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PROSPECTUS
[PROFUNDS LOGO]
April 24, 1998 as revised on
November 9, 1998
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
OVERVIEW ............................. 3
FEES AND EXPENSES .................... 7
Fee Tables ....................... 7
Examples ........................ 9
FINANCIAL HIGHLIGHTS ................. 10
SHAREHOLDERS' GUIDE .................. 12
How to Invest in the
ProFunds .................... 12
How to Exchange Shares of
the ProFunds ................. 14
How to Withdraw Money
(Redeem Shares) .............. 15
Special Information
Regarding Telephone
Requests for Redemptions
and Exchanges ................ 16
How to Make Automatic
Investments, Exchanges
and Withdrawals ............. 16
Dividends and Distributions ...... 17
Tax-Sheltered Retirement Plans 18
Miscellaneous ................... 18
SPECIAL CONSIDERATIONS ............... 20
Tracking Error ................... 20
Aggressive Investment
Techniques ................... 20
Leverage ......................... 21
Non-Diversified Status ........... 21
INVESTMENT OBJECTIVES ................ 23
General .......................... 23
Benchmarks of the ProFunds ....... 23
The Bull ProFund and
UltraBull ProFund ........... 24
The Bear ProFund
and UltraBear ProFund ........ 24
The Ultra OTC ProFund ............ 25
</TABLE>
<TABLE>
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<S> <C>
The UltraShort OTC ProFund........ 25
The Money Market ProFund ......... 27
INVESTMENT POLICIES AND
TECHNIQUES ....................... 29
Futures Contracts and
Related Options .............. 29
Index Options Transactions ....... 30
Options on Securities ............ 31
Short Sales ...................... 32
U.S. Government Securities ....... 32
Repurchase Agreements ............ 33
Cash Reserves .................... 34
Transaction Expenses ............. 34
Other Investment Policies ........ 34
Cash Management Portfolio ........ 35
Special Information
Concerning Master-Feeder
Fund Structure .............. 41
TAXES ................................ 43
MANAGEMENT OF THE
PROFUNDS ......................... 45
Investment Advisors .............. 45
Service Providers ............... 47
Cost and Expenses ................ 49
Portfolio Trading Practices ...... 50
GENERAL INFORMATION
ABOUT THE TRUST ................ 51
Organization and Description
of Shares of Beneficial
Interest ..................... 51
Determination of Net Asset
Value ........................ 51
Fundamental Policies. ............ 53
Trustees and Officers ............ 54
Auditors ......................... 54
</TABLE>
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7900 WISCONSIN AVENUE, SUITE 300
BETHESDA, MARYLAND 20814
(888) PRO-5717 (FINANCIAL PROFESSIONALS ONLY)
(888) PRO-3637 OR (614) 470-8122 (FOR ALL OTHERS)
WWW.PROFUNDS.COM
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This prospectus describes seven ProFunds. The ProFunds offers two classes
of shares: Service Shares and Investor Shares. The ProFunds may be used by
professional money managers and investors as part of an asset-allocation or
market-timing investment strategy, to create specified investment exposure to a
particular segment of the securities market or to hedge an existing investment
portfolio. Sales are made without any sales charge at net asset value.
Each non-money market ProFund seeks investment results that correspond each
day to a specified benchmark. The following are the non-money market ProFunds
and their benchmarks:
<TABLE>
<CAPTION>
- ---------------------- ------------------------------------------------------
FUND BENCHMARK
- ---------------------- ------------------------------------------------------
<S> <C>
Bull ProFund S&P 500 Composite Stock Price Index(TM) ("S&P 500 Index")
UltraBull ProFund Twice (200%) the performance of the S&P 500 Index
Bear ProFund Inverse (opposite) of the performance of the S&P 500 Index
UltraBear ProFund Twice (200%) the inverse (opposite) of the performance of the
S&P 500 Index
UltraOTC ProFund Twice (200%) the performance of the NASDAQ 100 Index(TM)
UltraShort OTC ProFund Twice (200%) the inverse (opposite) of the performance of the
NASDAQ 100 Index(TM)
</TABLE>
The ProFunds also include the Money Market ProFund. The Money Market
ProFund seeks a high level of current income consistent with liquidity and
preservation of capital through investment in high quality money market
instruments. UNLIKE OTHER MUTUAL FUNDS (AND THE OTHER PROFUNDS), THE MONEY
MARKET PROFUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS
INVESTABLE ASSETS IN THE CASH MANAGEMENT PORTFOLIO (THE "PORTFOLIO"), A SEPARATE
INVESTMENT COMPANY WITH AN IDENTICAL INVESTMENT OBJECTIVE. THE
Continued on next page
INVESTMENT ADVISORS
PROFUND ADVISORS LLC BANKERS TRUST COMPANY
-------------------- ---------------------
Non-Money Market ProFunds Cash Management Portfolio
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 April 24, 1998 as revised on November 9, 1998
<PAGE>
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Continued from Previous Page
PERFORMANCE OF THE MONEY MARKET PROFUND WILL CORRESPOND DIRECTLY TO THE
INVESTMENT PERFORMANCE OF THE PORTFOLIO. SHARES OF THE MONEY MARKET PROFUND ARE
NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, AND ARE NOT ENDORSED OR GUARANTEED BY
ANY BANK, AND AN INVESTMENT IN THIS PROFUND IS NEITHER INSURED NOR GUARANTEED BY
THE UNITED STATES GOVERNMENT. THE MONEY MARKET PROFUND SEEKS TO MAINTAIN A
CONSTANT $1.00 NET ASSET VALUE PER SHARE, ALTHOUGH THIS CANNOT BE ASSURED.
The ProFunds involve special risks, some not traditionally associated with
mutual funds. Investors should carefully review and evaluate these risks in
considering an investment in the ProFunds to determine whether an investment in
the ProFunds is appropriate. None of the ProFunds alone constitutes a balanced
investment plan and the non-money market ProFunds are not intended for investors
whose principal objective is current income or preservation of capital. See
"Special 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 ("SAI"), dated April 24, 1998, containing additional information
about ProFunds has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. A copy of this SAI is available, without
charge, upon request to ProFunds at the address above or by telephoning ProFunds
at the telephone numbers above.
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OVERVIEW
PROFUNDS
Each ProFund has its own distinct investment objective. There is, of
course, no guarantee that any mutual fund will achieve its investment objective.
The investment objectives of the ProFunds are as follows:
The Bull ProFund and the UltraBull ProFund. The Bull ProFund's investment
objective is to provide investment returns that correspond to the performance of
the S&P 500 Index. The UltraBull ProFund's investment objective is to provide
investment returns that correspond to 200% of the performance of the S&P 500
Index. The UltraBull ProFund should gain more than the Bull ProFund when the
prices of the securities in the S&P 500 Index rise and lose more when such
prices decline.
The Bear ProFund and the UltraBear ProFund. The Bear ProFund's investment
objective is to provide investment results that will inversely correlates to the
performance of the S&P 500 Index. The UltraBear ProFund's investment objective
is to provide investment results that will inversely correlate to 200% of the
performance of the S&P 500 Index.
If the Bear ProFund is successful in meeting its objective, the net asset
value of Bear ProFund shares will increase in direct proportion to any decrease
in the level of the S&P 500 Index. Conversely, the net asset value of Bear
ProFund shares will decrease in direct proportion to any increases in the level
of the S&P 500 Index. The net asset value of shares of the UltraBear ProFund
should increase or decrease approximately twice as much as does that of the Bear
ProFund on any given day.
The UltraOTC ProFund. The investment objective of the UltraOTC ProFund is
to provide investment results that correspond to 200% of the performance of the
NASDAQ 100 Index. The NASDAQ 100 Index includes 100 of the largest non-financial
domestic companies listed on the NASDAQ National Market tier of The NASDAQ Stock
Market.
The UltraShort OTC ProFund. The investment objective of the UltraShort OTC
ProFund is to provide investment results that correspond each day to twice of
the inverse (opposite) of the performance of the NASDAQ 100 Index(TM).
The Money Market ProFund. The Money Market ProFund seeks, as its investment
objective, a high level of current income consistent with liquidity and
preservation of capital. To achieve its objective, the Money Market ProFund
invests all of its investable assets in the Portfolio, which has the same
investment objec-
- ----------------------------------------------------- Prospectus 3 -------------
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tive as the Money Market ProFund. This two-tiered investment approach is
commonly referred to as a master-feeder fund structure. See "Investment
Policies and Techniques -- Special Information Concerning Master-Feeder Fund
Structure."
A discussion of each ProFund's investment objective and policies is
provided below under "Investment Objectives" and "Investment Policies and
Techniques."
SPECIAL RISK CONSIDERATIONS
The ProFunds present certain risks to investors, some that are usually not
associated with mutual funds, which are discussed below and elsewhere in this
Prospectus. Investors should carefully review and evaluate these risks in
considering an investment in the ProFunds to determine whether an investment in
the ProFunds is appropriate. This discussion should be read in conjunction with
the rest of the Prospectus and "Special Considerations."
The ProFunds expect that a substantial portion of the assets of the
ProFunds will be derived from professional money managers and investors who
intend to invest in the ProFunds as part of their tactical investment
strategies. These investors are likely to redeem or exchange their ProFund
shares frequently to take advantage of anticipated changes in market conditions.
The strategies employed by ProFund shareholders may result in considerable
assets moving in and out of the ProFunds. Consequently, the ProFunds expect that
they will experience unusually high portfolio turnover. This portfolio turnover
will cause the realization of capital gains and losses, higher expenses and
additional costs. Additionally, a high portfolio turnover may adversely affect
the ability of a ProFund to meet its investment objective. For further
information concerning the portfolio turnover of the ProFunds, see "Special
Considerations" in this Prospectus.
Shareholders in the Bear ProFund and the UltraBear ProFund should lose
money while prices of the securities in the S&P 500 Index increase. This is the
opposite likely result expected of investing in a traditional equity mutual fund
in a generally rising stock market.
Investors in the UltraBull ProFund and the UltraBear ProFund employ
leveraged investment techniques. Investors in these ProFunds will experience
magnified losses in market conditions that are adverse to their investment
objectives.
While the ProFunds do not expect that their returns over the course of a
year will deviate adversely from their respective current benchmarks by more
than 10%, certain factors may affect their ability to achieve this correlation.
- ------------ 4 -----------------------------------------------------------------
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The ProFunds (other than the Money Market ProFund) may engage in certain
aggressive investment techniques, which may include engaging in short sales and
transactions in futures contracts and options on securities, stock indexes, and
futures contracts. Employing these techniques requires special skills and
knowledge. Also, there may be periods when the ProFunds may not be able to
liquidate their positions. These and other risks are more fully discussed under
"Special Considerations", "Investment Objectives" and "Investment Policies and
Techniques."
Each non-money market ProFund is a "non-diversified" series of the
ProFunds. A ProFund is considered "non-diversified" because a relatively high
percentage of the ProFund's assets may be invested in the securities of a
limited number of issuers, primarily within the same economic sector. Such
ProFund's portfolio securities, therefore, may be more susceptible to any single
economic, political, or regulatory occurrence than the portfolio securities of a
more diversified investment company. See "Special Considerations" for a
discussion of these factors.
PURCHASES, REDEMPTIONS, AND EXCHANGES OF SHARES
The shares of the ProFunds may be purchased and redeemed, without any sales
or redemption charge, at the next determined net asset value per share of the
ProFund. Purchases of shares may be made by check or wire transfer.
The minimum initial investment in the ProFunds for investors who have
engaged a registered investment adviser with discretionary authority over the
shareholder's account is $5,000. The minimum is $15,000 for all other investors.
Shares of any of the ProFunds may be exchanged at any time for any shares
of 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 ADVISORS
The investment advisor of the non-money market ProFunds is ProFund Advisors
LLC (the "Advisor"). The Advisor is located in Bethesda, Maryland. See
"Management of the ProFunds." The investment advisor of the Portfolio is Bankers
Trust Company ("Bankers Trust"), a wholly-owned subsidiary of Bankers Trust New
York Corporation.
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ADMINISTRATOR, TRANSFER AGENT, FUND ACCOUNTING AGENT AND CUSTODIAN
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS")
acts as Administrator to the ProFunds. ProFund Advisors LLC, pursuant to a
separate Administration Agreement, performs certain administrative and
shareholder services on behalf of the ProFunds. BISYS Funds Services, Inc.
("BFSI"), an affiliate of BISYS, acts as transfer agent and fund accounting
agent for the ProFunds, for which it receives additional fees. UMB Bank, N.A.
serves as the custodian of the ProFunds' securities and other assets.
- ------------- 6 ----------------------------------------------------------------
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FEES AND EXPENSES
FEE TABLES
The following table illustrates all expenses and fees that a shareholder of
the ProFunds' Investor Shares will incur in the first year of operations:
<TABLE>
<CAPTION>
ULTRASHORT MONEY
BULL ULTRABULL BEAR ULTRABEAR ULTRAOTC OTC MARKET
PROFUND PROFUND PROFUND PROFUND PROFUND PROFUND PROFUND
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses:
Sales Load Imposed On
Purchases ................. None None None None None None None
Sales Load Imposed On
Reinvested Dividends ...... None None None None None None None
Deferred Sales Load ......... None None None None None None None
Redemption Fees(1) .......... None None None None None None None
Exchange Fees ............... None None None None None None None
Annual Fund Operating
Expenses:
Advisory Fees ............... 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.15%(2)
12b-1 Fees .................. None None None None None None None
Other Expenses After
Waiver(3)(4) .............. 0.58% 0.58% 0.58% 0.58% 0.58% 0.58% 0.68%
Total ProFund Operating
Expenses After Waiver ..... 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 0.83%
</TABLE>
The following table illustrates all expenses and fees that a shareholder of
the ProFunds' Service Shares will incur in the first year of operations:
<TABLE>
<CAPTION>
ULTRASHORT MONEY
BULL ULTRABULL BEAR ULTRABEAR ULTRAOTC OTC MARKET
PROFUND PROFUND PROFUND PROFUND PROFUND PROFUND PROFUND
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses:
Sales Load Imposed on
Purchases .................... None None None None None None None
Sales Load Imposed on
Reinvested Dividends ......... None None None None None None None
Deferred Sales Load ............ None None None None None None None
Redemption Fees(1) ............. None None None None None None None
Exchange Fees .................. None None None None None None None
</TABLE>
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<TABLE>
<CAPTION>
ULTRASHORT MONEY
BULL ULTRABULL BEAR ULTRABEAR ULTRAOTC OTC MARKET
PROFUND PROFUND PROFUND PROFUND PROFUND PROFUND PROFUND
<S> <C> <C> <C> <C> <C> <C> <C>
Annual Fund Operating
Expenses:
Advisory Fees .............. 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.15%(2)
12b-1 Fees ................. None None None None None None None
Other Expenses After
Waiver(3)(4) ............. 1.58% 1.58% 1.58% 1.58% 1.58% 1.58% 1.68%
Total ProFund Operating
Expenses After Waiver..... 2.33% 2.33% 2.33% 2.33% 2.33% 2.33% 1.83%
</TABLE>
1) The ProFunds charge $15 for each wire transfer of redemption proceeds;
this charge may be waived at the discretion of the ProFunds.
2) The Portfolio pays Bankers Trust a .15% advisory fee, of which the Money
Market ProFund bears its pro rata portion. The ProFunds' Board of
Trustees believes that the aggregate per share expenses of the Money
Market ProFund and the Portfolio will be approximately equal to the
expenses the Fund would incur if its assets were invested directly in
money market securities.
3) Based on estimated expenses to be incurred in the ProFunds' first year
of operations. Other expenses include fees of .15% (.35% in the case of
the Money Market ProFund) for administration and shareholder services,
and in the case of the Portfolio, an administration and services fee of
.05%. The fee under each ProFund's Shareholder Services Plan is
calculated on the basis of the average net assets of each ProFund's
Service Shares at an annual rate not to exceed 1.00%.
4) Without the voluntary waiver of advisory and administration fees it is
estimated that the "Total Operating Expenses" for the Investor Class of
the ProFunds would be 1.48% for the UltraBull ProFund, 1.47% for the
UltraBear ProFund, 1.48% for the UltraOTC ProFund, 1.66% for the
UltraShort OTC ProFund and 0.92% for the Money Market ProFund. Without
the voluntary waiver of advisory and administration fees, and the
reimbursement of expenses, it is estimated that the "Total Operating
Expenses" for the Investor Class would be 2.67% for the Bull ProFund and
3.92% for the Bear ProFund. Without the voluntary waiver of advisory and
administration fees it is estimated that the "Total Operating Expenses"
for the Service Class of the ProFunds would be, 2.48% for the UltraBull
ProFund, 2.47% for the UltraBear ProFund, 2.48% for the UltraOTC
ProFund, 2.66% for the UltraShort OTC ProFund and 1.92% for the Money
Market ProFund. Without the voluntary waiver of advisory and
administration fees, and the reimbursement of expenses, it is estimated
that the "Total Operating Expenses" for the Service Class would be 3.67%
for the Bull ProFund and 4.92% for the Bear ProFund.
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EXAMPLES
Assuming hypothetical investments of $1,000 in Investor Shares of each of
the ProFunds, a 5% annual return, and redemption at the end of each time period,
an investor in each of the ProFunds would pay operating expenses as follows:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C> <C>
Bull ProFund .................... $14 $42
UltraBull ProFund ............... 14 42
Bear ProFund .................... 14 42
UltraBear ProFund ............... 14 42
UltraOTC ProFund ................ 14 42
UltraShort OTC ProFund .......... 14 42
Money Market ProFund ............ 8 26
</TABLE>
Assuming hypothetical investments of $1,000 in Service Shares of each of
the ProFunds, a 5% annual return, and redemption at the end of each time period,
an investor in each of the ProFunds would pay operating expenses as follows:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C> <C>
Bull ProFund .................... $24 $73
UltraBull ProFund ............... 24 73
Bear ProFund .................... 24 73
UltraBear ProFund ............... 24 73
UltraOTC ProFund ................ 24 73
UltraShort OTC ProFund .......... 24 73
Money Market ProFund ............ 19 60
</TABLE>
The preceding tables of fees and expenses are provided to assist investors
in understanding the various costs and expenses which may be borne directly or
indirectly by an investor in each of the ProFunds' Service Shares and Investor
Shares. The fees and expenses of the Money Market ProFund reflect the expenses
of both that ProFund and its pro rata share of the expenses of the Portfolio.
The percentages shown above are based on estimates. The 5% assumed annual return
is for comparison purposes only. For a more complete discussion of the fees
connected with an investment in the ProFunds and the services provided to the
ProFunds, see "Management of the ProFunds" in this Prospectus and in the SAI.
THE PRECEDING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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FINANCIAL HIGHLIGHTS
The following table presents per share financial information for the period
ended December 31, 1997 for the Investor Class of each ProFund. The UltraShort
OTC ProFund has not yet commenced operations as of December 31, 1997. The
Financial Highlights have been audited by Coopers & Lybrand LLP, independent
accountants, whose report on the financial statements of the ProFunds appears in
the ProFunds' Annual Report for the fiscal year ended December 31, 1997 (the
"Annual Report"). These statements should be read in conjunction with the
"Report of Independent Accountants" and the other financial statements and
related notes which are contained in the Annual Report. Copies of the Annual
Report are available upon request without charge by phoning (888) 776-3637.
INVESTOR SHARES
<TABLE>
<CAPTION>
BULL ULTRABULL BEAR
PROFUND PROFUND PROFUND
12/2/97 TO 11/28/97 TO 12/31/97 TO
12/31/97(A) 12/31/97(A) 12/31/97(A)
<S> <C> <C> <C>
Net asset value, beginning
of period ................... $ 10.00 $ 10.00 $ 10.00
------------ ----------- -----------
Income from investment
operations:
Net investment income
(loss) .................... 0.02 0.01 --
Net realized and
unrealized gain (loss)
on investments ............ (0.13) 0.28 --
------------ ----------- -----------
Total from investment
operations ............... (0.11) 0.29 --
------------ ----------- -----------
Distributions to
shareholders from:
Net investment income........ -- -- --
------------ ----------- ------------
Net asset value, end of
period ...................... $ 9.89 $ 10.29 $ 10.00
============ =========== ============
Total return ................. (1.10%)(b) 2.90% (b) 0.00% (b)
Ratios/Supplemental Data:
Net assets, end of period..... $ 46,281 $ 6,043,740 $ 2,516,412
Ratio of expenses to
average net assets .......... 1.33% (c) 1.33% (c) 0.00% (c)
Ratio of net investment
income (loss) to average
net assets .................. 2.97% (c) 2.26% (c) 0.00% (c)
Ratio of expenses to
average net assets* ......... 423.48% (c) 12.69% (c) 325.97% (c)
Ratio of net investment
income (loss) to average
net assets* ................. (419.18%)(c) (9.10%)(c) (325.97%)(c)
<CAPTION>
MONEY
ULTRABEAR ULTRAOTC MARKET
PROFUND PROFUND PROFUND
12/23/97 TO 12/2/97 TO 11/17/97 TO
12/31/97(A) 12/31/97(A) 12/31/97(A)
<S> <C> <C> <C>
Net asset value, beginning
of period ................... $ 10.00 $ 10.00 $ 1.00
-------------- ---------- -----------
Income from investment
operations:
Net investment income
(loss) .................... 1,216.50 (e) 0.06 0.006
Net realized and
unrealized gain (loss)
on investments ............ (1,216.14)(e) (1.70) --
-------------- ---------- ----------
Total from investment
operations ............... 0.36 (1.64) 0.006
-------------- ---------- ----------
Distributions to
shareholders from:
Net investment income........ -- -- (0.006)
-------------- ----------- ----------
Net asset value, end of
period ...................... $ 10.36 $ 8.36 $ 1.00
============== ========== ==========
Total return ................. 3.60% (b) (16.40%)(b) 0.61% (b)
Ratios/Supplemental Data:
Net assets, end of period..... $ 21 $ 256,184 $ 286,962
Ratio of expenses to
average net assets .......... 1.33% (c) 1.07% (c) 0.83% (c)(d)
Ratio of net investment
income (loss) to average
net assets .................. 2.97% (c) 2.73% (c) 4.92% (c)
Ratio of expenses to
average net assets* ......... 32.39% (c) 21.74% (c) 9.52% (c)(d)
Ratio of net investment
income (loss) to average
net assets* ................. (28.09%)(c) (17.94%)(c) (3.77%)(c)
</TABLE>
* During the period, certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) The Money Market ProFund expense ratio includes the expense allocation of
the Cash Management Portfolio Master Fund.
(e) The amount shown for a share outstanding throughout the period does not
accord with the earned income or the change in aggregate gains and losses in
the portfolio of securities during the period because of the timing of
purchases of fund shares in relation to fluctuating market values during the
period.
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<PAGE>
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FINANCIAL HIGHLIGHTS
The following table presents per share financial information for the period
ended December 31, 1997 for the Service Class of each ProFund. The UltraShort
OTC ProFund has not yet commenced operations as of December 31, 1997. The
Financial Highlights have been audited by Coopers & Lybrand LLP, independent
accountants, whose report on the financial statements of the ProFunds appears in
the ProFunds' Annual Report for the fiscal year ended December 31, 1997 (the
"Annual Report"). These statements should be read in conjunction with the
"Report of Independent Accountants" and the other financial statements and
related notes which are contained in the Annual Report. Copies of the Annual
Report are available upon request without charge by phoning (888) 776-3637.
SERVICE SHARES
<TABLE>
<CAPTION>
BULL ULTRABULL BEAR
PROFUND PROFUND PROFUND
12/2/97 TO 11/28/97 TO 12/31/97 TO
12/31/97(A) 12/31/97(A) 12/31/97(A)
<S> <C> <C> <C>
Net asset value, beginning
of period ........................ $ 10.00 $ 10.00 $ 10.00
------------ ------------ ------------
Income from investment
operations:
Net investment income
(loss) .......................... -- 0.01 --
Net realized and
unrealized gain (loss)
on investments .................. (0.11) 0.28 --
------------ ------------ ------------
Total from investment
operations .................... (0.11) 0.29 --
------------ ------------ ------------
Distributions to
shareholders from:
Net investment income ............ -- -- --
Net realized gain on
investments ..................... -- -- --
------------ ------------ ------------
Total distributions to
shareholders .................... -- -- --
------------ ------------ ------------
Net asset value, end of period. $ 9.89 $ 10.29 $ 10.00
============ ============ ============
Total return ...................... (1.10%) (b) 2.90% (b) 0.00% (b)
Ratios/Supplemental Data:
Net assets, end of period ......... $ 10 $ 2,394,297 $ 10
Ratio of expenses to
average net assets ............... 1.33% (c) 1.33% (c) 0.00% (c)
Ratio of net investment
income (loss) to average net
assets ........................... 0.00% (c) 1.69% (c) 0.00% (c)
Ratio of expenses to
average net assets* .............. 424.48% (c) 13.69% (c) 326.97% (c)
Ratio of net investment
income (loss) to average
net assets* ...................... (424.48%)(c) (10.67%)(c) (326.97%)(c)
<CAPTION>
MONEY
ULTRABEAR ULTRAOTC MARKET
PROFUND PROFUND PROFUND
12/23/97 TO 12/2/97 TO 11/17/97 TO
12/31/97(A) 12/31/97(A) 12/31/97(A)
<S> <C> <C> <C>
Net asset value, beginning
of period ........................ $ 10.00 $ 10.00 $ 1.00
------------ ------------ ----------
Income from investment
operations:
Net investment income
(loss) .......................... -- -- --
Net realized and
unrealized gain (loss)
on investments .................. 0.35 (1.64) --
------------ ------------ ----------
Total from investment
operations .................... 0.35 (1.64) --
------------ ------------ ----------
Distributions to
shareholders from:
Net investment income ............ -- -- --
Net realized gain on
investments ..................... -- -- --
------------ ------------- -----------
Total distributions to
shareholders .................... -- -- --
------------ ------------- -----------
Net asset value, end of period. $ 10.35 $ 8.36 $ 1.00
============ ============= ===========
Total return ...................... 3.50% (b) (16.40%)(b) 0.21%(b)
Ratios/Supplemental Data:
Net assets, end of period ......... $ 10 $ 663,984 $ 2,510
Ratio of expenses to
average net assets ............... 1.33% (c) 1.75% (c) 1.83%(c)(d)
Ratio of net investment
income (loss) to average net
assets ........................... 0.00% (c) (0.06%)(c) 2.53%(c)
Ratio of expenses to
average net assets* .............. 33.39% (c) 23.42% (c) 10.52%(c)(d)
Ratio of net investment
income (loss) to average
net assets* ...................... (33.39%)(c) (21.73%)(c) (6.16%)(c)
</TABLE>
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) The Money Market ProFund expense ratio includes the expense allocation of
the Cash Management Portfolio Master Fund.
- ---------------------------------------------------------- Prospectus 11 -------
<PAGE>
- --------- [GRAPHIC OMITTED]-----------------------------------------------------
SHAREHOLDERS'
GUIDE
HOW TO INVEST IN THE PROFUNDS
General
-------
The shares of each ProFund are offered at the net asset value per share
next computed after receipt of the investor's order. No sales charges are
imposed on initial or subsequent investments in a ProFund. See "General
Information About the Trust -- Determination of Net Asset Value".
Minimum Investment
------------------
The minimum initial investment in the ProFunds for investors who have
engaged a registered investment adviser with discretionary authority over the
shareholder's account is $5,000. For all other shareholder accounts
("Self-Directed Accounts"), the minimum initial investment in the ProFunds is
$15,000. These minimums also apply to retirement plan accounts and are
determined based upon the total investment in all ProFunds. ProFunds, at its
discretion, may accept lesser amounts in certain circumstances. There is no
minimum amount for subsequent investments, other than those made pursuant to the
automatic investment plan, in a ProFund. ProFunds reserves the right to reject
or refuse, at ProFunds' discretion, any order for the purchase of a ProFund's
shares in whole or in part.
How to Invest by Mail
---------------------
Fill out an application and make out a check payable to "ProFunds." Send
the check along with the application to:
<TABLE>
<S> <C>
Mail Overnight:
ProFunds Profunds
P.O. Box 182800 or c/o BISYS
Columbus, OH 43218-2800 3435 Stelzer Road
Columbus, OH 43219
</TABLE>
The net asset value of shares purchased by mail will be computed based upon
the price of shares next computed after the receipt of an investment by mail.
- ---------- 12 ------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
How to Invest by Wire Transfer
------------------------------
INITIAL INVESTMENT IN A NEW ACCOUNT: First, complete an application and
fax it to ProFunds at (800) 782-4797 (toll-free) or (614) 470-8718. Next, call
ProFunds at (888) 776-3637 (toll-free) or (614) 470-8122 to a) confirm receipt
of the faxed application, b) request your new account number, c) inform
ProFunds of the amount to be wired and d) receive a confirmation number for
your purchase order. After receiving your confirmation number, instruct your
bank to transfer money by wire to:
UMB BANK, N.A.
928 GRAND AVENUE
KANSAS CITY, MISSOURI 64141
ROUTING/ABA #: 101000695
FOR ACCOUNT OF PROFUNDS
DDA #9870857952
FOR FURTHER CREDIT TO: Your name and ProFunds account number
CONFIRMATION NUMBER: The confirmation number given to you by
the ProFunds representative
After faxing a copy of the completed application, send the original to
ProFunds via mail or overnight delivery. The addresses are shown above under How
to Invest by Mail.
SUBSEQUENT INVESTMENTS IN EXISTING ACCOUNTS: First, call ProFunds at (888)
776-3637 (toll-free) or (614) 470-8122 to inform ProFunds of the amount to be
wired and receive a confirmation number for your purchase order. After receiving
your confirmation number, instruct your bank to transfer money by wire using the
address and details as shown above.
Wire transfer requests may be made between 8:00 AM and 9:00 PM Eastern
Time. However, wire transfers must be received by 3:30 PM Eastern Time to
receive that day's net asset value. Wire transfer requests received after 3:30
PM Eastern Time are deemed to be received on the next business day of ProFunds
and will be placed at the next determined net asset value on the next business
day. If the primary exchange or market on which a ProFund transacts business
closes early, the above cut-off time will be thirty minutes prior to the close
of such exchange or market. Your bank may charge a fee for such services.
Instructions, written or telephonic, given to ProFunds for wire transfer
requests do not constitute a purchase order until the wire transfer has been
received by ProFunds. ProFunds is not liable for any loss incurred due to a wire
transfer not having been received.
- --------------------------------------------------------- Prospectus 13 --------
<PAGE>
- ------------[GRAPHIC OMITTED] --------------------------------------------------
Purchase Through Securities Brokers or Dealers
----------------------------------------------
Investments in the ProFunds may be made through securities brokers or
dealers who have the responsibility to transmit orders promptly and who may
charge a processing fee.
HOW TO EXCHANGE SHARES OF THE PROFUNDS
Shares of any ProFunds may be exchanged, without any charge, for shares of
the same class of any other ProFunds on the basis of the respective net asset
values of the shares involved. Exchanges may be made by letter or by telephone
at the address or numbers indicated on the cover of this Prospectus. TELEPHONE
REQUESTS FOR SHARE EXCHANGES MAY ONLY BE MADE BETWEEN 8:00 AM AND 3:50 PM AND
BETWEEN 4:30 PM AND 9:00 PM. Telephone requests for share exchanges will receive
the net asset value per share next determined. 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. The net asset
value of share exchange requests made by mail will be computed based upon the
price of shares next computed after the receipt of the request.
Exchanges with respect to Self-Directed Accounts must be for at least
$1,000 or 100% of the account value for the ProFund, whichever is less, from
which the transfer is made. See "Shareholders' Guide -- Special Information
Regarding Telephone Requests for Redemptions and Exchanges".
To implement an exchange, shareholders must provide the following
information:
o Name and telephone number;
o Account name and number;
o Taxpayer identification number;
o Number of or percentage of shares or dollar value of shares to be
exchanged;
o The name of the ProFunds from which the exchange is to be made; and
o The name of the ProFunds to which the exchange is to be made.
The privilege to initiate exchange transactions by telephone will be made
available to ProFund shareholders automatically. Exchanges may only be made
between identically registered accounts. The exchange privilege is available
only in states where the exchange legally may be made and may be modified or
discontinued at any time. In addition, see "Shareholders' Guide -- Special
Information Regarding Written and Telephone Requests for Redemptions and
Exchanges" regarding instructions received by telephone.
- ----------- 14 -----------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
HOW TO WITHDRAW MONEY (REDEEM SHARES)
General
-------
An investor can withdraw all or any portion of his investment by redeeming
ProFund shares at the next determined net asset value per share after receipt of
the order. Withdrawals may be made by letter or by telephone at the address or
numbers indicated on the cover of this Prospectus. TELEPHONE REQUESTS FOR SHARE
REDEMPTIONS MAY ONLY BE MADE BETWEEN 8:00 AM AND 3:50 PM AND BETWEEN 4:30 PM AND
9:00 PM. Telephone requests for share redemptions will receive the net asset
value per share next determined. If the primary exchange or market on which a
ProFund transacts business closes early, the above cut-off time will be thirty
minutes prior to the close of such exchange or market. The net asset value of
share redemption requests made by mail will be computed based upon the price of
shares next computed after the receipt of the request.
The privilege to initiate redemption transactions by telephone will be made
available to ProFund shareholders automatically. Redemptions from Self-Directed
Accounts must be for at least $1,000 or 100% of the account value for the
ProFund, whichever is less, from which the transfer is made.
Payment of the redemption proceeds will be made within seven days after the
ProFunds' receipt of the request for redemption. For investments that have been
made by check, payment on withdrawal requests will be delayed until the
ProFunds' transfer agent is reasonably satisfied that the purchase payment has
been collected by the ProFunds (which may require up to 15 business days).
Wire of Withdrawals
-------------------
Shareholders may request payment by wire of withdrawal proceeds from a
ProFund. The ProFunds charge $15 for each wire transfer of redemption proceeds;
this charge may be waived at the discretion of the ProFunds.
Draft Checks
------------
Investors may elect to redeem shares of the Money Market ProFund by draft
check (minimum check $500) made payable to the order of any person or
institution. Upon the ProFunds' receipt of a completed signature card, investors
will be supplied with draft checks which are drawn on the Money Market ProFund's
account. There is a $25 charge for each stop payment request on the draft
checks. Investors are subject to the same rules and regulations that banks apply
to checking accounts. A Money Market ProFund account may not be closed by draft
check. This option is not available to Individual Retirement Account ("IRA")
shareholders.
- ----------------------------------------------------------Prospectus 15 --------
<PAGE>
- -------------[GRAPHIC OMITTED] -------------------------------------------------
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 national securities exchange, registered securities association,
clearing agency, or a savings association. (A notarized signature cannot serve
as a guarantee for this purpose.)
SPECIAL INFORMATION REGARDING TELEPHONE REQUESTS FOR REDEMPTION AND EXCHANGES
When acting on telephone instructions believed to be genuine, the ProFunds
will not be liable for any loss resulting from a fraudulent telephone
transaction request, and the investor will bear the risk of any such loss. The
ProFunds will employ reasonable procedures to confirm that the telephone
instructions are genuine; and if the ProFunds do not employ such procedures,
then the ProFunds may be liable for any losses due to unauthorized or fraudulent
instructions. The ProFunds follow specific procedures for transactions initiated
by telephone, including, among others, requiring some form of personal
identification prior to acting upon instructions received by telephone,
providing written confirmation not later than 5 business days after such
transaction and/or tape recording of telephone instructions.
Investors also should be aware that telephone redemptions or exchanges may
be difficult to implement in a timely manner during periods of significant
economic or market changes. If such conditions occur, redemption or exchange
orders can be made by mail. Telephone redemption and exchange privileges may be
terminated or modified by the ProFunds at any time.
HOW TO MAKE AUTOMATIC INVESTMENTS, EXCHANGES AND WITHDRAWALS
Investors may also purchase and redeem ProFund shares by arranging
systematic monthly, bimonthly, quarterly or annual investments into the
ProFunds (the "Automatic Investment Plan"), and redemptions from the ProFunds
(the "Automatic Withdrawal Plan"). The minimum investment amounts are $1,000
per transfer and minimum withdrawal amounts are $500 per transfer. These
- ---------- 16 ------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
minimums are waived for IRA shareholders 70 1/2 or older. Additionally,
investors may exchange, on a regular basis, shares of the Money Market ProFund
for shares of other ProFunds through ProFunds' Automatic Exchange Plan. For more
information, including terms and conditions, about automatic investment,
exchange and withdrawal features, please call the ProFunds at 888-PRO-FNDS.
DIVIDENDS AND DISTRIBUTIONS
General
-------
All income dividends and capital gains distributions of each ProFund
automatically will be reinvested in additional shares of the ProFund at the net
asset value calculated on the ex-dividend date, unless an investor has requested
otherwise in writing. Dividends and distributions of a ProFund are taxable to
the shareholders of the ProFund, as discussed below under "Taxes," whether such
dividends and distributions are reinvested in additional shares of the ProFund
or received in cash. Statements of account will be sent to the ProFund
shareholders at least quarterly.
All ProFunds Except Money Market ProFund
----------------------------------------
The ProFunds, other than the Money Market ProFund intend to distribute
annually any net investment income and net realized capital gains to
shareholders. The ProFunds may declare a special distribution for any of these
ProFunds if the ProFunds believe that such a distribution would be in the best
interests of its shareholders.
Money Market ProFund
--------------------
Shares begin accruing dividends on the day the purchase order is received
in proper form and payment in the form of federal funds is received by BFSI, the
ProFunds' transfer agent, and continue to earn dividends through the day before
a redemption order for such shares is processed by BFSI. The Money Market
ProFund ordinarily (i) declares dividends of net investment income (and net
short-term capital gains, if any) for shares of the Money Market ProFund on a
daily basis and (ii) distributes such dividends to shareholders of the Money
Market ProFund on a monthly basis. Net realized capital gains will be
distributed annually. The Money Market ProFund's net investment income consists
of its share of the Portfolio's dividends and interest (including discount)
accrued on its securities, less applicable expenses. The Money Market ProFund,
however, may revise this dividend and distribution policy, postpone the payment
of dividends thereunder, or take any other action necessary with respect thereto
in order to facilitate, to the extent possible, the maintenance by the Money
Market ProFund of a constant net asset value per share of $1.00.
- ---------------------------------------------------------- Prospectus 17 -------
<PAGE>
- ----------[GRAPHIC OMITTED] ----------------------------------------------------
TAX-SHELTERED RETIREMENT PLANS
ProFunds sponsors IRAs which enable individuals to establish their own
retirement program (including spousal IRAs, Rollover IRAs, Roth IRAs, SEP IRAs
and Simple IRAs). Fund-sponsored retirement plans are charged an annual $15.00
maintenance fee and receive tax reporting services. In addition, investors in
the following retirement plans are eligible to invest in ProFunds:
o Keogh Accounts -- Defined Contribution Plans (Profit-Sharing Plans)
o Profit Sharing Plans
o Money Purchase Plans
o Pension Plans
o Internal Revenue Code Section 403(b)(7) Plans
All distributions for Fund-Sponsored retirement plans must be made by
completing the appropriate distribution form. Any additional deposits to the
ProFunds must distinguish the type and year of the contribution.
For more information on ProFunds IRAs, or any other retirement plan, please
call the ProFunds at 888-PRO-FNDS. Shareholders are advised to consult a tax
adviser on ProFunds IRA contribution and withdrawal requirements and
restrictions.
MISCELLANEOUS
Involuntary Redemptions of Small Accounts
-----------------------------------------
Because of the administrative expense of handling small accounts, the
ProFunds reserve the right to redeem involuntarily an investor's account,
including a retirement account, which falls below the applicable minimum
investment in total value in the ProFunds due to redemptions. In addition, both
a request for a partial redemption by an investor whose account balance is below
the minimum investment and a request for a partial redemption by an investor
that would bring the account balance below the minimum investment will be
treated as a request by the investor for a complete redemption of that account.
Investors holding shares in a retirement account should be aware that any
redemption from a retirement account may result in tax consequences including,
but not limited to, a 10% penalty on the amount withdrawn if the shareholder is
under the age of 59 1/2. Shareholders should consult their tax advisors about
such tax
- ---------- 18 ------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
consequences. The ProFunds reserve the right to modify their minimum investment
requirements and the corresponding amounts below which involuntary redemptions
may be effected.
Suspension of Redemptions
-------------------------
The right of redemption may be suspended, or the date of payment postponed:
(i) for any period during which the New York Stock Exchange ("NYSE"), the
Federal Reserve Bank of New York, as appropriate, is closed (other than
customary weekend or holiday closings) or trading on the NYSE, as appropriate,
is restricted; (ii) for any period during which an emergency exists so that
disposal of a ProFund's investments or the determination of its net asset value
is not reasonably practicable; or (iii) for such other periods as the Securities
and Exchange Commission (the "Commission"), by order, may permit for protection
of the ProFunds' investors.
"Undeliverable" or "Uncashed" Dividend Checks
---------------------------------------------
If you elect to receive distributions in cash and checks (1) are returned
and marked as "undeliverable" or (2) remain uncashed for six months, your cash
election will be changed automatically and your future dividend and capital
gains distributions will be reinvested in the ProFunds at the per share net
asset value determined as of the date of payment of the distribution. In
addition, any undeliverable checks or checks that remain uncashed for six months
will be canceled and will be reinvested in the ProFunds at the per share net
asset value determined as of the date of cancellation.
Transaction Charges
-------------------
In addition to charges described elsewhere in this Prospectus, the ProFunds
also may make a charge of $25 for checks 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 BFSI.
- ----------------------------------------------------------- Prospectus 19 ------
<PAGE>
- ----------[GRAPHIC OMITTED] ----------------------------------------------------
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.
TRACKING ERROR
While the ProFunds do not expect that their returns over a year will
deviate adversely from their respective benchmarks by more than ten percent,
several factors may affect their ability to achieve this correlation. Among
these factors are: (1) ProFund expenses, including brokerage (which may be
increased by high portfolio turnover) and the cost of the investment techniques
employed by the ProFunds; (2) less than all of the securities in the benchmark
being held by a ProFund and securities not included in the benchmark being held
by a ProFund; (3) an imperfect correlation between the performance of
instruments held by a ProFund, such as futures contracts and options, and the
performance of the underlying securities in the cash market; (4) bid-ask spreads
(the effect of which may be increased by portfolio turnover); (5) holding
instruments traded in a market that has become illiquid or disrupted; (6)
ProFund share prices being rounded to the nearest cent; (7) changes to the
benchmark index that are not disseminated in advance; (8) the need to conform a
ProFund's portfolio holdings to comply with investment restrictions or policies
or regulatory or tax law requirements, and (9) early and unanticipated closings
of the markets on which the holdings of a ProFund trade, resulting in the
inability of the ProFund to execute intended portfolio transactions. While a
close correlation of any ProFund to its benchmark may be achieved on any single
trading day, over time the cumulative percentage increase or decrease in the net
asset value of the shares of a ProFund may diverge significantly from the
cumulative percentage decrease or increase in the benchmark due to a compounding
effect.
AGGRESSIVE INVESTMENT TECHNIQUES
Each of the ProFunds (other than the Money Market ProFund) may engage in
certain aggressive investment techniques which may include engaging in short
sales and transactions in futures contracts and options on securities,
securities indexes, and futures contracts. These ProFunds expect that they will
primarily use these techniques in seeking to achieve their objectives and that a
significant portion (up to 100%) of the assets of these ProFunds will be held in
liquid instruments in a segregated account by these ProFunds as "cover" for
these investment techniques.
- ---------- 20 ------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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; and (4) the possible
absence of a liquid secondary market for any particular instrument at any time.
For further information regarding these investment techniques, see "Investment
Policies and Techniques."
LEVERAGE
The UltraBull ProFund, the UltraBear ProFund, the Ultra OTC ProFund and the
UltraShort OTC ProFund intend to regularly use leveraged investment techniques
in pursuing their investment objectives. Utilization of leveraging involves
special risks and should be considered to be speculative. Leverage exists when a
ProFund achieves the right to a return on a capital base that exceeds the amount
the ProFund has invested. Leverage creates the potential for greater gains to
shareholders of these ProFunds during favorable market conditions and the risk
of magnified losses during adverse market conditions. Leverage should cause
higher volatility of the net asset values of these ProFunds' shares. Leverage
may involve the creation of a liability that does not entail any interest costs
or the creation of a liability that requires the ProFund to pay interest which
would decrease the ProFund's total return to shareholders. If these ProFunds
achieve their investment objectives, during adverse market conditions,
shareholders should experience a loss of approximately twice the amount they
would have incurred had these ProFunds not been leveraged.
NON-DIVERSIFIED STATUS
Each non-money market ProFund is a "non-diversified" series. A non-money market
ProFund is considered "non-diversified" because a relatively high percentage of
the ProFund's assets may be invested in the securities of a limited number of
issuers, primarily within the same economic sector. That ProFund's portfolio
securities, therefore, may be more susceptible to any single economic,
political, or regulatory occurrence than the portfolio securities of a more
diversified investment company. A ProFund's classification as a
"non-diversified" in- vestment company means that the proportion of the
ProFund's assets that may be invested in the securities of a single issuer is
not limited by the Investment Company Act of 1940 (the "1940 Act"). Each
ProFund, however, intends to seek
- ---------------------------------------------------------Prospectus 21 ---------
<PAGE>
- ----------[GRAPHIC OMITTED] ----------------------------------------------------
to qualify as a "regulated investment company" for purposes of the Internal
Revenue Code, which imposes diversification requirements on these ProFunds that
are less restrictive than the requirements applicable to the "diversified"
investment companies under the 1940 Act.
- ---------- 22 ------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVES
GENERAL
The ProFunds may be used by professional money managers and investors as
part of an asset-allocation or market-timing investment strategy or to create
specified investment exposure to a particular segment of the securities market
or to hedge an existing investment portfolio. Except for the Money Market
ProFund, each ProFund seeks investment results that correspond each day to a
specified benchmark. The ProFunds may be used independently or in combination
with each other as part of an overall investment strategy. Additional ProFunds
may be created from time to time.
Fundamental securities analysis is not generally used by the Advisor in
seeking to correlate with the respective benchmarks. Rather, the Advisor
primarily uses statistical and quantitative analysis to determine the
investments a 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 a 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 the course of a
year. See "Special Considerations."
It is the policy of the non-money-market ProFunds to pursue their
investment objectives of correlating with their benchmarks regardless of market
conditions, to remain nearly fully invested and not to take defensive positions.
BENCHMARKS OF THE PROFUNDS
The S&P 500 Index. Standard & Poor's chooses the 500 stocks composing the
S&P 500 Index on the basis of market values and industry diversification. Most
of the stocks in the S&P 500 Index are issued by the 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&P 500 Index for
diversification purposes. The S&P 500 Index as referred to in this Prospectus
does not include the effect of dividends paid on the stock of the companies
included in the index. Standard & Poor's will not be a sponsor of, or in any
other way be affiliated with, the ProFunds.
- --------------------------------------------------------- Prospectus 23 --------
<PAGE>
- ----------[GRAPHIC OMITTED] ----------------------------------------------------
The NASDAQ 100 Index. The NASDAQ 100 Index includes 100 of the largest
non-financial domestic companies listed on the NASDAQ National Market tier of
The NASDAQ Stock Market. Launched in January 1985, each security in the NASDAQ
100 Index is proportionately represented by its market capitalization in
relation to the total market value of the NASDAQ 100 Index. The NASDAQ 100 Index
reflects NASDAQ's largest growth companies across major industry groups. All
index components have a minimum market capitalization of $500 million, and an
average daily trading volume of at least 100,000 shares. NASDAQ will not be a
sponsor of, or in any other way be affiliated with, the ProFunds.
THE BULL PROFUND AND ULTRABULL PROFUND
The investment objective of the Bull ProFund is to provide investment
returns that correspond to the performance of the S&P 500 Index. The investment
objective of the UltraBull ProFund is to provide investment returns that
correspond to 200% of the performance of the S&P 500 Index. These ProFunds seek
to achieve this correlation on each trading day. Under their investment
objectives, the UltraBull ProFund should produce greater gains to investors when
the S&P 500 Index rises and greater losses when the S&P 500 Index declines over
the corresponding gain or loss of the Bull ProFund.
In attempting to achieve their objectives, the Bull ProFund and the
UltraBull ProFund expect that a substantial portion of their respective assets
usually will be devoted to employing certain specialized investment techniques.
These techniques include engaging in certain transactions in stock index futures
contracts, options on stock index futures contracts, and options on securities
and stock indexes. The amount of any gain or loss on an investment technique may
be affected by any premium or amounts in lieu of dividends or interest income
the ProFund pays or receives as the result of the transaction. These ProFunds
may also invest in shares of individual securities which are expected to track
the S&P 500 Index.
THE BEAR PROFUND AND ULTRABEAR PROFUND
The Bear ProFund and the UltraBear ProFund are designed to allow investors
to speculate on anticipated decreases in the S&P 500 Index or to hedge an
existing portfolio of securities or mutual fund shares. The Bear ProFund's
investment objective is to provide investment results that will inversely
correlate to the performance of the S&P 500 Index. The UltraBear ProFund's
investment objective is to provide investment results that will inversely
correlate to 200% of the performance of the S&P 500 Index. These ProFunds seek
to achieve this inverse correlation on each trading day.
- ----------- 24 -----------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
If the Bear ProFund achieved a perfect inverse correlation for any single
trading day, the net asset value of the shares of the Bear ProFund would
increase for that day in direct proportion to any decrease in the level of the
S&P 500 Index. Conversely, the net asset value of the shares of the Bear ProFund
would decrease for that day in direct proportion to any increase in the level of
the S&P 500 Index for that day. The net asset value of the UltraBear ProFund on
the same days would increase or decrease approximately twice as much as the
price change of the Bear ProFund.
For example, if the S&P 500 Index were to decrease by 1% on a particular
day, investors in the Bear ProFund should experience a gain in net asset value
of approximately 1% for that day. The UltraBear ProFund should realize an
increase of approximately 2% of its net asset value on the same day. Conversely,
if the S&P 500 Index were to increase by 1% by the close of business on a
particular trading day, investors in the Bear ProFund and the UltraBear ProFund
would experience a loss in net asset value of approximately 1% and 2%,
respectively.
Due to the nature of the Bear ProFund and the UltraBear ProFund, investors
in these ProFunds could experience substantial losses during sustained periods
of rising equity prices, with losses to investors in the UltraBear ProFund
approximately twice as large as the losses to investors in the Bear ProFund.
In pursuing its investment objectives, the Bear ProFund and the UltraBear
ProFund generally do not invest in traditional securities, such as common stock
of operating companies. Rather, the Bear ProFund and the UltraBear ProFund
employ certain investment techniques, including engaging in short sales and in
certain transactions in stock index futures contracts, options on stock index
futures contracts, and options on securities and stock indexes.
Under these techniques, the Bear ProFund and the UltraBear ProFund will
generally incur a loss if the price of the underlying security or index
increases between the date of the employment of the technique and the date on
which the ProFund terminates the position. These ProFunds will generally realize
a gain if the underlying security or index declines in price between those
dates. The amount of any gain or loss on an investment technique may be affected
by any premium or amounts in lieu of dividends or interest that the ProFund pays
or receives as the result of the transaction.
THE ULTRAOTC PROFUND AND THE ULTRASHORT OTC PROFUND
The investment objective of the UltraOTC ProFund is to provide investment
results that correspond to 200% of the performance of the NASDAQ 100 Index.
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The UltraOTC ProFund does not intend to hold the 100 securities included in
the NASDAQ 100 Index. Instead, the UltraOTC ProFund intends to engage in
transactions on stock index futures contracts, options on stock index futures
contracts, and options on securities and stock indexes. As a nonfundamental
policy, the UltraOTC ProFund will invest, under normal conditions, at least 65%
of its total assets in securities traded on the over-the-counter markets and
instruments with values that are representative of such securities such as
futures and option contracts in such securities or indices.
The investment objective of the UltraShort OTC ProFund is to provide
investment results that correspond each day to twice of the inverse (opposite)
of the performance of the NASDAQ 100 Index(TM). It is the policy of the
UltraShort OTC ProFund to pursue its investment objective of correlating with
its benchmark regardless of market conditions, to remain nearly fully invested
and not to take defensive positions.
The UltraShort OTC ProFund is designed to allow investors to seek to profit
from anticipated decreases in the NASDAQ 100 Index(TM) or to hedge an existing
portfolio of securities or mutual fund shares. The UltraShort OTC ProFund's
investment objective is to provide investment results that will inversely
correlate to 200% of the performance of the NASDAQ 100 Index(TM). The UltraShort
OTC ProFund seeks to achieve this inverse correlation on each trading day.
If the ProFund achieved a perfect inverse correlation for any single
trading day, the net asset value of the shares of the UltraShort OTC ProFund
would increase for that day proportional to twice any decrease in the level of
the NASDAQ 100 Index(TM). Conversely, the net asset value of the shares of the
UltraShort OTC ProFund would decrease for that day proportional to twice any
increase in the level of the NASDAQ 100 Index(TM) for that day.
For example, if the NASDAQ 100 Index(TM) were to decrease by 1% on a
particular day, investors in the UltraShort OTC ProFund should experience a gain
in net asset value of approximately 2% for that day. Conversely, if the NASDAQ
100 Index(TM) were to increase by 1% by the close of business on a particular
trading day, investors in the UltraShort OTC ProFund would experience a loss in
net asset value of approximately 2%.
In pursuing its investment objective, the UltraShort OTC ProFund generally
does not invest in traditional securities, such as common stock of operating
companies. Rather, the UltraShort OTC 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.
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Under these techniques, the UltraShort OTC 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 UltraShort OTC
ProFund terminates the position. The UltraShort OTC ProFund will generally
realize a gain if the underlying security or index declines in price between
those dates. The amount of any gain or loss on an investment technique may be
affected by any premium or amounts in lieu of dividends or interest that the
UltraShort OTC ProFund pays or receives as the result of the transaction. Due to
the nature of the UltraShort OTC ProFund, investors could experience substantial
losses during sustained periods of rising equity prices.
Companies whose securities are traded on the over-the-counter ("OTC")
markets generally have smaller market capitalization or are newer companies than
those listed on the NYSE or the American Stock Exchange (the "AMEX"). OTC
companies often have limited product lines, or relatively new products or
services, and may lack established markets, depth of experienced management, or
financial resources and the ability to generate funds. The securities of these
companies may have limited marketability and may be more volatile in price than
securities of larger capitalized or more well-known companies. Among the reasons
for the greater price volatility of securities of certain smaller OTC companies
are the less certain growth prospects of comparably smaller firms, the lower
degree of liquidity in the OTC markets for such securities, and the greater
sensitivity of smaller capitalization companies to changing economic conditions
than larger capitalization, exchange-traded securities. Conversely, because many
of these OTC securities may be overlooked by investors and undervalued in the
marketplace, there is potential for significant capital appreciation.
THE MONEY MARKET PROFUND
The Money Market ProFund seeks a high level of current income consistent
with liquidity and preservation of capital through investment in high quality
money market instruments. The Money Market ProFund offers investors a convenient
means of diversifying their holdings of short-term securities while relieving
those investors of the administrative burdens typically associated with
purchasing and holding these instruments, such as coordinating maturities and
reinvestments, providing for safekeeping and maintaining detailed records. High
quality, short-term instruments may result in a lower yield than instruments
with a lower quality and/or a longer term.
The Money Market ProFund seeks to achieve its investment objective by
investing the assets of the Money Market ProFund in the Portfolio, which has the
same investment objective as the Money Market ProFund and is managed by
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Bankers Trust, 280 Park Avenue, New York, New York. There can be no assurances
that the investment objective of either the Money Market ProFund or the
Portfolio will be achieved. The investment objective of the Money Market ProFund
and the Portfolio is a fundamental policy and may not be changed without the
approval of the Money Market ProFund's shareholders or the Portfolio's
investors, respectively. See "Special Information Concerning Master- Feeder Fund
Structure" herein.
The Portfolio invests in money market instruments, including corporate debt
obligations, U.S. government securities, bank obligations and repurchase
agreements. See "Investment Policies and Techniques -- Cash Management
Portfolio" for a discussion of the Portfolio's investment policies. The
Portfolio follows practices which are designed to enable the Money Market
ProFund to maintain a $1.00 share price: limiting average maturity of the
securities held by the Portfolio to 90 days or less; buying securities which
mature in 397 days or less; and buying only high quality securities with minimal
credit risks. Of course, the Money Market ProFund cannot guarantee a $1.00 share
price, but these practices help to minimize any price fluctuations that might
result from rising or declining interest rates. While the Portfolio invests in
high quality money market securities, you should be aware that your investment
is not without risk. All money market instruments can change in value when
interest rates or an issuer's creditworthiness changes.
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INVESTMENT POLICIES
AND TECHNIQUES
FUTURES CONTRACTS AND RELATED OPTIONS
The ProFunds (other than the Money Market ProFund) may purchase or sell
stock index futures contracts and options thereon as a substitute for a
comparable market position in the underlying securities. The ProFunds anticipate
that they will primarily engage in transactions in futures contracts and related
options on the CME.
A futures contract obligates the seller to deliver (and the purchaser to
take delivery of) the specified commodity on the expiration date of the
contract. A stock index futures contract obligates the seller to deliver (and
the purchaser to take) an amount of cash equal to a specific dollar amount
multiplied by the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made.
When a ProFund purchases a put or call option on a futures contract, the
ProFund pays a premium for the right to sell or purchase the underlying futures
contract for a specified price upon exercise at any time during the option
period. By writing (selling) a put or call option on a futures contract, a
ProFund receives a premium in return for granting to the purchaser of the option
the right to sell to or buy from the ProFund the underlying futures contract for
a specified price upon exercise at any time during the option period.
Whether a ProFund realizes a gain or loss from futures activities depends
generally upon movements in the underlying commodity. The extent of the
ProFund's loss from an unhedged short position in futures contracts or from
writing options on futures contracts is potentially unlimited. The ProFunds may
engage in related closing transactions with respect to options on futures
contracts. The ProFunds will only engage in transactions in futures contracts
and options thereupon that are traded on a United States exchange or board of
trade.
When a ProFund purchases or sells a stock index futures contract, or sells
an option thereon, the ProFund "covers" its position. To cover its position, a
ProFund may enter into an offsetting position or maintain with its custodian
bank (and mark-to-market on a daily basis) a segregated account consisting of
liquid instruments that, when added to any amounts deposited with a futures
commission merchant as margin, are equal to the market value of the futures
contract or otherwise "cover" its position.
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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 if a ProFund determines not to close a futures
position in anticipation of adverse price movements, the ProFund will be
required to make daily cash payments of variation margin. The risk that the
ProFund will be unable to close out a futures position will be minimized by
entering into such transactions on a national exchange with an active and liquid
secondary market.
INDEX OPTIONS TRANSACTIONS
The ProFunds (other than the Money Market ProFund) may purchase and write
options on stock indexes to create investment exposure consistent with their
investment objectives, hedge or limit the exposure of their positions and to
create synthetic money market positions. See "Taxes" herein.
A stock index fluctuates with changes in the market values of the stocks
included in the index. Options on stock indexes give the holder the right to
receive an amount of cash upon exercise of the option. Receipt of this cash
amount will depend upon the closing level of the stock index upon which the
option is based being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash received, if
any, will be the difference between the closing price of the index and the
exercise price of the option, multiplied by a specified dollar multiple. The
writer (seller) of the option is obligated, in return for the premiums received
from the purchaser of the option, to make delivery of this amount to the
purchaser. All settlements of index options transactions are in cash.
Index options are subject to substantial risks, including the risk of
imperfect correlation between the option price and the value of the underlying
securities composing the stock index selected and the risk that there might not
be a liquid secondary market for the option. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether a ProFund will realize a gain or loss from the
purchase or writing (sale) of options on an index depends upon movements in the
level of stock
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prices in the stock market generally or, in the case of certain indexes, in an
industry or market segment, rather than upon movements in the price of a
particular stock. Whether a ProFund will realize a profit or loss by the use of
options on stock indexes will depend on movements in the direction of the stock
market generally or of a particular industry or market segment. This requires
different skills and techniques than are required for predicting changes in the
price of individual stocks. A ProFund will not enter into an option position
that exposes the ProFund to an obligation to another party, unless the ProFund
either (i) owns an offsetting position in securities or other options and/or
(ii) maintains with the ProFund's custodian bank liquid instruments that, when
added to the premiums deposited with respect to the option, are equal to the
market value of the underlying stock index not otherwise covered.
OPTIONS ON SECURITIES
The ProFunds (other than the Money Market ProFund), may buy options and
write (sell) options on securities. By buying a call option, a ProFund has the
right, in return for a premium paid during the term of the option, to buy the
securities underlying the option at the exercise price. By writing (selling) a
call option and receiving a premium, a ProFund becomes obligated during the term
of the option to deliver the securities underlying the option at the exercise
price if the option is exercised. By buying a put option, a ProFund has the
right, in return for a premium paid during the term of the option, to sell the
securities underlying the option at the exercise price. By writing a put option,
a ProFund becomes obligated during the term of the option to purchase the
securities underlying the option at the exercise price. Options on securities
written (sold) by the ProFunds will be conducted on recognized securities
exchanges. A ProFund will not write options on securities unless it covers its
position as described under "Index Options Transactions".
A ProFund will realize a gain (or a loss) on a call or a put option
previously purchased by the ProFund if the premium, less commission costs,
received by the ProFund on the sale of the call or the put option to close the
transaction is greater (or less) than the premium, plus commission costs, paid
by the ProFund to purchase the call or the put option. If a put or a call option
which the ProFund has purchased expires out-of-the-money (i.e., the exercise
price of the option is less than the current market value of the underlying
security), the option will become worthless on the expiration date, and the
ProFund will realize a loss in the amount of the premium paid, plus commission
costs.
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
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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, UltraBear ProFund and the UltraShort OTC 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
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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.
REPURCHASE AGREEMENTS
Under a repurchase agreement, a ProFund purchases a debt security and
simultaneously agrees to sell the security back to the seller at a mutually
agreed-upon future price and date, normally one day or a few days later. The
resale price is greater than the purchase price, reflecting an agreed-upon
market interest rate during the purchaser's holding period. While the maturities
of the underlying securities in repurchase transactions may be more than one
year, the term of each repurchase agreement will always be less than one year. A
ProFund will enter into repurchase agreements only with member banks of the
Federal Reserve System or primary dealers of U.S. government securities. The
Advisor and, with respect to the Portfolio, Bankers Trust, will monitor the
creditworthiness of each of the firms which is a party to a repurchase agreement
with any of the ProFunds. In the event of a default or bankruptcy by the seller,
the ProFund will liquidate those securities (whose market value, including
accrued interest, must be at least equal to 100% of the dollar amount invested
by the ProFund in each repurchase agreement) held under the applicable
repurchase agreement, which securities constitute collateral for the seller's
obligation to pay. However, liquidation could involve costs or delays and, to
the extent proceeds from the sales of these securities were less than the
agreed-upon repurchase price, the ProFund would suffer a loss. A ProFund also
may experience difficulties and incur certain costs in exercising its rights to
the collateral and may lose the
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interest the ProFund expected to receive under the repurchase agreement.
Repurchase agreements usually are for short periods, such as one week or less,
but may be longer. It is the current policy of the ProFunds to treat repurchase
agreements that do not mature within seven days (or which may not be terminated
within seven calendar days upon notice by the ProFund) as illiquid for the
purposes of their investment policies.
CASH RESERVES
As a cash reserve, for liquidity purposes, or as "cover" for positions it
has taken, each ProFund may temporarily invest all or part of the ProFund's
assets in cash or cash equivalents, which include, but are not limited to,
short-term money market instruments, U.S. government securities, certificates of
deposit, bankers acceptances, or repurchase agreements secured by U.S.
government securities.
TRANSACTION EXPENSES
The ProFunds anticipate that their investors, as part of an
asset-allocation or market-timing investment strategy, will frequently exchange
their shares of a particular ProFund for shares in other ProFunds pursuant to
the exchange policy (see "How to Exchange Shares of the ProFunds"), which would
cause the ProFunds to experience high portfolio turnover. A higher portfolio
turnover rate would likely involve correspondingly greater brokerage commissions
and transaction and other expenses which would be borne by the ProFunds. In
addition, a ProFund's portfolio turnover level may adversely affect the ability
of the ProFund to achieve its investment objective. Pursuant to the formula
prescribed by the Commission, the portfolio turnover rate for each ProFund is
calculated without regard to instruments, including options and futures
contracts, having a maturity of less than one year. The Bull ProFund, the
UltraBull ProFund, the Bear ProFund and the UltraBear ProFund typically hold
most of their investments in short-term options and futures contracts which are
excluded for purposes of computing portfolio turnover. Therefore, based on the
Commission's portfolio turnover formula, each of these ProFunds expects a
portfolio turnover rate of approximately 0%.
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,
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and also may lend portfolio securities to brokers, dealers, and financial
institutions. Each ProFund (other than the Money Market ProFund) may borrow
money for investment purposes or invest in illiquid securities. Each of the
ProFunds also may invest in the securities of other investment companies to the
extent that such an investment would be consistent with the requirements of the
1940 Act.
CASH MANAGEMENT PORTFOLIO
Since the investment characteristics of the Money Market ProFund will
correspond directly to those of the Portfolio, set forth below is a discussion
of the various investments and investment policies of the Portfolio. Additional
information about the investment policies of the Portfolio appears in the SAI.
The Portfolio, in pursuing its investment objective, will comply with Rule
2a-7 under the 1940 Act ("Rule 2a-7"). Thus, descriptions of investment
techniques and portfolio instruments are qualified by the provisions and
limitations of Rule 2a-7.
The Portfolio will attempt to achieve its investment objective by investing
in the following money market instruments:
Obligations of Banks and Other Financial Institutions. The Portfolio may
invest in U.S. dollar-denominated fixed rate or variable rate obligations of
U.S. or foreign financial institutions, including banks, which are rated in the
highest short-term rating category by any two nationally recognized statistical
rating organizations ("NRSROs") (or one NRSRO if that NRSRO is the only such
NRSRO which rates such obligations) or, if not so rated, are believed by Bankers
Trust, acting under the supervision of the Board of Trustees of the Portfolio,
to be of comparable quality. Obligations of domestic and foreign financial
institutions in which the Portfolio may invest include, but are not limited to,
certificates of deposit, bankers' acceptances, bank time deposits, commercial
paper, and other U.S. dollar-denominated instruments issued or supported by the
credit of U.S. or foreign financial institutions, including banks.
If Bankers Trust, acting under the supervision of the Board of Trustees of
the Portfolio, deems the instruments to present minimal credit risk, the
Portfolio may invest in obligations of foreign banks or foreign branches and
subsidiaries of U.S. and foreign financial institutions, including banks.
Investments in these obligations may entail risks that are different from those
of investments in obligations of U.S. financial institutions, including banks,
because of differences in political, regulatory and economic systems and
conditions. These risks include future political and economic developments,
currency blockage, the possible imposition of withholding taxes on interest
payments, differing reserve require-
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ments, reporting and recordkeepng requirements and accounting standards,
possible seizure or nationalization of deposits, difficulty or inability of
pursuing legal remedies and obtaining judgments in foreign courts, possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions that might affect adversely the payment of principal and interest
on financial institution obligations. Under normal market conditions, the
Portfolio will invest more than 25% of its assets in the bank and other
financial institution obligations described above. The Portfolio's concentration
of its investments in the obligations of banks and other financial institutions
will cause the Portfolio to be subject to the risks peculiar to these industries
to a greater extent than if its investments were not so concentrated.
Commercial Paper. The Portfolio may invest in fixed rate or variable rate
commercial paper, issued by U.S. and foreign entities. Commercial paper when
purchased by the Portfolio must be rated in the highest short-term rating
category by any two NRSROs (or one NRSRO if that NRSRO is the only such NRSRO
which rates such security) or, if not rated, must be believed by Bankers Trust,
acting under the supervision of the Board of Trustees of the Portfolio, to be of
comparable quality. Any commercial paper issued by a foreign entity and
purchased by the Portfolio must be U.S. dollar-denominated and must not be
subject to foreign withholding tax at the time of purchase. Investing in foreign
commercial paper generally involves risks similar to those described above
relating to obligations of foreign banks or foreign branches and subsidiaries of
U.S. and foreign banks and other financial institutions.
Variable Rate Master Demand Notes. Variable rate master demand notes are
unsecured instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate. Because variable rate
master demand notes are direct lending arrangements between the Portfolio and
the issuer, they are not ordinarily traded. Although no active secondary market
may exist for these notes, the Portfolio will purchase only those notes under
which it may demand and receive payment on principal and accrued interest daily
or may resell the note to a third party. While the notes are not typically rated
by credit rating agencies, issuers of variable rate master demand notes must
satisfy Bankers Trust, acting under the supervision of the Board of Trustees of
the Portfolio, that the same criteria as set forth above for issuers of
commercial paper are met. In the event an issuer of a variable rate master
demand note defaulted on its payment obligation, the Portfolio might be unable
to dispose of the note because of the absence of a secondary market and could,
for this or other reasons, suffer a loss to the full extent of the default. The
face maturities of variable rate notes subject to a demand feature may exceed
397 days in certain circumstances. (See "Portfolio Quality and Maturity"
herein.)
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U.S. Government Obligations. The Portfolio may invest in obligations
issued and guaranteed by the U.S. Treasury or by agencies or instrumentalities
of the U.S. government. See "Investment Policies and Techniques -- U.S.
Government Securities" herein.
Other Debt Obligations. The Portfolio may invest in deposits, bonds, notes
and debentures that at the time of purchase have, or are comparable in priority
and security to other securities of such issuer which have, outstanding
short-term ratings meeting the above short-term rating requirements, or if there
are no such short-term ratings, are determined by Bankers Trust, acting under
the supervision of the Board of Trustees of the Portfolio, to be of comparable
quality and are rated in the top three highest long-term rating categories by
the NRSROs rating such security.
Asset-Backed Securities. The Portfolio may also invest in securities
generally referred to as asset-backed securities, which directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets, such as motor vehicle or
credit card receivables. Asset-backed securities may provide periodic payments
that consist of interest and/or principal payments. Consequently, the life of an
asset-backed security varies with the prepayment and loss experience of the
underlying assets.
Synthetic Asset-Backed Securities. The Portfolio may also invest in
securities generally referred to as synthetic asset-backed securities, which are
another form of asset-backed securities. While a variety of synthetic structures
exist, all involve trusts and partnerships that, in effect, convert long-term
fixed rate bonds into variable or floating rate demand securities. For example,
one or two long-term, high quality, fixed rate bonds of a single issuer (the
"core" securities) are deposited in a trust by a sponsor. Interests in the trust
may be distributed through an offering of securities to the public registered
under the 1933 Act (the "Act"), or through an offering exempt from the Act's
registration requirements, such as a "private placement." Holders of interests
in the trust receive interest at the current short-term market rate and the
sponsor receives the difference (after administrative expenses) between the
current market interest rate and the long-term rate paid by the core securities.
An affiliate of the sponsor or a third-party (usually a bank) issues a
conditional demand feature permitting holders to recover principal at par within
a specified period. The demand features are conditional to address tax related
concerns.
Repurchase Agreements. The Portfolio may engage in repurchase agreement
transactions with bank and governmental securities dealers approved by the
Portfolio's Board of Trustees. Bankers Trust, acting under the supervision of
the
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Board of Trustees of the Portfolio, reviews the creditworthiness of those banks
and dealers with which the Portfolio enters into repurchase agreements and
monitors on an ongoing basis the value of the securities subject to repurchase
agreements to ensure that the value is maintained at the required level. See
"Investment Policies and Techniques -- Repurchase Agreements" herein.
Reverse Repurchase Agreement. The Portfolio may enter into reverse
repurchase agreements. See "Investment Objectives and Policies" in the SAI for
a more detailed description of reverse repurchase agreements.
When-Issued and Delayed Delivery Securities. To secure prices deemed
advantageous at a particular time, the Portfolio may purchase securities on a
when-issued or delayed delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities occurs beyond the normal settlement period; and payment for or
delivery of the securities would be made at the same time as the reciprocal
delivery or payment by the other party to the transaction. The Portfolio will
enter into when-issued or delayed delivery transactions for the purpose of
acquiring securities and not for the purpose of leverage. When-issued securities
purchased by the Portfolio may include securities purchased on a "when, as and
if issued" basis under which the issuance of the securities depends on the
occurrence of a subsequent event.
Securities purchased on a when-issued or delayed delivery basis may expose
the Portfolio to risk because the securities may experience fluctuations in
value prior to their actual delivery. The Portfolio does not accrue income with
respect to a when-issued or delayed delivery security prior to its stated
delivery date. Purchasing securities on a when-issued or delayed delivery basis
can involve the additional risk that the yield available in the market when the
delivery takes place may be higher than that obtained in the transaction itself.
Upon purchasing a security on a when-issued or delayed delivery basis, the
Portfolio will segregate with the Portfolio's custodian liquid instruments in an
amount at least equal to the when-issued or delayed delivery commitment.
Investment in Other Investment Companies. In accordance with applicable
law, the Portfolio may invest its assets in other money market funds with
comparable investment objectives. In general, the Portfolio may not (1) purchase
more than 3% of any other money market fund's voting stock; (2) invest more than
5% of its assets in any single money market fund; and (3) invest more than 10%
of its assets in other money market funds, unless permitted to exceed these
limitations by an exemptive order of the SEC.
Illiquid Securities. The Portfolio may not invest more than 10% of its net
assets in securities which are illiquid or otherwise not readily marketable
(such securities may include securities which are subject to legal or
contractual restric-
- ----------- 38 -----------------------------------------------------------------
<PAGE>
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tions or repurchase agreements with maturities over seven days). If a security
becomes illiquid after purchase by the Portfolio, the Portfolio will normally
sell the security as soon as is reasonably practicable unless doing so would not
be in the best interests of shareholders.
Credit Enhancement. Certain of the Portfolio's acceptable investments may
be credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the party
providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Portfolio
and affect the Money Market ProFund's share price. Subject to the
diversification limits contained in Rule 2a-7, the Portfolio may have more than
25% of its total assets invested in securities credit-enhanced by banks.
Securities Lending. The Portfolio is permitted to lend up to 33 1/3% of
the total value of its securities. These loans must be secured continuously by
cash or securities issued or guaranteed by the United States government, its
agencies or instrumentalities or by a letter of credit at least equal to the
market value of the securities loaned plus accrued income. By lending its
securities, the Portfolio may increase its income by continuing to receive
income on the loaned securities as well as by the opportunity to receive
interest on the collateral. During the term of the loan, a Portfolio continues
to bear the risk of fluctuations in the price of the loaned securities. In
lending securities to brokers, dealers and other organizations, the Portfolio is
subject to risks which, like those associated with other extensions of credit,
include delays in receiving additional collateral, in recovery should the
borrower fail financially and possible loss of the collateral. Upon receipt of
appropriate regulatory approval, cash collateral may be invested in a money
market fund managed by Bankers Trust (or its affiliate) and Bankers Trust may
serve as the Portfolio's lending agent and may share in revenue received from
securities lending transactions as compensation for this service.
Portfolio Quality and Maturity. The Portfolio will maintain a
dollar-weighted average maturity of 90 days or less. All securities in which the
Portfolio invests will have or be deemed to have remaining maturities of 397
days or less on the date of their purchase, will be denominated in U.S. dollars
and will have been granted the required ratings established herein by two NRSROs
(or one such NRSRO if that NRSRO is the only such NRSRO which rates the
security), or if unrated, are believed by Bankers Trust, under the supervision
of the Portfolio's Board of Trustees, to be of comparable quality. Currently,
there are five rating agencies which have been designated by the SEC as an
NRSRO. These organizations and their highest short-term rating category (which
also may be modified by a "+") are: Duff and Phelps Credit Rating Co., D-1;
Fitch IBCA Inc., F1;
- --------------------------------------------------------- Prospectus 39 --------
<PAGE>
- ----------[GRAPHIC OMITTED] ----------------------------------------------------
Moody's Investors Service Inc., Prime-1; Standard & Poor's, A-1; and Thomson
BankWatch, Inc., T-1. A description of all short- and long-term ratings is
provided in the Appendix to the SAI. Bankers Trust, acting under the supervision
of and procedures adopted by the Board of Trustees of the Portfolio, will also
determine that all securities purchased by the Portfolio present minimal credit
risks. Bankers Trust will cause the Portfolio to dispose of any security as soon
as practicable if the security is no longer of the requisite quality, unless
such action would not be in the best interest of the Portfolio. High-quality,
short-term instruments may result in a lower yield than instruments with a lower
quality or longer term.
Additional Investment Limitations. The Money Market ProFund has the same
investment restrictions as the Portfolio, except that the Money Market ProFund
may invest all of its assets in another open-end investment company with the
same investment objective, such as the Portfolio. The Portfolio may not invest
more than 25% of its total assets in the securities of issuers in any single
industry (excluding U.S. government obligations and repurchase agreements
collateralized by U.S. government obligations), except that, under normal market
conditions, more than 25% of the total assets of the Portfolio will be invested
in obligations of banks and other financial institutions. As an operating
policy, the Portfolio may not invest more than 5% of its total assets in the
securities of any one issuer except: (1) as may be permitted by Rule 2a-7 under
the 1940 Act; and (2) for U.S. government obligations and repurchase agreements
collateralized fully thereby, which may be purchased without limitation. The
Portfolio is also authorized to borrow for temporary purposes to meet
redemptions, including entering into reverse repurchase transactions, in an
amount up to 5% of its total assets and to pledge its assets to the same extent
in connection with these borrowings. See the SAI for additional information with
respect to reverse repurchase transactions. At the time of investment, the
Portfolio's aggregate holdings of repurchase agreements having remaining
maturities of more than seven calendar days (or which may not be terminated
within seven calendar days upon notice by the Portfolio), time deposits having
remaining maturities of more than seven calendar days, illiquid securities,
restricted securities and securities lacking readily available market quotations
will not exceed 10% of the Portfolio's net assets. If changes in the liquidity
of certain securities cause the Portfolio to exceed such 10% limit, the
Portfolio will take steps to bring the aggregate amount of its illiquid
securities back below 10% of its net assets as soon as practicable, unless such
action would not be in the best interest of the Portfolio. The SAI contains
further information on the Money Market ProFund's and the Portfolio's investment
restrictions.
- ----------- 40 -----------------------------------------------------------------
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SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE
Unlike other open-end management investment companies (mutual funds) which
directly acquire and manage their own portfolio securities, the Money Market
ProFund seeks to achieve its investment objective by investing all of its assets
in the Portfolio, a separate registered investment company with the same
investment objective as the Money Market ProFund. Therefore, an investor's
interest in the Portfolio's securities is indirect. In addition to selling a
beneficial interest to the Money Market ProFund, the Portfolio may sell
beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Money Market ProFund or subject to
comparable variations in sales loads and other operating expenses. Therefore,
investors in the Money Market ProFund should be aware that these differences may
result in differences in returns experienced by investors in the different funds
that may invest in the Portfolio. Such differences in returns are also present
in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Bankers Trust at 1-800-368-4031.
The ProFunds' Board of Trustees believes that the Money Market ProFund will
achieve certain efficiencies and economies of scale through the master-feeder
structure, and that the aggregate expenses of the Money Market ProFund will be
less than if the Money Market ProFund invested directly in the securities held
by the Portfolio.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds which have large institutional
investors). Additionally, the Portfolio may become less diverse, resulting in
increased portfolio concentration and potential risk. Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Except as permitted by the Commission, whenever the
ProFunds are requested to vote on matters pertaining to the Portfolio, the
ProFunds will hold a meeting of shareholders of the Money Market ProFund and
will cast all of its votes in the same proportion as the votes of the Money
Market ProFund's shareholders. Money Market ProFund shareholders who do not vote
will not affect the ProFunds votes at the Portfolio meeting. The percentage of
the Trust's votes representing Money Market ProFund shareholders not
- --------------------------------------------------------- Prospectus 41 --------
<PAGE>
- ----------[GRAPHIC OMITTED] ----------------------------------------------------
voting will be voted by the Trustees or officers of the ProFunds in the same
proportion as the Money Market ProFund shareholders who do, in fact, vote.
Certain changes in the Portfolio's investment objective, policies or
restrictions may require the Money Market ProFund to withdraw its interest in
the Portfolio. Such withdrawal could result in a distribution "in kind" of
portfolio securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, the Money Market ProFund could incur brokerage, tax
or other charges in converting the securities to cash. In addition, the
distribution in kind may result in a less diversified portfolio of investments
or adversely affect the liquidity of the Money Market ProFund. Notwithstanding
the above, there are other means for meeting redemption requests, such as
borrowing.
The Money Market ProFund may withdraw its investment from the Portfolio at
any time, if the Board of Trustees of the ProFunds determines that it is in the
best interests of the shareholders of the Money Market ProFund to do so. Upon
any such withdrawal, the Board of Trustees of the Trust would consider what
action might be taken, including the investment of all the assets of the Money
Market ProFund in another pooled investment entity having the same investment
objective as the Money Market ProFund or the retaining of an investment adviser
to manage the Money Market ProFund's assets in accordance with the investment
policies described above with respect to the Portfolio.
- ----------- 42 -----------------------------------------------------------------
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TAXES
Each of the ProFunds intends to qualify and elect to be treated each year
as a regulated investment company (a "RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended. A RIC generally is not subject to federal
income tax on income and gains distributed in a timely manner to its
shareholders, the ProFunds intend to make timely distributions in order to avoid
tax liability.
Dividends out of net ordinary income and distributions of net short-term
capital gains are taxable to the recipient U.S. shareholders as ordinary income,
whether received in cash or reinvested in ProFund shares. Dividends from net
ordinary income may be eligible for the corporate dividends-received deduction.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by a ProFund to its U.S. shareholders as capital
gains distributions is taxable to the shareholders as long-term capital gain
regardless of the length of time a shareholder has held the ProFund shares, and
the rate of tax will depend upon the ProFund's holding period for the assets
whose sale produces the gain. If a shareholder holds ProFund shares for six
months or less and during that period receives a distribution taxable to the
shareholder as long-term capital gain, any loss realized on the sale of the
ProFund shares will be long-term loss to the extent of such distribution.
The amount of an income dividend or capital gains distribution declared by
a ProFund during October, November or December of a year to shareholders of
record as of a specified date in such a month that is paid during January of the
following year will be deemed to be received by shareholders on December 31 of
the prior year.
Any dividend or distribution paid by a ProFund has the effect of reducing
the ProFund's net asset value per share. Investors should be careful to consider
the tax effect of buying shares shortly before a distribution by a ProFund. The
price of shares purchased at that time will include the amount of the
forthcoming distribution, but the distribution will be taxable to the
shareholder.
A dividend or capital gains distribution with respect to shares of a
ProFund held by a tax-deferred or qualified plan, such as an IRA, retirement
plan or corporate pension or profit sharing plan, will not be taxable to the
plan. Distribution from such plans will be taxable to individual participants
under applicable tax rules without regard to the character of the income earned
by the qualified plan.
Shareholders will be advised annually as to the federal tax status of
dividends and capital gains distributions made by the ProFunds for the preceding
year. Distributions by ProFunds generally will be subject to state and local
taxes.
- --------------------------------------------------------- Prospectus 43 --------
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Certain 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 are required to
withhold taxes at the rate of 31% on dividends, capital gains distributions, and
redemption proceeds. Amounts withheld may be credited against a shareholder's
federal income tax.
The foregoing is a brief summary of federal income tax consequences of
owning ProFund shares. For more information about federal, state and local
taxes, please see your tax adviser and the SAI.
- --------- 44 -------------------------------------------------------------------
<PAGE>
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MANAGEMENT
OF THE PROFUNDS
INVESTMENT ADVISORS
ProFund Advisors LLC
--------------------
The ProFunds are provided investment advice and management services by
ProFund Advisors LLC, a Maryland limited liability company formed on May 8,
1997, with offices at 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland
20814. Louis M. Mayberg and Michael L. Sapir own a controlling interest in the
Advisor.
Under an investment advisory agreement between the non-money market
ProFunds and the Advisor, dated October 28, 1997, the non-money market ProFunds
each pay the Advisor a fee at an annualized rate, based on the average daily net
assets for each respective ProFund, of 0.75%. The Advisor manages the investment
and the reinvestment of the assets of each of the ProFunds, in accordance with
the investment objectives, policies, and limitations of the ProFunds, subject to
the general supervision and control of the ProFunds' Board of Trustees and
officers. The Advisor bears all costs associated with providing these advisory
services and the expenses of the ProFunds who are affiliated persons of the
Advisor. The Advisor, from its own resources, including profits from advisory
fees received from the ProFunds, also may make payments to broker-dealers and
other financial institutions for their expenses in connection with the
distribution of ProFund shares, and otherwise currently pays all distribution
costs for ProFund shares.
As recently created entities, the ProFunds will be subject to all the risks
incident to the creation of a new business, including the absence of a history
of operations. The Advisor is a newly created entity and, as such, prior to the
commencement of operations of the ProFunds, had no previous experience in
providing investment management services to an investment company. Michael L.
Sapir, the Advisor's chairman and chief executive officer, is the former senior
vice president of Padco Advisors, Inc., the investment adviser to the Rydex(R)
Funds and was an attorney in private practice for over thirteen years
specializing in advising issuers of investment products, including mutual funds.
Louis M. Mayberg, the Advisor's president, co-founded an investment banking firm
in 1986 and has been responsible for, among other things, managing the
investment "hedge" fund sponsored by that firm. William E. Seale, Ph.D., the
Advisor's and the ProFunds' portfolio director, has over twenty-five years of
experience with respect to the commodity futures markets, including serving for
five years pur-
- --------------------------------------------------------- Prospectus 45 --------
<PAGE>
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suant to a presidential appointment as commissioner to the United States
Commodities Futures Trading Commission. The ProFunds' Administrator, BISYS,
provides operations, compliance and administrative services for investment
companies.
Bankers Trust
-------------
The Money Market ProFund seeks to achieve its investment objective by
investing all of its investable assets in the Portfolio, which has as its
investment adviser, Bankers Trust, a New York banking corporation with principal
offices at 130 Liberty Street, New York, New York 10006, and a wholly-owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust currently
receives an investment management fee for its services to the Portfolio in the
amount of 0.15% of the average daily net assets of the Portfolio.
Bankers Trust conducts a variety of general banking and trust activities
and is a major wholesale supplier of financial services to international and
domestic institutional markets. As of June 30, 1997, Bankers Trust New York
Corporation was the seventh largest bank holding company in the United States
with total assets of approximately $129 billion. Bankers Trust is a worldwide
merchant bank dedicated to servicing the needs of corporations, governments,
financial institutions and private clients through a global network of over 120
offices in more than 50 countries. Investment management is a core business of
Bankers Trust, built on a tradition of excellence from its roots as a trust bank
founded in 1903. The scope of Bankers Trust's investment management capability
is unique due to its leadership positions in both active and passive
quantitative management and its presence in major equity and fixed income
markets around the world. Bankers Trust is one of the nation's largest and most
experienced investment managers, with approximately $240 billion in assets under
management globally.
Bankers Trust has more than 50 years of experience managing retirement
assets for the nation's largest corporations and institutions. In the past,
these clients have been serviced through separate account and commingled fund
structures. Bankers Trust's officers have had extensive experience in managing
investment portfolios having objectives similar to those of the Portfolio.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees of the Portfolio, manages the Portfolio in accordance with the
Portfolio's investment objective and stated investment policies, makes
investment decisions for the Portfolio, places orders to purchase and sell
securities and other financial instruments on behalf of the Portfolio and
employs professional investment managers and securities analysts who provide
research services to the
- ----------- 46 -----------------------------------------------------------------
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Portfolio. All orders for investment transactions on behalf of the Portfolio are
placed by Bankers Trust with broker-dealers and other financial intermediaries
that it selects, including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an investment
for the Portfolio only if Bankers Trust believes that the affiliate's charge for
the transaction does not exceed usual and customary levels. The Portfolio will
not invest in obligations for which Bankers Trust or any of its affiliates is
the ultimate obligor or accepting bank. The Portfolio may, however, invest in
the obligations of correspondents and customers of Bankers Trust.
SERVICE PROVIDERS
Administrator, Transfer Agent, Fund Accounting Agent and Custodian
------------------------------------------------------------------
BISYS acts as Administrator to the ProFunds. BISYS provides administrative
services necessary for the operation of the ProFunds, including, among other
things, (i) preparation of shareholder reports and communications, (ii)
regulatory compliance, such as reports to and filings with the Commission and
state securities commissions, and (iii) general supervision of the operation of
the ProFunds, including coordination of the services performed by the ProFunds'
Advisor, custodians, independent accountants, legal counsel and others. In
addition, BISYS furnishes office space and facilities required for conducting
the business of the ProFunds and pays the compensation of the ProFunds' officers
and employees affiliated with BISYS.
For its services as Administrator, each ProFund pays BISYS an annual fee
ranging from 0.15% of average daily net assets of $0 to $300 million to 0.05% of
average daily net assets of $1 billion and over. BFSI, an affiliate of BISYS,
acts as transfer agent and fund accounting agent for the ProFunds, for which it
receives additional fees. Additionally, ProFunds, BISYS and BFSI have entered
into an Omnibus Fee Agreement in which the amount of compensation due and
payable to BISYS shall be the greater of (i) the aggregate fee amount due and
payable for services pursuant to the Administration, Fund Accounting and
Transfer Agency Agreements and (ii) the minimum relationship fee described as
specific dollar amounts payable over a period of ten calendar quarters. The
address of BISYS and BFSI is 3435 Stelzer Road, Suite 1000, Columbus, Ohio
43219.
ProFunds Advisors LLC, pursuant to a separate Management Services
Agreement, performs certain client support services and other administrative
services on behalf of the ProFunds. For these services, each non-money market
ProFund will pay to ProFunds Advisors LLC a fee at the annual rate of 0.15% of
its average daily net assets. Under this agreement, ProFund Advisors LLC may
receive up to 0.35% of the Money Market ProFund's average daily net assets for
- --------------------------------------------------------- Prospectus 47 --------
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providing feeder fund management and administrative services to the Money Market
ProFund, which services include monitoring the performance of the underlying
investment company in which the Money Market ProFund invests, coordinating the
Money Market ProFund's relationship with such entity, communicating with the
Trust's Board of Trustees and shareholders regarding such entity's performance
and the Money Market ProFund's two-tier structure and, in general, assisting the
Board of Trustees of the Trust in all aspects of the administration and
operation of the Money Market ProFund.
Under an Administration and Services Agreement with the Portfolio, Bankers
Trust calculates the value of the assets of the Portfolio and generally assists
the Board of Trustees of the Portfolio in all aspects of the administration and
operation of the Portfolio. The Administration and Services Agreement provides
for the Portfolio to pay Bankers Trust a fee, computed daily and paid monthly,
at the annual rate of 0.05% of the average daily net assets of the Portfolio.
Under the Administration and Services Agreement, Bankers Trust may delegate one
or more of its responsibilities to others at Bankers Trust's expense.
UMB Bank, N.A. acts as custodian to the ProFunds; its address is 928 Grand
Avenue, Kansas City, Missouri.
Distributor
-----------
Concord Financial Group, Inc. will serve as the distributor and principal
underwriter in all fifty states and the District of Columbia. Concord Financial
Group, Inc., an affiliate of BISYS, receives no compensation from the ProFunds
for serving as distributor. Concord Financial Group, Inc.'s address is 3435
Stelzer Road, Columbus, Ohio 43215.
Shareholder Services Plan -- Service Shares
-------------------------------------------
Each ProFund has adopted a Shareholder Services Plan (the "Plan") and
related agreement ("Shareholder Services Agreement"). The Plan provides that
each ProFund will make payments to Authorized Firms (defined below) in an amount
up to 1.00% (on an annual basis) of the average daily value of the net assets of
such ProFund's Service class of shares attributable to or held in the name of an
Authorized Firm for its clients. The Plan provides that the fee will be paid to
registered investment advisers, banks, trust companies and other financial
organizations ("Authorized Firms"), for providing account administration and
other services to their clients who are beneficial owners of such shares.
The services provided by the Authorized Firms may include, among other
things, receiving, aggregating and processing shareholder or beneficial owner
(collectively "shareholder") orders; furnishing shareholder subaccounting; pro-
- ----------- 48 ----------------------------------------------------------------
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viding and maintaining retirement plan records; communicating periodically with
shareholders; acting as the sole shareholder of record and nominee for
shareholders; maintaining account records for shareholders; answering questions
and handling correspondence from shareholders about their accounts; issuing
various shareholder reports and confirmations for transactions by shareholders;
performing daily investment ("sweep") functions for shareholders; and account
administration services. ProFunds expects that the level of services provided
with respect to these accounts will be more extensive than typically occurs
under shareholder servicing plans.
Holders of Service Shares of a ProFund will bear all fees paid under the
Plan with respect to such shares as well as any other expenses which are
directly attributable to such shares.
Authorized Firms may charge other fees to their clients who are the
beneficial owners of Service Shares in connection with their client accounts.
These fees would be in addition to any amounts received by the Authorized Firms
and would be for services other than those provided under the Shareholder
Service Agreement. Under the terms of the Shareholder Service Agreement,
Authorized Firms are required to provide their clients with a schedule of fees
charged to such clients which relate to the investment of customers' assets in
Service Shares.
Each ProFund will accrue payments made pursuant to the Plan daily. The
payments under the Plan which are required to be accrued to the ProFunds'
Service Shares on any day will not exceed the distributable income to be accrued
to such shares on that day. All inquiries by a beneficial owner of Service
Shares must be directed to such owner's Authorized Firm.
COSTS AND EXPENSES
The ProFunds bear all expenses of their operations other than those assumed
by the Advisor or BISYS. Expenses of the ProFunds include, but are not limited
to: the advisory fee; administrative, transfer agent, and shareholder servicing
fees; custodian and accounting fees and expenses; legal and auditing fees;
securities valuation expenses; fidelity bonds and other insurance premiums;
expenses of preparing and printing prospectuses, confirmations, proxy
statements, and shareholder reports and notices; registration fees and expenses;
proxy and annual meeting expenses, if any; all Federal, state, and local taxes
(including, without limitation, stamp, excise, income, and franchise taxes);
organizational costs; and independent Trustee's fees and expenses. In order to
increase the return to investors, both the Advisor and Bankers Trust may from
time to time agree to voluntarily waive or reduce their respective fees, while
retaining their ability to be reimbursed for such fees prior to the end of each
fiscal year.
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PORTFOLIO TRADING PRACTICES
The Advisor determines which securities to purchase and sell for each non-
money market ProFund, selects brokers and dealers to effect the transactions,
and negotiates commissions. The Advisor expects that the non-money market
ProFunds may execute brokerage or other agency transactions through registered
broker-dealers, for a commission, in conformity with the 1940 Act, the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder. In placing orders for portfolio transactions, the Advisor's policy
is to obtain the most favorable combination of 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 commission may sometimes be paid that is higher than the lowest
commission available. The ability to receive research services may be a factor
in the selection of one dealer acting as a principal over another.
When selecting broker-dealers to execute portfolio transactions, the
Advisor considers many factors, including the rate of commission or size of the
broker- dealer's "spread," the size and difficulty of the order, the nature of
the market for the security, the willingness of the broker-dealer to position,
the reliability, financial condition, general execution and operational
capabilities of the broker-dealer, and the research, statistical and economic
data furnished by the broker-dealer to the Advisor. The Advisor may use these
services in connection with all of the Advisor's investment activities,
including other investment accounts the Advisor advises. Conversely, brokers or
dealers which supply research may be selected for execution of transactions for
such other accounts, while the data may be used by the Advisor in providing
investment advisory services to the non-money market ProFunds.
- ----------- 50 -----------------------------------------------------------------
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GENERAL INFORMATION
ABOUT THE TRUST
ORGANIZATION AND DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
ProFunds (the "Trust") is a registered open-end investment company under
the 1940 Act. The Trust was organized as a Delaware business trust on April 17,
1997, and has authorized capital of unlimited shares of beneficial interest of
no par value which may be issued in more than one class or series. Currently,
the Trust consists of seven separately managed series. Other separate series may
be added in the future. Each ProFund offers two classes of shares: the Service
Shares and the Investor Shares.
All shares of the ProFund are freely transferable. The Trust shares do not
have preemptive rights or cumulative voting rights, and none of the shares have
any preference to conversion, exchange, dividends, retirements, liquidation,
redemption, or any other feature. Trust shares have equal voting rights, except
that, in a matter affecting a particular series or class of shares, only shares
of that series or class may be entitled to vote on the matter.
Under Delaware law, the Trust is not required to hold an annual
shareholders meeting if the 1940 Act does not require such a meeting. Generally,
there will not be annual meetings of Trust shareholders. Trust shareholders may
remove Trustees from office by votes cast at a meeting of Trust shareholders or
by written consent. If requested by shareholders of at least 10% of the
outstanding shares of the Trust, the Trust will call a meeting of ProFunds'
shareholders for the purpose of voting upon the question of removal of a Trustee
of the Trust and will assist in communications with other Trust shareholders.
The Declaration of Trust of the ProFunds disclaims liability of the
shareholders or the officers of the Trust for acts or obligations of the Trust
which are binding only on the assets and property of the Trust. The Declaration
of Trust provides for indemnification out of the Trust's property for all loss
and expense of any ProFunds shareholder held personally liable for the
obligations of the Trust. The risk of a Trust shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the ProFunds itself would not be able to meet the Trust's obligations and this
risk, thus, should be considered remote.
DETERMINATION OF NET ASSET VALUE
The net asset values of the shares of the ProFunds are determined as of the
close of business of the NYSE (ordinarily, 4:00 p.m. Eastern Time) on each day
the NYSE and the Chicago Mercantile Exchange ("CME") are open for business
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(in the case of the Money Market ProFund, net asset value is determined as of
the close of business on each day the NYSE is open for business). Currently, the
CME and the NYSE are closed on weekends, and the following holiday closings have
been scheduled for 1998: (i) New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, 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 expect the same holiday schedules to be observed in the
future, the CME and the NYSE may modify its holiday schedule at any time.
The net asset value of each class of shares of a ProFund serves as the
basis for the purchase and redemption price of that class of shares. The net
asset value per share of each class of a ProFund is calculated by dividing the
market value of the ProFund's assets attributed to a specific class (in the case
of the Money Market ProFund, the value of its investment in the Portfolio), less
all liabilities attributed to the specific class, by the number of outstanding
shares of the class. If market quotations are not readily available, a security
will be valued at fair value by the Trustees of ProFunds or by the Advisor using
methods established or ratified by the Trustees of ProFunds. The Money Market
ProFund's net asset value per share will normally be $1.00. There is no
assurance that the $1.00 net asset value will be maintained.
The Portfolio will utilize the amortized cost method in valuing its
portfolio securities. This method involves valuing each security held by the
Portfolio at its cost at the time of its purchase and thereafter assuming a
constant amortization to maturity of any discount or premium. Accordingly,
immaterial fluctuations in the market value of the securities held by the
Portfolio will not be reflected in the Money Market ProFund's net asset value.
The Board of Trustees of the Portfolio will monitor the valuation of assets of
this method and will make such changes as it deems necessary to assure that the
assets of the Portfolio are valued fairly in good faith.
The securities in the portfolio of a non-money market ProFund, except as
otherwise noted, that are listed or traded on a stock exchange, are valued on
the basis of the last sale on that day or, lacking any sales, at a price that is
the mean between the closing bid and asked prices. Other securities that are
traded on the OTC markets are priced using NASDAQ, which provides information on
bid
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and asked prices quoted by major dealers in such stocks. Bonds, other than
convertible bonds, are valued using a third-party pricing system. Convertible
bonds are valued using this pricing system only on days when there is no sale
reported. Short-term debt securities are valued at amortized cost, which
approximates market value. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in good faith
under procedures established by and under the general supervision and
responsibility of the ProFunds' Board of Trustees.
Futures contracts are valued at their last sale price prior to the
valuation time. Options on futures contracts generally are valued at fair value
as determined with reference to established futures exchanges. Options on
securities and indices purchased by a ProFund are valued at their last sale
price prior to the valuation time, or at fair value if determined to be
different than the last sales price. In the event of a trading halt that closes
the NYSE early, futures contracts will be valued on the basis of settlement
prices on futures exchanges, options on futures will be valued at the fair value
as determined with reference to such settlement prices, and options on
securities and indices will be valued at their last sale price prior to the
trading halt, or at fair value if determined to be different than the last sales
price. In the event a trading halt closes a futures exchange prior to the close
of the NYSE, futures contracts will be valued on the basis of settlement prices
on the futures exchange, or at fair value if determined to be different than the
settlement prices
FUNDAMENTAL POLICIES
The investment objectives (except the specific benchmarks which are tracked
by the ProFunds) and certain investment restrictions of the ProFunds
specifically identified as fundamental policies may not be changed without the
affirmative vote of at least the majority of the outstanding shares of that
ProFund, as defined in the 1940 Act. All other investment policies of the
ProFunds not specified as fundamental (including the benchmarks of the ProFunds)
may be changed by the trustees of the ProFunds without the approval of
shareholders.
The ProFunds may consider changing a ProFund's benchmark if, for example,
the current benchmark becomes unavailable; the ProFunds believe the current
benchmark no longer serves the investment needs of a majority of shareholders or
another benchmark better serves their needs; or the financial or economic
environment makes it difficult for the ProFund's investment results to
correspond sufficiently to its current benchmark. If believed appropriate, the
ProFunds may specify a benchmark for a ProFund that is "leveraged" or
proprietary. Of course, there can be no assurance that a ProFund will achieve
its objective.
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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
PricewaterhouseCoopers LLP are the auditors of and the independent
accountants for ProFunds.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE PROFUNDS IN ANY
JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.
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INVESTMENT ADVISOR
==================
ALL NON-MONEY MARKET PROFUNDS
ProFunds Advisors LLC
7900 Wisconsin Avenue, Suite 300
Bethesda, Maryland 20814
MONEY MARKET PROFUND
Bankers Trust Company
130 Liberty Street
New York, NY 10006
ADMINISTRATOR, TRANSFER AGENT, FUND ACCOUNTING AGENT
====================================================
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
PROFUNDS COUNSEL
================
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
INDEPENDENT AUDITORS
====================
PricewaterhouseCoopers LLP
100 East Broad Street
Suite 2100
Columbus, Ohio 43215-3671
CUSTODIAN
=========
UMB Bank, N.A.
928 Grand Avenue
Kansas City, Missouri 64141
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