As filed with the Securities and Exchange Commission on March 2, 1999
Registration Nos. 333-28339
811-08239
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 4 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 7 [X]
PROFUNDS
(Exact name of Registrant as Specified in Charter)
7900 Wisconsin Avenue, Suite 300
Bethesda, Maryland 20814
(Address of Principal Executive Offices) (Zip Code)
(301) 657-1970
(Registrant's Telephone Number, including Area Code)
Michael L. Sapir, Chairman with a copy to:
ProFund Advisors LLC William J. Tomko
7900 Wisconsin Avenue, Suite 300 BISYS Fund Services
Bethesda, Maryland 20814 3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Service Process)
Approximate Date of Commencement of the Proposed Public Offering of the
Securities:
It is proposed that this filing will become effective:
____ Immediately upon filing pursuant to paragraph (b)
_X__ 60 days after filing pursuant to paragraph (a) (1)
____ 75 days after filing pursuant to paragraph (a) (2)
On ___________ __, 1998 pursuant to Rule 485___
If appropriate, check the following:
____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
The ProFunds No-Load Mutual Funds
BULL PROFUND
ULTRABULL PROFUND
ULTRA OTC PROFUND
ULTRAEUROPE PROFUND
BEAR PROFUND
ULTRABEAR PROFUND
ULTRASHORT OTC PROFUND
ULTRASHORT EUROPE PROFUND
MONEY MARKET PROFUND
Prospectus
May 1, 1999
ProFund Advisors LLC
Bankers Trust Company
Investment Advisors
Like shares of all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission nor has the Securities and
Exchange Commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
INSIDE FRONT COVER
TABLE OF CONTENTS
- -----------------
THE BENCHMARK PROFUNDS IN BRIEF
DETAILS OF THE BENCHMARK PROFUNDS' APPROACH TO INVESTING
THE MONEY MARKET PROFUND
SHAREHOLDER INFORMATION
MANAGEMENT OF THE PROFUNDS
BENCHMARK PROFUNDS OBJECTIVES
The investment objective of each of the Benchmark ProFunds is as follows:
o BULL PROFUND - to provide investment returns that correspond to the
performance of the S&P 500 Index.
o ULTRABULL PROFUND - to provide investment returns that correspond to 200% of
the performance of the S&P 500 Index.
o ULTRAOTC PROFUND - to provide investment results that correspond to 200% of
the performance of the NASDAQ 100 Index(TM).
o ULTRAEUROPE PROFUND - seeks daily investment results that correspond to
twice (200%) the performance of the ProFunds Europe Index.
o BEAR PROFUND - to provide investment results that will inversely correlate
to the performance of the S&P 500 Index.
o ULTRABEAR PROFUND - to provide investment results that will inversely
correlate to 200% of the performance of the S&P 500 Index.
o ULTRASHORT OTC PROFUND - to provide investment results that correspond each
day to twice of the inverse (opposite) of the performance of the NASDAQ 100
Index(TM).
o ULTRASHORT EUROPE PROFUND - seeks daily investment results that correspond
to twice (200%) the inverse (opposite) of the performance of the ProFunds
Europe Index.
2
<PAGE>
THE BENCHMARK PROFUNDS IN BRIEF
OVERVIEW
- --------
The no-load Benchmark ProFunds each seek to achieve a daily return equal to the
performance of a particular stock market benchmark.*
o For example, the Bull ProFund seeks to match the daily performance of a
stock market index--the S&P 500 Composite Stock Price Index(TM) ("S&P 500
Index")--like a conventional index fund.
o Unlike conventional index funds, certain ProFunds seek to double the daily
return of a specified stock market index.
o Other ProFunds seek to produce a daily return of the inverse or double the
inverse of a particular stock market index. The value of these ProFunds
should go up when the index underlying their benchmark goes down, and their
value should go down when the index goes up.
*A stock index reflects the price of a group of stocks of specified companies. A
benchmark can be any standard of investment performance to which a mutual fund
seeks to match its return. For example, UltraBull ProFund has a benchmark of
TWICE THE S&P 500 INDEX.
3
<PAGE>
<TABLE>
<CAPTION>
These ProFunds seek to match or double an index's performance:
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PROFUND INDEX DAILY TYPES OF COMPANIES IN INDEX
OBJECTIVE
- ---------------------------------------------------------------------------------------------------------------
BULL S&P 500 Match diverse, widely traded, large capitalization
- ---------------------------------------------------------------------------------------------------------------
ULTRABULL S&P 500 Double diverse, widely traded, large capitalization
- ---------------------------------------------------------------------------------------------------------------
ULTRAOTC NASDAQ 100 Index(TM) Double large capitalization, most with technology and
growth orientation
- ---------------------------------------------------------------------------------------------------------------
ULTRAEUROPE ProFunds Europe Double large capitalization, widely traded European
Index stocks
- ---------------------------------------------------------------------------------------------------------------
These ProFunds seek to match or double the inverse of an index's performance:
- ---------------------------------------------------------------------------------------------------------------
PROFUND INDEX DAILY TYPES OF COMPANIES IN INDEX
OBJECTIVE
- ---------------------------------------------------------------------------------------------------------------
BEAR S&P 500 Inverse diverse, widely traded, large capitalization
- ---------------------------------------------------------------------------------------------------------------
ULTRABEAR S&P 500 Double the diverse, widely traded, large capitalization
inverse
- ---------------------------------------------------------------------------------------------------------------
ULTRASHORT OTC NASDAQ 100 Index(TM) Double the large capitalization , most with technology and
inverse growth orientation
- ---------------------------------------------------------------------------------------------------------------
ULTRASHORT EUROPE ProFunds Europe Double the large capitalization, widely traded European
Index inverse stocks
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The ProFunds also offer the Money Market ProFund, which is discussed on pages
- --- through --- of this prospectus.
Like all investments, the ProFunds entail risk. ProFund Advisors cannot
guarantee that any of the Benchmark ProFunds will achieve its objective.
4
<PAGE>
STRATEGY
In seeking to match the Benchmark ProFunds' returns with the benchmarks that
they track, ProFund Advisors employs a proprietary quantitative approach that
may use the following investments and investment techniques:
o a combination of stocks that in ProFund Advisors' opinion should simulate
the movement of the index
o futures contracts on stock indexes, and options on futures contracts
o short sales of stock (for the ProFunds that seek to negatively track an
index)
o financial instruments such as interest rate caps, collars, floors, and
options on securities and stock indexes
It is the policy of the Benchmark ProFunds to pursue their investment objectives
regardless of market conditions, to remain nearly fully invested and not to take
defensive positions.
WHO MAY WANT TO CONSIDER A PROFUNDS INVESTMENT
The BULL, ULTRABULL, ULTRAOTC and ULTRAEUROPE PROFUNDS may be appropriate for
investors who:
o hold positive views of the long-term prospects of a particular index and
believe that by investing with the objective of equaling or doubling the
market's daily return they will achieve superior results over time.
o are seeking to match an index's daily return with half the investment
required of conventional stock index mutual funds (UltraBull, UltraOTC and
UltraEurope ProFunds only).
SIDEBAR
Example: An investor might invest $100,000 in a conventional S&P 500 Index fund.
Alternatively, that same investor could invest half that amount--$50,000--in
UltraBull ProFund and target the same daily return. The investor would then have
$50,000 available for another investment, or to devote for some other purpose.
5
<PAGE>
The BEAR, ULTRABEAR, ULTRASHORT OTC and ULTRASHORT EUROPE PROFUNDS may be
appropriate for investors who:
o expect the underlying index to go down and desire to earn a profit as a
result of the index going down.
o want to protect (or hedge) the value of a diversified portfolio of stocks
and/or stock mutual funds from a stock market downturn that they
anticipate.
o own one or more securities that they believe will outperform the market in
general and wish to earn a profit even if the overall market declines.
SIDEBAR
Example: An investor with a diversified portfolio of stocks or stock mutual
funds valued at $100,000 might be concerned that the general stock market could
go down or be unusually volatile for the next six months. The investor could
substantially protect the portfolio against downturns in the stock market by
investing $50,000 in UltraBear, UltraShort OTC or UltraShort Europe ProFund--or
in a combination of these ProFunds. Of course, the investor likely would also be
giving up gains that the portfolio would otherwise produce if the markets go up
rather than down in value.
All of the ProFunds may be appropriate for investors who:
o are executing a strategy that relies on frequent buying, selling or
exchanging among stock mutual funds, since the ProFunds do not limit how
often an investor may exchange among the ProFunds and do not impose any
transaction fee when investors buy, sell or exchange a ProFund.
o want to target their exposure to an index from double the index to double
the inverse of the index--or anywhere in between--based on their current
view of the market.
6
<PAGE>
SIDEBAR
Example: Investors could develop an investment program which would target an
exposure to an index that changes depending on their view of the prospects for
the index. A program with a $100,000 investment that targeted the S&P 500 Index
might look like this:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Your View of Your Degree of ProFund Daily Target Amount Amount
Market Conviction Selected Exposure Invested in Invested in
To Index Benchmark Money Market
ProFund ProFund*
- ----------------------------------------------------------------------------------------------------------------------
Positive Extremely Strong UltraBull 200% $100,000 $0
- ----------------------------------------------------------------------------------------------------------------------
Positive Very Strong UltraBull 150% $75,000 $25,000
- ----------------------------------------------------------------------------------------------------------------------
Positive Strong UltraBull 100% $50,000 $50,000
- ----------------------------------------------------------------------------------------------------------------------
Neutral Neutral Money Market 0% $0 $100,000
- ----------------------------------------------------------------------------------------------------------------------
Negative Strong UltraBear Inverse 100% $50,000 $50,000
- ----------------------------------------------------------------------------------------------------------------------
Negative Very Strong UltraBear Inverse 150% $75,000 $75,000
- ----------------------------------------------------------------------------------------------------------------------
Negative Extremely Strong UltraBear Inverse 200% $100,000 $0
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* In this example, the investor could choose to invest the remainder of the
$100,000 total in Money Market ProFund or any other appropriate investment.
BENCHMARK PROFUNDS' RISKS
RISKS IN COMMON
As with any mutual fund, the Benchmark ProFunds could lose money, or their
performance could trail that of other investment alternatives. In addition, the
ProFunds present some risks not traditionally associated with most mutual funds.
It is important that investors closely review and understand these risks before
making an investment in ProFunds.
Each Benchmark ProFund faces five fundamental risks:
o MARKET RISK: The Benchmark ProFunds are subject to market risks that will
affect the value of their shares, including general economic and market
conditions, as well as developments that impact specific industries or
companies. Shareholders in the positively correlated ProFunds should lose
money when the index underlying their benchmark declines. Shareholders in
the negatively correlated ProFunds should lose money when the index
underlying their benchmark rises -- A RESULT THAT IS THE OPPOSITE FROM
TRADITIONAL EQUITY MUTUAL FUNDS.
7
<PAGE>
o LIQUIDITY RISK: In certain circumstances, such as a disruption of the
orderly markets for the financial instruments in which ProFunds invest,
ProFunds might not be able to dispose of certain holdings quickly or at
prices that represent true market value in the judgment of ProFund
Advisors. This may prevent ProFunds from limiting losses or realizing
gains.
o CORRELATION RISK: While ProFund Advisors expects that each of the Benchmark
ProFunds will track its benchmark with a correlation of .90 or better over
a year, there can be no guarantee that the ProFunds will be able to achieve
this level of correlation. A failure to achieve a high degree of
correlation may prevent a Benchmark ProFund from achieving its investment
goal.
o NON-DIVERSIFICATION RISK: The Benchmark ProFunds expect that their
portfolios' holdings will be diversified as defined under the federal
securities laws. The Benchmark ProFunds are nevertheless classified as
"non-diversified" under such laws. As such, while they have no intent to do
so, they have the ability to concentrate a relatively high percentage of
their investments in the securities of a small number of companies. This
would make the performance of a Benchmark ProFund more susceptible to a
single economic, political or regulatory event than a more diversified
mutual fund might be. In any case, each of these ProFunds are subject to
certain diversification requirements imposed by the Internal Revenue Code.
o RISKS OF AGGRESSIVE INVESTMENT TECHNIQUES: Certain of the Benchmark
ProFunds' investment techniques may be considered aggressive. Risks
associated with the use of options, futures contracts, and options on
futures contracts include potentially dramatic price changes in the value
of the instruments and imperfect correlations between the price of the
contract and the underlying security or index.
RISKS ASSOCIATED WITH PARTICULAR PROFUNDS
o LEVERAGE RISK: The leveraged investment techniques that the Ultra ProFunds
employ should cause investors in these ProFunds to achieve greater returns
in favorable environments and lose more money in adverse environments.
o FOREIGN INVESTMENT RISK: UltraEurope ProFund and UltraShort Europe ProFund
invest, directly or indirectly, in foreign securities, which may involve
risks not typically associated with investing in U.S. securities alone:
8
<PAGE>
- Many foreign countries lack uniform accounting and disclosure standards,
or have standards that differ from U.S. standards. Accordingly, these
ProFunds may not have access to adequate or reliable company information.
- Ultra Europe ProFund and UltraShort Europe ProFund will be subject to the
market, economic and political risks of the countries where they invest or
where the companies represented in the benchmark indices are located.
- Securities purchased by these two ProFunds may be priced in foreign
currencies. Their value could change significantly as the currencies
strengthen or weaken relative to the U.S. dollar. ProFund Advisors will not
engage in activities designed to hedge against foreign currency
fluctuations.
- On January 1, 1999, the eleven nations of the European Monetary Union,
including Germany and France, began the process of introducing a uniform
currency. The new currency, the euro, is expected to reshape financial
markets, banking systems and monetary policy in Europe and throughout the
world. The continued transition to the euro may also have a worldwide
impact on the economic environment and behavior of investors.
BENCHMARK PROFUNDS' TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and tables in this section can help you evaluate the potential
risk and rewards of investing in the Benchmark ProFunds. The bar chart shows the
1998 return for the Investor Class shares of each Benchmark ProFund available to
the public for a year or more as of December 31, 1998. The first table compares
each such ProFund's return for Investor Class shares in 1998 and since inception
with its relevant benchmark index. The second table compares each such ProFund's
return for Service Class shares in 1998 and since inception with its relevant
benchmark index. Of course, how a Benchmark ProFund has performed in the past is
not necessarily an indication of how it will perform in the future.
1998 RETURNS
[Bar chart]
9
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
26.57% 42.95% 185.34% -19.46% -38.34%
- -----------------------------------------------------------------------------------------------
Bull ProFund UltraBull UltraOTC Bear ProFund UltraBear
ProFund ProFund ProFund
- -----------------------------------------------------------------------------------------------
</TABLE>
During the period covered in the chart above, the highest and lowest return of
the Investor Class shares of each of these Benchmark ProFunds in any calendar
quarter were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FUND HIGHEST QUARTERLY RETURN (%) LOWEST QUARTERLY RETURN (%)
- ---------------------------------------------------------------------------------------------------------------
Bull ProFund Q4 1998 (20.37%) Q3 1998 (-9.95%)
- ---------------------------------------------------------------------------------------------------------------
Bear ProFund Q3 1998 (11.11%) Q4 1998 (-17.06%)
- ---------------------------------------------------------------------------------------------------------------
UltraBull ProFund Q4 1998 (41.36%) Q3 1998 (-22.46%)
- ---------------------------------------------------------------------------------------------------------------
UltraBear ProFund Q3 1998 (17.87%) Q4 1998 (-32.26%)
- ---------------------------------------------------------------------------------------------------------------
UltraOTC ProFund Q4 1998 (72.73%) Q3 1998 (-5.15%)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL INVESTOR CLASS SHARE RETURNS AS OF DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE YEAR SINCE INCEPTION INCEPTION DATE
- ---------------------------------------------------------------------------------------------------------------
Bull ProFund 26.57% 23.07% 12/2/97
- ---------------------------------------------------------------------------------------------------------------
UltraBull ProFund 42.95% 42.34% 11/28/97
- ---------------------------------------------------------------------------------------------------------------
UltraOTC ProFund 185.34% 123.30% 12/2/97
- ---------------------------------------------------------------------------------------------------------------
Bear ProFund -19.46% -19.41% 12/31/97
- ---------------------------------------------------------------------------------------------------------------
UltraBear ProFund -38.34% -35.43% 12/23/97
- ---------------------------------------------------------------------------------------------------------------
S&P 500 Index 26.67%* 26.92%* 11/28/97
- ---------------------------------------------------------------------------------------------------------------
26.67%* 24.18%* 12/2/97
- ---------------------------------------------------------------------------------------------------------------
26.67%* 28.27%* 12/23/97
- ---------------------------------------------------------------------------------------------------------------
26.67%* 26.67%* 12/31/97
- ---------------------------------------------------------------------------------------------------------------
NASDAQ 100 Index TM 85.31%* 70.12%* 12/2/97
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL SERVICE CLASS SHARE RETURNS AS OF DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE YEAR SINCE INCEPTION INCEPTION DATE
- ---------------------------------------------------------------------------------------------------------------
Bull ProFund 25.68% 22.26% 12/2/97
- ---------------------------------------------------------------------------------------------------------------
UltraBull ProFund 41.48% 40.99% 11/28/97
- ---------------------------------------------------------------------------------------------------------------
UltraOTC ProFund 183.98% 122.32% 12/2/97
- ---------------------------------------------------------------------------------------------------------------
Bear ProFund -20.04% -19.99% 12/31/97
- ---------------------------------------------------------------------------------------------------------------
UltraBear ProFund -38.45% -35.60% 12/23/97
- ---------------------------------------------------------------------------------------------------------------
S&P 500 Index 26.67%* 26.92%* 11/28/97
- ---------------------------------------------------------------------------------------------------------------
26.67%* 24.18%* 12/2/97
- ---------------------------------------------------------------------------------------------------------------
26.67%* 28.27%* 12/23/97
- ---------------------------------------------------------------------------------------------------------------
26.67%* 26.67%* 12/31/97
- ---------------------------------------------------------------------------------------------------------------
NASDAQ 100 Index TM 85.31%* 70.12%* 12/2/97
- ---------------------------------------------------------------------------------------------------------------
*Excludes reinvestment of dividends.
</TABLE>
ANNUAL BENCHMARK PROFUND OPERATING EXPENSES
The tables below describe the fees and expenses you may pay if you buy and hold
shares in any of the Benchmark ProFunds. All expenses are deductible from the
ProFunds' assets. THE PROFUNDS ARE "NO-LOAD" MUTUAL FUNDS. YOU PAY NO SALES
CHARGE WHEN YOU BUY OR SELL SHARES, OR WHEN YOU REINVEST DIVIDENDS.
11
<PAGE>
BENCHMARK PROFUNDS FEE STRUCTURE-INVESTOR CLASS SHARES
(PERCENTAGE OF AVERAGE DAILY NET ASSETS)
- --------------------------------------------------------------------------------
BULL ULTRABULL ULTRAOTC ULTRAEUROPE
PROFUND PROFUND* PROFUND* PROFUND
- --------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75% 0.90%
- --------------------------------------------------------------------------------
Distribution none none none none
(12b-1) fees
- --------------------------------------------------------------------------------
Other Expenses 0.58% 0.73% 0.73% 0.58%
- --------------------------------------------------------------------------------
Total Annual 1.33% 1.48% 1.48% 1.48%
Operating
Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ULTRABEAR ULTRASHORT ULTRASHORT BEAR PROFUND
PROFUND* OTC EUROPE
PROFUND* PROFUND
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.75% 0.75% 0.90% 0.75%
- ------------------------------------------------------------------------------------
Distribution none none none none
(12b-1) fees
- ------------------------------------------------------------------------------------
Other Expenses 0.72% 0.91% 0.58% 0.58%
- ------------------------------------------------------------------------------------
Total Annual 1.47% 1.66% 1.48% 1.33%
Operating
Expenses
- ------------------------------------------------------------------------------------
</TABLE>
* ProFund Advisors currently waives fees with respect to the indicated ProFunds.
During the ProFunds' last fiscal year, ProFund Advisors waived fees in the
following amounts (as a percentage of average daily net assets): UltraBull
ProFund - 0.15%, UltraOTC ProFund - 0.15%, UltraBear ProFund - 0.14%, and
UltraShort OTC ProFund - 0.33%. Total expenses were 1.33% for the Investor Class
shares of each of these ProFunds after fee waivers.
12
<PAGE>
<TABLE>
<CAPTION>
BENCHMARK PROFUNDS FEE STRUCTURE--SERVICE CLASS SHARES
(PERCENTAGE OF AVERAGE DAILY NET ASSETS)
- -------------------------------------------------------------------------------------
BULL PROFUND ULTRABULL ULTRAOTC ULTRAEUROPE
PROFUND* PROFUND* PROFUND
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.75% 0.75% 0.75% 0.90%
- -------------------------------------------------------------------------------------
Distribution none none none none
(12b-1) fees
- -------------------------------------------------------------------------------------
Other Expenses 1.58% 1.73% 1.73% 1.58%
- -------------------------------------------------------------------------------------
Total Annual 2.33% 2.48% 2.48% 2.48%
Operating
Expenses
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
ULTRABEAR ULTRASHORT ULTRASHORT BEAR
PROFUND* OTC EUROPE PROFUND
PROFUND* PROFUND
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.75% 0.75% 0.90% 0.75%
- ------------------------------------------------------------------------------------------
Distribution none none none none
(12b-1) fees
- ------------------------------------------------------------------------------------------
Other Expenses 1.72% 1.91% 1.58% 1.58%
- ------------------------------------------------------------------------------------------
Total Annual 2.47% 2.66% 2.48% 2.33%
Operating
Expenses
- ------------------------------------------------------------------------------------------
</TABLE>
* ProFund Advisors currently waives fees with respect to the indicated ProFunds.
During the ProFunds' last fiscal year, ProFund Advisors waived fees in the
following amounts (as a percentage of average daily net assets): UltraBull
ProFund - 0.15%, UltraOTC ProFund - 0.15%, UltraBear ProFund - 0.14%, and
UltraShort OTC ProFund - 0.33%. Total expenses were 2.33% for the Service Class
shares of each of these ProFunds after fee waivers.
EXPENSE EXAMPLES
The examples below illustrate the expenses you would have incurred on a $10,000
investment in each Benchmark ProFund, and are intended to help you compare the
cost of investing in the Benchmark ProFunds compared to other mutual funds. It
assumes that you invested for the time periods shown and redeemed all of your
shares at the end of
13
<PAGE>
each period, that each ProFund earns an annual return of 5% over the periods
shown, that you reinvest all dividends and distributions, and that gross
operating expenses remain constant.
<TABLE>
<CAPTION>
INVESTOR CLASS EXPENSE EXAMPLES
- ---------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UltraBull ProFund $151 $468 $808 $1,768
- ---------------------------------------------------------------------------------------------------------------
UltraOTC ProFund $151 $468 $808 $1,768
- ---------------------------------------------------------------------------------------------------------------
Bull ProFund $135 $421 $729 $1,601
- ---------------------------------------------------------------------------------------------------------------
Bear ProFund $135 $421 $729 $1,601
- ---------------------------------------------------------------------------------------------------------------
UltraBear ProFund $150 $465 $803 $1,757
- ---------------------------------------------------------------------------------------------------------------
UltraShort OTC ProFund $169 $523 $902 $1,965
- ---------------------------------------------------------------------------------------------------------------
Ultra Europe $151 $468
ProFund1
- ---------------------------------------------------------------------------------------------------------------
UltraShort Europe $151 $468
ProFund1
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SERVICE CLASS EXPENSE EXAMPLES
- ---------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UltraBull ProFund $251 $773 $1,321 $2,816
- ---------------------------------------------------------------------------------------------------------------
UltraOTC ProFund $251 $773 $1,321 $2,816
- ---------------------------------------------------------------------------------------------------------------
Bull ProFund $236 $727 $1,245 $2,666
- ---------------------------------------------------------------------------------------------------------------
Bear ProFund $236 $727 $1,245 $2,666
- ---------------------------------------------------------------------------------------------------------------
UltraBear ProFund $250 $770 $1,316 $2,806
- ---------------------------------------------------------------------------------------------------------------
UltraShort OTC ProFund $269 $826 $1,410 $2,993
- ---------------------------------------------------------------------------------------------------------------
Ultra Europe $251 $773
ProFund1
- ---------------------------------------------------------------------------------------------------------------
UltraShort Europe $251 $773
ProFund1
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
1 The Securities and Exchange Commission requires that these ProFunds
estimate expenses for one and three years, only.
DETAILS OF PROFUNDS' APPROACH TO INVESTING
THE PROFUNDS' BENCHMARK INDEXES
o The S&P 500 Index is a widely used measure of large U.S. company stock
performance. It consists of the common stocks of 500 major corporations
selected for their size and the frequency and ease with which their stocks
trade. Standard & Poor's also attempts to assure that the Index reflects
the full range and diversity of the
14
<PAGE>
American economy. The companies in the S&P 500 account for nearly
three-quarters of the value of all U.S. stocks.
o The NASDAQ 100 Index(TM) contains 100 of the largest non-financial stocks
listed on the National Association of Securities Dealers Automated
Quotation Stock Market, also known as the "OTC" market. Each stock listed
in the NASDAQ 100 Index(TM) has a market value of at least $500 million and
an average daily trading volume of at least 100,000 shares. The Index
contains a large concentration of technology and other high-growth stocks.
o ProFunds Europe Index ("PEI") is a combined measure of European stock
performance created by ProFund Advisors from the leading stock indexes of
Europe's three largest economies giving equal weight to each index each
day.
o The PEI averages the daily results of Great Britain's Financial Times
o Stock Exchange 100-Share Index ("FTSE-100"), which tracks the stocks
of the United Kingdom's 100 largest publicly held corporations;
o the Deutsche Aktienindex ("DAX"), which tracks 30 of the largest
German corporations; and the
o CAC-40, which consists of 40 of the 100 largest companies listed on
the Paris Bourse.
The performance of each of these indexes is determined once a day as of one-half
hour after the opening of the referenced stock exchange.
THE PROFUNDS MAY CHANGE BENCHMARKS WITHOUT SHAREHOLDER APPROVAL IF, FOR EXAMPLE,
PROFUND ADVISORS BELIEVE ANOTHER BENCHMARK MIGHT BETTER SUIT SHAREHOLDER NEEDS.
WHAT THE BENCHMARK PROFUNDS DO
Each Benchmark ProFund:
o Seeks to provide its shareholders with predictable investment returns
approximating its benchmarks by investing in securities and other financial
instruments.
o Pursues their objectives regardless of market conditions, trends or
direction.
o Seeks to provide correlation with their benchmarks on a daily basis.
WHAT THE BENCHMARK PROFUNDS DO NOT DO
ProFund Advisors does NOT:
o Conduct conventional stock research or analysis or forecast stock market
movement in managing the Benchmark ProFunds' assets.
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<PAGE>
o Invest the Benchmark ProFunds' assets in stocks or instruments based on
ProFund Advisors' view of the fundamental prospects of particular
companies.
o Adopt defensive positions by investing in cash or other instruments in
anticipation of an adverse climate for their benchmark indices.
o Seek to invest to realize dividend income from their investments.
In addition, the Ultra ProFunds do not seek to provide correlation with their
benchmark over a period of time, such as monthly or annually, since mathematical
compounding prevents these ProFunds from achieving such results.
ESSENTIAL CONCEPTS
o LEVERAGE offers a means of magnifying small market movements, up or down,
into large changes in an investment's value.
o FUTURES, or FUTURES CONTRACTS, are contracts to pay a fixed price for an
agreed-upon amount of commodities or securities, or the cash value of the
commodity, on an agreed-upon date, no matter what course the market takes
between the contract date and the delivery date. Stock index futures
contracts settle in cash, in an amount equal to a specific dollar amount
multiplied by the difference between the value of a referenced stock index
on the delivery date and the value of the index on the contract date. When
a Benchmark ProFund purchases a put or call option on a futures contract,
it pays a premium to sell or purchase the underlying security at a specific
price upon exercise of the option. Futures contracts are an efficient proxy
for securities, entail fewer transaction costs than securities, and often
trade with a higher degree of liquidity.
o OPTIONS obligate only one party to the transaction, in contrast to futures,
which obligate both buyer and seller. An option grants one party a right,
for a price, either to buy or sell a security or futures contract at a
fixed sum at any time up to an agreed-upon expiration date.
o SELLING SHORT, or borrowing stock to sell to a third party, is a technique
employed by the ProFunds that seek gains during declines in their benchmark
indices. If a ProFund can buy a security to return it to the lender at a
price lower than the ProFund earned from short selling the security, the
ProFund makes a profit on the difference. If the current market price is
greater when the time comes to replace the stock, the ProFund will incur a
loss on the transaction.
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PORTFOLIO TURNOVER
ProFund Advisors expects a significant portion of the Benchmark ProFunds' assets
to come from professional money managers and investors who use ProFunds as part
of "market timing" investment strategies. These strategies often call for
frequent trading of ProFund shares to take advantage of anticipated changes in
market conditions. Although ProFund Advisors believes its accounting methodology
should minimize the effect on ProFunds of such trading, market timing trading
could increase the rate of ProFunds' portfolio turnover, forcing realization of
substantial capital gains and losses and increasing transaction expenses. In
addition, while ProFunds does not expect it, large movements of assets into and
out of the ProFunds may negatively impact their abilities to achieve their
investment objectives or their level of operating expenses.
THE MONEY MARKET PROFUND
OBJECTIVE
The Money Market ProFund invests its assets in the Cash Management Portfolio
(the "Portfolio"), a separate investment company managed by Bankers Trust
Company. The objective of the Money Market ProFund and the Portfolio are
identical: Both seek a high level of current income consistent with liquidity
and preservation of capital. The Portfolio seeks this objective by investing in
high quality short-term money market instruments.
STRATEGY
Money Market ProFund invests for current income. In order to maintain a stable
share price, the Portfolio maintains a dollar-weighted average maturity of 90
days or less. Generally, securities in the Portfolio are valued in U.S. dollars
and have remaining maturities of 397 days (about 13 months) or less on their
purchase date. The Portfolio may also invest in securities that have features
that reduce their maturities to 397 days or less on their purchase date. The
Portfolio buys U.S. government debt obligations, money market instruments and
other debt obligations that at the time of purchase:
- -- have received the highest short-term rating from two nationally recognized
statistical rating organizations;
- -- have received the highest short-term rating from one rating organization
(if only one organization rates the security);
- -- if unrated, are determined to be of similar quality by the Portfolio's
investment advisor; or
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- -- have no short-term rating, but are rated in the top three highest long-term
rating categories, or are determined to be of similar
quality by the Portfolio's investment advisor.
An investment in the Money Market ProFund is not a deposit of a bank, nor is it
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. While the Money Market ProFund tries to maintain a stable net
asset value of $1.00 per share, there is no guarantee that the Money Market
ProFund will do so, and you could lose money by investing in this ProFund.
CONSIDERING A MONEY MARKET PROFUND INVESTMENT
Investors can take advantage of the Money Market ProFund in two ways:
o during periods when investors want to maintain a neutral exposure to the
stock market, the income earned from an investment in the Money Market
ProFund can keep their capital at work.
o the Money Market ProFund can be invested in conjunction with other ProFunds
to adjust an investor's target exposure to an index.
SIDEBAR
For instance, an investor who desires to target a DAILY return of 1.5 times the
performance of the S&P 500 Index could allocate 75% of his or her investment to
the UltraBull ProFund and 25% of the investment to the Money Market ProFund. See
the chart on page ---- for other illustrations of using the Money Market ProFund
in conjunction with the Benchmark ProFunds.
RISKS
All money market instruments, including U.S. government debt obligations, can
change in value when interest rates change. They may also change in value if an
issuer's creditworthiness changes, although such a circumstance would be
extremely unlikely in the case of U.S. government debt obligations. In addition,
the Money Market ProFund will be subject to the effects of business, economic
and regulatory developments that affect the Portfolio or the financial services
industry generally.
MONEY MARKET PROFUND'S TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and tables in this section can help you evaluate the potential
risk and reward of investing in Money Market ProFund. The bar chart shows the
1998 return for the Investor Class shares of the Money Market ProFund. The first
table compares the
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Money Market ProFund's return for Investor Class shares in 1998 and since with
its relevant comparative securities index. The second table shows the return for
Service Class shares in 1998 and since inception with its relevant comparative
securities index. Of course, how the Money Market ProFund has performed in the
past is not necessarily an indication of how it will perform in the future.
1998 RETURN
4.84%
[bar chart]
During the period covered in the chart above, the highest return in any calendar
quarter for Money Market ProFund's Investor Class shares was Q4 1998 (1.22%),
and its lowest quarterly return was Q3 1998 (1.14%).
AVERAGE ANNUAL INVESTOR CLASS SHARE RETURNS AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ONE YEAR SINCE INCEPTION INCEPTION DATE
- --------------------------------------------------------------------------------
MONEY MARKET PROFUND 4.84% 4.87% 11/17/97
- --------------------------------------------------------------------------------
Comparative Index
- --------------------------------------------------------------------------------
The 7-day yield, the income yield for the previous seven days projected over a
full year, was 4.41% for Money Market ProFund's Investor Class shares as of
December 31, 1998. To learn the current 7-day yield, call ProFunds at (888)
776-3637.
AVERAGE ANNUAL SERVICE CLASS SHARE RETURNS AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ONE YEAR SINCE INCEPTION INCEPTION DATE
- --------------------------------------------------------------------------------
MONEY MARKET PROFUND 3.81% 3.41% 11/17/97
- --------------------------------------------------------------------------------
Comparative Index
- --------------------------------------------------------------------------------
The 7-day yield, the income yield for the previous seven days projected over a
full year, was 3.41% for Money Market ProFund's Service Class shares as of
December 31, 1998. To learn the current 7-day yield, call ProFunds at (888)
776-3637.
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ANNUAL FUND OPERATING EXPENSES
The tables below describe the fees and expenses you may pay if you buy and hold
shares of the Money Market ProFund. All expenses, including the Money Market
ProFund's prorated Portfolio expenses, are deductible from the ProFund's assets.
THE MONEY MARKET PROFUND IS A "NO-LOAD" MUTUAL FUND. YOU PAY NO SALES CHARGE
WHEN YOU BUY OR SELL SHARES OR WHEN YOU REINVEST DIVIDENDS.
MONEY MARKET PROFUND FEE STRUCTURE-INVESTOR CLASS SHARES
(PERCENTAGE OF AVERAGE DAILY NET ASSETS)
- --------------------------------------------------------------------------------
Management Fees 0.15%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None
- --------------------------------------------------------------------------------
Other Expenses 0.74%
- --------------------------------------------------------------------------------
Total Annual Operating Expenses* 0.89%
- --------------------------------------------------------------------------------
MONEY MARKET PROFUND FEE STRUCTURE---SERVICE CLASS SHAREs
(PERCENTAGE OF AVERAGE DAILY NET ASSETS)
- --------------------------------------------------------------------------------
Management Fees 0.15%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None
- --------------------------------------------------------------------------------
Other Expenses 1.83%
- --------------------------------------------------------------------------------
Total Annual Operating Expenses* 1.98%
- --------------------------------------------------------------------------------
* ProFund Advisors currently waives fees with respect to the Money Market
ProFund. During the ProFunds' last fiscal year, ProFund Advisors waived
fees in the amount of 0.09% of average daily net assets. Total expenses
were 0.83% for the Investor Class shares and 1.83% for the Service Class
shares after fee waivers.
EXPENSE EXAMPLES
The examples below illustrate the expenses you would have incurred on a $10,000
investment in each class of shares of the Money Market ProFund, and are intended
to help you compare to cost of investing in the ProFund compared to other mutual
funds. It assumes that you invested for the time periods shown and redeemed all
of your shares at the end of each period, the Money Market ProFund earns an
annual return of 5% over the periods shown, that you reinvest all dividends and
distributions, and that gross operating expenses remain constant.
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- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Investor Shares $91 $284 $493 $1,096
- --------------------------------------------------------------------------------
Service Shares $201 $621 $1068 $2,306
- --------------------------------------------------------------------------------
MONEY MARKET PROFUND DETAILS
The Money Market ProFund invests all of its investable assets in the Portfolio.
The Portfolio may invest in high-quality, short-term, dollar-denominated money
market securities paying a fixed, variable or floating interest rate. These
include:
o Debt securities issued by U.S. and foreign banks, financial institutions,
and corporations, including certificates of deposit, euro-time deposits,
commercial paper (including asset-backed commercial paper), notes, funding
agreements and U.S. government securities. Securities that do not satisfy
the maturity restrictions for a money market fund may be specifically
structured so that they are eligible investments for money market funds.
For example, some securities have features which have the effect of
shortening the security's maturity.
o U.S. government securities that are issued or guaranteed by the U.S.
Treasury, or by agencies or instrumentalities of the U.S. Government.
o Repurchase agreements, which are agreements to buy securities at one price,
with a simultaneous agreement to sell back the securities at a future date
at an agreed-upon price.
o Asset-Backed securities, which are generally participations in a pool of
assets whose payment is derived from the payments generated by the
underlying assets. Payments on the asset-backed security generally consist
of interest and/or principal.
Because many of the Portfolio's principal investments are issued or
credit-enhanced by banks, the Portfolio may invest more than 25% of its total
assets in the financial services industry.
The Portfolio may invest in other types of instruments, as described in the
Statement of Additional Information.
SPECIFIC RISKS AND MEASURES TAKEN TO LIMIT THEM
CREDIT RISK
A money market instrument's credit quality depends on the issuer's ability to
pay interest on the security and repay the debt: the lower the credit rating,
the greater the risk that the security's issuer will default, or fail to meet
its payment obligations. The credit risk of a
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security may also depend on the credit quality of any bank of financial
institution that provides credit enhancement for it. The Portfolio only buys
high quality securities with minimal credit risk. If a security no longer meets
the Portfolio's credit rating requirements, Bankers Trust Company will attempt
to sell that security within a reasonable time, unless selling the security
would not be in the Portfolio's best interest.
REPURCHASE AGREEMENT RISK
A repurchase agreement exposes the Portfolio to the risk that the party that
sells the securities defaults on its obligation to repurchase them. In this
circumstance, the Portfolio can lose money because:
o it may not be able to sell the securities at the agreed-upon time and price
o the securities lose value before they can be sold.
Bankers Trust Company seeks to reduce the Portfolio's risk by monitoring, under
the supervision of the Portfolio's Board of Trustees, the creditworthiness of
the sellers with whom it enters into repurchase agreements. The Portfolio also
monitors the value of the securities to ensure that they are at least equal to
the total amount of the repurchase obligations, including interest.
INTEREST RATE RISK
Money market instruments, like all debt securities, face the risk that the
securities will decline in value because of changes in interest rates.
Generally, investments subject to interest rate risk will decrease in value when
interest rates rise and increase when interest rates decline. To minimize such
price fluctuations, the Portfolio adheres to the following practices:
o Bankers Trust Company limits the dollar-weighted average maturity of the
securities held by the Portfolio to 90 days or less. Generally, rates of
short-term investments fluctuate less than longer-term bonds.
o Bankers Trust Company primarily buys securities with remaining maturities
of 13 months or less. This reduces the risk that the issuer's
creditworthiness will change, or that the issuer will default on the
principal and interest payments of the obligations.
MARKET RISK
Although individual securities may outperform their market, the entire market
may decline as a result of rising interest rates, regulatory developments or
deteriorating economic conditions.
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<PAGE>
SECURITY SELECTION RISK
While the Portfolio invests in short-term securities, which by nature are
relatively stable investments, the risk remains that the securities selected
will not perform as expected. This could cause the Portfolio's returns to lag
behind those of similar money market funds. Bankers Trust Company attempts to
limit this risk by diversifying the Portfolio's investments so that a single
setback need not undermine the pursuit of its objective and by investing in
money market instruments that receive the highest short-term debt ratings as
described above.
CONCENTRATION RISK
Because the Portfolio may invest more than 25% of its total assets in the
financial services industry, it may be vulnerable to setbacks in that industry.
Banks and other financial service companies are highly dependent on short-term
interest rates and can be adversely affected by downturns in the U.S. and
foreign economies or changes in banking regulations.
PREPAYMENT RISK
When a bond issuer, such as an issuer of asset-backed securities, retains the
right to pay off a high yielding bond before it comes due, the Portfolio may
have no choice but to reinvest the proceeds at lower interest rates. Thus,
prepayment may reduce the Portfolio's income. It may also create a capital gains
tax liability, because bond issuers usually pay a premium for the right to pay
off bonds early.
ORGANIZATIONAL STRUCTURE
The Money Market ProFund is a FEEDER FUND that invests all of its assets in a
MASTER FUND, the Portfolio. The ProFund and the Portfolio have the same
investment objective.
The Portfolio may accept investments from other feeder funds. The feeders bear
the Portfolio's expenses in proportion to their assets. Each feeder can set its
own transaction minimums, fund-specific expenses and other conditions. This
Money Market ProFund's Trustees may withdraw its assets from the Portfolio if
they believe doing so is in the shareholders' best interests. If the Trustees
withdraw the Fund's assets, they would then consider whether the Fund should
hire its own investment advisor and invest its assets directly in appropriate
instruments, invest in a different fund, or take other action.
SHAREHOLDER INFORMATION
CALCULATING THE PROFUNDS' SHARE PRICES
23
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Except for the UltraEurope and UltraShort Europe ProFunds, each Benchmark
ProFund calculates daily share prices on the basis of the net asset value of
each class of shares at the close of regular trading on the New York Stock
Exchange ("NYSE") (normally, 4:00 p.m., Eastern time) every day the NYSE and the
Chicago Mercantile Exchange are open for business. The UltraEurope and
UltraShort Europe ProFunds calculate their daily share prices on the basis of
net asset value of each class as of one half hour after the latest opening of
the three exchanges tracked by the PEI: the London Stock Exchange, the Frankfurt
Stock Exchange or the Paris Bourse (normally, 4:30 a.m., Eastern time), on each
day that all three of these exchanges and the NYSE are open. Purchases and
redemptions of shares are effected at the net asset value per share next
determined after receipt and acceptance of an order. If portfolio investments of
a ProFund are traded in markets on days when the ProFund's principal trading
market(s) is closed, its net asset value may vary on days when investors cannot
purchase or redeem shares.
The ProFunds value shares of each class of shares by dividing the market value
of the assets attributable to each class, less the liabilities attributable to
the class, by the number of the class's outstanding shares. The ProFunds use the
following methods for arriving at the current market price of investments held
by the Benchmark ProFunds:
o securities listed and traded on exchanges -- the last price the stock
traded at on a given day, or if there were no sales, the mean between the
closing bid and asked prices
o securities traded over the counter--NASDAQ-supplied information on the
prevailing bid and asked prices
o futures contracts and options on indexes and securities -- the last sale
price prior to the close of regular trading on the NYSE (for all Benchmark
ProFunds except the UltraEurope ProFund and UltraShort Europe ProFund)
o futures prices used to calculate net asset values for the UltraEurope
ProFund and the UltraShort Europe ProFund will be the last transaction
prices for the respective futures contracts that occur immediately prior to
one half hour after each underlying stock market opens
o options on futures contracts -- priced at fair value determined with
reference to established future exchanges
o bonds and convertible bonds generally are valued using a third-party
pricing system
o short-term debt securities are valued at amortized cost, which approximates
market value
24
<PAGE>
o the foreign exchange rates used to calculate the net asset values for the
UltraEurope ProFund and the UltraShort Europe ProFund will be the mean of
the bid price and the ask price for the respective foreign currency
occurring immediately after one half hour after the last underlying stock
market opens
When price quotes are not readily available, securities and other assets are
valued at fair value in good faith under procedures established by, and under
the general supervision and responsibility of, the ProFunds' Board of Trustees.
This procedure incurs the unavoidable risk that the valuation may be higher or
lower than the securities might actually command if the ProFunds sold them. This
procedure incurs the unavoidable risk that the valuation may be higher or lower
than the securities might actually command if the ProFunds sold them. In the
event that a trading halt closes the NYSE or a futures exchange early, portfolio
investments may be valued at fair value, or in a manner that is different from
the discussion above. See the Statement of Additional Information for more
details.
CALCULATING THE MONEY MARKET PROFUND'S SHARE PRICE
The Money Market ProFund calculates daily share prices on the basis of the net
asset value of each class of shares at the close of regular trading on the NYSE
(normally, 4:00 p.m., Eastern time) every day the NYSE is open for business.
Purchases and redemptions of shares are effected at the net asset value per
share next determined after receipt and acceptance of an order. If the market
for the primary investments in the Portfolio closes early, the Portfolio may
close early. The Money Market ProFund will cease taking purchase orders at that
time. The Money Market ProFund's net asset value per share for each class of
shares will normally be $1.00, although neither ProFund Advisors nor Bankers
Trust Company can guarantee that this will always be the case. The Portfolio
uses the amortized cost method to account for any premiums or discounts above or
below the face value of any securities it buys. This method does not reflect
daily fluctuations in market value.
25
<PAGE>
THE NEW YORK STOCK EXCHANGE and the CHICAGO MERCANTILE EXCHANGE, a leading
market for futures and options, are open every week, Monday through Friday,
except when the following holidays are celebrated: New Year's Day, Martin Luther
King, Jr. Day (the third Monday in January), Presidents' Day (the third Monday
in February), Good Friday, Memorial Day (the last Monday in May), July 4th,
Labor Day (the first Monday in September), Thanksgiving Day (the fourth Thursday
in November) and Christmas Day. The Portfolio may close early on the business
day before each of these holidays. The Portfolio may also close early on the day
after Thanksgiving Day and the day before Christmas Eve.
The LONDON STOCK EXCHANGE, FRANKFURT STOCK EXCHANGE or PARIS BOURSE closes for
the following holidays: New Year's Day, Good Friday, Easter Monday, Labor Day
(May 1), Early May Bank Holiday, VE Day (May 8), Late May Bank Holiday,
Ascension, Pentecost, August Bank Holiday, German Unity Day, Armistice Day,
Christmas Day and the next business day after Christmas Day.
DIVIDENDS AND DISTRIBUTIONS
Each of the Benchmark ProFunds intends to distribute to its shareholders every
year all of the year's net investment income and net capital gains. ProFunds
will reinvest these distributions in additional shares of the ProFund declaring
them, unless a shareholder has written to request a direct cash distribution.
The Money Market ProFund declares dividends from its net income daily and pays
the dividends on a monthly basis. The Money Market ProFund will pay annually any
long-term capital gains as well as any short-term capital gains that it did not
distribute during the year, but it reserves the right to include in the daily
dividend any short-term capital gains on securities that it sells.
26
<PAGE>
The Money Market ProFund may revise these policies, postpone the payment of
dividends and interest or take other actions in order to maintain a constant net
asset value of $1.00 per share.
TAX CONSEQUENCES
A ProFund does not ordinarily pay income tax on its net investment income (which
includes short-term capital gains) and net capital gain that it distributes to
shareholders, but individual shareholders pay tax on the dividends and
distributions they receive. Shareholders will generally be taxed regardless of
how long they have held ProFund shares and regardless of whether they receive
cash or choose to have distributions and dividends reinvested. Distributions and
dividends generally will be taxable as either ordinary income or long-term
capital gains. For example, if a ProFund designates a particular distribution as
a long-term capital gain distribution, it will be taxable to shareholders at
their long-term capital gain rate. Dividends and distributions may also be
subject to state and local taxes.
Every year the ProFunds will send shareholders tax information on the dividends
and distributions for the previous year.
If shareholders sell or redeem their ProFund shares, they may have a capital
gain or loss, which will be long-term or short-term, generally depending upon
how long they have held the shares. An exchange of ProFund shares may be treated
as a sale.
The tax consequences for tax deferred retirement accounts or non-taxable
shareholders will be different.
PLEASE KEEP IN MIND:
- --------------------
o Whether a distribution by a ProFund is taxable to shareholders as ordinary
income or at the lower capital gains rate depends on whether it is
long-term capital gain of the ProFund, not on how long an investor has
owned shares of the ProFund.
27
<PAGE>
o Dividends and distributions declared by a ProFund in October, November or
December of one year and paid in January of the next year may be taxable in
the year the ProFund declared them.
o As with all mutual funds, a ProFund may be required to withhold U.S.
federal income tax at the rate of 31% of all taxable distributions and
redemption proceeds, payable to shareholders who fail to provide the
ProFund with correct taxpayer identification numbers or to make required
certifications, or who have been notified by the IRS that they are subject
to backup withholding. Backup withholding is not an additional tax; rather,
it is a way in which the IRS ensures it will collect taxes otherwise due.
Any amounts withheld may be credited against the shareholder's U.S. federal
income tax liability. You also may be subject to a $50 fee to reimburse the
ProFunds for any penalty that the IRS may impose.
PLEASE SEE THE STATEMENT OF ADDITIONAL INFORMATION FOR MORE INFORMATION. BECAUSE
EACH INVESTOR'S TAX CIRCUMSTANCES ARE UNIQUE AND BECAUSE THE TAX LAWS ARE
SUBJECT TO CHANGE, PROFUND ADVISORS RECOMMENDS THAT SHAREHOLDERS CONSULT THEIR
TAX ADVISORS ABOUT FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
INVESTMENT IN THE PROFUNDS.
CLASSES OF SHARES
Investors in any of the ProFunds can purchase either Investor Class shares
directly, or Service Class shares through an authorized firm, such as a
registered investment advisor, a bank or a trust company. Under a shareholder
services plan for Service Class shares, each ProFund may pay an authorized firm
up to 1.00% of average daily net assets attributable to its customers who are
Service Class shareholders. For this fee, the authorized firms may provide a
variety of services, such as:
o receiving and processing shareholder orders,
o performing the accounting for the shareholder's account,
o maintaining retirement plan accounts,
o answering questions, giving investment advice, and handling correspondence
for individual accounts,
o acting as the sole shareholder of record for individual shareholders,
28
<PAGE>
o issuing shareholder reports and transaction confirmations, and
o executing daily investment "sweep" functions.
o investment advisory services.
Holders of a ProFund's Service Class shares pay all fees and expenses applicable
to these shares. The authorized firms may charge extra for services beyond those
specified above, but they must furnish clients who own Service Class shares with
a schedule explaining those fees.
SHAREHOLDER SERVICES GUIDE
CONTACTING PROFUNDS
By telephone: (888) 776-3637 or (614) 470-8122
(888) 776-5717 -- a phone line dedicated for use by
financial professionals ONLY
BY MAIL:
ProFunds
P.O. Box 182800
Columbus, OH 43218-2800
BY OVERNIGHT MAIL:
ProFunds
c/o BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
MINIMUM INVESTMENTS
o $5,000 for discretionary accounts controlled by a financial professional.
o $15,000 for self-directed accounts controlled directly by investors.
These minimums apply to all accounts, including retirement plans, and apply to
the total value of an investor's initial ProFunds investment. ProFunds reserves
the right to reject or refuse, at its discretion, any order for the purchase of
a ProFund's shares in whole or in part.
TAX-SHELTERED RETIREMENT PLANS
29
<PAGE>
The ProFunds sponsor Individual Retirement Accounts ("IRAs") that enable
individual investors to set up their own retirement savings programs. ProFund
Advisors charges an annual fee of $15 per social security number for all types
of IRAs to pay for the extra maintenance and tax reporting that these plans
require. Investors in other types of retirement plans also may invest in the
ProFunds. For additional information and an application, contact ProFunds
directly by phone or at the above address.
OPENING YOUR PROFUNDS ACCOUNT
o BY MAIL: Send a completed application, along with a check payable to
"ProFunds", to the above address. Cash, credit cards, credit card checks
and third party checks are not accepted. All purchases must be made in US
dollars through a US bank.
o BY WIRE TRANSFER: Fax your completed application to 800-782-4297 or
614-470-8718. Call ProFunds to inform ProFunds of the amount you will be
wiring and receive a confirmation number. You can then instruct your bank
to transfer your funds to:
o UMB Bank, N.A. Kansas City, Missouri
o Routing/ABA#: 101000695
o ProFunds DDA #9870857952
o For Further Credit to: THE NAME OF THE PROFUND(S), YOUR ACCOUNT
NUMBER, AND THE NAME(S) OF THE ACCOUNT OWNER(S).
o Confirmation Number: AS GIVEN TO YOU BY YOUR PROFUNDS TELEPHONE
SERVICE REPRESENTATIVE
o Please note that your bank may charge a fee for such a service.
o 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.
o THROUGH SECURITIES BROKERS OR DEALERS. Securities brokers have the
responsibility of transmitting your orders promptly, and may charge a
processing fee.
30
<PAGE>
THREE WAYS TO PURCHASE ADDITIONAL PROFUNDS SHARES:
o BY MAIL: Cash, credit cards, credit card checks and third party checks are
not accepted. All purchases need to be made in US dollars through a US
bank.
o THROUGH AUTHORIZED SECURITIES BROKERS OR DEALERS. Securities brokers have
the responsibility of transmitting your orders promptly and may charge a
processing fee.
o BY WIRE TRANSFER: Call ProFunds to inform ProFunds of the amount you will
be wiring and receive a confirmation number. You can then instruct your
bank to transfer your funds to:
o UMB Bank, N.A. Kansas City, Missouri
o Routing/ABA#: 101000695
o ProFunds DDA #9870857952
o For Further Credit to: THE NAME OF THE PROFUND(S), YOUR ACCOUNT
NUMBER, AND THE NAME(S) OF THE ACCOUNT OWNER(S).
o Confirmation Number: AS GIVEN TO YOU BY YOUR PROFUNDS TELEPHONE
SERVICE REPRESENTATIVE
o Please note that your bank may charge a fee for such a service.
o 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.
PLEASE KEEP IN MIND:
- --------------------
o The minimum subsequent purchase amount is $100.
o ProFunds will price the shares you purchase at the price of the shares next
computed after we receive and accept your wire, check or other form of
payment.
o ProFunds accepts wire orders between 8:00 a.m. and 9:00 p.m., Eastern time,
but it must receive your wire transfer by 3:30 p.m. (6:00 p.m. for
UltraEurope and UltraShort Europe ProFunds) to price it at that day's net
asset value. Wires received after 3:30 p.m. (6:00 p.m. for UltraEurope and
UltraShort Europe ProFunds) are considered received as of the next business
day. If the primary exchange or market on which a ProFund (other than the
UltraEurope and UltraShort Europe ProFunds)
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<PAGE>
transacts business closes early, the above cut-off time will be thirty
minutes prior to the close of such exchange or market.
o If your purchase is cancelled, you will be responsible or any losses that
may result form any decline in the value of the cancelled purchase. The
ProFunds (or their agents) have the authority to redeem shares in your
account(s) to cover any losses due to fluctuations in share price. Any
profit on a cancelled transaction will accrue to the ProFunds.
REDEEMING PROFUND SHARES
You can redeem all or part of your shares at the price next determined after we
receive your request by mail. You may also place your order by phone, but
PROFUNDS CAN ONLY ACCEPT REDEMPTION ORDERS BY PHONE BETWEEN 8:00 A.M. AND 3:50
P.M. AND BETWEEN 4:30 P.M. AND 9:00 P.M. EASTERN TIME, EXCEPT FOR THE
ULTRAEUROPE AND ULTRASHORT EUROPE PROFUNDS, FOR WHICH TELEPHONE REDEMPTION
ORDERS ARE ACCEPTED BETWEEN 8:00 A.M. AND 3:50 P.M. AND 4:30 P.M. AND 8:00 P.M.,
EASTERN TIME. If the primary exchange or market on which a ProFund (other than
the UltraEurope and UltraShort Europe ProFunds) transacts business closes early,
the above cut-off time will be thirty minutes prior to the close of such
exchange or market.
WRITTEN REDEMPTIONS
To redeem all or part of your shares in writing, your request needs to include
the following information:
o the name of the ProFund(s)
o the account number(s)
o the amount of money or number of shares being redeemed
o the name(s) of the account owners
o the signature(s) of all registered account owners
o your daytime telephone number
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WIRE REDEMPTIONS
If your account is authorized for wire redemption, your proceeds will be wired
directly into the bank account you have designated. The ProFunds normally remit
redemption proceeds within seven days of completing your liquidation out of the
relevant ProFund. Redemption proceeds from the UltraEurope and UltraShort Europe
ProFunds will be delayed one day. For redemption of shares purchased by check or
automatic investment, ProFunds may wait up to 15 days before sending redemption
proceeds to assure that its transfer agent has collected the purchase payment.
The ProFunds charge a $15 service fee for a wire transfer of redemption
proceeds, and your bank may charge an additional fee to receive the wire. If you
would like to establish this option on an existing account, please call the
ProFunds to request the appropriate form. Wire redemptions are not available for
retirement accounts.
SIGNATURE GUARANTEE
Certain redemption requests must include a signature guarantee. Your
request needs to be in writing and include a signature guarantee if any of
the following situations apply:
o Your account registration or address has changed within the last 30
calendar days.
o The check is being mailed to a different address than the one on your
account.
o The check is being made payable to someone other than the account
owner.
o The redemption proceeds are being transferred to an account with a
different registration.
o You wish to redeem more than $100,000.
o Other unusual situations as determined by ProFund's transfer agent.
Signature guarantees may be provided by an eligible guarantor institution such
as a commercial bank, an NASD member firm such as a stock broker, a savings
association or a national securities exchange.
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PLEASE KEEP IN MIND:
- --------------------
o Redemption from self-directed accounts must be for at least $1,000 or, if
less, for the account's entire current value. The remaining balance needs
to be above the applicable minimum investment.
o The ProFunds normally remit redemption proceeds within seven days of
completing your liquidation out of the relevant ProFund. Redemption
proceeds from the UltraEurope and UltraShort Europe ProFunds will be
delayed one day. For redemption of shares purchased by check or Automatic
Investment, ProFunds may wait up to 15 days before sending redemption
proceeds to assure that its transfer agent has collected the purchase
payment.
o ProFunds will remit payment of telephone orders only to the address of
record on the account application. You must submit, in writing, a request
for payment to any other address along with a signature guarantee from a
financial service organization, such as a bank or securities broker.
o To redeem shares in a retirement account, your request needs to be in
writing, except for exchanges to other ProFunds, which can be requested by
phone or in writing. Call the ProFunds to request a retirement distribution
form.
o Involuntary Redemptions: ProFunds reserves 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 redemption. In addition, both a request for a partial
redemption by an investor whose account balance is below the minimum
investment and a request for partial redemption by an investor that would
bring the account below the minimum investment will be treated as a request
by the investor for a complete redemption of the account.
o Money Market ProFund shares begin accruing dividends on the day ProFund's
transfer agent, BISYS Fund Services, receives a purchase order and payment
in the form of a Federal funds wire. Purchases by check begin earning
dividends the business day following the business day the check is
received. They continue to earn dividends until the business day that BISYS
Fund Services has processed the redemption order.
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SUSPENSION OF REDEMPTIONS
Your right of redemption may be suspended, or the date of payment postponed: (i)
for any period during which the NYSE or 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, as determined by Securities
and Exchange Commission; (ii) for any period during which an emergency exists,
as determined by the Securities and Exchange Commission, 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, by order, may permit for protection of the ProFunds'
investors.
DRAFT CHECKS
You may elect to redeem shares of the Money Market ProFund by draft check ($500
minimum) made payable to the order of any person or institution. If you are
interested in this option, you must submit a completed signature card to
ProFunds. You will then be supplied with draft checks that are drawn on the
Money Market ProFund's account. There is a $25 fee for stop payment requests on
draft checks. This option is not available to Individual Retirement Account
shareholders.
EXCHANGES
Shareholders can exchange shares of either class of any ProFund for shares of
either class of another ProFund free of charge. ProFunds can only honor
exchanges between accounts registered in the same name, and having the same
address and taxpayer identification number.
ProFunds accepts exchange orders either by phone or in writing. You will need to
specify the number of shares, or the percentage or dollar value of the shares
you wish to exchange and the ProFunds (and classes of shares) involved in the
transaction. PROFUNDS CAN ONLY ACCEPT EXCHANGE ORDERS BY PHONE BETWEEN 8:00 A.M.
AND 3:50 P.M. AND BETWEEN 4:30 P.M. AND 9:00 P.M. EASTERN TIME (8 A.M. AND 3:50
P.M. AND BETWEEN 4:30 P.M. AND 8:00 P.M. FOR THE ULTRAEUROPE AND ULTRASHORT
EUROPE PROFUNDS). If
35
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the primary exchange or market (generally, the CME) on which a ProFund (other
than the UltraEurope or UltraShort Europe ProFunds) transacts business closes
early, the above cut-off time will be 25 minutes prior to the close of such
exchange or market.
Telephone exchanges from any ProFund other than the UltraEurope and UltraShort
Europe Profund into either the UltraEurope ProFund or the UltraShort Europe
ProFund need to be made by 3:50 p.m., Eastern time. The exchange redemption
will be made at that day's net asset value if received before the time deadline.
The proceeds will be used to purchase shares of either or both of these ProFunds
on the next business day for the UltraEurope and UltraShort Europe ProFunds. THE
PROCEEDS WILL BE UNINVESTED DURING THE INTERVENING PERIOD AND WILL NOT EARN
INTEREST DURING THAT TIME. Please note that during certain periods it may take
several days for exchanges to be completed due to holidays. Telephone exchanges
from either the UltraEurope ProFund or the UltraShort Europe ProFund into any
other ProFund will receive the net asset value calculated on the business day
following the day of the order on the redemption and purchase sides of the
exchange. Accordingly, shareholders will not be uninvested for any period of
time.
PLEASE KEEP IN MIND:
- --------------------
o An EXCHANGE is actually a redemption and purchase of shares and your
redemptions are subject to taxes (in a non tax-sheltered account).
o The minimum exchange for self-directed accounts is $1,000 or, if less, for
the account's entire current value.
o You may exchange, on a regular basis, shares of the Money Market ProFund
for shares of other ProFunds through an Automatic Exchange Plan. For more
information on this option, please call ProFunds at 888-776-3637.
AUTOMATIC INVESTMENT AND REDEMPTION PLANS
Shareholders may buy and redeem shares automatically on a monthly, bimonthly,
quarterly or annual basis. The minimum automatic purchase is $100.00 and the
minimum automatic redemption is $500. These minimums are waived for IRA
shareholders 70-1/2 years of age or older.
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ABOUT TELEPHONE TRANSACTIONS
o It may be difficult to reach the ProFunds by telephone during periods of
heavy market activity or other times. If you are unable to reach us by
telephone, consider sending written instructions.
o You may initiate numerous transactions by telephone. Please note, however,
that the ProFunds and their agents will not be responsible for losses
resulting from unauthorized transactions when procedures designed to verify
the identity of the caller are followed.
MANAGEMENT OF THE PROFUNDS
BOARD OF TRUSTEES AND OFFICERS
The ProFunds' Board of Trustees is responsible for the general supervision of
the ProFunds. The ProFunds' officers are responsible for day-to-day operations
of the ProFunds.
INVESTMENT ADVISORS
PROFUND ADVISORS LLC
- --------------------
PROFUND ADVISORS LLC, located at 7900 Wisconsin Avenue, Suite 300, Bethesda,
Maryland 20814, serves as the investment advisor to all of the ProFunds except
for the Money Market ProFund, providing investment advice and management
services. It oversees the investment and reinvestment of the assets in each
Benchmark ProFund. It receives fees equal to 0.75% of the average daily net
assets of each Benchmark ProFund, except the UltraEurope and UltraShort Europe
ProFunds, for which it receives a fee equal to 0.90% of the average daily net
assets. ProFund Advisors bears the costs of advisory services.
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<PAGE>
MICHAEL L. SAPIR, Chairman and Chief Executive Officer of ProFund Advisors LLC,
served as senior vice president of Padco Advisors, Inc., which advised Rydex(R)
Funds. In addition, Mr. Sapir practiced law for over 13 years, most recently as
a partner in a Washington-based law firm. As an attorney, Mr. Sapir advised and
represented mutual funds and other financial institutions. He holds degrees from
Georgetown University Law Center (J.D.) and University of Miami (M.B.A. and
B.A.).
LOUIS M. MAYBERG, President of ProFund Advisors LLC, co-founded National Capital
Companies, L.L.C., an investment bank in 1986, and manages its hedge fund. He
holds a Bachelor of Arts degree in Finance from George Washington University.
WILLIAM E. SEALE, Ph.D., Director of Portfolio for ProFund Advisors LLC has more
than 26 years of experience in the commodity futures markets. His background
includes a five-year presidential appointment as a commissioner of the U.S.
Commodity Futures Trading Commission. He earned his degrees at University of
Kentucky. Dr. Seale also holds an appointment as Professor of Finance at George
Washington University.
BANKERS TRUST COMPANY
- ---------------------
The Money Market ProFund seeks to achieve its investment objective by investing
all its assets in a portfolio managed by Bankers Trust Company, with
headquarters at 130 Liberty Street, New York, NY 10006. Bankers Trust makes the
Portfolio's investment decisions and assumes responsibility for the securities
the Portfolio owns. It receives a fee equal to 0.05% of the average daily net
assets of the Portfolio.
As of December 31, 1998, Bankers Trust was the eighth largest bank holding
company in the United States, with total assets of approximately $156 billion.
Bankers Trust Company is a worldwide merchant bank dedicated to servicing the
needs of corporations, governments, financial institutions and private clients
through a global network of over 96 offices in more than 43 countries.
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<PAGE>
On November 30, 1998, Bankers Trust Corporation entered into an Agreement and
Plan of Merger with Deutsche Bank AG under which Bankers Trust Corporation will
become a subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global
banking institution engaged in a wide range of financial services, including
retail and commercial banking, investment banking and insurance. The transaction
is contingent upon various regulatory approvals, as well as the approval of
Bankers Trust Company's shareholders. If the transaction is approved and
completed, Deutsche Bank AG, as Bankers Trust's new parent company, will control
its investment management operations. Bankers Trust Company believes that, under
this new arrangement, the services provided to the Portfolio will be maintained
at their current level.
OTHER SERVICE PROVIDERS
BISYS Fund Services, located at 3435 Stelzer Road, Suite 1000, Columbus, Ohio
43219, acts as the administrator to the ProFunds, providing operations,
compliance and administrative services. Each ProFund pays BISYS a fee, on a
sliding scale, for its administrative service. For average daily net assets up
to $300 million, the fee is 0.15% of the assets, and it declines to 0.05% for
average daily net assets of $1 billion or more.
ProFund Advisors also performs client support and administrative services for
the ProFunds. The Benchmark ProFunds each paid a fee of 0.15% of average daily
net assets for these services last year. ProFund Advisors may receive a fee of
0.35% of average daily net assets from the Money Market ProFund for these
services and for feeder fund management, administration and reporting in its
relationship to the Portfolio.
YEAR 2000
Like other funds and business organizations around the world, the ProFunds could
be adversely affected if the computer systems used by their investment advisors
and other service providers do not properly process and calculate date-related
information for the Year 2000 and beyond. In addition, Year 2000 issues may
adversely affect companies in which the ProFunds invest, which could impact the
prices of the ProFunds' shares.
39
<PAGE>
The ProFunds have been assured that their service providers have developed and
are implementing clearly defined and documented plans intended to minimize risks
to services critical to the ProFunds' operations associated with Year 2000
issues. The service providers are likewise seeking assurances from their
respective vendors and suppliers that these entities are addressing any Year
2000 issues.
In the event that any systems upon which the ProFunds depend are not Year 2000
ready by December 31, 1999, administrative errors and account maintenance
failures would likely occur. While the ultimate costs or consequences of
incomplete or untimely resolution of Year 2000 issues by the ProFunds' service
providers cannot be accurately assessed at this time, the ProFunds currently
have no reason to believe that the Year 2000 plans of the investment advisors
and other service providers will not be completed by December 31, 1999. The
ProFunds will continue to closely monitor developments relating to this issue.
OTHER INFORMATION
"Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500," and "500" are
trademarks of the McGraw-Hill Companies, Inc. and have been licensed for use by
ProFunds. "NASDAQ 100 Index" is a trademark of the NASDAQ Stock Markets, Inc.
("NASDAQ"). The ProFunds are not sponsored, endorsed, sold or promoted by
Standard & Poor's or NASDAQ and neither Standard & Poor's nor NASDAQ makes any
representation regarding the advisability of investing in the Product.
FINANCIAL HIGHLIGHTS
The tables below provide a picture of the performance since inception of each
share class of the ProFunds that had commenced operations before December 31,
1998. Certain information reflects financial results for a single share. The
total return information represents the rate of return that an investor would
have earned on an investment in each ProFund shown, assuming reinvestment of all
dividends and distributions. This information has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the financial statements of the ProFunds, appears in the
40
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ProFunds' annual report for the fiscal year ended December 31, 1998. The annual
report is available free of charge by phoning 888-776-3637.
TABLES TK
41
<PAGE>
BACK COVER
Additional information about the ProFunds' investments is available in the
ProFunds' annual and semi-annual reports to shareholders. In the ProFunds'
annual report you will find a discussion of the market conditions and investment
strategies that significantly affected performance during the last fiscal year.
You can find more detailed information about each of the ProFunds in their
current Statement of Additional Information, dated April 30, 1999, which we have
filed electronically with the Securities and Exchange Commission (SEC) and which
is incorporated by reference into, and is legally a part of, this prospectus. To
receive your free copy of a Statement of Additional Information, or the annual
or semi-annual reports, or if you have questions about investing in the
ProFunds, write to us at:
ProFunds
P.O. Box 182800
Columbus, OH 43218-2800
or call our toll-free numbers:
(888) PRO-FNDS ((888) 776-3637) For All Others)
(888) PRO-5717 ((888) 776-5717) Financial Professionals Only)
or visit our website www.profunds.com.
You can find other information about the ProFunds on the SEC's website
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington D.C. 20549-6009. Information about the ProFunds, including their
Statement of Additional Information, can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. For information on the Public
Reference Room, call the SEC at (800) SEC-0330.
ProFunds
811-08239
42
<PAGE>
PROFUNDS
STATEMENT OF ADDITIONAL INFORMATION
7900 WISCONSIN AVENUE, SUITE 300
BETHESDA, MARYLAND 20814
(888) 776-5717 (REGISTERED INVESTMENT ADVISERS ONLY)
(888) PRO-FNDS (FOR ALL OTHERS)
This statement of additional information describes nine ProFunds. Each
ProFund 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 or to create specified
investment exposure to a particular segment of the securities market or to hedge
an existing investment portfolio. Sales are made without any sales charge at net
asset value. Each non-money-market ProFund seeks investment results that
correspond each day to a specified benchmark. The ProFunds may be used
independently or in combination with each other as part of an overall investment
strategy. Additional ProFunds may be created from time to time.
The ProFunds include the Money Market ProFund. The Money Market ProFund
seeks a high level of current income consistent with liquidity and the
preservation of capital through investment in high quality money market
instruments. Unlike other mutual funds, the Money Market ProFund seeks to
achieve its investment objective by investing all of its investable assets in
the Cash Management Portfolio (the "Portfolio"), a separate investment company
with an identical investment objective. The performance of the Money Market
ProFund will correspond directly to the investment performance of the Portfolio.
The ProFunds involve special risks, some not traditionally associated with
mutual funds. Investors should carefully review and evaluate these risks in
considering an investment in the ProFunds to determine whether an investment in
a particular ProFund is appropriate. None of the ProFunds alone constitutes a
balanced investment plan. Each non-money market Profund is not intended for
investors whose principal objective is current income or preservation of
capital. Because of the inherent risks in any investment, there can be no
assurance that the ProFunds' investment objectives will be achieved.
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with ProFunds' Prospectus, dated May 1, 1999, which
incorporates this Statement of Additional Information by reference. The
financial statements and related report of the independent accountants included
in the Fund's annual report for the fiscal year ended December 31, 1998 are
incorporated by reference into this Statement of Additional Information. A copy
of the Prospectus or Annual Report is available, without charge, upon request to
at the address above or by telephoning at the telephone numbers above.
The date of this Statement of Additional Information is May 1, 1999.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
---
ProFunds................................................................... 6
Investment Policies and Techniques......................................... 6
Investment Restrictions.................................................... 25
Portfolio Transactions and Brokerage....................................... 31
Management of ProFunds..................................................... 34
Costs and Expenses......................................................... 41
Capitalization............................................................. 42
Taxation................................................................... 47
Performance Information.................................................... 51
Financial Statements....................................................... 54
Appendix -- Description of Securities Ratings.............................. A-1
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PROFUNDS
ProFunds (the "Trust") is an open-end management investment company, and
currently comprises nine separate series. Other series may be added in the
future. The ProFunds may be used independently or in combination with each other
as part of an overall investment strategy. Shares of any ProFund may be
exchanged, without any charge, for shares of the same class of any other ProFund
on the basis of the respective net asset values of the shares involved;
provided, that, in connection with exchanges for shares of the ProFund, certain
minimum investment levels are maintained (see "Shareholders Services --
Exchanges " in the Prospectus).
INVESTMENT POLICIES AND TECHNIQUES
GENERAL
Reference is made to the sections entitled "Specific ProFunds Objectives",
"Strategy", "Risks in Common" and "Considering a ProFunds Investment" in the
ProFund's Prospectus for a discussion of the investment objectives and policies
of the ProFunds. In addition, set forth below is further information relating to
the ProFunds. The discussion below supplements and should be read in conjunction
with the Prospectus. Portfolio management is provided to the non-money market
ProFunds by its investment adviser, ProFund Advisors LLC, a Maryland limited
liability company with offices at 7900 Wisconsin Avenue, NW, Bethesda, Maryland
(the "Advisor"). The Money Market ProFund seeks to achieve its investment
objective by investing all of its assets in the Portfolio which has as its
investment adviser, Bankers Trust Company ("Bankers Trust").
The investment 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 non-money market 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.
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 non-money market 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.
The investment strategies of the ProFunds discussed below, and as discussed
in the Prospectus, may be used by a ProFund if, in the opinion of the Advisor,
these strategies will be advantageous to the ProFund. The ProFund is free to
reduce or eliminate the ProFund's activity in any of those areas without
changing the ProFund's fundamental investment policies. There is no assurance
that any of these strategies or any
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<PAGE>
other strategies and methods of investment available to a ProFund will result in
the achievement of the ProFund's objectives.
BENCHMARKS OF THE NON-MONEY MARKET 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.
The NASDAQ 100 IndexTM. The NASDAQ 100 IndexTM 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 IndexTM is proportionately represented by its market capitalization in
relation to the total market value of the NASDAQ 100 IndexTM. The NASDAQ 100
IndexTM 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.
ProFunds Europe Index ("PEI"). The PEI was created by ProFund Advisors LLC,
ProFund's investment advisor. The PEI is equal to the average of the performance
of three large capitalization European equity indices: the FTSE-100, the
Deutsche Aktienindex ("DAX"), and the CAC-40. For these purposes, the
performance of an index is measured by comparing its level one-half hour
following the opening of the referenced exchange with the index's level as of
the same time on the prior business day.
The FTSE-100 is a capitalization-weighted index of the 100 mostly highly
capitalized companies traded on the London Stock Exchange. As of June 30, 1998,
the three stocks representing the highest approximate percentage of
capitalization in the index are Glaxo Wellcome (6.12%), British Telecom (5.05%),
and British Petroleum (4.61%). The DAX is a total rate of return index of 30
selected German blue-chip stocks traded on the Frankfort Stock Exchange. As of
June 30, 1998, the three stocks representing the highest approximate percentage
of capitalization in the index are Allianz, AG (10.54%), SAP, AG (8.58%) and
Daimler-Benz (7.24%). The CAC-40 is a capitalization-weighted index of 40
companies listed on the Paris Stock Exchange (the Bourse). As of June 30, 1998,
the three stocks representing the highest approximate percentage of
capitalization in the index are France Telecom (9.8%), AXA-UAP (6.9%), and
L'Oreal (5.9%).
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
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<PAGE>
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.
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.
This is the opposite likely result expected of investing in a traditional equity
mutual fund in a generally rising stock market.
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 IndexTM.
The UltraOTC ProFund does not intend to hold the 100 securities included in
the NASDAQ 100 IndexTM. 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
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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 IndexTM. 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 IndexTM 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 IndexTM. 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 IndexTM. 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 IndexTM for that day.
For example, if the NASDAQ 100 IndexTM 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 IndexTM 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.
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. This is the opposite
likely result expected of investing in a traditional equity mutual fund in a
generally rising stock market.
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
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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 ULTRAEUROPE AND ULTRASHORT EUROPE PROFUNDS
The investment objective of the UltraEurope ProFund it to provide
investment returns that correspond to 200% of the daily performance of the PEI.
Under its investment objective, the UltraEurope ProFund should produce greater
gains to investors when the PEI rises and greater losses when the PEI declines
over the corresponding gain or loss of the PEI itself.
The UltraShort Europe ProFund is designed to allow investors to seek to
profit from anticipated decreases in the PEI or to hedge an existing portfolio
of securities or mutual fund shares. The UltraShort Europe ProFund's investment
objective is to provide investment results that will inversely correlate to 200%
of the performance of the PEI. The UltraShort Europe ProFund seeks to achieve
this inverse correlation on each business day.
If the UltraShort Europe ProFund achieved a perfect inverse correlation for
any single trading day, the net asset value of the shares of the ProFund would
increase for that day proportional to twice any decrease in the level of the
PEI. Conversely, the net asset value of the shares of the UltraShort Europe
ProFund would decrease for that day proportional to twice any increase in the
level of the PEI for that day.
For example, if the PEI were to decrease by 1% on a particular day,
investors in the UltraShort Europe ProFund should experience a gain in net asset
value of approximately 2% for that day. Conversely, if the PEI were to increase
by 1% by the close of business on a particular trading day, investors in the
UltraShort Europe ProFund would experience a loss in net asset value of
approximately 2%.
In pursuing their investment objectives, the ProFunds generally do not
invest in traditional securities, such as common stock of operating companies.
Rather, the ProFunds employ certain investment techniques, including engaging in
short sales and in certain transactions in stock index future contracts, option
on stock index future contracts, and options on securities and stock indexes.
Investing in foreign companies or financial instruments by these ProFunds
(directly or indirectly) may involve risks not typically associated with
investing in U.S. companies. The value of securities denominated in foreign
currencies, and of dividends from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. Dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices in some foreign markets can be extremely volatile. Many
foreign countries lack uniform accounting and disclosure standards. Because
these ProFunds will invest indirectly in foreign markets, they will be subject
to the market, economic and political risks prevalent in these foreign markets.
Changes in foreign exchange rates will affect the value of securities of
financial instruments denominated or quoted in currencies other than the U.S.
Dollar, and the ProFunds will not engage in activities designed to hedge against
foreign currency exchange rate fluctuations. Foreign currency exchange rates may
fluctuate significantly over short periods of time. They generally are
determined by forces of supply and demand in the foreign exchange markets and
the relative merits of investments
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in different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention (or failure to
intervene, by U.S. or foreign governments or central banks, by currency controls
or by political developments in the U.S. or abroad.
On January 1, 1999, the European Monetary Union (EMU) began to implement a
new currency unit, the Euro, which is expected to reshape financial markets,
banking systems and monetary policies, in Europe and other parts of the world.
Although it is not possible to predict the impact of the Euro implementation
plan on the ProFunds, the transition to the Euro may change the economic
environment and behavior of investors, particularly in European markets.
THE MONEY MARKET PROFUND
The Money Market ProFund seeks a high level of current income consistent
with liquidity and the 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 its assets in the Portfolio, which has the same investment objective
as the Money Market ProFund and is managed by Bankers Trust, 130 Liberty St.
(One Bankers Trust Plaza), New York, New York 10006. There can be no assurance
that the investment objective of either the Money Market ProFund or the
Portfolio will be achieved. The investment objectives of the Money Market
ProFund and the Portfolio are fundamental policies 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
MasterFeeder 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 dollar-weighted average
maturity of the securities held by the Portfolio to 90 days or less; buying
securities which have remaining maturities of 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.
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 securitiesor to satisfy regulation
requirements. 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
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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 engage in transactions in futures contracts and
related options that are traded on a U.S. exchange or board of trade or that
have been approved for sale in the U.S. by the Commodity Futures Trading
Commission..
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.
The non-money market ProFunds may purchase and sell futures contracts and
options thereon only to the extent that such activities would be consistent with
the requirements of Section 4.5 of the regulations under the Commodity Exchange
Act promulgated by the Commodity Futures Trading Commission (the "CFTC
Regulations"), under which each of these ProFunds would be excluded from the
definition of a "commodity pool operator." Under Section 4.5 of the CFTC
Regulations, a ProFund may engage in futures transactions, either for "bona fide
hedging" purposes, as this term is defined in the CFTC Regulations, or for
non-hedging purposes to the extent that the aggregate initial margins and option
premiums required to establish such non-hedging positions do not exceed 5% of
the liquidation value of the ProFund's portfolio. In the case of an option on
futures contracts that is "in-the-money" at the time of purchase (i.e., the
amount by which the exercise price of the put option exceeds the current market
value of the underlying security or the amount by which the current market value
of the underlying security exceeds the exercise price of the call option), the
in-the-money amount may be excluded in calculating this 5% limitation.
The ProFunds will cover their positions when they write a futures contract
or option on a futures contract. A ProFund may "cover" its long position in a
futures contract by purchasing a put option on the same futures contract with a
strike price (i.e., an exercise price) as high or higher than the price of the
futures contract, or, if the strike price of the put is less than the price of
the futures contract, the ProFund will maintain in a segregated account cash or
liquid instruments equal in value to the difference between the strike price of
the put and the price of the future. A ProFund may also cover its long position
in a futures contract by taking a short position in the instruments underlying
the futures contract, or by taking positions in instruments the prices of which
are expected to move relatively consistently with the futures contract. A
ProFund may cover its short position in a futures contract by taking a long
position in the instruments underlying the futures contract, or by taking
positions in instruments the prices of which are expected to move relatively
consistently with the futures contract.
A ProFund may cover its sale of a call option on a futures contract by
taking a long position in the underlying futures contract at a price less than
or equal to the strike price of the call option, or, if the long position in the
underlying futures contract is established at a price greater than the strike
price of the written (sold) call, the ProFund will maintain in a segregated
account liquid instruments equal in value to the difference between the strike
price of the call and the price of the future. A ProFund may also cover its sale
of a call option by taking positions in instruments the prices of which are
expected to move relatively
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consistently with the call option. A ProFund may cover its sale of a put option
on a futures contract by taking a short position in the underlying futures
contract at a price greater than or equal to the strike price of the put option,
or, if the short position in the underlying futures contract is established at a
price less than the strike price of the written put, the ProFund will maintain
in a segregated account cash or high-grade liquid debt securities equal in value
to the difference between the strike price of the put and the price of the
future. A ProFund may also cover its sale of a put option by taking positions in
instruments the prices of which are expected to move relatively consistently
with the put option.
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
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 "Taxation" herein.
A stock index fluctuates with changes in the market values of the stocks
included in the index. Options on stock indexes give the holder the right to
receive an amount of cash upon exercise of the option. Receipt of this cash
amount will depend upon the closing level of the stock index upon which the
option is based being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash received, if
any, will be the difference between the closing price of the index and the
exercise price of the option, multiplied by a specified dollar multiple. The
writer (seller) of the option is obligated, in return for the premiums received
from the purchaser of the option, to make delivery of this amount to the
purchaser. All settlements of index options transactions are in cash.
Index options are subject to substantial risks, including the risk of
imperfect correlation between the option price and the value of the underlying
securities composing the stock index selected and the risk that there might not
be a liquid secondary market for the option. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether a ProFund will realize a gain or loss from the
purchase or writing (sale) of options on an index depends upon movements in the
level of stock prices in the stock market generally or, in the case of certain
indexes, in an industry or market segment, rather than upon movements in the
price of a particular stock. Whether a ProFund will
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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.
The non-money market ProFunds may engage in transactions in stock index
options listed on national securities exchanges or traded in the
over-the-counter market as an investment vehicle for the purpose of realizing
the ProFund's investment objective. Options on indexes are settled in cash, not
by delivery of securities. The exercising holder of an index option receives,
instead of a security, cash equal to the difference between the closing price of
the securities index and the exercise price of the option.
Some stock index options are based on a broad market index such as the S&P
500 Index, the NYSE Composite Index, or the AMEX Major Market Index, or on a
narrower index such as the Philadelphia Stock Exchange Over-the-Counter Index.
Options currently are traded on the Chicago Board Options Exchange (the "CBOE"),
the AMEX, and other exchanges ("Exchanges"). Purchased over-the-counter options
and the cover for written over-the-counter options will be subject to the
respective ProFund's 15% limitation on investment in illiquid securities. See
"Illiquid Securities."
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same index which may be bought or written
(sold) by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
Exchanges or are held or written on one or more accounts or through one or more
brokers). Under these limitations, option positions of all investment companies
advised by the same investment adviser are combined for purposes of these
limits. Pursuant to these limitations, an Exchange may order the liquidation of
positions and may impose other sanctions or restrictions. These position limits
may restrict the number of listed options which a ProFund may buy or sell;
however, the Advisor intends to comply with all limitations.
OPTIONS ON SECURITIES
The non-money market ProFunds, except for the UltraEurope ProFund and the
UltraShort Europe ProFund, may buy and write (sell) options on securities for
the purpose of realizing their respective ProFund's investment objective. 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 a call option on securities, a ProFund becomes
obligated during the term of the option to sell the securities underlying the
option at the exercise price if the option is exercised. By 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 if the
option is exercised. During the term of the option, the writer may be assigned
an exercise notice by the broker-dealer through whom the option was sold. The
exercise notice would require the writer to deliver, in the case of a call, or
take delivery of, in the case of a put, the underlying security against payment
of the exercise price. This obligation terminates upon expiration of the option,
or at such earlier time that the writer effects a closing purchase transaction
by purchasing an option covering the same underlying security and having the
same exercise price and expiration date as the one previously sold. Once an
option has been exercised, the writer may not execute a closing purchase
transaction. To secure
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the obligation to deliver the underlying security in the case of a call option,
the writer of a call option is required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options Clearing
Corporation (the "OCC"), an institution created to interpose itself between
buyers and sellers of options. The OCC assumes the other side of every purchase
and sale transaction on an exchange and, by doing so, gives its guarantee to the
transaction. When writing call options on securities, a ProFund may cover its
position by owning the underlying security on which the option is written.
Alternatively, the ProFund may cover its position by owning a call option on the
underlying security, on a share for share basis, which is deliverable under the
option contract at a price no higher than the exercise price of the call option
written by the ProFund or, if higher, by owning such call option and depositing
and maintaining in a segregated account cash or liquid instruments equal in
value to the difference between the two exercise prices. In addition, a ProFund
may cover its position by depositing and maintaining in a segregated account
cash or liquid instruments equal in value to the exercise price of the call
option written by the ProFund. When a ProFund writes a put option, the ProFund
will have and maintain on deposit with its custodian bank cash or liquid
instruments having a value equal to the exercise value of the option. The
principal reason for a ProFund to write call options on stocks held by the
ProFund is to attempt to realize, through the receipt of premiums, a greater
return than would be realized on the underlying securities alone.
If a ProFund that writes an option wishes to terminate the ProFund's
obligation, the ProFund may effect a "closing purchase transaction." The ProFund
accomplishes this by buying an option of the same series as the option
previously written by the ProFund. The effect of the purchase is that the
writer's position will be canceled by the OCC. However, a writer may not effect
a closing purchase transaction after the writer has been notified of the
exercise of an option. Likewise, a ProFund which is the holder of an option may
liquidate its position by effecting a "closing sale transaction." The ProFund
accomplishes this by selling an option of the same series as the option
previously purchased by the ProFund. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected. If any call or put
option is not exercised or sold, the option will become worthless on its
expiration date. A ProFund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put option previously written by the
ProFund if the premium, plus commission costs, paid by the ProFund to purchase
the call or put option to close the transaction is less (or greater) than the
premium, less commission costs, received by the ProFund on the sale of the call
or the put option. The ProFund also will realize a gain if a call or put option
which the ProFund has written lapses unexercised, because the ProFund would
retain the premium.
Although certain securities exchanges attempt to provide continuously
liquid markets in which holders and writers of options can close out their
positions at any time prior to the expiration of the option, no assurance can be
given that a market will exist at all times for all outstanding options
purchased or sold by a ProFund. If an options market were to become unavailable,
the ProFund would be unable to realize its profits or limit its losses until the
ProFund could exercise options it holds, and the ProFund would remain obligated
until options it wrote were exercised or expired.
SHORT SALES
The Bear ProFund, the UltraBear ProFund, the UltraShort OTC ProFund and the
UltraShort Europe 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
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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.
SWAP AGREEMENTS
The ProFunds (other than the Money Market ProFund) may enter into equity
index or interest rate swap agreements for purposes of attempting to gain
exposure to the stocks making up an index of securities in a market without
actually purchasing those stocks, or to hedge a position. Swap agreements are
two-party contracts entered into primarily by institutional investors for
periods ranging from a day to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested in a "basket" of
securities representing a particular index. Forms of swap agreements include
interest rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap"; interest rate floors, under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
fall below a specified level, or "floor"; and interest rate collars, under which
a party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels.
Most swap agreements entered into by the ProFunds calculate the obligations
of the parties to the agreement on a "net basis." Consequently, a ProFund's
current obligations (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount").
A ProFund's current obligations under a swap agreement will be accrued
daily (offset against any amounts owing to the ProFund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by segregating
assets determined to be liquid. Obligations under swap agreements so covered
will not be construed to be "senior securities" for purposes of a ProFund's
investment restriction concerning senior securities. Because they are two party
contracts and because they may have terms of greater than seven days, swap
agreements may be considered to be illiquid for the ProFunds' illiquid
investment limitations. A Portfolio will not enter into any swap agreement
unless the Advisor believes that the other party to the transaction is
creditworthy. A ProFund bears the risk of loss of the amount expected to be
received under a swap agreement in the event of the default or bankruptcy of a
swap agreement counterparty.
Each non-money market ProFund may enter into swap agreements to invest in a
market without owning or taking physical custody of securities in circumstances
in which direct investment is restricted for legal reasons or is otherwise
impracticable. The counterparty to any swap agreement will typically be a bank,
investment banking firm or broker/dealer. The counterparty will generally agree
to pay the ProFund the amount, if any, by which the notional amount of the swap
agreement would have increased in value had it been invested in the particular
stocks, plus the dividends that would have been received on those stocks. The
ProFund will agree to pay to the counterparty a floating rate of interest on the
notional amount of the swap agreement plus the amount, if any, by which the
notional amount would have decreased in value had it been invested in such
stocks. Therefore, the return to the ProFund on any swap agreement should be the
gain or loss on the notional amount plus dividends on the stocks less the
interest paid by the ProFund on the notional amount.
Swap agreements typically are settled on a net basis, which means that the
two payment streams are netted out, with the ProFund receiving or paying, as the
case may be, only the net amount
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of the two payments. Payments may be made at the conclusion of a swap agreement
or periodically during its term. Swap agreements do not involve the delivery of
securities or other underlying assets. Accordingly, the risk of loss with
respect to swap agreements is limited to the net amount of payments that a
ProFund is contractually obligated to make. If the other party to a swap
agreement defaults, a ProFund's risk of loss consists of the net amount of
payments that such Fund is contractually entitled to receive, if any. The net
amount of the excess, if any, of a ProFund's obligations over its entitlements
with respect to each equity swap will be accrued on a daily basis and an amount
of cash or liquid assets, having an aggregate net asset value at least equal to
such accrued excess will be maintained in a segregated account by a ProFund's
custodian. Inasmuch as these transactions are entered into for hedging purposes
or are offset by segregated cash of liquid assets, as permitted by applicable
law, the ProFunds and their Advisor believe that transactions do not constitute
senior securities under the Investment Company Act of 1940, as amended (the
"1940 Act") and, accordingly, will not treat them as being subject to a
ProFund's borrowing restrictions.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the markets for other similar
instruments which are traded in the over-the-counter market. The Advisor, under
the supervision of the Board of Trustees, are responsible for determining and
monitoring the liquidity of the ProFunds' transactions in swap agreements.
The use of equity swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. Reasons for the absence of liquid secondary
market on an exchange include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be imposed by an
exchange on opening or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
the OCC may not at all times be adequate to handle current trading volume; or
(vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options) would cease to exist, although
outstanding options on that exchange that had been issued by the OCC as a result
of trades on that exchange would continue to be exercisable in accordance with
their terms.
U.S. GOVERNMENT SECURITIES
Each non-money market ProFund and the Portfolio also may invest in U.S.
government securities in pursuit of their investment objectives, as "cover" for
the investment techniques these ProFunds employ, or for liquidity purposes.
Yields on U.S. government securities are dependent on a variety of factors,
including the general conditions of the money and bond markets, the size of a
particular offering, and the maturity of the obligation. Debt securities with
longer maturities tend to produce higher yields and are generally subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities and lower yields. The market value of U.S. government
securities generally varies inversely with changes in market interest rates. An
increase in interest rates, therefore, would generally reduce the market value
of a ProFund's portfolio investments in U.S. government securities, while a
decline in interest rates would generally increase the market value of a
ProFund's portfolio investments in these securities.
U.S. government securities include U.S. Treasury securities, which are
backed by the full faith and credit of the U.S. Treasury and which differ only
in their interest rates, maturities, and times of issuance. U.S. Treasury bills
have initial maturities of one year or less; U.S. Treasury notes have initial
maturities of
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one to ten years; and U.S. Treasury bonds generally have initial maturities of
greater than ten years. Certain U.S. government securities are issued or
guaranteed by agencies or instrumentalities of the U.S. government including,
but not limited to, obligations of U.S. government agencies or
instrumentalities, such as the Federal National Mortgage Association, the
Government National Mortgage Association, the Small Business Administration, the
Federal Farm Credit Administration, the Federal Home Loan Banks, Banks for
Cooperatives (including the Central Bank for Cooperatives),the Federal Land
Banks, the Federal Intermediate Credit Banks, the Tennessee Valley Authority,
the Export-Import Bank of the United States, the Commodity Credit Corporation,
the Federal Financing Bank, the Student Loan Marketing Association, and the
National Credit Union Administration. Some obligations issued or guaranteed by
U.S. government agencies and instrumentalities, including, for example,
Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury. Other obligations
issued by or guaranteed by Federal agencies, such as those securities issued by
the Federal National Mortgage Association, are supported by the discretionary
authority of the U.S. government to purchase certain obligations of the federal
agency, while other obligations issued by or guaranteed by federal agencies,
such as those of the Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the U.S. Treasury. While the U.S. government provides
financial support to such U.S. government-sponsored Federal agencies, no
assurance can be given that the U.S. government will always do so, since the
U.S. Government is not so obligated by law. U.S. Treasury notes and bonds
typically pay coupon interest semi-annually and repay the principal at maturity.
REPURCHASE AGREEMENTS
Each of the ProFunds may enter into repurchase agreements with financial
institutions. 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.
The ProFunds follow certain procedures designed to minimize the risks inherent
in such agreements. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
whose condition will be continually monitored by the Advisor and, in the case of
the Money Market ProFund, Bankers Trust. In addition, the value of the
collateral underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, a ProFund will seek to liquidate such collateral which could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the repurchase
price, the ProFund could suffer a loss. A ProFund also may experience
difficulties and incur certain costs in exercising its rights to the collateral
and may lose the interest the ProFund expected to receive under the repurchase
agreement. Repurchase agreements usually are for short periods, such as one week
or less, but may be longer. It is the current policy of the ProFunds not to
invest in repurchase agreements that do not mature within seven days if any such
investment, together with any other liquid assets held by the ProFund, amounts
to more than 15% (10% with respect to the Money Market ProFund) of the ProFund's
total net assets. The investments of each of the ProFunds in repurchase
agreements at times may be substantial when, in the view of the Advisor and, in
the case of the Money Market ProFund, Bankers Trust, liquidity, investment,
regulatory, or other considerations so warrant.
CASH RESERVES
To seek its investment objective 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.
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REVERSE REPURCHASE AGREEMENTS
The non-money market ProFunds and the Portfolio may use reverse repurchase
agreements as part of that ProFund's investment strategy. Reverse repurchase
agreements involve sales by a ProFund/Portfolio of portfolio assets concurrently
with an agreement by the ProFund/Portfolio to repurchase the same assets at a
later date at a fixed price. Generally, the effect of such a transaction is that
the ProFund/Portfolio can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while the ProFund/Portfolio will be able to keep the interest income
associated with those portfolio securities. Such transactions are advantageous
only if the interest cost to the ProFund/Portfolio of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise. Opportunities
to achieve this advantage may not always be available, and the
ProFund/Portfolios intend to use the reverse repurchase technique only when it
will be to the ProFund/Portfolio's advantage to do so and the Money Market
ProFund will not invest more than 5% of its total assets in reverse repurchase
agreements. The ProFund/Portfolios will establish a segregated account with
their custodian bank in which the ProFund/Portfolio will maintain cash or liquid
instruments equal in value to the ProFund/Portfolio's obligations in respect of
reverse repurchase agreements.
BORROWING
The ProFunds (other than the Portfolio except to the degree the Portfolio
may borrow for temporary or emergency purposes) may borrow money for cash
management purposes or investment purposes. Each of the non-money market
ProFunds may also enter into reverse repurchase agreements, which may be viewed
as a form of borrowing, with financial institutions. However, to the extent a
ProFund "covers" its repurchase obligations as described above in "Reverse
Repurchase Agreements," such agreement will not be considered to be a "senior
security" and, therefore, will not be subject to the 300% asset coverage
requirement otherwise applicable to borrowings by the ProFunds. Borrowing for
investment is known as leveraging. Leveraging investments, by purchasing
securities with borrowed money, is a speculative technique which increases
investment risk, but also increases investment opportunity. Since substantially
all of a ProFund's assets will fluctuate in value, whereas the interest
obligations on borrowings may be fixed, the net asset value per share of the
ProFund will increase more when the ProFund's portfolio assets increase in value
and decrease more when the ProFund's portfolio assets decrease in value than
would otherwise be the case. Moreover, interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the returns on the borrowed funds. Under adverse conditions, a ProFund
might have to sell portfolio securities to meet interest or principal payments
at a time when investment considerations would not favor such sales.
As required by the Investment Company Act of 1940, as amended (the "1940
Act"), a ProFund must maintain continuous asset coverage (total assets,
including assets acquired with borrowed funds, less liabilities exclusive of
borrowings) of 300% of all amounts borrowed. If at any time the value of the
ProFund's assets should fail to meet this 300% coverage test, the ProFund,
within three days (not including Sundays and holidays), will reduce the amount
of the ProFund's borrowings to the extent necessary to meet this 300% coverage.
Maintenance of this percentage limitation may result in the sale of portfolio
securities at a time when investment considerations otherwise indicate that it
would be disadvantageous to do so. In addition to the foregoing, the ProFunds
are authorized to borrow money from a bank as a temporary measure for
extraordinary or emergency purposes in amounts not in excess of 5% of the value
of the ProFund's total assets. This borrowing is not subject to the foregoing
300% asset coverage requirement. The ProFunds are authorized to pledge portfolio
securities as the Advisor deems appropriate in connection with any borrowings.
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LENDING OF PORTFOLIO SECURITIES
Subject to the investment restrictions set forth below, each of the
ProFunds and the Portfolio may lend its portfolio securities to brokers,
dealers, and financial institutions, provided that cash equal to at least 100%
of the market value of the securities loaned is deposited by the borrower with
the ProFund/Portfolio and is maintained each business day in a segregated
account pursuant to applicable regulations. While such securities are on loan,
the borrower will pay the lending ProFund/Portfolio any income accruing thereon,
and the ProFund/Portfolio may invest the cash collateral in portfolio
securities, thereby earning additional income. A ProFund/Portfolio will not lend
more than 33 1/3 of the value of the ProFund's total assets, except that the
Portfolio will not lend more than 20% of the value of its total assets. Loans
would be subject to termination by the lending ProFund/Portfolio on four
business days' notice, or by the borrower on one day's notice. Borrowed
securities must be returned when the loan is terminated. Any gain or loss in the
market price of the borrowed securities which occurs during the term of the loan
inures to the lending ProFund/Portfolio and that ProFund's/Portfolio's
shareholders. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
securities lent should the borrower of the securities fail financially. A
lending ProFund/Portfolio may pay reasonable finders, borrowers, administrative,
and custodial Trustees in connection with a loan. With respect to the Portfolio,
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.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each non-money market ProFund (and to the extent allowable by its
investment policies, the Money Market ProFund), from time to time, in the
ordinary course of business, may purchase securities on a when-issued or
delayed-delivery basis (i.e., delivery and payment can take place between a
month and 120 days after the date of the transaction). These securities are
subject to market fluctuation and no interest accrues to the purchaser during
this period. At the time a ProFund makes the commitment to purchase securities
on a when-issued or delayed-delivery basis, the ProFund will record the
transaction and thereafter reflect the value of the securities, each day, in
determining the ProFund's net asset value. Each non-money market ProFund will
not purchase securities on a when-issued or delayed-delivery basis if, as a
result, more than 15% of the ProFund's net assets would be so invested. At the
time of delivery of the securities, the value of the securities may be more or
less than the purchase price.
The 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. Upon purchasing a
security on a when-issued or delayed-delivery basis, the Portfolio will
identify, as part of a segregated account, cash or liquid securities in an
amount at least equal to the when-issued or delayed-delivery commitment.
The Trust will also establish a segregated account with the Trust's
custodian bank in which the ProFunds will maintain liquid instruments equal to
or greater in value than the ProFund's purchase commitments for such when-issued
or delayed-delivery securities, or the Trust does not believe that a ProFund's
net asset value or income will be adversely affected by the ProFund's purchase
of securities on a when-issued or delayed delivery basis.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The ProFunds and the Portfolio may invest in the securities of other
investment companies to the extent that such an investment would be consistent
with the requirements of the 1940 Act. If a ProFund 1 Portfolio invests in, and,
thus, is a shareholder of, another investment company, the ProFund 1 Portfolio's
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shareholders will indirectly bear the ProFund 1 Portfolio's proportionate share
of the fees and expenses paid by such other investment company, including
advisory fees, in addition to both the management fees payable directly by the
ProFund to the ProFund's own investment adviser and the other expenses that the
ProFund 1 Portfolio bears directly in connection with the ProFund's 1 Portfolio
own operations. 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
While none of the ProFunds anticipates doing so, each of the ProFunds and
the Portfolio may purchase illiquid securities, including securities that are
not readily marketable and securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "1933 Act"), but
which can be sold to qualified institutional buyers under Rule 144A of the 1933
Act. A ProFund will not invest more than 15% (10% with respect to the Portfolio)
of the ProFund's/Portfolio's net assets in illiquid securities. The term
"illiquid securities" for this purpose means securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the ProFund has valued the securities. Under the current
guidelines of the staff of the Securities and Exchange Commission (the
"Commission"),illiquid securities also are considered to include, among other
securities, purchased over-the-counter options, certain cover for
over-the-counter options, repurchase agreements with maturities in excess of
seven days, and certain securities whose disposition is restricted under the
Federal securities laws. The ProFund/Portfolio may not be able to sell illiquid
securities when the Advisor or Bankers Trust considers it desirable to do so or
may have to sell such securities at a price that is lower than the price that
could be obtained if the securities were more liquid. In addition, the sale of
illiquid securities also may require more time and may result in higher dealer
discounts and other selling expenses than does the sale of securities that are
not illiquid. Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and
investments in illiquid securities may have an adverse impact on net asset
value.
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.
Institutional markets for restricted securities have developed as a result
of the promulgation of Rule 144A under the 1933 Act, which provides a safe
harbor from 1933 Act registration requirements for qualifying sales to
institutional investors. When Rule 144A restricted securities present an
attractive investment opportunity and otherwise meet selection criteria, a
ProFund may make such investments. Whether or not such securities are illiquid
depends on the market that exists for the particular security. The Commission
staff has taken the position that the liquidity of Rule 144A restricted
securities is a question of fact for a board of trustees to determine, such
determination to be based on a consideration of the readily-available trading
markets and the review of any contractual restrictions. The staff also has
acknowledged that, while a board of trustees retains ultimate responsibility,
trustees may delegate this function to an investment adviser. Trustees of
ProFunds have delegated this responsibility for determining the liquidity of
Rule 144A restricted securities which may be invested in by a ProFund to the
Advisor or, in the case of the Portfolio, to Bankers Trust. It is not possible
to predict with assurance exactly how the market for Rule 144A restricted
securities or any other security will develop. A security which when purchased
enjoyed a fair degree of marketability may subsequently become illiquid and,
accordingly, a security which was deemed to be liquid at the time of acquisition
may subsequently become illiquid. In such event, appropriate remedies will be
considered to minimize the effect on the ProFund's liquidity.
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PORTFOLIO QUALITY AND MATURITY (Money Market ProFund and the Portfolio)
The Portfolio will maintain a dollar-weighted average maturity of 90 days
or less. All securities in which the Portfolio invests will have or be deemed to
have remaining maturities of 397 days or less on the date of their purchase,
will be denominated in U.S. dollars and will have been granted the required
ratings established herein by two nationally recognized statistical rating
organizations ("NRSRO") (or one such NRSRO if that NRSRO is the only such 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 Securities and Exchange Commission (the "SEC") as an NRSRO. These
organizations and their highest short-term rating category (which may also be
modified by a "+") are : Duff and Phelps Credit Rating Co., D-1; Fitch IBCA,
Inc. F1; Moody's Investors Service Inc. ("Moody's"), Prime-1; Standard & Poor's,
A-1; and Thomson BankWatch, Inc., T-1. A description of such ratings is provided
in the Appendix. Bankers Trust, acting under the supervision of and procedures
adopted by the Board of Trustees of each 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.
OBLIGATIONS OF BANKS AND OTHER FINANCIAL INSTITUTIONS (MONEY MARKET PROFUND AND
THE PORTFOLIO)
The Portfolio may invest in U.S. dollar-denominated fixed rate or variable
rate obligations of U.S. or foreign institutions, including banks which are
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 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. Bank obligations in
which the Portfolio invests include certificates of deposit, bankers'
acceptances, time deposits, commercial paper, and other U.S. dollar-denominated
instruments issued or supported by the credit of U.S. or foreign institutions
including banks. For purposes of the Portfolio's investment policies with
respect to bank obligations, the assets of a bank will be deemed to include the
assets of its domestic and foreign branches. Obligations of foreign branches of
U.S. banks and foreign banks may be general obligations of the parent bank in
addition to the issuing bank or may be limited by the terms of a specific
obligation and by government regulation. If Bankers Trust, acting under the
supervision of the Portfolio's Board of Trustees, deems the instruments to
present minimal credit risk, the Portfolio may invest in obligations of foreign
banks or foreign branches of U.S. banks which include banks located in the
United Kingdom, Grand Cayman Island, Nassau, Japan and Canada. Investments in
these obligations may entail risks that are different from those of investments
in obligations of U.S. domestic banks because of differences in political,
regulatory and economic systems and conditions. These risks include, without
limitation, future political and economic developments, currency blockage, the
possible imposition of withholding taxes on interest payments, possible seizure
or nationalization of foreign deposits, and difficulty or inability of pursuing
legal remedies and obtaining judgment in foreign courts, possible establishment
of exchange controls or the adoption of other foreign governmental restrictions
that might affect adversely the payment of principal and interest on bank
obligations. Foreign branches of U.S. banks and foreign banks may also be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
branches of U.S. banks. Under normal market conditions, the Portfolio will
invest more than 25% of its assets in the foreign and domestic bank obligations
described above. The Portfolio's concentration of its investments in bank
obligations will cause the Portfolio to be subject to the risks peculiar to the
domestic and foreign banking industries to a greater extent than if its
investments were not so concentrated. A description of the ratings set forth
above is provided in the Appendix.
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COMMERCIAL PAPER, OTHER DEBT OBLIGATIONS AND CREDIT ENHANCEMENT (MONEY MARKET
PROFUND AND THE PORTFOLIO)
COMMERCIAL PAPER. The Portfolio may invest in fixed rate or variable rate
commercial paper, including variable rate master demand notes, issued by U.S. or
foreign entities. Commercial paper when purchased by the Portfolio must be rated
the highest short-term rating category by any two NRSROs (or one NRSRO if that
NRSRO is the only such NRSRO which rates objections. 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 of
U.S. banks.
Variable rate master demand notes are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. Because variable rate master demand notes are direct lending
arrangements between the Portfolio and the issuer, they are not normally traded.
Although no active secondary market may exist for these notes, the Portfolio
will purchase only those notes under which it may demand and receive payment on
principal and accrued interest daily or may resell the note to a third party.
While the notes are not typically rated by credit rating agencies, issuers of
variable rate master demand notes must satisfy Bankers Trust, acting under the
supervision of the Board of Trustees of the Portfolio, that the same criterion
set forth above for issuers of commercial paper are met. In the event an issuer
of a variable rate master demand note defaulted on its payment obligation, the
Portfolio might be unable to dispose of the note because of the absence of a
secondary market and could, for this or other reasons, suffer a loss to the full
extent of the default. The face maturities of variable rate notes subject to a
demand feature may exceed 397 days in certain circumstances.
OTHER DEBT OBLIGATIONS. The Portfolio may invest in deposits, bonds, notes
and debentures and other debt obligations 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 obligations 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, to be of
comparable quality and are rated in the top three highest long-term categories
by the NRSROs rating such security.
CREDIT ENHANCEMENT. Certain of the Portfolio's acceptable investments may
be credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the party
providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Portfolio
and affect the Money Market ProFund's share price. The Portfolio may have more
than 25% of its total assets invested in securities credit-enhanced by banks.
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.
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PORTFOLIO TURNOVER
As discussed in the Prospectus, the ProFunds anticipate that their
investors as part of their strategy, will frequently exchange shares of the
ProFunds for shares in other ProFunds pursuant to the exchange policy, as well
as frequently redeem shares of the ProFunds (see "Shareholders' Guide -- How to
Exchange Shares of the ProFunds" in the Prospectus). The nature of the ProFunds
will cause the ProFunds to experience substantial 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. Because each
ProFund's portfolio turnover rate to a great extent will depend on the purchase,
redemption, and exchange activity of the ProFund's investors, it is difficult to
estimate what the ProFund's actual turnover rate will be in the future.
"Portfolio Turnover Rate" is defined under the rules of the Commission as the
value of the securities purchased or securities sold, excluding all securities
whose maturities at time of acquisition were one year or less, divided by the
average monthly value of such securities owned during the year. Based on this
definition, instruments with remaining maturities of less than one year are
excluded from the calculation of portfolio turnover rate. Instruments excluded
from the calculation of portfolio turnover generally would include the futures
contracts and option contracts in which the non-money market ProFunds invest
since such contracts generally have a remaining maturity of less than one year.
Pursuant to the formula prescribed by the Commission, the portfolio turnover
rate for each ProFund is calculated without regard to instruments, including
options and futures contracts, having a maturity of less than one year. The Bull
ProFund, the UltraBull ProFund, the Bear ProFund and the UltraBear ProFund
typically hold most of their investments in short-term options and futures
contracts, which, therefore, are excluded for purposes of computing portfolio
turnover. Therefore, based on the Commission's portfolio turnover formula, each
of these ProFunds expects a portfolio turnover rate of approximately 0%.
SPECIAL CONSIDERATIONS
To the extent discussed above and in the prospectus, the ProFunds present
certain risks, some of which are further described below.
TRACKING ERROR. While the non-money market 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.
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LEVERAGE. The UltraBull ProFund, the UltraBear ProFund, UltraOTC ProFund,
UltraEurope ProFund, UltraShort OTC ProFund and UltraShort Europe 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" investment company
means that the proportion of the ProFund's assets that may be invested in the
securities of a single issuer is not limited by the 1940 Act. Each ProFund,
however, intends to seek to qualify as a "regulated investment company" for
purposes of the Internal Revenue Code, which imposes diversification
requirements on these ProFunds that are less restrictive than the requirements
applicable to the "diversified" investment companies under the 1940 Act.
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
B-25
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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 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.
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<PAGE>
INVESTMENT RESTRICTIONS
The ProFunds and the Portfolio have adopted certain investment restrictions
as fundamental policies which cannot be changed without the approval of the
holders of a "majority" of the outstanding shares of the ProFund or the
Portfolio, as that term is defined in the 1940 Act. The term "majority" is
defined in the 1940 Act as the lesser of: (i) 67% or more of the shares of the
series present at a meeting of shareholders, if the holders of more than 50% of
the outstanding shares of the ProFund are present or represented by proxy; or
(ii) more than 50% of the outstanding shares of the series. (All policies of a
ProFund not specifically identified in this Statement of Additional Information
or the Prospectus as fundamental may be changed without a vote of the
shareholders of the ProFund.) For purposes of the following limitations, all
percentage limitations apply immediately after a purchase or initial investment.
A non-money market ProFund may not:
1. Invest more than 25% of its total assets, taken at market value at the
time of each investment, in the securities of issuers in any particular
industry (excluding the U.S. government and its agencies and
instrumentalities).
2. Make investments for the purpose of exercising control or management.
3. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the ProFund may invest in securities directly or
indirectly secured by real estate or interests therein or issued by
companies that invest in real estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers' acceptances and repurchase agreements
and purchase and sale contracts and any similar instruments shall not
be deemed to be the making of a loan, and except further that the
ProFund may lend its portfolio securities, provided that the lending of
portfolio securities may be made only in accordance with applicable law
and the guidelines set forth in the Prospectus and this Statement of
Additional Information, as they may be amended from time to time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that the ProFund (i) may borrow from banks (as
defined in the Investment Company Act of 1940) in amounts up to 33 1/3%
of its total assets (including the amount borrowed), (ii) may, to the
extent permitted by applicable law, borrow up to an additional 5% of
its total assets for temporary purposes, (iii) may obtain such
short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities, (iv) may purchase securities on
margin to the extent permitted by applicable law and (v) may enter into
reverse repurchase agreements. The ProFund may not pledge its assets
other than to secure such borrowings or, to the extent permitted by the
ProFund's investment policies as set forth in the Prospectus and this
Statement of Additional Information, as they may be amended from time
to time, in connection with hedging transactions, short sales,
when-issued and forward commitment transactions and similar investment
strategies.
7. Underwrite securities of other issuers, except insofar as the ProFund
technically may be deemed an underwriter under the Securities Act of
1933, as amended (the "Securities Act"), in selling portfolio
securities.
8. Purchase or sell commodities or contracts on commodities, except to the
extent the ProFund may do so in accordance with applicable law and the
ProFund's Prospectus and Statement of Additional Information, as they
may be amended from time to time.
B-27
<PAGE>
THE FOLLOWING FUNDAMENTAL INVESTMENT RESTRICTIONS AND NON-FUNDAMENTAL
INVESTMENT OPERATING POLICIES HAVE BEEN ADOPTED BY THE TRUST, WITH RESPECT TO
THE MONEY MARKET PROFUND, AND BY THE PORTFOLIO. UNLESS AN INVESTMENT INSTRUMENT
OR TECHNIQUE IS DESCRIBED IN THE PROSPECTUS OR ELSEWHERE HEREIN, THE MONEY
MARKET PROFUND AND THE PORTFOLIO MAY NOT INVEST IN THAT INVESTMENT INSTRUMENT OR
ENGAGE IN THAT INVESTMENT TECHNIQUE.
The investment restrictions below have been adopted by the Trust with
respect to the Money Market ProFund and by the Portfolio as fundamental policies
(as defined above). Whenever the Money Market ProFund is requested to vote on a
change in the investment restrictions of the Portfolio, the Trust will hold a
meeting of the Money Market ProFund shareholders and will cast its votes as
instructed by the shareholders. The Money Market ProFund shareholders who do not
vote will not affect the Trust's votes at the Portfolio meeting. The percentage
of the Trust's votes representing ProFund shareholders not voting will be voted
by the Trustees of the Trust in the same proportion as the Fund shareholders who
do, in fact, vote.
Under investment policies adopted by the Money Market ProFund and by the
Portfolio, each of the Money Market ProFund and Portfolio may not:
1. Borrow money, except for temporary or emergency (not leveraging)
purposes in an amount not exceeding 5% of the value of the ProFund's or
the Portfolio's total assets (including the amount borrowed), as the
case may be, calculated in each case at the lower of cost or market.
2. Pledge, hypothecate, mortgage or otherwise encumber more than 5% of the
total assets of the ProFund or the Portfolio, as the case may be, and
only to secure borrowings for temporary or emergency purposes.
3. Invest more than 5% of the total assets of the ProFund or the
Portfolio, as the case may be, in any one issuer (other than U.S.
government obligations) or purchase more than 10% of any class of
securities of any one issuer; provided, however, that (i) up to 25% of
the assets of the ProFund and the Portfolio may be invested without
regard to this restriction; provided, however, that nothing in this
investment restriction shall prevent the Trust from investing all or
part of a ProFund's assets in an open-end management investment company
with substantially the same investment objectives as the ProFund.
4. Invest more than 25% of the total assets of the ProFund or the
Portfolio, as the case may be, in the securities of issuers in any
single industry; provided that: (i) this limitation shall not apply to
the purchase of U.S. government obligations; (ii) under normal market
conditions more than 25% of the total assets of the Money Market
ProFund and the Portfolio will be invested in obligations of U.S. and
foreign banks and other financial institutions Banks provided, however,
that nothing in this investment restriction shall prevent a Trust from
investing all or part of a ProFund's assets in an open-end management
investment company with substantially the same investment objectives as
the ProFund.
5. Make short sales of securities, maintain a short position or purchase
any securities on margin, except for such short-term credits as are
necessary for the clearance of transactions.
6. Underwrite the securities issued by others (except to the extent the
ProFund or Portfolio may be deemed to be an underwriter under the
Federal securities laws in connection with the disposition of its
portfolio securities) or knowingly purchase restricted securities,
provided, however, that nothing in this investment restriction shall
prevent the Trust from investing all of the ProFund's assets in an
open-end management investment company with substantially the same
investment objectives as the ProFund.
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<PAGE>
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil, gas or mineral interests,
but this shall not prevent the ProFund or the Portfolio from investing
in obligations secured by real estate or interests therein.
8. Make loans to others, except through the purchase of qualified debt
obligations, the entry into repurchase agreements and, with respect to
the ProFund and the Portfolio, the lending of portfolio securities.
9. Invest more than an aggregate of 10% of the net assets of the ProFund
or the Portfolio's, respectively, (taken, in each case, at current
value) in (i) securities that cannot be readily resold to the public
because of legal or contractual restrictions or because there are no
market quotations readily available or (ii) other "illiquid" securities
(including time deposits and repurchase agreements maturing in more
than seven calendar days); provided, however, that nothing in this
investment restriction shall prevent the Trust from investing all or
part of the ProFund's assets in an open-end management investment
company with substantially the same investment objective as the
ProFund.
10. Purchase more than 10% of the voting securities of any issuer or invest
in companies for the purpose of exercising control or management;
provided, however, that nothing in this investment restriction shall
prevent the Trust from investing all or part of the ProFund's assets in
an open-end management investment company with substantially the same
investment objectives as the ProFund.
11. Purchase securities of other investment companies, except to the extent
permitted under the 1940 Act or in connection with a merger,
consolidation, reorganization, acquisition of assets or an offer of
exchange; provided, however, that nothing in this investment
restriction shall prevent the Trust from investing all or part of the
ProFunds' assets in an open-end management investment company with
substantially the same investment objectives as the ProFund.
12. Issue any senior securities, except insofar as it may be deemed to have
issued a senior security by reason of (i) entering into a reverse
repurchase agreement or (ii) borrowing in accordance with terms
described in the Prospectus and this SAI.
13. Purchase or retain the securities of any issuer if any of the officers
or trustees of the ProFund or the Portfolio or Bankers Trust owns
individually more than 1/2 of 1% of the securities of such issuer, and
together such officers and directors own more than 5% of the securities
of such issuer.
14. Invest in warrants, except that the ProFund or the Portfolio may invest
in warrants if, as a result, the investments (valued in each case at
the lower of cost or market) would not exceed 5% of the value of the
net assets of the ProFund or the Portfolio, as the case may be, of
which not more than 2% of the net assets of the ProFund or the
Portfolio, as the case may be, may be invested in warrants not listed
on a recognized domestic stock exchange. Warrants acquired by the
ProFund or the Portfolio as part of a unit or attached to securities at
the time of acquisition are not subject to this limitation.
15. With respect to 75% of the Money Market ProFund or the Portfolio's
total assets, invest more than 5% of its total assets in the securities
of any one issuer (excluding cash and cash-equivalents, U.S. government
securities and the securities of other investment companies) or own
more than 10% of the voting securities of any issuer.
ADDITIONAL RESTRICTIONS. In order to comply with certain statutes and
policies, the Portfolio (or, as applicable, the Trust, on behalf of the Money
Market ProFund) will not as a matter of operating policy
B-29
<PAGE>
(except that no operating policy shall prevent the ProFund from investing all of
its assets in an open-end investment company with substantially the same
investment objective):
(i) borrow money (including through dollar roll transactions) for any
purpose in excess of 10% of the Portfolio's (ProFund's) total
assets (taken at cost), except that the Portfolio (ProFund) may
borrow for temporary or emergency purposes up to 1/3 of its total
assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's (ProFund's) total assets (taken at market value),
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this
restriction;
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and
except that deposits of initial deposit and variation margin may be
made in connection with the purchase, ownership, holding or sale of
futures;
(iv) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to
obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided
that if such right is conditional the sale is made upon the same
conditions;
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though
not made in the open market, is part of a plan of merger or
consolidation; provided, however, that securities of any investment
company will not be purchased for the Portfolio (ProFund) if such
purchase at the time thereof would cause (a) more than 10% of the
Portfolio's (ProFund's) total assets (taken at the greater of cost
or market value) to be invested in the securities of such issuers;
(b) more than 5% of the Portfolio's (ProFund's) total assets (taken
at the greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding voting
securities of any such issuer to be held for the Portfolio
(ProFund); and, provided further, that the Portfolio shall not
invest in any other open-end investment company unless the
Portfolio (ProFund) (1) waives the investment advisory fee with
respect to assets invested in other open-end investment companies
and (2) incurs no sales charge in connection with the investment
(as an operating policy, each Portfolio will not invest in another
open-end registered investment company);
(vii) invest more than 15% of the Portfolio's (ProFund's) total net
assets (taken at the greater of cost or market value) in securities
that are illiquid or not readily marketable not including (a) Rule
144A securities that have been determined to be liquid by the Board
of Trustees; and (b) commercial paper that is sold under section
4(2) of the 1933 Act which: (i) is not traded flat or in default as
to interest or principal; and (ii) is rated in one of the two
highest categories by at least two nationally recognized
statistical rating organizations; (iii) is rated one of the two
highest categories by one nationally recognized statistical rating
agency and the Portfolio's (ProFund's) Board of Trustees have
determined that the commercial paper is equivalent quality and is
liquid;
B-30
<PAGE>
(viii) with respect to 75% of the Portfolio's total assets, purchase
securities of any issuer if such purchase at the time thereof would
cause the Portfolio (ProFund) to hold more than 10% of any class of
securities of such issuer, for which purposes all indebtedness of
an issuer shall be deemed a single class and all preferred stock of
an issuer shall be deemed a single class, except that futures or
option contracts shall not be subject to this restriction;
(ix) if the Portfolio is a "diversified" ProFund with respect to 75% of
its assets, invest more than 5% of its total assets in the
securities (excluding U.S. government securities) of any one
issuer*;
(x) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount
of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the
same issue and equal in amount to, the securities sold short, and
unless not more than 10% of the Portfolio's (ProFund's) net assets
(taken at market value) is represented by such securities, or
securities convertible into or exchangeable for such securities, at
any one time (the Portfolio (ProFund) has no current intention to
engage in short selling).
*With respect to (ix) as an operating policy, the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer
except for U.S. government obligations and repurchase agreements, which may be
purchased without limitation.
The Money Market ProFund will comply with the state securities laws and
regulations of all states in which it is registered. The Portfolio will comply
with the permitted investments and investment limitations in the securities laws
and regulations of all states in which the Portfolio, or any other registered
investment company investing in the Portfolio, is registered.
DETERMINATION OF NET ASSET VALUE
The net asset values of the shares of the ProFunds (except the UltraEurope
ProFund and the UltraShort Europe ProFund) 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 (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.)
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<PAGE>
The net asset values of the shares of the UltraEurope ProFund and the
UltraShort Europe ProFund are determined as of one-half hour following the
opening of the last of the three exchanges to open (ordinarily 4:30 AM Eastern
Time) on each day the NYSE, London Stock Exchange, Frankfurt Stock Exchange and
Paris Stock Exchange are open for business. Currently, the NYSE and the CME are
closed on weekends, and the following holiday closings have been scheduled for
1999: (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. The London Stock Exchange, Frankfurt Stock Exchange or Paris Stock
Exchange are closed on the following days: New Year's Day, Good Friday, Easter
Monday, Labor Day (May 1) Early May Bank Holiday, VE Day (May 8), Late May Bank
Holiday, Ascension, Pentecost, August Bank Holiday, German Unity Day, Armistice
Day, Christmas Day, and the next business day after Christmas Day. 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 exchanges may modify their holiday
schedules 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 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 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.
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Except for the UltraEurope ProFund and the UltraShort Europe ProFund,
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 establish future 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. 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 their last
sale price prior to the trading halt or at fair value.
In the event a trading halt closes a futures exchange that cause the
exchange to close prior to the close of the NYSE, futures contracts will be
valued on the basis of settlement prices on the futures exchange or fair value.
For the UltraEurope ProFund and the UltraShort Europe ProFund, futures
contracts are valued at their last sale price as of one-half hour after the
opening of the exchange on which the underlying securities are traded. 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 as of one-half hour
after the opening of the exchange on which the underlying securities are traded.
For the fiscal year ended December 31, 1998, each non-money ProFund paid
brokerage commissions in the following amount:
BROKERAGE COMMISSIONS
FYE 12/31/98
Bull ProFund
UltraBull ProFund
Bear ProFund
UltraBear ProFund
UltraOTC ProFund
UltraShort OTC Profund
The UltraEurope ProFund, and UltraShort Europe ProFund had not commenced
operation as of December 31, 1998.
PORTFOLIO TRANSACTIONS AND BROKERAGE
NON-MONEY MARKET PROFUNDS
Subject to the general supervision by the Trustees, the Advisor is
responsible for decisions to buy and sell securities for each of the ProFunds,
the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. The Advisor expects that the
ProFunds may execute brokerage or other agency transactions through registered
broker-dealers, for a commission, in conformity with the 1940 Act, the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder. The Advisor may serve as an investment manager to a number of
clients, including other investment companies. It is the practice of the Advisor
to cause purchase and sale transactions to be allocated among the ProFunds and
others whose assets the Advisor manages in such manner as the Advisor deems
equitable. The main factors considered by the Advisor in making such allocations
among the ProFunds and other client accounts of the Advisor are the respective
investment objectives, the relative size
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<PAGE>
of portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held, and the
opinions of the person(s) responsible, if any, for managing the portfolios of
the ProFunds and the other client accounts.
The policy of each ProFund regarding purchases and sales of securities for
a ProFund's portfolio is that primary consideration will be given to obtaining
the most favorable prices and efficient executions of transactions. Consistent
with this policy, when securities transactions are effected on a stock exchange,
each ProFund's policy is to pay commissions which are considered fair and
reasonable without necessarily determining that the lowest possible commissions
are paid in all circumstances. Each ProFund believes that a requirement always
to seek the lowest possible commission cost could impede effective portfolio
management and preclude the ProFund and the Advisor from obtaining a high
quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Advisor
relies upon its experience and knowledge regarding commissions generally charged
by various brokers and on its judgment in evaluating the brokerage and research
services received from the broker effecting the transaction. Such determinations
are necessarily subjective and imprecise, as in most cases an exact dollar value
for those services is not ascertainable.
Purchases and sales of U.S. government securities are normally transacted
through issuers, underwriters or major dealers in U.S. government securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased from
an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between bid
and asked prices.
In seeking to implement a ProFund's policies, the Advisor effects
transactions with those brokers and dealers who the Advisor believes provide the
most favorable prices and are capable of providing efficient executions. If the
Advisor believes such prices and executions are obtainable from more than one
broker or dealer, the Advisor may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the ProFund or the Advisor. Such services may include, but are not
limited to, any one or more of the following: information as to the availability
of securities for purchase or sale; statistical or factual information or
opinions pertaining to investment; wire services; and appraisals or evaluations
of portfolio securities. If the broker-dealer providing these additional
services is acting as a principal for its own account, no commissions would be
payable. If the broker-dealer is not a principal, a higher commission may be
justified, at the determination of the Advisor, for the additional services.
The information and services received by the Advisor from brokers and
dealers may be of benefit to the Advisor in the management of accounts of some
of the Advisor's other clients and may not in all cases benefit a ProFund
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Advisor and thereby reduce the Advisor's expenses,
this information and these services are of indeterminable value and the
management fee paid to the Advisor is not reduced by any amount that may be
attributable to the value of such information and services.
MONEY MARKET PROFUND AND THE PORTFOLIO
Decisions to buy and sell securities and other financial instruments for
the Money Market ProFund and the Portfolio are made by Bankers Trust, which also
is responsible for placing these transactions, subject to the overall review of
the Portfolio's Board of Trustees. Although investment requirements for the
Portfolio are reviewed independently from those of the other accounts managed by
Bankers Trust (the "Other Portfolios"), investments of the type the Portfolio
may make may also be made by these Other Portfolios. When the Portfolio and one
or more Other Portfolios or accounts managed by Bankers Trust are prepared to
invest in, or desire to dispose of, the same security or other financial
instrument, available investments or opportunities for sales will be allocated
in a manner believed by Bankers Trust to be equitable to each. In
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<PAGE>
some cases, this procedure may affect adversely the price paid or received by
the Portfolio or the size of the position obtained or disposed of by the
Portfolio.
Purchases and sales of securities on behalf of the Portfolio usually are
principal transactions. These securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. The cost
of securities purchased from underwriters includes an underwriting commission or
concession and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. U.S. government obligations are
generally purchased from underwriters or dealers, although certain newly issued
U.S. government obligations may be purchased directly from the U.S. Treasury or
from the issuing agency or instrumentality.
Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may be
obtained elsewhere and principal transactions are not entered into with persons
affiliated with the Portfolios except pursuant to exemptive rules or orders
adopted by the Commission. Under rules adopted by the Commission, broker-dealers
may not execute transactions on the floor of any national securities exchange
for the accounts of affiliated persons, but may effect transactions by
transmitting orders for execution.
In selecting brokers or dealers to execute portfolio transactions on behalf
of the Portfolio, Bankers Trust seeks the best overall terms available. In
assessing the best overall terms available for any transaction, Bankers Trust
will consider the factors it deems relevant, including the breadth of the market
in the investment, the price of the investment, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing bases. In
addition, Bankers Trust is authorized, in selecting parties to execute a
particular transaction and in evaluating the best overall terms available to
consider the brokerage, but not research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to
the Portfolio involved, the other Portfolios and/or other accounts over which
Bankers Trust or its affiliates exercise investment discretion. Bankers Trust's
fees under its agreements with the Portfolios are not reduced by reason of its
receiving brokerage services.
The valuation of the Portfolio's securities is based on their amortized
cost, which does not take into account unrealized capital gains or losses.
Amortized cost valuation involves initially valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates on
the market value of the instrument. Although this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price a Portfolio would receive if
it sold the instrument.
The Portfolio's use of the amortized cost method of valuing its securities
is permitted by a rule adopted by the Commission. Under this rule, the Portfolio
must maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 397 days or and invest
only in securities determined by or under the supervision of the Board of
Trustees to be of high quality with minimal credit risks.
Pursuant to the rule, the Board of Trustees of the Portfolio also has
established procedures designed to allow investors in the Portfolio, such as the
Money Market ProFund, to stabilize, to the extent reasonably possible, the
investors' price per share as computed for the purpose of sales and redemptions
at $1.00. These procedures include review of the Portfolio's holdings by the
Portfolio's Board of Trustees, at such intervals as it deems appropriate, to
determine whether the value of the Portfolio's assets calculated by using
available market quotations or market equivalents deviates from such valuation
based on amortized cost.
The rule also provides that the extent of any deviation between the value
of the Portfolio's assets based on available market quotations or market
equivalents and such valuation based on amortized cost must be
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examined by the Portfolio's Board of Trustees. In the event the Portfolio's
Board of Trustees determines that a deviation exists that may result in material
dilution or other unfair results to investors or existing shareholders, pursuant
to the rule, the Portfolio's Board of Trustees must cause the Portfolio to take
such corrective action as such Board of Trustees regards as necessary and
appropriate, including: selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends or paying distributions from capital or capital gains;
redeeming shares in kind; or valuing the Portfolio's assets by using available
market quotations.
Each investor in the Portfolio, including the Money Market ProFund, may add
to or reduce its investment in the Portfolio on each day the Portfolio
determines its Net Asset Value ("NAV"). At the close of each such business day,
the value of each investor's beneficial interest in the Portfolio will be
determined by multiplying the NAV of the Portfolio by the percentage, effective
for that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals, which are to be
effected as of the close of business on that day, will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be recomputed as the percentage equal to the fraction (i) the
numerator of which is the value of such investor's investment in the Portfolio
as of the close of business on such day plus or minus, as the case may be, the
amount of net additions to or withdrawals from the investor's investment in the
Portfolio effected as of the close of business on such day, and (ii) the
denominator of which is the aggregate NAV of the Portfolio as of the close of
business on such day plus or minus, as the case may be, the amount of net
additions to or withdrawals from the aggregate investments in the Portfolio by
all investors in the Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in the Portfolio as of
the close of the following business day.
MANAGEMENT OF PROFUNDS
The Board of Trustees is responsible for the general supervision of the
Trust's business. The day-to-day operations of the ProFunds are the
responsibilities of ProFunds' officers. The names and addresses (and ages) of
the Trustees of the Trust and the Portfolio, the officers of the Trust and the
Portfolio, and the officers of the Advisor, together with information as to
their principal business occupations during the past five years, are set forth
below. Fees and expenses for non-interested Trustees will be paid by the Trust;
Trustee expenses for interested Trustees will be paid by ProFund Advisors LLC.
TRUSTEES AND OFFICERS OF PROFUNDS
MICHAEL L. SAPIR* (birthdate: May 19, 1958): Trustee, Chairman and Chief
Executive Officer; Chairman and Chief Executive Officer, ProFund Advisors LLC;
Principal, Law Offices of Michael L. Sapir; Rydex Distributors, Inc., President;
Padco Advisors, Inc., Senior Vice President, General Counsel; Jorden Burt
Berenson & Klingensmith, Partner. His address is 7900 Wisconsin Avenue, Suite
300, Bethesda, Maryland 20814.
LOUIS M. MAYBERG* (birthdate: August 9, 1962): Trustee, Secretary; ProFund
Advisors LLC, President; Potomac Securities, Inc., President; National Capital
Companies, LLC, Managing Director. His address is 7900 Wisconsin Avenue, Suite
300, Bethesda, Maryland 20814.
NIMISH BHATT: (birthdate: June 6, 1963) Treasurer; BISYS Fund Services,
Vice President, Tax and Financial Services; Evergreen Funds/First Union Bank,
Assistant Vice President; Price Waterhouse LLP, Senior Tax Consultant. His
address is 3435 Stelzer Road, Columbus, Ohio 43219.
MICHAEL C. WACHS (birthdate: October 21, 1961): Trustee; Delancy Investment
Group, Inc., Vice President; First Union National Bank, Vice President/Senior
Underwriter; First Union Capital Markets Corp., Vice President; Vice
President/Senior Credit Officer; Vice President/Team Leader. His address is 1528
Powder Mill Lane, Wynnewood, Pennsylvania 19096.
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<PAGE>
RUSSELL S. REYNOLDS, III (birthdate: July 21, 1957): Trustee; Directorship,
Inc., Managing Director, Chief Financial Officer and Secretary; Quadcom
Services, Inc., President. His address is 7 Stag Lane, Greenwich, Connecticut
06831.
*This Trustee is deemed to be an "interested person" within the meaning of
Section 2(a)(19) of the 1940 Act, inasmuch as this person is affiliated with the
Advisor, as described herein.
PORTFOLIO TRUSTEE COMPENSATION TABLE
The following table reflects actual fees paid to the Trustees for the year
ended December 31, 1998.
NAME OF
PERSON: POSITION COMPENSATION
- ---------------- ----------
Michael L. Sapir, Trustee, Chairman and Chief Executive Officer None
Louis M. Mayberg, Trustee, President, None
Secretary
Russell S. Reynolds, III, Trustee
Michael C. Wachs, Trustee
TRUSTEES AND OFFICERS OF THE PORTFOLIO:
The Board of Trustees of the Portfolio ("Portfolio Trustees") is composed
of persons experienced in financial matters who meet throughout the year to
oversee the activities of the Portfolio. In addition the Portfolio Trustees
review contractual arrangements with companies that provide services to the
Portfolio.
The Portfolio Trustees and officers of the Portfolio, their birthdates and
their principal occupations during the past five years are set forth below.
Their titles may have varied during that period. Unless otherwise indicated the
address of each officer is Clearing Operations, P.O. Box 897, Pittsburgh,
Pennsylvania 15230-0897.
TRUSTEES OF THE PORTFOLIO:
PHILIP SAUNDERS, JR. (birthdate: October 11, 1935): Portfolio Trustee;
Principal, Philip Saunders Associates (Consulting); former Director of Financial
Industry Consulting, Wolf & Company; President, John Hancock Home Mortgage
Corporation; and Senior Vice President of Treasury and Financial Services, John
Hancock Mutual Life Insurance Company, Inc. His address is 445 Glen Road,
Weston, Massachusetts 02193.
CHARLES P. BIGGAR (birthdate: October 13, 1930): Portfolio Trustee;
Retired; formerly Vice President of International Business Machines "IBM" and
President of the National Services and the Field Engineering Divisions of IBM.
His address is 12 Hitching Post Lane, Chappaqua, New York 10514.
S. LELAND DILL (birthdate: March 28, 1930): Portfolio Trustee; Retired;
Director, Coutts (U.S.A.) International; Coutts Trust Holdings Ltd; Director,
Zweig Series Trust; formerly Partner of KPMG Peat Marwick; Director, Vinters
International Company Inc.; General Partner of Pemco (an investment company
registered under the 1940 Act). His address is 5070 North Ocean Drive, Singer
Island, Florida 33404.
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<PAGE>
OFFICERS OF THE PORTFOLIO:
JOHN Y. KEFFER (birthdate: July 14, 1942): President and Chief Executive
Officer; President, Forum Financial Group. His address is 2 Portland Square,
Portland, Maine 04101.
JOSEPH A. FINELLI (birthdate: January 24, 1957): Treasurer, Vice President,
BT Alex. Brown Incorporated and Vice President, Investment Company Capital Corp.
(registered investment adviser), September 1995 to present; formerly, Vice
President and Treasurer, The Delaware Group of Funds (registered investment
companies) and Vice President, Delaware Management Company Inc. (investments),
1980 to August 1995. His address is One South Street, Baltimore, Maryland 21202.
DANIEL O. HIRSCH. (birthdate: March 27, 1954): Secretary; Principal, BT
Alex. Brown since July 1998; Assistant General Counsel in the Office of the
General Counsel at the United States Securities and Exchange Commissions from
1993 to 1998. His address is 2901 Dorset Avenue, Chevy Chase, Maryland 20815.
No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Trust or the Portfolio. No director, officer or employee of BISYS
or any of its affiliates will receive any compensation from the Trust or
Portfolio for serving as an officer or Trustee of the Trust or the Portfolio.
PORTFOLIO TRUSTEE COMPENSATION TABLE
The following table reflects fees paid to the Portfolio Trustees for the
year ended December 31, 1998.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
NAME OF FROM CASH TOTAL COMPENSATION
PERSON; POSITION MANAGEMENT PORTFOLIO* FROM FUND COMPLEX*
---------------- ---------------------- -------------------
<S> <C> <C>
Charles P. Biggar
Trustee, BT Institutional Funds and Portfolio
</TABLE>
S. Leland Dill
Trustee, Portfolio
Philip Saunders, Jr.
Trustee, Portfolio
* Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds,
BT Pyramid Mutual Funds, BT Advisor Funds, BT Investment Portfolios,
Cash Management Portfolio, Treasury Money Portfolio, Tax Free Money
Portfolio, NY Tax Free Money Portfolio, International Equity Portfolio,
Intermediate Tax Free Portfolio, Asset management Portfolio, Equity 500
Index Portfolio, and Capital Appreciation Portfolio.
As of February 1, 1999, the Portfolio Trustees and Officers owned in the
aggregate less than 1% of the shares of the Portfolio.
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<PAGE>
INVESTMENT ADVISERS
PROFUND ADVISORS LLC
Under an investment advisory agreement between the ProFund, (other than the
Money Market ProFund, UltraEurope ProFund and UltraShort Europe ProFund) and the
Advisor, dated October 28, 1997 and amended February 18, 1998, each such ProFund
pays the Advisor a fee at an annualized rate, based on its average daily net
assets of 0.75%. Under an investment advisory agreement between the Advisor and
UltraEurope ProFund and UltraShort Europe ProFund dated February 23, 1999, each
such ProFund pays the Advisor a fee at an annualized rate, based on its average
daily net assets of 0.90%. The Advisor manages the investment and the
reinvestment of the assets of each of the Funds, in accordance with the
investment objectives, policies, and limitations of the ProFund, subject to the
general supervision and control of Trustees and the officers of ProFunds. The
Advisor bears all costs associated with providing these advisory services. The
Advisor, from its own resources, including profits from advisory fees received
from the Funds, provided such Trustees are legitimate and not excessive, also
may make payments to broker-dealers and other financial institutions for their
expenses in connection with the distribution of ProFunds' shares, and otherwise
currently pays all distribution costs for ProFunds' shares.
For the fiscal year ended December 31, 1997, the Advisor was entitled to,
and voluntarily waived, advisory fees in the following amounts for each of the
ProFunds:
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<PAGE>
ADVISORY FEES
FYE 12/31
1997 1998
Earned Waived Earned Waived
----------------------------------------------
Bull ProFund $ 28 $ 28 $
UltraBull ProFund 1,609 1,609 $
Bear ProFund 52 52
UltraBear ProFund 615 615 $
UltraOTC ProFund 751 751 $
Money Market ProFund -- -- $
UltraShort OTC ProFund -- -- $
The UltraShort OTC ProFund had not commenced operations as of December 31,
1997. The UltraShort Europe ProFund and UltraEurope Profund, had not commenced
operations as of December 31, 1998.
BANKERS TRUST
Under the terms of an investment advisory agreement (the "Advisory
Agreement") between the Portfolio and Bankers Trust, Bankers Trust manages the
Portfolio subject to the supervision and direction of the Board of Trustees of
the Portfolio. Bankers Trust will: (i) act in strict conformity with the
Portfolio's Declaration of Trust, the 1940 Act and the Investment Advisers Act
of 1940, as the same may from time to time be amended; (ii) manage the Portfolio
in accordance with the Portfolio's and/or the Money Market ProFund's investment
objectives, restrictions and policies, as stated herein and in the Prospectus;
(iii) make investment decisions for the Portfolio; and (iv) place purchase and
sale orders for securities and other financial instruments on behalf of the
Portfolio.
Bankers Trust bears all expenses in connection with the performance of
services under the Advisory Agreement. The Money Market ProFund and the
Portfolio bear certain other expenses incurred in their operation, including:
taxes, interest, brokerage fees and commissions, if any; fees of Trustees of the
Trust or Portfolio who are not officers, directors or employees of Bankers
Trust, the Advisor, the administrator or any of their affiliates; SEC fees and
state Blue Sky qualification fees, if any; administrative and services fees;
certain insurance premiums, outside auditing and legal expenses, and costs of
maintenance of corporate existence; costs attributable to investor services,
including without limitation, telephone and personnel expenses; and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trust or the
Portfolio; and any extraordinary expenses.
For the fiscal years ended December 31, 1998, 1997 and 1996, Banker's Trust
earned $ , $6,544,181, and $4,935,288 and respectively, in compensation for
investment advisory services provided to the Portfolio. During the same periods,
Bankers Trust reimbursed $ , $940,530, and $761,230 respectively, to the
Portfolio to cover expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Portfolio, including outstanding loans to such issuers which could be
repaid in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. Bankers
Trust has informed the Portfolio that, in making its investment
B-40
<PAGE>
decisions, it does not obtain or use material inside information in its
possession or in the possession of any of its affiliates. In making investment
recommendations for the Portfolio, Bankers Trust will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
the Portfolio is a customer of Bankers Trust, its parent or its subsidiaries or
affiliates and, in dealing with its customers, Bankers Trust, its parent,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by any fund managed by Bankers Trust or
any such affiliate.
The Investment Adviser is a wholly owned subsidiary of Bankers Trust
Corporation. On November 30, 1998, Bankers Trust Corporation entered into an
Agreement and Plan of Merger with Deutsche Bank AG under which Bankers Trust
Corporation would merge with and into a subsidiary of Deutsche Bank Ag. Deutsche
Bank AG is a major global banking institution that is engaged in a wide range of
financial services, including retail and commercial banking, investment banking
and insurance. The transaction is contingent upon various regulatory approvals,
as well as the approval of the Fund's shareholders. If the transaction is
approved and completed, Deutsche Bank AG, as the Investment Adviser's new parent
company, will control the operations of Bankers Trust. Bankers Trust believes
that, under this new arrangement, the services provided to the Portfolio will be
maintained at their current level.
ADMINISTRATION, TRANSFER AGENT, FUND ACCOUNTING AGENT AND CUSTODIAN
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS")
acts as Administrator to the ProFunds. The Administrator provides ProFunds with
all required general administrative services, including, without limitation,
office space, equipment, and personnel; clerical and general back office
services; bookkeeping, internal accounting, and secretarial services; the
determination of net asset values; and the preparation and filing of all
reports, registration statements, proxy statements, and all other materials
required to be filed or furnished by ProFunds under Federal and state securities
laws. The Administrator also maintains the shareholder account records for
ProFunds, distributes dividends and distributions payable by the ProFunds, and
produces statements with respect to account activity for the ProFunds and their
shareholders. The Administrator pays all fees and expenses that are directly
related to the services provided by the Administrator to ProFunds; each ProFund
reimburses the Administrator for all fees and expenses incurred by the
Administrator which are not directly related to the services the Administrator
provides to the ProFunds under the service agreement.
For its services as Administrator, each ProFund pays BISYS an annual fee
ranging from 0.15% of average daily net assets of $0 to $300 million to .05% of
average daily net assets of $1 billion and over. BISYS Funds Services, Inc.
("BFSI"), an affiliate of BISYS, acts as transfer agent and fund accounting
agent for the ProFunds, for which it receives additional fees. Additionally,
ProFunds and BISYS and BFSI have entered into an Omnibus Fee Agreement in which
the amount of compensation due and payable to BISYS shall be the greater of (i)
the aggregate fee amount due and payable for services pursuant to the
Administration, Fund Accounting and Transfer Agency Agreements and (ii) the
minimum relationship fee described as specific dollar amounts payable over a
period of ten calendar quarters ($1,100,000). The address for BISYS and BFSI is
3435 Stelzer Road, Suite 1000, Columbus, Ohio 43219.
For the fiscal years ended December 31, 1997 and 1998, BISYS, as
Administrator, was entitled to, and voluntarily waived, administration fees in
the following amounts for each of the ProFunds:
ADMINISTRATION FEES
FYE 12/31
1997 1998
Earned Waived Earned Waived
----------------------------------------------
Bull ProFund $ 6 $ 6 $
UltraBull ProFund 322 322 $
Bear ProFund 10 10 $
UltraBear ProFund 123 123 $
UltraOTC ProFund 150 150 $
Money Market ProFund 422 422 $
UltraShort OTC ProFund -- --
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<PAGE>
The UltraShort OTC ProFund had not commenced operation as of December 31,
1997. The UltraEurope ProFund and UltraShort Europe ProFund had not commenced
operations as of December 31, 1998.
ProFunds Advisors LLC, pursuant to a separate Management Services
Agreement, performs certain client support and other administrative services on
behalf of the ProFunds and feeder fund management and administrative services to
the Money Market ProFund. These services include monitoring the performance of
the underlying investment company in which the Money Market ProFund invests,
coordinating the Money Market ProFund's relationship with that investment
company, and communicating with the Trust's Board of Trustees and shareholders
regarding such entity's performance and the Money Market ProFund's two tier
structure and, in general, assisting the Board of Trustees of the Trust in all
aspects of the administration and operation of the Money Market ProFund. For
these services, the ProFunds will pay to ProFunds Advisors LLC a fee at the
annual rate of .15% of its average daily net assets for all non-money market
ProFunds and .35% of its average daily net assets for the Money Market ProFund.
For the fiscal years ended December 31, 1997 and 1998, ProFund Advisors LLC
was entitled to, and voluntarily waived, management services fees in the
following amounts for each of the ProFunds:
MANAGEMENT SERVICES FEES
FYE 12/31
1997 1998
Earned Waived Earned Waived
----------------------------------------------
Bull ProFund $ 6 $ 6
UltraBull ProFund 322
Bear ProFund 10
UltraBear ProFund 123
UltraOTC ProFund 150
Money Market ProFund 984
The UltraShort OTC ProFund, had not commenced operation as of December 31,
1997. UltraEurope ProFund, and UltraShort Euro ProFund had not commenced
operations as of December 31, 1998.
Under an Administration and Services Agreement, Bankers Trust is obligated
on a continuous basis to provide such administrative services as the Board of
Trustees of the Portfolio reasonably deems necessary for the proper
administration of the Portfolio. Bankers Trust will generally assist in all
aspects of the Portfolio's operations and will: supply and maintain office
facilities (which may be in Bankers Trust's own offices); statistical and
research data, data processing services, clerical, accounting, bookkeeping and
recordkeeping services (including, without limitation, the maintenance of such
books and records as are required under the 1940 Act and the rules thereunder,
except as maintained by other agents of the Portfolio); internal auditing,
executive and administrative services; and information and supporting data for
reports to and filings with the Commission and various state Blue Sky
authorities; supply supporting documentation for meetings of the Board of
Trustees; provide monitoring reports and assistance regarding compliance with
the Portfolio's Declaration of Trust, by-laws, investment objectives and
policies and with federal and state securities laws; arrange for appropriate
insurance coverage; calculate the net asset value, net income and realized
capital gains or losses of the Portfolio; and negotiate arrangements with, and
supervise and coordinate the activities of, agents and others retained to supply
services. Pursuant to a sub-administration agreement (the "Sub-Administration
Agreement") Federated Securities Company performs sub-administration duties for
the Portfolio as from time to time may be agreed upon by Bankers Trust and
Federated Securities Company. The Sub-Administration Agreement provides that
Federated Securities Company will receive such compensation as from time to time
may be agreed upon by Federated Securities Company and Bankers Trust. All such
compensation will be paid by Bankers Trust.
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<PAGE>
For the fiscal years ended December 31, 1998, 1997 and 1996, Bankers Trust
earned compensation of $ , $2,181,394, and $1,645,096, respectively, for
administrative and other services provided to the Portfolio.
UMB Bank, N.A. acts as custodian to the non-money market ProFunds. UMB
Bank, N.A.'s address is 928 Grand Avenue, Kansas City, Missouri.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP serves as independent auditors to the ProFunds.
PricewaterhouseCoopers LLP provides audit services, tax return preparation and
assistance and consultation in connection with certain SEC filings.
PricewaterhouseCoopers LLP is located at 100 East Broad Street, Columbus, Ohio
43215.
LEGAL COUNSEL
Dechert Price & Rhoads serves as counsel to the ProFunds. The firm's
address is 1775 Eye Street, N.W., Washington, DC 20006-2401,
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. receives no compensation from the ProFunds for serving as
distributor. Concord Financial Group, Inc.'s address is 3435 Stelzer Road,
Columbus, Ohio 43219.
SHAREHOLDER SERVICES PLAN
Each ProFund has adopted a Shareholder Services Plan (the "Plan") which
provides that each ProFund will make payments equal to 1.00% (on an annual
basis) of the average daily value of the net assets of such ProFund's Adviser
shares attributable to or held in the name of investment advisers and other
authorized institutions that sell Service Shares ("Authorized Firms") for
providing account administration services to their clients who are beneficial
owners of such shares. The Administrator may act as an Authorized Firm. The
Trust will enter into agreements ("Shareholder Services Agreements") with
Authorized Firms that purchase Service Shares on behalf of their clients. The
Shareholder Services Agreements will provide for compensation to the Authorized
Firms in an amount up to 1.00% (on an annual basis) of the average daily net
assets of the Service shares of the applicable ProFund attributable to or held
in the name of the Authorized Firm for its clients. The ProFunds may pay
different service fee amounts to Authorized Firms, which may provide different
levels of services to their clients or customers.
The Trustees of the Trust, including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or the related Shareholder Services
Agreements, voted to adopt the Plan and Shareholder Services Agreements at a
meeting called for the purpose of voting on such Plan and Shareholder Services
Agreements on October 28, 1997. The Plan and Shareholder Services Agreements
will remain in effect for a period of one year and will continue in effect
thereafter only if such continuance is specifically approved annually by a vote
of the Trustees in the manner described above. All material amendments of the
Plan must also be approved by the Trustees in the manner described above. The
Plan may be terminated at any time by a majority of the Trustees as described
above or by vote of a majority of the outstanding Service shares of the affected
ProFund. The Shareholder Services Agreements may be terminated at any time,
without payment of any penalty, by vote of a majority of the Trustees as
described above or by a vote of a majority of the outstanding Service Shares of
the affected ProFund on not more than 60 days' written notice to any other party
to the Shareholder Services Agreements. The Shareholder Services Agreements
shall terminate automatically if assigned. The Trustees have determined that, in
their judgment, there is a reasonable
B-44
<PAGE>
likelihood that the Plan will benefit the ProFunds and holders of Service shares
of such ProFunds. In the Trustees' quarterly review of the Plan and Shareholder
Services Agreements, they will consider their continued appropriateness and the
level of compensation provided therein.
The intent of the Plan and Shareholder Services Agreements is to procure
quality shareholder services on behalf of ProFund shareholders; in adopting the
Plan and Shareholder Services Agreements, the Trustees considered the fact that
such shareholder services may have the effect of enhancing distribution of
ProFund Service shares and growth of the ProFunds. In light of this, the
ProFunds intend to observe the procedural requirements of Rule 12b-1 under the
1940 Act on considering the continued appropriateness of the Plan and
Shareholder Services Agreements.
For the fiscal years ended December 31, 1997 and 1998, each ProFund was
entitled to, and voluntarily waived, Shareholder services fees in the following
amounts:
SHAREHOLDER SERVICES FEES
FYE 12/31
1997 1998
Earned Waived Earned Waived
----------------------------------------------
Bull ProFund $ 0 $ 6
UltraBull ProFund 773 773
Bear ProFund 0 0
UltraBear ProFund 0 0
UltraOTC ProFund 379 379
Money Market ProFund 0 0
UltraShort OTC ProFund
The UltraShort OTC ProFund had not commenced operation as of December 31, 1997.
UltraEurope ProFund, and the UltraShort Europe had not commenced operations as
of December 31, 1998.
COSTS AND EXPENSES
Each ProFund bears all expenses of its operations other than those assumed
by the Advisor or the Administrator. ProFund expenses include: the management
fee; the servicing fee (including administrative, transfer agent, and
shareholder servicing fees); custodian and accounting fees and expenses, legal
and auditing fees; securities valuation expenses; fidelity bonds and other
insurance premiums; expenses of preparing and printing prospectuses,
confirmations, proxy statements, and shareholder reports and notices;
registration Trustees and expenses; proxy and annual meeting expenses, if any;
all Federal, state, and local taxes (including, without limitation, stamp,
excise, income, and franchise taxes); organizational costs; and non-interested
Trustees' fees and expenses.
ORGANIZATION AND DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
ProFunds (the "Trust") is a registered open-end investment company under
the 1940 Act. The Trust was organized as a Delaware business trust on April 17,
1997, and has authorized capital of unlimited shares of beneficial interest of
no par value which may be issued in more than one class or series. Currently,
the Trust consists of six separately managed series. Other separate series may
be added in the future. Each ProFund offers two classes of shares: the 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.
B-45
<PAGE>
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 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 loss of
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.
CAPITALIZATION
As of February 16, 1999, no person owned of record, or to the knowledge of
management beneficially owned five percent or more of the outstanding shares of
the ProFunds or classes except as set forth below:
<TABLE>
<CAPTION>
Money Market ProFund--INVESTOR SHARES Total Shares Percentage
- ------------------------------------- ------------ ----------
<S> <C> <C>
First Trust Corporation 14,230,775.591 9.5901%
P.O. Box 173736
Denver, CO 80217
Independent Trust Corp 16,071,841.950 10.8308%
Funds 975
15255 S 94th Ave 3rd Floor
Orland Park, IL 60462
NationsBank NA Collateral Pledge Of 15,431,643.310 10.3994%
D&L Partners LP
1610 Des Peres Re Ste 395
St Louis, MO 63131
Bull Profund--INVESTOR SHARES Total Shares Percentage
- ----------------------------- ------------ ----------
Independent Trust Corp 55,112.465 63.3337%*
Funds CMSI
15255 S 94th Ave 3rd Floor
Orland Park, IL 60462
Trust Company Of America 10,394.748 11.9454%
HCM
P.O. Box 6503
Englewood, CO 80115
</TABLE>
*Disclaims Beneficial Ownership.
B-46
<PAGE>
<TABLE>
<CAPTION>
Bull Profund--Service Shares Total Shares Percentage
- ---------------------------- ------------ ----------
<S> <C> <C>
First Trust Corporation 7,060.235 36.2512%*
P.O. Box 173736
Denver, CO 80217
Liliana P Willis 2,010.798 10.3245%
Jerry B Willis and Assoc. Inc PSP
P.O. Box 83906
Baton Rouge, LA 70884
NFSC FEBO C6A-539961 1,222.746 6.2783%
NFSC FMTC IRA Rollover
FBO Mark F Secrest
22 W 26th St 6e
New York, NY 10010
NFSC FEBCO C6B-52252 1,093.983 5.6171%
NFSC FMTC IRA Rollover
2912 N Commonwealth 3A
Chicago, IL 60657
NFSC FEBCO C6A-027537 1,130.099 5.8026%
Donna Gagliuso
4th Floor
NY, NY 10012
UltraBull Profund--INVESTOR SHARES Total Shares Percentage
- ---------------------------------- ------------ ----------
Donaldson Lufkin & Jenrette Securities Corp. 124,613.215 22.69%
P.O. Box 2052
Jersey City, NJ 07303
National Investor Services Corp 51,081.613 9.3024%
Exclusive Benefit of Customers
55 Water St. 32nd FL
New York, NY 10041-3299
Charles Schwab and Co. Inc. 153,520.180 27.9574%*
Special Custody Account of Customers
101 Montgomery St.
San Francisco, CA 94104
UltraBull ProFund--SERVICE SHARES Total Shares Percentage
- --------------------------------- ------------ ----------
Donaldson Lufkin & Jenrette Securities Corporation 38,381.060 33.5039%*
P.O. Box 2052
Jersey City, NJ 07303
</TABLE>
*Disclaims beneficial ownership
B-47
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
First Trust Corporation 17,470.722 15.2705%
P.O. Box 173736
Denver , CO 80217
First Trust Corporation 6,213.493 5.4239%
P.O. Box 173736
Denver , CO 80217
FJ O'Neill Charitable Corporation 6,381.621 5.5707%
3550 Lander Rd. Room 140
Pepper Pike, OH 44124
Bear ProFund--INVESTOR CLASS SHARES Total Shares Percentage
- ----------------------------------- ------------ ----------
Charles Schwab and Co. Inc. 26,355.490 54.4271%*
Special Custody Account of Customers
101 Montgomery St.
San Francisco, CA 94104
Sheff Enterprises 3,730.415 7.7037%
988 Blvd. Of the Arts 812
Sarasota, FL 34236
Bear ProFund--SERVICE SHARES Total Shares Percentage
- ---------------------------- ------------ ----------
Donaldson Lufkin & Jenrette Sec Corp 558.948 8.8170%
P.O. Box 2052
Jersey City, NJ 07303
NFSC FEBO M26-846228 5,076.142 80.0727%*
NFSC FMTC IRA
998 Cooper Road
Mountain Grove, MO 65711
NFSC FEBO 168-177636 345.643 5.4523%
FMTC Custodian -Roth IRA
5308 Burning Oak Ct.
Raleigh, NC 27606-9595
UltraBear ProFund--INVESTOR SHARES Total Shares: Percentage:
- ---------------------------------- ------------ ----------
Donaldson Lufkin & Jenrette Securities Corp. 344.966 19.38%
P.O. Box 2052
Jersey City, NJ 07303
Charles Schwab and Co. Inc. 255,486.585 14.3530%
Special Custody Account of Customers
101 Montgomery St.
San Francisco, CA 94104
</TABLE>
*Disclaims beneficial ownership
B-48
<PAGE>
<TABLE>
<CAPTION>
UltraBear ProFund--SERVICE SHARES Total Shares Percentage
- --------------------------------- ------------ ----------
<S> <C> <C>
Donaldson Lufkin & Jenrette Securities Corp. 37,07620 8.55%
P.O. Box 2052
Jersey City, NJ 07303
Independent Trust Corp. 48.979.111 11.2990%
Funds 88
15255 S 94th Ave. 3rd Floor
Orland Park, IL 60462
First Trust Corporation 54,368,234 12.5422%
P.O. Box 173736
Denver, CO 80217-3736
Independent Trust Corp. 58,353.021 13.4615%
Funds 865
15255 S. 94th Ave. Suite 300
Orland Park, IL 60462
Independent Trust Corp. 122,713.982 28.3090%*
Funds 966
15255 S. 94th Ave. 3rd Floor
Orland Park, IL 60462
UltraOTC ProFund--INVESTOR SHARES Total Shares Percentage
- --------------------------------- ------------ ----------
Donaldson Lufkin & Jenrette Securities Corp. 345,350.95 18.72%
PO Box 2052
Jersey City, NJ 07303
National Investor Services Corp. 156,066.630 8.4600%
Exclusive Benefit of Customers
55 Water St. 32nd FL
New York, NY 10041-3299
Charles Schwab and Co., Inc. 488,550.075 26.4832%
Special Custody Account of Customers
101 Montgomery St.
San Francisco, CA 94104
UltraOTC ProFund--SERVICE SHARES Total Shares Percentage
- -------------------------------- ------------ ----------
Donaldson Lufkin & Jenrette Securities Corp. 70,386.86 25.92%*
P.O. Box 2052
Jersey City, NJ 07303
</TABLE>
*Disclaims beneficial ownership.
B-49
<PAGE>
<TABLE>
<CAPTION>
UltraOTC ProFund--INVESTOR SHARES Total Shares Percentage
- --------------------------------- ------------ ----------
<S> <C> <C>
Donaldson Lufkin & Jenrette Sec Corp. 1,350,778.098 26.5813%*
P.O. Box 2052
Jersey City, NJ 07303
Charles Schwab and Co., Inc. 478,068.202 9.4077%
Special Custody Account of Customers
101 Montgomery St.
San Francisco, CA 94104
UltraOTC ProFund--SERVICE SHARES Total Shares Percentage
- -------------------------------- ------------ ----------
Donaldson Lufkin & Jenrette Sec Corp 19,536.782 32.2748%*
P.O. Box 2052
Jersey City, NJ 07303
First Trust Corporation 7,522.415 12.4271%
P.O. Box 173736
Denver, CO 80217
Sterling J. Moritz 5,757.568 9.5115%
2149 N 121st St.
Omaha, NE 68164
Jerry E. Gress 7,302.065 12.0630%
Patricia D. Gress
3303 N. 125 Ave.
Omaha, NE 68164
</TABLE>
*Disclaims beneficial ownership.
B-50
<PAGE>
TAXATION
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the ProFunds and the purchase, ownership, and disposition of ProFund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in light
of their particular circumstances, nor to certain types of shareholders subject
to special treatment under the federal income tax laws (for example, banks and
life insurance companies). This discussion is based upon present provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder, and judicial and administrative ruling authorities, all
of which are subject to change, which change may be retroactive. Prospective
investors should consult their own tax advisors with regard to the federal tax
consequences of the purchase, ownership, or disposition of ProFund shares, as
well as the tax consequences arising under the laws of any state, foreign
country, or other taxing jurisdiction.
Dividends out of net ordinary income and distribution 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 gain from the sale of a
capital asset held for more than one year, regardless of the length of time a
shareholder has held the ProFund shares. 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 shareholder 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 distribution made by the ProFunds for the preceding
year. Distributions by ProFunds generally will be subject to state and local
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 Code. A
RIC generally is not subject to federal income tax on income and gains
distributed in a timely manner to its shareholders. Accordingly, each ProFund
generally must, among other things, (a) derive in each taxable year at least 90%
of its gross income from dividends, interest, payments with respect to certain
securities loans, and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income derived with respect to its
business of investing in such stock, securities or currencies; and (b) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the ProFund's assets is represented by cash, U.S. government
securities, the securities of other regulated investment companies and other
securities, with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the value of the ProFund's total assets and 10%
of the outstanding voting securities of such issuer, and (ii) not more
B-51
<PAGE>
than 25% of the value of its total assets is invested in the securities of any
one issuer (other than U.S. government securities and the securities of other
regulated investment companies).
As a regulated investment company, a ProFund generally will not be subject
to U.S. federal income tax on income and gains that it distributes to
shareholders, if at least 90% of the ProFund's investment company taxable income
(which includes, among other items, dividends, interest and the excess of any
net short-term capital gains over net long-term capital losses) for the taxable
year is distributed. Each ProFund intends to distribute substantially all of
such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the ProFund level. To avoid the tax, each ProFund must distribute during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for a one-year period generally ending on
October 31 of the calendar year, and (3) all ordinary income and capital gains
for previous years that were not distributed during such years. To avoid
application of the excise tax, the ProFunds intend to make distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of a calendar year if it is declared by the
ProFund in October, November or December of that year with a record date in such
a month and paid by the ProFund during January of the following year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received.
MARKET DISCOUNT
If ProFund purchases a debt security at a price lower than the stated
redemption price of such debt security, the excess of the stated redemption
price over the purchase price is "market discount". If the amount of market
discount is more than a de minimis amount, a portion of such market discount
must be included as ordinary income (not capital gain) by the ProFund in each
taxable year in which the ProFund owns an interest in such debt security and
receives a principal payment on it. In particular, the ProFund will be required
to allocate that principal payment first to the portion of the market discount
on the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by a ProFund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the ProFund, at
a constant yield to maturity which takes into account the semi-annual
compounding of interest. Gain realized on the disposition of a market discount
obligation must be recognized as ordinary interest income (not capital gain) to
the extent of the "accrued market discount."
ORIGINAL ISSUE DISCOUNT
Certain debt securities acquired by the ProFunds may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by a ProFund, original issue discount that accrues on a
debt security in a given year generally is treated for federal income tax
purposes as interest and, therefore, such income would be subject to the
distribution requirements applicable to regulated investment companies.
Some debt securities may be purchased by the ProFunds at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes
(see above).
B-52
<PAGE>
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
Any Regulated futures contracts and certain options (namely, nonequity
options and dealer equity options) in which a ProFund may invest may be "section
1256 contracts." Gains (or losses) on these contracts generally are considered
to be 60% long-term and 40% short-term capital gains or losses; however foreign
currency gains or losses arising from certain section 1256 contracts are
ordinary in character. Also, section 1256 contracts held by a ProFund at the end
of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.
Transactions in options, futures and forward contracts undertaken by the
ProFunds may result in "straddles" for federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by a ProFund, and
losses realized by the ProFund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. In addition, certain carrying charges (including interest expense)
associated with positions in a straddle may be required to be capitalized rather
than deducted currently. Certain elections that a ProFund may make with respect
to its straddle positions may also affect the amount, character and timing of
the recognition of gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to the ProFunds are not
entirely clear. The straddle rules may increase the amount of short-term capital
gain realized by a ProFund, which is taxed as ordinary income when distributed
to shareholders. Because application of the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the recognition of
gains or losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
CONSTRUCTIVE SALES
Recently enacted rules may affect the timing and character of gain if a
ProFund engages in transactions that reduce or eliminate its risk of loss with
respect to appreciated financial positions. If the ProFund enters into certain
transactions in property while holding substantially identical property, the
ProFund would be treated as if it had sold and immediately repurchased the
property and would be taxed on any gain (but not loss) from the constructive
sale. The character of gain from a constructive sale would depend upon the
ProFund's holding period in the property. Loss from a constructive sale would be
recognized when the property was subsequently disposed of, and its character
would depend on the ProFund's holding period and the application of various loss
deferral provisions of the Code.
PASSIVE FOREIGN INVESTMENT COMPANIES
The ProFund may invest in shares of foreign corporations that may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a ProFund receives a so-called "excess
distribution" with respect to PFIC stock, the ProFund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the ProFund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the ProFund held the PFIC shares. Each ProFund will
itself be subject to tax on the portion, if any, of an excess distribution that
is so allocated to prior ProFund taxable years and an interest factor will be
added to the tax, as if the tax had been payable in such prior taxable years.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gains.
B-53
<PAGE>
The ProFund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, a ProFund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions were received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election would
involve marking to market the ProFund's PFIC shares at the end of each taxable
year, with the result that unrealized gains would be treated as though they were
realized and reported as ordinary income. Any mark-to-market losses and any loss
from an actual disposition of ProFund shares would be deductible as ordinary
losses to the extent of any net mark-to-market gains included in income in prior
years.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by a ProFund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the ProFund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may deduct the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the ProFund as capital gain dividends, whether paid in cash or in shares, are
taxable as gain from the sale or exchange of an asset held for more than one
year, regardless of how long the shareholder has held the ProFund's shares.
Capital gains dividends are not eligible for the dividends received deduction.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by a ProFund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of a ProFund just
prior to a distribution. The price of shares purchased at this time will include
the amount of the forthcoming distribution, but the distribution will generally
be taxable.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of shares of a ProFund, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. A gain or loss will be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands and generally will be long-term,
mid-term or short-term, depending upon the shareholder's holding period for the
shares. Any loss realized on a redemption, sale or exchange will be disallowed
to the extent the shares disposed of are replaced (including through
reinvestment of dividends) within a period of 61 days, beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case the basis of
the shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on the disposition of a ProFund's shares held by the
shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any distributions of capital gain
dividends received or treated as having been received by the shareholder with
respect to such shares.
BACKUP WITHHOLDING
Each ProFund generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to shareholders if (1) the shareholder
fails to furnish the ProFund with the shareholder's correct taxpayer
identification number or social security number, (2) the IRS notifies the
shareholder or the ProFund that the shareholder
B-54
<PAGE>
has failed to report properly certain interest and dividend income to the IRS
and to respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
OTHER TAXATION
Distributions may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Non-U.S. shareholders and
certain types of U.S. shareholders subject to special treatment under the U.S.
federal income tax laws (e.g. banks and life insurance companies) may be subject
to U.S. tax rules that differ significantly from those summarized above.
EQUALIZATION ACCOUNTING
Each ProFund distributes its net investment income and capital gains to
shareholders as dividends annually to the extent required to qualify as a
regulated investment company under the Code and generally to avoid federal
income or excise tax. Under current law, each ProFund may on its tax return
treat as a distribution of investment company taxable income and net capital
gain the portion of redemption proceeds paid to redeeming shareholders that
represents the redeeming shareholders' portion of the ProFund's undistributed
investment company taxable income and net capital gain. This practice, which
involves the use of equalization accounting, will have the effect of reducing
the amount of income and gains that the ProFund is required to distribute as
dividends to shareholders in order for the ProFund to avoid federal income tax
and excise tax. This practice may also reduce the amount of distributions
required to be made to nonredeeming shareholders and the amount of any
undistributed income will be reflected in the value of the ProFund's shares; the
total return on a shareholder's investment will not be reduced as a result of
the ProFund's distribution policy. Investors who purchase shares shortly before
the record date of a distribution will pay the full price for the shares and
then receive some portion of the price back as a taxable distribution.
PERFORMANCE INFORMATION
TOTAL RETURN CALCULATIONS
From time to time, each of the non-money market ProFunds may advertise the
total return of the ProFund for prior periods. Any such advertisement would
include at least average annual total return quotations for one, five, and
ten-year periods, or for the life of the ProFund. Other total return quotations,
aggregate or average, over other time periods for the ProFund also may be
included.
The total return of a ProFund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the ProFund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; this
calculation assumes that the initial investment is made at the current net asset
value and that all income dividends or capital gains distributions during the
period are reinvested in shares of the ProFund at net asset value. Total return
is based on historical earnings and asset value fluctuations and is not intended
to indicate future performance. No adjustments are made to reflect any income
taxes payable by shareholders on dividends and distributions paid by the
ProFund.
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equal the initial amount invested to the ending redeemable value.
The aggregate return for each ProFund for the one year and since inception
periods ended December 31, 1998,were as follows:
B-55
<PAGE>
<TABLE>
<CAPTION>
INVESTOR SHARES
Inception Date Since Inception Return 1yr. Return
-------------- ---------------------- -----------
<S> <C> <C> <C>
Bull ProFund 12/02/97 23.07 26.57
UltraBull ProFund 11/28/97 42.34 42.95
Bear ProFund 12/31/97 -19.41 -19.46
UltraBear ProFund 12/23/97 -35.43 -38.34
UltraOTC ProFund 12/02/97 123.30 185.34
Money Market ProFund 11/17/97 4.87 4.84
UltraShort OTC ProFund 6/28/98 -67.48
SERVICE SHARES
Inception Date Since Inception Return 1yr. Return
-------------- ---------------------- -----------
<S> <C> <C> <C>
Bull ProFund 12/02/97 22.26 25.68
UltraBull ProFund 11/28/97 40.99 41.48
Bear ProFund 12/31/97 -19.99 -20.04
UltraBear ProFund 12/23/97 -35.60 -38.45
UltraOTC ProFund 12/02/97 122.32 183.98
Money Market ProFund 11/17/97 3.41 3.81
UltraShort OTC ProFund 6/28/98 -67.50
</TABLE>
This performance data represents past performance and is not an indication
of future results. The UltraShort OTC ProFund, UltraEuro ProFund and UltraShort
Euro ProFund had no commenced operations as of December 31, 1998.
YIELD CALCULATIONS
From time to time, the Money Market ProFund advertises its "yield" and
"effective yield." Both yield figures are based on historical earnings and are
not intended to indicate future performance. The "yield" of the Money Market
ProFund refers to the income generated by an investment in the Money Market
ProFund over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in the Money Market ProFund is assumed to be reinvested.
The "effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
Since yield fluctuates, yield data cannot necessarily be used to compare an
investment in the Money Market ProFund's shares with bank deposits, savings
accounts, and similar investment alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders of the Money
Market ProFund should remember that yield generally is a function of the kind
and quality of the instrument held in portfolio, portfolio maturity, operating
expenses, and market conditions.
For the seven-day period ended December 31, 1998, the seven-day effective
yield for the Investor Shares and Service Shares of the Money Market ProFund was
4.86% and 3.84%, respectively.
COMPARISONS OF INVESTMENT PERFORMANCE
In conjunction with performance reports, promotional literature, and/or
analyses of shareholder service for a ProFund, comparisons of the performance
information of the ProFund for a given period to the performance of recognized,
unmanaged indexes for the same period may be made. Such indexes include, but are
not limited to, ones provided by Dow Jones & Company, Standard & Poor's
Corporation, Lipper Analytical Services, Inc., Shearson Lehman Brothers, the
National Association of Securities Dealers, Inc.,
B-56
<PAGE>
The Frank Russell Company, Value Line Investment Survey, the American Stock
Exchange, the Philadelphia Stock Exchange, Morgan Stanley Capital International,
Wilshire Associates, the Financial Times-Stock Exchange, and the Nikkei Stock
Average and Deutcher Aktienindex, all of which are unmanaged market indicators.
Such comparisons can be a useful measure of the quality of a ProFund's
investment performance. In particular, performance information for the Bull
ProFund, the UltraBull ProFund, the Bear ProFund and the UltraBear ProFund may
be compared to various unmanaged indexes, including, but not limited to, the S&P
500 Index or the Dow Jones Industrial Average; performance information for the
UltraOTC ProFund may be compared to various unmanaged indexes, including, but
not limited to its current benchmark, the NASDAQ 100 Index.
In addition, rankings, ratings, and comparisons of investment performance
and/or assessments of the quality of shareholder service appearing in
publications such as Money, Forbes, Kiplinger's Magazine, Personal Investor,
Morningstar, Inc., and similar sources which utilize information compiled (i)
internally, (ii) by Lipper Analytical Services, Inc. ("Lipper"), or (iii) by
other recognized analytical services, may be used in sales literature. The total
return of each ProFund (other than the Money Market ProFund) also may be
compared to the performances of broad groups of comparable mutual funds with
similar investment goals, as such performance is tracked and published by such
independent organizations as Lipper and CDA Investment Technologies, Inc., among
others. The Lipper ranking and comparison, which may be used by the ProFunds in
performance reports, will be drawn from the "Capital Appreciation ProFunds"
grouping for the Bull ProFund, the UltraBull ProFund, the Bear ProFund and the
UltraBear ProFund and from the "Small Company Growth ProFunds" grouping for the
UltraOTC ProFund. In addition, the broad-based Lipper groupings may be used for
comparison to any of the ProFunds.
Further information about the performance of the ProFunds will be contained
in the ProFunds' annual reports to shareholders, which may be obtained without
charge by writing to the ProFunds at the address or telephoning the ProFunds at
telephone number set forth on the cover page of this SAI.
RATING SERVICES
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group represent their opinions as to the quality of the securities that
they undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality. Although
these ratings are an initial criterion for selection of portfolio investments,
Bankers Trust also makes its own evaluation of these securities, subject to
review by the Board of Trustees. After purchase by the Portfolio, an obligation
may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Portfolio. Neither event would require the Portfolio to
eliminate the obligation from its portfolio, but Bankers Trust will consider
such an event in its determination of whether the Portfolio should continue to
hold the obligation. A description of the ratings used herein and in the
Prospectus is set forth in the Appendix to this SAI.
FINANCIAL STATEMENTS
The Report of Independent Accountants and Financial Statements of the
ProFunds for the fiscal year ended December 31, 1998 are incorporated herein by
reference to the Trust's Annual Report, such Financial Statements having been
audited by Coopers & Lybrand LLP, independent accountants, and is so included
and incorporated by reference in reliance upon the report of said firm, which
report is given upon their authority as experts in auditing and accounting.
Copies of such Annual Report are available without charge upon request by
writing to ProFunds, 3435 Stelzer Road, Columbus, Ohio 43219-8006 or telephoning
(888) 776-3637.
B-57
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS, OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PROFUNDS.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN OFFERING BY
PROFUNDS IN ANY JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.
B-58
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS
DESCRIPTION OF S&P'S CORPORATE RATINGS:
AAA-Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issuers only in small degree.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major categories,
except in the AAA rating category.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
Aaa-Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
DESCRIPTION OF FITCH INVESTORS SERVICE'S CORPORATE BOND RATINGS:
AAA-Securities of this rating are regarded as strictly high-grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions, and
liable to but slight market fluctuation other than through changes in the money
rate. The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong companies, and are
most numerous in the railway and public utility fields, though some industrial
obligations have this rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Other features may enter in, such as a wide margin
of protection through collateral security or direct lien on specific property as
in the case of high class equipment certificates or bonds that are first
mortgages on valuable real estate. Sinking funds or voluntary reduction of the
debt by call or purchase are often factors, while guarantee or assumption by
parties other than the original debtor may also influence the rating.
AA-Securities in this group are of safety virtually beyond question, and as
a class are readily salable while many are highly active. Their merits are not
greatly unlike those of the AAA class, but a security so rated may be of junior
though strong lien in many cases directly following an AAA security or the
margin of safety is less strikingly broad. The issue may be the obligation of a
small company, strongly secure but influenced as the ratings by the lesser
financial power of the enterprise and more local type of market.
Description of Duff & Phelps' corporate bond ratings:
A-1
<PAGE>
AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury Funds.
AA+, AA,-High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
DESCRIPTION OF S&P'S MUNICIPAL BOND RATINGS:
AAA-Prime-These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds-In a period of economic stress, the issuers will
suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds-Debt service coverage has been, and is expected to remain,
substantial; stability of the pledged revenues is also exceptionally strong due
to the competitive position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenant, earnings test for
issuance of additional bonds and debt service reserve requirements) are
rigorous. There is evidence of superior management.
AA-High Grade-The investment characteristics of bonds in this group are
only slightly less marked than those of the prime quality issues. Bonds rated AA
have the second strongest capacity for payment of debt service.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA rating category.
DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS:
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Moody's may apply the numerical modifier in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
within its generic rating classification possesses the strongest investment
attributes.
DESCRIPTION OF S&P'S MUNICIPAL NOTE RATINGS:
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1 or SP-2) to distinguish more clearly the credit
quality of notes as compared to bonds. Notes rated SP-1 have a very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given the designation of SP-1+.
Notes rated SP-2 have a satisfactory capacity to pay principal and interest.
A-2
<PAGE>
DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS:
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG-1/VMIG-1 are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the market for
refinancing, or both. Loans the designation MIG-2/VIMG-2 are of high quality,
with ample margins of protection, although not as large as the preceding group.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to posses overwhelming safety characteristics are denoted A-1+.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations.
DESCRIPTION OF FITCH INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS:
F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1-Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than the strongest
issue.
DESCRIPTION OF DUFF & PHELPS' COMMERCIAL PAPER RATINGS:
Duff 1+-Highest certainly of timely payment. Short term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk free U.S. Treasury short
term obligations.
Duff 1-Very high certainty of timely +.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or relating supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations.
DESCRIPTION OF FITCH INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS:
F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business economic or financial conditions may increase investment
risk albeit not very significantly.
A-Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB-Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are more
likely to lead to increased investment risk than for obligations in higher
categories.
A-3
<PAGE>
BB-Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest exists, but
is susceptible over time to adverse changes in business, economic or financial
conditions.
B-Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse changes in
business, economic or financial conditions.
CCC-Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on favorable
business, economic or financial conditions.
CC-Obligations which are highly speculative or which have a high risk of
default.
C-Obligations which are currently in default.
Notes: "+" or "-".
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations.
DESCRIPTION OF FITCH INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS:
F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely business,
economic or financial conditions.
A3-Obligations supported by an adequate capacity for timely repayment. Such
capacity is more susceptible to adverse changes in business, economic or
financial conditions than for obligations in higher categories.
B-Obligations for which the capacity for timely repayment is susceptible to
adverse changes in business, economic or financial conditions.
C-Obligations for which there is an inadequate capacity to ensure timely
repayment.
D-Obligations which have a high risk of default or which are currently in
default.
DESCRIPTION OF THOMSON BANK WATCH SHORT-TERM RATINGS:
TBW-1-The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis.
TBW-2-The second-highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as of issues rated 'TBW-1'.
TWB-3-The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
TWB-4-The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
A-4
<PAGE>
DESCRIPTION OF THOMSON BANKWATCH LONG-TERM RATINGS:
AAA-The highest category; indicates that the ability to repay principal and
interest on a timely basis is extremely high.
AA-The second -highest category; indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highs category.
A-The third-highest category; indicates the ability to repay principal and
interest is strong. Issues rated `a ` ` could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
BBB-The lowest investment-grade category; indicates an acceptable capacity
to repay principal and interest. Issues rated "BBB" are, however, more
vulnerable to adverse developments (both internal and external) than obligations
with higher ratings.
NON-INVESTMENT GRADE (ISSUES REGARDED AS HAVING SPECULATIVE CHARACTERISTICS IN
THE LIKELIHOOD OF TIMELY REPAYMENT OF PRINCIPAL AND INTEREST.)
BB-While not investment grade, the "BB" rating suggests that the likelihood
of default is considerably less than for lower-rated issues. However, there are
significant uncertainties that could affect the ability to adequately service
debt obligations.
B-Issues rated "B" show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse development
could well negatively affect the payment of interest and principal on a timely
basis.
CCC-Issues rate "CCC" clearly have a high likelihood of default, with
little capacity to address further adverse changes in financial circumstances.
CC-"CC" is applied to issues that are subordinate to other obligations
rated "CCC" and are afforded less protection in the event of bankruptcy or
reorganization.
D-Default
These long-term debt ratings can also be applied to local currency debt. In
such cases the ratings defined above will be preceded by the designation "local
currency".
RATING IN THE LONG-TERM DEBT CATEGORIES MY INCLUDE A PLUS (+) OR MINUS (-)
DESIGNATION, WHICH INDICATES WHERE WITHIN THE RESPECTIVE CATEGORY THE ISSUE IS
PLACED.
A-5
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. Exhibits
(a)(1) Certificate of Trust of ProFunds (the "Registrant")(1)
(a)(2) First Amended Declaration of Trust of the Registrant
(2)
(b) By-laws of Registrant (2)
(C) Not Applicable
(d)(1) Investment Advisory Agreement for each non-money
market ProFund (2)
(d)(2) Investment Advisory Agreement for Cash Management
Portfolio incorporated by reference to Bankers Trust
Company's Registration Statement on Form N-1A ('40 Act
file no. 811-06073) filed with the Commission on April
24, 1996.
(d)(3) Amendment to Investment Advisory Agreement between
ProFunds and ProFund Advisors LLC (3)
(d)(4) Investment Advisory Agreement for UltraEurope and
Ultra- Short Europe ProFunds - filed herewith.
(e) Form of Distribution Agreement and Dealer Agreement
(2)
(f) Not Applicable
(g)(1) Form of Custody Agreement with UMB Bank, N.A. (2)
(g)(2) Amendment to Custody Agreement with UMB Bank, N.A. (3)
(g)(3) Amendment to Custody Agreement w/UMB Bank with respect
to UltraEurope and UltraShort Europe ProFunds*
(h)(1) Form of Transfer Agency Agreement (2)
(h)(2) Form of Administration Agreement (2)
(h)(3) Form of Administration and Services Agreement
incorporated by reference to Bankers Trust Company's
Registration Statement on Form N-1A ('40 Act file no.
811-06073) filed with the Commission on April 24,
1996.
(h)(4) Form of Fund Accounting Agreement (2)
(h)(5)(i) Form of Management Services Agreement (2)
(h)(5)(ii) Amendment to Management Services Agreement with
respect to the UltraShort OTC ProFund (3)
(h)(5)(iii) Form of Amended and Restated Management Services
Agreement filed herewith
(h)(6) Form of Shareholder Services Agreement related to
Adviser Shares (2)
(h)(7) Form of Omnibus Fee Agreement with BISYS Fund Services
LP (2)
(i) Opinion and Consent of Counsel to the Registrant (2)
(j) Consent of Independent Auditors--*
(k) None
(l) Purchase Agreement dated October 10, 1997 between the
Registrant and National Capital Group, Inc. (2)
(m) Not Applicable
(n) Financial Data Schedule*
(o)(1) Multiple Class Plan (2)
(o)(2) Amended and Restated Multi-Class Plan*
(p) Power of Attorney of Cash Management Portfolio
incorporated by reference to Bankers Trust Company's
Registration Statement on Form N-1A filed
with the Commission on March 19, 1997.
*To be filed by amendment
(1) Filed with initial registration statement.
(2) Previously filed on November 10, 1997 as part of Pre-Effective Amendment
No. 4 and incorporated by reference herein.
(3) Previously filed on February 24, 1998 as part of Post-Effective Amendment
No. 1 and incorporated by reference herein.
<PAGE>
ITEM 24. Persons Controlled By or Under Common Control With Registrant.
None.
ITEM 25. Indemnification
The Registrant is organized as a Delaware business trust and is
operated pursuant to a Declaration of Trust, dated as of April 17, 1997
(the "Declaration of Trust"), that permits the Registrant to indemnify
its trustees and officers under certain circumstances. Such
indemnification, however, is subject to the limitations imposed by the
Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended. The Declaration of Trust of the Registrant provides
that officers and trustees of the Trust shall be indemnified by the
Trust against liabilities and expenses of defense in proceedings
against them by reason of the fact that they each serve as an officer
or trustee of the Trust or as an officer or trustee of another entity
at the request of the entity. This indemnification is subject to the
following conditions:
(a) no trustee or officer of the Trust is indemnified against any
liability to the Trust or its security holders which was the
result of any willful misconduct, bad faith, gross negligence,
or reckless disregard of his duties;
(b) officers and trustees of the Trust are indemnified only for
actions taken in good faith which the officers and trustees
believed were in or not opposed to the best interests of the
Trust; and
(c) expenses of any suit or proceeding will paid in advance only
if the persons who will benefit by such advance undertake to
repay the expenses unless it subsequently is determined that
such persons are entitled to indemnification.
The Declaration of Trust of the Registrant provides that if
indemnification is not ordered by a court, indemnification may be
authorized upon determination by shareholders, or by a majority vote of
a quorum of the trustees who were not parties to the proceedings or, if
this quorum is not obtainable, if directed by a quorum of disinterested
trustees, or by independent legal counsel in a written opinion, that
the persons to be indemnified have met the applicable standard.
ITEM 26. Business and Other Connections of Investment Advisory
ProFund Advisors LLC (the "Advisor"), a limited liability company
formed under the laws of the State of Maryland on May 8, 1997.
Information relating to the business and other connections of Bankers
Trust which serves as investment adviser to the Cash Management
Portfolio and each director, officer or partner of Bankers Trust are
hereby incorporated by reference to disclosures in Item 28 of BT
Institutional funds (accession # 0000862157-97-00007) is filed on March
17, 1997 with the Securities and Exchange Commission.
<PAGE>
ITEM 27. Principal Underwriter
Concord Financial Group, Inc., 3435 Stelzer Road, Columbus, Ohio 43219 acts
solely as interim distributor for the Registrant. The officers of Concord
Financial Group, Inc. are:
Name and Principal Position and Offices Position and Offices
Business Address with CFG with Registrant
Lynn J. Magnum Chairman none
Dennis Sheehan Sr. Vice President none
Michael D. Burns Vice President/ none
Chief Compliance Officer
Steven Mintos Executive Vice none
President/Chief Operating Officer
Dale Smith Vice President/ none
Chief Financial Officer
Kevin Dell Vice President none
General Counsel/Secretary
ITEM 28. Location of Accounts and Records
All accounts, books, and records required to be maintained and
preserved by Section 31(a) of the Investment Company Act of 1940, as
amended, and Rules 31a-1 and 31a-2 thereunder, will be kept by the
Registrant at:
(1) ProFund Advisors LLC, 7900 Wisconsin Avenue, Suite 300,
Bethesda, Maryland (records relating to its functions as
investment adviser and manager to the non-money market
portfolios);
(2) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
(records relating to the administrator, fund accountant and
transfer agent).
(3) UMB Bank, N.A., 928 Grand Avenue, Kansas City, Missouri for
each ProFund (records relating to its function as Custodian)
ITEM 29. Management Services
None.
ITEM 30. Undertakings
(a) Registrant undertakes to call a meeting of shareholders for
the purpose of voting upon the question of removal of a
Trustee or Trustees when requested to do so by the holders of
at least 10% of the Registrant's outstanding shares and, in
connection with such meeting, to comply with the shareholder
communications provisions of Section 16(c) of the Investment
Company Act of 1940.
(b) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
Annual Report to shareholders, upon request and without
charge.
<PAGE>
SIGNATURES
PROFUNDS
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 4 to its Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in Bethesda
in the State of Maryland on March 2, 1999.
PROFUNDS
/s/ MICHAEL L. SAPIR*
----------------------------------------
Michael L. Sapir, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signatures Title Date
/s/ MICHAEL L. SAPIR* Trustee, President March 2, 1999
- ---------------------------------
Michael L. Sapir
/s/ LOUIS MAYBERG* Trustee, Secretary March 2, 1999
- ---------------------------------
Louis Mayberg
/s/ RUSSELL S. REYNOLDS* Trustee March 2, 1999
- ---------------------------------
Russell S. Reynolds
/s/ MICHAEL WACHS* Trustee March 2, 1999
- ---------------------------------
Michael Wachs
/s/ NIMISH BHATT* Treasurer March 2, 1999
- ---------------------------------
Nimish Bhatt
*By: /s/ ELLEN F. STOUTAMIRE
------------------------
Ellen F. Stoutamire
as Attorney-in-Fact
Date: March 2, 1999
<PAGE>
SIGNATURES
CASH MANAGEMENT PORTFOLIO
CASH MANAGEMENT PORTFOLIO has duly caused this Post-Effective Amendment
No. 4 to its Registration Statement on Form N-1A of ProFunds to be signed on its
behalf by the undersigned, there unto duly authorized in the City of Baltimore
and the State of Maryland on the 2nd day of March, 1999.
CASH MANAGEMENT PORTFOLIO
/s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
This Post-Effective Amendment No. 4 to the Registration Statement on
Form N-1A of ProFunds has been signed below by the following persons in the
capacities indicated with respect to Cash Management Portfolio on March 2,
1999.
Signatures Title
/s/ JOHN Y. KEFFER* President and Chief
- --------------------------------------- Executive Officer
John Y. Keffer
/s/ JOSEPH A. FINELLI* Treasurer and Principal
- --------------------------------------- Financial and Accounting Officer
Joseph A. Finelli
/s/ CHARLES P. BIGGAR* Trustee
- ---------------------------------------
Charles P. Biggar
/s/ S. LELAND DILL* Trustee
- ---------------------------------------
S. Leland Dill
/s/ PHILIP SAUNDERS, JR.* Trustee
- ---------------------------------------
Philip Saunders, Jr.
*By: /s/ DANIEL O. HIRSCH
----------------------------------
Daniel O. Hirsch, Secretary of Cash Management Portfolio
as Attorney-in-Fact
Date: March 2, 1999
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned, being the duly elected Secretary of ProFunds (the
"Trust"), hereby certifies pursuant to Rule 483(b) under the Securities Act of
1933, as amended, that the following resolution was unanimously approved at the
meeting of the Board of Trustees of the Trust held on October 28, 1997:
RESOLVED, that the Trustees and officers of the Trust who may
be required to execute the Trust's Registration Statement on Form N-1A
and any amendments thereto be, and each of them hereby is, authorized
to execute a power of attorney appointing any of Michael L. Sapir,
Jeffrey L. Steele, Keith T. Robinson, Ellen F. Stoutamire and Thresa
Dewar as their true and lawful attorneys-in-fact, to execute in their
name, place and stead, unless otherwise designated as Trustee or
officer of the Trust, said Registration Statement and any amendments
thereto, and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission; and said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of each of said
Trustees and officers, or any or all of them, in any and all capacities
with respect to the Trust, every act whatsoever requisite or necessary
to be done, said acts of said attorneys-in-fact, being hereby ratified
and approved.
/s/ Louis Mayberg
Louis Mayberg
Date: February 23, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Jeffrey L. Steele, Keith T. Robinson,
Ellen F. Stoutamire and Michael L. Sapir and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and resubstitution, for
the undersigned in any and all capacities to sign the Registration Statement of
ProFunds and any pre- or post-effective amendments thereto, and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
/s/Louis Mayberg
Louis Mayberg
Date: February 23, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Jeffrey L. Steele, Keith T. Robinson and
Ellen F. Stoutamire and each of them, to act severally as attorneys-in-fact and
agents, with power of substitution and resubstitution, for the undersigned in
any and all capacities to sign the Registration Statement of ProFunds and any
pre- or post-effective amendments thereto, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may do or cause to be
done by virtue hereof.
/s/Michael L. Sapir
Michael L. Sapir
Date: February 23, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Jeffrey L. Steele, Keith T. Robinson,
Ellen F. Stoutamire and Michael L. Sapir and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and resubstitution, for
the undersigned in any and all capacities to sign the Registration Statement of
ProFunds and any pre- or post-effective amendments thereto, and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
/s/Russell S. Reynolds, III
Russell S. Reynolds, III
Date: February 23, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Jeffrey L. Steele, Keith T. Robinson,
Ellen F. Stoutamire and Michael L. Sapir and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and resubstitution, for
the undersigned in any and all capacities to sign the Registration Statement of
ProFunds and any pre- or post-effective amendments thereto, and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
/s/Michael C. Wachs
Michael C. Wachs
Date: February 23, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Jeffrey L. Steele, Keith T. Robinson,
Ellen F. Stoutamire and Michael L. Sapir and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and resubstitution, for
the undersigned in any and all capacities to sign the Registration Statement of
ProFunds and any pre- or post-effective amendments thereto, and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
/s/Nimish Bhatt
Nimish Bhatt
Date: February 23, 1999
<PAGE>
Power of Attorney
The undersigned Trustees and officers, as indicated respectively below,
of BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds, and BT
Advisor Funds (each, a "Trust") and, Cash Management Portfolio, Treasury Money
Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio, International
Equity Portfolio, Utility Portfolio, Short/Intermediate U.S. Government
Securities Portfolio, Equity 500 Index Portfolio, Asset Management Portfolio,
Capital Appreciation Portfolio, Intermediate Tax Free Portfolio, and BT
Investment Portfolios (each, a "Portfolio Trust") each hereby constitutes and
appoints the Secretary, each Assistant Secretary and each authorized signatory
of each Trust and each Portfolio Trust, each of them with full powers of
substitution, as his true and lawful attorney-in-fact and agent to execute in
his name and on his behalf in any and all capacities the Registration Statements
on Form N-1A, and any and all amendments thereto, and all other documents, filed
by a Trust or a Portfolio Trust with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended, and (as applicable)
the Securities Act of 1933, as amended, and any and all instruments which such
attorneys and agents, or any of them, deem necessary or advisable to enable the
Trust or Portfolio Trust to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction and to file the same, with all exhibits thereto and other
documents in connection therewith, with the SEC and such other jurisdictions,
and the undersigned each hereby ratifies and confirms as his own act and deed
any and all acts that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents has, and
may exercise, all of the powers hereby conferred. The undersigned each hereby
revokes any Powers of Attorney previously granted with respect to any Trust or
Portfolio Trust concerning the filings and actions described herein.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand
as of the 31st day of December, 1998.
SIGNATURES TITLE
/s/ JOHN Y. KEFFER President and Chief Executive Officer of
- --------------------------------- each Trust and Portfolio Trust
John Y. Keffer
/s/ JOSEPH A. FINELLI Treasurer (Principal Financial and Accounting
- --------------------------------- Officer) of each Trust and Portfolio Trust
Joseph A. Finelli
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ____ day of ___________, 1999, between ProFunds, a
Delaware business trust (the "Trust"), on behalf of the UltraEurope ProFund and
the UltraShort Europe ProFund, and ProFunds Advisors LLC, a Maryland limited
liability company (the "Advisor").
WHEREAS, the Advisor is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and is engaged principally in the
business of rendering investment management services; and
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended, (the"1940 Act");
and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
("shares") in separate series with each such series representing interests in a
separate portfolio of securities and other assets; and
WHEREAS, the Trust currently offers nine series of shares, including
shares in the UltraEurope ProFund and the UltraShort Europe ProFund, and may
offer additional portfolios in the future; and
WHEREAS, the Trust desires to retain the services of the Advisor to
provide a continuous program of investment management for the following
portfolios of the Trust: the UltraEurope ProFund and the UltraShort Europe
ProFund (each referred to hereinafter as a "Portfolio" and collectively as the
"Portfolios"); and
WHEREAS, the Advisor is willing, in accordance with the terms and
conditions hereof to provide such services to the Trust on behalf of such
Portfolios.
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein and intending to be legally bound hereby, it is agreed between the
parties as follows:
1. APPOINTMENT OF ADVISOR
The Trust hereby appoints Advisor to provide the advisory services set
forth herein to the Portfolios and Advisor agrees to accept such appointment and
agrees to render the services set forth herein for the compensation herein
provided. In carrying out its responsibilities under this Agreement, Advisor
shall at all times act in accordance with the investment objectives, policies
and restrictions applicable to the Portfolios as set forth in the then-current
Registration Statement of the Trust, applicable provisions of the 1940 Act and
the rules and regulations promulgated thereunder and other applicable federal
securities laws and regulations.
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2. DUTIES OF ADVISOR
Advisor shall provide a continuous program of investment management for
each Portfolio. Subject to the general supervision of the Trust's Board of
Trustees, Advisor shall have sole investment discretion with respect to the
Portfolios, including investment research, selection of the securities to be
purchased and sold and the portion of the assets of each Portfolio, if any, that
shall be held uninvested, and the selection of broker-dealers through which
securities transactions in the Portfolios will be executed. Advisor shall manage
the Portfolios in accordance with the objectives, policies and limitations set
forth in the Trust's current Prospectus and Statement of Additional Information.
Specifically, and without limiting the generality of the foregoing, Advisor
agrees that it will:
(a) promptly advise each Portfolio's designated custodian bank
and administrator or accounting agent of each purchase and sale, as the
case may be, made on behalf of the Portfolio, specifying the name and
quantity of the security purchased or sold, the unit and aggregate
purchase or sale price, commission paid, the market on which the
transaction was effected, the trade date, the settlement date, the
identity of the effecting broker or dealer and/or such other
information, and in such manner, as may from time to time be reasonably
requested by the Trust;
(b) maintain all applicable books and records with respect to
the securities transactions of the Portfolio. Specifically, but without
limitation, Advisor agrees to maintain with respect to each Portfolio
those records required to be maintained under Rule 31a-1(b)(1), (b)(5)
and (b)(6) under the 1940 Act with respect to transactions in each
Portfolio including, without limitation, records which reflect
securities purchased or sold in the Portfolio, showing for each such
transaction, the market on which the transaction was effected, the
trade date, the settlement date, and the identity of the executing
broker or dealer. Advisor will preserve such records in the manner and
for the periods prescribed by Rule 31a-2 under the 1940 Act. Advisor
acknowledges and agrees that all such records it maintains for the
Trust are the property of the Trust and Advisor will surrender promptly
to the Trust any such records upon the Trust's request;
(c) provide, in a timely manner, such information as may be
reasonably requested by the Trust or its designated agents in
connection with, among other things, the daily computation of each
Portfolio's net asset value and net income, preparation of proxy
statements or amendments to the Trust's registration statement and
monitoring investments made in the Portfolio to ensure compliance with
the various limitations on investments applicable to the Portfolio and
to ensure that the Portfolio will continue to qualify for the tax
treatment accorded to regulated investment companies under Subchapter M
of the Internal Revenue Code of 1986, as amended;
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<PAGE>
(d) render regular reports to the Trust concerning the
performance by Advisor of its responsibilities under this Agreement. In
particular, Advisor agrees that it will, at the reasonable request of
the Board of Trustees, attend meetings of the Board or its validly
constituted committees and will, in addition, make its officers and
employees available to meet with the officers and employees of the
Trust at least quarterly and at other times upon reasonable notice, to
review the investments and investment programs of the Portfolio;
(e) maintain its policy and practice of conducting its
fiduciary functions independently. In making investment recommendations
for the Portfolios, the Advisor's personnel will not inquire or take
into consideration whether the issuers of securities proposed for
purchase or sale for the Trust's account are customers of the Advisor
or of its affiliates. In dealing with such customers, the Advisor and
its affiliates will not inquire or take into consideration whether
securities of those customers are held by the Trust; and
(f) review periodically and take responsibility for the
material accuracy and completeness of the information supplied by or at
the request of the Advisor for inclusion in Trust's registration
statement under the 1940 Act and the Securities Act of 1933.
3. PORTFOLIO TRANSACTIONS
Advisor shall be responsible for selecting members of securities
exchanges, brokers and dealers (herein after referred to as "brokers") for the
execution of purchase and sale transactions for the Portfolios. In executing
portfolio transactions and selecting brokers or dealers, if any, the Advisor
will use its best efforts to seek on behalf of a Portfolio the best overall
terms available. In assessing the best overall terms available for any
transaction, the Advisor shall consider all factors it deems relevant, including
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934) provided to any Portfolio of the Trust
and/or other accounts over which the Advisor or an affiliate of the Advisor
exercises investment discretion. The Advisor may pay to a broker or dealer who
provides such brokerage and research services a commission for executing a
portfolio transaction which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if, but only
if, the Advisor determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided. The
Advisor will report to the Trustees from time to time regarding its portfolio
execution and brokerage practices.
4. EXPENSES AND COMPENSATION
a) ALLOCATION OF EXPENSES
The Advisor shall, at its expense, employ or associate with
itself such persons as it believes appropriate to assist in performing
its obligations under this
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Agreement and provide all advisory services, equipment, facilities and
personnel necessary to perform its obligations under this Agreement.
The Trust shall be responsible for all its expenses and
liabilities, including, without limitation, compensation of its
Trustees who are not affiliated with the Portfolios' Administrator or
the Advisor or any of their affiliates; taxes and governmental fees;
interest charges; fees and expenses of the Trust's independent
accountants and legal counsel; trade association membership dues; fees
and expenses of any custodian (including for keeping books and accounts
and calculating the net asset value of shares of each Portfolio,
transfer agent, registrar and dividend disbursing agent of the Trust;
expenses of issuing, selling, redeeming, registering and qualifying for
sale the Trust's shares of beneficial interest; expenses of preparing
and printing share certificates (if any), prospectuses, shareholders'
reports, notices, proxy statements and reports to regulatory agencies;
the cost of office supplies; travel expenses of all officers, trustees
and employees; insurance premiums; brokerage and other expenses of
executing portfolio transactions; expenses of shareholders' meetings;
organizational expenses; and extraordinary expenses.
b) COMPENSATION
For its services under this Agreement, Advisor shall be
entitled to receive a fee at the annual rate of .90% of the average
daily net asset value of each Portfolio, payable monthly. For the
purpose of accruing compensation, the net asset value of the Portfolios
will be determined in the manner provided in the then-current
Prospectus of the Trust.
c) EXPENSE LIMITATIONS
Advisor may waive all or a portion of its fees provided for
hereunder and such waiver will be treated as a reduction in the
purchase price of its services. Advisor shall be contractually bound
hereunder by the terms of any publicity announced waiver of its fee, or
any limitation of the Portfolio's expenses, as if such waiver were
fully set forth herein.
5. LIABILITY OF ADVISOR
Neither the Advisor nor its officers, directors, employees, agents or
controlling person ("Associated Person") of the Advisor shall be liable for any
error of judgement or mistake of law or for any loss suffered by the Trust in
connection with the matters to which this Agreement relates including, without
limitation, losses that may be sustained in connection with the purchase,
holding, redemption or sale of any security or other investment by the Trust
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of Advisor or such Associated Persons in the performance of their
duties or from reckless disregard by them of their duties under this Agreement.
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<PAGE>
6. LIABILITY OF THE TRUST AND PORTFOLIOS
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the trust
property of the Trust as provided in the Declaration of Trust. The execution and
delivery of this Agreement have been authorized by the Trustees, and it has been
signed by an officer of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in its Declaration of Trust.
With respect to any obligation of the Trust on behalf of any Portfolio
arising hereunder, the Advisor shall look for payment or satisfaction of such
obligations solely to the assets and property of the Portfolio to which such
obligation relates as though the Trust had separately contracted with the
Advisor by separate written instrument with respect to each Portfolio.
7. DURATION AND TERMINATION OF THIS AGREEMENT
(a) DURATION. This Agreement shall become effective on the
date hereof. Unless terminated as herein provided, this Agreement shall
remain in full force and effect for two years from the date hereof.
Subsequent to such initial period of effectiveness, this Agreement
shall continue in full force and effect for successive periods of one
year thereafter with respect to each Portfolio so long as such
continuance with respect to such Portfolio is approved at least
annually (a) by either the Trustees of the Trust or by vote of a
majority of the outstanding voting securities (as defined in the 1940
Act) of such Portfolio, and (b), in either event, by the vote of a
majority of the Trustees of the Trust who are not parties to this
Agreement or "interested persons" (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of
voting on such approval.
(b) AMENDMENT. Any amendment to this Agreement shall become
effective with respect to a Portfolio upon approval by the Advisor and
the Trustees, and to the extent required by applicable law, a majority
of the outstanding voting securities (as defined in the 1940 Act) of
that Portfolio.
(c) TERMINATION. This Agreement may be terminated with respect
to any Portfolio at any time, without payment of any penalty, by vote
of the Trustees or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of that Portfolio, or by the
Advisor, in each case upon sixty (60) days' prior written notice to the
other party. Any termination of this Agreement will be without
prejudice to the completion of transactions already initiated by the
Advisor on behalf of the Trust at the time of such termination. The
Advisor shall take all steps reasonably necessary after such
termination to complete any such transactions and is hereby
authorization to take such steps. In addition, this Agreement may be
terminated with respect to one or more Portfolios without affecting the
rights, duties or obligations of any of the other Portfolios.
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(d) AUTOMATIC TERMINATION. This Agreement shall automatically
and immediately terminate in the event of its assignment (as defined in
the 1940 Act).
(e) APPROVAL, AMENDMENT OR TERMINATION BY INDIVIDUAL
PORTFOLIO. Any approval, amendment or termination of this Agreement by
the holders of a majority of the outstanding voting securities (as
defined in the 1940 Act) of any Portfolio shall be effective to
continue, amend or terminate this Agreement with respect to any such
Portfolio notwithstanding (i) that such action has not been approved by
the holders of a majority of the outstanding voting securities of any
other Portfolio affected thereby, and (ii) that such action has not
been approved by the vote of a majority of the outstanding voting
securities of the Trust, unless such action shall be required by any
applicable law or otherwise.
(f) USE OF NAME. The parties acknowledge and agree that the
names "ProFunds", "UltraEurope ProFund"and "UltraShort Europe ProFund"
(collectively, the "ProFund Names") and any derivatives thereof, as
well as any logos that are now or shall hereafter be associated with
the ProFund Names are the valuable property of the Advisor. In the
event that this Agreement is terminated and the Advisor no longer acts
as Investment Advisor to the Trust, the Advisor reserves the right to
withdraw from the Trust and the Portfolios the uses of the ProFund
Names and logos or any name or logo misleadingly implying a continuing
relationship between the Trust of the Portfolios and the Advisor or any
of its affiliates.
8. SERVICES NOT EXCLUSIVE.
The services of the Advisor to the Trust hereunder are not to be deemed
exclusive, and the Advisor shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.
9. MISCELLANEOUS
(a) NOTICE. Any notice under this Agreement shall be in
writing, addressed and delivered or mailed, postage prepaid, to the
other party at such address as such other party may designate in
writing for the receipt of such notices.
(b) SEVERABILITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statue, rule or otherwise,
the remainder shall not be thereby affected.
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(c) APPLICABLE LAW. This Agreement shall be construed in
accordance with and governed by the laws of Maryland.
PROFUNDS ADVISORS LLC, A MARYLAND
LIMITED LIABILITY COMPANY
ATTEST: _____________________________ By:________________________________
________________________________
Date: ____________________________
PROFUNDS, A DELAWARE BUSINESS TRUST
ATTEST: _____________________________ By:________________________________
________________________________
Date: ____________________________
7
AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT
AGREEMENT, made this 28th day of October, 1997, and amended as of
February 18, 1998, and amended and restated as of ________________, 1999,
between ProFunds, a Delaware business trust (the "Trust") and ProFunds Advisors
LLC, a Maryland limited liability company (the "Manager").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
("shares") in separate series with each series representing interests in a
separate portfolio of securities and other assets; and
WHEREAS, the Trust offers shares in the series set forth on Schedule A,
attached hereto, as such schedule may be amended from time to time (each
referred to hereinafter as a "Fund" and collectively as the "Funds"); and
WHEREAS, the Trust desires to engage the Manager to provide certain
services to the Trust on behalf of the Funds; and
WHEREAS, the Manager is willing, in accordance with the terms and
conditions hereof to provide such services to the Trust on behalf of the Funds;
NOW THEREFORE, in consideration of the mutual agreements set forth
herein and intending to be legally bound hereby, the parties agree as follows:
1. APPOINTMENT AND DUTIES OF MANAGER
(a) The Trust hereby employs the Manager to act as
manager of the Funds and to perform the services set forth in
this Agreement, subject to the supervision of the Board of
Trustees of the Trust, for the period and on the terms set
forth in this Agreement. The Manager hereby accepts such
employment, and undertakes to pay the salaries and expense of
all personnel of the Manager who perform services relating to
the services it performs hereunder. The Manager shall for all
purposes herein be deemed to be an independent contractor and
shall, except as otherwise expressly provided or authorized,
have no authority to act for or represent the Trust in any way
or otherwise be deemed an agent of the Trust.
(b) Notwithstanding the foregoing, the Manager shall
not be deemed to have assumed any duties hereunder with
respect to, and shall not, by the execution of this Agreement
be responsible for, the management of the Funds' assets or the
rendering of investment advice and supervision with respect
thereto, or the distribution of shares of the Funds, nor shall
the Manager be deemed to have assumed any
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responsibility hereunder with respect to functions
specifically assumed by any administrator, transfer agent,
custodian or shareholder servicing agent of the Trust or the
Funds.
(c) Without limiting the generality of the foregoing,
the Manager shall provide the following services to each of
the Funds:
i) Provide information to and coordinate the Trust's
relationship with registered investment advisors and other
securities professionals who have discretionary authority
over Trust shareholder accounts, assist in facilitating
instructions received by such persons relating to Trust
business and furnish facilities and personnel necessary to
perform such activities.
ii) Assist as appropriate and coordinate with the Trust's
Administrator and other service providers in administering
the affairs of the Trust and perform services on the
Trust's behalf.
iii) Pay the salaries and expenses of all officers and
Trustees of the Trust who are employees of the Manager.
iv) Perform such other services incident to the Trust's
business as parties may from time to time.
(d) It is intended that the assets of the Money
Market ProFund will be invested in a portfolio (the
"Portfolio") having substantially the same investment
objective, policies and restrictions as the Money Market
ProFund. In addition to its duties hereunder, set forth in
paragraph 1(c), above, with respect to the Money Market
ProFund, the Manager shall perform the following services:
i) Monitor the performance of the Portfolio.
ii) Coordinate the relationship of the Money Market
ProFund with the Portfolio.
iii) Communicate with the Board of Trustees of the Money
Market ProFund regarding the performance of the Portfolio
and the Money Market ProFund.
iv) Furnish reports regarding the Portfolio as reasonably
requested from time-to-time by the Trust's Board of
Trustees.
v) Perform such other necessary and desirable services
regarding the "Master Feeder" structure of the Money
Market ProFund as theTrustees may reasonably request form
time to time.
(e) In carrying out its responsibilities under this
Agreement, the Manager shall at all times act in accordance
with the investment
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objectives, policies and restrictions applicable to the Funds
as set forth in the Trust's then-current registration
statement, applicable provisions of the 1940 Act and the rules
and regulations promulgated thereunder and other applicable
federal securities laws.
(f) The Manager shall render regular reports to the Trust
as requested by the Board of Trustees, and will, at the
reasonable request of the Board, attend meetings of the Board
or its validly constituted committees, and will make its
officers and employees available to meet with the officers and
employees of the Trust to discuss its duties hereunder.
2. EXPENSES AND COMPENSATION
a) ALLOCATION OF EXPENSES
The Manager shall, at its expense, employ or associate
with itself such persons as it believes appropriate to assist
in performing its obligations under this Agreement and provide
all services, equipment, facilities and personnel necessary to
perform its obligations under this Agreement.
The Trust shall be responsible for all its expenses and
liabilities, including compensation of its Trustees who are
not affiliated with the Administrator or the Manager or any of
their affiliates; taxes and governmental fees; interest
charges; fees and expenses of the Trust's independent
accountants and legal counsel; trade association membership
dues; fees and expenses of any custodian (including for
keeping books and accounts and calculating the net asset value
of shares of each Fund, transfer agent, registrar and dividend
disbursing agent of the Trust; expenses of issuing, selling,
redeeming, registering and qualifying for sale the Trust's
shares of beneficial interest; expenses of preparing and
printing share certificates (if any), prospectuses,
shareholders' reports, notices, proxy statements and reports
to regulatory agencies; the cost of office supplies; travel
expenses of all officers, trustees and employees; insurance
premiums; brokerage and other expenses of executing portfolio
transactions; expenses of shareholders' meetings;
organizational expenses; and extraordinary expenses.
b) COMPENSATION
For its services under this Agreement, Manager shall be
entitled to receive a fee at the annual rate of .15% of the
average daily net asset value of each Fund except the Money
Market ProFund and .35% of the average daily net asset value
of the Money Market ProFund, payable
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monthly. For the purpose of accruing compensation, the net
asset value of the Funds will be determined in the manner
provided in the then-current Prospectus of the Trust.
3. LIABILITY OF MANAGER
Neither the Manager nor its officers, directors,
employees, agents or controlling person ("Associated Person")
of the Manager shall be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust in
connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of Manager or such Associated
Persons in the performance of their duties or from reckless
disregard by them of their duties under this Agreement.
4. LIABILITY OF THE TRUST AND FUNDS
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the
Trust personally, but shall bind only the trust property of
the Trust as provided in the Declaration of Trust. The
execution and delivery of this Agreement have been authorized
by the Trustees, and it has been signed by an officer of the
Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall
be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind
only the trust property of the Trust as provided in its
Declaration of Trust.
With respect to any obligation of the Trust on behalf of
any Fund arising hereunder, the Manager shall look for payment
or satisfaction of such obligations solely to the assets and
property of the Fund to which such obligation relates as
though the Trust had separately contracted with the Manager by
separate written instrument with respect to each Fund.
5. DURATION AND TERMINATION OF THIS AGREEMENT
(a) DURATION. This Agreement shall become effective on the
date hereof. Unless terminated as herein provided, this
Agreement shall remain in full force and effect for two years
from the date hereof. Subsequent to such initial period of
effectiveness, this Agreement shall continue in full force and
effect for successive periods of one year thereafter with
respect to each Fund so long as such continuance with respect
to such Fund is approved at least annually by the Trustees of
the Trust by the vote of a majority of the Trustees of the
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Trust who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of any such party.
(b) AMENDMENT. Any amendment to this Agreement shall
become effective with respect to a Fund upon approval of the
Manager and the Trust.
(c) TERMINATION. This Agreement may be terminated with
respect to any Fund at any time, without payment of any
penalty, by vote of the Trustees or by vote of a majority of
the outstanding voting securities (as defined in the 1940 Act)
of that Fund, or by the Manager, in each case of sixty (60)
days' prior written notice to the other party. Any termination
of this Agreement will be without prejudice to the completion
of transactions already initiated by the Manager on behalf of
the Trust at the time of such termination. The Manager shall
take all steps reasonably necessary after such termination to
complete any such transactions and is hereby authorization to
take such steps. In addition, this Agreement may be terminated
with respect to one or more Funds without affecting the
rights, duties or obligations of any of the other Funds.
(d) AUTOMATIC TERMINATION. This Agreement shall
automatically and immediately terminate in the event of its
assignment (as defined in the 1940 Act).
(e) APPROVAL, AMENDMENT OR TERMINATION BY INDIVIDUAL FUND.
Any approval, amendment or termination of this Agreement by
any Fund shall be effective to continue, amend or terminate
this Agreement with respect to any such Fund notwithstanding
that such action has not been approved by any other Fund.
6. SERVICES NOT EXCLUSIVE.
The services of the Manager to the Trust hereunder are not
to be deemed exclusive, and the Manager shall be free to
render similar services to others so long as its services
hereunder are not impaired thereby.
7. MISCELLANEOUS
(a) NOTICE. Any notice under this Agreement shall be in
writing, addressed and delivered or mailed, postage prepaid,
to the other party at
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such address as such other party may designate in writing for
the receipt of such notices.
(b) SEVERABILITY. If any provision of this Agreement shall
be held or made invalid by a court decision, statue, rule or
otherwise, the remainder shall not be thereby affected.
(c) APPLICABLE LAW. This Agreement shall be construed in
accordance with and governed by the laws of Maryland.
PROFUNDS ADVISORS LLC, A MARYLAND
LIMITED LIABILITY COMPANY
ATTEST: __________________________________ By:________________________________
________________________________
Date: ____________________________
PROFUNDS, A DELAWARE BUSINESS TRUST
ATTEST: __________________________________ By:________________________________
________________________________
Date: ____________________________
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