
securities underlying the option at the exercise price. Options on securities
written (sold) by the ProFunds will be conducted on recognized securities
exchanges.
A ProFund will realize a gain (or a loss) on a call or a put option
previously purchased by the ProFund if the premium, less commission costs,
received by the ProFund on the sale of the call or the put option to close the
transaction is greater (or less) than the premium, plus commission costs, paid
by the ProFund to purchase the call or the put option. If a put or a call option
which the ProFund has purchased expires out-of-the-money (i.e., the exercise
price of the option is less than the current market value of the underlying
security), the option will become worthless on the expiration date, and the
ProFund will realize a loss in the amount of the premium paid, plus commission
costs.
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Although certain securities exchanges attempt to provide continuously
liquid markets in which holders and writers of options can close out their
positions at any time prior to the expiration of the option, no assurance can be
given that a market will exist at all times for all outstanding options
purchased or sold by a ProFund. If an options market were to become unavailable,
the ProFund would be unable to realize its profits or limit its losses until the
ProFund could exercise options it holds, and the ProFund would remain obligated
until options it wrote were exercised or expired.
Because option premiums paid or received by a ProFund are small in relation
to the market value of the investments underlying the options, buying and
selling put and call options can be more speculative than investing directly in
common stocks.
SHORT SALES
The Bear ProFund and the UltraBear ProFund may engage in short sales
transactions under which the ProFund sells a security it does not own. To
complete such a transaction, the ProFund must borrow the security to make
delivery to the buyer. The ProFund then is obligated to replace the security
borrowed by purchasing the security at the market price at the time of
replacement. The price at such time may be more or less than the price at which
the security was sold by the ProFund. Until the security is replaced, the
ProFund is required to pay to the lender amounts equal to any dividends or
interest which accrue during the period of the loan. To borrow the security, the
ProFund also may be required to pay a premium, which would increase the cost of
the security sold. The proceeds of the short sale will be retained by the
broker, to the extent necessary to meet the margin requirements, until the short
position is closed out.
Until the ProFund closes its short position or replaces the borrowed
security, the ProFund will cover its position with an offsetting position or
maintain a segregated account containing cash or liquid instruments at such a
level that the amount deposited in the account plus the amount deposited with
the broker as collateral will equal the current value of the security sold
short.
U.S. GOVERNMENT SECURITIES
The ProFunds may invest in U.S. government securities in pursuit of their
investment objectives, as "cover" for the investment techniques these ProFunds
employ, or for liquidity purposes.
Yields on U.S. government securities are dependent on a variety of factors,
including the general conditions of the money and bond markets, the size of a
particular offering, and the maturity of the obligation. Debt securities with
longer maturities tend to produce higher yields and are generally subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities and lower yields. The market value of U.S. government
securities generally varies inversely with changes in market interest rates. An
increase in interest rates, therefore, would generally reduce the market value
of a ProFund's portfolio investments in U.S. government securities, while a
decline in interest rates would generally increase the market value of a
ProFund's portfolio investments in these securities.
Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. government are backed by the full faith and credit of the U.S.
Treasury. Such agencies and instrumentalities may borrow funds from the U.S.
Treasury. However, no assurances can be given that the U.S. government will
provide such financial support to the obligations of the other U.S. government
agencies or instrumentalities in which a ProFund invests, since the U.S.
government is not obligated to do so. These other agencies and instrumentalities
are supported by either the issuer's right to borrow, under certain
circumstances, an amount limited to a specific line of credit from the U.S.
Treasury, the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality, or the credit of the agency or
instrumentality itself.
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REPURCHASE AGREEMENTS
Under a repurchase agreement, a ProFund purchases a debt security and
simultaneously agrees to sell the security back to the seller at a mutually
agreed-upon future price and date, normally one day or a few days later. The
resale price is greater than the purchase price, reflecting an agreed-upon
market interest rate during the purchaser's holding period. While the maturities
of the underlying securities in repurchase transactions may be more than one
year, the term of each repurchase agreement will always be less than one year. A
ProFund will enter into repurchase agreements only with member banks of the
Federal Reserve System or primary dealers of U.S. government securities. The
Advisor and, with respect to the Portfolio, Bankers Trust, will monitor the
creditworthiness of each of the firms which is a party to a repurchase agreement
with any of the ProFunds. In the event of a default or bankruptcy by the seller,
the ProFund will liquidate those securities (whose market value, including
accrued interest, must be at least equal to 100% of the dollar amount invested
by the ProFund in each repurchase agreement) held under the applicable
repurchase agreement, which securities constitute collateral for the seller's
obligation to pay. However, liquidation could involve costs or delays and, to
the extent proceeds from the sales of these securities were less than the
agreed-upon repurchase price, the ProFund would suffer a loss. A ProFund also
may experience difficulties and incur certain costs in exercising its rights to
the collateral and may lose the interest the ProFund expected to receive under
the repurchase agreement. Repurchase agreements usually are for short periods,
such as one week or less, but may be longer. It is the current policy of the
ProFunds to treat repurchase agreements that do not mature within seven days (or
which may not be terminated within seven calendar days upon notice by the
ProFund) as illiquid for the purposes of their investment policies.
CASH RESERVES
As a cash reserve, for liquidity purposes, or as "cover" for positions it
has taken, each ProFund may temporarily invest all or part of the ProFund's
assets in cash or cash equivalents, which include, but are not limited to,
short-term money market instruments, U.S. government securities, certificates of
deposit, bankers acceptances, or repurchase agreements secured by U.S.
government securities.
OTHER INVESTMENT POLICIES
The ProFunds also may engage in certain other investment practices
described below. However, none of the ProFunds presently intends to invest more
than 5% of the ProFund's net assets in any of these practices. Each of the
ProFunds may purchase securities on a when-issued or delayed-delivery basis, and
also may lend portfolio securities to brokers, dealers, and financial
institutions. Each ProFund (other than the Money Market ProFund) may borrow
money for investment purposes or invest in illiquid securities. Each of the
ProFunds also may invest in the securities of other investment companies to the
extent that such an investment would be consistent with the requirements of the
1940 Act. A more-detailed explanation of these investment practices, including
the risks associated with each practice, is included in the Statement of
Additional Information. In addition, see the discussion of risk factors involved
in investing in non-diversified funds under "Classification of the ProFunds".
CASH MANAGEMENT PORTFOLIO
INVESTMENT POLICIES
Since the investment characteristics of the Money Market ProFund will
correspond directly to those of the Portfolio, set forth below is a discussion
of the various investments and investment policies of the Portfolio. Additional
information about the investment policies of the Portfolio appears in the SAI.
The Portfolio will attempt to achieve its investment objective by investing
in the following money market instruments:
Bank Obligations. The Portfolio may invest in fixed rate or variable rate
obligations of U.S. or foreign banks which have total assets at the time of
purchase in excess of $1 billion and are rated Prime-1 by Moody's Investors
Services, Inc. ("Moody's") or A-1 or higher by Standard & Poor's Ratings Group
("S&P Ratings") or, if not rated,
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are believed by Bankers Trust, acting under the supervision of the Board of
Trustees of the Portfolio, to be of comparable quality. Bank obligations in
which the Portfolio invests include certificates of deposit, bankers'
acceptances, time deposits and other U.S. dollar-denominated instruments issued
or supported by the credit of U.S. or foreign banks. If Bankers Trust, acting
under the supervision of the Board of Trustees of the Portfolio, deems the
instruments to present minimal credit risk, the Portfolio may invest in
obligations of foreign banks or foreign branches of U.S. banks which may include
subsidiaries of U.S. banks located in the United Kingdom, Grand Cayman Island,
Nassau, Japan and Canada. Investments in these obligations may entail risks that
are different from those of investments in obligations of domestic banks because
of differences in political, regulatory and economic systems and conditions.
These risks include future political and economic developments, currency
blockage, the possible imposition of withholding taxes, interest payments,
differing reserve requirements, reporting and recordkeeping requirements and
accounting standards, possible seizure or nationalization of foreign deposits,
difficulty or inability of pursuing legal remedies and obtaining judgments in
foreign courts, possible establishment of exchange controls or the adoption of
other foreign governmental restrictions that might affect adversely the payment
of principal and interest on bank obligations. Under normal market conditions,
the Portfolio will invest more than 25% of its assets in the foreign and
domestic bank obligations described above. The Portfolio's concentration of its
investments in bank obligations will cause the Portfolio to be subject to the
risks peculiar to the domestic and foreign banking industries to a greater
extent than if its investments were not so concentrated. A description of the
ratings set forth above is provided in the Appendix to the SAI.
Commercial Paper. The Portfolio may invest in fixed rate or variable rate
commercial paper, including variable rate master demand notes, issued by U.S.
and foreign corporations. Commercial paper when purchased by the Portfolio must
be rated Prime-1 by Moody's or A-1 or higher by S&P Ratings or, if not rated,
must be believed by Bankers Trust, acting under the supervision of the Board of
Trustees of the Portfolio, to be of comparable quality. Any commercial paper
issued by a foreign corporation and purchased by the Portfolio must be U.S.
dollar-denominated and must not be subject to foreign withholding tax at the
time of purchase. Investing in foreign commercial paper generally involves risks
similar to those described above relating to obligations of foreign banks or
foreign branches of U.S. banks.
Variable rate master demand notes are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. Because variable rate master demand notes are direct lending
arrangements between the Portfolio and the issuer, they are not normally traded.
Although no active secondary market may exist for these notes, the Portfolio
will purchase only those notes under which it may demand and receive payment on
principal and accrued interest daily or may resell the note to a third party.
While the notes are not typically rated by credit rating agencies, issuers of
variable rate master demand notes must satisfy Bankers Trust, acting under the
supervision of the Board of Trustees of the Portfolio, that the same criterion
set forth above for issuers of commercial paper are met. In the event an issuer
of a variable rate master demand note defaulted on its payment obligation, the
Portfolio might be unable to dispose of the note because of the absence of a
secondary market and could, for this or other reasons, suffer a loss to the full
extent of the default.
Other Debt Obligations. The Portfolio may invest in bonds, notes and
debentures that at the time of purchase have outstanding short-term ratings
meeting the above rating requirements, or if such commercial paper is unrated or
if no such commercial paper is outstanding, are rated at least AA by S&P Ratings
or Aa by Moody's. Such obligations, at the time of investment, must have or be
deemed to have less than 397 days to maturity.
U.S. government obligations. The Portfolio may invest in obligations issued
and guaranteed by the U.S. Treasury or by agencies or instrumentalities of the
U.S. government. See "Investment Techniques--U.S. Government Securities" herein.
Repurchase Agreements. The Portfolio may engage in repurchase agreement
transactions counterparties approved by the Board of Trustees of the Portfolio.
Bankers Trust, acting under the supervision of the Board of Trustees of the
Portfolio, reviews the creditworthiness of those counterparties with which the
Portfolio enters into repurchase agreements and monitors on an ongoing basis the
value of the securities subject to repurchase agreements to ensure that the
value is maintained at the required level. See "Investment
Techniques--Repurchase Agreements".
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Securities Lending. The Portfolio is permitted to lend up to 20% of the
total value of its securities to brokers, dealers and other financial
organizations. These loans must be secured continuously by cash or equivalent
collateral or a letter of credit at least equal to 100% of the current market
value of the securities loaned plus accrued income. By lending its securities,
the Portfolio can increase its income by continuing to receive income on the
loaned securities as well as by the opportunity to receive interest on the
collateral. During the term of the loan, the Portfolio continues to bear the
risk of fluctuations in the price of loaned securities. There may be risks of
delay in receiving additional collateral or risks of delay in recovery of the
securities or even loss of rights in the securities lent should the borrower of
the securities fail financially.
Reverse Repurchase Agreement. The Portfolio may enter into reverse
repurchase agreements. See "Investment Objective and Policies" in the SAI for a
more detailed description of reverse repurchase agreements.
Credit Enhancement. Certain of the Portfolio's acceptable investments may
be credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the party
providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Portfolio
and affect the Money Market ProFund's share price. The Portfolio may have more
than 25% of its total assets invested in securities credit-enhanced by banks.
Additional Investment Limitations. The Money Market ProFund has the same
investment restrictions as the Portfolio, except that the Money Market ProFund
may invest all of its assets in another open-end investment company with the
same investment objective, such as the Portfolio. The Portfolio may not invest
more than 25% of its total assets in the securities of issuers in any single
industry, except that, under normal market conditions, more than 25% of the
total assets of the Portfolio will be invested in foreign and domestic bank
obligations. As an operating policy, the Portfolio may not invest more than 5%
of its total assets in the securities of any one issuer except for U.S.
government obligations and repurchase agreements, which may be purchased without
limitation. The Portfolio is also authorized to borrow, including entering into
reverse repurchase transactions, in an amount up to 5% of its total assets for
temporary purposes, but not for leverage, and to pledge its assets to the same
extent in connection with these borrowings. See the SAI for additional
information with respect to reverse repurchase transactions. At the time of
investment, the Portfolio's aggregate holdings of repurchase agreements having
remaining maturities of more than seven calendar days (or which may not be
terminated within seven calendar days upon notice by the Portfolio), time
deposits having remaining maturities of more than seven calendar days, illiquid
securities, restricted securities and securities lacking readily available
market quotations will not exceed 10% of the Portfolio's net assets. If changes
in the liquidity of certain securities cause the Portfolio to exceed such 10%
limit, the Portfolio will take steps to bring the aggregate amount of its
illiquid securities back below 10% of its net assets as soon as practicable,
unless such action would not be in the best interest of the Portfolio. The SAI
contains further information on the Money Market ProFund's and the Portfolio's
investment restrictions.
Portfolio Quality and Maturity. The Portfolio will maintain a
dollar-weighted average maturity of 90 days or less. All securities in which the
Portfolio invests will have or be deemed to have remaining maturities of 397
days or less on the date of their purchase, will be denominated in U.S. dollars
and will have been granted the required ratings established herein by two
nationally recognized statistical rating organizations ("NRSRO"), (or one such
NRSRO if that NRSRO is the only such NR which rates the security), or if
unrated, are believed by Bankers Trust, under the supervision of the Portfolio's
Board of Trustees, to be of comparable quality. A description of such ratings is
provided in the Appendix to the SAI. Bankers Trust will cause the Portfolio to
dispose of any security as soon as practicable if the security is no longer of
the requisite quality, unless such action would not be in the best interest of
the Portfolio.
When-Issued and Delayed-Delivery Securities. To secure prices deemed
advantageous at a particular time, the Portfolio may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities occurs beyond the normal settlement period; and payment for or
delivery of the securities would be made at the same time as the reciprocal
delivery or payment by the other party to the transaction. The Portfolio will
enter into when-issued or delayed-delivery transactions for the purpose of
acquiring securities and not for the purpose of leverage. When-
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issued securities purchased by the Portfolio may include securities purchased on
a "when, as and if issued" basis under which the issuance of the securities
depends on the occurrence of a subsequent event.
Securities purchased on a when-issued or delayed-delivery basis may expose
the Portfolio to risk because the securities may experience fluctuations in
value prior to their actual delivery. The Portfolio does not accrue income with
respect to a when-issued or delayed-delivery security prior to its stated
delivery date. Purchasing securities on a when-issued or delayed-delivery basis
can involve the additional risk that the yield available in the market when the
delivery takes place may be higher than that obtained in the transaction itself.
Upon purchasing a security on a when-issued or delayed-delivery basis, the
Portfolio will segregate with the Portfolio's custodian liquid instruments in an
amount at least equal to the when-issued or delayed-delivery commitment.
Asset-Backed Securities. The Portfolio may also invest in securities
generally referred to as asset-backed securities, which directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets, such as motor vehicle or
credit card receivables. Asset-backed securities may provide periodic payments
that consist of interest and/or principal payments. Consequently, the life of an
asset-backed security varies with the prepayment and loss experience of the
underlying assets.
SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE
Unlike other open-end management investment companies (mutual funds) which
directly acquire and manage their own portfolio securities, the Money Market
ProFund seeks to achieve its investment objective by investing all of its assets
in the Portfolio, a separate registered investment company with the same
investment objective as the Money Market ProFund. Therefore, an investor's
interest in the Portfolio's securities is indirect. In addition to selling a
beneficial interest to the Money Market ProFund, the Portfolio may sell
beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Money Market ProFund or subject to
comparable variations in sales loads and other operating expenses. Therefore,
investors in the Money Market ProFund should be aware that these differences may
result in differences in returns experienced by investors in the different funds
that may invest in the Portfolio. Such differences in returns are also present
in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Bankers Trust at 1-800-368-4031.
The Trust's Board of Trustees believes that the Money Market ProFund will
achieve certain efficiencies and economies of scale through the master-feeder
structure, and that the aggregate expenses of the Money Market ProFund will be
less than if the Money Market ProFund invested directly in the securities held
by the Portfolio.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds which have large institutional
investors). Additionally, the Portfolio may become less diverse, resulting in
increased portfolio concentration and potential risk. Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Except as permitted by the Commission, whenever the
Trust is requested to vote on matters pertaining to the Portfolio, the Trust
will hold a meeting of shareholders of the Money Market ProFund and will cast
all of its votes in the same proportion as the votes of the Money Market
ProFund's shareholders. Money Market ProFund shareholders who do not vote will
not affect the Trust's votes at the Portfolio meeting. The percentage of the
Trust's votes representing Money Market ProFund shareholders not voting will be
voted by the Trustees or officers of the Trust in the same proportion as the
Money Market ProFund shareholders who do, in fact, vote.
Certain changes in the Portfolio's investment objective, policies or
restrictions may require the Money Market ProFund to withdraw its interest in
the Portfolio. Such withdrawal could result in a distribution "in kind" of
portfolio securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, the Money Market ProFund could incur brokerage, tax
or other charges in converting the securities to cash. In addition, the
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distribution in kind may result in a less diversified portfolio of investments
or adversely affect the liquidity of the Money Market ProFund. Notwithstanding
the above, there are other means for meeting redemption requests, such as
borrowing.
The Money Market ProFund may withdraw its investment from the Portfolio at
any time, if the Board of Trustees of the Trust determines that it is in the
best interests of the shareholders of the Money Market ProFund to do so. Upon
any such withdrawal, the Board of Trustees of the Trust would consider what
action might be taken, including the investment of all the assets of the Money
Market ProFund in another pooled investment entity having the same investment
objective as the Money Market ProFund or the retaining of an investment adviser
to manage the Money Market ProFund's assets in accordance with the investment
policies described above with respect to the Portfolio.
TAXES
The Internal Revenue Code (the "Code") provides that each investment
portfolio of a series investment company is to be treated as a separate
corporation. Accordingly, each of the ProFunds will seek to qualify for
treatment as a regulated investment company (a "RIC") under Subchapter M of the
Code. If a ProFund qualifies as a RIC and satisfies the distribution
requirements under the Code for any taxable year, the ProFund itself will not be
subject to income tax on the ordinary income and capital gains it has
distributed to its shareholders for that year.
To qualify as a RIC under the Code, a ProFund must satisfy certain
requirements, including the requirements that the ProFund receive at least 90%
of the ProFund's gross income each year from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of
securities or foreign currencies, certain options, futures, or forward contracts
or other income derived with respect to the ProFund's investments in stock,
securities, and foreign currencies (or certain options, futures, or forward
contracts on such foreign currencies). Provided that a ProFund (i) is a RIC and
(ii) distributes at least 90% of the ProFund's net investment income (including,
for this purpose, net realized short-term capital gains), the ProFund itself
will not be subject to Federal income taxes to the extent the ProFund's net
investment income and the ProFund's net realized long-and short-term capital
gains, if any, are distributed to the shareholders of that ProFund. To avoid an
excise tax on its undistributed income, each ProFund generally must distribute
at least 98% of its income, including its net long-term capital gains.
The Portfolio in which the Money Market ProFund invests is not required to
pay Federal income taxes on its net investment income and capital gain (if any),
as it is treated as a partnership for Federal income for tax purposes. All
interest, dividends and gains and losses of the Portfolio are deemed to have
been "passed through" to the Money Market ProFund in proportion to its holdings
of the Portfolio, regardless of whether such interest, dividends or gains have
been distributed by the Portfolio or losses have been realized by the Portfolio.
Under current law, dividends derived from interest and dividends received
by a ProFund, together with distributions of any short-term capital gains, if
any, are taxable to the shareholders of the ProFund, as ordinary income at
Federal income tax rates of up to 39.6%, whether or not such dividends and
distributions are reinvested in shares of such ProFund or are received in cash.
Under current law, distributions of net long-term gains, if any, realized
by a ProFund and designated as capital gains distributions will be taxed to the
shareholders of that ProFund as long-term capital gains regardless of the length
of time the shares of that ProFund have been held. Currently, long-term capital
gains of individual investors are taxed at rates of up to 28%. Statements as to
the Federal tax status of shareholders dividends and distributions will be
mailed annually. Shareholders should consult their tax advisors concerning the
tax status of the ProFunds dividends in their own states and localities. U.S.
government securities and other securities may be purchased at a discount. Such
securities, when held to maturity or retired, may include an element of capital
gain. Capital losses may be realized when such securities purchased at a premium
are held to maturity or are called or redeemed at a price lower than their
purchase price. Capital gains or losses also may be realized upon the sale of
securities.
Ordinary dividends paid to corporate or individual residents of foreign
countries generally are subject to a 30% withholding tax. The rate of
withholding tax may be reduced if the United States has an income tax treaty
with the
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foreign country where the recipient resides. Capital gains distributions
received by foreign investors should, in most cases, be exempt from U.S. tax. A
foreign investor will be required to provide the ProFund with supporting
documentation in order for the ProFund to apply a reduced rate or exemption from
U.S. withholding tax.
Shareholders are required by law to certify that their tax identification
number is correct and that they are not subject to back-up withholding. In the
absence of this certification, the ProFunds is required to withhold taxes at the
rate of 31% on dividends, capital gains distributions, and redemptions.
Shareholders who are non-resident aliens may be subject to a withholding tax on
dividends earned.
MANAGEMENT OF THE TRUST
INVESTMENT ADVISERS
PROFUND ADVISORS LLC
The ProFunds are provided investment advice and management services by
ProFund Advisors LLC, a Maryland limited liability company formed on May 8,
1997, with offices at 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland
20814. Louis M. Mayberg and Michael L. Sapir own a controlling interest in the
Advisor.
Under an investment advisory agreement between the non-money market
ProFunds and the Advisor, dated October ___, 1997, the non-money market ProFunds
each pay the Advisor a fee at an annualized rate, based on the average daily net
assets for each respective ProFund, of 0.75%. The Advisor manages the investment
and the reinvestment ofthe assets of each of the ProFunds, in accordance with
the investment objectives, policies, and limitations of the ProFunds, subject to
the general supervision and control of the ProFunds' Board of Trustees and
officers. The Advisor bears all costs associated with providing these advisory
services and the expenses of the ProFunds who are affiliated persons of the
Advisor. The Advisor, from its own resources, including profits from advisory
fees received from the ProFunds, also may make payments to broker-dealers and
other financial institutions for their expenses in connection with the
distribution of ProFund shares, and otherwise currently pays all distribution
costs for ProFund shares.
As recently created entities, the non-money market ProFunds will be subject
to all the risks incident to the creation of a new business, including the
absence of a history of operations. The Advisor is a newly created entity and,
as such, prior to the commencement of operations of the ProFunds, had no
previous experience in providing investment management services to an investment
company. Michael L. Sapir, the Advisor's chairman and chief executive officer,
is the former senior vice president of Padco Advisors, Inc., the investment
adviser to RydexTR Funds and was an attorney in private practice for over
thirteen years specializing in advising issuers of investment products,
including mutual funds. Louis M. Mayberg, the Advisor's president, co-founded an
investment banking firm in 1986 and has been responsible for, among other
things, managing the investment "hedge" fund sponsored by that firm. William E.
Seale, Ph.D., the Advisor's and the ProFunds' portfolio director, has over
twenty-five years of experience with respect to the commodity futures markets,
including serving for five years pursuant to a presidential appointment as
commissioner to the United States Commodities Futures Trading Commission. The
ProFunds' Administrator, BISYS, provides operations, compliance and
administrative services for investment companies.
BANKERS TRUST
The Money Market ProFund seeks to achieve its investment objective by
investing all of its investable assets in the Portfolio, which has as its
investment adviser, Bankers Trust, a New York banking corporation with principal
offices at 130 Liberty Street, New York, New York 10006 and a wholly-owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust currently
receives an investment management fee for its services to the Portfolio in the
amount of 0.15% of the average daily net assets of the Portfolio.
Bankers Trust conducts a variety of general banking and trust activities
and is a major wholesale supplier of financial services to international and
domestic institutional markets. As of June 30, 1997, Bankers Trust New York
Corporation was the seventh largest bank holding company in the United States
with total assets of approximately
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$129 billion. Bankers Trust is a worldwide merchant bank dedicated to servicing
the needs of corporations, governments, financial institutions and private
clients through a global network of over 120 offices in more than 50 countries.
Investment management is a core business of Bankers Trust, built on a tradition
of excellence from its roots as a trust bank founded in 1903. The scope of
Bankers Trust's investment management capability is unique due to its leadership
positions in both active and passive quantitative management and its presence in
major equity and fixed income markets around the world. Bankers Trust is one of
the nation's largest and most experienced investment managers, with
approximately $240 billion in assets under management globally.
Bankers Trust has more than 50 years of experience managing retirement
assets for the nation's largest corporations and institutions. In the past,
these clients have been serviced through separate account and commingled fund
structures. Bankers Trust's officers have had extensive experience in managing
investment portfolios having objectives similar to those of the Portfolio.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees of the Portfolio, manages the Portfolio in accordance with the
Portfolio's investment objective and stated investment policies, makes
investment decisions for the Portfolio, places orders to purchase and sell
securities and other financial instruments on behalf of the Portfolio and
employs professional investment managers and securities analysts who provide
research services to the Portfolio. All orders for investment transactions on
behalf of the Portfolio are placed by Bankers Trust with broker-dealers and
other financial intermediaries that it selects, including those affiliated with
Bankers Trust. A Bankers Trust affiliate will be used in connection with a
purchase or sale of an investment for the Portfolio only if Bankers Trust
believes that the affiliate's charge for the transaction does not exceed usual
and customary levels. The Portfolio will not invest in obligations for which
Bankers Trust or any of its affiliates is the ultimate obligor or accepting
bank. The Portfolio may, however, invest in the obligations of correspondents
and customers of Bankers Trust.
SERVICE PROVIDERS
ADMINISTRATOR, TRANSFER AGENT, FUND ACCOUNTING AGENT AND CUSTODIAN
BISYS acts as Administrator to the ProFunds. BISYS provides administrative
services necessary for the operation of the Funds, including among other things,
(i) preparation of shareholder reports and communications, (ii) regulatory
compliance, such as reports to and filings with the Commission and state
securities commissions, and (iii) general supervision of the operation of the
Funds, including coordination of the services performed by the Funds' Advisor,
custodians, independent accountants, legal counsel and others. In addition,
BISYS furnishes office space and facilities required for conducting the business
of the Funds and pays the compensation of the Funds' officers and employees
affiliated with BISYS.
For its services as Administrator, each ProFund pays BISYS an annual fee
ranging from 0.15% of average daily net assets of $0 to $300 million to .05% of
average daily net assets of $1 billion and over. BISYS Funds Services, Inc.
("BFSI"), an affiliate of BISYS, acts as transfer agent and fund accounting
agent for the ProFunds, for which it receives additional fees. Additionally,
ProFunds and BISYS and BFSI have entered into an Omnibus Fee Agreement in which
the amount of compensation due and payable to BISYS shall be the greater of (i)
the aggregate fee amount due and payable for services pursuant to the
Administration, Fund Accounting and Transfer Agency Agreements and (ii) the
minimum relationship fee described as specific dollar amounts payable over a
period of ten calendar quarters. The address of BISYS and BFSI is 3435 Stelzer
Road, Suite 1000, Columbus, Ohio 43219.
ProFunds Advisors LLC, pursuant to a separate Management Services
Agreement, performs certain client support services and other administrative
services on behalf of the ProFunds. For these services, the ProFunds will pay to
ProFunds Advisors LLC a fee at the annual rate of .15% of its average daily net
assets for all non-money market ProFund. Under this agreement, ProFund Advisors
LLC may receive up to .35% of the Money Market ProFund's average daily net
assets for providing feeder fund management and administrative services to the
Money Market ProFund, which services include monitoring the performance of the
underlying investment company in which the Money Market ProFund invests,
coordinating the Money Market ProFund's relationship with such entity,
communicating with the Trust's Board of Trustees and shareholders regarding such
entity's performance and the
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Money Market ProFund's two tier structure and, in general, assisting the Board
of Trustees of the Trust in all aspects of the administration and operation of
the Money Market ProFund.
Under an Administration and Services Agreement with the Portfolio, Bankers
Trust calculates the value of the assets of the Portfolio and generally assists
the Board of Trustees of the Portfolio in all aspects of the administration and
operation of the Portfolio. The Administration and Services Agreement provides
for the Portfolio to pay Bankers Trust a fee, computed daily and paid monthly,
at the annual rate of .05% of the average daily net assets of the Portfolio.
Under the Administration and Services Agreement, Bankers Trust may delegate one
or more of its responsibilities to others at Bankers Trust's expense.
UMB Bank, N.A. acts as custodian to the ProFunds; its address is 928
Grand Avenue, Kansas City, Missouri.
INTERIM DISTRIBUTOR
Concord Financial Group, Inc. will serve as the distributor and principal
underwriter in all fifty states and the District of Columbia until such time as
ProFunds has filed and duly registered with the appropriate regulatory
agencies of those jurisdictions, at which time ProFunds will self-distribute
the ProFunds' shares in all fifty states and the District of Columbia. Concord
Financial Group, Inc. receives no compensation from the ProFunds
for serving as distributor. Concord Financial Group, Inc.'s address is 3435
Stelzer Road, Columbus, Ohio 43215.
SHAREHOLDER SERVICES PLAN - ADVISER SHARES
Each ProFund has adopted a Shareholder Services Plan (the "Plan"). The Plan
provides that each ProFund will make payments to Authorized Firms (defined
below) equal to up to 1.00% (on an annual basis) of the average daily value of
the net assets of such ProFund's Adviser class of shares attributable to or held
in the name of an Authorized Firm for its clients. The Plan provides that the
fee will be paid to registered investment advisers, banks, trust companies and
other financial organizations ("Authorized Firms"), for providing account
administration and other services to their clients who are beneficial owners of
such shares.
The services provided by the Authorized Firms may include, among other
things, receiving, aggregating and processing shareholder or beneficial owner
(collectively "shareholder") orders; furnishing shareholder subaccounting;
providing and maintaining retirement plan records; communicating periodically
with shareholders; acting as the sole shareholder of record and nominee for
shareholders; maintaining account records for shareholders; answering questions
and handling correspondence from shareholders about their accounts; issuing
various shareholder reports and confirmations for transactions by shareholders;
performing daily investment ("sweep") functions for shareholders; and
account administration services. ProFunds expects that the level of services
provided with respect to these accounts will be more extensive than typically
occurs under shareholder servicing plans.
Holders of Adviser Shares of a ProFund will bear all fees paid under the
Plan with respect to such shares as well as any other expenses which are
directly attributable to such shares.
Authorized Firms may charge other fees to their clients who are the
beneficial owners of Adviser Shares in connection with their client accounts.
These fees would be in addition to any amounts received by the Authorized Firms
and would be for services other than those provided under such an Agreement.
Under the terms of such Service Agreements, Authorized Firms are required to
provide their clients with a schedule of fees charged to such clients which
relate to the investment of customers' assets in Adviser Shares at the time of
any investment and whenever changes to the schedule are made.
Each ProFund will accrue payments made pursuant to the Plan daily. The
payments under the Plan which are required to be accrued to the ProFunds'
Adviser Shares on any day will not exceed the distributable income to be accrued
to such shares on that day. All inquiries by a beneficial owner of Adviser
Shares must be directed to such owner's Authorized Firm.
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COSTS AND EXPENSES
The ProFunds bear all expenses of their operations other than those assumed
by the Advisor or BISYS. Expenses of the ProFunds include, but are not limited
to: the advisory fee; administrative, transfer agent, and shareholder servicing
fees; custodian and accounting fees and expenses; legal and auditing fees;
securities valuation expenses; fidelity bonds and other insurance premiums;
expenses of preparing and printing prospectuses, confirmations, proxy
statements, and shareholder reports and notices; registration fees and expenses;
proxy and annual meeting expenses, if any; all Federal, state, and local taxes
(including, without limitation, stamp, excise, income, and franchise taxes);
organizational costs; and non-interested Trustee's fees and expenses. In order
to increase the return to investors, both the Advisor and Bankers Trust may from
time to time agree to voluntarily waive or reduce their respective fees, while
retaining their ability to be reimbursed for such fees prior to the end of each
fiscal year.
PORTFOLIO TRADING PRACTICES
The Advisor determines which securities to purchase and sell for each
non-money market ProFund, selects brokers and dealers to effect the
transactions, and negotiates commissions. The Advisor expects that the non-money
market ProFunds may execute brokerage or other agency transactions through
registered broker-dealers, for a commission, in conformity with the 1940 Act,
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder. In placing orders for portfolio transactions, the Advisor's policy
is to obtain the most favorable price and efficient execution available.
Brokerage commissions are normally paid on exchange-traded securities
transactions and on options and futures transactions, as well as on common stock
transactions. In order to obtain the brokerage and research services described
below, a higher commission may sometimes be paid. The ability to receive
research services may be a factor in the selection of one dealer acting as a
principal over another.
When selecting broker-dealers to execute portfolio transactions, the
Advisor considers many factors, including the rate of commission or size of the
broker-dealer's "spread," the size and difficulty of the order, the nature of
the market for the security, the willingness of the broker-dealer to position,
the reliability, financial condition, general execution and operational
capabilities of the broker-dealer, and the research, statistical and economic
data furnished by the broker-dealer to the Advisor. The Advisor may use these
services in connection with all of the Advisor's investment activities,
including other investment accounts the Advisor advises. Conversely, brokers or
dealers which supply research may be selected for execution of transactions for
such other accounts, while the data may be used by the Advisor in providing
investment advisory services to the non-money market ProFunds.
GENERAL INFORMATION ABOUT THE TRUST
ORGANIZATION AND DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
ProFunds (the "Trust") is a registered open-end investment company under
the 1940 Act. The Trust was organized as a Delaware business trust on April 17,
1997, and has authorized capital of unlimited shares of beneficial interest of
no par value which may be issued in more than one class or series. Currently,
the Trust consists of six separately managed series. Other separate series may
be added in the future. Each ProFund offers two classes of shares: the Adviser
Shares and the Investor Shares.
All shares of the ProFunds are freely transferable. The Trust shares do not
have preemptive rights or cumulative voting rights, and none of the shares have
any preference to conversion, exchange, dividends, retirements, liquidation,
redemption, or any other feature. Trust shares have equal voting rights, except
that, in a matter affecting a particular series in the Trust, only shares of
that series may be entitled to vote on the matter.
Under Delaware law, the Trust is not required to hold an annual
shareholders meeting if the 1940 Act does not require such a meeting. Generally,
there will not be annual meetings of Trust shareholders. Trust shareholders may
remove Trustees from office by votes cast at a meeting of Trust shareholders or
by written consent. If requested by shareholders of at least 10% of the
outstanding shares of the Trust, the Trust will call a meeting of ProFunds'
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shareholders for the purpose of voting upon the question of removal of a trustee
of the Trust and will assist in communications with other Trust shareholders.
Unlike stockholders of a corporation, shareholders of a business trust such
as the Trust could be held personally liable, under certain circumstances, for
the obligations of the business trust. The Declaration Trust of the ProFunds,
however, disclaims liability of the shareholders or the officers of the Trust
for acts or obligations of the Trust which are binding only on the assets and
property of the Trust. The Declaration of Trust provides for indemnification out
of the Trust's property for all loss and expense of any ProFunds shareholder
held personally liable for the obligations of the Trust. The risk of a Trust
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the ProFunds itself would not be able to meet
the Trust's obligations and this risk, thus, should be considered remote.
DETERMINATION OF NET ASSET VALUE
The net asset values of the shares of the ProFunds are determined as of the
close of business on each day the CME is open for business (in the case of the
Money Market ProFund, net asset value is determined as of the close of business
of each day the New York Stock Exchange is open for business). Currently, the
CME is closed on weekends, and the following holiday closings have been
scheduled for 1997: (i) New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day (ii) the preceding Friday when any of those holidays falls on
a Saturday or the subsequent Monday when any of these holidays falls on a
Sunday. To the extent that portfolio securities of a ProFund are traded in other
markets on days when the ProFund's principal trading market(s) is closed, the
ProFund's net asset value may be affected on days when investors do not have
access to the ProFund to purchase or redeem shares. Although the ProFunds expect
the same holiday schedules to be observed in the future, the CME may modify its
holiday schedule at any time.
The net asset value of each class of shares of a ProFund serves as the
basis for the purchase and redemption price of that ProFund's class. The net
asset value per share of each class of a ProFund is calculated by dividing the
market value of the ProFund's assets attributed to a specific class (in the case
of the Money Market ProFund, the value of its investment in the Portfolio), less
all liabilities attributed to the specific class, by the number of outstanding
shares of the class. If market quotations are not readily available, a security
will be valued at fair value by the Trustees of ProFunds or by the Advisor using
methods established or ratified by the Trustees of ProFunds. The Money Market
ProFund's net asset value per share will normally be $1.00. There is no
assurance that the $1.00 net asset value will be maintained.
The Portfolio will utilize the amortized cost method in valuing its
portfolio securities. This method involves valuing each security held by the
Portfolio at its cost at the time of its purchase and thereafter assuming a
constant amortization to maturity of any discount or premium. Accordingly,
immaterial fluctuations in the market value of the securities held by the
Portfolio will not be reflected in the Money Market ProFund's net asset value.
The Board of Trustees of the Portfolio will monitor the valuation of assets of
this method and will make such changes as deems necessary to assure that the
assets of the Portfolio are valued fairly in good faith.
The securities in the portfolio of a non-money market ProFund, except as
otherwise noted, that are listed or traded on a stock exchange, are valued on
the basis of the last sale on that day or, lacking any sales, at a price that is
the mean between the closing bid and asked prices. Other securities that are
traded on the OTC markets are priced using NASDAQ (National Association of
Securities Dealers Automated Quotations), which provides information on bid and
asked prices quoted by major dealers in such stocks. Bonds, other than
convertible bonds, are valued using a third-party pricing system. Convertible
bonds are valued using this pricing system only on days when there is no sale
reported. Short-term debt securities are valued at amortized cost, which
approximates market. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in good faith
under procedures established by and under the general supervision and
responsibility of the ProFunds' Board of Trustees.
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Puts, calls and futures contracts purchased and held by the ProFunds are
valued at the close of the securities or commodities exchanges on which they are
traded. (Ordinarily, the close of the regular session for options trading on
national securities exchanges is 4:15 p.m. Eastern Time and the close of the
regular session of commodities exchanges is 4:15 p.m. Eastern Time.) Options on
securities and indices purchased by a ProFund generally are valued at their last
bid price in the case of exchange-traded options or, in the case of options
traded in the OTC market, the average of the last bid price as obtained from two
or more dealers unless there is only one dealer, in which case that dealer's
price is used. Futures contracts will be valued with reference to established
futures exchanges. The value of a futures contract purchased by the ProFunds
will be either the closing price of that contract or the bid price. Conversely,
the value of a futures contract sold by the ProFunds will be either the closing
price or the asked price. The value of options on futures contracts is
determined based upon the current settlement price for a like option acquired on
the day on which the option is being valued. A settlement price may not be used
for the foregoing purposes if the market makes a limit move with respect to a
particular commodity.
FUNDAMENTAL POLICIES
The investment objectives (except the specific benchmarks which are tracked
by the ProFunds) and certain investment restrictions of the ProFunds
specifically identified as fundamental policies may not be changed without the
affirmative vote of at least the majority of the outstanding shares of that
ProFund, as defined in the 1940 Act. All other investment policies of the
ProFunds not specified as fundamental (including the benchmarks of the ProFunds)
may be changed by the trustees of the ProFunds without the approval of
shareholders.
The ProFunds may consider changing a ProFund's benchmark if, for example,
the current benchmark becomes unavailable; the ProFunds believe the current
benchmark no longer serves the investment needs of a majority of shareholders or
another benchmark better serves their needs; or the financial or economic
environment makes it difficult for the ProFund's investment results to
correspond sufficiently to its current benchmark. If believed appropriate, the
ProFunds may specify a benchmark for a ProFund that is "leveraged" or
proprietary. Of course, there can be no assurance that a ProFund will achieve
its objective.
TRUSTEES AND OFFICERS
The ProFunds has a Board of Trustees which is responsible for the general
supervision of ProFunds' business. The day-to-day operations of the ProFunds are
the responsibility of the ProFunds' officers.
AUDITORS
Coopers & Lybrand LLP are the auditors of and the independent public
accountants for ProFunds.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE PROFUNDS IN ANY
JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.
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PART B
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<PAGE> 37
SUBJECT TO COMPLETION
OCTOBER ____, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
PROFUNDS
STATEMENT OF ADDITIONAL INFORMATION
7900 Wisconsin Avenue, Suite 300
Bethesda, Maryland 20814
(888) 776-5717 (Registered Investment Advisers Only)
(888) PRO-FNDS (For All Others)
This prospectus describes six ProFunds. Each ProFund offers two classes of
shares: Adviser Shares and Investor Shares. The ProFunds may be used by
professional money managers and investors as part of an asset-allocation or
market-timing investment strategy or to create specified investment exposure to
a particular segment of the securities market or to hedge an existing investment
portfolio. Sales are made without any sales charge at net asset value. Each
non-money-market ProFund seeks investment results that correspond each day to a
specified benchmark. The ProFunds may be used independently or in combination
with each other as part of an overall investment strategy. Additional ProFunds
may be created from time to time.
The ProFunds include the Money Market ProFund. The Money Market ProFund
seeks a high level of current income consistent with liquidity and preservation
of capital through investment in high quality money market instruments. Unlike
other mutual funds, the Money Market ProFund seeks to achieve its investment
objective by investing all of its investable assets in the Cash Management
Portfolio (the "Portfolio"), a separate investment company with an identical
investment objective. The performance of the Money Market ProFund will
correspond directly to the investment performance of the Portfolio.
The ProFunds involve special risks, some not traditionally associated with
mutual funds. Investors should carefully review and evaluate these risks in
considering an investment in the ProFunds to determine whether an investment in
a particular ProFund is appropriate. None of the ProFunds alone constitutes a
balanced investment plan and are not intended for investors whose principal
objective is current income or preservation of capital. Because of the inherent
risks in any investment, there can be no assurance that the ProFunds' investment
objectives will be achieved.
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with ProFunds' Prospectus, dated October __, 1997, which
incorporates this Statement of Additional Information by reference. A copy of
the Prospectus is available, without charge, upon request to at the address
above or by telephoning at the telephone numbers above.
The date of this Statement of Additional Information is October ___, 1997.
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STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
----
THE PROFUNDS
INVESTMENT POLICIES AND TECHNIQUES
INVESTMENT RESTRICTIONS
PORTFOLIO TRANSACTIONS AND BROKERAGE
MANAGEMENT OF PROFUNDS
TAXATION
PERFORMANCE INFORMATION
FINANCIAL STATEMENTS
APPENDIX FOR RATINGS SERVICES
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PROFUNDS
ProFunds (the "Trust") is an open-end management investment company, and
currently comprises six separate series. Other series may be added in the
future. The ProFunds may be used independently or in combination with each other
as part of an overall investment strategy. Shares of any ProFund may be
exchanged, without any charge, for shares of the same class of any other ProFund
on the basis of the respective net asset values of the shares involved;
provided, that, in connection with exchanges for shares of the ProFund, certain
minimum investment levels are maintained (see "How to Exchange Shares of the
ProFunds" in the Prospectus).
INVESTMENT POLICIES AND TECHNIQUES
GENERAL
Reference is made to the sections entitled "Investment Objectives" and
"Investment Policies and Techniques" in the ProFund's Prospectus for a
discussion of the investment objectives and policies of the ProFunds. In
addition, set forth below is further information relating to the ProFunds. The
discussion below supplements and should be read in conjunction with the
Prospectus. Portfolio management is provided to the non-money market ProFunds by
its investment adviser, ProFund Advisors LLC, a Maryland limited liability
company with offices at 7900 Wisconsin Avenue, NW, Bethesda, Maryland (the
"Advisor"). The Money Market ProFund seeks to achieve its investment objective
by investing all of its assets in the Portfolio which has as its investment
adviser, Bankers Trust Company ("Bankers Trust").
The investment strategies of the ProFunds discussed below, and as discussed
in the Prospectus, may be used by a ProFund if, in the opinion of the Advisor,
these strategies will be advantageous to the ProFund. The ProFund is free to
reduce or eliminate the ProFund's activity in any of those areas without
changing the ProFund's fundamental investment policies. There is no assurance
that any of these strategies or any other strategies and methods of investment
available to a ProFund will result in the achievement of the ProFund's
objectives.
FUTURES CONTRACTS
The non-money market ProFunds may purchase and sell futures contracts and
options thereon only to the extent that such activities would be consistent with
the requirements of Section 4.5 of the regulations under the Commodity Exchange
Act promulgated by the Commodity Futures Trading Commission (the "CFTC
Regulations"), under which each of these ProFunds would be excluded from the
definition of a "commodity pool operator." Under Section 4.5 of the CFTC
Regulations, a ProFund may engage in futures transactions, either for "bona fide
hedging" purposes, as this term is defined in the CFTC Regulations, or for
non-hedging purposes to the extent that the aggregate initial margins and option
premiums required to establish such non-hedging positions do not exceed 5% of
the liquidation value of the ProFund's portfolio. In the case of an option on
futures contracts that is "in-the-money" at the time of purchase (i.e., the
amount by which the exercise price of the put option exceeds the current market
value of the underlying security or the amount by which the current market value
of the underlying security exceeds the exercise price of the call option), the
in-the-money amount may be excluded in calculating this 5% limitation.
The ProFunds will cover their positions when they write a futures contract
or option on a futures contract. A ProFund may "cover" its long position in a
futures contract by purchasing a put option on the same futures contract with a
strike price (i.e., an exercise price) as high or higher than the price of the
futures contract, or, if the strike price of the put is less than the price of
the futures contract, the ProFund will maintain in a segregated account cash or
liquid instruments equal in value to the difference between the strike price of
the put and the price of the future. A ProFund may also cover its long position
in a futures contract by taking a short position in the instruments underlying
the futures contract, or by taking positions in instruments the prices of which
are expected to move relatively consistently with the futures contract. A
ProFund may cover its short position in a futures contract by taking a long
position in the instruments underlying the futures contract, or by
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<PAGE> 40
taking positions in instruments the prices of which are expected to move
relatively consistently with the futures contract.
A ProFund may cover its sale of a call option on a futures contract by
taking a long position in the underlying futures contract at a price less than
or equal to the strike price of the call option, or, if the long position in the
underlying futures contract is established at a price greater than the strike
price of the written (sold) call, the ProFund will maintain in a segregated
account liquid instruments equal in value to the difference between the strike
price of the call and the price of the future. A ProFund may also cover its sale
of a call option by taking positions in instruments the prices of which are
expected to move relatively consistently with the call option. A ProFund may
cover its sale of a put option on a futures contract by taking a short position
in the underlying futures contract at a price greater than or equal to the
strike price of the put option, or, if the short position in the underlying
futures contract is established at a price less than the strike price of the
written put, the ProFund will maintain in a segregated account cash or
high-grade liquid debt securities equal in value to the difference between the
strike price of the put and the price of the future. A ProFund may also cover
its sale of a put option by taking positions in instruments the prices of which
are expected to move relatively consistently with the put option.
INDEX OPTIONS
The non-money market ProFunds may engage in transactions in stock index
options listed on national securities exchanges or traded in the
over-the-counter market as an investment vehicle for the purpose of realizing
the ProFund's investment objective. Options on indexes are settled in cash, not
by delivery of securities. The exercising holder of an index option receives,
instead of a security, cash equal to the difference between the closing price of
the securities index and the exercise price of the option.
Some stock index options are based on a broad market index such as the S&P
500 Index, the NYSE Composite Index, or the AMEX Major Market Index, or on a
narrower index such as the Philadelphia Stock Exchange Over-the-Counter Index.
Options currently are traded on the Chicago Board Options Exchange (the "CBOE"),
the AMEX, and other exchanges ("Exchanges"). Purchased over-the-counter options
and the cover for written over-the-counter options will be subject to the
respective ProFund's 15% limitation on investment in illiquid securities. See
"Illiquid Securities."
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same index which may be bought or written
(sold) by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
Exchanges or are held or written on one or more accounts or through one or more
brokers). Under these limitations, option positions of all investment companies
advised by the same investment adviser are combined for purposes of these
limits. Pursuant to these limitations, an Exchange may order the liquidation of
positions and may impose other sanctions or restrictions. These position limits
may restrict the number of listed options which a ProFund may buy or sell;
however, the Advisor intends to comply with all limitations.
OPTIONS ON SECURITIES
The non-money market ProFunds may buy and write (sell) options on
securities for the purpose of realizing their ProFund's investment objective. By
writing a call option on securities, a ProFund becomes obligated during the term
of the option to sell the securities underlying the option at the exercise price
if the option is exercised. By writing a put option, a ProFund becomes obligated
during the term of the option to purchase the securities underlying the option
at the exercise price if the option is exercised. During the term of the option,
the writer may be assigned an exercise notice by the broker-dealer through whom
the option was sold. The exercise notice would require the writer to deliver, in
the case of a call, or take delivery of, in the case of a put, the underlying
security against payment of the exercise price. This obligation terminates upon
expiration of the option, or at such earlier time that the writer effects a
closing purchase transaction by purchasing an option covering the same
underlying security and having the same exercise price and expiration date as
the one previously sold. Once an option has been exercised, the writer may not
execute a closing purchase transaction. To secure the obligation to deliver the
underlying security in the case of a call option, the writer of a call option is
required to deposit in escrow the
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underlying security or other assets in accordance with the rules of the Options
Clearing Corporation (the "OCC"), an institution created to interpose itself
between buyers and sellers of options. The OCC assumes the other side of every
purchase and sale transaction on an exchange and, by doing so, gives its
guarantee to the transaction. When writing call options on securities, a ProFund
may cover its position by owning the underlying security on which the option is
written. Alternatively, the ProFund may cover its position by owning a call
option on the underlying security, on a share for share basis, which is
deliverable under the option contract at a price no higher than the exercise
price of the call option written by the ProFund or, if higher, by owning such
call option and depositing and maintaining in a segregated account cash or
liquid instruments equal in value to the difference between the two exercise
prices. In addition, a ProFund may cover its position by depositing and
maintaining in a segregated account cash or liquid instruments equal in value to
the exercise price of the call option written by the ProFund. When a ProFund
writes a put option, the ProFund will have and maintain on deposit with its
custodian bank cash or liquid instruments having a value equal to the exercise
value of the option. The principal reason for a ProFund to write call options on
stocks held by the ProFund is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on the underlying securities
alone.
If a ProFund that writes an option wishes to terminate the ProFund's
obligation, the ProFund may effect a "closing purchase transaction." The ProFund
accomplishes this by buying an option of the same series as the option
previously written by the ProFund. The effect of the purchase is that the
writer's position will be canceled by the OCC. However, a writer may not effect
a closing purchase transaction after the writer has been notified of the
exercise of an option. Likewise, a ProFund which is the holder of an option may
liquidate its position by effecting a "closing sale transaction." The ProFund
accomplishes this by selling an option of the same series as the option
previously purchased by the ProFund. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected. If any call or put
option is not exercised or sold, the option will become worthless on its
expiration date. A ProFund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put option previously written by the
ProFund if the premium, plus commission costs, paid by the ProFund to purchase
the call or put option to close the transaction is less (or greater) than the
premium, less commission costs, received by the ProFund on the sale of the call
or the put option. The ProFund also will realize a gain if a call or put option
which the ProFund has written lapses unexercised, because the ProFund would
retain the premium.
U.S. GOVERNMENT SECURITIES
Each non-money market ProFund and the Portfolio also may invest in U.S.
government securities. U.S. government securities include U.S. Treasury
securities, which are backed by the full faith and credit of the U.S. Treasury
and which differ only in their interest rates, maturities, and times of
issuance. U.S. Treasury bills have initial maturities of one year or less; U.S.
Treasury notes have initial maturities of one to ten years; and U.S. Treasury
bonds generally have initial maturities of greater than ten years. Certain U.S.
government securities are issued or guaranteed by agencies or instrumentalities
of the U.S. government including, but not limited to, obligations of U.S.
government agencies or instrumentalities, such as the Federal National Mortgage
Association, the Government National Mortgage Association, the Small Business
Administration, the Federal Farm Credit Administration, the Federal Home Loan
Banks, Banks for Cooperatives (including the Central Bank for Cooperatives),the
Federal Land Banks, the Federal Intermediate Credit Banks, the Tennessee Valley
Authority, the Export-Import Bank of the United States, the Commodity Credit
Corporation, the Federal Financing Bank, the Student Loan Marketing Association,
and the National Credit Union Administration. Some obligations issued or
guaranteed by U.S. government agencies and instrumentalities, including, for
example, Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury. Other obligations
issued by or guaranteed by Federal agencies, such as those securities issued by
the Federal National Mortgage Association, are supported by the discretionary
authority of the U.S. government to purchase certain obligations of the federal
agency, while other obligations issued by or guaranteed by federal agencies,
such as those of the Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the U.S. Treasury. While the U.S. government provides
financial support to such U.S. government-sponsored Federal agencies, no
assurance can be given that the U.S. government will always do so, since the
U.S. Government is not so obligated by law. U.S. Treasury notes and bonds
typically pay coupon interest semi-annually and repay the principal at maturity.
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REPURCHASE AGREEMENTS
Each of the ProFunds may enter into repurchase agreements with financial
institutions. The ProFunds follow certain procedures designed to minimize the
risks inherent in such agreements. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions whose condition will be continually monitored by the Advisor and,
in the case of the Money Market ProFund, Bankers Trust. In addition, the value
of the collateral underlying the repurchase agreement will always be at least
equal to the repurchase price, including any accrued interest earned on the
repurchase agreement. In the event of a default or bankruptcy by a selling
financial institution, a ProFund will seek to liquidate such collateral which
could involve certain costs or delays and, to the extent that proceeds from any
sale upon a default of the obligation to repurchase were less than the
repurchase price, the ProFund could suffer a loss. It is the current policy of
the ProFunds not to invest in repurchase agreements that do not mature within
seven days if any such investment, together with any other liquid assets held by
the ProFund, amounts to more than 15% (10% with respect to the Money Market
ProFund) of the ProFund's total net assets. The investments of each of the
ProFunds in repurchase agreements at times may be substantial when, in the view
of the Advisor and, in the case of the Money Market ProFund, Bankers Trust,
liquidity, investment, regulatory, or other considerations so warrant.
REVERSE REPURCHASE AGREEMENTS
The non-money market ProFunds and the Portfolio may use reverse repurchase
agreements as part of that ProFund's investment strategy. Reverse repurchase
agreements involve sales by a ProFund/Portfolio of portfolio assets concurrently
with an agreement by the ProFund/Portfolio to repurchase the same assets at a
later date at a fixed price. Generally, the effect of such a transaction is that
the ProFund/Portfolio can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while the ProFund/Portfolio will be able to keep the interest income
associated with those portfolio securities. Such transactions are advantageous
only if the interest cost to the ProFund/Portfolio of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise. Opportunities
to achieve this advantage may not always be available, and the
ProFund/Portfolios intend to use the reverse repurchase technique only when this
will be to the ProFund/Portfolio's advantage to do so. The ProFund/Portfolios
will establish a segregated account with their custodian bank in which the
ProFund/Portfolio will maintain cash or liquid instruments equal in value to the
ProFund/Portfolio's obligations in respect of reverse repurchase agreements.
BORROWING
The ProFunds (other than the Portfolio except to the degree the Portfolio
may borrow for temporary or emergency purposes) may borrow money for cash
management purposes or investment purposes. Each of the non-money market
ProFunds may also enter into reverse repurchase agreements, which may be viewed
as a form of borrowing, with financial institutions. However, to the extent a
ProFund "covers" its repurchase obligations as described above in "Reverse
Repurchase Agreements," such agreement will not be considered to be a "senior
security" and, therefore, will not be subject to the 300% asset coverage
requirement otherwise applicable to borrowings by the ProFunds. Borrowing for
investment is known as leveraging. Leveraging investments, by purchasing
securities with borrowed money, is a speculative technique which increases
investment risk, but also increases investment opportunity. Since substantially
all of a ProFund's assets will fluctuate in value, whereas the interest
obligations on borrowings may be fixed, the net asset value per share of the
ProFund will increase more when the ProFund's portfolio assets increase in value
and decrease more when the ProFund's portfolio assets decrease in value than
would otherwise be the case. Moreover, interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the returns on the borrowed funds. Under adverse conditions, a ProFund
might have to sell portfolio securities to meet interest or principal payments
at a time when investment considerations would not favor such sales.
As required by the Investment Company Act of 1940, as amended (the "1940
Act"), a ProFund must maintain continuous asset coverage (total assets,
including assets acquired with borrowed funds, less liabilities exclusive of
borrowings) of 300% of all amounts borrowed. If at any time the value of the
ProFund's assets should
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fail to meet this 300% coverage test, the ProFund, within three days (not
including Sundays and holidays), will reduce the amount of the ProFund's
borrowings to the extent necessary to meet this 300% coverage. Maintenance of
this percentage limitation may result in the sale of portfolio securities at a
time when investment considerations otherwise indicate that it would be
disadvantageous to do so. In addition to the foregoing, the ProFunds are
authorized to borrow money from a bank as a temporary measure or extraordinary
or emergency purposes in amounts not in excess of 5% of the value of the
ProFund's total assets. This borrowing is not subject to the foregoing 300%
asset coverage requirement. The ProFunds are authorized to pledge portfolio
securities as the Advisor deems appropriate in connection with any borrowings.
LENDING OF PORTFOLIO SECURITIES
Subject to the investment restrictions set forth below, each of the
ProFunds and the Portfolio may lend its portfolio securities to brokers,
dealers, and financial institutions, provided that cash equal to at least 100%
of the market value of the securities loaned is deposited by the borrower with
the ProFund/Portfolio and is maintained each business day in a segregated
account pursuant to applicable regulations. While such securities are on loan,
the borrower will pay the lending ProFund/Portfolio any income accruing thereon,
and the ProFund/Portfolio may invest the cash collateral in portfolio
securities, thereby earning additional income. A ProFund/Portfolio will not lend
more than 33% of the value of the ProFund's total assets, except that the
Portfolio will not lend more than 20% of the value of its total assets. Loans
would be subject to termination by the lending ProFund/Portfolio on four
business days' notice, or by the borrower on one day's notice. Borrowed
securities must be returned when the loan is terminated. Any gain or loss in the
market price of the borrowed securities which occurs during the term of the loan
inures to the lending ProFund/Portfolio and that ProFund's/Portfolio's
shareholders. A lending ProFund/Portfolio may pay reasonable finders, borrowers,
administrative, and custodial Trustees in connection with a loan.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each non-money market ProFund (and to the extent allowable by its
investment policies, the Money Market ProFund), from time to time, in the
ordinary course of business, may purchase securities on a when-issued or
delayed-delivery basis (i.e., delivery and payment can take place between a
month and 120 days after the date of the transaction). These securities are
subject to market fluctuation and no interest accrues to the purchaser during
this period. At the time a ProFund makes the commitment to purchase securities
on a when-issued or delayed-delivery basis, the ProFund will record the
transaction and thereafter reflect the value of the securities, each day, in
determining the ProFund's net asset value. A ProFund will not purchase
securities on a when-issued or delayed-delivery basis if, as a result, more than
15% of the ProFund's net assets would be so invested. At the time of delivery of
the securities, the value of the securities may be more or less than the
purchase price.
The Trust will also establish a segregated account with the Trust's
custodian bank in which the ProFunds will maintain liquid instruments equal to
greater in value than the ProFund's purchase commitments for such when-issued or
delayed-delivery securities, or the Trust does not believe that a ProFund's net
asset value or income will be adversely affected by the ProFund's purchase of
securities on a when-issued or delayed delivery basis.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The ProFunds may invest in the securities of other investment companies to
the extent that such an investment would be consistent with the requirements of
the 1940 Act. If a ProFund invests in, and, thus, is a shareholder of, another
investment company, the ProFund's shareholders will indirectly bear the
ProFund's proportionate share of the fees and expenses paid by such other
investment company, including advisory fees, in addition to both the management
fees payable directly by the ProFund to the ProFund's own investment adviser and
the other expenses that the ProFund bears directly in connection with the
ProFund's own operations.
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ILLIQUID SECURITIES
While none of the ProFunds anticipates doing so, each of the ProFunds and
the Portfolio may purchase illiquid securities, including securities that are
not readily marketable and securities that are not registered (restricted
securities) under the Securities Act of 1933, as amended (the 1933 Act ), but
which can be sold to qualified institutional buyers under Rule 144A of the 1933
Act. A ProFund will not invest more than 15% (10%with respect to the Portfolio)
of the ProFund's/Portfolio's net assets in illiquid securities. The term
illiquid securities for this purpose means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which the ProFund has valued the securities. Under the current guidelines of
the staff of the Securities and Exchange Commission (the "Commission"),illiquid
securities also are considered to include, among other securities, purchased
over-the-counter options, certain cover for over-the-counter options, repurchase
agreements with maturities in excess of seven days, and certain securities whose
disposition is restricted under the Federal securities laws. The
ProFund/Portfolio may not be able to sell illiquid securities when the Advisor
or Bankers Trust considers it desirable to do so or may have to sell such
securities at a price that is lower than the price that could be obtained if the
securities were more liquid. In addition, the sale of illiquid securities also
may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.
Institutional markets for restricted securities have developed as a result
of the promulgation of Rule 144A under the 1933 Act, which provides a safe
harbor from 1933 Act registration requirements for qualifying sales to
institutional investors. When Rule 144A restricted securities present an
attractive investment opportunity and otherwise meet selection criteria, a
ProFund may make such investments. Whether or not such securities are illiquid
depends on the market that exists for the particular security. The Commission
staff has taken the position that the liquidity of Rule 144A restricted
securities is a question of fact for a board of trustees to determine, such
determination to be based on a consideration of the readily-available trading
markets and the review of any contractual restrictions. The staff also has
acknowledged that, while a board of trustees retains ultimate responsibility,
trustees may delegate this function to an investment adviser. Trustees of
ProFunds have delegated this responsibility for determining the liquidity of
Rule 144A restricted securities which may be invested in by a ProFund to the
Advisor or, in the case of the Portfolio, to Bankers Trust. It is not possible
to predict with assurance exactly how the market for Rule 144A restricted
securities or any other security will develop. A security which when purchased
enjoyed a fair degree of marketability may subsequently become illiquid and,
accordingly, a security which was deemed to be liquid at the time of acquisition
may subsequently become illiquid. In such event, appropriate remedies will be
considered to minimize the effect on the ProFund's liquidity.
BANK OBLIGATIONS (MONEY MARKET PROFUND AND THE PORTFOLIO)
For purposes of the Portfolio's investment policies with respect to bank
obligations, the assets of a bank will be deemed to include the assets of its
domestic and foreign branches. Obligations of foreign branches of U.S. banks and
foreign banks may be general obligations of the parent bank in addition to the
issuing bank or may be limited by the terms of a specific obligation and by
government regulation. If Bankers Trust, acting under the supervision of the
Portfolio's Board of Trustees, deems the instruments to present minimal credit
risk, the Portfolio may invest in obligations of foreign banks or foreign
branches of U.S. banks which include banks located in the United Kingdom, Grand
Cayman Island, Nassau, Japan and Canada. Investments in these obligations may
entail risks that are different from those of investments in obligations of U.S.
domestic banks because of differences in political, regulatory and economic
systems and conditions. These risks include, without limitation, future
political and economic developments, currency blockage, the possible imposition
of withholding taxes on interest payments, possible seizure or nationalization
of foreign deposits, and difficulty or inability of pursuing legal remedies and
obtaining judgment concerning the types of securities and other instruments in
which the Portfolio may invest.
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COMMERCIAL PAPER AND OTHER DEBT OBLIGATIONS (MONEY MARKET PROFUND AND THE
PORTFOLIO)
The commercial paper and other debt obligations in which the Portfolio may
invest are short-term, unsecured negotiable promissory notes of U.S. or foreign
corporations that at the time of purchase meet the rating criteria described in
the Prospectus. Investments in foreign commercial paper generally involve risks
similar to those described above relating to obligations of foreign banks or
foreign branches of U.S. banks.
PORTFOLIO TURNOVER
As discussed in the Prospectus, the ProFunds anticipate that their
investors as part of their strategy, will frequently exchange shares of the
ProFunds for shares in other ProFunds pursuant to the exchange policy, as well
as frequently redeem shares of the ProFunds (see "How to Exchange Shares of the
ProFunds" in the Prospectus). The nature of the ProFunds will cause the ProFunds
to experience substantial portfolio turnover. Because each ProFund's portfolio
turnover rate to a great extent will depend on the purchase, redemption, and
exchange activity of the ProFund's investors, it is difficult to estimate what
the ProFund's actual turnover rate will be in the future. "Portfolio Turnover
Rate" is defined under the rules of the Commission as the value of the
securities purchased or securities sold, excluding all securities whose
maturities at time of acquisition were oneyear or less, divided by the average
monthly value of such securities owned during the year. Based on this
definition, instruments with remaining maturities of less than one year are
excluded from the calculation of portfolio turnover rate. Instruments excluded
from the calculation of portfolio turnover generally would include the futures
contracts and option contracts in which the non-money market ProFunds invest
since such contracts generally have a remaining maturity of less than one year.
Pursuant to the formula prescribed by the Commission, the portfolio turnover
rate for each ProFund is calculated without regard to instruments, including
options and futures contracts, having a maturity of less than one year. The Bull
ProFund, the UltraBull ProFund, the Bear ProFund and the UltraBear ProFund
typically hold most of their investments in short-term options and futures
contracts, which, therefore, are excluded for purposes of computing portfolio
turnover. Therefore, based on the Commission's portfolio turnover formula, each
of these ProFunds expects a portfolio turnover rate of approximately 0%.
INVESTMENT RESTRICTIONS
The ProFunds and the Portfolio have adopted certain investment restrictions
as fundamental policies which cannot be changed without the approval of the
holders of a "majority" of the outstanding shares of the ProFund or the
Portfolio, as that term is defined in the 1940 Act. The term "majority" is
defined in the 1940 Act as the lesser of: (i) 67% or more of the shares of the
series present at a meeting of shareholders, if the holders of more than 50% of
the outstanding shares of the ProFund are present or represented by proxy; or
(ii) more than 50% of the outstanding shares of the series. (All policies of a
ProFund not specifically identified in this Statement of Additional Information
or the Prospectus as fundamental may be changed without a vote of the
shareholders of the ProFund.) For purposes of the following limitations, all
percentage limitations apply immediately after a purchase or initial investment.
A non-money market ProFund may not:
1. Invest more than 25% of its total assets, taken at market value at
the time of each investment, in the securities of issuers in any
particular industry (excluding the U.S. Government and its
agencies and instrumentalities).
2. Make investments for the purpose of exercising control or
management.
3. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the ProFund may invest in securities directly
or indirectly secured by real estate or interests therein or
issued by companies that invest in real estate or interests
therein.
4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-
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through instruments, certificates of deposit, bankers' acceptances
and repurchase agreements and purchase and sale contracts and any
similar instruments shall not be deemed to be the making of a
loan, and except further that the ProFund may lend its portfolio
securities, provided that the lending of portfolio securities may
be made only in accordance with applicable law and the guidelines
set forth in the Prospectus and this Statement of Additional
Information, as they may be amended from time to time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that the ProFund (i) may borrow from banks
(as defined in the Investment Company Act of 1940) in amounts up
to 33 1/3% of its total assets (including the amount borrowed),
(ii) may, to the extent permitted by applicable law, borrow up to
an additional 5% of its total assets for temporary purposes, (iii)
may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities, (iv) may
purchase securities on margin to the extent permitted by
applicable law and (v) may enter into reverse repurchase
agreements. The ProFund may not pledge its assets other than to
secure such borrowings or, to the extent permitted by the
ProFund's investment policies as set forth in the Prospectus and
this Statement of Additional Information, as they may be amended
from time to time, in connection with hedging transactions, short
sales, when-issued and forward commitment transactions and similar
investment strategies.
7. Underwrite securities of other issuers, except insofar as the
ProFund technically may be deemed an underwriter under the
Securities Act of 1933, as amended (the "Securities Act"), in
selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except
to the extent the ProFund may do so in accordance with applicable
law and the ProFund's Prospectus and Statement of Additional
Information, as they may be amended from time to time.
THE FOLLOWING FUNDAMENTAL INVESTMENT RESTRICTIONS AND NON-FUNDAMENTAL
INVESTMENT OPERATING POLICIES HAVE BEEN ADOPTED BY THE TRUST, WITH RESPECT TO
THE MONEY MARKET PROFUND, AND BY THE PORTFOLIO. UNLESS AN INVESTMENT INSTRUMENT
OR TECHNIQUE IS DESCRIBED IN THE PROSPECTUS OR ELSEWHERE HEREIN, THE MONEY
MARKET PROFUND AND THE PORTFOLIO MAY NOT INVEST IN THAT INVESTMENT INSTRUMENT OR
ENGAGE IN THAT INVESTMENT TECHNIQUE.
The investment restrictions below have been adopted by the Trust with
respect to the Money Market ProFund and by the Portfolio as fundamental policies
(as defined above). Whenever the Money Market ProFund is requested to vote on a
change in the investment restrictions of the Portfolio, the Trust will hold a
meeting of the Money Market ProFund shareholders and will cast its votes as
instructed by the shareholders. The Money Market ProFund shareholders who do not
vote will not affect the Trust's votes at the Portfolio meeting. The percentage
of the Trust's votes representing ProFund shareholders not voting will be voted
by the Trustees of the Trust in the same proportion as the Fund shareholders who
do, in fact, vote.
Under investment policies adopted by the Money Market ProFund and by the
Portfolio, each of the Money Market ProFund and Portfolio may not:
1. Borrow money, except for temporary or emergency (not leveraging)
purposes in an amount not exceeding 5% of the value of the
ProFund's or the Portfolio's total assets (including the amount
borrowed), as the case may be, calculated in each case at the
lower of cost or market.
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2. Pledge, hypothecate, mortgage or otherwise encumber more than 5%
of the total assets of the ProFund or the Portfolio, as the case
may be, and only to secure borrowings for temporary or emergency
purposes.
3. Invest more than 5% of the total assets of the ProFund or the
Portfolio, as the case may be, in any one issuer (other than U.S.
government obligations) or purchase more than 10% of any class of
securities of any one issuer; provided, however, that (i) up to
25% of the assets of the ProFund and the Portfolio may be invested
without regard to this restriction; provided, however, that
nothing in this investment restriction shall prevent the Trust
from investing all or part of a ProFund's assets in an open-end
management investment company with substantially the same
investment objectives as the ProFund.
4. Invest more than 25% of the total assets of the ProFund or the
Portfolio, as the case may be, in the securities of issuers in any
single industry; provided that: (i) this limitation shall not
apply to the purchase of U.S. government obligations; (ii) under
normal market conditions more than 25% of the total assets of the
Money Market ProFund and the Portfolio will be invested in
obligations of foreign and U.S. Banks provided, however, that
nothing in this investment restriction shall prevent a Trust from
investing all or part of a ProFund's assets in an open-end
management investment company with substantially the same
investment objectives as the ProFund.
5. Make short sales of securities, maintain a short position or
purchase any securities on margin, except for such short-term
credits as are necessary for the clearance of transactions.
6. Underwrite the securities issued by others (except to the extent
the ProFund or Portfolio may be deemed to be an underwriter under
the Federal securities laws in connection with the disposition of
its portfolio securities) or knowingly purchase restricted
securities, provided, however, that nothing in this investment
restriction shall prevent the Trust from investing all of the
ProFund's assets in an open-end management investment company with
substantially the same investment objectives as the ProFund.
7. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil, gas or
mineral interests, but this shall not prevent the ProFund or the
Portfolio from investing in obligations secured by real estate or
interests therein.
8. Make loans to others, except through the purchase of qualified
debt obligations, the entry into repurchase agreements and, with
respect to the ProFund and the Portfolio, the lending of portfolio
securities.
9. Invest more than an aggregate of 10% of the net assets of the
ProFund or the Portfolio's, respectively, (taken, in each case, at
current value) in (i) securities that cannot be readily resold to
the public because of legal or contractual restrictions or because
there are no market quotations readily available or (ii) other
"illiquid" securities (including time deposits and repurchase
agreements maturing in more than seven calendar days); provided,
however, that nothing in this investment restriction shall prevent
the Trust from investing all or part of the ProFund's assets in an
open-end management investment company with substantially the same
investment objective as the ProFund.
10. Purchase more than 10% of the voting securities of any issuer or
invest in companies for the purpose of exercising control or
management; provided, however, that nothing in this investment
restriction shall prevent the Trust from investing all or part of
the ProFund's assets in an open-end management investment company
with substantially the same investment objectives as the ProFund.
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11. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act or in connection with a
merger, consolidation, reorganization, acquisition of assets or an
offer of exchange; provided, however, that nothing in this
investment restriction shall prevent the Trust from investing all
or part of the ProFunds' assets in an open-end management
investment company with substantially the same investment
objectives as the ProFund.
12. Issue any senior securities, except insofar as it may be deemed to
have issued a senior security by reason of (i) entering into a
reverse repurchase agreement or (ii) borrowing in accordance with
terms described in the Prospectus and this SAI.
13. Purchase or retain the securities of any issuer if any of the
officers or trustees of the ProFund or the Portfolio or Bankers
Trust owns individually more than 1/2 of 1% of the securities of
such issuer, and together such officers and directors own more
than 5% of the securities of such issuer.
14. Invest in warrants, except that the ProFund or the Portfolio may
invest in warrants if, as a result, the investments (valued in
each case at the lower of cost or market) would not exceed 5% of
the value of the net assets of the ProFund or the Portfolio, as
the case may be, of which not more than 2% of the net assets of
the ProFund or the Portfolio, as the case may be, may be invested
in warrants not listed on a recognized domestic stock exchange.
Warrants acquired by the ProFund or the Portfolio as part of a
unit or attached to securities at the time of acquisition are not
subject to this limitation.
Additional Restrictions. In order to comply with certain statutes and
policies, the Portfolio (or Trust, on behalf of the Money Market ProFund) will
not as a matter of operating policy (except that no operating policy shall
prevent the ProFund from investing all of its assets in an open-end investment
company with substantially the same investment objective):
(i) borrow money (including through dollar roll transactions) for any
purpose in excess of 10% of the Portfolio's (ProFund's) total
assets (taken at cost), except that the Portfolio (ProFund) may
borrow for temporary or emergency purposes up to 1/3 of its total
assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10%
of the Portfolio's (ProFund's) total assets (taken at market
value), provided that collateral arrangements with respect to
options and futures, including deposits of initial deposit and
variation margin, are not considered a pledge of assets for
purposes of this restriction;
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and
except that deposits of initial deposit and variation margin may
be made in connection with the purchase, ownership, holding or
sale of futures;
(iv) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided
that if such right is conditional the sale is made upon the same
conditions;
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase,
though not made in the open market, is part of a plan of merger or
consolidation; provided, however, that securities
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of any investment company will not be purchased for the Portfolio
(ProFund) if such purchase at the time thereof would cause (a) more than
10% of the Portfolio's (ProFund's) total assets (taken at the greater of
cost or market value) to be invested in the securities of such issuers;
(b) more than 5% of the Portfolio's (ProFund's) total assets (taken at
the greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding voting
securities of any such issuer to be held for the Portfolio (ProFund);
and, provided further, that the Portfolio shall not invest in any other
open-end investment company unless the Portfolio (ProFund) (1) waives
the investment advisory fee with respect to assets invested in other
open-end investment companies and (2) incurs no sales charge in
connection with the investment (as an operating policy, each Portfolio
will not invest in another open-end registered investment company);
(vii) invest more than 15% of the Portfolio's (ProFund's) total net assets
(taken at the greater of cost or market value) in securities that are
illiquid or not readily marketable not including (a) Rule 144A
securities that have been determined to be liquid by the Board of
Trustees; and (b) commercial paper that is sold under section 4(2) of
the 1933 Act which: (i) is not traded flat or in default as to interest
or principal; and (ii) is rated in one of the two highest categories by
at least two nationally recognized statistical rating organizations;
(iii) is rated one of the two highest categories by one nationally
recognized statistical rating agency and the Portfolio's (ProFund's)
Board of Trustees have determined that the commercial paper is
equivalent quality and is liquid;
(viii) invest no more than 5% of the Portfolio's (ProFund's) total assets are
in securities issued by issuers which (including predecessors) have been
in operation less than three years;
(ix) invest more than 10% of the Portfolio's (ProFund's) total assets (taken
at the greater of cost or market value) in securities that are
restricted as to resale under the 1933 Act (other than Rule 144A
securities deemed liquid by the Portfolio's (ProFund's) Board of
Trustees);
(x) with respect to 75% of the Portfolio's (ProFund's) total assets,
purchase securities of any issuer if such purchase at the time thereof
would cause the Portfolio (ProFund) to hold more than 10% of any class
of securities of such issuer, for which purposes all indebtedness of an
issuer shall be deemed a single class and all preferred stock of an
issuer shall be deemed a single class, except that futures or option
contracts shall not be subject to this restriction;
(xi) if the Portfolio (ProFund) is a "diversified" ProFund with respect to
75% of its assets, invest more than 5% of its total assets in the
securities (excluding U.S. government securities) of any one issuer;
(xii) purchase or retain in the Portfolio's (ProFund's) portfolio any
securities issued by an issuer any of whose officers, directors,
trustees or security holders is an officer or Trustee of the Portfolio
(Trust), or is an officer or partner of the Adviser, if after the
purchase of the securities of such issuer for the Portfolio (ProFund)
one or more of such persons owns beneficially more than 1/2 of 1% of the
shares or securities, or both, all taken at market value, of such
issuer, and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or
securities, or both, all taken at market value;
(xiii) invest more than 5% of the Portfolio's (ProFund's) net assets in
warrants (valued at the lower of cost or market) (other than warrants
acquired by the Portfolio (ProFund) as part of a unit or attached to
securities at the time of purchase), but not more than 2% of the
Portfolio's (ProFund's) net assets may be invested in warrants not
listed on the American Stock Exchange or the New York Stock Exchange,
Inc. ("NYSE");
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<PAGE> 50
(xiv) make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue
and equal in amount to, the securities sold short, and unless not more
than 10% of the Portfolio's (ProFund's) net assets (taken at market
value) is represented by such securities, or securities convertible into
or exchangeable for such securities, at any one time (the Portfolio
(ProFund) has no current intention to engage in short selling).
The Money Market ProFund will comply with the state securities laws and
regulations of all states in which it is registered. The Portfolio will comply
with the permitted investments and investment limitations in the securities laws
and regulations of all states in which the Portfolio, or any other registered
investment company investing in the Portfolio, is registered.
PORTFOLIO TRANSACTIONS AND BROKERAGE
NON-MONEY MARKET PROFUNDS
Subject to the general supervision by the Trustees, the Advisor is
responsible for decisions to buy and sell securities for each of the ProFunds,
the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. The Advisor expects that the
ProFunds may execute brokerage or other agency transactions through registered
broker-dealers, for a commission, in conformity with the 1940 Act, the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder. The Advisor may serve as an investment manager to a number of
clients, including other investment companies. It is the practice of the Advisor
to cause purchase and sale transactions to be allocated among the ProFunds and
others whose assets the Advisor manages in such manner as the Advisor deems
equitable. The main factors considered by the Advisor in making such allocations
among the ProFunds and other client accounts of the Advisor are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the opinions of the person(s)
responsible, if any, for managing the portfolios of the ProFunds and the other
client accounts.
The policy of each ProFund regarding purchases and sales of securities
for a ProFund's portfolio is that primary consideration will be given to
obtaining the most favorable prices and efficient executions of transactions.
Consistent with this policy, when securities transactions are effected on a
stock exchange, each ProFund's policy is to pay commissions which are considered
fair and reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. Each ProFund believes that a
requirement always to seek the lowest possible commission cost could impede
effective portfolio management and preclude the ProFund and the Advisor from
obtaining a high quality of brokerage and research services. In seeking to
determine the reasonableness of brokerage commissions paid in any transaction,
the Advisor relies upon its experience and knowledge regarding commissions
generally charged by various brokers and on its judgment in evaluating the
brokerage and research services received from the broker effecting the
transaction. Such determinations are necessarily subjective and imprecise, as in
most cases an exact dollar value for those services is not ascertainable.
Purchases and sales of U.S. government securities are normally
transacted through issuers, underwriters or major dealers in U.S. government
securities acting as principals. Such transactions are made on a net basis and
do not involve payment of brokerage commissions. The cost of securities
purchased from an underwriter usually includes a commission paid by the issuer
to the underwriters; transactions with dealers normally reflect the spread
between bid and asked prices.
In seeking to implement a ProFund's policies, the Advisor effects
transactions with those brokers and dealers who the Advisor believes provide the
most favorable prices and are capable of providing efficient executions. If the
Advisor believes such prices and executions are obtainable from more than one
broker or dealer, the Advisor may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research
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<PAGE> 51
and other services to the ProFund or the Advisor. Such services may include, but
are not limited to, any one or more of the following: information as to the
availability of securities for purchase or sale; statistical or factual
information or opinions pertaining to investment; wire services; and appraisals
or evaluations of portfolio securities. If the broker-dealer providing these
additional services is acting as a principal for its own account, no commissions
would be payable. If the broker-dealer is not a principal, a higher commission
may be justified, at the determination of the Advisor, for the additional
services.
The information and services received by the Advisor from brokers and
dealers may be of benefit to the Advisor in the management of accounts of some
of the Advisor's other clients and may not in all cases benefit a ProFund
directly. While the receipt of such information and services is useful in
varying degree and would generally reduce the amount of research or services
otherwise performed by the Advisor and thereby reduce the Advisor's expenses,
this information and these services are of indeterminable value and the
management fee paid to the Advisor is not reduced by any amount that may be
attributable to the value of such information and services.
MONEY MARKET PROFUND AND THE PORTFOLIO
Decisions to buy and sell securities and other financial instruments for
the Money Market ProFund and the Portfolio are made by Bankers Trust, which also
is responsible for placing these transactions, subject to the overall review of
the Portfolio's Board of Trustees. Although investment requirements for the
Portfolio are reviewed independently from those of the other accounts managed by
Bankers Trust (the "Other Portfolios"), investments of the type the Portfolio
may make may also be made by these Other Portfolios. When the Portfolio and one
or more Other Portfolios or accounts managed by Bankers Trust are prepared to
invest in, or desire to dispose of, the same security or other financial
instrument, available investments or opportunities for sales will be allocated
in a manner believed by Bankers Trust to be equitable to each. In some cases,
this procedure may affect adversely the price paid or received by the Portfolio
or the size of the position obtained or disposed of by the Portfolio.
Purchases and sales of securities on behalf of the Portfolio usually are
principal transactions. These securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. The cost
of securities purchased from underwriters includes an underwriting commission or
concession and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. U.S. government obligations are
generally purchased from underwriters or dealers, although certain newly issued
U.S. government obligations may be purchased directly from the U.S. Treasury or
from the issuing agency or instrumentality.
Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere and principal transactions are not entered
into with persons affiliated with the Portfolios except pursuant to exemptive
rules or orders adopted by the Commission. Under rules adopted by the
Commission, broker-dealers may not execute transactions on the floor of any
national securities exchange for the accounts of affiliated persons, but may
effect transactions by transmitting orders for execution.
In selecting brokers or dealers to execute portfolio transactions on
behalf of the Portfolio, Bankers Trust seeks the best overall terms available.
In assessing the best overall terms available for any transaction. Bankers Trust
will consider the factors it deems relevant, including the breadth of the market
in the investment, the price of the investment, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing bases. In
addition, Bankers Trust is authorized, in selecting parties to execute a
particular transaction and in evaluating the best overall terms available to
consider the brokerage, but not research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to
the Portfolio involved, the other Portfolios and/or other accounts over which
Bankers Trust or its affiliates exercise investment discretion. Bankers Trust's
fees under its agreements with the Portfolios are not reduced by reason of its
receiving brokerage services.
The valuation of the Portfolio's securities is based on their amortized
cost, which does not take into account unrealized capital gains or losses.
Amortized cost valuation involves initially valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the
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<PAGE> 52
impact of fluctuating interest rates on the market value of the instrument.
Although this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price a Portfolio would receive if it sold the instrument.
The Portfolio's use of the amortized cost method of valuing its
securities is permitted by a rule adopted by the Commission. Under this rule,
the Portfolio must maintain a dollar-weighted average portfolio maturity of 90
days or less, purchase only instruments having remaining maturities of 397 days
or and invest only in securities determined by or under the supervision of the
Board of Trustees to be of high quality with minimal credit risks.
Pursuant to the rule, the Board of Trustees of the Portfolio also has
established procedures designed to allow investors in the Portfolio, such as the
Money Market ProFund, to stabilize, to the extent reasonably possible, the
investors' price per share as computed for the purpose of sales and redemptions
at $1.00. These procedures include review of the Portfolio's holdings by the
Portfolio's Board of Trustees, at such intervals as it deems appropriate, to
determine whether the value of the Portfolio's assets calculated by using
available market quotations or market equivalents deviates from such valuation
based on amortized cost.
The rule also provides that the extent of any deviation between the
value of the Portfolio's assets based on available market quotations or market
equivalents and such valuation based on amortized cost must be examined by the
Portfolio's Board of Trustees. In the event the Portfolio's Board of Trustees
determines that a deviation exists that may result in material dilution or other
unfair results to investors or existing shareholders, pursuant to the rule, the
Portfolio's Board of Trustees must cause the Portfolio to take such corrective
action as such Board of Trustees regards as necessary and appropriate,
including: selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding dividends
or paying distributions from capital or capital gains; redeeming shares in kind;
or valuing the Portfolio's assets by using available market quotations.
Each investor in the Portfolio, including the Money Market ProFund, may
add to or reduce its investment in the Portfolio on each day the Portfolio
determines its NAV. At the close of each such business day, the value of each
investor's beneficial interest in the Portfolio will be determined by
multiplying the NAV of the Portfolio by the percentage, effective for that day,
which represents that investor's share of the aggregate beneficial interests in
the Portfolio. Any additions or withdrawals, which are to be effected as of the
close of business on that day, will then be effected. The investor's percentage
of the aggregate beneficial interests in the Portfolio will then be recomputed
as the percentage equal to the fraction (i) the numerator of which is the value
of such investor's investment in the Portfolio as of the close of business on
such day plus or minus, as the case may be, the amount of net additions to or
withdrawals from the investor's investment in the Portfolio effected as of the
close of business on such day, and (ii) the denominator of which is the
aggregate NAV of the Portfolio as of the close of business on such day plus or
minus, as the case may be, the amount of net additions to or withdrawals from
the aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of the close of the following business
day.
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<PAGE> 53
MANAGEMENT OF PROFUNDS
The Board of Trustees is responsible for the general supervision of the
Trust's business. The day-to-day operations of the ProFunds are the
responsibilities of ProFunds' officers. The names and addresses (and ages) of
the Trustees, of the Trust and the Portfolio, the officers of the Trust and the
Portfolio, and the officers of the Advisor, together with information as to
their principal business occupations during the past five years, are set forth
below. Fees and expenses for non-interested Trustees will be paid by the
Trust; Trustee expenses for interested Trustees will be paid by ProFund Advisors
LLC.
TRUSTEES AND OFFICERS OF PROFUNDS
Michael L. Sapir* (birthdate: May 19, 1958): Trustee, Chairman and Chief
Executive Officer; Trustee, Chairman and Chief Executive Officer; Chairman and
Chief Executive Officer, ProFund Advisors LLC; Principal, Law Offices of
Michael L. Sapir; President, Rydex Distributors, Inc.; Senior Vice President,
General Counsel, Padco Advisors, Inc.; Partner, Jorden Burt Berenson &
Klingensmith. His address is 7900 Wisconsin Avenue, Suite 300, Bethesda,
Maryland 20814.
Louis M. Mayberg* (birthdate: August 9, 1962): Trustee, Secretary;
ProFund Advisors LLC, President; Potomac Securities, Inc., President; National
Capital Companies, LLC, Managing Director. His address is 7900 Wisconsin
Avenue, Suite 300, Bethesda, Maryland 20814.
Thresa Dewar: (birthdate: March 13, 1954): Treasurer; BISYS Fund
Services, Vice President, Financial Administration; Healthy You Food Market of
Marco, Inc.; Federated Administrative Services, Vice President and Controller.
Michael C. Wachs (birthdate: October 21, 1961): Trustee, Vice President,
Delancy Investment Group, Inc.; Vice President/Senior Underwriter, First Union
National Bank; Vice President, First Union Capital Markets Corp.; Vice
President/Senior Credit Officer; Vice President/Team Leader. His address is 1528
Powder Mill Lane, Wynnewood, Pennsylvania 19096.
Russell S. Reynolds, III (birthdate: July 21, 1957): Trustee,
Managing Director, CFO and Secretary, Directorship, Inc.; President, Quadcom
Services, Inc. His address is 7 Stag Lane, Greenwich, Connecticut 06831.
Michael D. Miller (birthdate: May 5, 1971): Vice President; Client
Service Manager, Transfer Agency Client Relationship Manager, Supervisor, Client
Technology Support BISYS Fund Services.
*This Trustee is deemed to be an "interested person" within the meaning
of Section 2(a)(19) of the 1940 Act, inasmuch as this person is affiliated with
the Advisor, as described herein.
TRUSTEE COMPENSATION TABLE
The following table reflects estimated fees paid to the Trustees for
the year ended December 31, 1997.
Name of
Person: Position Compensation
- ---------------- ------------
Michael L. Sapir, Trustee, Chairman
and Chief Executive Officer None
Louis M. Mayberg, Trustee, President None
Russell S. Reynolds, III
Trustee $1,250
Michael C. Wachs
Trustee $1,250
TRUSTEES AND OFFICERS OF THE PORTFOLIO:
The Board of Trustees of the Portfolio ("Portfolio Trustees") is
composed of persons experienced in financial matters who meet throughout the
year to oversee the activities of the Portfolio. In addition the Portfolio
Trustees review contractual arrangements with companies that provide services to
the Portfolio.
The Portfolio Trustees and officers of the Portfolio, their birthdates
and their principal occupations during the past five years are set forth below.
Their titles may have varied during that period. Unless otherwise indicated the
address of each officer is Clearing Operations, P.O. Box 897, Pittsburgh,
Pennsylvania 15230-0897.
Trustees of the Portfolio:
--------------------------
Philip Saunders, Jr. (birthdate: October 11, 1935): Portfolio Trustee;
Principal, Philip Saunders Associates (Consulting); former Director of Financial
Industry Consulting, Wolf & Company; President, John HancockHome Mortgage
Corporation; and Senior Vice President of Treasury and Financial Services, John
Hancock Mutual Life Insurance Company, Inc. His address is 445 Glen Road,
Weston, Massachusetts 02193.
Charles P. Biggar (birthdate: October 13, 1930): Portfolio Trustee;
Retired; Director of Chase/NBW Bank Advisory Board; Director, Batement, Eichler,
Hill, Richards Inc.; formerly Vice President of International Business Machines
and President of the National Services and the Field Engineering Divisions of
IBM. His address is 12 Hitching Post Lane, Chappaqua, New York 10514.
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<PAGE> 54
S. Leland Dill (birthdate: March 28, 1930): Portfolio Trustee; Retired;
Director, Coutts Group; Coutts (U.S.A.) International; Coutts Trust Holdings
Ltd; director, Sweig Series Trust; formerly Partner of KPMG Peat Marwick;
director, Vinters International Company Inc.; General Partner of Pemco (an
investment company registered under the 1940 Act). His address is 5070 North
Ocean Drive, Singer Island, Florida 33404.
Officers of the Portfolio:
--------------------------
Ronald M. Petnuch (birthdate: February 27, 1960): President and
Treasurer; Senior Vice President, Federated Services Company ("FSC"); formerly,
Director of Proprietary Client Services, Federated Administrative Services
("FAS"), and Associate Corporate Counsel, Federated Investors ("FI").
Charles L. Davis, Jr. (birthdate: March 23, 1960): Vice President and
Assistant Treasurer; Vice President, FAS.
Jay S. Neuman (birthdate: April 22, 1950): Secretary; Corporate Counsel,
FI.
No person who is an officer or director of Bankers Trust is an officer
or Trustee of the Trust or the Portfolio. No director, officer or employee of
BISYS or any of its affiliates will receive any compensation from the Trust or
Portfolio for serving as an officer or Trustee of the Trust or the Portfolio.
PORTFOLIO TRUSTEE COMPENSATION TABLE
The following table reflects fees paid to the Portfolio Trustees for the
year ended December 31, 1996.
<TABLE>
<CAPTION>
Aggregate Compensation
Name of from Cash Total Compensation
Person; Position Management Portfolio* from Fund Complex *
---------------- --------------------- -------------------
<S> <C> <C>
Philip W. Coolidge**
Trustee, BT Institutional Funds,
BT Pyramid Mutual Funds and
Portfolio $ 78.13 $ 140
Charles P. Biggar
Trustee, BT Institutional Funds
and Portfolio $1,796.88 $12,350
S. Leland Dill
Trustee, Portfolio $1,796.88 $ 625
Philip Saunder, Jr.
Trustee, Portfolio $1,796.88 $ 625
</TABLE>
* Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds,
BT Pyramid Funds, BT Advisor Funds, BT Investment Portfolios, Cash
Management Portfolio, Treasury Money Portfolio, Tax Free Money
portfolio, NY Tax Free Money Portfolio, International Equity Portfolio,
Utility Portfolio, Short Intermediate U.S. Government Securities
Portfolio, Intermediate Tax Free Portfolio, Asset Management Portfolio,
Equity 500 Index Portfolio, and Capital Appreciation Portfolio.
** Mr. Coolidge resigned as a Trustee effective August 11, 1997.
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<PAGE> 55
As of October 20, 1997, the Portfolio Trustees and Officers owned
in the aggregate less than 1% of the shares of the Portfolio.
INVESTMENT ADVISERS
PROFUND ADVISORS LLC
Under an investment advisory agreement between the ProFunds, other than
the Money Market ProFund, and the Advisor, dated October ___, 1997, each such
ProFund pays the Advisor a fee at an annualized rate, based on its average daily
net assets of 0.75%. The Advisor manages the investment and the reinvestment of
the assets of each of the Funds, in accordance with the investment objectives,
policies, and limitations of the ProFund, subject to the general supervision and
control of Trustees and the officers of ProFunds. The Advisor bears all costs
associated with providing these advisory services. The Advisor, from its own
resources, including profits from advisory fees received from the Funds,
provided such Trustees are legitimate and not excessive, also may make payments
to broker-dealers and other financial institutions for their expenses in
connection with the distribution of ProFunds' shares, and otherwise currently
pays all distribution costs for ProFunds' shares.
BANKERS TRUST
Under the terms of an investment advisory agreement (the "Advisory
Agreement") between the Portfolio and Bankers Trust, Bankers Trust manages the
Portfolio subject to the supervision and direction of the Board of Trustees of
the Portfolio. Bankers Trust will: (i) act in strict conformity with the
Portfolio's Declaration of Trust, the 1940 Act and the Investment Advisers Act
of 1940, as the same may from time to time be amended; (ii) manage the Portfolio
in accordance with the Portfolio's and/or the Money Market ProFund's investment
objectives, restrictions and policies, as stated herein and in the Prospectus;
(iii) make investment decisions for the Portfolio; and (iv) place purchase and
sale orders for securities and other financial instruments on behalf of the
Portfolio.
Bankers Trust bears all expenses in connection with the performance of
services under the Advisory Agreement. The Money Market ProFund and the
Portfolio bear certain other expenses incurred in their operation, including:
taxes, interest, brokerage fees and commissions, if any; fees of Trustees of the
Trust or Portfolio who are not officers, directors or employees of Bankers
Trust, the Advisor, the administrator or any of their affiliates; SEC fees and
state Blue Sky qualification fees, if any; administrative and services fees;
certain insurance premiums, outside auditing and legal expenses, and costs of
maintenance of corporate existence; costs attributable to investor services,
including without limitation, telephone and personnel expenses; and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trust or the
Portfolio; and any extraordinary expenses.
For the fiscal years ended December 31, 1996, 1995 and 1994, Bankers
Trust earned $4,935,288, $3,847,729 and $3,807,085, respectively, in
compensation for investment advisory services provided to the Portfolio. During
the same periods, Bankers Trust reimbursed $761,230, $578,251 and $537,651,
respectively, to the Portfolio to cover expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Portfolio, including outstanding loans to such issuers which could be
repaid in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. Bankers
Trust has informed the Portfolio that, in making its investment decisions, it
does not obtain or use material inside information in its possession or in the
possession of any of its affiliates. In making investment recommendations for
the Portfolio, Bankers Trust will not inquire or take into consideration whether
an issuer of securities proposed for purchase or sale by the Portfolio is a
customer of Bankers Trust, its parent or its subsidiaries or affiliates and, in
dealing with its customers, Bankers Trust, its parent, subsidiaries, and
affiliates will not inquire or take into consideration whether securities of
such customers are held by any fund managed by Bankers Trust or any such
affiliate.
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<PAGE> 56
ADMINISTRATION, TRANSFER AGENT, FUND ACCOUNTING AGENT AND CUSTODIAN
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS") acts as Administrator to the ProFunds. The Administrator provides
ProFunds with all required general administrative services, including, without
limitation, office space, equipment, and personnel; clerical and general back
office services; bookkeeping, internal accounting, and secretarial services; the
determination of net asset values; and the preparation and filing of all
reports, registration statements, proxy statements, and all other materials
required to be filed or furnished by ProFunds and the Funds under Federal and
state securities laws. The Administrator also maintains the shareholder account
records for ProFunds, distributes dividends and distributions payable by the
ProFunds, and produces statements with respect to account activity for the
ProFunds and their shareholders. The Administrator pays all fees and expenses
that are directly related to the services provided by the Administrator to
ProFunds; each ProFund reimburses the Administrator for all fees and expenses
incurred by the Administrator which are not directly related to the services the
Administrator provides to the ProFunds under the service agreement
For its services as Administrator, each ProFund pays BISYS an annual fee
ranging from 0.15% of average daily net assets of $0 to $300 million to .05% of
average daily net assets of $1 billion and over. BISYS Funds Services, Inc.
("BFSI"), an affiliate of BISYS, acts as transfer agent and fund accounting
agent for the ProFunds, for which it receives additional fees. Additionally,
ProFunds and BISYS and BFSI have entered into an Omnibus Fee Agreement in which
the amount of compensation due and payable to BISYS shall be the greater of (i)
the aggregate fee amount due and payable for services pursuant to the
Administration, Fund Accounting and Transfer Agency Agreements and (ii) the
minimum relationship fee described as specific dollar amounts payable over a
period of ten calendar quarters ($1,100,000). The address for BISYS and BFSI is
3435 Stelzer Road, Suite 1000, Columbus, Ohio 43219.
ProFunds Advisors LLC, pursuant to a separate Management Services
Agreement, performs certain client support and other administrative services on
behalf of the ProFunds and feeder fund management and administrative services to
Money Market ProFund. These services include monitoring the performance of the
underlying investment company in which the Money Market ProFund invests,
coordinating the Money Market ProFund's relationship with that investment
company, and communicating with the Trust's Board of Trustees and shareholders
regarding such entity's performance and the Money Market ProFund's two tier
structure and, in general, assisting the Board of Trustees of the Trust in all
aspects of the administration and operation of the Money Market ProFund. For
these services, the ProFunds will pay to ProFunds Advisors LLC a fee at the
annual rate of .15% of its average daily net assets for all non-money market
ProFunds and .35% of its average daily net assets for the Money Market ProFund.
Under an Administration and Services Agreement, Bankers Trust is
obligated on a continuous basis to provide such administrative services as the
Board of Trustees of the Portfolio reasonably deems necessary for the proper
administration of the Portfolio. Bankers Trust will generally assist in all
aspects of the Portfolio's operations and will: supply and maintain office
facilities (which may be in Bankers Trust's own offices), statistical and
research data, data processing services, clerical, accounting, bookkeeping and
recordkeeping services (including, without limitation, the maintenance of such
books and records as are required under the 1940 Act and the rules thereunder,
except as maintained by other agents of the Portfolio), internal auditing,
executive and administrative services, and information and supporting data for
reports to and filings with the Commission and various state Blue Sky
authorities; supply supporting documentation for meetings of the Board of
Trustees; provide monitoring reports and assistance regarding compliance with
the Portfolio's Declaration of Trust, by-laws, investment objectives and
policies and with federal and state securities laws; arrange for appropriate
insurance coverage; calculate the net asset value, net income and realized
capital gains or losses of the Portfolio; and negotiate arrangements with, and
supervise and coordinate the activities of, agents and others retained to supply
services. Pursuant to a sub-administration agreement (the "Sub-Administration
Agreement") Federated Securities Company performs sub-administration duties for
the Portfolio as from time to time may be agreed upon by Bankers Trust and
Federated Securities Company. The Sub-Administration Agreement provides that
Federated Securities Company will receive such compensation as from time to time
may be agreed upon by Federated Securities Company and Bankers Trust. All such
compensation will be paid by Bankers Trust.
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<PAGE> 57
For the fiscal years ended December 31, 1996, 1995 and 1994, Bankers
Trust earned compensation of $1,645,096, $1,282,576 and $1,269,028,
respectively, for administrative and other services provided to the Portfolio.
UMB Bank, N.A. acts as custodian to the non-money market ProFunds. UMB
Bank, N.A.'s address is 928 Grand Avenue, Kansas City, Missouri.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand LLP serves as independent auditors to the ProFunds.
Coopers & Lybrand LLP provides audit services, tax return preparation and
assistance and consultation in connection with certain SEC filings. Coopers &
Lybrand LLP is located at 100 East Broad Street, Columbus, Ohio 43215.
LEGAL COUNSEL
Dechert Price & Rhoads serves as counsel to the ProFunds. The firm's
address is 1500 K Street, N.W., Washington, DC 20005-1208,
INTERIM DISTRIBUTOR
Concord Financial Group, Inc. will serve as the distributor and
principal underwriter in all fifty states and the District of Columbia until
such time as ProFunds has filed and duly registered with the appropriate
regulatory agencies of those jurisdictions, at which time ProFunds will
self-distribute the ProFunds' shares in all fifty states and the District of
Columbia. Concord Financial Group, Inc. receives no compensation from the
ProFunds for serving as distributor. Concord Financial Group, Inc.'s address is
3435 Stelzer Road, Columbus, Ohio 43219.
SHAREHOLDER SERVICE PLAN
Each ProFund has adopted a Shareholder Services Plan (the "Plan") which
provides that each ProFund will make payments equal to 1.00% (on an annual
basis) of the average daily value of the net assets of such ProFund's Adviser
shares attributable to or held in the name of investment advisers and other
authorized institutions that sell Adviser shares ("Authorized Firms") for
providing account administration services to their clients who are beneficial
owners of such shares. The Administrator may act as an Authorized Firm. The
Trust will enter into agreements ("Service Agreements") with Authorized Firms
that purchase Adviser shares on behalf of their clients. The Service Agreements
will provide for compensation to the Authorized Firms in an amount up to 1.00%
(on an annual basis) of the average daily net assets of the Adviser shares of
the applicable ProFund attributable to or held in the name of the Authorized
Firm for its clients.
The Trustees of the Trust, including a majority of the Trustees who are
not interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or the related Service Agreements, voted
to adopt the Plan and Service Agreements at a meeting called for the purpose of
voting on such Plan and Service Agreements on October ____, 1997. The Plan and
Service Agreements will remain in effect for a period of one year and will
continue in effect thereafter only if such continuance is specifically approved
annually by a vote of the Trustees in the manner described above. All material
amendments of the Plan must also be approved by the Trustees in the manner
described above. The Plan may be terminated at any time by a majority of the
Trustees as described above or by vote of a majority of the outstanding Adviser
shares of the affected ProFund. The Service Agreements may be terminated at any
time, without payment of any penalty, by vote of a majority of the Trustees as
described above or by a vote of a majority of the outstanding Adviser shares of
the affected ProFund on not more than 60 days' written notice to any other party
to the Service Agreements. The Service Agreements shall terminate
22
<PAGE> 58
automatically if assigned. The Trustees have determined that, in their judgment,
there is a reasonable likelihood that the Plan will benefit the ProFunds and
holders of Adviser shares of such ProFunds. In the Trustees' quarterly review of
the Plan and Service Agreements, they will consider their continued
appropriateness and the level of compensation provided therein.
The intent of the Plan and Service Agreements is to procure quality
shareholder services on behalf of ProFund shareholders; in adopting the Plan and
Service Agreements, the Trustees considered the fact that such shareholder
services may have the effect of enhancing distribution of ProFund Adviser shares
and growth of the ProFunds. In light of this, the ProFunds intend to observe the
procedural requirements of Rule 12b-1 under the 1940 Act on considering the
continued appropriateness of the Plan and Service Agreements.
COSTS AND EXPENSES
Each ProFund bears all expenses of its operations other than those
assumed by the Advisor or the Administrator. ProFund expenses include: the
management fee; the servicing fee (including administrative, transfer agent, and
shareholder servicing fees); custodian and accounting fees and expenses, legal
and auditing fees; securities valuation expenses; fidelity bonds and other
insurance premiums; expenses of preparing and printing prospectuses,
confirmations, proxy statements, and shareholder reports and notices;
registration Trustees and expenses; proxy and annual meeting expenses, if any;
all Federal, state, and local taxes (including, without limitation, stamp,
excise, income, and franchise taxes); organizational costs; and non-interested
Trustees' fees and expenses.
PRINCIPAL HOLDERS OF THE TRUST
As of the date of this Statement of Additional Information, the sole
shareholder of ProFunds is National Capital Group Inc., which would control the
outcome of any matter submitted for consideration by the shareholders of any
ProFund.
TAXATION
Each ProFund distributes its net investment income and capital gains to
shareholders as dividends annually to the extent required to qualify as a
regulated investment company under the Internal Revenue Code and generally to
avoid federal income or excise tax. Under current law, each ProFund may on its
tax return treat as a distribution of investment company taxable income and net
capital gain the portion of redemption proceeds paid to redeeming shareholders
that represents the redeeming shareholders' portion of the ProFund's
undistributed investment company taxable income and net capital gain. This
practice, which involves the use of equalization accounting, will have the
effect of reducing the amount of income and gains that the ProFund is required
to distribute as dividends to shareholders in order for the ProFund to avoid
federal income tax and excise tax. This practice may also reduce the amount of
distributions required to be made to nonredeeming shareholders and the amount
of any undistributed income will be reflected in the value of the ProFund's
shares; the total return on a shareholder's investment will not be reduced as
a result of the ProFund's distribution policy. Investors who purchase shares
shortly before the record date of a distribution will pay the full price for
the shares and then receive some portion of the price back as a taxable
distribution.
PERFORMANCE INFORMATION
TOTAL RETURN CALCULATIONS
From time to time, each of the non-money market ProFunds may advertise
the total return of the ProFund for prior periods. Any such advertisement would
include at least average annual total return quotations for one, five, and
ten-year periods, or for the life of the ProFund. Other total return quotations,
aggregate or average, over other time periods for the ProFund also may be
included.
The total return of a ProFund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the ProFund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; this
calculation assumes that the initial investment is made at the current net asset
value and that all income dividends or capital gains distributions during the
period are reinvested in shares of the ProFund at net asset value. Total return
is based on historical earnings and asset value fluctuations and is not intended
to indicate future performance. No adjustments are made to reflect any income
taxes payable by shareholders on dividends and distributions paid by the
ProFund.
Average annual total return quotations for periods of two or more years
are computed by finding the average annual compounded rate of return over the
period that would equal the initial amount invested to the ending redeemable
value.
YIELD CALCULATIONS
From time to time, the Money Market ProFund advertises its "yield" and
"effective yield." Both yield figures are based on historical earnings and are
not intended to indicate future performance. The "yield" of the Money Market
ProFund refers to the income generated by an investment in the Money Market
ProFund
23
<PAGE> 59
over a seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly, but, when annualized, the income earned by an investment
in the Money Market ProFund is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the compounding effect of
this assumed reinvestment.
Since yield fluctuates, yield data cannot necessarily be used to compare
an investment in the Money Market ProFund's shares with bank deposits, savings
accounts, and similar investment alternatives whichoften provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders of the Money
Market ProFund should remember that yield generally is a function of the kind
and quality of the instrument held in portfolio, portfolio maturity, operating
expenses, and market conditions.
COMPARISONS OF INVESTMENT PERFORMANCE
In conjunction with performance reports, promotional literature, and/or
analyses of shareholder service for a ProFund, comparisons of the performance
information of the ProFund for a given period to the performance of recognized,
unmanaged indexes for the same period may be made. Such indexes include, but are
not limited to, ones provided by Dow Jones & Company, Standard & Poor's
Corporation, Lipper Analytical Services, Inc., Shearson Lehman Brothers, the
National Association of Securities Dealers, Inc., The Frank Russell Company,
Value Line Investment Survey, the American Stock Exchange, the Philadelphia
Stock Exchange, Morgan Stanley Capital International, Wilshire Associates, the
Financial Times-Stock Exchange, and the Nikkei Stock Average and Deutcher
Aktienindex, all of which are unmanaged market indicators. Such comparisons can
be a useful measure of the quality of a ProFund's investment performance. In
particular, performance information for the Bull ProFund, the UltraBull ProFund,
the Bear ProFund and the UltraBear ProFund may be compared to various unmanaged
indexes, including, but not limited to, the S&P 500 Index or the Dow Jones
Industrial Average; performance information for the UltraOTC ProFund may be
compared to various unmanaged indexes, including, but not limited to its current
benchmark, the NASDAQ 100 Index.
In addition, rankings, ratings, and comparisons of investment
performance and/or assessments of the quality of shareholder service appearing
in publications such as Money, Forbes, Kiplinger's Magazine, Personal Investor,
Morningstar, Inc., and similar sources which utilize information compiled (i)
internally, (ii) by Lipper Analytical Services, Inc. ("Lipper"), or (iii) by
other recognized analytical services, may be used in sales literature. The total
return of each ProFund (other than the Money Market ProFund) also may be
compared to the performances of broad groups of comparable mutual funds with
similar investment goals, as such performance is tracked and published by such
independent organizations as Lipper and CDA Investment Technologies, Inc., among
others. The Lipper ranking and comparison, which may be usedby the ProFunds in
performance reports, will be drawn from the "Capital Appreciation ProFunds"
grouping for the Bull ProFund, the UltraBull ProFund, the Bear ProFund and the
UltraBear ProFund and from the "Small Company Growth ProFunds" grouping for the
UltraOTC ProFund. In addition, the broad-based Lipper groupings may be used for
comparison to any of the ProFunds. Additional information concerning the
comparison of the investment performances of the ProFunds is contained in the
Statement of Additional Information under "Performance Information."
Further information about the performance of the ProFunds will be
contained in the ProFunds' annual reports to shareholders, which may be obtained
without charge by writing to the ProFunds at the address or telephoning the
ProFunds at telephone number set forth on the cover page of this Prospectus.
RATING SERVICES
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group represent their opinions as to the quality of the securities that
they undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality. Although
these ratings are an initial criterion for selection of portfolio investments,
Bankers Trust also makes its own evaluation of these securities, subject to
review
24
<PAGE> 60
by the Board of Trustees. After purchase by the Portfolio, an obligation
may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Portfolio. Neither event would require the Portfolio to
eliminate the obligation from its portfolio, but Bankers Trust will consider
such an event in its determination of whether the Portfolio should continue to
hold the obligation. A description of the ratings used herein and in the
Prospectus is set forth in the Appendix to this SAI.
FINANCIAL STATEMENTS
(see attached)
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS, OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PROFUNDS.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN OFFERING BY
PROFUNDS IN ANY JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.
25
<PAGE> 61
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of the ProFunds:
We have audited the accompanying statement of assets and liabilities of the
Money Market ProFund as of October 15, 1997. This financial statement is the
responsibility of the Money Market ProFund's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of the Money Market ProFund as of
October 15, 1997, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
October 17, 1997
<PAGE> 62
PROFUNDS
MONEY MARKET PROFUND
STATEMENT OF ASSETS AND LIABILITIES
AS OF OCTOBER 15, 1997
<TABLE>
<S> <C>
ASSETS:
Cash $100,000
Deferred organization expenses 13,833
--------
Total Assets 113,833
========
LIABILITIES:
Accrued organization expenses 13,833
--------
NET ASSETS: $100,000
========
NET ASSETS CONSIST OF:
Capital - 100,000 shares of
beneficial interest issued and
outstanding; unlimited shares
authorized (par value $0.001) -
Investor Class $100,000
========
NET ASSET VALUE:
Investor Class
($100,000/100,000 shares issued
and outstanding) - offering and
redemption price per share $1.00
</TABLE> ========
See notes to financial statements.
<PAGE> 63
PROFUNDS
MONEY MARKET PROFUND
FINANCIAL STATEMENTS
OCTOBER 15, 1997
1. ORGANIZATION
ProFunds (the "Company"), an open-end management investment company
established as a Delaware business trust, is registered under the
Investment Company Act of 1940 (the "1940 Act"). The Company offers
shares of the following funds: Bull ProFund, UltraBull ProFund, Bear
ProFund, Ultra Bear ProFund, Ultra OTC ProFund and Money Market ProFund
each of which offers Investor Shares and Advisor Shares. Both classes of
shares have identical rights and privileges except with respect to Service
Organization fees and voting rights on matters affecting a single class of
shares. The accompanying financial statements relates to only the Money
Market ProFund ("The Fund"). The Fund had no operations other than those
actions relating to organizational matters. As of October 15, 1997, all
outstanding shares of the Fund are owned by National Capital Group, Inc.,
which is affiliated with Louis Mayberg, an officer of the Company.
The investment objective of the Fund is to seek to provide investors with
a high level of current income consistent with liquidity and preservation
of capital through investment in high quality money market instruments.
2. ORGANIZATION EXPENSES
All costs incurred by the Company in connection with the organization of
the Company and the initial public offering of shares of the Company,
principally professional fees, have been deferred. Upon commencement of
operations of the Fund, the deferred organization expenses will be
amortized on a straight-line basis over a period of five years. In the
event that any of the initial shares of the Fund are redeemed during the
amortization period by any holder thereof, the redemption proceeds will be
reduced by any unamortized organization expenses in the same proportion as
the number of said shares being redeemed bears to the number of initial
shares that are outstanding at the time of the redemption.
3. RELATED PARTY TRANSACTIONS
ProFund Advisors LLC ("ProFund") serves as the Investment Advisor of the
non money market Profunds. The Fund invests in the Cash Management Portfolio.
The investment advisor of the Cash Management Portfolio is Bankers Trust
Company ("Bankers Trust"), a wholly-owned subsidiary of Bankers Trust New York
Corporation. Under an advisory agreement with Bankers Trust, the Cash
Management Portfolio pays an advisory fee at an annualized rate of 0.15% of the
Cash Management Portfolio's average daily net assets. The Fund bears its pro
rata portion of this advisory fee. BISYS Fund Services ("BISYS") serves the
Funds as Administrator, Fund Accountant, and Transfer Agent. For its services
as Administrator, BISYS will receive fees in the amount of 0.15% of the Fund's
average daily net assets of $0 to $300 million, 0.13% of the Fund's average
daily net assets of $300 million to $500 million, 0.11% of the Fund's average
daily net assets of $500 million to $700 million, .09% of the Fund's average
daily net assets of $700 million to $900 million, .07% of the Fund's average
daily net assets of $900 million to $1 billion and .05% of the Fund's average
daily net assets of $1 billion and over. ProFund also performs certain
administration and client support services. For its services, ProFund receives
a fee at an amount of 0.35% of the Fund's average daily net assets, Concord
Financial Group, Inc., a wholly owned subsidiary of Concord Holding
Corporation, a wholly owned subsidiary of The BISYS Group also serves as
Distributor for the Fund's shares.
<PAGE> 64
Various registered investment advisors banks, trust companies,
broker-dealers (other than the Sponsor) or other financial organizations
(collectively, "Authorized Firms") may provide administrative services for
the Fund, such as maintaining shareholder accounts and records. The Fund
may pay fees to Authorized Firms in amounts up to an annual rate of 1.00%
of the daily net asset value of the Fund's shares owned by shareholders
with whom the Authorized Firms have a servicing relationship.
The law firm of Michael L. Sapir, which is affiliated with an officer of
the Fund has performed various legal services in connection with the
initial registration and organization of the Trust. These costs, in the
amount of $12,500, and the resultant payment liability are reflected in
the Deferred organizational expenses and the Accrued organizational
expenses, respectively.
Certain officers of the Company are affiliated with BISYS. Such persons
are not paid directly by the Company for serving in those capacities.
4. ESTIMATES
The preparation of this financial statement requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statement.
<PAGE> 65
APPENDIX
DESCRIPTION OF SECURITIES RATINGS
Description of S&P's corporate ratings:
AAA-Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issuers only in small degree.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major categories,
except in the AAA rating category.
Description of Moody's corporate bond ratings:
Aaa-Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic
rating classification from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of its generic category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
Description of Fitch Investors Service's corporate bond ratings:
AAA-Securities of this rating are regarded as strictly high-grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions, and liable to but slight market fluctuation other than through
changes in the money rate. The factor last named is of importance varying with
the length of maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public utility fields,
though some industrial obligations have this rating. The prime feature of an AAA
rating is showing of earnings several times or many times interest requirements
with such stability of applicable earnings that safety is beyond reasonable
question whatever changes occur in conditions. Other features may enter in, such
as a wide margin of protection through collateral security or direct lien on
specific property as in the case of high class equipment certificates or bonds
that are first mortgages on valuable real estate. Sinking funds or voluntary
reduction of the debt by call or purchase are often factors, while guarantee or
assumption by parties other than the original debtor may also influence the
rating.
AA-Securities in this group are of safety virtually beyond question,
and as a class are readily salable while many are highly active. Their merits
are not greatly unlike those of the AAA class, but a security so rated may be of
junior though strong lien in many cases directly following an AAA security or
the margin of safety is less strikingly broad. The issue may be the obligation
of a small company, strongly secure but influenced as the ratings by the lesser
financial power of the enterprise and more local type of market. Description of
Duff & Phelps' corporate bond ratings:
AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury Funds.
1
<PAGE> 66
AA+, AA,-High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
Description of S&P's municipal bond ratings:
AAA-Prime-These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds-In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds-Debt service coverage has been, and is expected to
remain, substantial; stability of the pledged revenues is also exceptionally
strong due to the competitive position of the municipal enterprise or to the
nature of the revenues. Basic security provisions (including rate covenant,
earnings test for issuance of additional bonds and debt service reserve
requirements) are rigorous. There is evidence of superior management.
AA-High Grade-The investment characteristics of bonds in this group are
only slightly less marked than those of the prime quality issues. Bonds rated AA
have the second strongest capacity for payment of debt service.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major rating
categories, except in the AAA rating category.
Description of Moody's municipal bond ratings:
Aaa-Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
Moody's may apply the numerical modifier in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
within its generic rating classification possesses the strongest investment
attributes.
Description of S&P's municipal note ratings:
Municipal notes with maturities of three years or less are usually
given note ratings (designated SP-1 or SP-2) to distinguish more clearly the
credit quality of notes as compared to bonds. Notes rated SP-1 have a very
strong or strong capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics are given the designation of
SP-1+. Notes rated SP-2 have a satisfactory capacity to pay principal and
interest.
Description of Moody's municipal note ratings:
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG-1/VMIG-1 are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the market for
refinancing, or both. Loans the designation MIG-2/VIMG-2 are of high quality,
with ample margins of protection, although not as large as the preceding group.
Description of S&P commercial paper ratings:
2
<PAGE> 67
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to posses overwhelming safety characteristics are denoted A-1+.
Description of Moody's Commercial paper ratings:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations.
Description of Fitch Investors Service's commercial paper ratings:
F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1-Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than the strongest
issue.
Description of Duff & Phelps' commercial paper ratings:
Duff 1+-Highest certainly of timely payment. Short term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk free U.S. Treasury short
term obligations.
Duff 1-Very high certainty of timely +.
Description of Moody's Commercial paper ratings:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or relating supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations.
Description of Fitch Investors Service's commercial paper ratings:
F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business economic or financial conditions may increase
investment risk albeit not very significantly.
A-Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB-Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
BB-Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest exists, but
is susceptible over time to adverse changes in business, economic or financial
conditions.
B-Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse changes in
business, economic or financial conditions.
CCC-Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on favorable
business, economic or financial conditions.
CC-Obligations which are highly speculative or which have a high risk
of default.
C-Obligations which are currently in default.
Notes: "+" or "-".
3
<PAGE> 68
Description of Moody's commercial paper ratings:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations.
Description of Fitch Investors Service's commercial paper ratings:
F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely business,
economic or financial conditions.
A3-Obligations supported by an adequate capacity for timely repayment.
Such capacity is more susceptible to adverse changes in business, economic or
financial conditions than for obligations in higher categories.
B-Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial conditions.
C-Obligations for which there is an inadequate capacity to ensure
timely repayment.
D-Obligations which have a high risk of default or which are currently
in default.
Description of Thomson Bank Watch Short-Term Ratings:
TBW-1-The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2-The second-highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as of issues rated `TBW-1 ` `.
TWB-3-The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
TWB-4-The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
Description of Thomson BankWatch Long-Term Ratings:
AAA-The highest category; indicates that the ability to repay principal
and interest on a timely basis is extremely high.
AA-The second -highest category; indicates a very strong ability to
repay principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highs category.
A-The third-highest category; indicates the ability to repay principal
and interest is strong. Issues rated `a ` ` could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
BBB-The lowest investment-grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however, more
vulnerable to adverse developments (both internal and external) than obligations
with higher ratings.
Non-Investment Grade
(Issues regarded as having speculative characteristics in the likelihood of
timely repayment of principal and interest.)
4
<PAGE> 69
BB-While not investment grade, the "BB" rating suggests that the
likelihood of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to adequately
service debt obligations.
B-Issues rated "B" show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse development
could well negatively affect the payment of interest and principal on a timely
basis.
CCC-Issues rate "CCC" clearly have a high likelihood of default, with
little capacity to address further adverse changes in financial circumstances.
CC-"CC" is applied to issues that are subordinate to other obligations
rated "CCC" and are afforded less protection in the event of bankruptcy or
reorganization.
D-Default
These long-term debt ratings can also be applied to local currency
debt. In such cases the ratings defined above will be preceded by the
designation "local currency".
RATING IN THE LONG-TERM DEBT CATEGORIES MY INCLUDE A PLUS (+) OR MINUS (-)
DESIGNATION, WHICH INDICATES WHERE WITHIN THE RESPECTIVE CATEGORY THE ISSUE IS
PLACED.
5
<PAGE> 70
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
List all financial statements and exhibits filed as part of the
Registration Statement.
(a) Financial Statements:
In Part A: None.
In Part B: Statement of Assets and Liabilities and Report
of Independent Accountants.
In Part C: None.
(b) Exhibits
(1) (a) Certificate of Trust of ProFunds (the
"Registrant")(1) (1)
(b) First Amended Declaration of Trust of the
Registrant filed herewith
(2) By-laws of Registrant filed herewith
(3) Not Applicable
(4) Not Applicable
(5) (a) Investment Advisory Agreement. for each non-money
market ProFund filed herewith
(5) (b) Investment Advisory Agreement for Cash Management
Portfolio incorporated by reference to Bankers Trust
Company's Registration Statement on Form N-1A ('40 Act
file no. 811-06073) filed with the Commission on
April 24, 1996.
(6) Form of Distribution Agreement and Dealer Agreement
filed herewith
(7) Not Applicable
(8) (a) Form of Custody Agreement with UMB Bank, N.A. filed
herewith
(9) (a) Form of Transfer Agency Agreement filed herewith
(9) (b) Form of Administration Agreement filed herewith
(9) (c) Form of Administration and Services Agreement
incorporated by reference to Bankers Trust Company's
Registration Statement on Form N-1A ('40 Act file no.
811-06073) filed with the Commission on April 24, 1996.
(9) (d) Form of Fund Accounting Agreement filed herewith
(9) (e) Form of Management Services Agreement filed herewith
(9) (f) Form of Shareholder Services Agreement related to
Adviser Shares filed herewith
(9) (g) Form of Omnibus Fee Agreement with BISYS Fund Services
LP filed herewith
(10) Opinion and Consent of Counsel to the Registrant filed
herewith
(11) Consent of Independent Auditors filed herewith
(12) Not Applicable
(13) Purchase Agreement dated October 10, 1997 between the
Registrant and National Capital Group, Inc.
filed herewith
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(17) Not applicable
(18) Multiple Class Plan filed herewith
(19) Power of Attorney of Cash Management Portfolio
incorporated by reference to Bankers Trust Company's
Registration Statement on Form N-1A filed with
the Commission on March 19, 1997.
- -------------------------
(1) Filed with initial registration statement;
ITEM 25. Persons Controlled By or Under Common Control With Registrant.
None.
1
<PAGE> 71
ITEM 26. Number of Holders of Securities
The following information is given as of the date indicated:
Title of Class: Shares of beneficial interest, no par value
Number of Record Holders as of October 10, 1997: One
ITEM 27. Indemnification
The Registrant is organized as a Delaware business trust and is
operated pursuant to a Declaration of Trust, dated as of April 17,
1997 (the "Declaration of Trust"), that permits the Registrant to
indemnify its trustees and officers under certain circumstances. Such
indemnification, however, is subject to the limitations imposed by the
Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended. The Declaration of Trust of the Registrant provides
that officers and trustees of the Trust shall be indemnified by the
Trust against liabilities and expenses of defense in proceedings
against them by reason of the fact that they each serve as an officer
or trustee of the Trust or as an officer or trustee of another entity
at the request of the entity. This indemnification is subject to the
following conditions:
(a) no trustee or officer of the Trust is indemnified against any
liability to the Trust or its security holders which was the
result of any willful misconduct, bad faith, gross negligence, or
reckless disregard of his duties;
(b) officers and trustees of the Trust are indemnified only for
actions taken in good faith which the officers and trustees
believed were in or not opposed to the best interests of the
Trust; and
(c) expenses of any suit or proceeding will paid in advance only if
the persons who will benefit by such advance undertake to repay
the expenses unless it subsequently is determined that such
persons are entitled to indemnification.
The Declaration of Trust of the Registrant provides that if
indemnification is not ordered by a court, indemnification may be
authorized upon determination by shareholders, or by a majority vote
of a quorum of the trustees who were not parties to the proceedings
or, if this quorum is not obtainable, if directed by a quorum of
disinterested trustees, or by independent legal counsel in a written
opinion, that the persons to be indemnified have met the applicable
standard.
ITEM 28. Business and Other Connections of Investment Advisory
ProFunds Advisors LLC (the "Advisor"), a limited liability company
formed under the laws of the State of Maryland on May 8, 1997.
Information relating to the business and other connections of Bankers
Trust which serves as investment adviser to the Cash Management
Portfolio and each director, officer or partner of Bankers Trust are
hereby incorporated by reference to disclosures in Item 28 of BT
Institutional funds (accession # 0000862157-97-00007) is filed on
March 17, 1997 with the Securities and Exchange Commission.
ITEM 29. Principal Underwriter
Concord Financial Group, Inc., 3435 Stelzer Road, Columbus, Ohio 43219 acts
soley as interim distributor for the Registrant. The officers of Concord
Financial Group, Inc. are:
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address with CFG with Registrant
- ------------------ -------------------- --------------------
<S> <C> <C>
Lynn J. Magnum Chairman none
Robert J. McMullen Executive Vice President none
Dennis Shechan Sr. Vice President none
Michael D. Burns Vice President/ none
Chief Compliance Officer
Steven Mintos Executive Vice President/ none
Chief Operating Officer
Dale Smith Vice President/ none
Chief Financial Officer
Kevin Dell Vice President-General none
Counsel/Secretary
</TABLE>
ITEM 30. Location of Accounts and Records
2
<PAGE> 72
All accounts, books, and records required to be maintained and
preserved by Section 31(a) of the Investment Company Act of 1940, as
amended, and Rules 31a-1 and 31a-2 thereunder, will be kept by the
Registrant at:
(1) ProFund Advisors LLC, 7900 Wisconsin Avenue, Suite 300, Bethesda,
Maryland (records relating to its functions as investment adviser
and manager to the non-money market portfolios);
(2) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio (records
relating to the administrator, fund accountant and transfer
agent).
(3) UMB Bank, N.A., 928 Grand Avenue, Kansas City, Missouri for
each ProFund (records relating to its function as Custodian)
ITEM 31. Management Services
None.
ITEM 32. Undertakings
(a) The Registrant agrees to file a post-effective amendment, using
financial statements which need not be certified, within four to
six months from the effective date of the Registrant's Securities
Act of 1933 Registration Statement.
(b) Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or
Trustees when requested to do so by the holders of at least 10%
of the Registrant's outstanding shares and, in connection with
such meeting, to comply with the shareholder communications
provisions of Section 16(c) of the Investment Company Act of
1940.
(c) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest Annual Report
to shareholders, upon request and without charge.
3
<PAGE> 73
SIGNATURES
PROFUNDS
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 3 to its Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, there unto duly authorized, in Bethesda
in the State of Maryland on the 29th day of October, 1997.
PROFUNDS
/s/ Michael L. Sapir
---------------------------------------
Michael L. Sapir, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signatures Title Date
/s/ Michael L. Sapir Trustee, President October 29, 1997
- -----------------------------
Michael L. Sapir
/s/ Louis Mayberg Trustee, Secretary October 29, 1997
- -----------------------------
Louis Mayberg
/s/ Thresa Dewar Treasurer October 29, 1997
- -----------------------------
Thresa Dewar
4
<PAGE> 74
SIGNATURES
CASH MANAGEMENT PORTFOLIO
Cash Management Portfolio has duly caused this Pre-Effective Amendment No.
3 to the Registration Statement on Form N-1A of ProFunds to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Pittsburgh
and the Commonwealth of Pennsylvania on October 29, 1997.
CASH MANAGEMENT PORTFOLIO
By: /s/ Jay S. Neuman
----------------------------------
Jay S. Neuman
Secretary
This Pre-Effective Amendment No. 3 to the Registration Statement on Form
N-1A of ProFunds has been signed below by the following persons in the
capacities indicated with respect to Cash Management Portfolio on October 29,
1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
Charles P. Bigger* Trustee
- --------------------------
Charles P. Bigger
Philip Saunders, Jr.* Trustee
- --------------------------
Philip Saunders, Jr.
S. Leland Dill* Trustee
- --------------------------
S. Leland Dill
Ronald M. Petnuch* President and Treasurer (Chief Executive Officer,
- -------------------------- Principal Financial and Accounting Officer)
Ronald M. Petnuch
*By: /s/ Jay S. Neuman
---------------------
Jay S. Neuman, Secretary of Cash Management Portfolio,
as Attorney-in-Fact
</TABLE>
5
<PAGE> 75
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
(1) (a) Certificate of Trust of ProFunds (the
"Registrant")(1) (1)
(b) First Amended Declaration of Trust of the
Registrant filed herewith
(2) By-laws of Registrant filed herewith
(3) Not Applicable
(4) Not Applicable
(5) (a) Investment Advisory Agreement. for each non-money
market ProFund filed herewith
(5) (b) Investment Advisory Agreement for Cash Management
Portfolio incorporated by reference to Bankers Trust
Company's Registration Statement on Form N-1A ('40 Act
file no. 811-06073) filed with the Commission on
April 24, 1996.
(6) Form of Distribution Agreement and Dealer Agreement
filed herewith
(7) Not Applicable
(8) (a) Form of Custody Agreement with UMB Bank, N.A. filed
herewith
(9) (a) Form of Transfer Agency Agreement filed herewith
(9) (b) Form of Administration Agreement filed herewith
(9) (c) Form of Administration and Services Agreement
incorporated by reference to Bankers Trust Company's
Registration Statement on Form N-1A ('40 Act file no.
811-06073) filed with the Commission on April 24, 1996.
(9) (d) Form of Fund Accounting Agreement filed herewith
(9) (e) Form of Management Services Agreement filed herewith
(9) (f) Form of Shareholder Services Agreement related to
Adviser Shares filed herewith
(9) (g) Form of Omnibus Fee Agreement with BISYS Fund Services
LP filed herewith
(10) Opinion and Consent of Counsel to the Registrant filed
herewith
(11) Consent of Independent Auditors filed herewith
(12) Not Applicable
(13) Purchase Agreement dated October 10, 1997 between the
Registrant and National Capital Group, Inc.
filed herewith
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(17) Not applicable
(18) Multiple Class Plan filed herewith
(19) Power of Attorney of Cash Management Portfolio
incorporated by reference to Bankers Trust Company's
Registration Statement on Form N-1A filed with
the Commission on March 19, 1997.
----------
(1) Filed with initial registration statement.
<PAGE> 1
Exhibit 1(b)
DECLARATION OF TRUST
OF
PROFUNDS
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 Name and Definitions..............................................1
1.1. Name........................................................1
1.2. Definitions.................................................1
ARTICLE 2 Nature and Purpose of Trust.......................................2
2.1. Nature of Trust.............................................2
2.2. Purpose of Trust............................................2
2.3. Interpretation of Declaration of Trust......................3
2.3.1. Governing Instrument......................................3
2.3.2. No Waiver of Compliance with Applicable Law...............3
2.3.3. Power of the Trustees Generally...........................3
ARTICLE 3 Registered Agent; Principal Place of Business.....................3
3.1. Registered Agent............................................3
3.2. Principal Place of Business.................................3
ARTICLE 4 Beneficial Interest...............................................3
4.1. Shares of Beneficial Interest...............................3
4.2. Number of Authorized Shares.................................3
4.3. Ownership and Certification of Shares.......................4
4.4. Status of Shares............................................4
4.4.1. Fully Paid and Non-assessable.............................4
4.4.2. Personal Property.........................................4
4.4.3. Party to Declaration of Trust.............................4
4.4.4. Death of Shareholder......................................4
4.4.5. Title to Trust; Right to Accounting.......................4
4.5. Determination of Shareholders...............................4
4.6. Shares Held by Trust........................................4
4.7. Shares Held by Persons Related to Trust.....................4
4.8. Preemptive and Appraisal Rights.............................5
4.9. Series of Shares............................................5
4.9.1. Classification of Shares..................................5
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
4.9.2. Establishment and Designation.............................5
4.9.3. Separate and Distinct Nature..............................6
4.9.4. Conversion Rights.........................................6
4.9.5. Rights and Preferences....................................6
4.9.5.1. Assets and Liabilities "Belonging" to a Series..........6
4.9.5.2. Treatment of Particular Items...........................7
4.9.5.3. Limitation on Interseries Liabilities...................7
4.9.5.4. Dividends...............................................7
4.9.5.5. Redemption by Shareholder...............................7
4.9.5.6. Redemption by Trust.....................................8
4.9.5.7. Prevention of Personal Holding Company Status...... 8
4.9.5.8. Net Asset Value.........................................8
4.9.5.9. Maintenance of Stable Net Asset Value...................8
4.9.5.10. Transfer of Shares......................................9
4.9.5.11. Equality of Shares......................................9
4.9.5.12. Fractional Shares.......................................9
ARTICLE 5 Trustees..........................................................9
5.1. Management of the Trust.....................................9
5.2. Qualification...............................................9
5.3. Number......................................................9
5.4. Term and Election...........................................9
5.5. Composition of the Board of Trustees........................9
5.6. Resignation and Retirement..................................10
5.7. Removal.....................................................10
5.8. Vacancies...................................................10
5.9. Ownership of Assets of the Trust............................10
5.10. Powers.....................................................11
5.10.1. Bylaws...................................................11
5.10.2. Officers, Agents, and Employees..........................11
5.10.3. Committees...............................................11
5.10.4. Advisers, Administrators, Depositories, and
Custodians...............................................11
5.10.5. Compensation.............................................11
5.10.6. Delegation of Authority..................................11
5.10.7. Suspension of Sales......................................12
5.11. Certain Additional Powers................................12
5.11.1. Investments..............................................12
5.11.2. Disposition of Assets....................................12
5.11.3. Ownership................................................12
5.11.4. Subscription.............................................12
5.11.5. Payment of Expenses......................................12
5.11.6. Form of Holding..........................................12
5.11.7. Reorganization, Consolidation, or Merger.................13
5.11.8. Compromise...............................................13
5.11.9. Partnerships.............................................13
5.11.10. Borrowing................................................13
5.11.11. Guarantees...............................................13
5.11.12. Insurance................................................13
5.11.13. Pensions.................................................13
5.12. Vote of Trustees.........................................14
5.12.1. Quorum...................................................14
5.12.2. Required Vote............................................14
5.12.3. Consent in Lieu of a Meeting.............................14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 6 Service Providers.................................................14
6.1. Investment Adviser.......................................14
6.2. Underwriter and Transfer Agent...........................14
6.3. Custodians...............................................14
6.4. Administrator............................................15
6.5. Parties to Contracts.....................................15
ARTICLE 7 Shareholders' Voting Powers and Meetings..........................15
7.1. Voting Powers............................................15
7.1.1. Matters Upon Which Shareholders May Vote.................15
7.1.2. Separate Voting by Series................................16
7.1.3. Number of Votes..........................................16
7.1.4. Cumulative Voting........................................16
7.1.5. Voting of Shares; Proxies................................16
7.1.6. Actions Prior to the Issuance of Shares..................16
7.2. Meetings of Shareholders.................................16
7.2.1. Annual or Regular Meetings...............................16
7.2.2. Special Meetings.........................................17
7.2.3. Notice of Meetings.......................................17
7.3. Record Dates.............................................17
7.4. Quorum and Required Vote.................................17
7.5. Adjournments.............................................18
7.6. Actions by Written Consent...............................18
7.7. Inspection of Records....................................18
7.8. Additional Provisions....................................18
ARTICLE 8 Limitation of Liability and Indemnification.......................18
8.1. General Provisions.......................................18
8.1.1. General Limitation of Liability..........................18
8.1.2. Notice of Limited Liability..............................18
8.1.3. Liability Limited to Assets of the Trust.................19
8.2. Liability of Trustees....................................19
8.2.1. Liability for Own Actions................................19
8.2.2. Liability for Actions of Others..........................19
8.2.3. Advice of Experts and Reports of Others..................19
8.2.4. Bond.....................................................19
8.2.5. Declaration of Trust Governs Issues of Liability.........20
8.3. Liability of Third Persons Dealing with Trustees.........20
8.4. Liability of Shareholders................................20
8.4.1. Limitation of Liability..................................20
8.4.2. Indemnification of Shareholders..........................20
8.5. Indemnification..........................................20
8.5.1. Indemnification of Covered Persons.......................20
8.5.2. Exceptions...............................................21
8.5.3. Rights of Indemnification................................21
8.5.4. Expenses of Indemnification..............................21
8.5.5. Certain Defined Terms Relating to Indemnification........22
ARTICLE 9 Termination or Reorganization.....................................22
9.1. Termination of Trust or Series...........................22
9.1.1. Termination..............................................22
9.1.2. Distribution of Assets...................................23
9.1.3. Certificate of Cancellation..............................23
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
9.2. Reorganization...........................................23
9.3. Merger or Consolidation..................................23
9.3.1. Authority to Merge or Consolidate........................23
9.3.2. No Shareholder Approval Required.........................23
9.3.3. Subsequent Amendments....................................24
9.3.4. Certificate of Merger or Consolidation...................24
ARTICLE 10 Miscellaneous Provisions..........................................24
10.1. Signatures...............................................24
10.2. Certified Copies.........................................24
10.3. Certain Internal References..............................24
10.4. Headings.................................................24
10.5. Resolution of Ambiguities................................24
10.6. Amendments...............................................25
10.6.1. Generally................................................25
10.6.2. Certificate of Amendment.................................25
10.7. Governing Law............................................25
10.8. Severability.............................................25
</TABLE>
DECLARATION OF TRUST
OF
PROFUNDS
This DECLARATION OF TRUST is made as of this day, April 13, 1997 by the Trustees
hereunder.
WHEREAS, the Trustees desire to establish a trust for the purpose of carrying on
the business of an open-end management investment company; and
WHEREAS, in furtherance of such purpose, the Trustees and any successor Trustees
elected in accordance with Article 5 hereof are acquiring and may hereafter
acquire assets which they will hold and manage as trustees of a Delaware
business trust in accordance with the provisions hereinafter set forth; and
WHEREAS, this Trust is authorized to issue its shares of beneficial interest in
one or more separate series, all in accordance with the provisions set forth in
this Declaration of Trust.
NOW, THEREFORE, the Trustees hereby declare that they will hold in trust all
cash, securities, and other assets which they may from time to time acquire in
any manner as Trustees hereunder, and that they will manage and dispose of the
same upon the following terms and conditions for the benefit of the holders of
shares of beneficial interest in this Trust as hereinafter set forth.
ARTICLE 1
Name and Definitions
Section 1.1. Name. This Trust shall be known as the "ProFunds" and the Trustees
shall conduct the business of the Trust under that name or any other name or
names as they may from time to time determine.
Section 1.2. Definitions. Whenever used herein, unless otherwise required by the
context or specifically provided below:
(a) The "Trust" shall mean the Delaware business trust established by
this Declaration of Trust, as amended from time to time;
<PAGE> 5
(b) "Trustee" or "Trustees" shall mean each signatory to this
Declaration of Trust so long as such signatory shall continue in office in
accordance with the terms hereof, and all other individuals who at the time in
question have been duly elected or appointed and qualified in accordance with
Article 5 hereof and are then in office;
(c) "Shares" shall mean the shares of beneficial interest in the Trust
described in Article 4 hereof and shall include fractional and whole Shares;
(d) "Shareholder" shall mean a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 (and
any successor statute) and the rules and regulations thereunder, all as amended
from time to time;
(f) The terms "Person," "Interested Person," and "Principal
Underwriter" shall have the meanings given them in the 1940 Act;
(g) The term "Commission" shall mean the United States Securities and
Exchange Commission (or any successor agency thereto);
(h) "Declaration of Trust" or "Declaration" shall mean this Declaration
of Trust as amended or restated from time to time;
(i) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time;
(j) "Series" shall mean any of the separate series of Shares
established and designated under or in accordance with the provisions of Article
4 hereof and to which the Trustees have allocated assets and liabilities of the
Trust in accordance with Article 4;
(k) The "DBTA" refers to the Delaware Business Trust Act, Chapter 38 of
Title 12 of the Delaware Code (and any successor statute), as amended from time
to time;
(l) The "Code" refers to the Internal Revenue Code of 1986 (and any
successor statute) and the rules and regulations thereunder, all as amended from
time to time; and
(m) "Class" shall mean any of the separate classes of Shares
established and designated under or in accordance with the provisions of Article
4 hereof and to which the Trustees have allocated assets and liabilities of the
Trust in accordance with Article 4.
ARTICLE 2
Nature and Purpose of Trust
Section 2.1. Nature of Trust. The Trust is a business trust of the type referred
to in the DBTA. The Trustees shall file a certificate of trust in accordance
with Section 3810 of the DBTA. The Trust is not intended to be, shall not be
deemed to be, and shall not be treated as, a general or a limited partnership,
joint venture, corporation or joint stock company, nor shall the Trustees or
Shareholders or any of them for any purpose be deemed to be, or be treated in
any way whatsoever as though they were, liable or responsible hereunder as
partners or joint venturers.
Section 2.2. Purpose of Trust. The purpose of the Trust is to engage in, operate
and carry on the business of an open-end management investment company and to do
any and all acts or things as are necessary, convenient, appropriate, incidental
or customary in connection therewith.
<PAGE> 6
Section 2.3. Interpretation of Declaration of Trust.
Section 2.3.1. Governing Instrument. This Declaration of Trust shall be the
governing instrument of the Trust and shall be governed by and construed
according to the laws of the State of Delaware.
Section 2.3.2. No Waiver of Compliance with Applicable Law. No provision of this
Declaration shall be effective to require a waiver of compliance with any
provision of the Securities Act of 1933, as amended, or the 1940 Act, or of any
valid rule, regulation or order of the Commission thereunder.
Section 2.3.3. Power of the Trustees Generally. Except as otherwise set forth
herein, the Trustees may exercise all powers of trustees under the DBTA on
behalf of the Trust.
ARTICLE 3
Registered Agent; Principal Place of Business
Section 3.1. Registered Agent. The name of the registered agent of the Trust is
The Corporation Trust Company and the registered agent's business address in
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801.
Section 3.2. Principal Place of Business. The principal place of business of the
Trust is 4600 N. Park Avenue, Suite 100, Chevy Chase, Maryland 20815.
ARTICLE 4
Beneficial Interest
Section 4.1. Shares of Beneficial Interest. The beneficial interests in the
Trust shall be divided into Shares, all without par value, and the Trustees
shall have the authority from time to time to divide the class of Shares into
two (2) or more separate and distinct series of Shares ("Series") or classes of
Shares ("Classes") as provided in Section 4.9 of this Article 4.
Section 4.2. Number of Authorized Shares. The Trustees are authorized to issue
an unlimited number of Shares. The Trustees may issue Shares for such
consideration and on such terms as they may determine (or for no consideration
if pursuant to a Share dividend or split), all without action or approval of the
Shareholders.
Section 4.3. Ownership and Certification of Shares. The Secretary of the Trust,
or the Trust's transfer or similar agent, shall record the ownership and
transfer of Shares of each Series and Class separately on the record books of
the Trust. The record books of the Trust, as kept by the Secretary of the Trust
or any transfer or similar agent, shall contain the name and address of and the
number of Shares held by each Shareholder, and such record books shall be
conclusive as to who are the holders of Shares and as to the number of Shares
held from time to time by such Shareholders. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of share certificates, transfer of Shares, and
similar matters for the Trust or any Series or Class.
Section 4.4. Status of Shares.
Section 4.4.1. Fully Paid and Non-assessable. All Shares when issued on the
terms determined by the Trustees shall be fully paid and non-assessable.
<PAGE> 7
Section 4.4.2. Personal Property. Shares shall be deemed to be personal property
giving only the rights provided in this Declaration of Trust.
Section 4.4.3. Party to Declaration of Trust. Every Person by virtue of having
become registered as a Shareholder shall be held to have expressly assented and
agreed to the terms of this Declaration of Trust and to have become a party
thereto.
Section 4.4.4. Death of Shareholder. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the Trust nor entitle
the representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees. The
representative shall be entitled to the same rights as the decedent under this
Trust.
Section 4.4.5. Title to Trust; Right to Accounting. Ownership of Shares shall
not entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting.
Section 4.5. Determination of Shareholders. The Trustees may from time to time
close the transfer books or establish record dates and times for the purposes of
determining the Shareholders entitled to be treated as such, to the extent
provided or referred to in Section 7.3.
Section 4.6. Shares Held by Trust. The Trustees may hold as treasury shares,
reissue for such consideration and on such terms as they may determine, or
cancel, at their discretion from time to time, any Shares of any Series or Class
reacquired by the Trust.
Section 4.7. Shares Held by Persons Related to Trust. Any Trustee, officer or
other agent of the Trust, and any organization in which any such person is
interested may acquire, own, hold and dispose of Shares of the Trust to the same
extent as if such person were not a Trustee, officer or other agent of the
Trust; and the Trust may issue and sell or cause to be issued and sold and may
purchase Shares from any such person or any such organization subject only to
the general limitations, restrictions or other provisions applicable to the sale
or purchase of such Shares generally.
Section 4.8. Preemptive and Appraisal Rights. Shareholders shall not, as
Shareholders, have any right to acquire, purchase or subscribe for any Shares or
other securities of the Trust which it may hereafter issue or sell, other than
such right, if any, as the Trustees in their discretion may determine.
Shareholders shall have no appraisal rights with respect to their Shares and,
except as otherwise determined by resolution of the Trustees in their sole
discretion, shall have no exchange or conversion rights with respect to their
Shares. No action may be brought by a Shareholder on behalf of the Trust unless
Shareholders owning no less than a majority of the then outstanding Shares, or
Series or Class thereof, join in the bringing of such action. A Shareholder of
Shares in a particular Series or Class of the Trust shall not be entitled to
participate in a derivative or class action lawsuit on behalf of any other
Series or Class, as appropriate, or on behalf of the Shareholders in any such
other Series or Class of the Trust.
Section 4.9. Series and Classes of Shares.
Section 4.9.1. Classification of Shares. The Trustees may classify or reclassify
any unissued Shares or any Shares previously issued and reacquired of any Series
or Class into one or more Series or Class that may be established and designated
from time to time.
Section 4.9.2. Establishment and Designation. The Trustees shall have exclusive
power without the requirement of Shareholder approval to establish and designate
separate and distinct Series and Classes of Shares. The establishment and
designation of any Series or Class (in addition to those established and
designated in this Section below) shall be effective upon the execution by a
majority of the Trustees of an instrument setting forth such establishment and
designation and the relative rights and preferences of the Shares of such Series
or Class, or as otherwise provided in such instrument. Each such instrument
shall
<PAGE> 8
have the status of an amendment to this Declaration of Trust. Without limiting
the authority of the Trustees to establish and designate any further Series or
Class, the Trustees hereby establish and designate the following six initial
Series:
Bull ProFund;
UltraBull ProFund;
Bear ProFund;
UltraBear ProFund;
UltraOTC ProFund; and
Money Market ProFund
and the following two initial Classes: Investor Class and Adviser Class.
Section 4.9.3. Separate and Distinct Nature. Each Series and Class, including
without limitation Series and Classes specifically established and designated in
Section 4.9.2, shall be separate and distinct from any other Series and Class
and shall maintain separate and distinct records on the books of the Trust, and
the assets belonging to any such Series or Class shall be held and accounted for
separately from the assets of the Trust or any other Series or Class.
Section 4.9.4. Conversion Rights. Subject to compliance with the requirements of
the 1940 Act, the Trustees shall have the authority to provide that holders of
Shares of any Series or Class shall have the right to convert said Shares into
Shares of one or more other Series or Class in accordance with such requirements
and procedures as may be established by the Trustees.
Section 4.9.5. Rights and Preferences. The Trustees shall have exclusive power
without the requirement of Shareholder approval to fix and determine the
relative rights and preferences as between the Shares of the separate Series and
Classes. The initial Series and Classes and any further Series and Classes that
may from time to time be established and designated by the Trustees shall
(unless the Trustees otherwise determine with respect to some further Series at
the time of establishing and designating the same) have relative rights and
preferences as set forth in this Section 4.9.5.
Section 4.9.5.1. Assets and Liabilities "Belonging" to a Series or Class. All
consideration received by the Trust for the issue or sale of Shares of a
particular Series or Class, together with all assets in which such consideration
is invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall be held and accounted for separately
from the other assets of the Trust and of every other Series or Class and may be
referred to herein as "assets belonging to" that Series or Class. The assets
belonging to a particular Series or Class shall belong to that Series or Class
for all purposes, and to no other Series or Class, subject only to the rights of
creditors of that Series or Class. Such consideration, assets, income, earnings,
profits, and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments which are not
readily identifiable as belonging to any particular Series or Class
(collectively "General Items"), the Trustees shall allocate to and among any one
or more of the Series and/or Classes in such manner and on such basis as they,
in their sole discretion, deem fair and equitable. Any General Items so
allocated to a particular Series or Class shall belong to that Series/Class.
Each such allocation by the Trustees shall be conclusive and binding upon all
Shareholders for all purposes. The assets belonging to each particular Series
and Class shall be charged with the liabilities in respect of that Series/Class
and all expenses, costs, charges and reserves attributable to that Series/Class,
and any general liabilities, expenses, costs, charges or reserves of the Trust
which are not readily identifiable as belonging to any particular Series or
Class shall be allocated and charged by the Trustees to and among any one or
more of the Series and Classes established and designated from time to time in
such manner and on such basis as the Trustees in their sole discretion deem fair
and equitable. Each allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding upon all Shareholders
for all purposes.
<PAGE> 9
Section 4.9.5.2. Treatment of Particular Items. The Trustees shall have full
discretion, to the extent consistent with the 1940 Act and consistent with
generally accepted accounting principles, to determine which items shall be
treated as income and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders.
Section 4.9.5.3. Limitation on Interseries and Interclass Liabilities. Subject
to the right of the Trustees in their discretion to allocate general
liabilities, expenses, costs, charges or reserves as provided in Section
4.9.5.1, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular Series or Class shall be
enforceable against the assets of such Series/Class only, and not against the
assets of any other Series or Class. Notice of this limitation on liabilities
between and among Series shall be set forth in the certificate of trust of the
Trust (whether originally or by amendment) as filed or to be filed in the Office
of the Secretary of State of the State of Delaware pursuant to the DBTA, and
upon the giving of such notice in the certificate of trust, the statutory
provisions of Section 3804 of the DBTA relating to limitations on liabilities
between and among series (and the statutory effect under Section 3804 of setting
forth such notice in the certificate of trust) shall become applicable to the
Trust and each Series.
Section 4.9.5.4. Dividends. Dividends and capital gains distributions on Shares
of a particular Series may be paid with such frequency, in such form, and in
such amount as the Trustees may determine by resolution adopted from time to
time, or pursuant to a standing resolution or resolutions adopted only once or
with such frequency as the Trustees may determine. All dividends and
distributions on Shares of a particular Series or Class shall be distributed pro
rata to the holders of Shares of that Series/Class in proportion to the number
of Shares of that Series/Class held by such holders at the date and time of
record established for the payment of such dividends or distributions. Such
dividends and distributions may be paid in cash, property or additional Shares
of that Series/Class, or a combination thereof, as determined by the Trustees or
pursuant to any program that the Trustees may have in effect at the time for the
election by each Shareholder of the form in which dividends or distributions are
to be paid to that Shareholder. Any such dividend or distribution paid in Shares
shall be paid at the net asset value thereof as determined in accordance with
Section 4.9.5.8.
Section 4.9.5.5. Redemption by Shareholder. Each Shareholder shall have the
right at such times as may be permitted by the Trust and as otherwise required
by the 1940 Act to require the Trust to redeem all or any part of such
Shareholder's Shares of a Series or Class at a redemption price per Share equal
to the net asset value per Share of such Series/Class next determined in
accordance with Section 4.9.5.8 after the Shares are properly tendered for
redemption, less any charge which may be imposed by the Trust in connection with
such redemption and described in the Trust's then current prospectus. Payment of
the redemption price shall be in cash; provided, however, that if the Trustees
determine, which determination shall be conclusive, that conditions exist which
make payment wholly in cash unwise or undesirable, the Trust may, subject to the
requirements of the 1940 Act, make payment wholly or partly in securities or
other assets belonging or attributable to the Series of which the Shares being
redeemed are part at the value of such securities or assets used in such
determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment of the redemption
price and may suspend the right of the holders of Shares of any Series or Class
to require the Trust to redeem Shares of that Series/Class during any period or
at any time when and to the extent permissible under any applicable provision of
the 1940 Act.
Section 4.9.5.6. Redemption by Trust. The Trustees may cause the Trust to redeem
at net asset value the Shares of any Series or Class held by a Shareholder upon
such conditions as may from time to time be determined by the Trustees. Upon
redemption of Shares pursuant to this Section 4.9.5.6, the Trust shall promptly
cause payment of the full redemption price to be made to such Shareholder for
Shares so redeemed.
<PAGE> 10
Section 4.9.5.7. Prevention of Personal Holding Company Status. The Trust may
reject any purchase order, refuse to transfer any Shares, and compel the
redemption of Shares if, in its opinion, any such rejection, refusal, or
redemption would prevent the Trust from becoming a personal holding company as
defined by the Code.
Section 4.9.5.8. Net Asset Value. The net asset value per Share of any Series or
Class shall be determined in accordance with the methods and procedures
established by the Trustees from time to time and, to the extent required by
applicable law, as disclosed in the then current prospectus or statement of
additional information for the Series/Class.
Section 4.9.5.9. Maintenance of Stable Net Asset Value. The Trustees may
determine to maintain the net asset value per Share of any Series at a
designated constant dollar amount and in connection therewith may adopt
procedures not inconsistent with the 1940 Act for the continuing declarations of
income attributable to that Series, or any Class thereof, as dividends payable
in additional Shares of that Series/Class at the designated constant dollar
amount and for the handling of any losses attributable to that Series/Class.
Such procedures may provide that in the event of any loss each Shareholder shall
be deemed to have contributed to the capital of the Trust attributable to that
Series/Class his or her pro rata portion of the total number of Shares required
to be canceled in order to permit the net asset value per Share of that
Series/Class to be maintained, after reflecting such loss, at the designated
constant dollar amount. Each Shareholder of the Trust shall be deemed to have
agreed, by his investment in any Series with respect to which the Trustees shall
have adopted any such procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss. The Trustees may delegate any
of their powers and duties under this Section 4.9.5.9 with respect to appraisal
of assets and liabilities in the determination of net asset value or with
respect to a suspension of the determination of net asset value to an officer or
officers or agent or agents of the Trust designated from time to time by the
Trustees.
Section 4.9.5.10. Transfer of Shares. Except to the extent that transferability
is limited by applicable law or such procedures as may be developed from time to
time by the Trustees or the appropriate officers of the Trust, Shares shall be
transferable on the records of the Trust only by the record holder thereof or by
his agent thereunto duly authorized in writing, upon delivery to the Trustees or
the Trust's transfer agent of a duly executed instrument of transfer, together
with a Share certificate, if one is outstanding, and such evidence of the
genuineness of each such execution and authorization and of such other matters
as may be required by the Trustees. Upon such delivery the transfer shall be
recorded on the register of the Trust.
Section 4.9.5.11. Equality of Shares. All Shares of each particular Series or
Class shall represent an equal proportionate interest in the assets belonging or
attributable to that Series/Class (subject to the liabilities belonging to that
Series/Class), and each Share of any particular Series or Class shall be equal
in this respect to each other Share of that Series or Class, as applicable.
Section 4.9.5.12. Fractional Shares. Any fractional Share of any Series or
Class, if any such fractional Share is outstanding, shall carry proportionately
all the rights and obligations of a whole Share of that Series/Class, including
rights and obligations with respect to voting, receipt of dividends and
distributions, redemption of Shares, and liquidation of the Trust or any Series
or Class.
ARTICLE 5
Trustees
Section 5.1. Management of the Trust. The business and affairs of the Trust
shall be managed by the Trustees, and they shall have all powers necessary and
desirable to carry out that responsibility, including those specifically set
forth in Sections 5.10 and 5.11 herein.
Section 5.2. Qualification. Each Trustee shall be a natural person. A Trustee
need not be a Shareholder, a citizen of the United States, or a resident of the
State of Delaware.
<PAGE> 11
Section 5.3. Number. By the vote or consent of a majority of the Trustees then
in office, the Trustees may fix the number of Trustees at a number not less than
two (2) nor more than twenty-five (25). No decrease in the number of Trustees
shall have the effect of removing any Trustee from office prior to the
expiration of his or her term, but the number of Trustees may be decreased in
conjunction with the removal of a Trustee pursuant to Section 5.7.
Section 5.4. Term and Election. Each Trustee shall hold office until the next
meeting of Shareholders called for the purpose of considering the election or
re-election of such Trustee or of a successor to such Trustee, and until his or
her successor is elected and qualified, and any Trustee who is appointed by the
Trustees in the interim to fill a vacancy as provided hereunder shall have the
same remaining term as that of his or her predecessor, if any, or such term as
the Trustees may determine.
Section 5.5. Composition of the Board of Trustees. No election or appointment of
any Trustee shall take effect if such election or appointment would cause the
number of Trustees who are Interested Persons to exceed the number permitted by
Section 10 of the 1940 Act.
Section 5.6. Resignation and Retirement. Any Trustee may resign or retire as a
Trustee (without need for prior or subsequent accounting) by an instrument in
writing signed by such Trustee and delivered or mailed to the Chairman, if any,
the President, or the Secretary of the Trust. Such resignation or retirement
shall be effective upon such delivery, or at a later date according to the terms
of the instrument.
Section 5.7. Removal. Any Trustee may be removed with or without cause at any
time: (1) by written instrument signed by two-thirds (2/3) of the number of
Trustees in office prior to such removal, specifying the date upon which such
removal shall become effective, or (2) by the affirmative vote of Shareholders
holding not less than two-thirds (2/3) of Shares outstanding, cast in person or
by proxy at any meeting called for that purpose.
Section 5.8. Vacancies. Any vacancy or anticipated vacancy resulting for any
reason, including without limitation the death, resignation, retirement,
removal, or incapacity of any of the Trustees, or resulting from an increase in
the number of Trustees may (but need not unless required by the 1940 Act) be
filled by a majority of the Trustees then in office, subject to the provisions
of Section 16 of the 1940 Act, through the appointment in writing of such other
person as such remaining Trustees in their discretion shall determine. The
appointment shall be effective upon the acceptance of the person named therein
to serve as a trustee, except that any such appointment in anticipation of a
vacancy occurring by reason of the resignation, retirement, or increase in
number of Trustees to be effective at a later date shall become effective only
at or after the effective date of such resignation, retirement, or increase in
number of Trustees.
Section 5.9. Ownership of Assets of the Trust. The assets of the Trust shall be
held separate and apart from any assets now or hereafter held in any capacity
other than as Trustee hereunder by the Trustees or any successor Trustees. Legal
title to all the Trust property shall be vested in the Trust as a separate legal
entity under the DBTA, except that the Trustees shall have the power to cause
legal title to any Trust property to be held by or in the name of one or more of
the Trustees or in the name of any other Person on behalf of the Trust on such
terms as the Trustees may determine. In the event that title to any part of the
Trust property is vested in one or more Trustees, the right, title and interest
of the Trustees in the Trust property shall vest automatically in each person
who may hereafter become a Trustee upon his or her due election and
qualification. Upon the resignation, removal or death of a Trustee he or she
shall automatically cease to have any right, title or interest in any of the
Trust property, and the right, title and interest of such Trustee in the Trust
property shall vest automatically in the remaining Trustees. To the extent
permitted by law, such vesting and cessation of title shall be effective whether
or not conveyancing documents have been executed and delivered. No Shareholder
shall be deemed to have a severable ownership in any individual asset of the
Trust or any right of partition or possession thereof.
<PAGE> 12
Section 5.10. Powers. Subject to the provisions of this Declaration of Trust,
the business of the Trust shall be managed by the Trustees, and they shall have
all powers necessary or convenient to carry out that responsibility and the
purpose of the Trust including, but not limited to, those enumerated in this
Section 5.10.
Section 5.10.1. Bylaws. The Trustees may adopt By-Laws not inconsistent with
this Declaration of Trust providing for the conduct of the business and affairs
of the Trust and may amend and repeal them to the extent that such By-Laws do
not reserve that right to the Shareholders.
Section 5.10.2. Officers, Agents, and Employees. The Trustees may, as they
consider appropriate, elect and remove officers and appoint and terminate agents
and consultants and hire and terminate employees, any one or more of the
foregoing of whom may be a Trustee, and may provide for the compensation of all
of the foregoing.
Section 5.10.3. Committees. The Trustees may appoint from their own number, and
terminate, any one or more committees consisting of two or more Trustees,
including without implied limitation an executive committee, which may, when the
Trustees are not in session (but subject to the 1940 Act), exercise some or all
of the power and authority of the Trustees as the Trustees may determine.
Section 5.10.4. Advisers, Administrators, Depositories, and Custodians. The
Trustees may, in accordance with Article 6, employ one or more advisers,
administrators, depositories, custodians, and other persons and may authorize
any depository or custodian to employ sub custodians or agents and to deposit
all or any part of such assets in a system or systems for the central handling
of securities and debt instruments, retain transfer, dividend, accounting or
Shareholder servicing agents or any of the foregoing, provide for the
distribution of Shares by the Trust through one or more distributors, principal
underwriters or otherwise, and set record dates or times for the determination
of Shareholders.
Section 5.10.5. Compensation. The Trustees may compensate or provide for the
compensation of the Trustees, officers, advisers, administrators, custodians,
other agents, consultants and employees of the Trust or the Trustees on such
terms as they deem appropriate.
Section 5.10.6. Delegation of Authority. In general, the Trustees may delegate
to any officer of the Trust, to any committee of the Trustees and to any
employee, adviser, administrator, distributor, depository, custodian, transfer
and dividend disbursing agent, or any other agent or consultant of the Trust
such authority, powers, functions and duties as they consider desirable or
appropriate for the conduct of the business and affairs of the Trust, including
without implied limitation, the power and authority to act in the name of the
Trust and of the Trustees, to sign documents and to act as attorney-in-fact for
the Trustees.
Section 5.10.7. Suspension of Sales. The Trustees shall have the authority to
suspend or terminate the sales of Shares of any Series or Class at any time or
for such periods as the Trustees may from time to time decide.
Section 5.11. Certain Additional Powers. Without limiting the foregoing and to
the extent not inconsistent with the 1940 Act, other applicable law, and the
fundamental policies and limitations of the applicable Series or Class, the
Trustees shall have power and authority for and on behalf of the Trust and each
separate Series and Class as enumerated in this Section 5.11.
Section 5.11.1. Investments. The Trustees shall have the power to invest and
reinvest cash and other property, and to hold cash or other property uninvested
without in any event being bound or limited by any present or future law or
custom in regard to investments by trustees.
Section 5.11.2. Disposition of Assets. The Trustees shall have the power to
sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease
any or all of the assets of the Trust.
<PAGE> 13
Section 5.11.3. Ownership. The Trustees shall have the power to vote, give
assent, or exercise any rights of ownership with respect to securities or other
property; and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities or other property
as the Trustees shall deem proper.
Section 5.11.4. Subscription. The Trustees shall have the power to exercise
powers and rights of subscription or otherwise which in any manner arise out of
ownership of securities.
Section 5.11.5. Payment of Expenses. The Trustees shall have the power to pay or
cause to be paid all expenses, fees, charges, taxes and liabilities incurred or
arising in connection with the Trust or any Series or Class, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the Trust's officers, employees,
investment advisers, administrator, distributor, principal underwriter, auditor,
counsel, depository, custodian, transfer agent, dividend disbursing agent,
accounting agent, shareholder servicing agent, and such other agents,
consultants, and independent contractors and such other expenses and charges as
the Trustees may deem necessary or proper to incur.
Section 5.11.6. Form of Holding. The Trustees shall have the power to hold any
securities or other property in a form not indicating any trust, whether in
bearer, unregistered or other negotiable form, or in the name of the Trustees or
of the Trust or of any Series or Class or in the name of a custodian,
subcustodian or other depository or a nominee or nominees or otherwise.
Section 5.11.7. Reorganization, Consolidation, or Merger. The Trustees shall
have the power to consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security of which is
or was held in the Trust, and to consent to any contract, lease, mortgage,
purchase or sale of property by such corporation or issuer, and to pay calls or
subscriptions with respect to any security held in the Trust.
Section 5.11.8. Compromise. The Trustees shall have the power to arbitrate or
otherwise adjust claims in favor of or against the Trust or any Series or Class
on any matter in controversy, including but not limited to claims for taxes.
Section 5.11.9. Partnerships. The Trustees shall have the power to enter into
joint ventures, general or limited partnerships and any other combinations or
associations.
Section 5.11.10. Borrowing. The Trustees shall have the power to borrow funds
and to mortgage and pledge the assets of the Trust or any Series or any part
thereof to secure obligations arising in connection with such borrowing,
consistent with the provisions of the 1940 Act.
Section 5.11.11. Guarantees. The Trustees shall have the power to endorse or
guarantee the payment of any notes or other obligations of any person; to make
contracts of guaranty or suretyship, or otherwise assume liability for payment
thereof; and to mortgage and pledge the Trust property (or Series property) or
any part thereof to secure any of or all such obligations.
Section 5.11.12. Insurance. The Trustees shall have the power to purchase and
pay for entirely out of Trust property such insurance as they may deem necessary
or appropriate for the conduct of the business, including, without limitation,
insurance policies insuring the assets of the Trust and payment of distributions
and principal on its portfolio investments, and insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, consultants, investment
advisers, managers, administrators, distributors, principal underwriters, or
independent contractors, or any thereof (or any person connected therewith), of
the Trust individually against all claims and liabilities of every nature
arising by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
person in any such capacity, including any action taken or omitted that may
<PAGE> 14
be determined to constitute negligence, whether or not the Trust would have the
power to indemnify such person against such liability.
Section 5.11.13. Pensions. The Trustees shall have the power to pay pensions for
faithful service, as deemed appropriate by the Trustees, and to adopt, establish
and carry out pension, profit-sharing, share bonus, share purchase, savings,
thrift and other retirement, incentive and benefit plans, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust.
Section 5.12. Vote of Trustees.
Section 5.12.1. Quorum. One third of the Trustees then in office being present
in person or by proxy shall constitute a quorum.
Section 5.12.2. Required Vote. Except as otherwise provided by the 1940 Act or
other applicable law, this Declaration of Trust, or the By-Laws, any action to
be taken by the Trustees on behalf of the Trust or any Series or Class may be
taken by a majority of the Trustees present at a meeting of Trustees at which a
quorum is present, including any meeting held by means of a conference telephone
or other communications equipment by means of which all persons participating in
the meeting can hear each other at the same time.
Section 5.12.3. Consent in Lieu of a Meeting. Except as otherwise provided by
the 1940 Act or other applicable law, the Trustees may, by written consent of a
majority of the Trustees then in office, take any action which may have been
taken at a meeting of the Trustees.
ARTICLE 6
Service Providers
Section 6.1. Investment Adviser. The Trust may enter into written contracts with
one or more persons to act as investment adviser or investment subadviser to
each of the Series, and as such, to perform such functions as the Trustees may
deem reasonable and proper, including, without limitation, investment advisory,
management, research, valuation of assets, clerical and administrative
functions, under such terms and conditions, and for such compensation, as the
Trustees may in their discretion deem advisable. Section 6.2. Underwriter and
Transfer Agent. The Trust may enter into written contracts with one or more
persons to act as underwriter or distributor whereby the Trust may either agree
to sell Shares to the other party or parties to the contract or appoint such
other party or parties its sales agent or agents for such Shares and with such
other provisions as the Trustees may deem reasonable and proper, and the
Trustees may in their discretion from time to time enter into transfer agency
and/or shareholder service contract(s), in each case with such terms and
conditions, and providing for such compensation, as the Trustees may in their
discretion deem advisable.
Section 6.3. Custodians. The Trust may enter into written contracts with one or
more persons to act as custodian to perform such functions as the Trustees may
deem reasonable and proper, under such terms and conditions, and for such
compensation, as the Trustees may in their discretion deem advisable. Each such
custodian shall be a bank or trust company having an aggregate capital, surplus,
and undivided profits of at least one million dollars ($1,000,000).
Section 6.4. Administrator. The Trust may enter into written contracts with one
or more persons to act as an administrator to perform such functions as the
Trustees may deem reasonable and proper, under such terms and conditions, and
for such compensation, as the Trustees may in their discretion deem advisable.
Section 6.5. Parties to Contracts. Any contract of the character described in
Sections 6.1, 6.2, 6.3, and 6.4 or in Article 8 hereof may be entered into with
any corporation, firm, partnership, trust or association, including, without
limitation, the investment adviser, any investment subadviser, or any affiliated
person of
<PAGE> 15
the investment adviser or investment subadviser, although one or more of the
Trustees or officers of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, or may otherwise be
interested in such contract, and no such contract shall be invalidated or
rendered voidable by reason of the existence of any such relationship, nor shall
any person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust under or by reason of said
contract or be accountable for any profit realized directly or indirectly
therefrom; provided, however, that the contract when entered into was not
inconsistent with the provisions of this Article 6, Article 8, or the Bylaws.
The same person (including a firm, corporation, partnership, trust or
association) may provide more than one of the services identified in this
Article 6.
ARTICLE 7
Shareholders' Voting Powers and Meetings
Section 7.1. Voting Powers. The Shareholders shall have power to vote only with
respect to matters expressly enumerated in Section 7.1.1, 7.1.3 or with respect
to such additional matters relating to the Trust as may be required by the 1940
Act, this Declaration of Trust, the By-Laws, any registration of the Trust with
the Commission or any state, or as the Trustees may otherwise deem necessary or
desirable.
Section 7.1.1. Matters Upon Which Shareholders May Vote. The Shareholders shall
have power to vote on the following matters:
(a) For the election or removal of Trustees as provided in Sections 5.4
and 5.7;
(b) With respect to a contract with a third party provider of services
as to which Shareholder approval is required by the 1940 Act;
(c) With respect to a termination or reorganization of the Trust to the
extent and as provided in Sections 9.1 and 9.2;
(d) With respect to an amendment of this Declaration of Trust to the
extent and as may be provided by this Declaration of Trust or applicable law;
and
(e) With respect to any court action, proceeding or claim brought or
maintained derivatively or as a class action on behalf of the Trust, any Series
or Class thereof or the Shareholders of the Trust; provided, however, that a
shareholder of a particular Series or Class shall not be entitled to vote upon a
derivative or class action on behalf of any other Series or Class or shareholder
of any other Series/Class.
Section 7.1.2. Separate Voting by Series. On any matter submitted to a vote of
the Shareholders, all Shares shall be voted separately by individual Series,
except (i) when required by the 1940 Act, Shares shall be voted in the aggregate
or by Class, and not by individual Series; and (ii) when the Trustees have
determined that the matter affects the interests of more than one Series, then
the Shareholders of all such Series shall be entitled to vote thereon.
Section 7.1.3. Number of Votes. On any matter submitted to a vote of the
Shareholders, each Shareholder shall be entitled to one vote for each dollar of
net asset value standing in such Shareholder's name on the books of each Series
or Class in which such Shareholder owns Shares which are entitled to vote on the
matter.
Section 7.1.4. Cumulative Voting. There shall be no cumulative voting in the
election of Trustees.
Section 7.1.5. Voting of Shares; Proxies. Votes may be cast in person or by
proxy. A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or
<PAGE> 16
prior to exercise of the proxy the Trust receives a specific written notice to
the contrary from any one of them. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise, and the burden of proving the invalidity of a proxy shall rest on
the challenger.
Section 7.1.6. Actions Prior to the Issuance of Shares. Until Shares are issued,
the Trustees may exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the Bylaws to be taken by
Shareholders.
Section 7.2. Meetings of Shareholders.
Section 7.2.1. Annual or Regular Meetings. No annual or regular meetings of
Shareholders are required to be held.
Section 7.2.2. Special Meetings. Special meetings of Shareholders may be called
by the President of the Trust or the Trustees from time to time for the purpose
of taking action upon any matter requiring the vote or authority of the
Shareholders as herein provided or upon any other matter upon which Shareholder
approval is deemed by the Trustees to be necessary or desirable.
Section 7.2.3. Notice of Meetings. Written notice of any meeting of Shareholders
shall be given or caused to be given by the Trustees by mailing or transmitting
such notice at least ten (10) days before such meeting, postage prepaid, stating
the time, place and purpose of the meeting, to each Shareholder at the
Shareholder's address as it appears on the records of the Trust.
Section 7.3. Record Dates. For the purpose of determining the Shareholders who
are entitled to vote or act at any meeting, or who are entitled to participate
in any dividend or distribution, or for the purpose of any other action, the
Trustees may from time to time close the transfer books for such period, not
exceeding thirty (30) days (except at or in connection with the termination of
the Trust), as the Trustees may determine; or without closing the transfer books
the Trustees may fix a date and time not more than one hundred twenty (120) days
prior to the date of any meeting of Shareholders or other action as the date and
time of record for the determination of Shareholders entitled to vote at such
meeting or to be treated as Shareholders of record for purposes of such other
action. Any Shareholder who was a Shareholder at the date and time so fixed
shall be entitled to vote at such meeting or to be treated as a Shareholder of
record for purposes of such other action, even though such Shareholder has since
that date and time disposed of its Shares, and no Shareholder becoming such
after that date and time shall be so entitled to vote at such meeting or to be
treated as a Shareholder of record for purposes of such other action.
Section 7.4. Quorum and Required Vote. Except as otherwise required by the 1940
Act or other applicable law, this Declaration of Trust, or the By-Laws,
one-tenth (1/10) of the Shares entitled to vote in person or by proxy shall be a
quorum as to any particular matter; provided, however, that any lesser number
shall be sufficient for matters upon which the Shareholders vote at any meeting
called in accordance with Section 7.5. Any matter upon which the Shareholders
vote shall be approved by a majority of the votes cast on such matter at a
meeting of the Shareholders at which a quorum is present, except that Trustees
shall be elected by a plurality of the votes cast at such a meeting.
Section 7.5. Adjournments. If a meeting at which a quorum was present is
adjourned, a meeting may be held within a reasonable time after the date set for
the original meeting without the necessity of further notice for the purpose of
taking action upon any matter that would have been acted upon at the original
meeting but for its adjournment.
Section 7.6. Actions by Written Consent. Except as otherwise required by the
1940 Act or other applicable law, this Declaration of Trust, or the By-Laws, any
action taken by Shareholders may be taken without a meeting if Shareholders
entitled to cast at least a majority of all of the votes entitled to be cast on
the matter (or such larger proportion thereof as shall be required by the 1940
Act or by any express provision of this
<PAGE> 17
Declaration of Trust or the By-Laws) consent to the action in writing and such
written consents are filed with the records of the meetings of Shareholders.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
Section 7.7. Inspection of Records. The records of the Trust shall be open to
inspection by Shareholders to the same extent as is required for stockholders of
a Delaware business corporation under the Delaware General Corporation Law.
Section 7.8. Additional Provisions. The By-Laws may include further provisions
for Shareholders' votes and meetings and related matters not inconsistent with
the provisions hereof.
ARTICLE 8
Limitation of Liability and Indemnification
Section 8.1. General Provisions.
Section 8.1.1. General Limitation of Liability. No personal liability for any
debt or obligation of the Trust shall attach to any Trustee of the Trust.
Without limiting the foregoing, a Trustee shall not be responsible for or liable
in any event for any neglect or wrongdoing of any officer, agent, employee,
investment adviser, subadviser, principal underwriter or custodian of the Trust,
nor shall any Trustee be responsible or liable for the act or omission of any
other Trustee. Every note, bond, contract, instrument, certificate, Share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any Trustee in connection with the Trust
shall be conclusively deemed to have been executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee and neither such
Trustees or Trustee nor the Shareholders shall be personally liable thereon.
Section 8.1.2. Notice of Limited Liability. Every note, bond, contract,
instrument, certificate or undertaking made or issued by the Trustees or by any
officers or officer shall recite that the same was executed or made by or on
behalf of the Trust by them as Trustees or Trustee or as officers or officer and
not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust or belonging or attributable to a Series or
Class thereof, and may contain such further recitals as they or he may deem
appropriate, but the omission thereof shall not operate to bind any Trustees or
Trustee or officers or officer or Shareholders or Shareholder individually.
Section 8.1.3. Liability Limited to Assets of the Trust. All persons extending
credit to, contracting with or having any claim against the Trust shall look
only to the assets of the Trust or belonging to a Series or Class thereof, as
appropriate, for payment under such credit, contract or claim, and neither the
Shareholders nor the Trustees nor any of the Trust's officers, employees or
agents, whether past, present or future, shall be personally liable therefor.
Section 8.2. Liability of Trustees. The exercise by the Trustees of their powers
and discretion hereunder shall be binding upon the Trust, the Shareholders, and
any other person dealing with the Trust. The liability of the Trustees, however,
shall be limited by this Section 8.2.
Section 8.2.1. Liability for Own Actions. A Trustee shall be liable to the Trust
or the Shareholders only for his own willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of the
office of Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law.
Section 8.2.2. Liability for Actions of Others. The Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any officer,
agent, employee, consultant, adviser, administrative distributor, principal
underwriter, custodian, transfer agent, dividend disbursing agent, Shareholder
<PAGE> 18
servicing agent, or accounting agent of the Trust, nor shall any Trustee be
responsible for any act or omission of any other Trustee.
Section 8.2.3. Advice of Experts and Reports of Others. The Trustees may take
advice of counsel or other experts with respect to the meaning and operation of
this Declaration of Trust and their duties as Trustees hereunder, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. In discharging their duties, the Trustees, when
acting in good faith, shall be entitled to rely upon the books of account of the
Trust and upon written reports made to the Trustees by any officer appointed by
them, any independent public accountant and (with respect to the subject matter
of the contract involved) any officer, partner or responsible employee of any
other party to any contract entered into hereunder.
Section 8.2.4. Bond. The Trustees shall not be required to give any bond as
such, nor any surety if a bond is required.
Section 8.2.5. Declaration of Trust Governs Issues of Liability. The provisions
of this Declaration of Trust, to the extent that they restrict the duties and
liabilities of the Trustees otherwise existing at law or in equity, are agreed
by the Shareholders and all other Persons bound by this Declaration of Trust to
replace such other duties and liabilities of the Trustees.
Section 8.3. Liability of Third Persons Dealing with Trustees. No person dealing
with the Trustees shall be bound to make any inquiry concerning the validity of
any transaction made or to be made by the Trustees or to see to the application
of any payments made or property transferred to the Trust or upon its order.
Section 8.4. Liability of Shareholders. Without limiting the provisions of this
Section 8.4 or the DBTA, the Shareholders shall be entitled to the same
limitation of personal liability extended to stockholders of private
corporations organized for profit under the General Corporation Law of the State
of Delaware.
Section 8.4.1. Limitation of Liability. No personal liability for any debt or
obligation of the Trust shall attach to any Shareholder or former Shareholder of
the Trust, and neither the Trustees, nor any officer, employee or agent of the
Trust shall have any power to bind any Shareholder personally or to call upon
any Shareholder for the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any time personally agree to pay by
way of subscription for any Shares or otherwise.
Section 8.4.2. Indemnification of Shareholders. In case any Shareholder or
former Shareholder of the Trust shall be held to be personally liable solely by
reason of being or having been a Shareholder and not because of such
Shareholder's acts or omissions or for some other reason, the Shareholder or
former Shareholder (or, in the case of a natural person, his or her heirs,
executors, administrators or other legal representatives or, in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled out of the assets of the Trust to be held harmless from and indemnified
against all loss and expense arising from such liability; provided, however,
there shall be no liability or obligation of the Trust arising hereunder to
reimburse any Shareholder for taxes paid by reason of such Shareholder's
ownership of any Shares or for losses suffered by reason of any changes in value
of any Trust assets. The Trust shall, upon request by the Shareholder or former
Shareholder, assume the defense of any claim made against the Shareholder for
any act or obligation of the Trust and satisfy any judgment thereon.
Section 8.5. Indemnification.
Section 8.5.1. Indemnification of Covered Persons. Subject to the exceptions and
limitations contained in Section 8.5.2, every person who is, or has been, a
Trustee, officer, employee or agent of the Trust, including persons who serve at
the request of the Trust as directors, trustees, officers, employees or agents
of another organization in which the Trust has an interest as a shareholder,
creditor or otherwise (hereinafter referred to as a "Covered Person"), shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection
<PAGE> 19
with any claim, action, suit or proceeding in which he becomes involved as a
party or otherwise by virtue of his being or having been such a Trustee,
director, officer, employee or agent and against amounts paid or incurred by him
in settlement thereof.
Section 8.5.2. Exceptions. No indemnification shall be provided hereunder to a
Covered Person:
(a) For any liability to the Trust or its Shareholders arising out of a
final adjudication by the court or other body before which the proceeding was
brought that the Covered Person engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office;
(b) With respect to any matter as to which the Covered Person shall
have been finally adjudicated not to have acted in good faith in the reasonable
belief that his or her action was in the best interests of the Trust; or
(c) In the event of a settlement or other disposition not involving a
final adjudication (as provided in paragraph (a) or (b) of this Section 8.5.2)
and resulting in a payment by a Covered Person, unless there has been either a
determination that such Covered Person did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement or
other disposition, or a reasonable determination, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that he or she did
not engage in such conduct, such determination being made by: (i) a vote of a
majority of the Disinterested Trustees (as such term is defined in Section
8.5.5) acting on the matter (provided that a majority of Disinterested Trustees
then in office act on the matter); or (ii) a written opinion of independent
legal counsel.
Section 8.5.3. Rights of Indemnification. The rights of indemnification herein
provided may be insured against by policies maintained by the Trust, and shall
be severable, shall not affect any other rights to which any Covered Person may
now or hereafter be entitled, shall continue as to a person who has ceased to be
a Covered Person, and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel other than Covered Persons
may be entitled by contract or otherwise under law.
Section 8.5.4. Expenses of Indemnification. Expenses of preparation and
presentation of a defense to any claim, action, suit or proceeding subject to a
claim for indemnification under this Section 8.5 shall be advanced by the Trust
prior to final disposition thereof upon receipt of an undertaking by or on
behalf of the recipient to repay such amount if it is ultimately determined that
he or she is not entitled to indemnification under this Section 8.5, provided
that either:
(a) Such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising out of
any such advances; or
(b) A majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act on
the matter) or independent legal counsel in a written opinion shall determine,
based upon a review of the readily available facts (as opposed to the facts
available upon a full trial), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
Section 8.5.5. Certain Defined Terms Relating to Indemnification. As used in
this Section 8.5, the following words shall have the meanings set forth below:
(a) A "Disinterested Trustee" is one (i) who is not an Interested
Person of the Trust (including anyone, as such Disinterested Trustee, who has
been exempted from being an Interested Person by any rule, regulation or order
of the Commission), and (ii) against whom none of such actions, suits or
<PAGE> 20
other proceedings or another action, suit or other proceeding on the same or
similar grounds is then or has been pending;
(b) "Claim," "action," "suit" or "proceeding" shall apply to all
claims, actions, suits, proceedings (civil, criminal, administrative or other,
including appeals), actual or threatened; and
(c) "Liability" and "expenses" shall include without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
ARTICLE 9
Termination or Reorganization
Section 9.1. Termination of Trust or Series. Unless terminated as provided
herein, the Trust and each Series or Class designated and established pursuant
to this Declaration of Trust shall continue without limitation of time.
Section 9.1.1. Termination. Subject to approval by a majority of the affected
Shareholders, the Trust or any Series or Class (and the establishment and
designation thereof) may be terminated by an instrument executed by a majority
of the Trustees then in office; provided, however, that no approval of affected
Shareholders is necessary if a majority of the Trustees then in office
determines that the continuation of the Trust or Series is not in the best
interests of the Trust, such Series or Class, or the affected Shareholders as a
result of factors or events adversely affecting the ability of the Trust, Series
or Class to conduct its business and operations in an economically viable
manner.
Section 9.1.2. Distribution of Assets. Upon termination of the Trust or any
Series or Class, after paying or otherwise providing for all charges, taxes,
expenses and liabilities, whether due or accrued or anticipated, as may be
determined by the Trustees, the Trust shall, in accordance with such procedures
as the Trustees consider appropriate, reduce the remaining assets of the Trust
to distributable form in cash or other securities, or any combination thereof,
and distribute the proceeds to the affected Shareholders in the manner set forth
by resolution of the Trustees.
Section 9.1.3. Certificate of Cancellation. Upon termination of the Trust, the
Trustees shall file a certificate of cancellation in accordance with Section
3810 of the DBTA.
Section 9.2. Reorganization. The Trustees may sell, convey, merge and transfer
the assets of the Trust, or the assets belonging to any one or more Series or
Classes, to another trust, partnership, association or corporation organized
under the laws of any state of the United States, or to the Trust to be held as
assets belonging to another Series or Class of the Trust, in exchange for cash,
shares or other securities (including, in the case of a transfer to another
Series or Class of the Trust, Shares of such other Series or Classes) with such
transfer either (i) being made subject to, or with the assumption by the
transferee of, the liabilities belonging to each Series or Class the assets of
which are so transferred, or (ii) not being made subject to, or not with the
assumption of, such liabilities. Following such transfer, the Trustees shall
distribute such cash, Shares or other securities (giving due effect to the
assets and liabilities belonging to and any other differences among the various
Series or Classes the assets belonging to which have so been transferred) among
the Shareholders of the Series or Classes the assets belonging to which have
been so transferred. If all of the assets of the Trust have been so transferred,
the Trust shall be terminated.
Section 9.3. Merger or Consolidation.
Section 9.3.1. Authority to Merge or Consolidate. Pursuant to an agreement of
merger or consolidation, the Trust, or any one or more Series or Classes, may
merge or consolidate with or into one or more business trusts or other business
entities formed or organized or existing under the laws of the State of Delaware
or any other state or the United States or any foreign country or other foreign
jurisdiction.
<PAGE> 21
Section 9.3.2. No Shareholder Approval Required. Any merger or consolidation
described in Section 9.3.1or any reoganization described in Section 9.2, shall
not require the vote of the Shareholders affected thereby, unless such vote is
required by the 1940 Act or other applicable laws, or unless such merger or
consolidation would result in an amendment of this Declaration of Trust which
would otherwise require the approval of such Shareholders.
Section 9.3.3. Subsequent Amendments. In accordance with Section 3815(f) of
DBTA, an agreement of merger or consolidation may effect any amendment to this
Declaration of Trust or the By-Laws or effect the adoption of a new declaration
of trust or By-Laws of the Trust if the Trust is the surviving or resulting
business trust.
Section 9.3.4. Certificate of Merger or Consolidation. Upon completion of the
merger or consolidation, the Trustees shall file a certificate of merger or
consolidation in accordance with Section 3810 of the DBTA.
ARTICLE 10
Miscellaneous Provisions
Section 10.1. Signatures. To the extent permitted by applicable law, any
instrument signed pursuant to a validly executed power of attorney shall be
deemed to have been signed by the Trustee or officer executing the power of
attorney. To the extent permitted by law, any Trustee or officer may, in his or
her discretion, accept a facsimile signature as evidence of a valid signature on
any document.
Section 10.2. Certified Copies. The original or a copy of this Declaration of
Trust and of each amendment hereto shall be kept in the office of the Trust
where it may be inspected by any Shareholder. Anyone dealing with the Trust may
rely on a certificate by an officer or Trustee of the Trust as to whether or not
any such amendments have been made and as to any matters in connection with the
Trust hereunder, and with the same effect as if it were the original, may rely
on a copy certified by an officer or Trustee of the Trust to be a copy of this
Declaration of Trust or of any such amendments.
Section 10.3. Certain Internal References. In this Declaration of Trust or in
any such amendment, references to this Declaration of Trust, and all expressions
like "herein," "hereof" and "hereunder," shall be deemed to refer to this
Declaration of Trust as a whole and as amended or affected by any such
amendment.
Section 10.4. Headings. Headings are placed herein for convenience of reference
only, and in case of any conflict, the text of this instrument, rather than the
headings, shall control. This instrument may be executed in any number of
counterparts, each of which shall be deemed an original. Section 10.5.
Resolution of Ambiguities. The Trustees may construe any of the provisions of
this Declaration insofar as the same may appear to be ambiguous or inconsistent
with any other provisions hereof, and any such construction hereof by the
Trustees in good faith shall be conclusive as to the meaning to be given to such
provisions. In construing this Declaration, the presumption shall be in favor of
a grant of power to the Trustees.
Section 10.6. Amendments.
Section 10.6.1. Generally. Except as otherwise specifically provided herein or
as required by the 1940 Act or other applicable law, this Declaration of Trust
may be amended at any time by an instrument in writing signed by a majority of
the Trustees then in office.
Section 10.6.2. Certificate of Amendment. In the event of any amendment to this
Declaration of Trust which affects the Trust's certificate of trust, the
Trustees shall file a certificate of amendment in accordance with Section 3810
of the DBTA.
<PAGE> 22
Section 10.6.3. Prohibited Retrospective Amendments. No amendment of this
Declaration of Trust or repeal of any of its provisions shall limit or eliminate
the limitation of liability provided to Trustees and officers hereunder with
respect to any act or omission occurring prior to such amendment or repeal.
Section 10.7. Governing Law. This Declaration of Trust is executed and delivered
with reference to DBTA and the laws of the State of Delaware by all of the
Trustees whose signatures appear below, and the rights of all parties and the
validity and construction of every provision hereof shall be subject to and
construed according to DBTA and the laws of the State of Delaware (unless and to
the extent otherwise provided for and/or preempted by the 1940 Act or other
applicable federal securities laws); provided, however, that there shall not be
applicable to the Trust, the Trustees, or this Declaration of Trust (a) the
provisions of Section 3540 of Title 12 of the Delaware Code or (b) any
provisions of the laws (statutory or common) of the State of Delaware (other
than the DBTA) pertaining to trusts which are inconsistent with the rights,
duties, powers, limitations or liabilities of the Trustees set forth or
referenced in this Declaration of Trust. All references to sections of the DBTA
or the 1940 Act, or any rules or regulations thereunder, refer to such sections,
rules, or regulations in effect as of the date of this Declaration of Trust, or
any successor sections, rules, or regulations thereto.
Section 10.8. Severability. The provisions of this Declaration of Trust are
severable, and if the Trustees shall determine, with the advice of counsel, that
any of such provision is in conflict with the 1940 Act, the DBTA, or with other
applicable laws and regulations, the conflicting provision shall be deemed never
to have constituted a part of this Declaration of Trust; provided, however, that
such determination shall not affect any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination. If any provision of this Declaration of Trust shall
be held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration of Trust in any jurisdiction.
IN WITNESS WHEREOF, the undersigned, being the Trustees of the Trust, have
executed this Declaration of Trust as of the date first written above.
/s/ Michael L. Sapir
Michael L. Sapir
/s/ Louis M. Mayberg
Louis M. Mayberg
<PAGE> 1
Exhibit 2
PROFUNDS
(A Delaware Business Trust)
BYLAWS
October __, 1997
<PAGE> 2
TABLE OF CONTENTS
-----------------
ARTICLE I ................................................................. 1
NAME OF TRUST, PRINCIPAL OFFICE AND SEAL .............................. 1
ARTICLE II ................................................................ 1
MEETINGS OF TRUSTEES .................................................. 1
ARTICLE III ............................................................... 2
COMMITTEES ............................................................ 2
ARTICLE IV ................................................................ 3
OFFICERS .............................................................. 3
ARTICLE V .................................................................. 4
MEETINGS OF SHAREHOLDERS .............................................. 4
ARTICLE VI ................................................................ 6
SHARES IN THE TRUST ................................................... 6
ARTICLE VII ............................................................... 6
CUSTODY OF SECURITIES ................................................. 6
ARTICLE VIII .............................................................. 6
FISCAL YEAR AND ACCOUNT ............................................... 6
ARTICLE IX ................................................................ 7
AMENDMENTS ............................................................ 7
ARTICLE X ................................................................. 7
MISCELLANEOUS ......................................................... 7
-ii-
<PAGE> 3
BYLAWS
OF
PROFUNDS
(A Delaware Business Trust)
These Bylaws of Profunds (the "Trust"), a Delaware business trust, are subject
to the Declaration of Trust of the Trust dated April 13, 1997, as from time to
time amended, supplemented or restated (the "Declaration of Trust").
Capitalized terms used herein have the same meaning as in the Declaration
of Trust.
ARTICLE I
---------
NAME OF TRUST, PRINCIPAL OFFICE AND SEAL
----------------------------------------
SECTION 1. PRINCIPAL OFFICE. The principal office of the Trust shall
be located in Bethesda, Maryland, or such other location as the Trustees may
from time to time determine. The Trust may establish and maintain other offices
and places of business as the Trustees may from time to time determine.
SECTION 2. DELAWARE OFFICE. The Trustees shall establish a registered
office in the State of Delaware and shall appoint as the Trust's registered
agent for service of process in the State of Delaware an individual resident of
the State of Delaware or a Delaware corporation or a corporation authorized to
transact business in the State of Delaware and in any case the business office
of such registered agent for service of process shall be identical with the
registered Delaware office of the Trust.
SECTION 3. SEAL. The Trustees may adopt a seal which shall be in such
form and have such inscription as the Trustees may from time to time determine.
Any Trustee or officer of the Trust shall have authority to affix the seal to
any document, provided that the failure to affix the seal shall not affect the
validity or effectiveness of any document.
ARTICLE II
----------
MEETINGS OF TRUSTEES
--------------------
SECTION 1. MEETINGS. Meetings of the Trustees may be held at such
places and such times as the Trustees may from time to time determine. Such
meetings may be called orally or in writing by the Chairman of the Trustees or
by any other Trustee. Each Trustee shall be given at least twenty four hours'
notice of any meeting unless such Trustee has waived the notice requirement by
written instrument executed before, at or after such meeting or if such Trustee
attends the meeting.
SECTION 2. ACTION WITHOUT A MEETING. Actions may be taken by the
Trustees without a meeting or by a telephone meeting, as provided in Article 5,
Section 5.12.3, of the Declaration of Trust.
SECTION 3. COMPENSATION OF TRUSTEES. As provided by Article 5, Section
5.10.5 of the Declaration of Trust, each Trustee may receive such compensation
from the Trust for his or her services and reimbursement for his or her expenses
as may be fixed from time to time by the Trustees.
<PAGE> 4
ARTICLE III
-----------
COMMITTEES
----------
SECTION 1. ORGANIZATION. As provided in Article 5, Section 5.10.3, the
Trustees may designate one or more committees of the Trustees. The Chairmen of
such committees shall be elected by the Trustees. The number composing such
committees and the powers conferred upon the same shall be determined by the
vote of a majority of the Trustees. All members of such committees shall hold
office at the pleasure of the Trustees. The Trustees may abolish any such
committee at any time in their sole discretion. Any committee to which the
Trustees delegate any of their powers shall maintain records of its meetings and
shall report its actions to the Trustees. The Trustees shall have the power to
rescind any action of any committee, but no such rescission shall have
retroactive effect. The Trustees shall have the power at any time to fill
vacancies in the committees. The Trustees may delegate to these committees any
of its powers, subject to the limitations of applicable law.
SECTION 2. EXECUTIVE COMMITTEE. As provided by Article 5, Section
5.10.3, the Trustees may elect from their own number an Executive Committee
which shall have any or all the powers of the Trustees when the Trustees are not
in session. The Chairman of the Trustees shall be a member of the Executive
Committee.
SECTION 3. NOMINATING COMMITTEE. Pursuant to the powers granted in
Article 5, Section 5.10.3, the Trustees may elect from their own number a
Nominating Committee composed entirely of Trustees who are not Interest Persons
which shall have the power to select and nominate Trustees who are not
Interested Persons, and shall have such other powers and perform such other
duties as may be assigned to it from time to time by the Trustees.
SECTION 4. AUDIT COMMITTEE. Pursuant to the powers granted in Article
5, Section 5.10.3, the Trustees may elect from their own number an Audit
Committee composed entirely of Trustees who are not Interested Persons which
shall have the power to review and evaluate the audit function, including
recommending independent certified public accountants, and shall have such other
powers and perform such other duties as may be assigned to it from time to time
by the Trustees.
SECTION 5. OTHER COMMITTEES. The Trustees may appoint other committees
in accordance with Article 5, Section 5.10.3 of the Declaration of Trust. Each
such committee shall have such powers and perform such duties as may be assigned
to it from time to time by the Trustees, but shall not exercise any power which
may lawfully be exercised only by the Trustees or a committee thereof.
SECTION 6. PROCEEDINGS AND QUORUM. In the absence of an appropriate
resolution of the Trustees, each committee may adopt such rules and regulations
governing its proceedings, quorum and manner of acting as it shall deem proper
and desirable. In the event any member of any committee is absent from any
meeting, the members present at the meeting, whether or not they constitute a
quorum, may appoint a Trustee to act in the place of such absent member.
SECTION 7. COMPENSATION OF COMMITTEE MEMBERS. Each committee member
may receive such compensation from the Trust for his or her services and
reimbursement for his or her expenses as may be fixed from time to time by the
Trustees.
-2-
<PAGE> 5
ARTICLE IV
----------
OFFICERS
--------
SECTION 1. GENERAL. The officers of the Trust shall be a President, a
Treasurer, a Secretary, and may include one or more Vice Presidents, Assistant
Treasurers or Assistant Secretaries, and such other officers as the Trustees may
from time to time elect. It shall not be necessary for any Trustee or other
officer to be a Shareholder of the Trust.
SECTION 2. ELECTION, TENURE AND QUALIFICATIONS OF OFFICERS. The
officers of the Trust, except those appointed as provided in Section 9 of this
Article, shall be elected by the Trustees. Each officer elected by the Trustees
shall hold office until his or her successor shall have been elected and
qualified or until his or her earlier resignation. Any person may hold one or
more offices of the Trust. A person who holds more than one office in the Trust
may not act in more than one capacity to execute, acknowledge or verify an
instrument required by law to be executed, acknowledged or verified by more
than one officer. No officer need be a Trustee.
SECTION 3. VACANCIES AND NEWLY CREATED OFFICES. Whenever a vacancy
shall occur in any office, regardless of the reason for such vacancy, or if any
new office shall be created, such vacancies or newly created offices may be
filled by the Trustees or, in the case of any office created pursuant to Section
9 of this Article, by any officer upon whom such power shall have been
conferred by the Trustees.
SECTION 4. REMOVAL AND RESIGNATION. Any officer may be removed from
office at any time, with or without cause, by the Trustees. In addition, any
officer or agent appointed in accordance with the provisions of Section 9 of
this Article may be removed, with or without cause, by any officer upon whom
such power of removal shall have been conferred by the Trustees. Any officer may
resign from office at any time by delivering a written resignation to the
Trustees, the President, the Secretary, or any Assistant Secretary. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
SECTION 5. PRESIDENT. Subject to the direction of the Trustees, the
President shall have general charge of the business affairs, policies and
property of the Trust and general supervision over its officers, employees and
agents. In the absence of the Chairman of the Trustees or if no Chairman of the
Trustees has been elected, the President shall preside at all Shareholders'
meetings and at all meetings of the Trustees and shall in general exercise the
powers and perform the duties of the Chairman of the Trustees. Except as the
Trustees may otherwise order, the President shall have the power to grant,
issue, execute or sign such powers of attorney, proxies, agreements or other
documents as may be deemed advisable or necessary in the furtherance of the
interests of the Trust or any Series or Class thereof. The President also shall
have the power to employ attorneys, accountants and other advisers and agents
for the Trust. The President shall exercise such other powers and perform such
other duties as the Trustees may from time to time assign to the President.
SECTION 6. VICE PRESIDENT. The Trustees may from time to time elect one
or more Vice Presidents who shall have such powers and perform such duties as
may from time to time be assigned to them by the Trustees or the President. At
the request or in the absence or disability of the President, the Vice President
(or, if there are two or more Vice Presidents, then the first appointed of the
Vice Presidents present and able to act) may perform all the duties of the
President and, when so doing, shall have all the powers of and be subject to all
the restrictions upon the President.
SECTION 7. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall be
the principal financial and accounting officer of the Trust and shall have
general charge of the finances and books of the Trust. The Treasurer shall
deliver all funds and securities of the Trust to such company as the Trustees
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<PAGE> 6
shall retain as custodian in accordance with the Declaration of Trust, these
Bylaws, and applicable law. The Treasurer shall make annual reports regarding
the business and financial condition of the Trust as soon as possible after the
close of the Trust's fiscal year. The Treasurer also shall furnish such other
reports concerning the business and financial condition of the Trust as the
Trustees may from time to time require. The Treasurer shall perform all acts
incidental to the office of Treasurer, subject to the supervision of the
Trustees, and shall perform such additional duties as the Trustees may from time
to time designate.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Trustees or the Treasurer may assign, and, in the absence of the Treasurer, may
perform all the duties of the Treasurer.
SECTION 8. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
record all votes and proceedings of the meetings of Trustees and Shareholders in
books to be kept for that purpose. The Secretary shall be responsible for giving
and serving of all notices of the Trust. The Secretary shall have custody of any
seal of the Trust. The Secretary shall be responsible for the records of the
Trust, including the Share register and such other books and papers as the
Trustees may direct and such books, reports, certificates and other documents
required by law. All of such records and documents shall at all reasonable times
be kept open by the Secretary for inspection by any Trustee for any proper
Trust purpose. The Secretary shall perform all acts incidental to the office of
Secretary, subject to the supervision of the Trustees, and shall perform such
additional duties as the Trustees may from time to time designate.
Any Assistant Secretary may perform such duties of the Secretary as the
Trustees or the Secretary may assign, and, in the absence of the Secretary, may
perform all the duties of the Secretary.
SECTION 9. SUBORDINATE OFFICERS. The Trustees may appoint from time to
time such other officers and agents as they may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and
perform such duties as the Trustees may determine. The Trustees may delegate
from time to time to one or more officers or committees of Trustees the power
to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties. Any officer or
agent appointed in accordance with the provisions of this Section 9 may be
removed, either with or without cause, by any officer upon whom such power of
removal shall have been conferred by the Trustees.
SECTION 10. COMPENSATION OF OFFICERS. Each officer may receive such
compensation from the Trust for services and reimbursement for expenses as may
be fixed from time to time by the Trustees.
SECTION 11. SURETY BOND. The Trustees may require any officer or agent
of the Trust to execute a bond (including, without limitation, any bond
required by the Investment Company Act of 1940 and the rules and regulations of
the Securities and Exchange Commission) to the Trust in such sum and with such
surety or sureties as the Trustees may determine, conditioned upon the faithful
performance of his or her duties to the Trust, including responsibility for the
accounting of any of the Trust's property, funds or securities that may come
into his or her hands.
ARTICLE V
---------
MEETINGS OF SHAREHOLDERS
------------------------
SECTION 1. ANNUAL AND REGULAR MEETINGS. As provided in Article 7,
Section 7.2.1 of the Declaration of Trust, there shall be no annual or regular
Shareholders' meetings except as required by law or as hereinafter provided.
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<PAGE> 7
SECTION 2. SPECIAL MEETINGS. Special meetings of Shareholders of the
Trust or of any Series or Class shall be called in accordance with Article 7,
Section 7.2.2 of the Declaration of Trust.
Special meetings of the Shareholders of the Trust or of any Series or
Class shall be called by the Secretary upon the written request of Shareholders
owning at least ten percent (10%) of the Outstanding Shares entitled to vote at
such meeting, provided that (1) such request shall state the purposes of such
meeting and the matters proposed to be acted on, and (2) the Shareholders
requesting such meeting shall have paid to the Trust the reasonably estimated
cost of preparing and mailing the notice thereof, which the Secretary shall
determine and specify to such Shareholders.
If the Secretary fails for more than thirty days to call a special
meeting, The Trustees or the Shareholders requesting such a meeting may, in the
name of the Secretary, call the meeting by giving the required notice. If the
meeting is a meeting of Shareholders of any Series or Class, but not a
meeting of all Shareholders of the Trust, then only a special meeting of
Shareholders of such Series or Class need be called and, in such case, only
Shareholders of such Series or Class shall be entitled to notice of and to vote
at such meeting.
SECTION 3. NOTICE OF MEETINGS. Notice shall be provided in accordance
with Article VII, Section 7.2.3 of the Declaration of Trust. The written notice
of any meeting may be delivered or mailed, postage prepaid, to each Shareholder
entitled to vote at such meeting. If mailed, notice shall be deemed to be given
when deposited in the United States mail directed to the Shareholder at his or
her address as it appears on the records of the Trust. Notice of any
Shareholders' meeting need not be given to any Shareholder if a written waiver
of notice, executed before, at or after such a meeting, is filed with the record
of such a meeting, or to any Shareholder who is present at such meeting in
person or by proxy unless the Shareholder is present solely for the purpose of
objecting to the call of the meeting. Notice of adjournment of a Shareholders'
meeting to another time or place need not be given, if such time and place are
announced at the meeting which the adjournment is taken and the adjourned
meeting is held within a reasonable time after the date set for the original
meeting. At the adjourned meeting the Trust may transact any business which
might have been transacted at the original meeting. If after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to Shareholders of record entitled to vote at such
meeting. Any irregularities in the notice of any meeting or the nonreceipt of
any such notice by any of the Shareholders shall not invalidate any action
otherwise properly taken at any such meeting.
SECTION 4. VALIDITY OF PROXIES. Subject to the provision of Article 7,
Section 7.1.5 of the Declaration of Trust, Shareholders entitled to vote may
vote either in person or by proxy, provided that either (1) a written
instrument authorizing such proxy to act has been signed and dated by the
Shareholder or by his or her duly authorized attorney, or (2) the Trustees
adopt by resolution an electronic, telephonic, computerized or other
alternative to execution of a written instrument authorizing the proxy to act,
but if a proposal by anyone other than the officers or Trustees is submitted to
a vote of the Shareholders of the Trust or of any Series, or if there is a
proxy contest or proxy solicitation or proposal in opposition to any proposal
by the officers or Trustees, Shares may be voted only in person or by written
proxy. Unless the proxy provides otherwise, it shall not be valid if executed
more than eleven months before the date of the meeting. All proxies shall be
delivered to the Secretary or other person responsible for recording the
proceedings before being voted. Unless otherwise specifically limited by their
terms, proxies shall entitle the Shareholder to vote at any adjournment of a
Shareholders' meeting. At every meeting of the Shareholders, unless the voting
is conducted by inspectors, all questions concerning the qualifications of
voters, the validity of proxies, and the acceptance or rejection of votes,
shall be decided by the chairman of the meeting. Subject to the provisions of
the Declaration of Trust or these Bylaws, all matters concerning the giving,
voting or validity of proxies shall be governed by the General Corporation Law
of the State of Delaware relating to proxies, and judicial interpretations
thereunder, as if the Trust were a Delaware corporation and Shareholders were
shareholders of a Delaware corporation.
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<PAGE> 8
SECTION 5. PLACE OF MEETING. All special meetings of Shareholders shall
be held at the principal place of business of the Trust or at such other place
as the Trustees may from time to time designate.
SECTION 6. ACTION WITHOUT A MEETING. Any action to be taken by the
Shareholders may be taken without a meeting in accordance with Article 7,
Section 7.6 of the Declaration of Trust.
ARTICLE VI
----------
SHARES IN THE TRUST
-------------------
SECTION 1. CERTIFICATES. No certificates certifying the ownership of
Shares shall be issued. In lieu of issuing certificates of Shares, the Trustees
or the transfer agent or Shareholder servicing agent may either issue receipts
or may keep accounts upon the books of the Trust for record holders of such
Shares. In either case, the record holders shall be deemed, for all purposes, to
be holders of certificates for such Shares as if they accepted such certificates
and shall be held to have expressly consented to the terms thereof.
SECTION 2. NON-TRANSFERABILITY OF SHARES. Shares in the Trust shall
not be transferable unless the prospective transferor obtains the prior
unanimous consent of the Shareholders to the transfer. The Trust shall be
entitled to treat the holder of record of any Share or Shares as the absolute
owner for all purposes, and shall not be bound to recognize any legal, equitable
or other claim or interest in such Share of Shares on the part of any other
person except as otherwise expressly provided by law.
ARTICLE VII
-----------
CUSTODY OF SECURITIES
---------------------
SECTION 1. EMPLOYMENT OF A CUSTODIAN. The Trust may enter into written
contracts for the placement and maintenance of all funds, securities and similar
investments of the Trust in accordance with Article 6, Section 6.3 of the
Declaration of Trust.
SECTION 2. TERMINATION OF CUSTODIAN AGREEMENT. Upon termination of the
Custodian Agreement or inability of the Custodian to continue to serve, the
Trustees shall promptly appoint a successor Custodian. If so directed by
resolution of the Trustees or by vote of a majority of Outstanding Shares of the
Trust, the Custodian shall deliver and pay over all property of the Trust or any
Series held by it as specified in such vote.
SECTION 3. OTHER ARRANGEMENTS. The Trust may make such other
arrangements for the custody of its assets (including deposit arrangements) as
may be required by any applicable law, rule or regulation.
ARTICLE VIII
------------
FISCAL YEAR AND ACCOUNTANT
--------------------------
SECTION 1. FISCAL YEAR. The fiscal year of the Trust shall be as
determined by the Trustees.
SECTION 2. ACCOUNTANT. The Trust shall employ independent certified
public accountants as its accountant ("Accountant") to examine the accounts of
the Trust and to sign and certify financial statements filed by the Trust. The
Accountant's certificates and reports shall be addressed both to the Trustees
and to the Shareholders.
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<PAGE> 9
ARTICLE IX
----------
AMENDMENTS
----------
SECTION 1. GENERAL. All Bylaws of the Trust shall be subject to
amendment, alteration or repeal, and new Bylaws may be made by the affirmative
vote of a majority of either: (1) the Outstanding Shares of the Trust entitled
to vote at any meeting; or (2) the Trustees at any meeting. In no event will
Bylaws be adopted that are in conflict with the Declaration of Trust, the
Delaware Business Trust Act, the Investment Company Act of 1940, or applicable
securities laws.
ARTICLE X
---------
MISCELLANEOUS
-------------
SECTION 1. INSPECTION OF BOOKS. The Trustees shall from time to time
determine whether and to what extent, and at what times and places, and under
what conditions the accounts and books of the Trust or any Series shall be open
to the inspection of Shareholders. No Shareholder shall have any right to
inspect any account or book or document of the Trust except as conferred by law
or otherwise by the Trustees.
SECTION 2. SEVERABILITY. The provisions of these Bylaws are severable.
If the Trustees determine, with the advice of counsel, that any provision hereof
conflicts with the Investment Company Act of 1940, the regulated investment
company or other provisions of the Internal Revenue Code or with other
applicable laws and regulations the conflicting provision shall be deemed never
to have constituted a part of these Bylaws; provided, however, that such
determination shall not affect any of the remaining provisions of these Bylaws
or render invalid or improper any action taken or omitted prior to such
determination. If any provision hereof shall be held invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall attach only to such
provision only in such jurisdiction and shall not affect any other provision of
these Bylaws.
SECTION 3. HEADINGS. Headings are placed in these Bylaws for
convenience of reference only and in case of any conflict, the text of these
Bylaws rather than the headings shall control.
-7-
<PAGE> 1
Exhibit 5(a)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the ____________ day of _______, 1997, between
ProFunds, a Delaware business trust (the "Trust"), and ProFunds Advisors LLC, a
Maryland limited liability company (the "Advisor").
WHEREAS, the Advisor is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and is engaged principally in the
business of rendering investment management services; and
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended, (the"1940 Act");
and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
("shares") in separate series with each such series representing interests in a
separate portfolio of securities and other assets; and
WHEREAS, the Trust currently offers six series of shares and may offer
additional portfolios in the future; and
WHEREAS, the Trust desires to retain the services of the Advisor to
provide a continuous program of investment management for the following
portfolios of the Trust: Bull ProFund, Ultra Bull ProFund, Bear ProFund, Ultra
Bear ProFund and UltraOTC ProFund (each referred to hereinafter as a "Portfolio"
and collectively as the "Portfolios"); and
WHEREAS, the Advisor is willing, in accordance with the terms and
conditions hereof to provide such services to the Trust on behalf of such
Portfolios.
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein and intending to be legally bound hereby, it is agreed between the
parties as follows:
1. APPOINTMENT OF ADVISOR
----------------------
The Trust hereby appoints Advisor to provide the advisory services set
forth herein to the Portfolios and Advisor agrees to accept such appointment and
agrees to render the services set forth herein for the compensation herein
provided. In carrying out its responsibilities under this Agreement, Advisor
shall at all times act in accordance with the investment objectives, policies
and restrictions applicable to the Portfolios as set forth in the then-current
Registration Statement of the Trust, applicable provisions of the 1940 Act and
the rules and regulations promulgated thereunder and other applicable federal
securities laws and regulations.
<PAGE> 2
2. DUTIES OF ADVISOR
-----------------
Advisor shall provide a continuous program of investment management for
each Portfolio. Subject to the general supervision of the Trust's Board of
Trustees, Advisor shall have sole investment discretion with respect to the
Portfolios, including investment research, selection of the securities to be
purchased and sold and the portion of the assets of each Portfolio, if any, that
shall be held uninvested, and the selection of broker-dealers through which
securities transactions in the Portfolios will be executed. Advisor shall manage
the Portfolios in accordance with the objectives, policies and limitations set
forth in the Trust's current Prospectus and Statement of Additional Information.
Specifically, and without limiting the generality of the foregoing, Advisor
agrees that it will:
(a) promptly advise each Portfolio's designated custodian bank
and administrator or accounting agent of each purchase and sale, as the
case may be, made on behalf of the Portfolio, specifying the name and
quantity of the security purchased or sold, the unit and aggregate
purchase or sale price, commission paid, the market on which the
transaction was effected, the trade date, the settlement date, the
identity of the effecting broker or dealer and/or such other
information, and in such manner, as may from time to time be reasonably
requested by the Trust;
(b) maintain all applicable books and records with respect to
the securities transactions of the Portfolio. Specifically, but without
limitation, Advisor agrees to maintain with respect to each Portfolio
those records required to be maintained under Rule 31a-1(b)(1), (b)(5)
and (b)(6) under the 1940 Act with respect to transactions in each
Portfolio including, without limitation, records which reflect
securities purchased or sold in the Portfolio, showing for each such
transaction, the market on which the transaction was effected, the
trade date, the settlement date, and the identity of the executing
broker or dealer. Advisor will preserve such records in the manner and
for the periods prescribed by Rule 31a-2 under the 1940 Act. Advisor
acknowledges and agrees that all such records it maintains for the
Trust are the property of the Trust and Advisor will surrender promptly
to the Trust any such records upon the Trust's request;
(c) provide, in a timely manner, such information as may be
reasonably requested by the Trust or its designated agents in
connection with, among other things, the daily computation of each
Portfolio's net asset value and net income, preparation of proxy
statements or amendments to the Trust's registration statement and
monitoring investments made in the Portfolio to ensure compliance with
the various limitations on investments applicable to the Portfolio and
to ensure that the Portfolio will continue to qualify for the tax
treatment accorded to regulated investment companies under Subchapter M
of the Internal Revenue Code of 1986, as amended;
2
<PAGE> 3
(d) render regular reports to the Trust concerning the
performance by Advisor of its responsibilities under this Agreement. In
particular, Advisor agrees that it will, at the reasonable request of
the Board of Trustees, attend meetings of the Board or its validly
constituted committees and will, in addition, make its officers and
employees available to meet with the officers and employees of the
Trust at least quarterly and at other times upon reasonable notice, to
review the investments and investment programs of the Portfolio;
(e) maintain its policy and practice of conducting its
fiduciary functions independently. In making investment recommendations
for the Portfolios, the Advisor's personnel will not inquire or take
into consideration whether the issuers of securities proposed for
purchase or sale for the Trust's account are customers of the Advisor
or of its affiliates. In dealing with such customers, the Advisor and
its affiliates will not inquire or take into consideration whether
securities of those customers are held by the Trust; and
(f) review periodically and take responsibility for the
material accuracy and completeness of the information supplied by or at
the request of the Advisor for inclusion in Trust's registration
statement under the 1940 Act and the Securities Act of 1933.
3. PORTFOLIO TRANSACTIONS
----------------------
Advisor shall be responsible for selecting members of securities
exchanges, brokers and dealers (herein after referred to as "brokers") for the
execution of purchase and sale transactions for the Portfolios. In executing
portfolio transactions and selecting brokers or dealers, if any, the Advisor
will use its best efforts to seek on behalf of a Portfolio the best overall
terms available. In assessing the best overall terms available for any
transaction, the Advisor shall consider all factors it deems relevant, including
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934) provided to any Portfolio of the Trust
and/or other accounts over which the Advisor or an affiliate of the Advisor
exercises investment discretion. The Advisor may pay to a broker or dealer who
provides such brokerage and research services a commission for executing a
portfolio transaction which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if, but only
if, the Advisor determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided. The
Advisor will report to the Trustees from time to time regarding its portfolio
execution and brokerage practices.
3
<PAGE> 4
4. EXPENSES AND COMPENSATION
-------------------------
a) Allocation of Expenses:
The Advisor shall, at its expense, employ or associate with
itself such persons as it believes appropriate to assist in performing
its obligations under this Agreement and provide all advisory services,
equipment, facilities and personnel necessary to perform its
obligations under this Agreement.
The Trust shall be responsible for all its expenses and
liabilities, including, without limitation, compensation of its
Trustees who are not affiliated with the Portfolios' Administrator or
the Advisor or any of their affiliates; taxes and governmental fees;
interest charges; fees and expenses of the Trust's independent
accountants and legal counsel; trade association membership dues; fees
and expenses of any custodian (including for keeping books and accounts
and calculating the net asset value of shares of each Portfolio,
transfer agent, registrar and dividend disbursing agent of the Trust;
expenses of issuing, selling, redeeming, registering and qualifying for
sale the Trust's shares of beneficial interest; expenses of preparing
and printing share certificates (if any), prospectuses, shareholders'
reports, notices, proxy statements and reports to regulatory agencies;
the cost of office supplies; travel expenses of all officers, trustees
and employees; insurance premiums; brokerage and other expenses of
executing portfolio transactions; expenses of shareholders' meetings;
organizational expenses; and extraordinary expenses.
b) Compensation
For its services under this Agreement, Advisor shall be
entitled to receive a fee at the annual rate of .75% of the average
daily net asset value of each Portfolio, payable monthly. For the
purpose of accruing compensation, the net asset value of the Portfolios
will be determined in the manner provided in the then-current
Prospectus of the Trust.
c) Expense Limitations
Advisor may waive all or a portion of its fees provided for
hereunder and such waiver will be treated as a reduction in the
purchase price of its services. Advisor shall be contractually bound
hereunder by the terms of any publicity announced waiver of its fee, or
any limitation of the Portfolio's expenses, as if such waiver were
fully set forth herein.
4
<PAGE> 5
5. LIABILITY OF ADVISOR
--------------------
Neither the Advisor nor its officers, directors, employees, agents or
controlling person ("Associated Person") of the Advisor shall be liable for any
error of judgement or mistake of law or for any loss suffered by the Trust in
connection with the matters to which this Agreement relates including, without
limitation, losses that may be sustained in connection with the purchase,
holding, redemption or sale of any security or other investment by the Trust
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of Advisor or such Associated Persons in the performance of their
duties or from reckless disregard by them of their duties under this Agreement.
6. LIABILITY OF THE TRUST AND PORTFOLIOS
-------------------------------------
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the trust
property of the Trust as provided in the Declaration of Trust. The execution and
delivery of this Agreement have been authorized by the Trustees, and it has been
signed by an officer of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in its Declaration of Trust.
With respect to any obligation of the Trust on behalf of any Portfolio
arising hereunder, the Advisor shall look for payment or satisfaction of such
obligations solely to the assets and property of the Portfolio to which such
obligation relates as though the Trust had separately contracted with the
Advisor by separate written instrument with respect to each Portfolio.
7. DURATION AND TERMINATION OF THIS AGREEMENT
------------------------------------------
(a) Duration. This Agreement shall become effective on the
date hereof. Unless terminated as herein provided, this Agreement shall
remain in full force and effect for two years from the date hereof.
Subsequent to such initial period of effectiveness, this Agreement
shall continue in full force and effect for successive periods of one
year thereafter with respect to each Portfolio so long as such
continuance with respect to such Portfolio is approved at least
annually (a) by either the Trustees of the Trust or by vote of a
majority of the outstanding voting securities (as defined in the 1940
Act) of such Portfolio, and (b), in either event, by the vote of a
majority of the Trustees of the Trust who are not parties to this
Agreement or "interested persons" (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of
voting on such approval.
5
<PAGE> 6
(b) Amendment. Any amendment to this Agreement shall become
effective with respect to a Portfolio upon approval by the Advisor and
the Trustees, and to the extent required by applicable law, a majority
of the outstanding voting securities (as defined in the 1940 Act) of
that Portfolio.
(c) Termination. This Agreement may be terminated with respect
to any Portfolio at any time, without payment of any penalty, by vote
of the Trustees or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of that Portfolio, or by the
Advisor, in each case upon sixty (60) days' prior written notice to the
other party. Any termination of this Agreement will be without
prejudice to the completion of transactions already initiated by the
Advisor on behalf of the Trust at the time of such termination. The
Advisor shall take all steps reasonably necessary after such
termination to complete any such transactions and is hereby
authorization to take such steps. In addition, this Agreement may be
terminated with respect to one or more Portfolios without affecting the
rights, duties or obligations of any of the other Portfolios.
(d) Automatic Termination. This Agreement shall automatically
and immediately terminate in the event of its assignment (as defined in
the 1940 Act).
(e) Approval, Amendment or Termination by Individual
Portfolio. Any approval, amendment or termination of this Agreement by
the holders of a majority of the outstanding voting securities (as
defined in the 1940 Act) of any Portfolio shall be effective to
continue, amend or terminate this Agreement with respect to any such
Portfolio notwithstanding (i) that such action has not been approved by
the holders of a majority of the outstanding voting securities of any
other Portfolio affected thereby, and (ii) that such action has not
been approved by the vote of a majority of the outstanding voting
securities of the Trust, unless such action shall be required by any
applicable law or otherwise.
(f) Use of Name. The parties acknowledge and agree that the
names "ProFunds", "Bull ProFund", "Ultra Bull ProFund", "Bear ProFund",
"Ultra OTC ProFund", and "Money Market ProFund", (collectively, the
"ProFund Names") and any derivatives thereof, as well as any logos that
are now or shall hereafter be associated with the ProFund Names are the
valuable property of the Advisor. In the event that this Agreement is
terminated and the Advisor no longer acts as Investment Advisor to the
Trust, the Advisor reserves the right to withdraw from the Trust and
the Portfolios the uses of the ProFund Names and logos or any name or
logo misleadingly implying a continuing relationship between the Trust
of the Portfolios and the Advisor or any of its affiliates.
6
<PAGE> 7
8. SERVICES NOT EXCLUSIVE.
-----------------------
The services of the Advisor to the Trust hereunder are not to be deemed
exclusive, and the Advisor shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.
9. MISCELLANEOUS
-------------
(a) Notice. Any notice under this Agreement shall be in
writing, addressed and delivered or mailed, postage prepaid, to the
other party at such address as such other party may designate in
writing for the receipt of such notices.
(b) Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statue, rule or otherwise,
the remainder shall not be thereby affected.
(c) Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of Maryland.
PROFUNDS ADVISORS LLC, A MARYLAND
LIMITED LIABILITY COMPANY
ATTEST: by:
----------------------------- ---------------------------------
---------------------------------
PROFUNDS, A DELAWARE BUSINESS TRUST
ATTEST: by:
----------------------------- ---------------------------------
---------------------------------
7
<PAGE> 1
Exhibit 6
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made this day of October, 1997, between PROFUNDS (the
"Trust"), a Delaware business trust having its principal place of business at
7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814, and CONCORD
FINANCIAL GROUP, INC. ("Distributor"), a Delaware corporation having its
principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust is an open-end management investment company,
registered with the Securities and Exchange Commission (the "Commission") under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
units of beneficial interest ("Shares") of each of the investment portfolios of
the Trust (such portfolios being referred to individually as a "Fund" and
collectively as the "Funds").
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Distributor.
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1.1 Distributor will act as agent for the distribution of the
Shares covered by the registration statement and prospectus of the Trust then in
effect under the Securities Act of 1933, as amended (the "Securities Act"). As
used in this Agreement, the term "registration statement" shall mean Parts A
(the prospectus), B (the Statement of Additional Information) and C of each
registration statement that is filed on Form N-1A, or any successor thereto,
with the Commission, together with any amendments thereto. The term "prospectus"
shall mean each form of prospectus and Statement of Additional Information used
by the Funds for delivery to shareholders and prospective shareholders after the
effective dates of the above referenced registration statements, together with
any amendments and supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit
orders for the sale of the Shares and will undertake such advertising and
promotion as it believes reasonable in connection with such solicitation. The
Trust understands that Distributor is now and may in the future be the
distributor of the shares of several investment companies or series (together,
"Companies") including Companies having investment objectives similar to those
of the Trust. The Trust further understands that investors and potential
investors in the Trust may invest in shares of such other Companies. The Trust
agrees that Distributor's duties to such Companies shall not be deemed in
conflict with its duties to the Trust under this paragraph 1.2.
Distributor shall, at its own expense, finance
appropriate activities which it deems reasonable, which are primarily intended
to result in the sale of the Shares, including, but not limited to, advertising,
compensation of underwriters, dealers and sales personnel, the printing and
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mailing of prospectuses to other than current Shareholders, and the printing and
mailing of sales literature.
1.3 In its capacity as distributor of the Shares, all
activities of Distributor and its partners, agents, and employees shall comply
with all applicable laws, rules and regulations, including, without limitation,
the 1940 Act, all rules and regulations promulgated by the Commission thereunder
and all rules and regulations adopted by any securities association registered
under the Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during
normal business hours, to respond to telephone questions with respect to the
Trust.
1.5 Distributor will transmit any orders received by it for
purchase or redemption of the Shares to the transfer agent and custodian for the
Funds.
1.6 Whenever in their judgment such action is warranted by
unusual market, economic or political conditions, or by abnormal circumstances
of any kind, the Trust's officers may decline to accept any orders for, or make
any sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal
if it chooses to enter into selling agreements with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in
connection with the sale of the Shares, such information with respect to the
Funds and the Shares as Distributor may reasonably request; and the Trust
warrants that the statements contained in any such information shall fairly show
or represent what they purport to show or represent. The Trust shall also
furnish Distributor upon request with: (a) unaudited semiannual statements of
the Funds' books and accounts prepared by the Trust, (b) a monthly itemized list
of the securities in the Funds, (c) monthly balance sheets as soon as
practicable after the end of each month, and (d) from time to time such
additional information regarding the financial condition of the Funds as
Distributor may reasonably request.
1.10 The Trust represents to Distributor that, with respect to
the Shares, all registration statements and prospectuses filed by the Trust with
the Commission under the Securities Act have been carefully prepared in
conformity with requirements of said Act and rules and regulations of the
Commission thereunder. The registration statement and prospectus contain all
statements required to be stated therein in conformity with said Act and the
rules and regulations of said Commission and all statements of fact contained in
any such registration statement and prospectus are true and correct.
Furthermore, neither any registration statement nor any prospectus includes an
untrue statement of a material fact or omits to state a material fact required
to be stated
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therein or necessary to make the statements therein not misleading to a
purchaser of the Shares. The Trust may, but shall not be obligated to, propose
from time to time such amendment or amendments to any registration statement and
such supplement or supplements to any prospectus as, in the light of future
developments, may, in the opinion of the Trust's counsel, be necessary or
advisable. If the Trust shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Trust of a
written request from Distributor to do so, Distributor may, at its option,
terminate this Agreement. The Trust shall not file any amendment to any
registration statement or supplement to any prospectus without giving
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the Trust's right to
file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Trust may deem
advisable, such right being in all respects absolute and unconditional.
1.11 The Trust authorizes Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. The Trust agrees to indemnify, defend and hold Distributor, its
several partners and employees, and any person who controls Distributor within
the meaning of Section 15 of the Securities Act free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Distributor, its partners
and employees, or any such controlling person, may incur under the Securities
Act or under common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact contained in any
registration statement or any prospectus or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated in
either any registration statement or any prospectus or necessary to make the
statements in either thereof not misleading; provided, however, that the Trust's
agreement to indemnify Distributor, its partners or employees, and any such
controlling person shall not be deemed to cover any claims, demands, liabilities
or expenses arising out of any statements or representations as are contained in
any prospectus and in such financial and other statements as are furnished in
writing to the Trust by Distributor and used in the answers to the registration
statement or in the corresponding statements made in the prospectus, or arising
out of or based upon any omission or alleged omission to state a material fact
in connection with the giving of such information required to be stated in such
answers or necessary to make the answers not misleading; and further provided
that the Trust's agreement to indemnify Distributor and the Trust's
representations and warranties hereinbefore set forth in paragraph 1.10 shall
not be deemed to cover any liability to the Trust or its Shareholders to which
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of
Distributor's reckless disregard of its obligations and duties under this
Agreement. The Trust's agreement to indemnify Distributor, its partners and
employees and any such controlling person, as aforesaid, is expressly
conditioned upon the Trust being notified of any action brought against
Distributor, its partners or employees, or any such controlling person, such
notification to be given by letter or by telegram addressed to the Trust at its
principal office in Columbus, Ohio and sent to the Trust by the person against
whom such action is brought, within 10 days after the summons or other first
legal process shall have been served. The failure to so notify the Trust of any
such action shall not relieve the Trust from any liability which the Trust may
have to the person against whom such action is brought by reason of any such
untrue, or
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allegedly untrue, statement or omission, or alleged omission, otherwise than on
account of the Trust's indemnity agreement contained in this paragraph 1.11. The
Trust will be entitled to assume the defense of any suit brought to enforce any
such claim, demand or liability, but, in such case, such defense shall be
conducted by counsel of good standing chosen by the Trust and approved by
Distributor, which approval shall not be unreasonably withheld. In the event the
Trust elects to assume the defense of any such suit and retain counsel of good
standing approved by Distributor, the defendant or defendants in such suit shall
bear the fees and expenses of any additional counsel retained by any of them;
but in case the Trust does not elect to assume the defense of any such suit, or
in case Distributor reasonably does not approve of counsel chosen by the Trust,
the Trust will reimburse Distributor, its partners and employees, or the
controlling person or persons named as defendant or defendants in such suit, for
the fees and expenses of any counsel retained by Distributor or them. The
Trust's indemnification agreement contained in this paragraph 1.11 and the
Trust's representations and warranties in this Agreement shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of Distributor, its partners and employees, or any controlling person,
and shall survive the delivery of any Shares.
This Agreement of indemnity will inure exclusively to
Distributor's benefit, to the benefit of its several partners and employees, and
their respective estates, and to the benefit of the controlling persons and
their successors. The Trust agrees promptly to notify Distributor of the
commencement of any litigation or proceedings against the Trust or any of its
officers or Trustees in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the
Trust, its several officers and Trustees and any person who controls the Trust
within the meaning of Section 15 of the Securities Act free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
costs of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which the Trust, its officers or
Trustees or any such controlling person, may incur under the Securities Act or
under common law or otherwise, but only to the extent that such liability or
expense incurred by the Trust, its officers or Trustees or such controlling
person resulting from such claims or demands, shall arise out of or be based
upon any untrue, or alleged untrue, statement of a material fact contained in
information furnished in writing by Distributor to the Trust and used in the
answers to any of the items of the registration statement or in the
corresponding statements made in the prospectus, or shall arise out of or be
based upon any omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by Distributor to the
Trust required to be stated in such answers or necessary to make such
information not misleading. Distributor's agreement to indemnify the Trust, its
officers and Trustees, and any such controlling person, as aforesaid, is
expressly conditioned upon Distributor being notified of any action brought
against the Trust, its officers or Trustees, or any such controlling person,
such notification to be given by letter or telegram addressed to Distributor at
its principal office in Columbus, Ohio, and sent to Distributor by the person
against whom such action is brought, within 10 days after the summons or other
first legal process shall have been served. Distributor shall have the right of
first control of the defense of such action, with counsel of its own choosing,
satisfactory to the Trust, if such action is based solely upon such alleged
misstatement or omission on Distributor's part, and in any other event the
Trust, its officers or Trustees or such controlling person
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shall each have the right to participate in the defense or preparation of the
defense of any such action. The failure to so notify Distributor of any such
action shall not relieve Distributor from any liability which Distributor may
have to the Trust, its officers or Trustees, or to such controlling person by
reason of any such untrue or alleged untrue statement, or omission or alleged
omission, otherwise than on account of Distributor's indemnity agreement
contained in this paragraph 1.12.
1.13 No Shares shall be offered by either Distributor or the
Trust under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Trust if and so
long as the effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the Securities Act or if and so long as a current prospectus as required by
Section 10(b)(2) of said Act is not on file with the Commission; provided,
however, that nothing contained in this paragraph 1.13 shall in any way restrict
or have an application to or bearing upon the Trust's obligation to repurchase
Shares from any Shareholder in accordance with the provisions of the Trust's
prospectus, Agreement and Declaration of Trust, or Bylaws.
1.14 The Trust agrees to advise Distributor as soon as
reasonably practical by a notice in writing delivered to Distributor or its
counsel:
(a) of any request by the Commission for
amendments to the registration statement or
prospectus then in effect or for additional
information;
(b) in the event of the issuance by the
Commission of any stop order suspending the
effectiveness of the registration statement
or prospectus then in effect or the
initiation by service of process on the
Trust of any proceeding for that purpose;
(c) of the happening of any event that makes
untrue any statement of a material fact made
in the registration statement or prospectus
then in effect or which requires the making
of a change in such registration statement
or prospectus in order to make the
statements therein not misleading; and
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(d) of all action of the Commission with respect
to any amendment to any registration
statement or prospectus which may from time
to time be filed with the Commission.
For purposes of this section, informal requests by or
acts of the Staff of the Commission shall not be deemed actions of or requests
by the Commission.
1.15 Distributor agrees on behalf of itself and its partners
and employees to treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust and its prior,
present or potential Shareholders, and not to use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except, after prior notification to and approval in writing by the
Trust, which approval shall not be unreasonably withheld and may not be withheld
where Distributor may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
1.16 This Agreement shall be governed by the laws of the State
of Ohio.
2. Public Offering Price.
----------------------
The public offering price of the Trust's Shares shall be the
net asset value of such Shares. The net asset value of Shares shall be
determined in accordance with the provisions of the Agreement and Declaration of
Trust and Bylaws of the Trust and the then-current prospectus(es) of the Trust's
Funds.
3. Term, Duration and Termination.
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This Agreement shall become effective as of the date first
written above and, unless sooner terminated as provided herein, shall continue
until October __, 1998. Thereafter, if not terminated, this Agreement shall
continue automatically for successive one-year terms, provided that such
continuance is specifically approved at least annually by (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not parties
to this Agreement or interested persons of any such party, cast in person at a
meeting for the purpose of voting on such approval and (b) by the vote of the
Trust's Board of Trustees or the vote of a majority of the outstanding voting
securities of such Fund. This Agreement is terminable without penalty, on not
less than ten (10) days' prior written notice, by the Trust's Board of Trustees,
by vote of a majority of the outstanding voting securities of the Trust or by
Distributor. This Agreement will also terminate automatically in the event of
its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the same meanings as ascribed to such terms in the 1940 Act.)
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4. Limitation of Liability of the Trustees and Shareholders.
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It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust personally, but shall bind only the
trust property of the Trust. The execution and delivery of this Agreement have
been authorized by the Trustees, and this Agreement has been signed and
delivered by an authorized officer of the Trust, acting as such, and neither
such authorization by the Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in the Trust's Agreement and Declaration of
Trust.
5. Notice.
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Any notice required or permitted to be given by either party
to the other shall be deemed sufficient if sent by Federal Express or similar
delivery service, by facsimile or by registered or certified mail, postage
prepaid, addressed by the party giving notice to the other party at the
following address: if to Distributor, to it at 3435 Stelzer Road, Columbus, Ohio
43219; if to the Trust, to it at 7900 Wisconsin Avenue, Suite 300, Bethesda,
Maryland 20814, or at such other address as such party may from time to time
specify in writing to the other party pursuant to this Section.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
written above.
PROFUNDS CONCORD FINANCIAL GROUP, INC.
By: By:
------------------------- -----------------------------
Title: Title:
---------------------- --------------------------
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A-1
<PAGE> 1
CUSTODY AGREEMENT
DATED ______________, 1997
BETWEEN
UMB BANK, N.A.
AND
PROFUNDS
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 1
(b) Assets 2
(c) Instructions and Special Instructions 2
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic Subcustodian 3
(a) Safekeeping 4
(b) Mariner of Holding Securities 4
(c) Free Delivery of Assets 5
(d) Exchange of Securities 6
(e) Purchases of Assets 6
(f) Sales of Assets 7
(g) Options 7
(h) Futures Contracts 8
(i) Segregated Accounts 9
(j) Depositary Receipts 9
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 9
(i) Interest Bearing Deposits 10
(m) Foreign Exchange Transactions 10
(n) Pledges or Loans of Securities 11
(o) Stock Dividends, Rights, Etc 12
(p) Routine Dealings 12
(q) Collections 12
(r) Bank Accounts 13
(s) Dividends, Distributions and Redemptions 13
(t) Proceeds from Shares Sold 13
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985 13
(v) Books and Records 14
(w) Opinion of Fund's Independent Certified Public Accountants 14
(x) Reports by Independent Certified Public Accountants 14
(y) Bills and Others Disbursements 14
5. Subcustodians 15
(a) Domestic Subcustodians 15
(b) Foreign Subcustodians 15
(c) Interim Subcustodians 16
(d) Special Subcustodians 16
(e) Termination of a Subcustodian 17
(f) Certification Regarding Foreign Subcustodians 17
6. Standard of Care 17
(a) General Standard of Care 17
(b) Actions Prohibited by Applicable Law, Events Beyond Custodian's Control, Armed 17
Conflict, Sovereign Risk, etc.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
(c) Liability for Past Records 18
(d) Advice of Counsel 18
(e) Advice of the Fund and Others 18
(f) Instructions Appearing to be Genuine 18
(g) Exceptions from Liability 19
7. Liability of the Custodian for Actions of Others 19
(a) Domestic Subcustodians 19
(b) Liability for Acts and Omissions of Foreign Subcustodians 19
(c) Securities Systems, Interim Subcustodians, Special Subcustodians, Securities 20
Depositories and Clearing Agencies
(d) Defaults or Insolvencies of Brokers, Banks, Etc 20
(e) Reimbursement of Expenses 20
8. Indemnification 20
(a) Indemnification by Fund 20
(b) Indemnification by Custodian 21
9. Advances 21
10. Liens 21
11. Compensation 22
12. Powers of Attorney 22
13. Termination and Assignment 22
14. Additional Funds 23
15. Notices 23
16. Miscellaneous 23
</TABLE>
<PAGE> 4
CUSTODY AGREEMENT
This agreement made as of this ___ day of , 199_, between UMB Bank,
n.a., a national banking association with its principal place of business
located at Kansas City, Missouri (hereinafter "Custodian"), and each of the
Funds which have executed the signature page hereof together with such
additional Funds which shall be made parties to this Agreement by the execution
of a separate signature page hereto (individually, a "Fund" and collectively,
the "Funds").
WITNESSETH:
WHEREAS, each Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended; and
WHEREAS, each Fund desires to appoint Custodian as its custodian for
the custody of Assets (as hereinafter defined) owned by such Fund which Assets
are to be held in such accounts as such Fund may establish from time to time;
and
WHEREAS, Custodian is willing to accept such appointment on the terms
and conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN.
------------------------
Each Fund hereby constitutes and appoints the Custodian as custodian of
Assets belonging to each such Fund which have been or may be from time to time
deposited with the Custodian. Custodian accepts such appointment as a custodian
and agrees to perform the duties and responsibilities of Custodian as set forth
herein on the conditions set forth herein.
2. DEFINITIONS.
-----------
For purposes of this Agreement, the following terms shall have the
meanings so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills, rights,
script, warrants, interim certificates and all negotiable or nonnegotiable paper
commonly known as Securities and other instruments or obligations.
(b) "Assets" shall mean Securities, monies and other property held by
the Custodian for the benefit of a Fund.
(c)(1) "Instructions", as used herein, shall mean: (i) a tested telex,
a written (including, without limitation, facsimile transmission) request,
direction, instruction or certification signed or initialed by or on behalf of a
Fund by an Authorized Person; (ii) a telephonic or other oral communication from
a person the Custodian reasonably believes to be an Authorized Person; or (iii)
a communication effected directly between an electro-mechanical or electronic
device or system (including, without limitation, computers) on behalf of a Fund.
instructions in the form of oral communications shall be confirmed by the
appropriate Fund by tested telex or in writing in the manner set forth in clause
(i) above, but the lack of such confirmation shall in no way affect any action
taken by the Custodian in reliance upon such oral Instructions prior to the
Custodian's receipt of such confirmation. Each Fund authorizes the Custodian to
record any and all telephonic or other oral Instructions communicated to the
Custodian.
(c)(2) "Special Instructions", as used herein, shall mean Instructions
countersigned or confirmed in writing by the Treasurer or any Assistant
Treasurer of a Fund or any other person designated by the Treasurer of such Fund
in writing, which countersignature or confirmation shall be included on the same
instrument containing the Instructions or on a separate instrument relating
thereto.
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(c)(3) Instructions and Special Instructions shall be delivered to the
Custodian at the address and/or telephone, facsimile transmission or telex
number agreed upon from time to time by the Custodian and each Fund.
(c)(4) Where appropriate, Instructions and Special Instructions shall
be continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
-------------------------------
Each of the parties to this Agreement represents that its execution
does not violate any of the provisions of its respective charter, articles of
incorporation, articles of association or bylaws and all required corporate
action to authorize the execution and delivery of this Agreement has been taken.
Each Fund has furnished the Custodian with copies, properly certified
or authenticated, with all amendments or supplements thereto, of the following
documents:
(a) Certificate of Incorporation (or equivalent document) of the Fund
as in effect on the date hereof;
(b) By-Laws of the Fund as in effect on the date hereof;
(c) Resolutions of the Board of Directors of the Fund appointing the
Custodian and approving the form of this Agreement; and
(d) The Fund's current prospectus and statements of additional
information.
Each Fund shall promptly furnish the Custodian with copies of any
updates, amendments or supplements to the foregoing documents.
In addition, each Fund has delivered or will promptly deliver to the
Custodian, copies of the Resolution(s) of its Board of Directors or Trustees and
all amendments or supplements thereto, properly certified or authenticated,
designating certain officers or employees of each such Fund who will have
continuing authority to certify to the Custodian: (a) the names, titles,
signatures and scope of authority of all persons authorized to give Instructions
or any other notice, request, direction, instruction, certificate or instrument
on behalf of each Fund, and (b) the names, titles and signatures of those
persons authorized to countersign or confirm Special Instructions on behalf of
each Fund (in both cases collectively, the "Authorized Persons" and
individually, an "Authorized Person"). Such Resolutions and certificates may be
accepted and relied upon by the Custodian as conclusive evidence of the facts
set forth therein and shall be considered to be in full force and effect until
delivery to the Custodian of a similar Resolution or certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Instructions or to countersign
or confirm Special Instructions, such persons shall no longer be considered an
Authorized Person authorized to give Instructions or to countersign or confirm
Special Instructions. Unless the certificate specifically requires that the
approval of anyone else will first have been obtained, the Custodian will be
under no obligation to inquire into the right of the person giving such
Instructions or Special Instructions to do so. Notwithstanding any of the
foregoing, no Instructions or Special Instructions received by the Custodian
from a Fund will be deemed to authorize or permit any director, trustee,
officer, employee, or agent of such Fund to withdraw any of the Assets of such
Fund upon the mere receipt of such authorization, Special Instructions or
Instructions from such director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
--------------------------------------------------------
Except for Assets held by any Subcustodian appointed pursuant to
Sections 5(b), (c), or (d) of this Agreement, the Custodian shall have and
perform the powers and duties hereinafter set forth in this Section 4. For
purposes of this Section 4 all references to powers and duties of the
"Custodian" shall also refer to any Domestic Subcustodian appointed pursuant to
Section 5(a).
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(a) Safekeeping.
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The Custodian will keep safely the Assets of each Fund which are
delivered to it from time to time. The Custodian shall not be responsible for
any property of a Fund held or received by such Fund and not delivered to the
Custodian.
(b) Manner of Holding Securities.
----------------------------
(1) The Custodian shall at all times hold Securities of each Fund
either: (i) by physical possession of the share certificates or other
instruments representing such Securities in registered or bearer form; or (ii)
in book-entry form by a Securities System (as hereinafter defined) in
accordance with the provisions of sub-paragraph (3) below.
(2) The Custodian may hold registrable portfolio Securities which
have been delivered to it in physical form, by registering the same in the name
of the appropriate Fund or its nominee, or in the name of the Custodian or its
nominee, for whose actions such Fund and Custodian, respectively, shall be fully
responsible. Upon the receipt of Instructions, the Custodian shall hold such
Securities in street certificate form, so called, with or without any indication
of fiduciary capacity. However, unless it receives Instructions to the contrary,
the Custodian will register all such portfolio Securities in the name of the
Custodian's authorized nominee. All such Securities shall be held in an account
of the Custodian containing only assets of the appropriate Fund or only assets
held by the Custodian as a fiduciary, provided that the records of the Custodian
shall indicate at all times the Fund or other customer for which such Securities
are held in such accounts and the respective interests therein.
(3) The Custodian may deposit and/or maintain domestic Securities
owned by a Fund in, and each Fund hereby approves use of: (a) The Depository
Trust Company; (b) The Participants Trust Company; and (c) any book-entry system
as provided in (i) Subpart O of Treasury Circular No. 300, 31 CFR 306.115, (ii)
Subpart B of Treasury Circular Public Debt Series No. 27-76, 31 CFR 350.2, or
(iii) the book-entry regulations of federal agencies substantially in the form
of 31 CFR 306.115. Upon the receipt of Special Instructions, the Custodian may
deposit and/or maintain domestic Securities owned by a Fund in any other
domestic clearing agency registered with the Securities and Exchange Commission
("SEC") under Section 17A of the Securities Exchange Act of 1934 (or as may
otherwise be authorized by the SEC to serve in the capacity of depository or
clearing agent for the Securities or other assets of investment companies) which
acts as a Securities depository. Each of the foregoing shall be referred to in
this Agreement as a "Securities System", and all such Securities Systems shall
be listed on the attached Appendix A. Use of a Securities System shall be in
accordance with applicable Federal Reserve Board and SEC rules and regulations,
if any, and subject to the following provisions:
(i) The Custodian may deposit the Securities directly or through
one or more agents or Subcustodians which are also qualified to act as
custodians for investment companies.
(ii) The Custodian shall deposit and/or maintain the Securities
in a Securities System, provided that such Securities are represented in an
account ("Account") of the Custodian in the Securities System that includes only
assets held by the Custodian as a fiduciary, custodian or otherwise for
customers.
(iii) The books and records of the Custodian shall at all times
identify those Securities belonging to any one or more Funds which are
maintained in a Securities System.
(iv) The Custodian shall pay for Securities purchased for the
account of a Fund only upon (a) receipt of advice from the Securities System
that such Securities have been transferred to the Account of the Custodian in
accordance with the rules of the Securities System, and (b) the making of an
entry on the records of the Custodian to reflect such payment and transfer for
the account of such Fund. The Custodian shall transfer Securities sold for the
account of a Fund only upon (a) receipt of advice from the Securities System
that payment for such Securities has been transferred to the Account of the
Custodian in accordance with the rules of the Securities System, and (b) the
making of an entry on the records of the Custodian to reflect such transfer and
payment for the account of such Fund. Copies of all advices from the Securities
System relating to transfers of Securities for the
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<PAGE> 7
account of a Fund shall be maintained for such Fund by the Custodian. The
Custodian shall deliver to a Fund on the next succeeding business day daily
transaction reports which shall include each day's transactions in the
Securities System for the account of such Fund. Such transaction reports shall
be delivered to such Fund or any agent designated by such Fund pursuant to
Instructions, by computer or in such other manner as such Fund and Custodian may
agree.
(v) The Custodian shall, if requested by a Fund pursuant to
Instructions, provide such Fund with reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding Securities deposited in the
Securities System.
(vi) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any Securities System on behalf of a Fund as promptly as
practicable and shall take all actions reasonably practicable to safeguard the
Securities of such Fund maintained with such Securities System.
(c) Free Delivery of Assets.
-----------------------
Notwithstanding any other provision of this Agreement and except as
provided in Section 3 hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery of Assets, provided such
Assets are on hand and available, in connection with a Fund's transactions and
to transfer such Assets to such broker, dealer, Subcustodian, bank, agent,
Securities System or otherwise as specified in such Special Instructions.
(d) Exchange of Securities.
----------------------
Upon receipt of Instructions, the Custodian will exchange portfolio
Securities held by it for a Fund for other Securities or cash paid in connection
with any reorganization, recapitalization, merger, consolidation, or conversion
of convertible Securities, and will deposit any such Securities in accordance
with the terms of any reorganization or protective plan.
Without Instructions, the Custodian is authorized to exchange
Securities held by it in temporary form for Securities in definitive form, to
surrender Securities for transfer into a name or nominee name as permitted in
Section 4(b)(2), to effect an exchange of shares in a stock split or when the
par value of the stock is changed, to sell any fractional shares, and, upon
receiving payment therefor, to surrender bonds or other Securities held by it at
maturity or call.
(e) Purchases of Assets.
-------------------
(1) SECURITIES PURCHASES. In accordance with Instructions, the
Custodian shall, with respect to a purchase of Securities, pay for such
Securities out of monies held for a Fund's account for which the purchase was
made, but only insofar as monies are available therein for such purpose, and
receive the portfolio Securities so purchased. Unless the Custodian has received
Special Instructions to the contrary, such payment will be made only upon
receipt of Securities by the Custodian, a clearing corporation of a national
Securities exchange of which the Custodian is a member, or a Securities System
in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the
foregoing, upon receipt of Instructions: (i) in connection with a repurchase
agreement, the Custodian may release funds to a Securities System prior to the
receipt of advice from the Securities System that the Securities underlying such
repurchase agreement have been transferred by book-entry into the Account
maintained with such Securities System by the Custodian, provided that the
Custodian's instructions to the Securities System require that the Securities
System may make payment of such funds to the other party to the repurchase
agreement only upon transfer by book-entry of the Securities underlying the
repurchase agreement into such Account; (ii) in the case of Interest Bearing
Deposits, currency deposits, and other deposits, foreign exchange transactions,
futures contracts or options, pursuant to Sections 4(g), 4(h), 4(l), and 4(m)
hereof, the Custodian may make payment there for before receipt of an advice of
transaction; and (iii) in the case of Securities as to which payment for the
Security and receipt of the instrument evidencing the Security are under
generally accepted trade practice or the terms of the instrument representing
the Security expected to take place in different locations or through separate
parties, such as commercial paper which is indexed to foreign currency exchange
rates, derivatives and similar Securities, the
4
<PAGE> 8
Custodian may make payment for such Securities prior to delivery thereof in
accordance with such generally accepted trade practice or the terms of the
instrument representing such Security.
(2) OTHER ASSETS PURCHASED. Upon receipt of Instructions and except
as otherwise provided herein, the Custodian shall pay for and receive other
Assets for the account of a Fund as provided in Instructions.
(f) Sales of Assets.
---------------
(1) SECURITIES SOLD. In accordance with Instructions, the Custodian
will, with respect to a sale, deliver or cause to be delivered the Securities
thus designated as sold to the broker or other person specified in the
Instructions relating to such sale. Unless the Custodian has received Special
Instructions to the contrary, such delivery shall be made only upon receipt of
payment therefor in the form of: (a) cash, certified check, bank cashier's
check, bank credit, or bank wire transfer; (b) credit to the account of the
Custodian with a clearing corporation of a national Securities exchange of which
the Custodian is a member; or (c) credit to the Account of the Custodian with a
Securities System, in accordance with the provisions of Section 4(b)(3) hereof.
Notwithstanding the foregoing, Securities held in physical form may be delivered
and paid for in accordance with "street delivery custom" to a broker or its
clearing agent, against delivery to the Custodian of a receipt for such
Securities, provided that the Custodian shall have taken reasonable steps to
ensure prompt collection of the payment for, or return of, such Securities by
the broker or its clearing agent, and provided further that the Custodian shall
not be responsible for the selection of or the failure or inability to perform
of such broker or its clearing agent or for any related loss arising from
delivery or custody of such Securities prior to receiving payment therefor.
(2) OTHER ASSETS SOLD. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall receive payment for and deliver
other Assets for the account of a Fund as provided in Instructions.
(g) Options.
-------
(1) Upon receipt of Instructions relating to the purchase of an
option or sale of a covered call option, the Custodian shall: (a) receive and
retain confirmations or other documents, if any, evidencing the purchase or
writing of the option by a Fund; (b) if the transaction involves the sale of a
covered call option, deposit and maintain in a segregated account the Securities
(either physically or by book-entry in a Securities System) subject to the
covered call option written on behalf of such Fund; and (c) pay, release and/or
transfer such Securities, cash or other Assets in accordance with any notices or
other communications evidencing the expiration, termination or exercise of such
options which are furnished to the Custodian by the Options Clearing Corporation
(the "OCC"), the securities or options exchanges on which such options were
traded, or such other organization as may be responsible for handling such
option transactions.
(2) Upon receipt of Instructions relating to the sale of a naked
option (including stock index and commodity options), the Custodian, the
appropriate Fund and the broker-dealer shall enter into an agreement to comply
with the rules of the OCC or of any registered national securities exchange or
similar organization(s). Pursuant to that agreement and such Fund's
Instructions, the Custodian shall: (a) receive and retain confirmations or other
documents, if any, evidencing the writing of the option; (b) deposit and
maintain in a segregated account, Securities (either physically or by
book-entry in a Securities System), cash and/or other Assets; and (c)
pay, release and/or transfer such Securities, cash or other Assets in
accordance with any such agreement and with any notices or other communications
evidencing the expiration, termination or exercise of such option which are
furnished to the Custodian by the OCC, the securities or options exchanges on
which such options were traded, or such other organization as may be
responsible for handling such option transactions. The appropriate Fund and the
broker-dealer shall be responsible for determining the quality and quantity of
assets held in any segregated account established in compliance with applicable
margin maintenance requirements and the performance of other terms of any
option contract.
5
<PAGE> 9
(h) Futures Contracts.
-----------------
Upon receipt of Instructions, the Custodian shall enter into a futures
margin procedural agreement among the appropriate Fund, the Custodian and the
designated futures commission merchant (a "Procedural Agreement"). Under the
Procedural Agreement the Custodian shall: (a) receive and retain confirmations,
if any, evidencing the purchase or sale of a futures contract or an option on a
futures contract by such Fund; (b) deposit and maintain in a segregated account
cash, Securities and/or other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure such Fund's performance of its
obligations under any futures contracts purchased or sold, or any options on
futures contracts written by such Fund, in accordance with the provisions of any
Procedural Agreement designed to comply with the provisions of the Commodity
Futures Trading Commission and/or any commodity exchange or contract market
(such as the Chicago Board of Trade), or any similar organization(s), regarding
such margin deposits; and (c) release Assets from and/or transfer Assets into
such margin accounts only in accordance with any such Procedural Agreements. The
appropriate Fund and such futures commission merchant shall be responsible for
determining the type and amount of Assets held in the segregated account or paid
to the broker-dealer in compliance with applicable margin maintenance
requirements and the performance of any futures contract or option on a futures
contract in accordance with its terms.
(i) Segregated Accounts.
-------------------
Upon receipt of Instructions, the Custodian shall establish and
maintain on its books a segregated account or accounts for and on behalf of a
Fund, into which account or accounts may be transferred Assets of such Fund,
including Securities maintained by the Custodian in a Securities System pursuant
to Paragraph (b)(3) of this Section 4, said account or accounts to be maintained
(i) for the purposes set forth in Sections 4(g), 4(h) and 4(n) and (ii) for the
purpose of compliance by such Fund with the procedures required by the SEC
Investment Company Act Release Number 10666 or any subsequent release or
releases relating to the maintenance of segregated accounts by registered
investment companies, or (iii) for such other purposes as may be set forth, from
time to time, in Special Instructions. The Custodian shall not be responsible
for the determination of the type or amount of Assets to be held in any
segregated account referred to in this paragraph, or for compliance by the Fund
with required procedures noted in (ii) above.
(j) Depositary Receipts.
-------------------
Upon receipt of Instructions, the Custodian shall surrender or cause to
be surrendered Securities to the depositary used for such Securities by an
issuer of American Depositary Receipts or International Depositary Receipts
(hereinafter referred to, collectively, as "ADRs"), against a written receipt
there for adequately describing such Securities and written evidence
satisfactory to the organization surrendering the same that the depositary has
acknowledged receipt of instructions to issue ADRs with respect to such
Securities in the name of the Custodian or a nominee of the Custodian, for
delivery in accordance with such instructions.
Upon receipt of Instructions, the Custodian shall surrender or cause to
be surrendered ADRs to the issuer thereof, against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the organization surrendering the same that the issuer of the ADRs has
acknowledged receipt of instructions to cause its depository to deliver the
Securities underlying such ADRs in accordance with such instructions.
(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
-----------------------------------------------
Upon receipt of Instructions, the Custodian shall: (a) deliver
warrants, puts, calls, rights or similar Securities to the issuer or trustee
thereof (or to the agent of such issuer or trustee) for the purpose of exercise
or sale, provided that the new Securities, cash or other Assets, if any,
acquired as a result of such actions are to be delivered to the Custodian; and
(b) deposit Securities upon invitations for tenders thereof, provided that the
consideration for such Securities is to be paid or delivered to the Custodian,
or the tendered Securities are to be returned to the Custodian.
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<PAGE> 10
Notwithstanding any provision of this Agreement to the contrary, the
Custodian shall take all necessary action, unless otherwise directed to the
contrary in Instructions, to comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions, or similar rights of security
ownership, and shall notify the appropriate Fund of such action in writing by
facsimile transmission or in such other manner as such Fund and Custodian may
agree in writing.
The Fund agrees that if it gives an Instruction for the performance of
an act on the last permissible date of a period established by any optional
offer or on the last permissible date for the performance of such act, the Fund
shall hold the Bank harmless from any adverse consequences in connection with
acting upon or failing to act upon such Instructions.
(l) Interest Bearing Deposits.
-------------------------
Upon receipt of Instructions directing the Custodian to purchase
interest bearing fixed term and call deposits (hereinafter referred to,
collectively, as "Interest Bearing Deposits") for the account of a Fund, the
Custodian shall purchase such Interest Bearing Deposits in the name of such Fund
with such banks or trust companies, including the Custodian, any Subcustodian or
any subsidiary or affiliate of the Custodian (hereinafter referred to as
"Banking Institutions"), and in such amounts as such Fund may direct pursuant to
Instructions. Such Interest Bearing Deposits may be denominated in U.S. dollars
or other currencies, as such Fund may determine and direct pursuant to
Instructions. The responsibilities of the Custodian to a Fund for Interest
Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a
similar deposit. With respect to Interest Bearing Deposits other than those
issued by the Custodian, (a) the Custodian shall be responsible for the
collection of income and the transmission of cash to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or for the failure of such Banking Institution to pay upon
demand.
(m) Foreign Exchange Transactions.
-----------------------------
(1) Each Fund hereby appoints the Custodian as its agent in the
execution of all currency exchange transactions. The Custodian agrees to provide
exchange rate and U.S. Dollar information, in writing, to the Funds. Such
information shall be supplied by the Custodian at least by the business day
prior to the value date of the foreign exchange transaction, provided that the
Custodian receives the request for such information at least two business days
prior to the value date of the transaction.
(2) Upon receipt of Instructions, the Custodian shall settle
foreign exchange contracts or options to purchase and sell foreign currencies
for spot and future delivery on behalf of and for the account of a Fund with
such currency brokers or Banking Institutions as such Fund may determine and
direct pursuant to Instructions. If, in its Instructions, a Fund does not direct
the Custodian to utilize a particular currency broker or Banking Institution,
the Custodian is authorized to select such currency broker or Banking
Institution as it deems appropriate to execute the Fund's foreign currency
transaction.
(3) Each Fund accepts full responsibility for its use of third
party foreign exchange brokers and for execution of said foreign exchange
contracts and understands that the Fund shall be responsible for any and all
costs and interest charges which may be incurred as a result of the failure or
delay of its third party broker to deliver foreign exchange. The Custodian shall
have no responsibility or liability with respect to the selection of the
currency brokers or Banking Institutions with which a Fund deals or the
performance of such brokers or Banking Institutions.
(4) Notwithstanding anything to the contrary contained herein, upon
receipt of Instructions the Custodian may, in connection with a foreign exchange
contract, make free outgoing payments of cash in the form of U.S. Dollars or
foreign currency prior to receipt of confirmation of such foreign exchange
contract or confirmation that the countervalue currency completing such contract
has been delivered or received.
(5) The Custodian shall not be obligated to enter into foreign
exchange transactions as principal. However, if the Custodian has made available
to a Fund its services as a principal in foreign exchange transactions
7
<PAGE> 11
and subject to any separate agreement between the parties relating to such
transactions, the Custodian shall enter into foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund, with the Custodian as principal.
(n) Pledges or Loans of Securities.
------------------------------
(1) Upon receipt of Instructions from a Fund, the Custodian will
release or cause to be released Securities held in custody to the pledgees
designated in such Instructions by way of pledge or hypothecation to secure
loans incurred by such Fund with various lenders including but not limited to
UMB Bank, N.A.; provided, however, that the Securities shall be released only
upon payment to the Custodian of the monies borrowed, except that in cases where
additional collateral is required to secure existing borrowings, further
Securities may be released or delivered, or caused to be released or delivered
for that purpose upon receipt of Instructions. Upon receipt of Instructions, the
Custodian will pay, but only from funds available for such purpose, any such
loan upon re-delivery to it of the Securities pledged or hypothecated therefor
and upon surrender of the note or notes evidencing such loan. In lieu of
delivering collateral to a pledgee, the Custodian, on the receipt of
Instructions, shall transfer the pledged Securities to a segregated account for
the benefit of the pledgee.
(2) Upon receipt of Special Instructions, and execution of a
separate Securities Lending Agreement, the Custodian will release Securities
held in custody to the borrower designated in such Instructions and may, except
as otherwise provided below, deliver such Securities prior to the receipt of
collateral, if any, for such borrowing, provided that, in case of loans of
Securities held by a Securities System that are secured by cash collateral, the
Custodian's instructions to the Securities System shall require that the
Securities System deliver the Securities of the appropriate Fund to the borrower
thereof only upon receipt of the collateral for such borrowing. The Custodian
shall have no responsibility or liability for any loss arising from the delivery
of Securities prior to the receipt of collateral. Upon receipt of Instructions
and the loaned Securities, the Custodian will release the collateral to the
borrower.
(o) Stock Dividends, Rights, Etc.
----------------------------
The Custodian shall receive and collect all stock dividends, rights,
and other items of like nature and, upon receipt of Instructions, take action
with respect to the same as directed in such Instructions.
(p) Routine Dealings.
----------------
The Custodian will, in general, attend to all routine and mechanical
matters in accordance with industry standards in connection with the sale,
exchange, substitution, purchase, transfer, or other dealings with Securities or
other property of each Fund except as may be otherwise provided in this
Agreement or directed from time to time by Instructions from any particular
Fund. The Custodian may also make payments to itself or others from the Assets
for disbursements and out-of-pocket expenses incidental to handling Securities
or other similar items relating to its duties under this Agreement, provided
that all such payments shall be accounted for to the appropriate Fund.
(q) Collections.
-----------
The Custodian shall (a) collect amounts due and payable to each Fund
with respect to portfolio Securities and other Assets; (b) promptly credit to
the account of each Fund all income and other payments relating to portfolio
Securities and other Assets held by the Custodian hereunder upon Custodian's
receipt of such income or payments or as otherwise agreed in writing by the
Custodian and any particular Fund; (c) promptly endorse and deliver any
instruments required to effect such collection; and (d) promptly execute
ownership and other certificates and affidavits for all federal, state, local
and foreign tax purposes in connection with receipt of income or other payments
with respect to portfolio Securities and other Assets, or in connection with the
transfer of such Securities or other Assets; provided, however, that with
respect to portfolio Securities registered in so-called street name, or physical
Securities with variable interest rates, the Custodian shall use its best
efforts to collect amounts due and payable to any such Fund. The Custodian shall
notify a Fund in writing by facsimile transmission or in such other manner as
such Fund and Custodian may agree in writing if any amount payable with respect
to portfolio Securities
8
<PAGE> 12
or other Assets is not received by the Custodian when due. The Custodian shall
not be responsible for the collection of amounts due and payable with respect to
portfolio Securities or other Assets that are in default.
(r) Bank Accounts.
-------------
Upon Instructions, the Custodian shall open and operate a bank account
or accounts on the books of the Custodian; provided that such bank account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
one or more Funds, and shall be subject only to draft or order of the Custodian.
The responsibilities of the Custodian to any one or more such Funds for deposits
accepted on the Custodian's books shall be that of a U.S. bank for a similar
deposit.
(s) Dividends, Distributions and Redemptions.
----------------------------------------
To enable each Fund to pay dividends or other distributions to
shareholders of each such Fund and to make payment to shareholders who have
requested repurchase or redemption of their shares of each such Fund
(collectively, the "Shares"), the Custodian shall release cash or Securities
insofar as available. In the case of cash, the Custodian shall, upon the receipt
of Instructions, transfer such hinds by check or wire transfer to any account at
any bank or trust company designated by each such Fund in such Instructions. In
the case of Securities, the Custodian shall, upon the receipt of Special
Instructions, make such transfer to any entity or account designated by each
such Fund in such Special Instructions.
(t) Proceeds from Shares Sold.
-------------------------
The Custodian shall receive funds representing cash payments received
for shares issued or sold from time to time by each Fund, and shall credit such
funds to the account of the appropriate Fund. The Custodian shall notify the
appropriate Fund of Custodian's receipt of cash in payment for shares issued by
such Fund by facsimile transmission or in such other mariner as such Fund and
the Custodian shall agree. Upon receipt of Instructions, the Custodian shall:
(a) deliver all federal funds received by the Custodian in payment for shares as
may be set forth in such Instructions and at a time agreed upon between the
Custodian and such Fund; and (b) make federal funds available to a Fund as of
specified times agreed upon from time to time by such Fund and the Custodian, in
the amount of checks received in payment for shares which are deposited to the
accounts of such Fund.
(u) Proxies and Notices: Compliance with the Shareholders Communication
-------------------------------------------------------------------
Act of 1985.
-----------
The Custodian shall deliver or cause to be delivered to the appropriate
Fund all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to Securities owned by such Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Instructions, the Custodian shall execute and deliver, or
cause such Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant to Instructions,
neither the Custodian nor any Subcustodian or nominee shall vote upon any such
Securities, or execute any proxy to vote thereon, or give any consent or take
any other action with respect thereto.
The Custodian will not release the identity of any Fund to an issuer
which requests such information pursuant to the Shareholder Communications Act
of 1985 for the specific purpose of direct communications between such issuer
and any such Fund unless a particular Fund directs the Custodian otherwise in
writing.
(v) Books and Records.
-----------------
The Custodian shall maintain such records relating to its activities
under this Agreement as are required to be maintained by Rule 31a-1 under the
Investment Company Act of 1940 ("the 1940 Act") and to preserve them for the
periods prescribed in Rule 31a-2 under the 1940 Act. These records shall be
open for inspection by duly authorized officers, employees or agents (including
independent public accountants) of the appropriate Fund during normal business
hours of the Custodian.
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<PAGE> 13
The Custodian shall provide accountings relating to its activities
under this Agreement as shall be agreed upon by each Fund and the Custodian.
(w) Opinion of Fund's Independent Certified Public Accountants.
-----------------------------------------------------------
The Custodian shall take all reasonable action as each Fund may request
to obtain from year to year favorable opinions from each such Fund's independent
certified public accountants with respect to the Custodian's activities
hereunder and in connection with the preparation of each such Fund's periodic
reports to the SEC and with respect to any other requirements of the SEC.
(x) Reports by Independent Certified Public Accountants.
----------------------------------------------------
At the request of a Fund, the Custodian shall deliver to such Fund a
written report prepared by the Custodian's independent certified public
accountants with respect to the services provided by the Custodian under this
Agreement, including, without limitation, the Custodian's accounting system,
internal accounting control and procedures for safeguarding cash, Securities and
other Assets, including cash, Securities and other Assets deposited and/or
maintained in a Securities System or with a Subcustodian. Such report shall be
of sufficient scope and in sufficient detail as may reasonably be required by
such Fund and as may reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
------------------------------
Upon receipt of Instructions, the Custodian shall pay, or cause to be
paid, all bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
--------------
From time to time, in accordance with the relevant provisions of this
Agreement, the Custodian may appoint one or more Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians, or Interim Subcustodians (as each are
hereinafter defined) to act on behalf of any one or more Funds. A Domestic
Subcustodian, in accordance with the provisions of this Agreement, may also
appoint a Foreign Subcustodian, Special Subcustodian, or Interim Subcustodian to
act on behalf of any one or more Funds. For purposes of this Agreement, all
Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians and Interim
Subcustodians shall be referred to collectively as "Subcustodians".
(a) Domestic Subcustodians.
-----------------------
The Custodian may, at any time and from time to time, appoint any bank
as defined in Section 2(a)(5) of the 1940 Act or any trust company or other
entity, any of which meet the requirements of a custodian under Section 17(f) of
the 1940 Act and the rules and regulations thereunder, to act for the Custodian
on behalf of any one or more Funds as a subcustodian for purposes of holding
Assets of such Fund(s) and performing other functions of the Custodian within
the United States (a "Domestic Subcustodian"). Each Fund shall approve in
writing the appointment of the proposed Domestic Subcustodian; and the
Custodian's appointment of any such Domestic Subcustodian shall not be effective
without such prior written approval of the Fund(s). Each such duly approved
Domestic Subcustodian shall be listed on Appendix A attached hereto, as it may
be amended, from time to time.
(b) Foreign Subcustodians.
----------------------
The Custodian may at any time appoint, or cause a Domestic Subcustodian
to appoint, any bank, trust company or other entity meeting the requirements of
an "eligible foreign custodian" under Section 17(f) of the 1940 Act and the
rules and regulations thereunder to act for the Custodian on behalf of any one
or more Funds as a subcustodian or sub-subcustodian (if appointed by a Domestic
Subcustodian) for purposes of holding Assets of the Fund(s) and performing other
functions of the Custodian in countries other than the United States of America
(hereinafter referred to as a "Foreign Subcustodian" in the context of either a
subcustodian or a sub-subcustodian); provided that the Custodian shall have
obtained written confirmation from each Fund of the approval of the Board
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<PAGE> 14
of Directors or other governing body of each such Fund (which approval may be
withheld in the sole discretion of such Board of Directors or other governing
body or entity) with respect to (i) the identity of any proposed Foreign
Subcustodian (including branch designation), (ii) the country or countries in
which, and the securities depositories or clearing agencies (hereinafter
"Securities Depositories and Clearing Agencies"), if any, through which, the
Custodian or any proposed Foreign Subcustodian is authorized to hold Securities
and other Assets of each such Fund, and (iii) the form and terms of the
subcustodian agreement to be entered into with such proposed Foreign
Subcustodian. Each such duly approved Foreign Subcustodian and the countries
where and the Securities Depositories and Clearing Agencies through which they
may hold Securities and other Assets of the Fund(s) shall be listed on Appendix
A attached hereto, as it may be amended, from time to time. Each Fund shall be
responsible for informing the Custodian sufficiently in advance of a proposed
investment which is to be held in a country in which no Foreign Subcustodian is
authorized to act, in order that there shall be sufficient time for the
Custodian, or any Domestic Subcustodian, to effect the appropriate arrangements
with a proposed Foreign Subcustodian, including obtaining approval as provided
in this Section 5(b). In connection with the appointment of any Foreign
Subcustodian, the Custodian shall, or shall cause the Domestic Subcustodian to,
enter into a subcustodian agreement with the Foreign Subcustodian in form and
substance approved by each such Fund. The Custodian shall not consent to the
amendment of, and shall cause any Domestic Subcustodian not to consent to the
amendment of, any agreement entered into with a Foreign Subcustodian, which
materially affects any Fund's rights under such agreement, except upon prior
written approval of such Fund pursuant to Special Instructions.
(c) Interim Subcustodians.
----------------------
Notwithstanding the foregoing, in the event that a Fund shall invest in
an Asset to be held in a country in which no Foreign Subcustodian is authorized
to act, the Custodian shall notify such Fund in writing by facsimile
transmission or in such other mariner as such Fund and the Custodian shall agree
in writing of the unavailability of an approved Foreign Subcustodian in such
country; and upon the receipt of Special Instructions from such Fund, the
Custodian shall, or shall cause its Domestic Subcustodian to, appoint or approve
an entity (referred to herein as an "Interim Subcustodian") designated in such
Special Instructions to hold such Security or other Asset.
(d) Special Subcustodians.
----------------------
Upon receipt of Special Instructions, the Custodian shall, on behalf of
a Fund, appoint one or more banks, trust companies or other entities designated
in such Special Instructions to act for the Custodian on behalf of such Fund as
a subcustodian for purposes of: (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other entities through the use of a
common custodian or subcustodian; (ii) providing depository and clearing agency
services with respect to certain variable rate demand note Securities, (iii)
providing depository and clearing agency services with respect to dollar
denominated Securities, and (iv) effecting any other transactions designated by
such Fund in such Special Instructions. Each such designated subcustodian
(hereinafter referred to as a "Special Subcustodian") shall be listed on
Appendix A attached hereto, as it may be amended from time to time. In
connection with the appointment of any Special Subcustodian, the Custodian shall
enter into a subcustodian agreement with the Special Subcustodian in form and
substance approved by the appropriate Fund in Special Instructions. The
Custodian shall not amend any subcustodian agreement entered into with a Special
Subcustodian, or waive any rights under such agreement, except upon prior
approval pursuant to Special Instructions.
(e) Termination of a Subcustodian.
------------------------------
The Custodian may, at any time in its discretion upon notification to
the appropriate Fund(s), terminate any Subcustodian of such Fund(s) in
accordance with the termination provisions under the applicable subcustodian
agreement, and upon the receipt of Special Instructions, the Custodian will
terminate any Subcustodian in accordance with the termination provisions under
the applicable subcustodian agreement.
(f) Certification Regarding Foreign Subcustodians.
----------------------------------------------
Upon request of a Fund, the Custodian shall deliver to such Fund a
certificate stating: (i) the identity of each Foreign Subcustodian then acting
on behalf of the Custodian; (ii) the countries in which and the Securities
11
<PAGE> 15
Depositories and Clearing Agencies through which each such Foreign Subcustodian
is then holding cash, Securities and other Assets of such Fund; and (iii) such
other information as may be requested by such Fund, and as the Custodian shall
be reasonably able to obtain, to evidence compliance with rules and regulations
under the 1940 Act.
6. STANDARD OF CARE.
-----------------
(a) General Standard of Care.
-------------------------
The Custodian shall be liable to a Fund for all losses, damages and
reasonable costs and expenses suffered or incurred by such Fund resulting from
the negligence or willful misfeasance of the Custodian; provided, however, in no
event shall the Custodian be liable for special, indirect or consequential
damages arising under or in connection with this Agreement.
(b) Actions Prohibited by Applicable Law, Events Beyond Custodian's
---------------------------------------------------------------
Control, Sovereign Risk, Etc.
- -----------------------------
In no event shall the Custodian or any Domestic Subcustodian incur
liability hereunder (i) if the Custodian or any Subcustodian or Securities
System, or any subcustodian, Securities System, Securities Depository or
Clearing Agency utilized by the Custodian or any such Subcustodian, or any
nominee of the Custodian or any Subcustodian (individually, a "Person") is
prevented, forbidden or delayed from performing, or omits to perform, any act or
thing which this Agreement provides shall be performed or omitted to be
performed, by reason of: (a) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or of
any foreign country, or political subdivision thereof or of any court of
competent jurisdiction (and neither the Custodian nor any other Person shall be
obligated to take any action contrary thereto); or (b) any event beyond the
control of the Custodian or other Person such as armed conflict, riots, strikes,
lockouts, labor disputes, equipment or transmission failures, natural disasters,
or failure of the mails, transportation, communications or power supply; or (ii)
for any loss, damage, cost or expense resulting from "Sovereign Risk." A
"Sovereign Risk" shall mean nationalization, expropriation, currency
devaluation, revaluation or fluctuation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting a Fund's Assets; or acts of armed conflict,
terrorism, insurrection or revolution; or any other act or event beyond the
Custodian's or such other Person's control.
(c) Liability for Past Records.
---------------------------
Neither the Custodian nor any Domestic Subcustodian shall have any
liability in respect of any loss, damage or expense suffered by a Fund, insofar
as such loss, damage or expense arises from the performance of the Custodian or
any Domestic Subcustodian in reliance upon records that were maintained for such
Fund by entities other than the Custodian or any Domestic Subcustodian prior to
the Custodian's employment hereunder.
(d) Advice of Counsel.
------------------
The Custodian and all Domestic Subcustodians shall be entitled to
receive and act upon advice of counsel of its own choosing on all matters. The
Custodian and all Domestic Subcustodians shall be without liability for any
actions taken or omitted in good faith pursuant to the advice of counsel.
(e) Advice of the Fund and Others.
------------------------------
The Custodian and any Domestic Subcustodian may rely upon the advice of
any Fund and upon statements of such Fund's accountants and other persons
believed by it in good faith to be expert in matters upon which they ate
consulted, and neither the Custodian nor any Domestic Subcustodian shall be
liable for any actions taken or omitted, in good faith, pursuant to such advice
or statements.
12
<PAGE> 16
(f) Instructions Appearing to be Genuine.
-------------------------------------
The Custodian and all Domestic Subcustodians shall be fully protected
and indemnified in acting as a custodian hereunder upon any Resolutions of the
Board of Directors or Trustees, Instructions, Special Instructions, advice,
notice, request, consent, certificate, instrument or paper appearing to it to be
genuine and to have been properly executed and shall, unless otherwise
specifically provided herein, be entitled to receive as conclusive proof of any
fact or matter required to be ascertained from any Fund hereunder a certificate
signed by any officer of such Fund authorized to countersign or confirm Special
Instructions.
(g) Exceptions from Liability.
--------------------------
Without limiting the generality of any other provisions hereof, neither
the Custodian nor any Domestic Subcustodian shall be under any duty or
obligation to inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased by or for
any Fund, the legality of the purchase thereof or evidence of ownership required
to be received by any such Fund, or the propriety of the decision to purchase or
amount paid therefor;
(ii) the legality of the sale of any Securities by or for any Fund,
or the propriety of the amount for which the same were sold; or
(iii) any other expenditures, encumbrances of Securities,
borrowings or similar actions with respect to any Fund's Assets;
and may, until notified to the contrary, presume that all Instructions or
Special Instructions received by it are not in conflict with or in any way
contrary to any provisions of any such Fund's Declaration of Trust, Partnership
Agreement, Articles of Incorporation or By-Laws or votes or proceedings of the
shareholders, trustees, partners or directors of any such Fund, or any such
Fund's currently effective Registration Statement on file with the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
----------------------------------------------------
(a) Domestic Subcustodians
----------------------
The Custodian shall be liable for the acts or omissions of any Domestic
Subcustodian to the same extent as if such actions or omissions were performed
by the Custodian itself.
(b) Liability for Acts and Omissions of Foreign Subcustodians.
----------------------------------------------------------
The Custodian shall be liable to a Fund for any loss or damage to such
Fund caused by or resulting from the acts or omissions of any Foreign
Subcustodian to the extent that, under the terms set forth in the subcustodian
agreement between the Custodian or a Domestic Subcustodian and such Foreign
Subcustodian, the Foreign Subcustodian has failed to perform in accordance with
the standard of conduct imposed under such subcustodian agreement and the
Custodian or Domestic Subcustodian recovers from the Foreign Subcustodian under
the applicable subcustodian agreement.
(c) Securities Systems, Interim Subcustodians, Special Subcustodians,
-----------------------------------------------------------------
Securities Depositories and Clearing Agencies.
- ----------------------------------------------
The Custodian shall not be liable to any Fund for any loss, damage or
expense suffered or incurred by such Fund resulting from or occasioned by the
actions or omissions of a Securities System, Interim Subcustodian, Special
Subcustodian, or Securities Depository and Clearing Agency unless such loss,
damage or expense is caused by, or results from, the negligence or willful
misfeasance of the Custodian.
13
<PAGE> 17
(d) Defaults or Insolvencies of Brokers, Banks, Etc.
------------------------------------------------
The Custodian shall not be liable for any loss, damage or expense
suffered or incurred by any Fund resulting from or occasioned by the actions,
omissions, neglects, defaults or insolvency of any broker, bank, trust company
or any other person with whom the Custodian may deal (other than any of such
entities acting as a Subcustodian, Securities System or Securities Depository
and Clearing Agency, for whose actions the liability of the Custodian is set out
elsewhere in this Agreement) unless such loss, damage or expense is caused by,
or results from, the negligence or willful misfeasance of the Custodian.
(e) Reimbursement of Expenses.
--------------------------
Each Fund agrees to reimburse the Custodian for all out-of-pocket
expenses incurred by the Custodian in connection with this Agreement, but
excluding salaries and usual overhead expenses.
8. INDEMNIFICATION.
----------------
(a) Indemnification by Fund.
------------------------
Subject to the limitations set forth in this Agreement, each Fund
agrees to indemnify and hold harmless the Custodian and its nominees from all
losses, damages and expenses (including attorneys' fees) suffered or incurred by
the Custodian or its nominee caused by or arising from actions taken by the
Custodian, its employees or agents in the performance of its duties and
obligations under this Agreement, including, but not limited to, any
indemnification obligations undertaken by the Custodian under any relevant
subcustodian agreement; provided, however, that such indemnity shall not apply
to the extent the Custodian is liable under Sections 6 or 7 hereof.
If any Fund requires the Custodian to take any action with respect to
Securities, which action involves the payment of money or which may, in the
opinion of the Custodian, result in the Custodian or its nominee assigned to
such Fund being liable for the payment of money or incurring liability of some
other form, such Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
(b) Indemnification by Custodian.
-----------------------------
Subject to the limitations set forth in this Agreement and in addition
to the obligations provided in Sections 6 and 7, the Custodian agrees to
indemnify and hold harmless each Fund from all losses, damages and expenses
suffered or incurred by each such Fund caused by the negligence or willful
misfeasance of the Custodian.
9. ADVANCES.
---------
In the event that, pursuant to Instructions, the Custodian or any
Subcustodian, Securities System, or Securities Depository or Clearing Agency
acting either directly or indirectly under agreement with the Custodian (each of
which for purposes of this Section 9 shall be referred to as "Custodian"), makes
any payment or transfer of funds on behalf of any Fund as to which there would
be, at the close of business on the date of such payment or transfer,
insufficient funds held by the Custodian on behalf of any such Fund, the
Custodian may, in its discretion without further Instructions, provide an
advance ("Advance") to any such Fund in an amount sufficient to allow the
completion of the transaction by reason of which such payment or transfer of
funds is to be made. In addition, in the event the Custodian is directed by
Instructions to make any payment or transfer of funds on behalf of any Fund as
to which it is subsequently determined that such Fund has overdrawn its cash
account with the Custodian as of the close of business on the date of such
payment or transfer, said overdraft shall constitute an Advance. Any Advance
shall be payable by the Fund on behalf of which the Advance was made on demand
by Custodian, unless otherwise agreed by such Fund and the Custodian, and shall
accrue interest from the date of the Advance to the date of payment by such Fund
to the Custodian at a rate agreed upon in writing from time to time by the
Custodian and such Fund. It is understood that any transaction in respect of
which the Custodian shall have made an Advance, including but not limited to a
foreign exchange contract or transaction in respect of which the Custodian is
not
14
<PAGE> 18
acting as a principal, is for the account of and at the risk of the Fund on
behalf of which the Advance was made, and not, by reason of such Advance, deemed
to be a transaction undertaken by the Custodian for its own account and risk.
The Custodian and each of the Funds which are parties to this Agreement
acknowledge that the purpose of Advances is to finance temporarily the purchase
or sale of Securities for prompt delivery in accordance with the settlement
terms of such transactions or to meet emergency expenses not reasonably
foreseeable by a Fund. The Custodian shall promptly notify the appropriate Fund
of any Advance. Such notification shall be sent by facsimile transmission or in
such other manner as such Fund and the Custodian may agree.
10. LIENS.
------
The Bank shall have a lien on the Property in the Custody Account to
secure payment of fees and expenses for the services rendered under this
Agreement. If the Bank advances cash or securities to the Fund for any purpose
or in the event that the Bank or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of its duties hereunder, except such as may arise from its or
its nominee's negligent action, negligent failure to act or willful misconduct,
any Property at any time held for the Custody Account shall be security therefor
and the Fund hereby grants a security interest therein to the Bank. The Fund
shall promptly reimburse the Bank for any such advance of cash or securities or
any such taxes, charges, expenses, assessments, claims or liabilities upon
request for payment, but should the Fund fail to so reimburse the Bank, the Bank
shall be entitled to dispose of such Property to the extent necessary to obtain
reimbursement. The Bank shall be entitled to debit any account of the Fund with
the Bank including, without limitation, the Custody Account, in connection with
any such advance and any interest on such advance as the Bank deems reasonable.
11. COMPENSATION.
-------------
Each Fund will pay to the Custodian such compensation as is agreed to
in writing by the Custodian and each such Fund from time to time. Such
compensation, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 7(e), shall be billed to each such Fund
and paid in cash to the Custodian.
12. POWERS OF ATTORNEY.
-------------------
Upon request, each Fund shall deliver to the Custodian such proxies,
powers of attorney or other instruments as may be reasonable and necessary or
desirable in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this Agreement or any
applicable subcustodian agreement.
13. TERMINATION AND ASSIGNMENT.
---------------------------
Any Fund or the Custodian may terminate this Agreement by notice in
writing, delivered or mailed, postage prepaid (certified mail, return receipt
requested) to the other not less than 90 days prior to the date upon which such
termination shall take effect. Upon termination of this Agreement, the
appropriate Fund shall pay to the Custodian such fees as may be due the
Custodian hereunder as well as its reimbursable disbursements, costs and
expenses paid or incurred. Upon termination of this Agreement, the Custodian
shall deliver, at the terminating party's expense, all Assets held by it
hereunder to the appropriate Fund or as otherwise designated by such Fund by
Special Instructions. Upon such delivery, the Custodian shall have no further
obligations or liabilities under this Agreement except as to the final
resolution of matters relating to activity occurring prior to the effective date
of termination.
This Agreement may not be assigned by the Custodian or any Fund without
the respective consent of the other, duly authorized by a resolution by its
Board of Directors or Trustees.
14. ADDITIONAL FUNDS.
-----------------
An additional Fund or Funds may become a party to this Agreement after
the date hereof by an instrument in writing to such effect signed by such Fund
or Funds and the Custodian. If this Agreement is terminated as to one or more of
the Funds (but less than all of the Funds) or if an additional Fund or Funds
shall become a party to this Agreement, there shall be delivered to each party
an Appendix B or an amended Appendix B, signed by each of the
15
<PAGE> 19
additional Funds (if any) and each of the remaining Funds as well as the
Custodian, deleting or adding such Fund or Funds, as the case may be. The
termination of this Agreement as to less than all of the Funds shall not affect
the obligations of the Custodian and the remaining Funds hereunder as set forth
on the signature page hereto and in Appendix B as revised from time to time.
15. NOTICES.
--------
As to each Fund, notices, requests, instructions and other writings
delivered to PROFUNDS, 4600 North Park Avenue, Suite 100, Chevy Chase, Maryland
20815, postage prepaid, or to such other address as any particular Fund may have
designated to the Custodian in writing, shall be deemed to have been properly
delivered or given to a Fund.
Notices, requests, instructions and other writings delivered to the
Securities Administration Department of the Custodian at its office at 928 Grand
Avenue, Kansas City, Missouri, or mailed postage prepaid, to the Custodian's
Securities Administration Department, Post Office Box 226, Kansas City, Missouri
64141, or to such other addresses as the Custodian may have designated to each
Fund in writing, shall be deemed to have been properly delivered or given to the
Custodian hereunder; provided, however, that procedures for the delivery of
Instructions and Special Instructions shall be governed by Section 2(c) hereof.
16. MISCELLANEOUS.
--------------
(a) This Agreement is executed and delivered in the State of Missouri
and shall be governed by the laws of such state.
(b) All of the terms and provisions of this Agreement shall be binding
upon, and inure to the benefit of, and be enforceable by the respective
successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended, modified or waived,
in any manner except in writing, properly executed by both parties hereto;
provided, however, Appendix A may be amended from time to time as Domestic
Subcustodians, Foreign Subcustodians, Special Subcustodians, and Securities
Depositories and Clearing Agencies are approved or terminated according to the
terms of this Agreement.
(d) The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(e) This Agreement shall be effective as of the date of execution
hereof.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of this
Agreement, and the definitions thereof are found in the following sections of
the Agreement:
Term Section
---- -------
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2(b)
Authorized Person 3
Banking Institution 4(l)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2(c)(l)
Interim Subcustodian 5(c)
16
<PAGE> 20
Term Section
---- -------
Interest Bearing Deposit 4(1)
Liability 10
OCC 4(g)(2)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2(a)
Securities Depositories and Clearing Agencies 5(b)
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2(c)(2)
Special Subcustodian 5(c)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid by any court of competent
jurisdiction, the remaining portion or portions shall be considered severable
and shall not be affected, and the rights and obligations of the parties shall
be construed and enforced as if this Agreement did not contain the particular
part, term or provision held to be illegal or invalid.
(i) This Agreement constitutes the entire understanding and agreement
of the parties hereto with respect to the subject matter hereof, and accordingly
supersedes, as of the effective date of this Agreement, any custodian agreement
heretofore in effect between the Fund and the Custodian.
IN WITNESS WHEREOF, the parties hereto have caused this Custody
Agreement to be executed by their respective duly authorized officers.
PROFUNDS
Attest: By:
- --------------------------------- -------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
Date:
------------------------------------------
UMB BANK, N.A.
Attest: By:
- --------------------------------- -------------------------------------------
Name: Ralph R. Santoro
------------------------------------------
Title: Vice President
------------------------------------------
Date:
------------------------------------------
17
<PAGE> 21
APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Brown Brothers Harriman (Foreign Securities Only)
Morgan Stanley Trust Company (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
- --------- --------------------- -----------------
Euroclear
PROFUNDS UMB BANK, N.A.
By: By:
- ----------------------------------- -----------------------------------
Name: Name: Ralph R. Santoro
- ----------------------------------- -----------------------------------
Title: Title: Vice President
- ----------------------------------- -----------------------------------
Date: Date:
- ----------------------------------- -----------------------------------
18
<PAGE> 22
APPENDIX B
CUSTODY AGREEMENT
The following open-end management investment companies ("Funds") are
hereby made parties to the Custody Agreement dated ___________, 199_, with UMB
Bank, n.a. ("Custodian") and PROFUNDS, and agree to be bound by all the terms
and conditions contained in said Agreement:
Bull ProFund
UltraBull ProFund
Bear ProFund
UltraBear ProFund
UltraOTC ProFund
Money Market ProFund
[INSERT MUTUAL FUND COMPLEX]
Attest: By:
- ----------------------------------- -----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Date:
-----------------------------------
UMB BANK, N.A.
Attest: By:
- ----------------------------------- -----------------------------------
Name: Ralph R. Santoro
-----------------------------------
Title: Vice President
-----------------------------------
Date:
-----------------------------------
19
<PAGE> 1
Exhibit 9(a)
TRANSFER AGENCY AGREEMENT
AGREEMENT made this day of September, 1997, between PROFUNDS (the
"Trust"), a Delaware business trust having its principal place of business at
3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES, INC.
("BISYS"), a Delaware corporation having its principal place of business at 3435
Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain services for each
series of the Trust (individually referred to herein as a "Fund" and
collectively as the "Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services.
--------
BISYS shall perform for the Trust the transfer agent services
set forth in Schedule A hereto; provided, however, that the parties acknowledge
and agree that the services to be provided hereunder on behalf of the Money
Market ProFund shall be limited to those that are necessary and appropriate for
a feeder fund that invests all of its assets in a separate, unaffiliated
registered investment company ("Master Portfolio"). In that connection, the
parties agree that BISYS shall bear no responsibility for the provision of any
services to any Master Portfolio in which the Money Market ProFund may invest
its assets. BISYS also agrees to perform for the Trust such special services
incidental to the performance of the services enumerated herein as agreed to by
the parties from time to time. BISYS shall perform such additional services as
are provided on an amendment to Schedule A hereof, in consideration of such fees
as the parties hereto may agree.
BISYS may, in its discretion, appoint in writing other parties
qualified to perform transfer agency services reasonably acceptable to the Trust
(individually, a "Sub-transfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided, however,
that the Sub-transfer Agent shall be the agent of BISYS and not the agent of the
Trust or such Fund, and that BISYS shall be fully responsible for the acts of
such Sub-transfer Agent and shall not be relieved of any of its responsibilities
hereunder by the appointment of such Sub-transfer Agent.
2. Fees.
-----
The Trust shall pay BISYS for the services to be provided by
BISYS under this Agreement in accordance with, and in the manner set forth in,
the Omnibus Fee Agreement among BISYS, BISYS Fund Services Limited Partnership
and the Trust dated September , 1997. Fees for any additional services to be
provided by BISYS pursuant to an amendment to the Omnibus Fee
<PAGE> 2
Agreement shall be subject to mutual agreement at the time such
amendment to the Omnibus Fee Agreement is proposed.
3. Reimbursement of Expenses.
-------------------------
In addition to paying BISYS the fees described in Section 2
hereof, the Trust agrees to reimburse BISYS for BISYS' out-of-pocket expenses in
providing services hereunder, including without limitation, the following:
(a) All freight and other delivery and bonding charges
incurred by BISYS in delivering materials to and from the
Trust and in delivering all materials to shareholders;
(b) All direct telephone, telephone transmission and telecopy
or other electronic transmission expenses incurred by
BISYS in communication with the Trust, the Trust's
investment adviser or custodian, dealers, shareholders or
others as required for BISYS to perform the services to be
provided hereunder;
(c) Costs of postage, couriers, stock computer paper,
statements, labels, envelopes, checks, reports, letters,
tax forms, proxies, notices or other form of printed
material which shall be required by BISYS for the
performance of the services to be provided hereunder;
(d) The cost of microfilm or microfiche of records or other
materials; and
(e) Any expenses BISYS shall incur at the written direction of
an officer of the Trust thereunto duly authorized.
4. Effective Date.
---------------
This Agreement shall become effective as of the first day on
which shares of the Trust are publicly sold (the "Effective Date").
5. Term.
-----
This Agreement shall continue in effect with respect to a Fund,
unless earlier terminated by either party hereto as provided hereunder, for a
period of thirty (30) months following the Effective Date (the "Initial Term").
Thereafter, unless otherwise terminated as provided herein, this Agreement shall
be renewed automatically for successive one-year periods ("Rollover Periods").
This Agreement may be terminated without penalty (i) by provision of a notice of
nonrenewal in the manner set forth below, (ii) by mutual agreement of the
parties or (iii) for "cause," as defined below, upon the provision of 60 days
advance written notice by the party alleging cause. Written notice of
nonrenewal must be provided at least 60 days prior to the end of the Initial
Term or any Rollover Period, as the case may be.
2
<PAGE> 3
For purposes of this Agreement, "cause" shall mean (a) a
material breach of this Agreement that has not been cured within thirty (30)
days following written notice of such breach from the non-breaching party; (b)
willful misfeasance, bad faith, gross negligence or reckless disregard on the
part of the party to be terminated with respect to its obligations and duties
set forth herein; (c) a final, unappealable judicial, regulatory or
administrative ruling or order in which the party to be terminated has been
found guilty of criminal or unethical behavior in the conduct of its business;
or (d) financial difficulties on the part of the party to be terminated which
are evidenced by the authorization or commencement of, or involvement by way of
pleading, answer, consent or acquiescence in, a voluntary or involuntary case
under Title 11 of the United States Code, as from time to time is in effect, or
any applicable law, other than said Title 11, of any jurisdiction relating to
the liquidation or reorganization of debtors or to the modification or
alteration of the rights of creditors.
After such termination, for so long as BISYS, with the written
consent of the Trust, in fact continues to perform any one or more of the
services contemplated by this Agreement or any Schedule or exhibit hereto, the
provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect. Fees and
out-of-pocket expenses incurred by BISYS but unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the fees and disbursements provided by Sections 2 and 3 hereof, the amount of
all of BISYS' cash disbursements in connection with BISYS' activities in
effecting such termination, including without limitation, the delivery to the
Trust and/or its distributor or investment adviser and/or other parties, of the
Trust's property, records, instruments and documents, or any copies thereof. To
the extent that BISYS may retain in its possession copies of any Trust documents
or records subsequent to such termination which copies had not been requested by
or on behalf of the Trust in connection with the termination process described
above, BISYS, for a reasonable fee, will provide the Trust with reasonable
access to such copies.
If, for any reason, BISYS is replaced as transfer agent, or if a
third party is added to perform all or a part of the services provided by BISYS
under this Agreement (excluding any sub- transfer agent appointed by BISYS as
provided in Section 1 hereof), then the Trust shall make a one-time cash
payment, as liquidated damages to, BISYS equal to the balance due BISYS for the
remainder of the term of this Agreement, assuming for purposes of calculation of
the payment that the asset level of the Trust on the date BISYS is replaced, or
a third party is added, will remain constant for the balance of the contract
term.
6. Uncontrollable Events.
----------------------
BISYS assumes no responsibility hereunder, and shall not be
liable for any damage, loss of data, delay or any other loss whatsoever caused
by events beyond its reasonable control.
7. Legal Advice.
-------------
3
<PAGE> 4
BISYS shall notify the Trust at any time BISYS believes that it
is in need of the advice of counsel (other than counsel in the regular employ of
BISYS or any affiliated companies) with regard to BISYS' responsibilities and
duties pursuant to this Agreement; and after so notifying the Trust, BISYS, at
its discretion, shall be entitled to seek, receive and act upon advice of legal
counsel of its choosing, such advice to be at the expense of the Trust or Funds
unless relating to a matter involving BISYS' willful misfeasance, bad faith,
negligence or reckless disregard with respect to BISYS' responsibilities and
duties hereunder and BISYS shall in no event be liable to the Trust or any Fund
or any shareholder or beneficial owner of the Trust for any action reasonably
taken pursuant to such advice.
8. Instructions.
-------------
Whenever BISYS is requested or authorized to take action
hereunder pursuant to instructions from a shareholder, or a properly authorized
agent of a shareholder ("shareholder's agent"), concerning an account in a Fund,
BISYS shall be entitled to rely upon any certificate, letter or other instrument
or communication, believed by BISYS to be genuine and to have been properly
made, signed or authorized by an officer or other authorized agent of the Trust
or by the shareholder or shareholder's agent, as the case may be, and shall be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained by it hereunder a certificate signed by an officer of the Trust or
any other person authorized by the Trust's Board of Trustees or by the
shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, BISYS may rely
conclusively upon the terms of the Prospectuses and Statement of Additional
Information of the Trust relating to the Funds to the extent that such services
are described therein unless BISYS receives written instructions to the contrary
in a timely manner from the Trust.
9. Standard of Care; Reliance on Records and Instructions;
-------------------------------------------------------
Indemnification.
----------------
BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. The Trust agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or nonactions with respect to the
performance of services under this Agreement or based, if applicable, upon
reasonable reliance on information, records, instructions or requests given or
made to BISYS by the Trust, the investment adviser and on any records provided
by any fund accountant or custodian thereof; provided that this indemnification
shall not apply to actions or omissions of BISYS in cases of its own bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties; and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS shall give
the Trust written
4
<PAGE> 5
notice of and reasonable opportunity to defend against said claim in its own
name or in the name of BISYS.
10. Record Retention and Confidentiality.
-------------------------------------
BISYS shall keep and maintain on behalf of the Trust all books
and records which the Trust or BISYS is, or may be, required to keep and
maintain pursuant to any applicable statutes, rules and regulations, including
without limitation Rules 31a-1 and 31a-2 under the Investment Company Act of
1940, as amended (the "1940 Act"), relating to the maintenance of books and
records in connection with the services to be provided hereunder. BISYS further
agrees that all such books and records shall be the property of the Trust and to
make such books and records available for inspection by the Trust or by the
Securities and Exchange Commission (the "Commission") at reasonable times and
otherwise to keep confidential all books and records and other information
relative to the Trust and its shareholders, except when requested to divulge
such information by duly-constituted authorities or court process, or requested
by a shareholder or shareholder's agent with respect to information concerning
an account as to which such shareholder has either a legal or beneficial
interest or when requested by the Trust, the shareholder, or shareholder's
agent, or the dealer of record as to such account.
11. Reports.
--------
BISYS will furnish to the Trust and to its properly-authorized
auditors, investment advisers, examiners, distributors, dealers, underwriters,
salesmen, insurance companies and others designated by the Trust in writing,
such reports at such times as are prescribed in Schedule B attached hereto, or
as subsequently agreed upon by the parties pursuant to an amendment to Schedule
B. The Trust agrees to examine each such report or copy promptly and will report
or cause to be reported any errors or discrepancies therein not later than three
business days from the receipt thereof. In the event that errors or
discrepancies, except such errors and discrepancies as may not reasonably be
expected to be discovered by the recipient within three days after conducting a
diligent examination, are not so reported within the aforesaid period of time, a
report will for all purposes be accepted by and be binding upon the Trust and
any other recipient, and BISYS shall have no liability for errors or
discrepancies therein and shall have no further responsibility with respect to
such report except to perform reasonable corrections of such errors and
discrepancies within a reasonable time after requested to do so by the Trust.
12. Rights of Ownership.
--------------------
All computer programs and procedures developed to perform
services required to be provided by BISYS under this Agreement are the property
of BISYS. All records and other data except such computer programs and
procedures are the exclusive property of the Trust and all such other records
and data will be furnished to the Trust in appropriate form as soon as
practicable after termination of this Agreement for any reason.
13. Return of Records.
------------------
5
<PAGE> 6
BISYS may at its option at any time, and shall promptly upon the
Trust's demand, turn over to the Trust and cease to retain BISYS' files, records
and documents created and maintained by BISYS pursuant to this Agreement which
are no longer needed by BISYS in the performance of its services or for its
legal protection. If not so turned over to the Trust, such documents and records
will be retained by BISYS for six years from the year of creation. At the end of
such six-year period, such records and documents will be turned over to the
Trust unless the Trust authorizes in writing the destruction of such records and
documents.
14. Bank Accounts.
--------------
The Trust and the Funds shall establish and maintain such bank
accounts with such bank or banks as are selected by the Trust, as are necessary
in order that BISYS may perform the services required to be performed hereunder.
To the extent that the performance of such services shall require BISYS directly
to disburse amounts for payment of dividends, redemption proceeds or other
purposes, the Trust and Funds shall provide such bank or banks with all
instructions and authorizations necessary for BISYS to effect such
disbursements.
15. Representations of the Trust.
-----------------------------
The Trust certifies to BISYS that: (a) as of the close of
business on the Effective Date, each Fund which is in existence as of the
Effective Date has authorized unlimited shares, and (b) by virtue of its
Declaration of Trust, shares of each Fund which are redeemed by the Trust may be
sold by the Trust from its treasury, and (c) this Agreement has been duly
authorized by the Trust and, when executed and delivered by the Trust, will
constitute a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
16. Representations of BISYS.
-------------------------
BISYS represents and warrants that: (a) BISYS has been in, and
shall continue to be in, substantial compliance with all provisions of law,
including Section 17A(c) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), required in connection with the performance of its duties under
this Agreement; and (b) the various procedures and systems which BISYS has
implemented with regard to safekeeping from loss or damage attributable to fire,
theft or any other cause of the blank checks, records, and other data of the
Trust and BISYS' records, data, equipment, facilities and other property used in
the performance of its obligations hereunder are adequate and that it will make
such changes therein from time to time as are required for the secure
performance of its obligations hereunder.
17. Insurance.
----------
6
<PAGE> 7
BISYS shall notify the Trust should its insurance coverage with
respect to professional liability or errors and omissions coverage be canceled
or reduced. Such notification shall include the date of change and the reasons
therefor. BISYS shall notify the Trust of any material claims against it with
respect to services performed under this Agreement, whether or not they may be
covered by insurance, and shall notify the Trust from time to time as may be
appropriate of the total outstanding claims made by BISYS under its insurance
coverage.
18. Information to be Furnished by the Trust and Funds.
---------------------------------------------------
The Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of
the state in which such Declaration has been filed.
(b) Copies of the following documents:
1. The Trust's By-Laws and any amendments thereto;
2. Certified copies of resolutions of the Board of
Trustees covering the following matters:
A. Approval of this Agreement and authorization
of a specified officer of the Trust to
execute and deliver this Agreement and
authorization for specified officers of the
Trust to instruct BISYS hereunder; and
B. Authorization of BISYS to act as Transfer
Agent for the Trust on behalf of the Funds.
(c) A list of all officers of the Trust, together with
specimen signatures of those officers, who are authorized
to instruct BISYS in all matters.
(d) Two copies of the following (if such documents are
employed by the Trust):
1. Prospectuses and Statement of Additional
Information;
2. Distribution Agreement; and
3. All other forms commonly used by the Trust or its
Distributor with regard to their relationships and
transactions with shareholders of the Funds.
(e) A certificate as to shares of beneficial interest of the
Trust authorized, issued, and outstanding as of the
Effective Date of BISYS' appointment as Transfer Agent (or
as of the date on which BISYS' services are commenced,
whichever is the
7
<PAGE> 8
later date) and as to receipt of full consideration by the
Trust for all shares outstanding, such statement to be
certified by the Treasurer of the Trust.
19. Information Furnished by BISYS.
-------------------------------
BISYS has furnished to the Trust the following:
(a) BISYS' Articles of Incorporation.
(b) BISYS' Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the
following matters:
1. Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver
this Agreement;
2. Authorization of BISYS to act as Transfer Agent for
the Trust.
(d) A copy of the most recent independent accountants' report
relating to internal accounting control systems as filed
with the Commission pursuant to Rule 17Ad- 13 under the
Exchange Act.
20. Amendments to Documents.
------------------------
The Trust shall furnish BISYS written copies of any amendments
to, or changes in, any of the items referred to in Section 18 hereof forthwith
upon such amendments or changes becoming effective. In addition, the Trust
agrees that no amendments will be made to the Prospectuses or Statement of
Additional Information of the Trust which might have the effect of changing the
procedures employed by BISYS in providing the services agreed to hereunder or
which amendment might affect the duties of BISYS hereunder unless the Trust
first obtains BISYS' approval of such amendments or changes.
21. Reliance on Amendments.
-----------------------
BISYS may rely on any amendments to or changes in any of the
documents and other items to be provided by the Trust pursuant to Sections 18
and 20 of this Agreement and the Trust hereby indemnifies and holds harmless
BISYS from and against any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character which may result from actions or omissions on the
part of BISYS in reasonable reliance upon such amendments and/or changes.
Although BISYS is authorized to rely on the above-mentioned amendments to and
changes in the documents and other items to be provided pursuant to Sections 18
and 20 hereof, BISYS shall be under no duty to comply with or take any action as
a result of any of such amendments or changes unless the Trust first obtains
BISYS' written consent to and approval of such amendments or changes.
8
<PAGE> 9
22. Compliance with Law.
--------------------
Under this Agreement, except for the obligations of BISYS set
forth in Section 10 hereof, the Trust assumes full responsibility for the
preparation, contents, and distribution of each prospectus of the Trust as to
compliance with all applicable requirements of the Securities Act of 1933, as
amended (the "1933 Act"), the 1940 Act, and any other laws, rules and
regulations of governmental authorities having jurisdiction. Under this
Agreement, BISYS shall have no obligation to take cognizance of any laws
relating to the sale of the Trust's shares. The Trust represents and warrants
that no shares of the Trust will be sold to the public until the Trust's
registration statement under the 1933 Act and the 1940 Act has been declared or
becomes effective.
23. Notices.
--------
Any notice required or permitted to be given by either party to
the other shall be deemed sufficient if sent by registered or certified mail,
postage prepaid, addressed by the party giving notice to the other party at the
last address furnished by the other party to the party giving notice: if to the
Trust, at 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814; and if to
BISYS at 3435 Stelzer Road, Columbus, Ohio 43219.
24. Headings.
---------
Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
25. Assignment.
-----------
This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party. This Section 25 shall not limit or in any way affect
BISYS' right to appoint a Sub-transfer Agent pursuant to Section 1 hereof. This
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns.
9
<PAGE> 10
26. Governing Law and Matters Relating to the Trust as a
----------------------------------------------------
Delaware Business Trust.
------------------------
This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of the State of Ohio. It is expressly
agreed that the obligations of the Trust hereunder shall not be binding upon any
of the Trustees, shareholders, nominees, officers, agents or employees of the
Trust personally, but shall bind only the trust property of the Trust. The
execution and delivery of this Agreement have been authorized by the Trustees,
and this Agreement has been signed and delivered by an authorized officer of the
Trust, acting as such, and neither such authorization by the Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust as provided in the Trust's
Agreement and Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
PROFUNDS
By:
--------------------------------
BISYS FUND SERVICES, INC.
By:
--------------------------------
10
<PAGE> 11
Dated: September , 1997
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
PROFUNDS
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENCY SERVICES
------------------------
1. Shareholder Transactions
------------------------
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend option,
taxpayer identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10b-10 under the
Securities Exchange Act of 1934, as amended.
d. Issue duplicate confirmations to those broker-dealers and/or
registered investment advisers that (i) are identified in
shareholder account records and (ii) request receipt of such
confirmations.
e. Issue periodic statements for shareholders.
f. Process transfers and exchanges.
g. Process dividend payments, including the purchase of new shares,
through dividend reimbursement.
2. Shareholder Information Services
--------------------------------
a. Make information available to shareholder servicing unit and
other remote access units regarding trade date, share price,
current holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or
special order statements upon request.
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements or marketing material to current
shareholders.
A-1
<PAGE> 12
d. Provide personnel acceptable to the Trust to respond to
telephone inquiries from Trust shareholders and prospective
shareholders. The extent and nature of the telephone services to
be provided under this section shall be detailed in a separate
written memorandum that is agreed upon by the parties.
3. Compliance Reporting
--------------------
a. Provide reports to the Securities and Exchange Commission, the
National Association of Securities Dealers and the States in
which the Fund is registered.
b. Prepare and distribute appropriate Internal Revenue Service
forms for corresponding Fund and shareholder income and capital
gains.
c. Issue tax withholding reports to the Internal Revenue Service.
4. Dealer/Load Processing (if applicable)
--------------------------------------
a. Provide reports for tracking rights of accumulation and
purchases made under a Letter of Intent.
b. Account for separation of shareholder investments from
transaction sale charges for purchase of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and
marketing expenses.
d. Provide for payment of 12b-1 fees and/or shareholder servicing
fees to dealers, registered investment advisers and other
service organizations.
5. Shareholder Account Maintenance
-------------------------------
a. Maintain all shareholder records for each account in the Trust.
b. Issue customer statements on scheduled cycle, providing
duplicate second and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
A-2
<PAGE> 13
SCHEDULE B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
PROFUNDS
AND
BISYS FUND SERVICES, INC.
REPORTS
-------
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Securities Exchange Act of 1934, as amended.
8. Such other reports that are reasonably requested by the Trust,
provided, however, that any out-of-pocket costs or other expenses
associated with accessing such reports or producing such reports shall
be borne by the Trust.
B-1
<PAGE> 1
Exhibit 9(b)
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this day of September, 1997, by and
between PROFUNDS, a Delaware business trust (the "Company"), and BISYS FUND
SERVICES LIMITED PARTNERSHIP, d/b/a BISYS FUND SERVICES (the "Administrator"),
an Ohio limited partnership.
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares of beneficial interest ("Shares");
and
WHEREAS, the Company desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services to
such series of the Company as the Company and the Administrator may agree on
("Portfolios") and as listed on Schedule A attached hereto and made a part of
this Agreement, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Company and the Administrator hereby agree as
follows:
ARTICLE 1. RETENTION OF THE ADMINISTRATOR. The Company hereby retains
the Administrator to act as the administrator of the Portfolios and to furnish
the Portfolios with the management and administrative services as set forth in
Article 2 below. The Administrator hereby accepts such employment to perform the
duties set forth below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Company in any way and shall
not be deemed an agent of the Company.
ARTICLE 2. ADMINISTRATIVE SERVICES. Under the supervision of the
Company's Trustees and their designees, the Administrator shall manage,
administer and conduct all of the general business activities of the Company and
the Portfolios other than those which have been contracted to third parties by
the Company. The Administrator shall provide the Company with all necessary and
desirable regulatory reporting, office space, equipment, personnel, compensation
and facilities (including facilities for Shareholders' and Trustees' meetings)
for handling the affairs of the Company and carrying out the Administrator's
duties hereunder.
As part of its duties hereunder, the Administrator shall investigate,
assist in the selection of and conduct relations with custodians, depositories,
accountants, legal counsels, underwriters, brokers and dealers, corporate
fiduciaries, insurers, banks and persons in any other capacity deemed to be
necessary or desirable for the Portfolios' operations. The Administrator shall
oversee, examine and review the performance by others of other services provided
in connection with the operations of the Portfolios and shall provide the
Trustees of the Company with such reports regarding investment performance as
they may reasonably request; provided that the Administrator shall have
<PAGE> 2
no responsibility for supervising the performance by any investment adviser or
subadviser of its responsibilities.
Without limiting the generality of the foregoing, the Administrator
shall also provide the services that are set forth in Schedule B hereto;
provided, however, that the parties acknowledge and agree that the services to
be provided hereunder on behalf of the Money Market ProFund shall be limited to
those that are necessary and appropriate for a feeder fund that invests all of
its assets in a separate, unaffiliated registered investment company ("Master
Portfolio"). In that connection, the parties agree that the Administrator shall
bear no responsibility for the provision of any services to any Master Portfolio
in which the Money Market ProFund may invest its assets.
ARTICLE 3. ALLOCATION OF CHARGES AND EXPENSES.
(A) THE ADMINISTRATOR. The Administrator shall furnish at its own
expense the executive, supervisory and clerical personnel necessary to perform
its obligations under this Agreement. The Administrator shall also provide the
items which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Company as well as all Trustees of the
Company who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Company retained by the Trustees of the
Company to perform services on behalf of the Company.
(B) THE COMPANY. The Company assumes and shall pay or cause to be paid
all other expenses of the Company not otherwise allocated herein, including,
without limitation, organization costs, taxes, expenses for legal and auditing
services, the expenses of preparing (including typesetting), printing and
mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
incurred in connection with issuing and redeeming Shares, the costs of custodial
services, the cost of initial and ongoing registration of the Shares under
Federal and state securities laws, fees and out-of-pocket expenses of Trustees
who are not affiliated persons of the Administrator or the Investment Adviser to
the Company or any affiliated corporation of the Administrator or the Investment
Adviser, insurance, interest, brokerage costs, litigation and other
extraordinary or nonrecurring expenses, and all fees and charges of investment
advisers to the Company.
ARTICLE 4. COMPENSATION OF THE ADMINISTRATOR.
(A) ADMINISTRATION FEE. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Company shall pay to the Administrator compensation that is more
particularly described in the Omnibus Fee Agreement among the Administrator,
BISYS Fund Services, Inc. and the Company dated September , 1997. Such
compensation shall be calculated and accrued daily, and paid to the
Administrator quarterly. The Company shall also reimburse the Administrator for
its reasonable out-of-pocket expenses, including the travel and lodging expenses
incurred by officers and employees of the Administrator in connection with
attendance at Board meetings.
2
<PAGE> 3
If this Agreement becomes effective subsequent to the first day of a
month or terminates before the last day of a month, the Administrator's
compensation for that part of the month in which this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above. Payment of the Administrator's compensation for the preceding month
shall be made promptly.
(B) SURVIVAL OF COMPENSATION RIGHTS. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement.
ARTICLE 5. LIMITATION OF LIABILITY OF THE ADMINISTRATOR. The duties of
the Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable law which cannot be waived or modified
hereby. (As used in this Article 5, the term "Administrator" shall include
partners, officers, employees and other agents of the Administrator as well as
the Administrator itself.)
So long as the Administrator acts in good faith and with due diligence
and without negligence, the Company assumes full responsibility and shall
indemnify the Administrator and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and against
any and all losses, damages, costs, charges, reasonable counsel fees and
disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of the
Administrator's actions taken or nonactions with respect to the performance of
services hereunder. The indemnity and defense provisions set forth herein shall
indefinitely survive the termination of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Company may be asked to indemnify or hold the
Administrator harmless, the Company shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Company promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Company, but failure to do so in good faith shall not affect the rights
hereunder.
The Company shall be entitled to participate at its own expense or, if
it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity provision. If the Company elects to assume the defense
of any such claim, the defense shall be conducted by counsel chosen by the
Company and satisfactory to the Administrator, whose approval shall not be
unreasonably withheld. In the event that the Company elects to assume the
defense of any suit and
3
<PAGE> 4
retain counsel, the Administrator shall bear the fees and expenses of any
additional counsel retained by it. If the Company does not elect to assume the
defense of a suit, it will reimburse the Administrator for the reasonable fees
and expenses of any counsel retained by the Administrator.
The Administrator may apply to the Company at any time for instructions
and may consult counsel for the Company or its own counsel and with accountants
and other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or accountable
for any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. The Administrator will not be held to have
notice of any change of authority of any officers, employees or agents of the
Company until receipt of written notice thereof from the Company.
ARTICLE 6. ACTIVITIES OF THE ADMINISTRATOR. The services of the
Administrator rendered to the Company are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that directors, officers, employees
and Shareholders of the Company are or may be or become interested in the
Administrator, as officers, employees or otherwise and that partners, officers
and employees of the Administrator and its counsel are or may be or become
similarly interested in the Company, and that the Administrator may be or become
interested in the Company as a Shareholder or otherwise.
ARTICLE 7. DURATION OF THIS AGREEMENT. The Term of this Agreement shall
be as specified in Schedule A hereto.
ARTICLE 8. ASSIGNMENT. This Agreement shall not be assignable by either
party without the written consent of the other party; provided, however, that
the Administrator may, at its expense, subcontract with any entity or person
concerning the provision of the services contemplated hereunder. The
Administrator shall not, however, be relieved of any of its obligations under
this Agreement by the appointment of such subcontractor and provided further,
that the Administrator shall be responsible, to the extent provided in Article 5
hereof, for all acts of such subcontractor as if such acts were its own. This
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns.
ARTICLE 9. AMENDMENTS. This Agreement may be amended by the parties
hereto only if such amendment is specifically approved (i) by the vote of a
majority of the Trustees of the Company, and (ii) by the vote of a majority of
the Trustees of the Company who are not parties to this Agreement or interested
persons of any such party, cast in person at a Board of Trustees meeting called
for the purpose of voting on such approval.
For special cases, the parties hereto may amend such procedures set
forth herein as may be appropriate or practical under the circumstances, and the
Administrator may conclusively assume that any special procedure which has been
approved by the Company does not conflict with or violate any
4
<PAGE> 5
requirements of its Declaration of Trust or then current prospectuses, or any
rule, regulation or requirement of any regulatory body.
ARTICLE 10. CERTAIN RECORDS. The Administrator shall maintain customary
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Company shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Company and will be made
available to or surrendered promptly to the Company on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Company and follow the
Company's instructions as to permitting or refusing such inspection; provided
that the Administrator may exhibit such records to any person in any case where
it is advised by its counsel that it may be held liable for failure to do so,
unless (in cases involving potential exposure only to civil liability) the
Company has agreed to indemnify the Administrator against such liability.
ARTICLE 11. DEFINITIONS OF CERTAIN TERMS. The terms "interested person"
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 12. NOTICE. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the party giving
notice: if to the Company, at 7900 Wisconsin Avenue, Suite 300, Bethesda,
Maryland 20814; and if to the Administrator at 3435 Stelzer Road, Columbus, Ohio
43219.
ARTICLE 13. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Ohio and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the State of Ohio, or
any of the provisions herein, conflict with the applicable provisions of the
1940 Act, the latter shall control.
ARTICLE 14. MULTIPLE ORIGINALS. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
PROFUNDS
By:
----------------------------------
Title:
------------------------------
BISYS FUND SERVICES LIMITED
PARTNERSHIP
BY: BISYS FUND SERVICES, INC.,
GENERAL PARTNER
By:
----------------------------------
Title:
------------------------------
6
<PAGE> 7
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
DATED AS OF SEPTEMBER ______, 1997
BETWEEN PROFUNDS
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
Portfolios: This Agreement shall apply to all Portfolios of the Company,
either now or hereafter created. The current portfolios of
___________, are set forth below: the Bull ProFund, the
UltraBull ProFund, the Bear ProFund, the UltraBear ProFund,
the OTC ProFund, and the U.S. Government Money Market ProFund.
Term: Pursuant to Article 7, the term of this Agreement shall
commence on the first day on which Shares of the Company are
publicly sold (the "Effective Date") and shall remain in
effect for a period of thirty (30) months following such
Effective Date ("Initial Term"). Thereafter, unless otherwise
terminated as provided herein, this Agreement shall be renewed
automatically for successive one-year periods ("Rollover
Periods"). This Agreement may be terminated without penalty
(i) by provision of a notice of nonrenewal in the manner set
forth below, (ii) by mutual agreement of the parties or (iii)
for "cause," as defined below, upon the provision of 60 days
advance written notice by the party alleging cause. Written
notice of nonrenewal must be provided at least 60 days prior
to the end of the Initial Term or any Rollover Period, as the
case may be.
For purposes of this Agreement, "cause" shall mean (a) a
material breach of this Agreement that has not been cured
within thirty (30) days following written notice of such
breach from the non-breaching party; (b) willful misfeasance,
bad faith, gross negligence or reckless disregard on the part
of the party to be terminated with respect to its obligations
and duties set forth herein; (c) a final, unappealable
judicial, regulatory or administrative ruling or order in
which the party to be terminated has been found guilty of
criminal or unethical behavior in the conduct of its business;
or (d) financial difficulties on the part of the party to be
terminated which are evidenced by the authorization or
commencement of, or involvement by way of pleading, answer,
consent or acquiescence in, a voluntary or involuntary case
under Title 11 of the United States Code, as from time to time
is in effect, or any applicable law, other than said Title 11,
of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration
of the rights of creditors.
Notwithstanding the foregoing, after such termination for so
long as the Administrator, with the written consent of the
Company, in fact continues to perform any one or more of the
services contemplated by this Agreement or any schedule or
exhibit hereto, the provisions of this Agreement, including
without limitation the provisions dealing with
indemnification, shall continue in full force and effect.
A-1
<PAGE> 8
Compensation due the Administrator and unpaid by the Company
upon such termination shall be immediately due and payable
upon and notwithstanding such termination. The Administrator
shall be entitled to collect from the Company, in addition to
the compensation described in this Schedule A, the amount of
all of the Administrator's cash disbursements for services in
connection with the Administrator's activities in effecting
such termination, including without limitation, the delivery
to the Company and/or its designees of the Company's property,
records, instruments and documents, or any copies thereof.
Subsequent to such termination, for a reasonable fee, the
Administrator will provide the Company with reasonable access
to any Company documents or records remaining in its
possession.
If, for any reason, the Administrator is replaced as fund
manager and administrator, or if a third party is added to
perform all or a part of the services provided by the
Administrator under this Agreement (excluding any sub-
administrator appointed by the Administrator as provided in
Article 7 hereof), then the Company shall make a one-time cash
payment, as liquidated damages, to the Administrator equal to
the balance due the Administrator for the remainder of the
term of this Agreement, assuming for purposes of calculation
of the payment that the asset level of the Company on the date
the Administrator is replaced, or a third party is added, will
remain constant for the balance of the contract term.
A-2
<PAGE> 9
SCHEDULE B
TO THE ADMINISTRATION AGREEMENT
DATED AS OF SEPTEMBER __, 1997
BETWEEN PROFUNDS
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
DETAILED SERVICE LISTING
ADMINISTRATION
1. Maintain calendar and files for all Board and shareholder meeting
materials
2. Maintain and manage annual regulatory filing calendar and follow-up with
responsible parties
3. Obtain appropriate insurance coverage on behalf of the Company, as
approved by the Company's Board of Trustees, including a Fidelity Bond and
a Directors and Officers Errors and Omissions policy, and renew such
policies based upon terms and conditions that are recommended by the
Administrator and approved by the Company's Board of Trustees
4. Maintain insurance files for the Company
5. Review Company registration statements and proxy materials prepared by
Company counsel
6. Prepare operating manual for the Company
7. Review materials and reports prepared by Company auditors, and materials
prepared by Company counsel which is submitted to the Administrator
8. Communicate all income breakdown data to client services and transfer
agent and coordinate printing/mailing of state income letters
9. Prepare and file Annual and Semi-Annual Reports subject to review by
Company counsel and the Company's Independent Accountants
10. Coordinate printing and distribution of prospectuses
11. Coordinate printing, distribution and tabulation of proxies
12. Prepare and file Form N-SAR
13. Prepare and file Rule 24f-2 and Rule 24e-2 filings subject to review by
Company counsel
14. Coordinate 17f-2 audits with custodians
15. Apply for all portfolio tax i.d.#s
16. Coordinate all NRSRO rating meetings
17. Coordinate and facilitate NASDAQ registration
18. Coordinate and facilitate distribution of trustee/officer questionnaires
and respond to trustees/officers questions relating thereto
19. Coordinate seed money and establish control accounts for new Portfolios
20. Maintain open file summary, authorized signers list, and fund compliance
calendars
21. Review and file Forms 1120 RIC and 8613, as prepared by the Company's
Independent Accountants
22. Prepare and file (i) Forms 1099 DIV and 1099 MISC and (ii) state tax
returns, subject to review by the Company's Independent Accountants
23. Monitor and advise the Company and its Portfolios concerning their
regulated investment company status under the Internal Revenue Code
B-1
<PAGE> 10
24. Calculate contractual Company expenses and control all disbursements for
the Company, and as appropriate compute the Company's yields, total
return, expense ratios, portfolio turnover rate and, if required,
portfolio average dollar-weighted maturity
25. Calculate performance data of the Portfolios for dissemination to
information services covering the investment company industry
26. Assist with the design, development, and operation of the Portfolios,
including new classes, investment objectives, policies and structure
27. Advise the Company and its Board of Trustees on matters concerning the
Company and its affairs
COMPLIANCE
1. Review monthly compliance reports prepared by the investment adviser
2. Perform independent monthly portfolio compliance review of information
contained in fund accounting source reports
3. Coordinate all IRS quarterly compliance letters to investment advisers
4. Notify appropriate officers of mark-to-market issues
5. Monitor compliance by the Company with conditions imposed by Rule 18f-3
relating to multiple classes of shares
6. Quarterly review of securities transactions by persons designated in the
Company's Code of Ethics as access persons for purposes of determining
compliance with such Code of Ethics
7. Quarterly reporting of compliance with Company's Code of Ethics
8. Respond to the SEC Fund audits and coordinate SEC inspections
9. Respond to Fund audit requests from independent fund accountants
10. Provide proactive compliance consulting/advice to portfolio managers
11. Prepare broker allocation reports for review by the Company's investment
adviser
12. Monitor fidelity bond coverage for the Company
13. Perform initial on-site compliance training based on Fund-specific
compliance manuals prepared by BISYS
BOARD PROCESS AND MEETINGS
1. Prepare quarterly Board meeting responsibility chart
2. Provide at least one person to attend Board meetings
3. Prepare Board agendas and BISYS sections of Board materials
4. Prepare all Board minutes and agendas, subject to review by Company
counsel
5. Prepare special Board meeting materials
6. Review, as requested, investment adviser's report to be submitted to the
Board pursuant to applicable Company procedures
7. Coordinate Board book production and distribution
B-2
<PAGE> 11
LEGAL SERVICES
1. Provide support to Fund Administration and blue sky personnel
2. Prepare the following Company agreements, subject to review by Company
counsel: (i) Investment Advisory Agreement, (ii) Administration Agreement,
(iii) Fund Accounting Agreement, (iv) Transfer Agency Agreement, (v)
Omnibus Fee Agreement for Administration, Fund Accounting and Transfer
Agency services and (vi) shareholder service agreements for use with
various service organizations.
3. Prepare post-effective amendments to the Company's registration statement
representing the annual update of financial information for such
registration statement, subject to review by Company counsel, and file
such documents with the SEC
4. Except as provided in Item 3 above, review prospectuses, prospectus
supplements, statements of additional information, other registration
statement materials and proxy materials prepared by Company counsel and
file such documents with the SEC
5. Maintain files of registration statements, fund contracts, Company proxies
and other Company documents
6. Prepare for and conduct shareholder meetings
7. Prepare for and comply with any regulatory examinations of or involving
the Company
8. Advise on product development issues
9. Respond to regulatory agency (i.e., NASD, SEC, IRS, bank regulatory)
proposals
COMPLIANCE - DISTRIBUTION ACTIVITIES
1. Review all fund advertising and sales material for compliance with
applicable laws and regulations, subject to approval by Company counsel
2. File with appropriate regulatory authorities all advertising and sales
material following approval by Company counsel
3. Maintain and update Ad/Sales Lit files
4. Obtain finalized Ad/Sales Lit for compliance files
5. Respond to SEC advertising and sales literature comments subject to
approval by Company counsel
REGISTRATION/QUALIFICATION ACTIVITIES (FOR BISYS REPRESENTATIVES DISTRIBUTING
CLIENT'S FUNDS, IF APPLICABLE)
6. Review & ascertain that BISYS registered representatives are licensed in
appropriate jurisdictions
7. Process all registration functions for BISYS registered representatives
8. Coordinate NASD continuing education requirements for all BISYS registered
representatives
BROKER/DEALER COMPLIANCE ACTIVITIES
9. Review and execute selected Service Agreements, subject to approval by
Company counsel
10. Respond to industry proposals and communicate comments to Company officers
FUND OFFICERS
1. Provide officers for the Company, upon request
BLUE SKY
B-3
<PAGE> 12
1. Register the Company and its shares with appropriate state blue sky
authorities
2. Respond to state comments during the registration process
3. Obtain all sales permits required by relevant state authorities
4. Amend and renew sales permits as required from time to time
5. Monitor the sales of Shares in individual states on a daily basis and
report required sales to appropriate states
6. File all registration statements, Prospectuses, proxy statements, Rule
24f-2 Notices and other Fund reports and documents as required by state
law
7. Maintain fund blue sky calendars
8. Respond to all blue sky audit and examination issues
9. File all renewal registrations for existing Portfolios
10. Conduct blue sky fee analysis, upon request
11. Implement SRD electronic filings
B-4
<PAGE> 1
Exhibit 9(d)
FUND ACCOUNTING AGREEMENT
AGREEMENT made this day of September, 1997, between PROFUNDS (the
"Trust"), a Delaware business trust having its principal place of business at
3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES, INC. ("Fund
Accountant"), a corporation organized under the laws of the State of Delaware
and having its principal place of business at 3435 Stelzer Road, Columbus, Ohio
43219.
WHEREAS, the Trust desires that Fund Accountant perform certain fund
accounting services for each investment portfolio of the Trust, all as now or
hereafter may be established from time to time (individually referred to herein
as the "Fund" and collectively as the "Funds"); and
WHEREAS, Fund Accountant is willing to perform such services on the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Fund Accountant.
----------------------------
The parties acknowledge and agree that the services
to be provided hereunder on behalf of the Money
Market ProFund shall be limited to those that are
necessary and appropriate for a feeder fund that
invests all of its assets in a separate, unaffiliated
registered investment company ("Master Portfolio").
In that connection, the parties agree that Fund
Accountant shall bear no responsibility for the
provision of any services to any Master Portfolio in
which the Money Market ProFund may invest its assets.
(a) MAINTENANCE OF BOOKS AND RECORDS. Fund Accountant
will keep and maintain the following books and
records of each Fund pursuant to Rule 31a-1 under the
Investment Company Act of 1940 (the "Rule"):
(i) Journals containing an itemized daily record
in detail of all purchases and sales of
securities, all receipts and disbursements
of cash and all other debits and credits, as
required by subsection (b)(1) of the Rule;
(ii) General and auxiliary ledgers reflecting all
asset, liability, reserve, capital, income
and expense accounts, including interest
accrued and interest received, as required
by subsection (b)(2)(I) of the Rule;
(iii) Separate ledger accounts required by
subsection (b)(2)(ii) and (iii) of the Rule;
and
<PAGE> 2
(iv) A monthly trial balance of all ledger
accounts (except shareholder accounts) as
required by subsection (b)(8) of the Rule.
(b) PERFORMANCE OF DAILY ACCOUNTING SERVICES. In addition
to the maintenance of the books and records specified
above, Fund Accountant shall perform the following
accounting services daily for each Fund:
(i) Calculate the net asset value per share
utilizing prices obtained from the sources
described in subsection 1(b)(ii) below;
(ii) Obtain security prices from independent
pricing services, or if such quotes are
unavailable, then obtain such prices from
each Fund's investment adviser or its
designee, as approved by the Trust's Board
of Trustees;
(iii) Verify and reconcile with the Funds'
custodian all daily trade activity;
(iv) Compute, as appropriate, each Fund's net
income and capital gains, dividend payables,
dividend factors, 7-day yields, 7-day
effective yields, 30-day yields, and
weighted average portfolio maturity;
(v) Review daily the net asset value calculation
and dividend factor (if any) for each Fund
prior to release to shareholders, check and
confirm the net asset values and dividend
factors for reasonableness and deviations,
and distribute net asset values and yields
to NASDAQ;
(vi) Report to the Trust the daily market pricing
of securities in any money market Funds,
with the comparison to the amortized cost
basis;
(vii) Determine unrealized appreciation and
depreciation on securities held in variable
net asset value Funds;
(viii) Amortize premiums and accrete discounts on
securities purchased at a price other than
face value, if requested by the Trust;
(ix) Update fund accounting system to reflect
rate changes, as received from a Fund's
investment adviser, on variable interest
rate instruments;
(x) Post Fund transactions to appropriate
categories;
(xi) Accrue expenses of each Fund according to
instructions received from the Trust's
Administrator;
2
<PAGE> 3
(xii) Determine the outstanding receivables and
payables for all (1) security trades, (2)
Fund share transactions and (3) income and
expense accounts;
(xiii) Provide accounting reports in connection
with the Trust's regular annual audit and
other audits and examinations by regulatory
agencies; and
(xiv) Provide such periodic reports as the parties
shall agree upon.
(c) SPECIAL REPORTS AND SERVICES.
(i) Fund Accountant may provide additional
special reports upon the request of the
Trust or a Fund's investment adviser,
provided, however, that any out-of-pocket
costs or other expenses associated with
accessing such reports or producing such
reports shall be borne by the Trust.
(ii) Fund Accountant may provide such other
similar services with respect to a Fund as
may be reasonably requested by the Trust,
which may result in an additional charge,
the amount of which shall be agreed upon
between the parties.
(d) ADDITIONAL ACCOUNTING SERVICES. Fund Accountant shall
also perform the following additional accounting
services for each Fund:
(i) Provide monthly a download (and hard copy
thereof) of the financial statements
described below, upon request of the Trust.
The download will include the following
items:
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
Condensed Financial Information;
(ii) Provide accounting information for the
following:
(A) federal and state income tax returns
and federal excise tax returns;
(B) the Trust's semi-annual reports with
the Securities and Exchange
Commission ("SEC") on Form N-SAR;
(C) the Trust's annual, semi-annual and
quarterly (if any) shareholder
reports;
3
<PAGE> 4
(D) registration statements on Form N-1A
and other filings relating to the
registration of shares;
4
<PAGE> 5
(E) the Administrator's monitoring of
the Trust's status as a regulated
investment company under Subchapter
M of the Internal Revenue Code, as
amended;
(F) annual audit by the Trust's
auditors; and
(G) examinations performed by the SEC.
2. Subcontracting.
---------------
Fund Accountant may, at its expense, subcontract with any
entity or person concerning the provision of the services contemplated
hereunder; provided, however, that Fund Accountant shall not be relieved of any
of its obligations under this Agreement by the appointment of such subcontractor
and provided further, that Fund Accountant shall be responsible, to the extent
provided in Section 7 hereof, for all acts of such subcontractor as if such acts
were its own.
3. Compensation.
-------------
The Trust shall pay Fund Accountant for the services to be
provided by Fund Accountant under this Agreement in accordance with, and in the
manner set forth in, the Omnibus Fee Agreement among Fund Accountant, BISYS Fund
Services Limited Partnership and the Trust dated September __, 1997, as such
Omnibus Fee Agreement may be amended from time to time.
4. Reimbursement of Expenses.
--------------------------
In addition to paying Fund Accountant the fees described in
Section 3 hereof, the Trust agrees to reimburse Fund Accountant for its
out-of-pocket expenses in providing services hereunder, including without
limitation the following:
(a) All freight and other delivery and bonding charges incurred by
Fund Accountant in delivering materials to and from the Trust;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by Fund
Accountant in communication with the Trust, the Trust's
investment advisor or custodian, dealers or others as required
for Fund Accountant to perform the services to be provided
hereunder;
(c) The cost of obtaining security market quotes pursuant to
Section l(b)(ii) above;
(d) The cost of microfilm or microfiche of records or other
materials;
(e) Any expenses Fund Accountant shall incur at the written
direction of an officer of the Trust thereunto duly
authorized; and
(f) Any additional expenses reasonably incurred by Fund Accountant
in the performance of its duties and obligations under this
Agreement.
5
<PAGE> 6
5. Effective Date.
---------------
This Agreement shall become effective as of the first day on
which shares of the Trust are publicly sold (or, if a particular Fund is not in
existence on that date, on the date such Fund commences operation) (the
"Effective Date").
6. Term.
-----
This Agreement shall continue in effect, unless earlier
terminated by either party hereto as provided hereunder, for a period of thirty
(30) months following the Effective Date (the "Initial Term"). Thereafter,
unless otherwise terminated as provided herein, this Agreement shall be renewed
automatically for successive one-year periods ("Rollover Periods"). This
Agreement may be terminated without penalty (i) by provision of a notice of
nonrenewal in the manner set forth below, (ii) by mutual agreement of the
parties or (iii) for "cause," as defined below, upon the provision of 60 days
advance written notice by the party alleging cause. Written notice of nonrenewal
must be provided at least 60 days prior to the end of the Initial Term or any
Rollover Period, as the case may be.
For purposes of this Agreement, "cause" shall mean (a) a
material breach of this Agreement that hasn't been cured within thirty (30) days
following written notice of such breach from the non-breaching party; (b)
willful misfeasance, bad faith, gross negligence or reckless disregard on the
part of the party to be terminate with respect to its obligations and duties set
forth herein; (c) a final, unappealable judicial, regulatory or administrative
ruling or order in which the party to be terminated has been found guilty of
criminal or unethical behavior in the conduct of its business; or (d) financial
difficulties on the part of the party to be terminated which are evidenced by
the authorization or commencement of, or involvement by way of pleading, answer,
consent or acquiescence in, a voluntary or involuntary case under Title 11 of
the United States Code, as from time to time is in effect, or any applicable
law, other than said Title 11, of any jurisdiction relating to the liquidation
or reorganization of debtors or to the modification or alteration of the rights
of creditors.
After such termination for so long as Fund Accountant, with
the written consent of the Trust, in fact continues to perform any one or more
of the services contemplated by this Agreement or any schedule or exhibit
hereto, the provisions of this Agreement, including without limitation the
provisions dealing with indemnification, shall continue in full force and
effect. Compensation due Fund Accountant and unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. Fund Accountant shall be entitled to collect from the Trust, in
addition to the compensation described under Section 3 hereof, the amount of all
of Fund Accountant's cash disbursements for services in connection with Fund
Accountant's activities in effecting such termination, including without
limitation, the delivery to the Trust and/or its designees of the Trust's
property, records, instruments and documents, or any copies thereof. Subsequent
to such termination, for a reasonable fee, Fund Accountant will provide the
Trust with reasonable access to any Trust documents or records remaining in its
possession.
6
<PAGE> 7
If, for any reason, Fund Accountant is replaced as Fund
Accountant, or if a third party is added to perform all or a part of the
services provided by Fund Accountant under this Agreement (excluding any
sub-accountant appointed by Fund Accountant as provided in Section 2 hereof),
then the Trust shall make a one-time cash payment, as liquidated damages, to
Fund Accountant equal to the balance due Fund Accountant for the remainder of
the term of this Agreement, assuming for purposes of calculation of the payment
that the asset level of the Trust on the date Fund Accountant is replaced, or a
third party is added, will remain constant for the balance of the contract term.
7. Standard of Care; Reliance on Records and Instructions;
-------------------------------------------------------
Indemnification.
----------------
Fund Accountant shall use its best efforts to insure the
accuracy of all services performed under this Agreement, but shall not be liable
to the Trust for any action taken or omitted by Fund Accountant in the absence
of bad faith, willful misfeasance, negligence or from reckless disregard by it
of its obligations and duties. A Fund agrees to indemnify and hold harmless Fund
Accountant, its employees, agents, directors, officers and nominees from and
against any and all claims, demands, actions and suits, whether groundless or
otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character arising out of or in any way relating to Fund Accountant's actions
taken or nonactions with respect to the performance of services under this
Agreement with respect to such Fund or based, if applicable, upon reasonable
reliance on information, records, instructions or requests with respect to such
Fund given or made to Fund Accountant by a duly authorized representative of the
Trust; provided that this indemnification shall not apply to actions or
omissions of Fund Accountant in cases of its own bad faith, willful misfeasance,
negligence or from reckless disregard by it of its obligations and duties, and
further provided that prior to confessing any claim against it which may be the
subject of this indemnification, Fund Accountant shall give the Trust written
notice of and reasonable opportunity to defend against said claim in its own
name or in the name of Fund Accountant.
8. Record Retention and Confidentiality.
-------------------------------------
Fund Accountant shall keep and maintain on behalf of the Trust
all books and records which the Trust and Fund Accountant is, or may be,
required to keep and maintain pursuant to any applicable statutes, rules and
regulations, including without limitation Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940, as amended (the "1940 Act"), relating to the
maintenance of books and records in connection with the services to be provided
hereunder. Fund Accountant further agrees that all such books and records shall
be the property of the Trust and to make such books and records available for
inspection by the Trust or by the Securities and Exchange Commission at
reasonable times and otherwise to keep confidential all books and records and
other information relative to the Trust and its shareholders; except when
requested to divulge such information by duly-constituted authorities or court
process.
9. Uncontrollable Events.
----------------------
7
<PAGE> 8
Fund Accountant assumes no responsibility hereunder, and shall
not be liable, for any damage, loss of data, delay or any other loss whatsoever
caused by events beyond its reasonable control.
10. Reports.
--------
Fund Accountant will furnish to the Trust and to its properly
authorized auditors, investment advisers, examiners, distributors, dealers,
underwriters, salesmen, insurance companies and others designated by the Trust
in writing, such reports and at such times as are prescribed pursuant to the
terms and the conditions of this Agreement to be provided or completed by Fund
Accountant, or as subsequently agreed upon by the parties pursuant to an
amendment hereto. The Trust agrees to examine each such report or copy promptly
and will report or cause to be reported any errors or discrepancies therein no
later than three business days from the receipt thereof. In the event that
errors or discrepancies, except such errors and discrepancies as may not
reasonably be expected to be discovered by the recipient within ten days after
conducting a diligent examination, are not so reported within the aforesaid
period of time, a report will for all purposes be accepted by and binding upon
the Trust and any other recipient, and, except as provided in Section 7 hereof,
Fund Accountant shall have no liability for errors or discrepancies therein and
shall have no further responsibility with respect to such report except to
perform reasonable corrections of such errors and discrepancies within a
reasonable time after requested to do so by the Trust.
11. Rights of Ownership.
--------------------
All computer programs and procedures developed to perform
services required to be provided by Fund Accountant under this Agreement are the
property of Fund Accountant. All records and other data except such computer
programs and procedures are the exclusive property of the Trust and all such
other records and data will be furnished to the Trust in appropriate form as
soon as practicable after termination of this Agreement for any reason.
12. Return of Records.
------------------
Fund Accountant may at its option at any time, and shall
promptly upon the Trust's demand, turn over to the Trust and cease to retain
Fund Accountant's files, records and documents created and maintained by Fund
Accountant pursuant to this Agreement which are no longer needed by Fund
Accountant in the performance of its services or for its legal protection. If
not so turned over to the Trust, such documents and records will be retained by
Fund Accountant for six years from the year of creation. At the end of such
six-year period, such records and documents will be turned over to the Trust
unless the Trust authorizes in writing the destruction of such records and
documents.
13. Representations of the Trust.
-----------------------------
The Trust certifies to Fund Accountant that: (1) as of the
close of business on the Effective Date, each Fund that is in existence as of
the Effective Date has authorized unlimited shares,
8
<PAGE> 9
and (2) this Agreement has been duly authorized by the Trust and, when executed
and delivered by the Trust, will constitute a legal, valid and binding
obligation of the Trust, enforceable against the Trust in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of creditors and
secured parties.
14. Representations of Fund Accountant.
-----------------------------------
Fund Accountant represents and warrants that: (1) the various
procedures and systems which Fund Accountant has implemented with regard to
safeguarding from loss or damage attributable to fire, theft, or any other cause
the records, and other data of the Trust and Fund Accountant's records, data,
equipment facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder, and (2) this Agreement has been duly authorized by Fund Accountant
and, when executed and delivered by Fund Accountant, will constitute a legal,
valid and binding obligation of Fund Accountant, enforceable against Fund
Accountant in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
15. Insurance.
----------
Fund Accountant shall notify the Trust should any of its
insurance coverage be canceled or reduced. Such notification shall include the
date of change and the reasons therefor. Fund Accountant shall notify the Trust
of any material claims against it with respect to services performed under this
Agreement, whether or not they may be covered by insurance, and shall notify the
Trust from time to time as may be appropriate of the total outstanding claims
made by Fund Accountant under its insurance coverage.
16. Information to be Furnished by the Trust and Funds.
---------------------------------------------------
The Trust has furnished to Fund Accountant the following:
(a) Copies of the Declaration of Trust of the Trust and
of any amendments thereto, certified by the proper
official of the state in which such document has been
filed.
(b) Copies of the following documents:
(i) The Trust's Bylaws and any amendments
thereto; and
(ii) Certified copies of resolutions of the Board
of Trustees covering the approval of this
Agreement, authorization of a specified
officer of the Trust to execute and deliver
this Agreement and authorization for
specified officers of the Trust to instruct
Fund Accountant thereunder.
9
<PAGE> 10
(c) A list of all the officers of the Trust, together
with specimen signatures of those officers who are
authorized to instruct Fund Accountant in all
matters.
(d) Two copies of the Prospectuses and Statements of
Additional Information for each Fund.
17. Information Furnished by Fund Accountant.
-----------------------------------------
(a) Fund Accountant has furnished to the Trust the
following:
(i) Fund Accountant's Articles of Incorporation;
and
(ii) Fund Accountant's Bylaws and any amendments
thereto.
(b) Fund Accountant shall, upon request, furnish
certified copies of corporate actions covering the
following matters:
(i) Approval of this Agreement, and
authorization of a specified officer of Fund
Accountant to execute and deliver this
Agreement; and
(ii) Authorization of Fund Accountant to act as
fund accountant for the Trust and to provide
accounting services for the Trust.
18. Amendments to Documents.
------------------------
The Trust shall furnish Fund Accountant written copies of any
amendments to, or changes in, any of the items referred to in Section 16 hereof
forthwith upon such amendments or changes becoming effective. In addition, the
Trust agrees that no amendments will be made to the Prospectuses or Statements
of Additional Information of the Trust which might have the effect of changing
the procedures employed by Fund Accountant in providing the services agreed to
hereunder or which amendment might affect the duties of Fund Accountant
hereunder unless the Trust first obtains Fund Accountant's approval of such
amendments or changes.
10
<PAGE> 11
19. Compliance with Law.
--------------------
Except for the obligations of Fund Accountant set forth in
Section 8 hereof, the Trust assumes full responsibility for the preparation,
contents and distribution of each prospectus of the Trust as to compliance with
all applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the 1940 Act and any other laws, rules and regulations of
governmental authorities having jurisdiction. Fund Accountant shall have no
obligation to take cognizance of any laws relating to the sale of the Trust's
shares. The Trust represents and warrants that no shares of the Trust will be
sold to the public until the Trust's registration statement under the Securities
Act and the 1940 Act has been declared or becomes effective.
20. Notices.
--------
Any notice required or permitted to be given by either party
to the other shall be deemed sufficient if sent by registered or certified mail,
postage prepaid, addressed by the party giving notice to the other party at the
last address furnished by the other party to the party giving notice: if to the
Trust, at 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814; and if to
Fund Accountant at 3435 Stelzer Road, Columbus, Ohio 43219.
21. Headings.
---------
Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
22. Assignment.
-----------
This Agreement and the rights and duties hereunder shall not
be assignable with respect to a Fund by either of the parties hereto except by
the specific written consent of the other party. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns.
23. Governing Law.
--------------
This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of the State of Ohio.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
PROFUNDS
By:
-------------------------------
BISYS FUND SERVICES, INC.
By:
-------------------------------
12
<PAGE> 1
Exhibit 9(e)
MANAGEMENT SERVICES AGREEMENT
-----------------------------
AGREEMENT, made this _____ day of __________, between ProFunds, a
Delaware business trust (the "Trust"), and ProFunds Advisors LLC, a Maryland
limited liability company (the "Manager").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
("shares") in separate series with each series representing interests in a
separate portfolio of securities and other assets; and
WHEREAS, the Trust currently offers six series of shares designated as
follows: Bull ProFund, Ultra Bull ProFund, Bear ProFund, Ultra Bear ProFund,
ULTRA OTC ProFund and Money Market ProFund (each referred to hereinafter as a
"Fund" and collectively as the "Funds"); and
WHEREAS, the Trust desires to engage the Manager to provide certain
services to the Trust on behalf of the Funds; and
WHEREAS, the Manager is willing, in accordance with the terms and
conditions hereof to provide such services to the Trust on behalf of the
Portfolios;
NOW THEREFORE, in consideration of the mutual agreements set forth
herein and intending to be legally bound hereby, the parties agree as follows:
1. APPOINTMENT AND DUTIES OF MANAGER
---------------------------------
(a) The Trust hereby employs the Manager to act as
manager of the Funds and to perform the services set forth in
this Agreement, subject to the supervision of the Board of
Trustees of the Trust, for the period and on the terms set
forth in this Agreement. The Manager hereby accepts such
employment, and undertakes to pay the salaries and expense of
all personnel of the Manager who perform services relating to
the services it performs hereunder. The Manager shall for all
purposes herein be deemed to be an independent contractor and
shall, except as otherwise expressly provided or authorized,
have no authority to act for or represent the Trust in any way
or otherwise be deemed an agent of the Trust.
(b) Notwithstanding the foregoing, the Manager shall
not be deemed to have assumed any duties hereunder with
respect to, and shall not, by the execution of this Agreement
be responsible for, the management of the Funds' assets or the
rendering of investment advice and supervision with respect
thereto, or the distribution of shares of the Funds, nor shall
the Manager be deemed to have assumed any responsibility
hereunder with respect to functions specifically assumed by
any administrator, transfer agent, custodian or shareholder
servicing agent of the Trust or the Funds.
(c) Without limiting the generality of the foregoing,
the Manager shall provide the following services to each of
the Funds:
1
<PAGE> 2
i) Provide information to and coordinate the Trust's
relationship with registered investment advisors and other
securities professionals who have discretionary authority
over Trust shareholder accounts, assist in facilitating
instructions received by such persons relating to Trust
business and furnish facilities and personnel necessary to
perform such activities.
ii) Assist as appropriate and coordinate with the Trust's
Administrator and other service providers in administering
the affairs of the Trust and perform services on the
Trust's behalf.
iii) Pay the salaries and expenses of all officers and
Trustees of the Trust who are employees of the Manger.
iv) Perform such other services incident to the Trust's
business as parties may from time to time agree.
(d) It is intended that the assets of the Money
Market ProFund will be invested in a portfolio (the
"Portfolio") having substantially the same investment
objective, policies and restrictions as the Money Market
ProFund. In addition to its duties hereunder, set forth in
paragraph 1(c), above, with respect to the Money Market
ProFund, the Manager shall perform the following services:
i) Monitor the performance of the Portfolio.
ii) Coordinate the relationship of the Money Market
ProFund with the Portfolio.
iii) Communicate with the Board of Trustees of the Money
Market ProFund regarding the performance of the Portfolio
and the Money Market ProFund.
iv) Furnish reports regarding the Portfolio as reasonably
requested from time-to-time by the Trust's Board of
Trustees.
v) Perform such other necessary and desirable services
regarding the "Master Feeder" structure of the Money
Market ProFund as the Trustees may reasonably request from
time to time.
(e) In carrying out its responsibilities under this
Agreement, the Manager shall at all times act in accordance
with the investment objectives, policies and restrictions
applicable to the Funds as set forth in the Trust's
then-current registration statement, applicable provisions of
the 1940 Act and the rules and regulations promulgated
thereunder and other applicable federal securities laws.
(f) The Manager shall render regular reports to the
Trust as requested by the Board of Trustees, and will, at the
reasonable request of the Board,
2
<PAGE> 3
attend meetings of the Board or its validly constituted
committees, and will make its officers and employees available
to meet with the officers and employees of the Trust to
discuss its duties hereunder.
2. EXPENSES AND COMPENSATION
-------------------------
a) Allocation of Expenses:
-----------------------
The Manager shall, at its expense, employ or
associate with itself such persons as it believes appropriate
to assist in performing its obligations under this Agreement
and provide all services, equipment, facilities and personnel
necessary to perform its obligations under this Agreement.
The Trust shall be responsible for all its expenses
and liabilities, including compensation of its Trustees who
are not affiliated with the Administrator or the Manager or
any of their affiliates; taxes and governmental fees; interest
charges; fees and expenses of the Trust's independent
accountants and legal counsel; trade association membership
dues; fees and expenses of any custodian (including for
keeping books and accounts and calculating the net asset value
of shares of each Fund, transfer agent, registrar and dividend
disbursing agent of the Trust; expenses of issuing, selling,
redeeming, registering and qualifying for sale the Trust's
shares of beneficial interest; expenses of preparing and
printing share certificates (if any), prospectuses,
shareholders' reports, notices, proxy statements and reports
to regulatory agencies; the cost of office supplies; travel
expenses of all officers, trustees and employees; insurance
premiums; brokerage and other expenses of executing portfolio
transactions; expenses of shareholders' meetings;
organizational expenses; and extraordinary expenses.
b) Compensation
------------
For its services under this Agreement, Manager shall
be entitled to receive a fee at the annual rate of .15% of the
average daily net asset value of each Fund except the Money
Market ProFund and .35% of the average daily net asset value
of the Money Market ProFund, payable monthly. For the purpose
of accruing compensation, the net asset value of the Funds
will be determined in the manner provided in the then-current
Prospectus of the Trust.
3. LIABILITY OF MANAGER
--------------------
Neither the Manager nor its officers, directors,
employees, agents or controlling person ("Associated Person")
of the Manager shall be liable for any error of judgment or
mistake of law or for any loss suffered by
3
<PAGE> 4
the Trust in connection with the matters to which this
Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of
Manager or such Associated Persons in the performance of their
duties or from reckless disregard by them of their duties
under this Agreement.
4. LIABILITY OF THE TRUST AND FUNDS
--------------------------------
It is expressly agreed that the obligations of the
Trust hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the
Trust personally, but shall bind only the trust property of
the Trust as provided in the Declaration of Trust. The
execution and delivery of this Agreement have been authorized
by the Trustees, and it has been signed by an officer of the
Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall
be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind
only the trust property of the Trust as provided in its
Declaration of Trust.
With respect to any obligation of the Trust on behalf
of any Fund arising hereunder, the Manager shall look for
payment or satisfaction of such obligations solely to the
assets and property of the Fund to which such obligation
relates as though the Trust had separately contracted with the
Manager by separate written instrument with respect to each
Fund.
5. DURATION AND TERMINATION OF THIS AGREEMENT
------------------------------------------
(a) DURATION. This Agreement shall become effective
on the date hereof. Unless terminated as herein provided, this
Agreement shall remain in full force and effect for two years
from the date hereof. Subsequent to such initial period of
effectiveness, this Agreement shall continue in full force and
effect for successive periods of one year thereafter with
respect to each Fund so long as such continuance with respect
to such Fund is approved at least annually by the Trustees of
the Trust, including the vote of a majority of the Trustees
of the Trust who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of any
such party.
(b) AMENDMENT. Any amendment to this Agreement shall
become effective with respect to a Fund upon approval of the
Manager and the Trust.
(c) TERMINATION. This Agreement may be terminated
with respect to any Fund at any time, without payment of any
penalty, by vote of the Trustees or by vote of a majority of
the outstanding voting securities (as defined in the 1940 Act)
of that Fund, or by the Manager, in each case of
4
<PAGE> 5
sixty (60) days' prior written notice to the other party. Any
termination of this Agreement will be without prejudice to the
completion of transactions already initiated by the Manager on
behalf of the Trust at the time of such termination. The
Manager shall take all steps reasonably necessary after such
termination to complete any such transactions and is hereby
authorization to take such steps. In addition, this Agreement
may be terminated with respect to one or more Funds without
affecting the rights, duties or obligations of any of the
other Funds.
(d) AUTOMATIC TERMINATION. This Agreement shall
automatically and immediately terminate in the event of its
assignment (as defined in the 1940 Act).
(e) APPROVAL, AMENDMENT OR TERMINATION BY INDIVIDUAL
FUND. Any approval, amendment or termination of this Agreement
by any Fund shall be effective to continue, amend or terminate
this Agreement with respect to any such Fund notwithstanding
that such action has not been approved by any other Fund.
6. SERVICES NOT EXCLUSIVE.
-----------------------
The services of the Manager to the Trust hereunder
are not to be deemed exclusive, and the Manager shall be free
to render similar services to others so long as its services
hereunder are not impaired thereby.
7. MISCELLANEOUS
-------------
(a) NOTICE. Any notice under this Agreement shall be
in writing, addressed and delivered or mailed, postage
prepaid, to the other party at such address as such other
party may designate in writing for the receipt of such
notices.
(b) SEVERABILITY. If any provision of this Agreement
shall be held or made invalid by a court decision, statue,
rule or otherwise, the remainder shall not be thereby
affected.
(c) APPLICABLE LAW. This Agreement shall be construed
in accordance with and governed by the laws of Maryland.
PROFUNDS ADVISORS LLC, A MARYLAND
LIMITED LIABILITY COMPANY
5
<PAGE> 6
ATTEST: by:
------------------------------ ------------------------------
PROFUNDS, A DELAWARE BUSINESS TRUST
ATTEST: by:
------------------------------ ------------------------------
6
<PAGE> 1
Exhibit 9(f)
SHAREHOLDER SERVICES AGREEMENT
[Name]
[Address]
[City, State, Zip]
Ladies and Gentlemen:
The Board of Trustees of ProFunds (the "Trust"), an open-end
management investment company organized as a Delaware business trust and
registered with the Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940 (the "1940 Act"), on behalf of the holders of
Adviser Shares ("Shares") of each of the investment portfolios of the Trust
(individually, a "Fund" and collectively, the "Funds"), have adopted a
Shareholder Services Plan for the Shares (the "Plan") which, among other
things, authorizes the Trust to enter into this Agreement with you (the
"Authorized Firm"), concerning the provision of service activities to your
clients, members, or customers ("Customers") who may from time to time
beneficially own such Funds' Shares. The terms and conditions of this
Agreement are as follows:
1. REFERENCE TO PROSPECTUS; DETERMINATION OF NET ASSET VALUE.
1.1 Reference is made to the prospectus for the Shares of each Fund
(individually, a "Prospectus" and collectively, the "Prospectuses") as
from time to time are effective under the Securities Act of 1933 (the
"1933 Act"). Terms defined therein and not otherwise defined herein
are used herein with the meaning so defined.
1.2 For purposes of determining the fees payable to you under Section 3,
the average daily net asset value of a Fund's Shares will be computed
in the manner specified in the Trust's registration statement (as the
same is in effect from time to time) in connection with the
computation of the net asset value of such Fund's Shares for purposes
of purchases and redemptions.
2. SERVICES AS AUTHORIZED FIRM.
2.1 The Authorized Firm is hereby authorized and may from time to time
undertake to perform support services to Customers in connection with
investments in the Shares of a Fund, which services may include, but
are not limited to: the provision of personal, continuing services to
investors in each Fund; receiving, aggregating and processing purchase
and redemption orders; providing and maintaining retirement plan
records; communicating periodically with shareholders and answering
questions and handling correspondence from shareholders about their
accounts; acting as the sole shareholder of record and nominee for
shareholders; maintaining account records and providing beneficial
owners with account statements; processing dividend payments; issuing
shareholder reports and transaction confirmations; providing
subaccounting services for Fund shares held beneficially; forwarding
shareholder communications to beneficial owners; receiving, tabulating
and
<PAGE> 2
transmitting proxies executed by beneficial owners; performing daily
investment ("Sweep") functions for Shareholders; general account
administration activities; and providing such other similar services as
the Trust may reasonably request to the extent the Authorized Firm is
permitted to do so under applicable statutes, rules, or regulations.
Overhead and other expenses of the Authorized Firm related to its
"service activities," including telephone and other communications
expenses, may be included in the information regarding amounts expended
for such activities.
2.2 The Authorized Firm will provide such office space and equipment,
telephone facilities, and personnel (which may be any part of the
space, equipment, and facilities currently used in the Authorized
Firms's business, or any personnel employed by the Authorized Firm) as
may be reasonably necessary or beneficial in order to provide such
support services with respect to a Fund's Shares.
2.3 The minimum dollar purchase of a Fund's Shares (including Shares being
acquired by Customers pursuant to any exchange privileges described in
the Fund's Prospectus) shall be the applicable minimum amount set
forth in the Prospectus of such Fund, and no order for less than such
amount shall be accepted by the Authorized Firm. The procedures
relating to the handling of orders shall be subject to instructions
which the Trust shall forward from time to time to the Authorized
Firm. All orders for a Fund's Shares are subject to acceptance or
rejection by the Trust in its sole discretion, and the Trust may, in
its discretion and without notice, suspend or withdraw the sale of a
Fund's Shares, including the sale of such Shares to the Authorized
Firm for the account of any Customer or Customers.
2.4 In no transaction shall the Authorized Firm act as dealer for its own
account; the Authorized Firm shall act solely for, upon the specific
or pre-authorized instructions of, and for the account of, its
Customers. For all purposes of this Agreement, the Authorized Firm
will be deemed to be an independent contractor, and will have no
authority to act as agent for the Trust or any dealer of the Shares in
any matter or in any respect. No person is authorized to make any
representations concerning the Trust or a Fund's Shares except those
representations contained in the Fund's then-current Prospectus and
Statement of Additional Information and in such printed information as
the Trust may subsequently prepare.
2.5 The Authorized Firm and its employees will, upon request, be available
during normal business hours to consult with the Trust or its
designees concerning the performance of the Authorized Firm's
responsibilities under this Agreement. Any person authorized to
direct the disposition of monies paid or payable pursuant to Section 3
of this Agreement will provide to the Trust's Board of Trustees, and
the Trust's Trustees will review at least quarterly, a written report
of the amounts so expended.
In addition, the Authorized Firm will furnish to the Trust or its
designees such information as the Trust or its designees may
reasonably request (including, without limitation, periodic
certifications confirming the rendering of support services with
respect to Shares described herein), and will otherwise cooperate with
the Trust and its designees (including, without limitation, any
auditors designated by the Trust), in the preparation of reports to
the Trust's
2
<PAGE> 3
Board of Trustees concerning this Agreement and the monies paid or
payable pursuant hereto, as well as any other reports or filings that
may be required by law.
3
<PAGE> 4
3. FEES.
3.1 In consideration of the costs and expenses of furnishing the services
and facilities provided by the Authorized Firm hereunder, and subject
to the limitations of applicable law and regulations, the Authorized
Firm will be compensated quarterly at an annual rate of up to but not
more than 1.00% of the average daily net assets of the Fund
attributable to the Fund's Shares which are attributable to or held in
the name of the Authorized Firm for its Customers.
3.2 The fee rate with respect to any Fund may be prospectively increased
or decreased by the Trust, in its sole discretion, at any time upon
notice to the Authorized Firm.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
4.1 By written acceptance of this Agreement, the Authorized Firm
represents, warrants, and agrees that: (i) the Authorized Firm will
provide to Customers a schedule of the services it will perform
pursuant to this Agreement and a schedule of any fees that the
Authorized Firm may charge directly to Customers for services it
performs in connection with investments in the Trust on the Customer's
behalf; and (ii) any and all compensation payable to the Authorized
Firm by Customers in connection with the investment of their assets in
the Trust will be disclosed by the Authorized Firm to Customers and
will be authorized by Customers and will not result in an excessive
fee to the Authorized Firm.
4.2 The Authorized Firm agrees to comply with all requirements applicable
to it by reason of all applicable laws, including federal and state
securities laws, the Rules and Regulations of the SEC, including,
without limitation, all applicable requirements of the 1933 Act, the
Securities Exchange Act of 1934, the Investment Advisers Act of 1940,
and the 1940 Act. The Trust has furnished the Authorized Firm with a
list of the states or other jurisdictions in which the Trust believes
the Shares of the Funds are qualified for sale, and the Authorized
Firm agrees that it will not purchase a Fund's Shares on behalf of a
Customer's account in any jurisdiction in which such Shares are not
qualified for sale. The Authorized Firm further agrees that it will
maintain all records required by applicable law or otherwise
reasonably requested by the Trust relating to the services provided by
it pursuant to the terms of this Agreement.
4.3 The Authorized Firm agrees that under no circumstances shall the Trust
be liable to the Authorized Firm or any other person under this
Agreement as a result of any action by the SEC affecting the operation
or continuation of the Plan.
5. EXCULPATION; INDEMNIFICATION.
4
<PAGE> 5
5.1 The Trust shall not be liable to the Authorized Firm and the
Authorized Firm shall not be liable to the Trust except for acts or
failures to act which constitute lack of good faith or gross
negligence and for obligations expressly assumed by either party
hereunder. Nothing contained in this Agreement is intended to operate
as a waiver by the Trust or by the Authorized Firm of compliance with
any applicable law, rule, or regulation.
5.2 The Authorized Firm will indemnify the Trust and hold it harmless from
any claims or assertions relating to the lawfulness of the Authorized
Firm's participation in this Agreement and the transactions
contemplated hereby or relating to any activities of any persons or
entities affiliated with the Authorized Firm performed in connection
with the discharge of its responsibilities under this Agreement. If
any such claims are asserted, the Trust shall have the right to manage
its own defense, including the selection and engagement of legal
counsel of its choosing, and all costs of such defense shall be borne
by the Authorized Firm.
6. EFFECTIVE DATE; TERMINATION.
6.1 This Agreement will become effective with respect to each Fund on the
date of its acceptance by the Authorized Firm. Unless sooner
terminated with respect to any Fund, this Agreement will continue with
respect to a Fund until terminated in accordance with its terms,
provided that the continuance of the Plan is specifically approved at
least annually in accordance with the terms of the Plan.
6.2 This Agreement will automatically terminate with respect to a Fund in
the event of its assignment (as such term is defined in the 1940 Act).
This Agreement may be terminated with respect to any Fund by the Trust
or by the Authorized Firm, without penalty, upon sixty days' prior
written notice to the other party. This Agreement may also be
terminated with respect to any Fund at any time without penalty by the
vote of a majority of the Plan Trustees or a majority of the
outstanding Shares of a Fund on sixty days' written notice.
7. GENERAL.
7.1 All notices and other communications to either the Authorized Firm or
the Trust will be duly given if mailed, telegraphed or telecopied to
the appropriate address set forth on page 1 hereof, or at such other
address as either party may provide in writing to the other party.
7.2 The Trust may enter into other similar agreements for the provision of
Shareholder support services with any other person or persons without
the Authorized Firm's consent.
7.3 Upon receiving the consent of the Trust, the Authorized Firm may, at
its expense, subcontract with any entity or person concerning the
provision of the services contemplated hereunder; provided, however,
that the Authorized Firm shall not be relieved of any of its
obligations under this Agreement by the appointment of such
subcontractor and provided
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<PAGE> 6
further, that the Authorized Firm shall be responsible, to the extent
provided in Article 5 hereof, for all acts of such subcontractor as if
such acts were its own.
7.4 This Agreement supersedes any other agreement between the Trust and
the Authorized Firm relating to support services in connection with a
Fund's Shares and relating to any other matters discussed herein. All
covenants, agreements, representations, and warranties made herein
shall be deemed to have been material and relied on by each party,
notwithstanding any investigation made by either party or on behalf of
either party, and shall survive the execution and delivery of this
Agreement. The invalidity or unenforceability of any term or
provision hereof shall not affect the validity or enforceability of
any other term or provision hereof. The headings in this Agreement
are for convenience of reference only and shall not alter or otherwise
affect the meaning hereof. This Agreement may be executed in any
number of counterparts which together shall constitute one instrument
and shall be governed by and construed in accordance with the laws
(other than the conflict of laws rules) of the State of California and
shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
7.5 It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust personally, but shall bind
only the trust property of the Trust. The execution and delivery of
this Agreement have been authorized by the Trustees, and this
Agreement has been signed and delivered by an authorized officer of
the Trust, acting as such, and neither such authorization by the
Trustees nor such execution and delivery by such officer shall be
deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust
property of the Trust as provided in the Trust's Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below.
ProFunds
By: ______________
Title:____________
The foregoing Agreement is hereby accepted:
[Authorized Firm]
By: _______________________________
Title: ____________________________
Date: _____________________________
6
<PAGE> 1
Exhibit 9(g)
OMNIBUS FEE AGREEMENT
THIS AGREEMENT is made as of this day of September, 1997, by and among
PROFUNDS (the "Company"), a Delaware business trust, BISYS FUND SERVICES LIMITED
PARTNERSHIP, d/b/a BISYS FUND SERVICES ("BISYS LP"), an Ohio limited
partnership, and BISYS FUND SERVICES, INC. ("BISYS"), a Delaware corporation.
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940 Act")
consisting of several series of shares of beneficial interest ("Shares");
WHEREAS, the Company and BISYS LP have entered into an Administration
Agreement, dated September , 1997, concerning the provision of management and
administrative services for the investment portfolios of the Company
(individually referred to herein as a "Fund" and collectively as the "Funds");
WHEREAS, the Company and BISYS have entered into a Fund Accounting
Agreement and a Transfer Agency Agreement, each of which is dated September ,
1997, concerning the provision of fund accounting and transfer agency services,
respectively, for the Funds; and
WHEREAS, the parties desire to set forth the compensation payable by
the Company under the foregoing agreements in a separate written document.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. The Administration Agreement, Fund Accounting Agreement, and
Transfer Agency Agreement referred to herein shall be referred to collectively
as the "Service Agreements."
2. The Company shall pay to BISYS LP all of the compensation set forth
herein on the dates set forth herein.
3. The amount of the compensation due and payable to BISYS LP shall be
the greater of: (i) the aggregate fee amount due and payable for Administration,
Fund Accounting and Transfer Agency services pursuant to the contractual fee
schedule set forth in Schedule A hereto during the term of the Service
Agreements or (ii) the minimum relationship fee pursuant to the minimum
relationship fee schedule set forth in Schedule B hereto.
4. This Agreement shall be governed by, and its provisions shall be
construed in accordance with, the laws of the State of Ohio.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
fully executed as of the day and year first written above.
PROFUNDS
By:
-------------------------------------
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS FUND SERVICES, INC.,
General Partner
By:
-------------------------------------
BISYS FUND SERVICES, INC.
By:
-------------------------------------
2
<PAGE> 3
SCHEDULE A
CONTRACTUAL FEE SCHEDULE
Fund Administration Services
- ----------------------------
The Company will pay to BISYS LP on the first business day of each
month, or at such time(s) as BISYS LP shall request and the parties hereto shall
agree, a fee computed daily at the annual rate set forth below:
Fifteen one-hundredths of one percent (.15%) of the Company's average
daily net assets up to $300 million.
Thirteen one-hundredths of one percent (.13%) of the Company's average
daily net assets in excess of $300 million up to $500 million.
Eleven one-hundredths of one percent (.11%) of the Company's average
daily net assets in excess of $500 million up to $700 million.
Nine one-hundredths of one percent (.09%) of the Company's average
daily net assets in excess of $700 million up to $900 million.
Seven one-hundredths of one percent (.07%) of the Company's average
daily net assets in excess of $900 million up to $1 billion.
Five one-hundredths of one percent (.05%) of the Company's average
daily net assets in excess of $1 billion.
Fund Accounting Services
- ------------------------
The Company will pay BISYS LP on the first business day of each month,
or at such time(s) as BISYS LP shall request and the parties hereto shall agree,
a fee computed daily at the annual rate set forth below:
Three one-hundredths of one percent (.03%) of each Fund's average daily
net assets up to $300 million.
Two one-hundredths of one percent (.02%) of each Fund's average daily
net assets in excess of $300 million up to $500 million.
One one-hundredth of one percent (.01%) of each Fund's average daily
net assets in excess of $500 million.
The fee payable by the Company hereunder shall be allocated to each
Fund based upon its pro
A-1
<PAGE> 4
rata share of the total fee payable hereunder. Such fee as is attributable to
each Fund shall be a separate (and not joint or joint and several) obligation
of each such Fund.
The fees set forth above shall be in addition to the payment of
out-of-pocket expenses, as provided for in the Fund Accounting Agreement. In
addition, a flat annual fee of $10,000 per class shall be payable for each class
of shares per Fund that is created after September , 1997.
Transfer Agency Services
- ------------------------
The Company shall pay BISYS LP on the first business day of each month,
or at such time(s) as BISYS LP shall request and the parties hereto shall agree,
the fees set forth below.
Annual Fee per Shareholder Account: $15.00
The fees set forth above shall be in addition to the payment of
out-of-pocket expenses, as provided for in the Transfer Agency Agreement.
A-2
<PAGE> 5
SCHEDULE B
MINIMUM RELATIONSHIP
FEE SCHEDULE
Subject to Section 3 of this Omnibus Fee Agreement, the total minimum
relationship fee payable hereunder shall be $1,100,000. Such fee, if applicable,
shall be paid in the increments set forth below; provided, however, that the
Company, at its option, may accelerate the timing of the payment of such fee. In
such instance, payments made in any calendar quarter in excess of the amount
indicated below for that quarter can be credited against any future quarterly
amount due.
<TABLE>
<S> <C>
During the first calendar quarter of operations of the funds -0-
During the second calendar quarter of operations of the funds -0-
During the third calendar quarter of operations of the funds $ 34,375
During the fourth calendar quarter of operations of the funds $ 68,750
During the fifth calendar quarter of operations of the funds $ 103,125
During the sixth calendar quarter of operations of the funds $ 137,500
During the seventh calendar quarter of operations of the funds $ 137,500
During the eighth calendar quarter of operations of the funds $ 171,875
During the ninth calendar quarter of operations of the funds $ 206,250
During the tenth calendar quarter of operations of the funds $ 240,625
-----------
Total minimum relationship fee $ 1,100,000
</TABLE>
B-1
<PAGE> 1
Exhibit 10
DECHERT PRICE & RHOADS
1500 K Street, NW
Washington, D.C. 20005-1208
Telephone: (202) 626-3300
Fax: (202) 626-3334
October 27, 1997
ProFunds
7900 Wisconsin Avenue, Suite 300
Bethesda, Maryland 20814
Re: Registration under the Securities Act of 1933,
as amended and the investment Company Act of 1940,
as amended
--------------------------------------------------
Dear Ladies and Gentlemen:
We have acted as counsel for ProFunds (the "Fund") in connection with
the registration of an indefinite number of its shares under the Securities Act
of 1933, as amended. The Fund is a series fund, comprising six series,
organized as a business trust under the laws of the State of Delaware.
We have examined the Fund's Certificate of Trust, Declaration of Trust,
Bylaws, Notification of Registration on Form N-8A filed under the Investment
Company Act of 1940, amended Registration Statement filed on Form N-1A under
the Securities Act of 1933 and the Investment Company Act of 1940 (Registration
Nos. 333-28339 and 811-08239), and such other documents and matters as we have
deemed necessary to enable us to give this opinion.
Based upon the foregoing, we are of the opinion that the shares
proposed to be sold pursuant to the Fund's Registration Statement, when it is
made effective by the Securities and Exchange Commission, will have been
validly authorized and, when sold in accordance with the terms of the
Registration Statement and the requirements of applicable federal and state law
and delivered by the Fund against receipt of cash equal to the initial amount
to be invested per share (in the case of initial shares sold) or the net asset
value of shares sold thereafter, as described in the Registration Statement,
will have been legally and validly issued and will be fully paid and
non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Fund's Pre-Effective Amendment No. 3 on Form N-1A to be filed with the
Securities and Exchange Commission in connection with the registration of the
shares of the Fund's shares, as indicated above, and to the use of our name in
the Fund's prospectus and/or Statement of Additional Information to be dated on
or about the effective date of the Fund's Registration Statement and in any
revised or amended versions thereof.
Very truly yours,
/s/ DECHERT PRICE & RHOADS
<PAGE> 1
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Pre-Effective Amendment No. 3 to the
Registration Statement on Form N-1A (File No. 333-28339) of the ProFunds of our
report dated October 17, 1997 on our audit of the financial statement of the
Money Market ProFund. We also consent to the reference to our Firm under the
caption "Auditors" in the Prospectus and "Independent Accountants" in the
Statement of Additional Information relating to the ProFunds in this
Pre-Effective Amendment No. 3 to the Registration Statement on Form N-1A (File
No. 333-28339).
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
October 27, 1997
<PAGE> 1
Exhibit 13
PURCHASE AGREEMENT
ProFunds, an open-end management investment company (the "Trust"), and
National Capital Group, Inc. ("National Capital"), intending to be legally
bound, hereby agree as follows:
1. In order to provide the Trust with its initial capital, the Trust
hereby sells to National Capital and National Capital hereby purchases units of
the Trust's beneficial interest (the "Shares") in the amounts and at the prices
per share set forth below, such purchases to be allocated evenly between classes
of each existing class of each series:
<TABLE>
<CAPTION>
No. of Price Per
Series Shares Share
------ ------ -----
<S> <C> <C>
Bull ProFund ....... 1 $10.00
UltraBull ProFund .. 1 $10.00
Bear ProFund ....... 1 $10.00
UltraBear ProFund .. 1 $10.00
UltraOTC ProFund ... 1 $10.00
Money Market ProFund 99,950 $ 1.00
</TABLE>
2. The Trust hereby acknowledges receipt from National Capital of $100,000 in
full payment for the Shares.
3. National Capital represents and warrants to the Trust that:
(a) The Shares are being acquired for investment and not with a view to
distribution thereof and that National Capital has no present intention to
redeem or dispose of any of the Shares; and
(b) National Capital's purchase of the shares qualifies under Section 4 (2)
of the Securities Act of 1993, as amended.
<PAGE> 2
4. National Capital hereby agrees that in the event that it redeems any of
the Shares prior to the time that the Trust has completed the amortization of
its organizational expenses, the redemption proceeds may be reduced by a pro
rata portion of the remaining amount of such unamortized organizational
expenses. If such reduction is not, in fact, made, National Capital agrees to
reimburse the Trust upon request for such pro rata portion of unamortized
organizational expenses. In addition, in the event that the Trust liquidates
before the deferred organizational expenses are fully amortized, then the Shares
shall bear their proportionate share of such unamortized organizational expense.
5. It is expressly agreed that the obligations of the Trust hereunder shall
not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the trust
property of the Trust as provided in the Trust's Declaration of Trust.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
_____ day of October, 1997.
THE PROFUNDS
By: ______________________________________
NATIONAL CAPITAL GROUP, INC.
By: ______________________________________
<PAGE> 1
Exhibit 18
COMPOSITE
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
FOR
PROFUNDS
WHEREAS, ProFunds (the "Trust") engages in business as an open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Act");
WHEREAS, shares of beneficial interest of the Trust are currently divided
into a number of separate series (the "Funds"), including the Bull ProFund, the
UltraBull ProFund, the Bear ProFund, the UltraBear ProFund, the UltraOTC
ProFund, and the Money Market ProFund (collectively, the "Funds"); and
WHEREAS, the Trust desires to adopt, on behalf of each of the Funds, a
Multiple Class Plan pursuant to Rule 18f-3 under the Act (the "Plan") with
respect to each of the Funds.
NOW, THEREFORE, the Trust hereby adopts, on behalf of the Funds, the Plan,
in accordance with Rule 18f-3 under the Act on the following terms and
conditions:
1. FEATURES OF THE CLASSES. Each of the funds issues its shares of
beneficial interest in two classes: "Investor Shares" and "Adviser Shares."
Shares of each class of a Fund shall represent an equal pro rata interest in
such Fund and, generally, shall have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations, qualifications
and terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any Class Expenses, as defined
in Section 4 below, and (c) each class shall have separate voting rights on any
matter submitted to shareholders in which the interests of one class differ from
the interests of any other class. In addition, Investor Shares and Adviser
Shares shall have the features described in Sections 3, 4 and 5 below.
2. SALES CHARGE STRUCTURE. Shares of each class shall be offered at the
then-current net asset value without the imposition of a front-end or contingent
deferred sales charge.
3. SERVICE PLAN.
(a) Adviser Shares have adopted a shareholder servicing plan pursuant
to which it may pay registered investment advisers, banks, trust companies and
other financial organizations a fee at an annual rate of up to 1.00% of the
average daily net assets of a Fund's Adviser Shares attributable to or held in
the name of an Authorized Firm for providing service activities for its clients
who are beneficial owners of Adviser Shares.
(b) As used herein, the term "service activities" shall mean activities
in connection with the provision of personal, continuing services to investors
in each Fund; receiving, aggregating and processing purchase and redemption
orders; providing and maintaining retirement plan records;
<PAGE> 2
communicating periodically with shareholders and answering questions and
handling correspondence from shareholders about their accounts; acting as the
sole shareholder of record and nominee for shareholders; maintaining account
records and providing beneficial owners with account statements; processing
dividend payments; issuing shareholder reports and transaction confirmations;
providing subaccounting services for Fund shares held beneficially; forwarding
shareholder communications to beneficial owners; receiving, tabulating and
transmitting proxies executed by beneficial owners; performing daily
investment ("Sweep") functions for shareholders; and general account
administration activities. Overhead and other expenses, may be included in the
information regarding amounts expended for such activities.
4. ALLOCATION OF INCOME AND EXPENSES. (a) The gross income of each
Fund generally shall be allocated to each class on the basis of net assets. To
the extent practicable, certain expenses (other than Class Expenses as defined
below, which shall be allocated more specifically) shall be subtracted from
the gross income on the basis of the net assets of each class of the Fund.
These expenses include:
(1) Expenses incurred by the Trust (including, but not limited to,
fees of Trustees, insurance and legal counsel) not attributable to a particular
Fund or to a particular class of shares of a Fund ("Corporate Level Expenses");
and
(2) Expenses incurred by a Fund not attributable to any particular
class of the Fund's shares (for example, advisory fees, custodial fees, or
other expenses relating to the management of the Fund's assets) ("Fund
Expenses").
(b) Expenses attributable to a particular class ("Class Expenses")
shall be limited to: (i) payments made pursuant to a shareholder services plan,
(ii) transfer agent fees attributable to a specific class; (iii) printing and
postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current shareholders of a
specific class; (iv) Blue Sky registration fees incurred by a class; (v)
Securities and Exchange Commission registration fees incurred by a class; (vi)
the expense of administrative personnel and services to support the
shareholders of a specific class; (vii) litigation or other legal expenses
relating solely to one class; and (viii) Trustees' fees incurred as a result of
issues relating to one class. Expenses in category (i) above must be allocated
to the class for which such expenses are incurred. All other "Class Expenses"
listed in categories (ii)-(viii) above may be allocated to a class, but only if
the President and Chief Financial Officer have determined, subject to Board
approval or ratification, which of such categories of expenses will be treated
as Class Expenses, consistent with applicable legal principles under the Act
and the Internal Revenue Code of 1986, as amended (the "Code").
Therefore, expenses of a Fund shall be apportioned to each class of
shares depending on the nature of the expense item. Corporate Level Expenses
and Fund Expenses will be allocated among the classes of shares based on their
relative net asset values in relation to the net asset value of the Trust.
Approved Class Expenses shall be allocated to the particular class to which
they are attributable. In
-2-
<PAGE> 3
addition, certain expenses may be allocated differently if their method of
imposition changes. Thus, if a Class Expense can no longer be attributed to a
class, it shall be charged to a Fund for allocation among classes, as
determined by the Board of Trustees. Any additional Class Expenses not
specifically identified above which are subsequently identified and determined
to be properly allocated to one class of shares shall not be so allocated until
approved by the Board of Trustees of the Trust in light of the requirements of
the Act and the Code.
5. EXCHANGE PRIVILEGES. Shareholders may exchange shares of one class
of a Fund at net asset value without any sales charge for shares of the same
class offered by another Fund, provided that the amount to be exchanged meets
the applicable minimum investment requirements and the exchange is made in
states where it is legally authorized. Exchanges from one class of shares into
another class of shares presently are not permitted.
6. CONVERSION FEATURES. The Funds currently do not offer a conversion
feature.
7. QUARTERLY AND ANNUAL REPORTS. The Trustees shall receive quarterly
and annual statements concerning all allocated Class Expenses and servicing
expenditures. In the statements, only expenditures properly attributable to the
servicing of a particular class of shares will be used to justify any servicing
fee or other expenses charged to that class. Expenditures not related to the
servicing of a particular class shall not be presented to the Trustees to
justify any fee attributable to that class.
8. ACCOUNTING METHODOLOGY. The following procedures shall be
implemented in order to meet the objective of properly allocating income and
expenses among the Funds;
(1) On a daily basis, a fund accountant shall calculate the
shareholder services fee to be charged to the Adviser Shares by calculating the
average daily net asset value of such shares outstanding and applying the
applicable fee rate of the class to the result of that calculation.
(2) The fund accountant will allocate all other designated Class
Expenses, if any, to the respective classes.
(3) The fund accountant shall allocate income and Corporate Level and
Fund Expenses among the respective classes of shares based on the net asset
value of each class in relation to the net asset value of the Fund for Fund
Expenses, and in relation to the net asset value of the Trust for Corporate
Level Expenses. These calculations shall be based on net asset values for all
Funds except the Money Market ProFund, for which it will be based on the
relative value of settled shares.
(4) The fund accountant shall then complete a worksheet developed for
purposes of complying with Section 8 of this Plan, using the allocated income
and expense calculations from paragraph (3) above, and the additional fees
calculated from paragraphs (1) and (2) above.
-3-
<PAGE> 4
(5) The fund accountant shall develop and use appropriate internal
control procedures to assure the accuracy of its calculations and appropriate
allocation of income and expenses in accordance with this Plan.
9. WAIVER OR REIMBURSEMENT OF EXPENSES. Expenses may be waived or
reimbursed by the adviser to the Trust or any other provider of services to the
Trust without the prior approval of the Trust's Board of Trustees.
10. EFFECTIVENESS OF PLAN. This Plan shall not take effect until it has
been approved by votes of a majority of both (a) the Trustees of the trust and
(b) the independent Trustees.
11. MATERIAL MODIFICATIONS. This Plan may not be amended to modify
materially its terms unless such amendment is approved in the manner provided
for initial approval in paragraph 10 hereof.
12. LIMITATION OF LIABILITY. The Trustees of the Trust and the
shareholders of each Fund shall not be liable for any obligation of the Trust
or any Fund under this Plan, and any person, in asserting any rights or claims
under this Plan, shall look only to the assets and property of the Trust or
such Funds in settlement of such right or claim, and not to such Trustees or
shareholders.
IN WITNESS WHEREOF, the Trust, on behalf of the Funds, has adopted this
Multiple Class Plan as of ________, 1997.
PROFUNDS
By:__________________
Title: Secretary
-4-
