SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. 1 (X)
Post-Effective Amendment No. ___ ( )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940(X)
Amendment No. 1
PROFUNDS
(Exact Name of Registrant as Specified in Charter)
4600 North Park Avenue, Suite 100, Chevy Chase, Maryland 20815
(Address of Principal Executive Offices) (Zip Code)
(301) 657-0850
(Registrant's Telephone Number, Including Area Code)
Louis M. Mayberg
4600 North Park Avenue
Suite 100
Chevy Chase, Maryland 20815
(Name and Address of Agent for Service of Process)
Approximate Date of Commencement of the Proposed Public Offering of the
Securities:
As soon as practicable after effectiveness.
It is proposed that this filing will become effective (check appropriate box):
( ) immediately upon filing pursuant to paragraph (b) of rule 485.
( ) on (date) pursuant to paragraph (b) (1) (v) of rule 485.
( ) 60 days after filing pursuant to paragraph (a) (1) of rule
485.
( ) on (date) pursuant to paragraph (a) (1) of rule 485.
( ) 75 days after filing pursuant to paragraph (a) (2) of rule
485.
( ) on (date) pursuant to paragraph (a) (2) of rule 485.
If appropriate, check the following box:
( ) This post-effective amendment designates a new effective date
for a previously-filed post-effective amendment.
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.
<PAGE>
PROFUNDS
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
Form N-1A Item No. Location 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 General Information about the Trust;
Registrant Investment Objective and Policies
5. Management of the Fund Management of the Trust
6. Capital Stock and Dividends and
Other Securities Distributions; Taxes
7. Purchase of Securities Shareholders Guide
Being Offered
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 Not Applicable
and History
13. Investment Objectives Investment Policies and Techniques
and Policies
14. Management of the Registrant Management of ProFunds
Registrant
15. Control Persons and Principal Principal Holders of the Trust
Holders of Securities
16. Investment Advisory Management of the Trust
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Brokerage
18. Capital Stock and Not Applicable
Other Securities
19. Purchase, Redemption, and Not Applicable
Pricing of Securities Being Offered
20. Tax Status Not Applicable
21. Underwriters Management of the Fund
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
<PAGE>
PART A
<PAGE>
PROFUNDS
[Address]
(800) _______ (Registered Investment Advisors Only)
(800) _______ (For All Others)
The ProFunds are six no-load funds that are principally designed for
professional money managers and investors who intend to invest in ProFunds as
part of an asset-allocation or market-timing investment strategy. Sales are made
without any sales charge at net asset value. Each non-money-market ProFund is
intended to provide investment exposure with respect to a particular segment of
the securities markets and seeks investment results that correspond over time 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 ProFunds and their benchmarks:
FUND BENCHMARK
Bull ProFund S&P 500 Composite Stock Price Indextm ("S&P Index")
UltraBull ProFund Twice (200%) the performance of the S&P Indextm
Bear ProFund Inverse (opposite) of the performance of the S&P Index
UltraBear ProFund Twice (200%) of the inverse (opposite) of the
performance of the S&P 500 Index
OTC ProFund NASDAQ 100 Index (NDX)
The ProFunds also include the U.S. Government Money Market ProFund. This
ProFund seeks to provide security of principal, high current income, and
liquidity by investing primarily in U.S. Government money market
instruments. Shares of the U.S. Government 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 U.S.. Government 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 are not intended for investors whose principal
objective is current income or preservation of capital. The ProFunds may not
be a suitable investment for persons who intend to follow an "invest and hold"
strategy. 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 ________, 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 Additional
Information is available, without charge, upon request to the ProFunds
at the address above or by telephoning ProFunds at the telephone numbers
above.
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 ___________, 1997
OVERVIEW
THE 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 IndexTM (the "S&P500
Index"). The UltraBull ProFund's investment objective is to provide investment
returns that correspond to 200% of the performance of the S&P500 Index. The
UltraBull ProFund should gain more than the Bull ProFund when the prices of
the securities in the S&P500 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&P500 Index. The UltraBear ProFund's investment
objective is to provide investment results that will inversely correlate to
200% of the performance of the S&P500 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&P500 Index. Conversely, the net asset value of
Bear ProFund shares will decrease in direct proportion to any increases in the
level of the S&P500 Index. The net asset value of shares of the UltraBear
ProFund's net asset should increase or decrease approximately twice as much as
does that of the Bear ProFund on any given day.
The OTC ProFund. The investment objective of the OTC ProFund is to provide
investment results that correspond to the NASDAQ 100 IndexTM. 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.
U.S. Government Money Market ProFund. The investment objective of the U.S.
Government Money Market ProFund (or the "Money Market ProFund") is to provide
security of principal, high current income, and liquidity. To achieve its
objective, the Money Market ProFund invests primarily in U.S. Government
Securities.
* * *
A discussion of each ProFund's investment objective(s) and policies is
provided below under "Investment Objectives and Policies" and "Investment
Techniques."
SPECIAL RISK CONSIDERATIONS
The ProFunds present certain risks to investors, some that are usually not
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. Certain of these risks are
review below. This discussion should be read in conjunction with the rest of
the prospectus and "Special Considerations."
The ProFunds expects 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 an asset-allocation or market-timing
investment strategy. These investors are likely to redeem or exchange their
ProFund shares frequently to take advantage of anticipated changes in market
conditions.
These strategies employed by ProFund shareholders may result in considerable
assets moving in and out of the ProFunds. Consequently, the ProFunds expects
that the ProFunds will experience unusually high portfolio turnover. This
portfolio turnover will likely cause higher expenses and additional costs.
A high portfolio turnover also increases the risk that a ProFund will not
qualify as a "regulated investment company" under the Federal tax laws, which
would cause the ProFund to be a separate taxable entity for Federal income
taxes and subject its income to Federal taxes at corporate rates. The
imposition of such taxes would directly reduce the return to an investor from
an investment in the ProFund. Additionally, a high portfolio turnover may
adversely affect the ability of the ProFund to meet its investment objective.
For further information concerning the portfolio turnover of the ProFunds and
the Federal tax treatment of the ProFunds, see "Investment Objectives and
Policies" and "Taxes" in this Prospectus.
Shareholders in the Bear ProFund and the UltraBear ProFund should lose money
while prices of the securities in the S&P Index increase. This is the
opposite likely result expected of investing in a traditional equity mutual
fund in a 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 adverse market conditions.
While the ProFunds do not expect that the returns over a year will deviate
adversely from their respective current benchmarks by more than ten percent,
certain factors may affect their ability to achieve this correlation. See
"Risk Considerations" for a discussion of these factors.
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 require 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."
PURCHASES, REDEMPTIONS, AND EXCHANGES OF TRUST SHARES
The shares of the ProFunds may be purchased and redeemed, without any
respective sales or redemption charge, at the net asset value per share of the
ProFund next determined. Purchases of shares may be made by check or wire.
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 ProFunds may be exchanged at any time for shares of any
another 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 ADVISER
The investment adviser of ProFunds is ProFund Advisors LLC. (the "Advisor").
The Advisor is located in Bethesda, Maryland. See "Management of the ProFunds."
SHAREHOLDER SERVICING AND TRANSFER AGENT AND CUSTODIAN
_____________ serves as the shareholder servicing, transfer and
dividend disbursement agent for the ProFunds. ______ Bank serves as the
custodian of the ProFunds' securities and other assets. See "Management of the
ProFunds."
FEES AND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
the ProFunds will incur:
Shareholder Transaction Expenses
All ProFunds Money Market
(except Money Market) ProFund
Sales Load Imposed
on Purchases None None
Sales Load Imposed on None None
Reinvested Dividends
Deferred Sales Load None None
Redemption Fees None None
Exchange Fees None None
Annual Fund Operating Expenses
Management Fees 0.70% 0.45%
12b-1 Fees None None
Other Expenses* ___% ____%
Total ProFund Operating
Expenses* ___% ____%
*Estimated
EXAMPLE
Assuming hypothetical investments of $1,000 in each of the ProFunds,
a five-percent annual return, and redemption at the end of each time period,
an investor in each of the ProFunds would pay transaction and operating
expenses at the end of each year as follows:
1 Year 3 Years
Each ProFunds
(except Money Market _____ _____
Government Money
Market ProFund _____ _____
The same level of expenses would be incurred if the investments were
held throughout the period indicated.
The preceding table of fees and expenses is 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. The
percentages shown above are based on estimates. The five-percent assumed
annual return is for comparison purposes only. The actual return for a
particular ProFund in future periods may be more or less depending on
market conditions, and the actual expenses an investor incurs in future
periods may be more or less than those shown above and will depend on the
amount invested and on the actual growth rate of the particular ProFund.
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.
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.
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 $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 of investment in all of the ProFunds. The
ProFunds, at its discretion, may accept lesser amounts in certain
circumstances. There is no minimum amount for subsequent investments in a
ProFund. The ProFunds reserves the right to reject or refuse, at the
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
[Address]
How to Invest By Wire Transfer
------------------------------
Request a wire transfer to:
ProFunds
[Wire Information]
After instructing your bank to transfer money by wire, please call the
ProFunds and inform the ProFunds as to the amount you have transferred and
the name of the bank sending the transfer. Your bank may charge a fee for
such services. If the purchase is canceled because your wire transfer is not
received, you may be liable for any loss that the ProFunds may incur.
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.
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
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
numbers indicated on the cover of this Prospectus.
Exchanges with respect to Self-Directed Accounts must be for at least the
lesser of $1,000 or 100% of the account value for the ProFund from which the
transfer is made. Telephone exchanges are subject to the procedures set forth
below.
To implement an exchange, shareholders must provide each of the
following information:
-- Account name and number.
-- Taxpayer identification number.
-- Number of or percentage of shares or dollar value of
shares to be exchanged
-- The name the ProFunds from which the Exchange is to be
made,
-- The name the ProFunds to which the Exchange is to be
made,
Exchanges may be made only if 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. Shares of the
Money Market ProFund received in an exchange for shares of the OTC ProFund
are issued on the third business day following the day on which the ProFund
receives the exchange request.
How to Withdraw Money (Redemptions)
General
-------
An investor may 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. There are no redemption charges. Redemptions may
be made by letter or by telephone, subject to the procedures set forth below.
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 the lesser of $1,000 or 100% of
the account value for the ProFund from which the transfer is made.
Payment for the redemption price 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 may 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 10
business days). An investor may avoid a delay in receiving redemption
proceeds by purchasing shares with a certified check.
Wire of Withdraws
-----------------
Shareholders may wire proceeds of a withdrawal 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. If any investor
purchases shares of a ProFund by check, the purchaser may not wire out any
proceeds of a redemption of such shares for the 30 calendar days following the
purchase.
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 the banks apply to checking accounts. A Money Market
ProFund account may not be closed by draft check.
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.
Procedures For Telephone Redemptions And Exchanges
Written requests for redemptions and exchanges should be sent to the
ProFunds, ________________________, and should be signed by the record
owner or owners. Telephone redemption and exchange requests relating to the
ProFunds may be made by calling (800)______, on any day the ProFunds is
open for business. Such requests may be made only between 8:30 A.M. and 3:45
P.M., Eastern Time. 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. Telephone
redemption and exchange privileges may be terminated or modified by the
ProFunds at any time.
When acting on instructions believed to be genuine, the ProFunds will not
be liable for any loss resulting from a fraudulent telephone transaction
request and the investor would bear the risk of any such loss. The ProFunds
will employ reasonable procedures to confirm that telephone instructions are
genuine; and if the ProFunds does not employ such procedures, then the
ProFunds may be liable for any losses due to unauthorized or fraudulent
instructions. The ProFunds follows specific procedures for transactions
initiated by telephone, including, among others, requiring some form of
personal identification prior to acting upon instructions received by
telephone, providing written confirmation not later than five business days
after such transactions, 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.
Tax-sheltered Retirement Plans
Tax-sheltered retirement plans of the following types will be available
to investors:
-- Individual Retirement Accounts (IRAs)
-- Keogh Accounts - Defined Contribution Plans (Profit-Sharing
Plans)
-- Keogh Accounts
-- Money Purchase Plans
-- Pension Plans
-- Internal Revenue Code Section 403(b)Plans
Retirement plans are charged an annual $15.00 maintenance fee.
Additional information regarding these accounts may be obtained by contacting
the ProFunds.
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 from the ProFunds 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 are
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 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.
U.S. Government Money Market ProFund
-------------------------------------
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. The Money Market
ProFund, however, may revise this dividend and distribution policy of the,
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.
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. The ProFunds reserve the right to
modify its 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 NYSE, the Federal Reserve Bank of New
York (the "New York Fed"), the NASDAQ or the 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 the
ProFund's investments or the determination of its net asset value is not
reasonably practicable; or (iii) for such other periods as the Commission, by
order, may permit for protection of the ProFund's investors.
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.
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 anticipates that its 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 the exchange
policy of the ProFunds (see "Exchanges"), which would cause that ProFund to
experience high 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 very difficult to estimate what the
ProFund's actual turnover rate generally will be. Pursuant to the formula
prescribed by the Securities and Exchange Commission (the "Commission"), the
portfolio turnover rate for each ProFund is calculated without regard to
securities, including options and futures contracts, having a maturity of less
than one year. The Bear 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.
Significant portfolio turnover will tend to increase the realization by a
ProFund of gains (or losses) on securities that have been held by the ProFund
for less than three months. Any such realized gains on securities that have
been held by a ProFund for less than three months, and other factors related
to large cash flows into and out of the ProFund, will increase the risk that,
in any given year, the ProFund may fail to qualify as a regulated investment
company under Subchapter M of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"). If a ProFund should so fail to qualify under the Code,
the ProFund' net investment income and net capital gain would become subject
to Federal income tax at corporate rates. The imposition of such taxes would
directly reduce the return to an investor from an investment in the ProFund.
(See "Taxes.") In addition, a higher portfolio turnover rate would likely
involve correspondingly greater brokerage commissions and other expenses which
would be borne by the ProFund. Furthermore, a ProFund's portfolio turnover
level may adversely affect the ability of the ProFund to achieve their
investment objectives.
Tracking Error
While the ProFunds do not expect that the 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 ProFund; (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 can 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. The ProFunds expects that the Bear
ProFund, the UltraBull ProFund, the Bear ProFund, and the UltraBear ProFund
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; (4) the possible absence of a
liquid secondary market for any particular instrument at any time; and (5) the
possible need to defer closing out certain positions to avoid adverse tax
consequences. 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 Fund 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 a 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.
INVESTMENT OBJECTIVES AND POLICIES
General
The ProFunds are principally designed for professional money managers and
investors who intend to follow an asset-allocation or market-timing investment
strategy. Except for the Money Market ProFund, each ProFund is intended to
provide investment exposure with respect to a particular segment of the
securities markets. These ProFunds seek investment results that correspond
over time 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 ProFund's 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 a year. See
"Special Risk 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.
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&P500 Index. The investment
objective of the UltraBull ProFund is to provide investment returns that
correspond to 200% of the performance of the S&P500 Index. These ProFunds
seek to achieve this inverse correlation result on each trading day. Under
their investment objectives, the UltraBull ProFund should produce greater
gains to investors when the S&P500 Index rises and greater losses when the S&P
Index declines over the corresponding gain or loss of the Bull ProFund.
In attempting to achieve their objective, the Bull ProFund and the UltraBull
ProFund expect that a substantial portion of its 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 ProFund's benchmark.
The Bear ProFund and UltraBear ProFund
The Bear ProFund and the UltraBear ProFund Plus are designed to allow
investors to speculate on anticipated decreases in the S&P500 Index
shareholders 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&P500
Index. The UltraBear ProFund's investment objective is to provide investment
results that will inversely correlate to 200% of the performance of the S&P500
Index. These ProFunds seek to achieve this inverse correlation result 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&P500 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&P500 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&P500 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&P500 Index were to 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 ProFund could experience substantial losses during sustained periods of
rising equity prices, with losses of investors in the UltraBear ProFund
approximately twice as much as the losses of investors in the UltraBear 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 Bear ProFund terminates the position. These ProFunds will generally
realize a gain if the underlying security or index declines in price between
those dates. This result is the opposite of what one would expect from a cash
purchase of a long position in a security. 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 Bear ProFund pays or receives as the result of
the transaction.
The OTC ProFund
The investment objective of the OTC ProFund is to provide investment results
that correspond to a benchmark for over-the-counter securities. The OTC
ProFund's current benchmark is the NASDAQ 100 Index.
The OTC ProFund does not aim to hold all of the 100 securities included in the
NASDAQ 100 Index. Instead, the OTC ProFund intends to hold representative
securities included in the NASDAQ 100 Index or other instruments which the
Advisor believes will provide returns that correspond to those of the NASDAQ
100 Index. The OTC ProFund may engage in transactions on stock index futures
contracts, options on stock index futures contracts, and options on securities
and stock indexes.
Companies whose securities are traded on the over-the-counter ("OTC") markets
generally are smaller market-capitalization or newer companies than those
listed on the New York Stock Exchange (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.
U.S. Government Money Market ProFund
The investment objectives of the U. S. Government Money Market ProFund (or the
"Money Market ProFund") are security of principal, high current income, and
liquidity. The Money Market ProFund seeks to achieve its objectives by
investing in U.S. Government Securities, including money market instruments
which are issued or guaranteed, as to principal and interest, by the U.S.
Government, its agencies or instrumentalities, as well as in repurchase
agreements collateralized fully by U.S. Government Securities. An investment
in the Money Market ProFund is neither insured nor guaranteed by the U.S.
Government. The Money Market ProFund seeks to maintain a constant $1.00 net
asset value per share, although this cannot be assured.
The Money Market ProFund may invest in securities that take the form of
participation interests in, and may be evidenced by deposit or safekeeping
receipts for, any of the foregoing securities. Participation interests are
pro rata interests in U.S. Government Securities; and instruments evidencing
deposit or safekeeping are documentary receipts for such original securities
held in custody by others.
The Benchmarks
The S&P500 Index (SPX). Standard & Poor's Corporation ("S&P") chooses the 500
stocks comprising the S&P500 Index on the basis of market values and industry
diversification. Most of the stocks in the S&P500 Index are issued by the 500
largest 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&P500 Index for diversification purposes. The S&P 500 Index as referred to
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 affiliated with, the ProFunds.
The NASDAQ 100 Index (NDX). 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.
INVESTMENT TECHNIQUES
Futures Contracts and Options
The ProFunds (other than the Money Market ProFund) may purchase or sell stock
index futures contracts as a substitute for a comparable market position in
the underlying securities. The ProFunds anticipate that that it will primarily
engage in transactions in futures contracts 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 times
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 (selling) call 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. In addition to the uses set forth hereunder, each
ProFund may also engage in futures and futures options transactions in order
to hedge or limit the exposure of its position, to create a synthetic money
market position, and for certain other tax-related purposes. See "Taxes."
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 liquidation of futures positions and potentially subjecting
a ProFund to substantial losses. If trading is not possible, or 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, to
create synthetic money market positions, and for certain other tax-related
purposes. See "Taxes."
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 comprising 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 with 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, 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.
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.
U.S. Government 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.
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 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 as illiquid for
the purposes of their investment policies.
Cash Reserve
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 Money Market ProFunds)
may borrow money for investment purposes or invest in illiquid securities.
Each of the ProFunds (other than Money Market 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.
TAXES
The Internal Revenue 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.
Because of the nature of the investment strategies and the expected
turnover of the portfolios of the ProFunds, there can be no assurance
that a ProFund will qualify for such treatment. 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, or other income derived
with respect to the ProFund's investments in stock, securities, and foreign
currencies (the "90% Test"), and that the ProFund derive less than 30% of
the ProFund's gross income from the sale or other disposition of any of
the following instruments which have been held for less than three months
(the "30% Test"): (i) stock or securities; (ii) certain options, futures, or
forward contracts; or (iii) 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.
In addition, because of the anticipated frequency of redemptions and exchanges
of the shares of the ProFunds, each of the ProFunds, other than the Money
Market ProFund, will have greater difficulty than other mutual funds in
satisfying the 30% Test. The ProFunds expects that investors in the ProFunds,
as part of their market-timing investment strategy, are likely to redeem or
exchange their shares in the ProFunds frequently to take advantage of
anticipated changes in market conditions. Such redemptions or exchanges are
likely to require a ProFund to sell securities to meet the ProFund's payment
obligations. The larger the volume of such redemptions or exchanges, the more
difficult it will be for the ProFund to satisfy the 30% Test. To minimize the
risk of failing the 30% Test, each of the ProFunds intends to satisfy
obligations in connection with redemptions and exchanges first by using
available cash or borrowing facilities and by selling securities that have
been held for at least three months or as to which there will be a loss or the
smallest gain. If a ProFund also must sell securities that have been held for
less than three months, then, to the extent possible, the ProFund will seek to
conduct such sales in a manner that will allow such sales to qualify for a
special provision in the Code that excludes from the 30% Test any gains
resulting from sales made as a result of "abnormal redemptions." To the reduce
the risk of failing the 30% Test, the ProFunds (other than the Money Market
ProFund) also may engage in other investment techniques, including engaging in
transactions in futures contracts and options on futures contracts and indexes
on an unrestricted basis (subject to the investment policies of the ProFunds
and Commission regulations). Notwithstanding these actions, there can be no
assurance that a ProFund will be able to satisfy the 30% Test. For additional
information concerning this special Code provision, see "Dividends,
Distributions, and Taxes" in the Statement of Additional Information.
If the ProFunds determines that a ProFund will not qualify as a RIC under
Subchapter M of the Internal Revenue Code, the ProFunds will establish
procedures for that ProFund to reflect the anticipated tax liability in the
ProFund's net asset value. To the extent that management of a ProFund
determines that Federal income taxes will more likely than not be payable by
the ProFund with respect to the ProFund's current tax year, the ProFund
intends to make a good-faith estimate of the potential tax liability of the
ProFund and to make an accrual for tax expenses. Thereafter, the ProFund
would make a daily determination whether it is appropriate for the ProFund to
continue to accrue for a tax expense and, if so, to make a good-faith estimate
of the ProFund's potential tax liability. Any amount by which the accrual is
reduced, or the entire amount of the accrual if the ProFund determines that
the accrual is no longer appropriate, will be reclassified as income to the
ProFund.
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.
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 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 Adviser
The ProFunds are provided investment advice and management services by
ProFund Advisor, LLC, a Maryland limited liability company formed on May 8,
1997, with offices at ____________, Maryland (the "Advisor"). __________ owns
a controlling interest in the Advisor.
Under an investment advisory agreement between the ProFunds and the
Advisor, dated ____, 1997, the ProFunds each pay the Advisor a fee at an
annualized rate, based on the average daily net assets for each respective
ProFund of 0.70% for all non-money-market ProFunds and .45% for the U. S.
Government Money Market ProFund. The Advisor manages the investment and the
reinvestment of the assets of each of the ProFunds, in accordance with the
investment objectives, policies, and limitations of the ProFund, subject to
the general supervision and control of the ProFunds and the officers of the
ProFunds. 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, provided such fees
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 ProFund shares, and otherwise currently pays all
distribution costs for ProFund shares.
Service Providers
[To be added by pre-effective amendment.]
Costs and Expenses
The ProFunds bear all expenses of their operations other than those assumed
by the Advisor or the Servicer. 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 ProFunds fees and expenses.
Portfolio Trading Practices
The Advisor determines which securities to purchase and sell for each
ProFund, selects brokers and dealers to effect the transactions, and
negotiates commissions. 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. 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 ProFunds.
GENERAL INFORMATION ABOUT THE TRUST
Organization and Description of Shares of Beneficial Interest
ProFunds is a registered open-end investment company under the 1940
Act. ProFunds was organized as a Delaware business trust on April 17, 1997,
and has present authorized capital of unlimited shares of beneficial interest
of no par value which may be issued in more than one class. Currently,
ProFunds has issued shares of six separate classes. Other separate
classes may be added in the future.
All shares of the ProFunds are freely transferable. The ProFund 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. ProFund shares have equal
voting rights, except that, in a matter affecting a particular series in
the ProFunds, only shares of that series may be entitled to vote on the
matter.
Under the Delaware law, ProFunds 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 ProFunds shareholders.
ProFunds shareholders may remove Trustees from office by votes cast at a
meeting of ProFunds shareholders or by written consent. If requested by
shareholders of at least 10% of the outstanding shares of the ProFunds, the
ProFunds will call a meeting of ProFunds shareholders for the purpose of
voting upon the question of removal of a trustee of the ProFunds and will
assist in communications with other ProFunds shareholders.
Unlike the stockholder of a corporation, shareholders of a business trust
such as the ProFunds 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 ProFunds for acts or obligations of the
ProFunds which are binding only on the assets and property of the ProFunds.
The Declaration of ProFunds provides for indemnification out of ProFunds
property for all loss and expense of any ProFunds shareholder held personally
liable for the obligations of the ProFunds. The risk of a ProFunds
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 ProFunds' obligations and this risk, thus, should be considered
remote.
Classification of the ProFunds
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 industry or 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 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 1940 Act. The ProFunds,
however, intend to seek to qualify as a "regulated investment company" for
purposes of the Internal Revenue Code, which requires that, at the end of
each quarter of the taxable year, (i) at least 50% of the market value of
the ProFund's total assets (a diversified investment company would be so
limited with respect to 75% of such market value) be invested in cash, U.S.
Government Securities, the securities of other regulated investment companies,
and other securities, with such securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the
value of ProFund's total assets and 10% of the outstanding voting
securities of any one issuer, and (ii) not more than 25% of the value of the
ProFund's total assets be invested in the securities of any one issuer
(other than U.S. Government Securities or the securities of other
regulated investment companies).
Determination Of Net Asset Value
The net asset values of the shares of the ProFunds are determined each day
the New York Stock Exchange (NYSE") is open for business as of the close of
normal trading on the NYSE (generally, 4:00 P.M., Eastern Time). Currently,
the NYSE and the New York Fed are closed on weekends, and the following
holiday closings have been scheduled for 1997: (i) New Year's Day,
Martin Luther King Jr.'s Birthday, Washington's Birthday, Good Friday,
Memorial Day, July Fourth, Labor Day, Columbus Day, Thanksgiving Day, and
Christmas Day; and (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 expects the same holiday schedules to be observed in
the future, the NYSE may modify its holiday schedule at any time.
The net asset value of a ProFund serves as the basis for the purchase
and redemption price of that ProFund's shares. The net asset value per
share of a ProFund is calculated by dividing the market value of the
ProFund's securities plus the values of its other assets, less all
liabilities, by the number of outstanding shares of the ProFund. 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 will utilize the amortized cost method in valuing
that ProFund's portfolio securities, which method involves valuing a security
at its cost adjusted by a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the
market value of the instrument. The purpose of this method of calculation is
to facilitate the maintenance of a constant net asset value per share for the
Money Market ProFund of $1.00. However, there is no assurance that the $1.00
net asset value will be maintained.
For purposes of determining net asset value per share of a ProFund,
futures contracts and options thereon will be valued 15 minutes after the
4:00 P.M., Eastern Time, close of trading on the NYSE. 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. The value of a futures contract
equals the unrealized gain or loss on the contract that is determined by
marking the contract to the current settlement price for a like contract
acquired on the day on which the futures contract is being valued. 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.
OTC securities held by a ProFund shall be valued at the last sales price or,
if no sales price is reported, the mean of the last bid and asked price is
used. The portfolio securities of a ProFund that are listed on national
exchanges or foreign stock exchanges are taken at the last sales price of
such securities on such exchange; if no sales price is reported, the mean of
the last bid and asked price is used Illiquid securities, securities for
which reliable quotations or pricing services are not readily available,
and all other assets will be valued at their respective fair value as
determined in good faith by, or under procedures established by, the
ProFunds, which procedures may include the delegation of certain
responsibilities regarding valuation to the Advisor or the officers of the
ProFunds. The officers of the ProFunds report, as necessary, to the ProFunds
regarding portfolio valuation determination. The ProFunds, from time to
time, will review these methods of valuation and will recommend changes
which may be necessary to assure that the investments of the ProFunds are
valued at fair value.
Fundamental Policies
The investment objectives (except the specific indexes 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 Investment Company Act of 1940, as amended
(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 (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
___________________ 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 TRUST IN ANY JURISDICTION
IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE>
PART B
<PAGE>
PROFUNDS SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
[Address]
(301) ________
(800) _______ (Registered Investment Advisors Only)
(800) _______ (For All Others)
The ProFunds are six no-load funds that are principally designed for
professional money managers and investors who intend to invest in ProFunds as
part of an asset-allocation or market-timing investment strategy. Sales are
made without any sales charge at net asset value.
Each non-money-market ProFund is intended to provide investment exposure with
respect to a particular segment of the securities markets and seeks investment
results that correspond over time 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 ProFunds and their benchmarks:
FUND BENCHMARK
Bull ProFund S&P 500 Composite Stock Price Indextm ("S&P Index")
UltraBull ProFund Twice (200%) the performance of the S&P Indextm
Bear ProFund Inverse (opposite) of the performance of the S&P Index
UltraBear ProFund Twice (200%) of the inverse (opposite) of the
performance of the S&P 500 Index
OTC ProFund NASDAQ 100 Index (NDX)
.
The ProFunds also include the U.S. Government Money Market ProFund. This
ProFund seeks to provide security of principal, high current income, and
liquidity by investing primarily in U.S. Government money market instruments.
Shares of the U.S. Government 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 U.S.. Government 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 are not intended for investors whose principal
objective is current income or preservation of capital. The ProFunds may not
be a suitable investment for persons who intend to follow an "invest and hold"
strategy. 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 _________, 1997. A copy
of the prospectus is available, without charge, upon request to at the address
above or y telephoning at the telephone numbers above.
The date of this Statement of Additional Information is ________,
1997.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
THE PROFUNDS
INVESTMENT POLICIES AND TECHNIQUES
INVESTMENT RESTRICTIONS
PORTFOLIO TRANSACTIONS AND BROKERAGE
MANAGEMENT OF PROFUNDS
PERFORMANCE INFORMATION
FINANCIAL STATEMENTS
<PAGE>
THE PROFUNDS
ProFunds is an open-end management investment company, and currently is
composed of 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 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 "Exchanges")
INVESTMENT POLICIES AND TECHNIQUES
General
Reference is made to the sections entitled "Investment Objectives and
Policies" and Investment Techniques and Other Investment Policies" in
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 read in conjunction with the Prospectus. Portfolio management is
provided to the ProFunds investment adviser, ProFund Advisors LLC., a
Maryland limited liability company with offices at ___________________ (the
"Advisor").
The investment strategies of the ProFunds discussed below, and as discussed
in its 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.
Certain provisions of the Internal Revenue Code, related regulations,
and rulings of the Internal Revenue Service may have the effect of reducing
the extent to which certain of the following techniques may be used by a
ProFund, either individually or in combination. Furthermore, 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,
index 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 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 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 in
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.
When a ProFund writes an option on an index, the ProFund will be required
to deposit and maintain with a custodian cash or liquid instruments equal in
value to the aggregate exercise price of a put or call option pursuant
to the requirements and the rules of the applicable exchange. If, at the
close of business on any day, the market value of the deposited securities
falls below the contract price, the ProFund will deposit with the custodian
cash or liquid instruments equal in value to the deficiency.
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
isrequired to deposit in escrow the 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 (selling) 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 (sells) 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 (sell) 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 (sells) 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 Options
Clearing Corporation. However, a writer (seller) 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 (sold) 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 ProFunds 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. The Bond ProFund will invest in such
U.S. Government Securities only when the Advisor is satisfied that the
credit risk with respect to the issuer is minimal.
Repurchase Agreements
Each ProFund 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. 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 there purchase
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
illiquid assets held by the ProFund, amounts to more than 15% (10% with
respect to the Money Market ProFund) of the ProFund's total assets. The
investments of each of the ProFunds in repurchase agreements, at times, may
be substantial when, in the view of the Advisor, liquidity, investment,
regulatory, or other considerations so warrant.
Reverse Repurchase Agreements
The ProFunds may use reverse repurchase agreements as part of that
ProFund's investment strategy. Reverse repurchase agreements involve sales by
a ProFund of portfolio assets concurrently with an agreement by the ProFund to
repurchase the same assets at a later date at a fixed price. Generally, the
effect of such a transaction is that the ProFund 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 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 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 ProFunds intend to use the reverse repurchase technique
only when this will be to the ProFund's advantage to do so. The ProFunds will
establish a segregated account with their custodian bank in which the
ProFund will maintain cash or liquid instruments equal in value to the
ProFund's obligations in respect of reverse repurchase agreements.
Borrowing
The ProFunds (other than Money Market) may borrow money for cash
management purposes or investment purposes. 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 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 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 for 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 ProFund may
lend 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 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 any income accruing thereon, and the ProFund
may invest the cash collateral in portfolio securities, thereby earning
additional income. A ProFund will not lend more than 33% of the value of the
ProFund's total assets, except that the Money Market ProFund will not lend
more than 10% of the value of the Money Market ProFund's total assets.
Loans would be subject to termination by the lending ProFund 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 and that ProFund's shareholders. A
lending ProFund may pay reasonable finders, borrowers, administrative, and
custodial Trustees in connection with a loan.
When-Issued and Delayed-Delivery Securities
Each 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, of such security
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% (10% with respect to the Money Market ProFund) 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 ProFund will also establish a segregated account with the
ProFund's custodian bank in which the ProFund will maintain liquid
instruments equal to greater in value than the ProFund's purchase commitments
for such when-issued or delayed-delivery securities. ProFunds 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 (other than the Money Market ProFund) may invest in the
securities of other investment companies to the extent that such an
investment would be consistent with the requirements of Section 12(d)(1)
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 Trustees and expenses paid
by such other investment company, including advisory Trustees, 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.
Illiquid Securities
While none of the ProFunds anticipates doing so, each ProFund 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 and sold to qualified institutional buyers under Rule
144A under the 1933 Act. A ProFund will not invest more than 15% (10% with
respect to the Money Market ProFund) of the ProFund'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 may not be able to sell illiquid securities when the Advisor
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. 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.
Portfolio Turnover
As discussed in the Prospectus, the ProFunds anticipate that its investors, as
part of a market-timing or asset allocation investment strategy, will
frequently exchange shares of the ProFunds for shares in other ProFunds
pursuant to the exchange policy of as well as frequently redeem shares of the
ProFunds (see "Exchanges" in the Prospectus). The nature of the ProFunds has
caused 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
very difficult to estimate what the ProFund's actual turnover rate will be in
the future. However, expects that the portfolio turnover experienced the
ProFunds will continue to be substantial.
"Portfolio Turnover Rate" is defined under the rules of the Securities and
Exchange Commission as the value of the securities purchased or securities
sold, excluding all securities whose maturities at time of acquisition were
one year 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 ProFunds invest since such contracts generally have a
remaining maturity of less than one year. All instruments held by a ProFund
during a specified period may have a remaining maturity of less than one year
in which case the portfolio turnover rate for that period, under the
definition, would be equal to zero. However, because of the nature of
ProFunds as described above, the actual portfolio turnover of the ProFunds has
been and it is anticipated that their actual portfolio turnover in the future
will be unusually high.
INVESTMENT RESTRICTIONS
The ProFunds 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, 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 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-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) 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 and (iv) may purchase securities on
margin to the extent permitted by applicable law. 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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 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.
MANAGEMENT OF PROFUNDS
Trustees are responsible for the general supervision of ProFund's business.
The day-to-day operations of ProFunds are the responsibilities of
ProFunds' officers. The names and addresses (and ages) of Trustees and the
officers of and the officers of the Advisor, together within formation as to
their principal business occupations during the past five years, are set
forth below. Trustees and expenses for non-interested Trustees will be paid
by _______________.
Trustees
[To be added by pre-effective amendment]
* This Trustee is deemed to be an "interested person" of , within
the meaning of Section 2(a)(19) of the 1940 Act, inasmuch as this
person is affiliated with the Advisor, as described herein.
<PAGE>
Under an investment advisory agreement between ProFunds and the Advisor,
dated _____, 1997, each ProFund other than the Money Market ProFund and
the Money Market ProFund pays the Advisor a fee at an annualized rate,
based on its average daily net assets of 0.70%. and 0.45%, respectively. 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 Trustees 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.
Servicer
General administrative, shareholder, dividend disbursement, transfer agent,
and registrar services are provided to ProFunds by ___________________
[address] (the "Servicer"), subject to the general supervision and control of
Trustees and the officers of ProFunds, pursuant to a service agreement
between ProFunds and the Servicer, date dated ________, 1997. Under this
service agreement, the Funds each pay the Servicer a fee equal to
_________________.
The Servicer provides ProFunds and the Funds 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 Servicer also maintains the shareholder
account records for ProFunds and the Funds, distributes dividends and
distributions payable by the Funds, and produces statements with
respect to account activity for the Funds and their shareholders. The
Servicer pays all Trustees and expenses that are directly related to the
services provided by the Servicer to ProFunds; each ProFund reimburses
the Servicer for all Trustees and expenses incurred by the Servicer which are
not directly related to the services the Servicer provides to the ProFund
under the service agreement.
Costs and Expenses
Each ProFund bears all expenses of its operations other than those assumed
by the Advisor or the Servicer. ProFund expenses include: the management
fee; the servicing fee (including administrative, transfer agent, and
shareholder servicing Trustees); custodian and accounting Trustees and
expenses; legal and auditing Trustees; 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 and expenses.
Principal Holders of the Trust
[To be added by pre-effective amendment.]
PERFORMANCE INFORMATION
Total Return Calculations
From time to time, each of the non-money market ProFund 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. A more-detailed description of the method by which the total return
of a ProFund is calculated is contained in the Statement of Additional
Information under "Calculation of Return Quotations."
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 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 which often 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, 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
Fund may be compared to various unmanaged indexes, including, but not limited
to, the S&P500 Index or the Dow Jones Industrial Average; performance
information for the OTC 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 used by 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 OTC 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.
FINANCIAL STATEMENTS
[Seed capital financial statements to be added by pre-effective amendment.]
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 INFORMATION DOES NOT CONSTITUTE
AN OFFERING BY PROFUNDS IN ANY JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE>
PART C
<PAGE>
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: None.
In Part C: None.
(b) Exhibits
(1) (a) Certificate of Trust of ProFunds (the "Registrant"). (1)
(1) (b) Declaration of Trust of the Registrant. (1)
(2) By-laws of Registrant. (2)
(3) Not Applicable.
(4) Not Applicable.
(5) Form of Investment Advisory Agreement. (2)
(6) Form of Administrative Agreement. (2)
(7) Not Applicable. (2)
(8) Form of Custody Agreement. (2)
(9) (a) Form of Transfer Agency Agreement. (2)
(9) (b) Directors and Officers Liability Insurance and Comprehensive
Blanket Bond Insurance Policy. (2)
(10) Opinion and Consent of Counsel to the Registrant. (2)
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Not Applicable.
(16) Not Applicable.
- ------------------------
(1) Filed with initial registration statement;
(2) To be filed by amendment.
ITEM 25. Persons Controlled By or Under Common Control With Registrant.
- ------------------------------------------------------------------------------
None.
ITEM 26. Number of Holders of Securities
- ------------------------------------------
The following information is given as of the date indicated:
Title of Class: Common Stock, no par value Number of Record Holders as of
______, 1997,
- -------------
To be filed by amendment.
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
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ProFunds Advisors LLC (the "Advisor"), a limited liability company formed
under the laws of the State of Maryland on May 8, 1997.
ITEM 29. Principal Underwriter
- --------------------------------
Not applicable.
ITEM 30. Location of Accounts and Records
- -------------------------------------------
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
____________________ . [To be added by pre-effective amendment.]
ITEM 31. Management Services
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There are no management-related service contracts not discussed in Parts A and
B.
ITEM 32. Undertakings
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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.
<PAGE>
SIGNATURES
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. 2 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Chevy Chase in
the State of Maryland on the 17th day of July, 1997.
PROFUNDS
/s/ Michael L. Sapir
--------------------
Michael L. Sapir
President
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 July 17, 1997
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Michael L. Sapir
/s/ Louis Mayberg Trustee July 17, 1997
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Louis Mayberg
