AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 15, 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. 9 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 12 [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)
- ------ 60 days after filing pursuant to paragraph (a) (1)
X
- ------ 75 days after filing pursuant to paragraph (a) (2)
- ------ On (date) pursuant to paragraph (b)
- ------ On (date) pursuant to paragraph (a)(1)
- ------ On (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following:
- ------ This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
Explanatory Note
This Post-Effective Amendment No. 9 to Registrant's Registration Statement
on Form N-1A is filed for the purpose of adding disclosure regarding three new
series of Registrant to the Registration Statement. Accordingly, this
Post-Effective Amendment No. 9 does not relate to the nine existing "ProFund"
series and eleven "ProFund VP" series of Registrant, disclosure concerning which
is hereby incorporated by reference from the following documents (File Nos.
333-28339, 811-08239): (1) "ProFund" Prospectus dated May 1, 1999 and
supplemented September 20, 1999 and October 19, 1999 and Statement of Additional
Information dated May 1, 1999 (revised October 19, 1999), each as filed pursuant
to Rule 497 under the Securities Act of 1933; (2) "ProFund VP" Prospectus and
Statement of Additional Information dated October 18, 1999, included in
Post-Effective Amendment No. 8 to the Registration Statement as filed pursuant
to Rule 485(b) under the Securities Act of 1933.
<PAGE>
[ ], 2000
PROSPECTUS
ProFunds No-Load Mutual Funds
UltraSmall-Cap ProFund
UltraMid-Cap ProFund
UltraJapan ProFund
[Logo]
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>
Overview and Investment Objectives
Each of the no-load ProFunds described in this prospectus ("ProFunds")
seeks a daily return equal to double of the performance of a particular
stock market index.*
.UltraSmall-Cap ProFund - seeks daily investment results that
correspond to twice (200%) the performance of the Russell 2000(R)
Index.
.UltraMid-Cap ProFund - seeks daily investment results that correspond
to twice (200%) the performance of the S&P MidCap 400 Index(R).
.UltraJapan ProFund - seeks daily investment results that correspond to
twice (200%) the performance of the Nikkei 225 Stock Average.
If a ProFund is successful is in meeting its objective, it should gain
approximately twice as much as its benchmark index when the prices of
the securities in that index rise on a given day and should lose
approximately twice as much when such prices decline on that day.
<TABLE>
<S> <C> <C> <C> <C> <C>
This chart summarizes the daily objective of the ProFunds:
ProFund Index Daily Objective Types of Companies in Index
Ultra Russell 2000 Double Diverse, small capitalization
Small-Cap
UltraMid-Cap S&P MidCap Double Diverse, widely traded, mid-sized
400 capitalization companies
UltraJapan Nikkei 225 Double Large capitalization, widely
Stock Average traded Japanese stocks
* The securities indexes that the ProFunds use as their benchmark are
described below under "Benchmark Index."
Strategy
The ProFunds' investment advisor, ProFund Advisors LLC, uses
quantitative and statistical analysis it developed in seeking to
achieve each ProFund's investment objective. This analysis determines
the type, quantity and mix of investment positions that a ProFund
should hold to approximate the performance of its benchmark.
The ProFunds may invest in stocks that ProFund Advisors believe should
simulate the movement of the applicable underlying index. In addition,
the ProFunds may invest in the following instruments as a substitute
for investing directly in stocks, achieving leverage and for other
purposes:
. Futures contracts on stock indexes, and options on futures contracts;
and
. Financial instruments such as equity caps, collars, floors,
depository receipts, and options on securities and stock indexes.
The ProFunds generally invest in the above instruments to produce
economically "leveraged" investment results. Leverage is a way to
change small market movements into larger changes in the value of a
ProFund's investments.
The UltraJapan ProFund invests in financial instruments with values
that reflect the performance of certain stocks of Japan-based
companies.
<PAGE>
Investment Risks
Like all investments, the ProFunds entail risk. ProFund Advisors cannot
guarantee that any of the ProFunds will achieve its objective. As with
any mutual fund, the 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 the ProFunds.
The following chart summarizes certain risks associated with the
ProFunds:
Small
Capitalization Mid-Capitalization
Market Risk Leverage Risk Foreign Risk Risk Risk
UltraSmall-Cap X X X
UltraMid-Cap X X X
UltraJapan X X X
These and other risks are described below.
Certain Risks Associated with Particular ProFunds
.Small Company Investment Risk the UltraSmall-Cap ProFund could experience
greater risks than a fund which invests primarily in large capitalized, widely
traded companies, such as:
. Small company stocks tend to have greater fluctuations in price than
the stocks of large companies.
. There can be a shortage of reliable information on certain small
companies, which at times can pose a risk.
. Small companies tend to lack the financial and personnel resources to
handle industry wide setbacks and as a result such setbacks could have
a greater effect on the companies share price.
. Small company stocks are typically less liquid then large company
stocks and liquidating positions in turbulent market conditions could
become difficult.
.Mid-Cap Company Investment Risk The UltraMid-Cap ProFund could experience risks
that a fund which invests in primarily large capitalized, widely traded
companies would not. Such risks could include:
. Mid-Cap company stocks tend to have greater fluctuations in price
than the stocks of large companies, but not as drastic as the stocks of
small companies.
. Stocks of mid-sized companies could be more difficult to liquidate
during market downturns compared to larger, more widely-traded
companies.
.Foreign Investment Risk The UltraJapan ProFund entails the risk of foreign
investing, which may involve risks not typically associated with investing in
U.S. securities alone:
. Japan has accounting and disclosure standards that differ from U.S.
standards. Accordingly, this ProFund may not have access to adequate or
reliable company information.
<PAGE>
. The UltraJapan ProFund will be subject to the market, economic and
political risks of the countries where it invests or where the
companies represented in the benchmark index are located.
. Securities purchased by this ProFund 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 does
not engage in activities designed to hedge against foreign currency
fluctuations.
Risks in Common
Each ProFund faces certain risks in common:
. Leverage Risk The ProFunds employ leveraged investment techniques.
Leverage is the ability to get a return on a capital base that is
larger than a ProFund's investment. Use of leverage can magnify the
effects of changes in the value of the ProFunds and makes them more
volatile. The leveraged investment techniques that the ProFunds employ
should cause investors in these ProFunds to lose more money in adverse
environments.
. Market Risk The 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 should lose money when the index underlying
their benchmark declines. These indexes are discussed in the next
section.
. Liquidity Risk In certain circumstances, such as a disruption of the
orderly markets for the financial instruments in which the ProFunds
invest, the 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 the ProFunds from limiting losses
or realizing gains.
. Correlation Risk While ProFund Advisors expects that each of the
ProFunds will track its benchmark with an average 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 ProFund from achieving its
investment goal.
. Non-Diversification Risk The ProFunds are classified as
"non-diversified" under the federal securities laws. They have the
ability to concentrate a relatively high percentage of their
investments in the securities of a small number of companies, if
ProFund Advisors determines that doing so is the most efficient means
of tracking the relevant benchmark. This would make the performance of
a ProFund more susceptible to a single economic, political or
regulatory event than a more diversified mutual fund might be.
Nevertheless, the ProFunds intend to invest on a diversified basis.
. Risks of Aggressive Investment Techniques The ProFunds use investment
techniques that may be considered aggressive. Risks associated with the
use of options, futures contracts, and options on futures contracts
include potentially dramatic price changes (losses) in the value of the
instruments and imperfect correlations between the price of the
contract and the underlying security or index.
Benchmark Indexes
.The Russell 2000(R) Index is an unmanaged index consisting of 2,000
small company common stocks. The Index comprises 2,000 of the smallest
U.S. domiciled publicly traded common stocks that are included in the
Russell 3000(R) Index. These common stocks represent approximately 8%
of the total market capitalization of the Russell 3000(R) Index which,
in turn, represents approximately 98% of the publicly traded U.S.
equity market.
<PAGE>
.The S&P MidCap 400 Index(R) is a widely used measure of medium
capitalized U.S. company stock performance. It consists of the common
stocks of 400 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 American economy.
.The Nikkei 225 Stock Average is a price-weighted index of 225 large,
actively traded Japanese stocks traded on the Tokyo Stock Exchange. The
index is computed and distributed by the Nihon Keizai Shimbun (NKS).
ProFunds' Board of Trustees may change a ProFund's investment objective
without shareholder approval if, for example, it believes another
benchmark might better suit shareholder needs.
Who May Want to Consider a ProFunds Investment
The ProFunds may be appropriate for investors who:
. believe that over the long term, the value of a particular index will
increase, and that by investing with the objective of doubling the
index's daily return they will achieve superior results over time.
Investors in the ProFunds should understand that since each ProFund
seeks to double the daily performance of its benchmark index, it should
have twice the volatility of a conventional index fund and twice the
potential risk of loss.
. are seeking to match an index's daily return with half the investment
required of conventional stock index mutual funds.
-----------------------------------------------------------------------
An investor might invest $100,000 in a conventional Russell 2000(R)
Index Fund. Alternatively that same investor could invest half that
amount--$50,000--in the UltraSmall-Cap ProFund and target the same
daily return.
-----------------------------------------------------------------------
All of the ProFunds may be appropriate for investors who 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.
ProFunds' Performance
Because the ProFunds are newly formed and have no investment track
record, they have no performance to compare against other mutual funds
or broad measures of securities market performance, such as indexes.
Annual ProFund Operating Expenses
The tables below describe the estimated fees and expenses you may pay
if you buy and hold shares of the ProFunds during their first year of
operations. The ProFunds are "no-load" mutual funds. You pay no sales
charge when you buy or sell shares, or when you reinvest dividends.
<PAGE>
Annual Operating Expenses - INVESTOR CLASS SHARES
(percentage of average daily net assets)
UltraSmall-Cap UltraMid-Cap UltraJapan
ProFund ProFund ProFund
Management fees 0.75% 0.75% 0.90%
Distribution (12b-1) fees none none none
Other expenses 0.58% 0.58% 0.58%
Total annual operating 1.33% 1.33% 1.48%
expenses
Annual Operating Expenses - SERVICE CLASS SHARES
(percentage of average daily net assets)
UltraSmall-Cap UltraMid-Cap UltraJapan
ProFund ProFund ProFund
Management fees 0.75% 0.75% 0.90%
Distribution (12b-1) fees none none none
Other expenses 1.58% 1.58% 1.58%
Total annual operating 2.33% 2.33% 2.48%
expenses
- -----------------
Note: The ProFunds charge $15 for each wire transfer of redemption proceeds;
this charge may be waived at the discretion of the ProFunds.
Expense Examples
The following examples illustrate the expenses you would have incurred
on a $10,000 investment in each ProFund, and are intended to help you
compare the cost of investing in the ProFunds compared to other mutual
funds. The examples assume that you invest for the time periods shown
and redeem all of your shares at the end of 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. Because these examples are hypothetical and
for comparison only, your actual costs will be different.
INVESTOR CLASS Expense Examples
1 year 3 years
UltraSmall-Cap ProFund $135 $421
UltraMid-Cap ProFund $135 $421
UltraJapan ProFund $151 $468
SERVICE CLASS Expense Examples
1 year 3 years
UltraSmall-Cap ProFund $236 $727
UltraMid-Cap ProFund $236 $727
UltraJapan ProFund $251 $773
<PAGE>
ProFunds Strategy
What the ProFunds Do
Each ProFund:
. Seeks to provide its shareholders with predictable investment returns
approximating its benchmark by investing in securities and other
financial instruments, such as futures and options on futures.
. Uses a mathematical and quantitative approach.
. Pursues its objective regardless of market conditions, trends or
direction.
. Seeks to provide correlation with its benchmark on a daily basis.
What the ProFunds Do Not Do
ProFund Advisors does not:
o Conduct conventional stock research or analysis or forecast stock
market movement in managing the ProFunds' assets.
. Invest the ProFunds' assets in stocks or instruments based on ProFund
Advisors' view of the fundamental prospects of particular companies.
. Adopt defensive positions by investing in cash or other instruments
in anticipation of an adverse climate for their benchmark indexes.
. Seek to invest to realize dividend income from their investments.
. Seek to provide correlation with the ProFunds' benchmarks over a
period of time other than daily, such as monthly or annually, since
mathematical compounding prevents the ProFunds from achieving such
results.
Important Concepts
. Leverage offers a means of magnifying small market movements, up or
down, into large changes in an investment's value.
. 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 or securities, on an agreed-upon date.
. Option contracts grant one party a right, for a price, either to buy
or sell a security or futures contract at a fixed sum during a
specified period or on a specified day
. American Depository Receipts represent the right to receive
securities of foreign issuers deposited in a bank or trust company.
ADRs are an alternative to purchasing the underlying securities in
their national markets and currencies. Investment in ADRs has certain
advantages over direct investment in the underlying foreign securities
since: (i) ADRs are U.S. dollar-denominated investments that are easily
transferable and for which market quotations are readily available, and
(ii) issuers whose securities are represented by ADRs are generally
subject to auditing, accounting and financial reporting standards
similar to those applied to domestic issuers.
Portfolio Turnover
ProFund Advisors expects a significant portion of the 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 the ProFunds do 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.
<PAGE>
Share Prices, Classes and Tax Information
Calculating the ProFunds' Share Prices
Each 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.
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, the ProFund's 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 ProFunds:
. 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.
. securities traded over-the-counter--NASDAQ-supplied information on
the prevailing bid and asked prices.
. futures contracts and options on indexes and securities--the last
sale price prior to the close of regular trading on the NYSE.
. options on futures contracts--priced at fair value determined with
reference to established future exchanges.
. bonds and convertible bonds generally are valued using a third-party
pricing system.
. short-term debt securities are valued at amortized cost, which
approximates market value.
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. 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.
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. Either or both of these Exchanges may close early on the
business day before each of these holidays. Either or both of these
Exchanges also may close early on the day after Thanksgiving Day and
the day before Christmas holiday.
Dividends and Distributions
Each of the ProFunds intends to distribute to its shareholders every
year all of the year's net investment income and net capital gains.
Each ProFund will reinvest these distributions in additional shares
unless a shareholder has written to request a direct cash distribution.
<PAGE>
Tax Consequences
A ProFund does not ordinarily pay income tax on its net investment
income (which includes short-term capital gains) and net capital gains
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 gains 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:
. 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.
. 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.
. 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% on an annualized basis
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:
. receiving and processing shareholder orders, o performing the
accounting for the shareholder's account,
. maintaining retirement plan accounts,
. answering questions, giving investment advice, and handling
correspondence for individual accounts,
. acting as the sole shareholder of record for individual shareholders,
. issuing shareholder reports and transaction confirmations,
. executing daily investment "sweep" functions, and
. providing 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.
<PAGE>
Shareholder Services Guide
Contacting the ProFunds
By telephone: (888) 776-3637 or (614) 470-8122--
for investors
(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
. $5,000 for discretionary accounts controlled by a financial
professional.
. $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 ProFund investment.
The ProFunds reserve the right to reject or refuse, at their
discretion, any order for the purchase of a ProFund's shares in whole
or in part.
Opening Your ProFunds Account
By mail: Send a completed application, along with a check payable to
"ProFunds," to the aforementioned address. Cash, credit cards and
credit card checks are not accepted. Please contact the ProFunds in
advance if you wish to send third party checks. All purchases must be
made in US dollars through a US bank.
By wire transfer: First, complete an application and fax it to the
ProFunds at (800) 782-4797 (toll-free) or (614) 470-8718. Next, call
the ProFunds at (888) 776-3637 (toll-free) or (614) 470-8122 to a)
confirm receipt of the faxed application, b) request your new account
number, c) inform the ProFunds of the amount to be wired and d) receive
a confirmation number for your purchase order. After receiving your
confirmation number, instruct your bank to transfer money by wire to:
UMB Bank, N.A.
Kansas City, MO
Routing/ABA #:101000695
ProFunds DDA
#9870857952
For further credit to: Your name, the name of the ProFund(s), and your
ProFunds account number
Confirmation number: The confirmation number given to you by the
ProFunds representative
After faxing a copy of the completed application, send the original to
the ProFunds via mail or overnight delivery. The addresses are shown
above under "Contacting the ProFunds by mail."
Instructions, written or telephonic, given to the ProFunds for wire
transfer requests do not constitute a purchase order until the wire
transfer has been received by the ProFunds. The ProFunds are not liable
for any loss incurred due to a wire transfer not having been received.
Please note that your bank may charge a fee to send or receive wires.
<PAGE>
Establishing Accounts For Tax-Sheltered Retirement Plans
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 the ProFunds directly by phone
or at the above address.
Purchasing Additional ProFunds Shares
By mail: Send a check payable to "ProFunds", noting the ProFund and
account number, to the aforementioned address. Cash, credit cards, and
credit card checks are not accepted. Please contact the ProFunds in
advance if you wish to send third party checks. All purchases need to
be made in US dollars through a US bank.
By wire transfer: Call the ProFunds to inform us of the amount you will
be wiring and receive a confirmation number.
You can then instruct your bank to transfer your funds to:
UMB Bank, N.A.
Kansas City, MO
Routing/ABA #:101000695
ProFunds DDA #9870857952
For further credit to: Your name, the name of the ProFund(s), and
your ProFunds account number
Confirmation number: The confirmation number given to you by the
ProFunds representative
Instructions, written or telephonic, given to the ProFunds for wire
transfer requests do not constitute a purchase order until the wire
transfer has been received by the ProFunds. The ProFunds are not liable
for any loss incurred due to a wire transfer not having been received.
Please note that your bank may charge a fee to send or receive wires.
Please keep in mind when purchasing shares:
. The minimum subsequent purchase amount is $100.
. The ProFunds price shares you purchase at the price per share next
computed after we receive and accept your purchase order in good order.
In order to be in good order, a purchase order must include a properly
completed application and wire, check or other form of payment.
. A wire order is considered in good order only if (i) you have called
the ProFunds under the procedures described above and (ii) the ProFunds
receive and accept your wire. The ProFunds can only accept wires during
the times they process wires: between 8:00 a.m. and 3:30 p.m., Eastern
time for all the ProFunds. Wires received after the ProFunds' wire
processing times will be processed the next business day and will
receive that day's share price. If the primary exchange or market on
which a ProFund transacts business closes early, the above cut-off time
will be 25 minutes prior to the close of such exchange or market.
. If your purchase is cancelled, you will be responsible for any losses
that may result from 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.
. Securities brokers and dealers have the responsibility of
transmitting your orders promptly. Brokers and dealers may charge
transaction fees on the purchase and/or sale of a ProFund shares.
Exchanges
Shareholders can exchange shares of either class of any ProFund for
shares of either class of another ProFund, including the ProFunds that
are not described in this prospectus, free of charge. The ProFunds can
only honor exchanges between accounts registered in the same name, and
having the same address and taxpayer identification number.
The ProFunds accept 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. The 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. The ProFunds may not receive or
accept orders at any other time. If the primary exchange or market
(generally, the CME) on which a ProFund transacts business closes
early, the above cut-off time will be 25 minutes prior to the close of
such exchange or market.
<PAGE>
Please keep in mind when exchanging shares:
. An exchange is actually a redemption (sale) of shares of one ProFund
and purchase of shares of another ProFund.
. 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 (described in another
prospectus) for shares of other ProFunds through an Automatic Exchange
Plan. For more information on this option, please call the ProFunds at
888-776-3637.
. Before executing an exchange between the ProFunds described in this
prospectus for shares of another ProFund, a shareholder must first
review the prospectus related to the other ProFund. Such prospectus may
be obtained by contacting the ProFunds by letter or telephone at the
address or phone number noted on the back cover of this prospectus.
Redeeming ProFund Shares
You can redeem all or part of your shares at the price next determined
after we receive your request. The ProFunds 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. The ProFunds may not receive or accept
orders at any other time. If the primary exchange or market on which a
ProFund transacts business closes early, the above cut-off time will be
25 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:
. the name of the ProFund(s),
. the account number(s),
. the amount of money or number of shares being redeemed,
. the name(s) of the account owners,
. the signature(s) of all registered account owners, and
. your daytime telephone number.
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 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:
. Your account registration or address has changed within the last 30
calendar days.
. The check is being mailed to a different address than the one on your
account.
. The check or wire is being made payable to someone other than the
account owner.
. The redemption proceeds are being transferred to an account with a
different registration.
. You wish to redeem more than $100,000.
. You are adding or changing wire instructions on your account.
. Other unusual situations as determined by the ProFunds' 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.
<PAGE>
Please keep in mind when redeeming shares:
. Redemptions 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.
. The ProFunds normally remit redemption proceeds within seven days of
completing your liquidation out of the relevant ProFund. For redemption
of shares purchased by check or Automatic Investment, the ProFunds may
wait up to 15 days before sending redemption proceeds to assure that
the transfer agent has collected the purchase payment.
. The ProFunds will remit payment of telephone redemptions only to the
address or bank 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.
. 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.
. Involuntary Redemptions: The ProFunds reserve the right to redeem
involuntarily an investor's account, including a retirement account,
which falls below the applicable minimum investment in total value in
the ProFunds due to 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.
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 the 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.
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 and the minimum automatic redemption is $500. These minimums are
waived for IRA shareholders 70 1/2 years of age or older.
About Telephone Transactions
. 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.
. 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.
<PAGE>
ProFunds Management
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 Advisor
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 and provides investment advice and management services.
ProFund Advisors oversees the investment and reinvestment of the assets
in each ProFund. It receives fees equal to 0.75% of the average daily
net assets of each of the UltraSmall-Cap ProFund and the Ultra Mid-Cap
ProFund and 0.90% of the average daily net assets of the UltraJapan
ProFund. ProFund Advisors bears the costs of advisory services.
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 Business Administration
degree with a major in Finance from George Washington University.
William E. Seale, Ph.D., Director of Portfolio for ProFund Advisors
LLC, has more than 29 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.
Each ProFund is managed by an investment team chaired by Dr. Seale.
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
services. 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. Each ProFund pays a fee of 0.15% of its
average daily net assets for these services.
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.
<PAGE>
The ProFunds have been assured that their service providers have
developed and implemented clearly defined and documented plans intended
to minimize risks to services critical to the ProFunds' operations
associated with Year 2000 issues. The service providers likewise have
sought assurances from their respective vendors and suppliers that
these entities have addressed any Year 2000 issues.
In the event that any systems upon which the ProFunds depend are not
Year 2000 ready, 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 have not been
completed. The ProFunds will continue to closely monitor developments
relating to this issue.
Other Information
"Standard & Poor's(R)," "S&P(R)," and "S&P MidCap400 Index(R)," are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by the ProFunds. "Russell 2000(R) Index" is a trademark of the
Frank Russell Company. The ProFunds are not sponsored, endorsed, sold
or promoted by Standard & Poor's or the Frank Russell Company and
neither Standard & Poor's nor the Frank Russell Company makes any
representation regarding the advisability of investing in the Product.
(Please see the Statement of Additional Information which sets forth
certain additional disclaimers and limitations of liabilities on behalf
of S&P).
<PAGE>
[Back Cover]
You can find more detailed information about each of the ProFunds in their
current Statement of Additional Information, dated [ ], 2000, 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
dated [ ], 2000. To receive your free copy of a Statement of Additional
Information, 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 Investors
(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 1-800-SEC-0330.
ProFunds Executive Offices
Bethesda, MD
[Logo]
811-08239
<PAGE>
PROFUNDS
STATEMENT OF ADDITIONAL INFORMATION
7900 WISCONSIN AVENUE, SUITE 300
BETHESDA, MARYLAND 20814
(888) 776-3637 RETAIL SHAREHOLDERS
(888) 776-5717 (FINANCIAL PROFESSIONALS ONLY)
This Statement of Additional Information describes the UltraSmall-Cap
ProFund, the UltraMid-Cap ProFund, and the UltraJapan ProFund (collectively, the
"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. Each ProFund
seeks investment results that correspond each day to a specified benchmark. The
ProFunds may be used independently or in combination with each other as part of
an overall investment strategy.
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 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 investment
objectives of the ProFunds will be achieved.
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the ProFunds' Prospectus, dated [ ], 2000, as
supplemented from time to time, which incorporates this Statement of Additional
Information by reference. Words or phrases used in the Statement of Additional
Information without definition have the same meaning as ascribed to them in the
Prospectus. A copy of the Prospectus is available, without charge, upon request
to the address above or by telephoning at the telephone numbers above.
The date of this Statement of Additional Information is [ ], 2000.
<PAGE>
TABLE OF CONTENTS
PAGE
ProFunds....................................................................
Investment Policies and Techniques .........................................
Investment Restrictions.....................................................
Determination of Net Asset Value............................................
Portfolio Transactions and Brokerage........................................
Management of ProFunds......................................................
Costs and Expenses..........................................................
Organization and Description of Shares of Beneficial Interest...............
Taxation ...................................................................
Performance Information ....................................................
Financial Statements........................................................
Appendix Description of Securities Ratings ................................
<PAGE>
PROFUNDS
ProFunds (the "Trust") is an open-end management investment company, and
currently comprises twenty-three separate series. Three of the series are
discussed herein. All of the ProFunds are classified as non-diversified,
although they currently intend to operate in a diversified manner.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL
Reference is made to the 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.
Certain investment restrictions of a ProFund specifically identified as
fundamental policies may not be changed without the affirmative vote of at least
the majority of the outstanding shares of that ProFund, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). All other
investment policies of the ProFunds not specified as fundamental (including the
benchmarks of the ProFunds) may be changed by the Trustees of the Trust without
the approval of shareholders.
A ProFund may consider changing its benchmark if, for example, the current
benchmark becomes unavailable, the ProFund believes 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 ProFunds investment results to correspond
sufficiently to its current benchmark. If believed appropriate, a ProFund may
specify a benchmark for itself 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 ProFund Advisors
LLC (the "Advisor"), the ProFunds' investment adviser, in seeking to correlate
with the respective benchmarks. Rather, the Advisor primarily uses statistical
and quantitative analysis to determine the investments a ProFund makes and
techniques it employs. While the Advisor attempts to minimize any "tracking
error" (that statistical measure of the difference between the investment
results of a ProFunds and the performance of its benchmark), certain factors
will tend to cause a ProFunds' investment results to vary from a perfect
correlation to its benchmark. The ProFunds, however, do not expect that their
total returns will vary adversely from their respective current benchmarks by
more than ten percent over the course of a year. See "Special Considerations."
It is the policy of the 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 ProFunds. The ProFunds are free to
reduce or eliminate the ProFunds' activity in any of those areas without
changing the ProFunds fundamental investment policies. There is no assurance
that any of these strategies or any other strategies and methods of investment
available to a ProFund will result in the achievement of its objective.
<PAGE>
ULTRASMALL-CAP PROFUND
The investment objective of the UltraSmall-Cap ProFund is to provide daily
investment results that correspond to twice (200%) the performance of the
Russell 2000(R) Index.
The UltraSmall-Cap ProFund does not intend to hold the 2,000 securities
included in the Russell 2000(R) Index. Instead, the UltraSmall-Cap ProFund
intends to engage in transactions in equities, stock index futures contracts,
options on stock index futures contracts, and options on securities and stock
indexes. As a nonfundamental policy, the UltraSmall-Cap ProFund will invest,
under normal conditions, at least 65% of its total assets in the securities
comprising the Russell 2000(R) Index and instruments with values that are
representative of such securities, such as futures and option contracts on such
securities or such index.
The Russell 2000(R) Index is a capitalization-weighted index of domestic
equities traded on the NYSE, AMEX and NASDAQ. The index represents the bottom
2,000 companies of the 3,000 U.S. stocks with the largest market
capitalizations. As of June 30, 1999, the market capitalization of these 2,000
companies represented about 8% of the total market capitalization of the 3,000
companies. Companies whose stock comprises the Russell 2000(R) Index 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 smaller companies whose stock
comprises the Russell 2000(R) Index are the less certain growth prospects of
smaller firms, the lower degree of liquidity in the markets for such securities,
and the greater sensitivity of smaller capitalization companies to changing
economic conditions than larger capitalization companies. Conversely, because
many of these securities may be overlooked by investors and undervalued in the
marketplace, there is potential for significant capital appreciation.
ULTRAMID-CAP PROFUND
The investment objective of the UltraMid-Cap ProFund is to provide daily
investment results that correspond to twice (200%) the performance of the S&P
MidCap 400 Index(R).
The UltraMid-Cap ProFund does not intend to hold the 400 securities
included in the S&P Mid-Cap 400 Index(R). Instead, the UltraMid-Cap ProFund
intends to engage in transactions in equities, stock index futures contracts,
options on stock index futures contracts, and options on securities and stock
indexes. As a nonfundamental policy, the UltraMid-Cap ProFund will invest, under
normal conditions, at least 65% of its total assets in the securities comprising
the S&P Mid-Cap 400 Index(R) and instruments with values that are representative
of such securities, such as futures and option contracts on such securities or
such index.
The S&P MidCap 400 Index(R) is a widely used measure of medium capitalized
U.S. company stock performance. It consists of the common stocks of 400 major
corporations selected for their size and the frequency and ease which their
stocks trade. Standard & Poor's also attempts to assure that the Index reflects
the full range and diversity of the American economy. The securities of medium
capitalization companies, while typically not as volatile as the securities of
small capitalization companies, may be more volatile than securities of larger
or more well-known companies.
ULTRAJAPAN PROFUND
The investment objective of the UltraJapan ProFund is to provide daily
investment results that correspond to twice (200%) the performance of the Nikkei
225 Stock Average.
<PAGE>
The UltraJapan ProFund does not intend to hold the 225 securities included
in the Nikkei 225 Stock Average. Instead, the UltraJapan ProFund intends to
engage in transactions in equities, stock index futures contracts, options on
stock index futures contracts, and options on securities and stock indexes. As a
nonfundamental policy, the UltraJapan ProFund will invest, under normal
conditions, at least 65% of its total assets in the securities comprising the
Nikkei 225 Stock Average and instruments with values that are representative of
such securities, such as futures and option contracts on such securities or such
index.
The Nikkei 225 Stock Average is a price-weighted index of 225 large,
actively traded Japanese stocks traded on the Tokyo Stock Exchange. The index is
computed and distributed by the Nihon Keizai Shimbun ("NKS")
Investing in foreign companies or financial instruments by this ProFund 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 this ProFund will invest directly
or indirectly, in foreign markets, it will be subject to certain of the market,
economic and political risks prevalent in these foreign markets, and
particularly the Japanese 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 this ProFund 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 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.
By investing in American Depository Receipts ("ADRs") under normal market
conditions, the UltraJapan ProFund may reduce some of the risks of investing in
foreign securities. ADRs are denominated in the U.S. Dollar, which reduces the
risk of currency fluctuations during the settlement period for either purchases
or sales. Further, the information available for ADRs is subject to accounting,
auditing and financial reporting standards of the domestic market or exchange on
which they are traded, which standards are more uniform and more exacting than
those to which many foreign issuers may be subject. However, ADRs do not
eliminate all the risk inherent in investing in the securities of foreign
issuers.
FUTURES CONTRACTS AND RELATED OPTIONS
The ProFunds may purchase or sell stock index futures contracts and options
thereon as a substitute for a comparable market position in the underlying
securities or 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 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.
<PAGE>
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 purchase or sale transactions with respect to options
on futures contracts by buying an option of the same series as an option
previously written by a ProFund, or selling an option of the same series as an
option previously purchased by a ProFund. 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 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 promulgated by the Commodity
Futures Trading Commission (the "CFTC Regulations") under the Commodity Exchange
Act 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- bona fide
hedging purposes to the extent that the aggregate initial margins and option
premiums required to establish such non- bona fide 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 futures contract. 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 futures contract. A ProFund may also
cover its sale of a call option by taking positions in instruments the prices of
which are expected to move relatively consistently with the call option. A
ProFund may cover its sale of a put option on a futures contract by taking a
short position in the underlying futures contract at a price greater than or
equal to the strike price of the put option, or, if the short position in the
underlying futures contract is established at a price less than the strike price
of the written put, the ProFund will maintain in a segregated account cash or
high-grade liquid debt securities equal in value to the difference between the
strike price of the put and the price of the future. A ProFund may also cover
its sale of a put option by taking positions in instruments the prices of which
are expected to move relatively consistently with the put option.
<PAGE>
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 may purchase and write options on stock indexes to create
investment exposure consistent with their investment objectives, to 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 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 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 their investment objectives.
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 15%
limitation on investment in illiquid securities by the ProFunds. See "Illiquid
Securities."
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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
Each ProFund may buy and write (sell) options on securities for the purpose
of realizing its investment objectives. 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 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.
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Although certain securities exchanges attempt to provide continuously
liquid markets in which holders and writers of options can close out their
positions at any time prior to the expiration of the option, no assurance can be
given that a market will exist at all times for all outstanding options
purchased or sold by a ProFund. If an options market were to become unavailable,
the ProFund would be unable to realize its profits or limit its losses until the
ProFund could exercise options it holds, and the ProFund would remain obligated
until options it wrote were exercised or expired. Reasons for the absence of a
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.
SWAP AGREEMENTS
The ProFunds 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 ProFund illiquid investment
limitations. A ProFund 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 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.
<PAGE>
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 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 ProFund 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
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 ProFund 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.
AMERICAN DEPOSITORY RECEIPTS
For many foreign securities, U.S. Dollar denominated ADRs, which are traded
in the United States on exchanges or over-the-counter, are issued by domestic
banks. ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. ADRs do not eliminate all
the risk inherent in investing in the securities of foreign issuers. However, by
investing in ADRs rather than directly in foreign issuers' stock, the UltraJapan
ProFund can avoid currency risks during the settlement period for either
purchase or sales.
In general, there is a large, liquid market in the United States for many
ADRs. The information available for ADRs is subject to the accounting, auditing
and financial reporting standards of the domestic market or exchange on which
they are traded, which standards are more uniform and more exacting than those
to which many foreign issuers may be subject. Certain ADRs, typically those
denominated as unsponsored, require the holders thereof to bear most of the
costs of such facilities, while issuers of sponsored facilities normally pay
more of the costs thereof. The depository of an unsponsored facility frequently
is under no obligation to distribute shareholder communications received from
the issuer of the deposited securities or to pass through the voting rights to
facility holders with respect to the deposited securities, whereas the
depository of a sponsored facility typically distributes shareholder
communications and passes through the voting rights.
The UltraJapan ProFund may invest in both sponsored and unsponsored ADRs.
Unsponsored ADRs programs are organized independently and without the
cooperation of the issuer of the underlying securities. As result, available
information concerning the issuers may not be as current for sponsored ADRs, and
the prices of unsponsored depository receipts may be more volatile than if such
instruments were sponsored by the issuer.
<PAGE>
U.S. GOVERNMENT SECURITIES
Each ProFund also may invest in U.S. government securities in pursuit of
its 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 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. 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% of its 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, liquidity, investment, regulatory, or other considerations so
warrant.
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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.
REVERSE REPURCHASE AGREEMENTS
The ProFunds may use reverse repurchase agreements as part of their
investment strategies. Reverse repurchase agreements involve sales by a ProFund
of portfolio assets concurrently with an agreement by the ProFund to repurchase
the same assets at a later date at a fixed price. Generally, the effect of such
a transaction is that the ProFund can recover all or most of the cash invested
in the portfolio securities involved during the term of the reverse repurchase
agreement, while the ProFund will be able to keep the interest income associated
with those portfolio securities. Such transactions are advantageous only if the
interest cost to the ProFund of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise. Opportunities to achieve this
advantage may not always be available, and the ProFunds intend to use the
reverse repurchase technique only when it will be to the ProFund's advantage to
do so. The ProFund will establish a segregated account with its custodian bank
in which the ProFund will maintain cash or liquid instruments equal in value to
the ProFund's obligations in respect of reverse repurchase agreements.
BORROWING
The ProFunds may borrow money for cash management purposes or investment
purposes. Each of the 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 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.
<PAGE>
LENDING OF PORTFOLIO SECURITIES
Each of the ProFunds 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 and is maintained each business day in a segregated account pursuant to
applicable regulations. While such securities are on loan, the borrower will pay
the lending ProFund any income accruing thereon, and the ProFund may invest the
cash collateral in portfolio securities, thereby earning additional income. A
ProFund will not lend more than 33 1/3% of the value of the ProFund's total
assets. Loans would be subject to termination by the lending ProFund on four
business days' notice, or by the borrower on one day's notice. Borrowed
securities must be returned when the loan is terminated. Any gain or loss in the
market price of the borrowed securities which occurs during the term of the loan
inures to the lending ProFund. 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 may pay reasonable finders, borrowers,
administrative, and custodial fees in connection with a loan.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each ProFund, from time to time, in the ordinary course of business, may
purchase securities on a when-issued or delayed-delivery basis (i.e., delivery
and payment can take place between a month and 120 days after the date of the
transaction). These securities are subject to market fluctuation and no interest
accrues to the purchaser during this period. At the time a ProFund makes the
commitment to purchase securities on a when-issued or delayed-delivery basis,
the ProFund will record the transaction and thereafter reflect the value of the
securities, each day, in determining the ProFund's net asset value. Each ProFund
will not purchase securities on a when-issued or delayed-delivery basis if, as a
result, more than 15% of the ProFund's net assets would be so invested. At the
time of delivery of the securities, the value of the securities may be more or
less than the purchase price.
The Trust will also establish a segregated account with the Trust's
custodian bank in which the ProFunds will maintain liquid instruments equal to
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 may invest in the securities of other investment companies to
the extent that such an investment would be consistent with the requirements of
the 1940 Act. If a ProFund invests in, and, thus, is a shareholder of, another
investment company, the ProFund's shareholders will indirectly bear the
ProFund's proportionate share of the fees and expenses paid by such other
investment company, including advisory fees, in addition to both the management
fees payable directly by the ProFund to the ProFund's own investment adviser and
the other expenses that the ProFund bears directly in connection with the
ProFund's own operations.
ILLIQUID SECURITIES
While none of the ProFunds anticipates doing so, each of the ProFunds 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% of the ProFund's net assets in illiquid
securities. The term "illiquid securities" for this purpose means securities
that cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which the ProFund has valued the securities.
Under the current guidelines of the staff of the Securities and Exchange
Commission (the "Commission"), illiquid securities also are considered to
include, among other securities, purchased over-the-counter options, certain
cover for over-the-counter options, repurchase agreements with maturities in
excess of seven days, and certain securities whose disposition is restricted
under the Federal securities laws. The ProFund may not be able to sell illiquid
securities when the Advisor considers it desirable to do so or may have to sell
such securities at a price that is lower than the price that could be obtained
if the securities were more liquid. In addition, the sale of illiquid securities
also may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and
investments in illiquid securities may have an adverse impact on net asset
value.
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Institutional markets for restricted securities have developed as a result
of the promulgation of Rule 144A under the 1933 Act, which provides a safe
harbor from 1933 Act registration requirements for qualifying sales to
institutional investors. When Rule 144A restricted securities present an
attractive investment opportunity and otherwise meet selection criteria, a
ProFund may make such investments. Whether or not such securities are illiquid
depends on the market that exists for the particular security. The Commission
staff has taken the position that the liquidity of Rule 144A restricted
securities is a question of fact for a board of trustees to determine, such
determination to be based on a consideration of the readily-available trading
markets and the review of any contractual restrictions. The staff also has
acknowledged that, while a board of trustees retains ultimate responsibility,
trustees may delegate this function to an investment adviser. Trustees of
ProFunds have delegated this responsibility for determining the liquidity of
Rule 144A restricted securities which may be invested in by a ProFund to the
Advisor. It is not possible to predict with assurance exactly how the market for
Rule 144A restricted securities or any other security will develop. A security
which when purchased enjoyed a fair degree of marketability may subsequently
become illiquid and, accordingly, a security which was deemed to be liquid at
the time of acquisition may subsequently become illiquid. In such event,
appropriate remedies will be considered to minimize the effect on the ProFund's
liquidity.
PORTFOLIO TURNOVER
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 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. Each ProFund expects to typically hold most of
its 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, the ProFunds expect 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.
<PAGE>
TRACKING ERROR. While the ProFunds do not expect that their returns over a
year will deviate adversely from their respective benchmarks by more than ten
percent, several factors may affect their ability to achieve this correlation.
Among these factors are: (1) ProFund expenses, including brokerage (which may be
increased by high portfolio turnover) and the cost of the investment techniques
employed by the ProFunds; (2) less than all of the securities in the benchmark
being held by a ProFund and securities not included in the benchmark being held
by a ProFund; (3) an imperfect correlation between the performance of
instruments held by a ProFund, such as futures contracts and options, and the
performance of the underlying securities in the cash market; (4) bid-ask spreads
(the effect of which may be increased by portfolio turnover); (5) holding
instruments traded in a market that has become illiquid or disrupted; (6) a
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.
LEVERAGE. Each ProFund intends to 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 ProFund 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 ProFund's 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 ProFund is a "non-diversified" series. Each
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 ProFund that are less restrictive
than the requirements applicable to the "diversified" investment companies under
the 1940 Act.
INVESTMENT RESTRICTIONS
The ProFunds have adopted certain investment restrictions as fundamental
policies which cannot be changed without the approval of the holders of a
"majority" of the outstanding shares of a ProFund, as that term is defined in
the 1940 Act. The term "majority" is defined in the 1940 Act as the lesser of:
(i) 67% or more of the shares of the series present at a meeting of
shareholders, if the holders of more than 50% of the outstanding shares of the
ProFund are present or represented by proxy; or (ii) more than 50% of the
outstanding shares of the series. (All policies of a ProFund not specifically
identified in this Statement of Additional Information or the Prospectus as
fundamental may be changed without a vote of the shareholders of the ProFund.)
For purposes of the following limitations, all percentage limitations apply
immediately after a purchase or initial investment.
<PAGE>
A ProFund may not:
1. Invest more than 25% of its total assets, taken at market value at the time
of each investment, in the securities of issuers in any particular industry
(excluding the U.S. government and its agencies and instrumentalities or
repurchase agreements with respect thereto).
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, 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.
DETERMINATION OF NET ASSET VALUE
The net asset values of the shares of the ProFunds are determined as of the
close of business of the NYSE (ordinarily, 4:00 p.m. Eastern Time) on each day
the NYSE and the Chicago Mercantile Exchange ("CME") are open for business.
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.
The net asset value of shares of a ProFund serves as the basis for the
purchase and redemption price of each class of shares. The net asset value per
share of a ProFund is calculated by dividing the market value of the ProFund's
assets, less all liabilities attributed to the ProFund, by the number of
outstanding shares of the ProFund. If market quotations are not readily
available, a security will be valued at fair value by the Trustees of the Trust
or by the Advisor using methods established or ratified by the Trustees of the
Trust.
<PAGE>
The securities in the portfolio of a 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
over-the-counter 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.
Futures contracts maintained by ProFunds are valued at their last sale
price prior to the valuation time. Options on futures contracts generally are
valued at fair value as determined with reference to established futures
exchanges. Options on securities and indices purchased by a ProFund are valued
at their last sale price prior to the valuation time or at fair value. 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 fair value as determined with reference to such
settlement prices, and options on securities and indices will be valued at their
last sale price prior to the trading halt or at fair value.
In the event a trading halt closes a futures exchange for a given day and
that closure occurs prior to the close of the NYSE on that day, futures
positions traded on such exchange and held by a ProFund will be valued on the
basis of the day's settlement prices on the futures exchange or fair value.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, the Advisor is
responsible for decisions to buy and sell securities for each of the ProFunds,
the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. The Advisor expects that the
ProFunds may execute brokerage or other agency transactions through registered
broker-dealers, for a commission, in conformity with the 1940 Act, the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder. The Advisor may serve as an investment manager to a number of
clients, including other investment companies. It is the practice of the Advisor
to cause purchase and sale transactions to be allocated among the ProFunds and
others whose assets the Advisor manages in such manner as the Advisor deems
equitable. The main factors considered by the Advisor in making such allocations
among the ProFunds and other client accounts of the Advisor are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the opinions of the person(s)
responsible, if any, for managing the portfolios of the ProFunds and the other
client accounts.
The policy of each ProFund regarding purchases and sales of securities for
a ProFund's portfolio is that primary consideration will be given to obtaining
the most favorable prices and efficient executions of transactions. Consistent
with this policy, when securities transactions are effected on a stock exchange,
each ProFund's policy is to pay commissions which are considered fair and
reasonable without necessarily determining that the lowest possible commissions
are paid in all circumstances. Each ProFund believes that a requirement always
to seek the lowest possible commission cost could impede effective portfolio
management and preclude the ProFund and the Advisor from obtaining a high
quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Advisor
relies upon its experience and knowledge regarding commissions generally charged
by various brokers and on its judgment in evaluating the brokerage and research
services received from the broker effecting the transaction. Such determinations
are necessarily subjective and imprecise, as in most cases an exact dollar value
for those services is not ascertainable.
Purchases and sales of U.S. government securities are normally transacted
through issuers, underwriters or major dealers in U.S. government securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased from
an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between bid
and asked prices.
<PAGE>
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.
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 Trust's officers. The names and addresses (and ages) of the
Trustees of the Trust, the officers of the Trust, 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 the Advisor.
TRUSTEES AND OFFICERS OF PROFUNDS
MICHAEL L. SAPIR* (birthdate: May 19, 1958). Currently: Trustee, Chairman
and Chief Executive Officer of ProFunds; Chairman and Chief Executive Officer of
the Advisor. Formerly: Principal, Law Offices of Michael L. Sapir; Senior Vice
President, General Counsel, Padco Advisors, Inc.; Partner, Jorden Burt Berenson
& Klingensmith. His address is 7900 Wisconsin Avenue, Suite 300, Bethesda,
Maryland 20814.
LOUIS M. MAYBERG* (birthdate: August 9, 1962). Currently: Trustee and
Secretary of ProFunds; President, the Advisor. Formerly: President, Potomac
Securities, Inc.; Managing Director, National Capital Companies, LLC. His
address is 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814.
NIMISH BHATT (birthdate: June 6, 1963). Currently: Treasurer of ProFunds;
Vice President, Tax and Financial Services, BISYS Fund Services. Formerly:
Assistant Vice President, Evergreen ProFunds VP/First Union Bank; Senior Tax
Consultant, Price Waterhouse LLP. His address is 3435 Stelzer Road, Columbus,
Ohio 43219.
MICHAEL C. WACHS (birthdate: October 21, 1961). Currently: Trustee of
ProFunds; Vice President, Delancy Investment Group, Inc. Formerly: Vice
President/Senior Underwriter, First Union National Bank; Vice President, Vice
President/Senior Credit Officer and Vice President/Team Leader, First Union
Capital Markets Corp. His address is 1528 Powder Mill Lane, Wynnewood,
Pennsylvania 19096.
<PAGE>
RUSSELL S. REYNOLDS, III (birthdate: July 21, 1957). Currently: Trustee of
ProFunds; Managing Director, Chief Financial Officer and Secretary,
Directorship, Inc. Formerly: President, Quadcom Services, Inc. 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.
PROFUNDS TRUSTEE COMPENSATION TABLE
The following table reflect fees paid to the Trustees for the year
ended December 31, 1998.
NAME OF
PERSON: POSITION COMPENSATION
Michael L. Sapir, Chairman and Chief Executive Officer None
Louis M. Mayberg, Trustee, President, Secretary None
Russell S. Reynolds, III, Trustee $5,000
Michael C. Wachs, Trustee $3,750
PROFUND ADVISORS LLC
Under an investment advisory agreement between the Trust and the Advisor
with respect to the ProFunds, dated [ ], 2000, the UltraSmall-Cap ProFund and
UltraMid-Cap ProFund pays the Advisor a fee at an annualized rate, based on its
average daily net assets, of 0.75% and the UltraJapan 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
ProFunds, in accordance with the investment objectives, policies, and
limitations of each ProFund, subject to the general supervision and control of
Trustees and the officers of the Trust. 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 ProFunds, provided such
fees are legitimate and not excessive, also may make payments to broker-dealers
and other financial institutions for their expenses in connection with the
distribution of ProFund shares. The Advisor's address is 7900 Wisconsin Avenue,
Suite 300, Bethesda, Maryland 20814.
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 the 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 the ProFunds under Federal and state
securities laws. The Administrator also maintains the shareholder account
records for the 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 the
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
equal to .05% of average daily net assets. BISYS Funds Services, Inc. ("BFSI"),
an affiliate of BISYS, acts as transfer agent and fund accounting agent for the
ProFunds, for which it receives additional fees. Additionally, ProFunds and
BISYS and BFSI have entered into an Omnibus Fee Agreement in which the amount of
compensation due and payable to BISYS shall be the greater of (i) the aggregate
fee amount due and payable for services pursuant to the Administration, Fund
Accounting and Transfer Agency Agreements and (ii) the minimum relationship fee
described as specific dollar amounts payable over a period of ten calendar
quarters. The address for BISYS and BFSI is 3435 Stelzer Road, Suite 1000,
Columbus, Ohio 43219.
<PAGE>
The Advisor, pursuant to a separate Management Services Agreement, performs
certain client support and other administrative services on behalf of the
ProFunds. For these services, each ProFund will pay to the Advisor a fee at the
annual rate of .15% of its average daily net assets for all ProFunds.
UMB Bank, N.A. acts as custodian to the 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., 3435 Stelzer Road, Columbus, Ohio 43219,
serves as the distributor and principal underwriter of the ProFunds' shares in
all fifty states and the District of Columbia. Concord Financial Group, Inc.
receives no compensation from the ProFunds for serving as distributor.
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 Service
Class shares attributable to or held in the name of the investment advisers and
other authorized institutions that sell Service Class 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 Class 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 Class 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, have voted to adopt the Plan and Shareholder Services Agreements at
a meeting called for the purposes of voting on such Plan and Shareholder
Services Agreements. 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. The Plan may be terminated at any time by a majority
of the Trustees as described above or by a vote of a majority of the outstanding
Service Class 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 Class 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 likelihood that the Plan will benefit the ProFunds and holders of
Service Class 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.
<PAGE>
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 Class shares and the growth of the ProFunds. In light of this,
the ProFunds intend to observe the procedural requirements of Rule 12b-1 under
the 1940 Act in considering the continued appropriateness of the Plan and
Shareholder Services Agreements.
COSTS AND EXPENSES
Each ProFund bears all expenses of its operations other than those assumed
by the Advisor or the Administrator. ProFund expenses include: the management
fee; administrative and transfer agent fees; shareholder servicing fees;
custodian and accounting fees and expenses, legal and auditing fees; securities
valuation expenses; fidelity bonds and other insurance premiums; expenses of
preparing and printing prospectuses, confirmations, proxy statements, and
shareholder reports and notices; registration fees and expenses; proxy and
annual meeting expenses, if any; all Federal, state, and local taxes (including,
without limitation, stamp, excise, income, and franchise taxes); organizational
costs; and non-interested Trustees' fees and expenses.
ORGANIZATION AND DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
ProFunds 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 twenty-three separately managed series, three of which are described
herein. Other series may be added in the future. Each ProFund offers two classes
of share: the Service Class shares and the Investor Class shares.
All shares of the ProFunds are freely transferable. The Trust shares do not
have preemptive rights or cumulative voting rights, and none of the shares have
any preference to conversion, exchange, dividends, retirements, liquidation,
redemption, or any other feature. Trust shares have equal voting rights, except
that, in a matter affecting only a particular series or class of shares, only
shares of that series or class may be entitled to vote on the matter.
Under Delaware law, the Trust is not required to hold an annual
shareholders meeting if the 1940 Act does not require such a meeting. Generally,
there will not be annual meetings of Trust shareholders. Trust shareholders may
remove Trustees from office by votes cast at a meeting of Trust shareholders or
by written consent of such Trustees. If requested by shareholders of at least
10% of the outstanding shares of the Trust, the Trust will call a meeting of
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 Trust 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 shareholder held personally liable for the obligations of the
Trust. The risk of a Trust shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would not be able to meet the Trust's obligations. This risk should be
considered remote.
<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 the 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 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).
<PAGE>
As a RIC, 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 a 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).
<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 straddles 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 ProFunds 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.
The ProFunds 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.
<PAGE>
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.
If a shareholder has chosen to receive distributions in cash, and the
postal ( or other delivery ) service is unable to deliver checks to the
shareholder's address of record, the ProFunds will change the distribution
option so that all distributions are automatically reinvested in additional
shares. The ProFunds will not pay interest on uncashed distribution checks.
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 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.
<PAGE>
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 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.
<PAGE>
COMPARISONS OF INVESTMENT PERFORMANCE
In conjunction with performance reports, promotional literature, and/or
analyses of shareholder service for a ProFund, comparisons of the performance
information of the ProFund for a given period to the performance of recognized,
unmanaged indexes for the same period may be made. Such indexes include, but are
not limited to, ones provided by Dow Jones & Company, Standard & Poor's
Corporation, Lipper Analytical Services, Inc., Shearson Lehman Brothers, the
National Association of Securities Dealers, Inc., The Frank Russell Company,
Value Line Investment Survey, the American Stock Exchange, the Philadelphia
Stock Exchange, Morgan Stanley Capital International, Wilshire Associates, the
Financial Times-Stock Exchange, and the Nikkei Stock Average and Deutsche
Aktienindex, all of which are unmanaged market indicators. Such comparisons can
be useful measures of the quality of a ProFund's investment performance. In
particular, performance information for the UltraSmall-Cap ProFund may be
compared to various unmanaged indexes, including, but not limited to its current
benchmark, the Russell 2000(R) Index; performance information for the
UltraMid-Cap ProFund may be compared to various unmanaged indexes, including,
but not limited to, its current benchmark, the S&P MidCap 400 Index(R); and the
performance information for the UltraJapan ProFund may be compared to various
unmanaged indexes, including, but not limited to, its current benchmark, the
Nikkei 225 Stock Average.
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 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.
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
the telephone number set forth on the cover page of this SAI. However, because
the ProFunds have no history of investment operations, they have not yet
prepared any shareholder reports.
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,
the Advisor also makes its own evaluation of these securities, subject to review
by the Board of Trustees. A description of the ratings used herein and in the
Prospectus is set forth in the Appendix to this SAI.
Other Information
The ProFunds are not sponsored, endorsed, sold or promoted by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), the Frank Russell
Company or NKS. S&P, the Frank Russell Company or NKS make no representation or
warranty, express or implied, to the owners of shares of the ProFunds or any
member of the public regarding the advisability of investing in securities
generally or in the ProFunds particularly or the ability of the S&P MidCap 400
Index(R), the Russell 2000(R) Index or the Nikkei 225 Stock Average,
respectively, to track general stock market performance. S&P's, the Frank
Russell Company's and NKS' only relationship to the Licensee is the licensing of
certain trademarks and trade names of S&P, the Frank Russell Company and NKS,
respectively, and of the S&P MidCap 400 Index(R), the Russell 2000(R) Index and
the Nikkei 225 Stock Average, respectively. S&P, the Frank Russell Company and
NKS have no obligation to take the needs of the Licensee or the owners of shares
of the ProFunds into consideration in determining, composing or calculating the
S&P MidCap 400 Index(R), the Russell 2000(R) Index and the Nikkei 225 Stock
Average, respectively. S&P, the Frank Russell Company and NKS are not
responsible for and have not participated in the determination or calculation of
the equation by which the shares of the ProFunds are to be converted into cash.
S&P, the Frank Russell Company and NKS have no obligation or liability in
connection with the administration, marketing or trading of the ProFunds.
<PAGE>
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
MIDCAP 400 INDEX(R) OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY
FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF SHARES
OF THE PROFUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P MIDCAP
400 INDEX(R) OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P MIDCAP 400 INDEX(R) OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
FINANCIAL STATEMENTS
Since the ProFunds had not commenced operation as of the date of this
Statement of Additional Information, there are no financial statements to
include in the Statement of Additional Information.
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, IN CONNECTION WITH THE OFFERING MADE BY THE 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.
<PAGE>
APPENDIX B
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 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.
<PAGE>
DESCRIPTION OF DUFF & PHELPS' CORPORATE BOND RATINGS:
AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury ProFunds.
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.
<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/VMIG-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.
<PAGE>
A-Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB-Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are more
likely to lead to increased investment risk than for obligations in higher
categories.
BB-Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest exists, but
is susceptible over time to adverse changes in business, economic or financial
conditions.
B-Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse changes in
business, economic or financial conditions.
CCC-Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on favorable
business, economic or financial conditions.
CC-Obligations which are highly speculative or which have a high risk of
default.
C-Obligations which are currently in default.
Notes: "+" or "-".
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'.
<PAGE>
TWB-3-The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
TWB-4-The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
DESCRIPTION OF THOMSON BANKWATCH LONG-TERM RATINGS:
AAA-The highest category; indicates that the ability to repay principal and
interest on a timely basis is extremely high.
AA-The second -highest category; indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highs category.
A-The third-highest category; indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
BBB-The lowest investment-grade category; indicates an acceptable capacity
to repay principal and interest. Issues rated "BBB" are, however, more
vulnerable to adverse developments (both internal and external) than obligations
with higher ratings.
NON-INVESTMENT GRADE (ISSUES REGARDED AS HAVING SPECULATIVE CHARACTERISTICS IN
THE LIKELIHOOD OF TIMELY REPAYMENT OF PRINCIPAL AND INTEREST.)
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".
RATINGS IN THE LONG-TERM DEBT CATEGORIES MAY INCLUDE A PLUS (+) OR MINUS (-)
DESIGNATION, WHICH INDICATES WHERE WITHIN THE RESPECTIVE CATEGORY THE ISSUE IS
PLACED.
<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)
(a)(3) Form of Establishment and Designation of Series dated
February 18, 1998(5)
(a)(4) Form of Establishment and Designation of Series dated
February 23, 1999(5)
(a)(5) Form of Establishment and Designation of Eleven Series
dated October 15, 1999(6)
(a)(6) Form of Establishment and Designation of Three Series
(b) By-laws of Registrant (2)
(c) Not Applicable
(d)(1) Form of Investment Advisory Agreement (2)
(d)(2) Investment Advisory Agreement for Cash Management
Portfolio
(d)(3) Amendment to Investment Advisory Agreement between
ProFunds and ProFund Advisors LLC (3)
(d)(4) Investment Advisory Agreement for UltraEurope and
UltraShort Europe ProFunds (4)
(d)(5) Form of Amended and Restated Investment Advisory
Agreement
(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)
(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 (4)
(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)
(h)(8) Form of Amendment to Omnibus Fee Agreement (6)
(h)(9) Form of Participation Agreement (6)
(h)(10) Form of Administrative Services Agreement(6)
(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)(1) Form of Distribution Plan (6)
(m)(2) Form of Services Agreement (6)
(n) Financial Data Schedules
(o)(1) Multiple Class Plan (2)
(o)(2) Form of Amended and Restated Multi-Class Plan
(p)(1) Power of Attorney of Cash Management Portfolio
(p)(2) Power of Attorney of ProFunds (4)
(1) Filed with initial registration statement.
(2) Previously filed on October 29, 1997 as part of Pre-Effective Amendment No.
3 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.
(4) Previously filed on March 2, 1999 as part of Post-Effective Amendment No.4
and incorporated by reference herein.
<PAGE>
(5) Previously filed on August 4, 1999 as part of Post-Effective Amendment No.6
and incorporated by reference herein.
(6) Previously filed on October 15, 1999 as part of Post-Effective Amendment
No.8 and incorporated by reference herein.
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 be 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 Advisor
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., all of whose principal business address is set forth
above, are:
Name Principal Position and Offices Position and Offices
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
</TABLE>
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 portfolios other than
the Money Market ProFund);
(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 amendment to
its Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in Washington, D.C. on November 15,
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 November 15, 1999
Michael L. Sapir
/s/ LOUIS MAYBERG* Trustee, Secretary November 15, 1999
Louis Mayberg
/s/ RUSSELL S. REYNOLDS, III* Trustee November 15, 1999
Russell S. Reynolds, III
/s/ MICHAEL WACHS* Trustee November 15, 1999
Michael Wachs
/s/ NIMISH BHATT* Treasurer November 15, 1999
Nimish Bhatt
*By: /s/ KEITH T. ROBINSON
Keith T. Robinson
as Attorney-in-Fact
Date: November 15, 1999
<PAGE>
SIGNATURES
CASH MANAGEMENT PORTFOLIO
CASH MANAGEMENT PORTFOLIO has duly caused this Post-Effective Amendment No.
9 to the Registration Statement on Form N-1A of ProFunds to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Baltimore
and the State of Maryland on the 15th day of November, 1999.
CASH MANAGEMENT PORTFOLIO
/s/ Amy M. Olmert
Amy M. Olmert, Assistant Secretary
This Post-Effective Amendment No. 9 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 November 15th
1999.
Signatures Title
/s/ John Y. Keffer* President and Chief Executive Officer
- ---------------------------------------
John Y. Keffer
/s/ Charles A. Rizzo* Treasurer and Principal
- --------------------------------------- Financial and Accounting Officer
Charles A. Rizzo
/s/ Charles P. Biggar* Trustee
- --------------------------------------
Charles P. Biggar
/s/ S. Leland Dill* Trustee
- --------------------------------------
S. Leland Dill
/s/ Richard T. Hale* Trustee
- --------------------------------------
Richard T. Hale
/s/ Richard J. Herring* Trustee
- --------------------------------------
Richard J. Herring
/s/ Bruce E. Langton* Trustee
- --------------------------------------
Bruce E. Langton
/s/ Martin J. Gruber* Trustee
- --------------------------------------
Martin J. Gruber
/s/ Philip Saunders, Jr.* Trustee
- --------------------------------------
Philip Saunders, Jr.
/s/ Harry Van Benschoten* Trustee
- --------------------------------------
Harry Van Benschoten
*By: /s/ DANIEL O. HIRSCH
Amy M. Olmert, Assistant Secretary of Cash Management Portfolio
as Attorney-in-Fact
Date: November 15, 1999
<PAGE>
Exhibit Index
Exhibit Description
(a)(6) Form of Establishment and Designation of Three Series
(d)(2) Investment Advisory Agreement for Cash Management Portfolio
(d)(5) Form of Amended and Restated Investment Advisory Agreement
(j) Consent of Independent Auditors
(n) Financial Data Schedules
(o)(2) Form of Amended and Restated Multi-Class Plan
(p)(1) Power of Attorney of Cash Management Portfolio
PROFUNDS
Establishment and Designation of Three Additional Series
The undersigned, being all of the Trustees of ProFunds (the "Trust"), a Delaware
business trust, acting pursuant to Section 4.9.2 of the Amended and Restated
Declaration of Trust dated October 28, 1997 (the "Declaration of Trust"), hereby
divide the shares of beneficial interest ("Shares") of the Trust into additional
separate series (the "Fund"), of two classes known as the "Investor" and
"Service" class (each of which bears the expenses attributable to it and
otherwise has the relative rights and preferences set forth in the Declaration
of Trust), the Funds hereby created having the following special and relative
rights:
1. The Funds shall be designated as follows:
UltraSmall-Cap ProFund
UltraMid-Cap ProFund
UltraJapan ProFund
2. Each Fund shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the then
current prospectus and registration statement materials for the Fund under the
Securities Act of 1933. Each Share of a Fund shall be redeemable, shall
represent a pro rata beneficial interest in the assets of the Fund, and shall be
entitled to receive its pro rata share of net assets allocable to such Shares of
the Fund upon liquidation of the Fund, as provided in the Declaration of Trust.
The proceeds of sales of Shares of a Fund, together with any income and gain
thereon, less any diminution or expenses thereof, shall irrevocably belong to
the Fund, unless otherwise required by law.
3. Each Share of a Fund shall be entitled to one vote for each dollar
of value invested (or fraction thereof in respect of a fractional Share) on
matters on which such Shares shall be entitled to vote, except to the extent
otherwise required by the Investment Company Act of 1940 or when the Trustees
have determined that the matter affects only the interest of Shareholders of
certain series or classes, in which case only the Shareholders of such series or
classes shall be entitled to vote thereon. Any matter shall be deemed to have
been effectively acted upon with respect to a Fund if acted upon as provided in
Rule 18f-2 under such Act, or any successor rule, and in the Declaration of
Trust.
4. The assets and liabilities of the Trust shall be allocated among a
Fund and all other series of the Trust (collectively, the "Funds") as set forth
in the Declaration of Trust, except as described below.
(a) Costs incurred by the Trust on behalf of a Fund in connection
with the organization and registration and public offering of
Shares of the Fund shall be amortized for the Fund over the
lesser of the life of the Fund or such other period as
required by applicable law; costs incurred by the Trust on
behalf of pre-existing Funds in connection with the
organization and initial registration and public offering of
Shares of those Funds shall be amortized for the Funds over
the lesser of the life of each such Fund or such other period
as required by applicable law.
<PAGE>
(b) Liabilities, expenses, costs, charges or reserves relating to
the distribution of, and other identified expenses that should
properly be allocated to, the Shares of a particular class may
be charged to and borne solely by such class and the bearing
of expenses solely by a class of Shares may be appropriately
reflected and cause differences in the net asset value
attributable to and the dividend, redemption and liquidation
rights of, the Shares of different classes.
(c) The Trustees may from time to time in particular cases make
specific allocations of assets or liabilities among the Funds
or classes, and each allocation of liabilities, expenses,
costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Funds and
classes for all purposes.
5. Shares of each class of a Fund may vary between themselves as to
rights of redemption and conversion rights, as may be approved by the Trustees
and set out in the Fund's then-current prospectus.
6. The Trustees (including any successor Trustee) shall have the right
at any time and from time to time to reallocate assets and expenses or to change
the designation of any Fund now or hereafter created or to otherwise change the
special and relative rights of any such Fund, provided that such change shall
not adversely affect the rights of the Shareholders of such Fund.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the date set forth below.
Date: [ ], 2000
------------------------------------
Michael Sapir, as Trustee
------------------------------------
Louis Mayberg, as Trustee
------------------------------------
Russel S. Reynolds, III, as Trustee
------------------------------------
Michael Wachs, as Trustee
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of June 4, 1999 by and between CASH MANAGEMENT
PORTFOLIO, a New York trust (herein called the "Trust") and BANKERS TRUST
COMPANY (herein called the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940;
WHEREAS, the Trust desires to retain the Investment Adviser to render
investment advisory and other services to the Trust with respect to certain of
its series of shares of beneficial interests as may currently exist or be
created in the future (each, a "Fund") as listed on Exhibit A hereto, and the
Investment Adviser is willing to so render such services on the terms
hereinafter set forth;
NOW, THEREFORE, this Agreement
W I T N E S S E T H:
In consideration of the promises and mutual covenants herein contained,
it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints the Investment Adviser to act
as investment adviser to each Fund for the period and on the terms set forth in
this Agreement. The Investment Adviser accepts such appointment and agrees to
render the services herein set forth for the compensation herein provided.
2. Management. Subject to the supervision of the Board of Trustees of
the Trust, the Investment Adviser will provide a continuous investment program
for the Fund, including investment research and management with respect to all
securities, investments, cash and cash equivalents in the Fund. The Investment
Adviser will determine from time to time what securities and other investments
will be purchased, retained or sold by each Fund. The Investment Adviser will
provide the services rendered by it hereunder in accordance with the investment
objective(s) and policies of each Fund as stated in the Fund's then-current
prospectus and statement of additional information (or the Fund's then current
registration statement on Form N-1A as filed with the Securities and Exchange
Commission (the "SEC") and the then-current offering memorandum if the Fund is
not registered under the Securities Act of 1933, as amended ("1933 Act"). The
Investment Adviser further agrees that it:
(a) will conform with all applicable rules and regulations of
the SEC (herein called the "Rules") and with all applicable provisions of the
1933 Act; as amended, the Securities Exchange Act of 1934, as amended (the "1934
Act"), the Investment Company Act of 1940, as amended (the "1940 Act"); and the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and will, in
addition, conduct its activities under this Agreement in accordance with
regulations of the Board of Governors of the Federal Reserve System pertaining
to the investment advisory activities of bank holding companies and their
subsidiaries;
<PAGE>
(b) will place orders pursuant to its investment
determinations for each Fund either directly with the issuer or with any broker
or dealer selected by it. In placing orders with brokers and dealers, the
Investment Adviser will use its reasonable best efforts to obtain the best net
price and the most favorable execution of its orders, after taking into account
all factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. Consistent
with this obligation, the Investment Adviser may, to the extent permitted by
law, purchase and sell portfolio securities to and from brokers and dealers who
provide brokerage and research services (within the meaning of Section 28(e) of
the 1934 Act) to or for the benefit of any fund and/or other accounts over which
the Investment Adviser or any of its affiliates exercises investment discretion.
Subject to the review of the Trust's Board of Trustees from time to time with
respect to the extent and continuation of the policy, the Investment Adviser is
authorized to pay to a broker or dealer who provides such brokerage and research
services a commission for effecting a securities transaction which is in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction if the Investment Adviser determines in good faith
that such commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the overall responsibilities of the
Investment Adviser with respect to the accounts as to which it exercises
investment discretion; and
(c) will maintain books and records with respect to the
securities transactions of each Fund and will render to the Trust's Board of
Trustees such periodic and special reports as the Board may request.
3. Services Not Exclusive. The investment advisory services rendered by
the Investment Adviser hereunder are not to be deemed exclusive, and the
Investment Adviser shall be free to render similar services to others so long as
its services under this Agreement are not impaired thereby.
4. Books and Records. In compliance with the requirements of Rule 31a-3
of the Rules under the 1940 Act, the Investment Adviser hereby agrees that all
records which it maintains for the Trust are the property of the Trust and
further agrees to surrender promptly to the Trust any of such records upon
request of the Trust. The Investment Adviser further agrees to preserve for the
periods prescribed by Rule 31 a-2 under the 1940 Act the records required to be
maintained by Rule 31 a-1 under the 1940 Act and to comply in full with the
requirements of Rule 204-2 under the Advisers Act pertaining to the maintenance
of books and records.
5. Expenses. During the term of this Agreement, the Investment Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of purchasing securities (including brokerage
commissions, if any) for the Fund.
<PAGE>
6. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, the Trust will pay the Investment Adviser, and the
Investment Adviser will accept as full compensation therefor a fee, computed
daily and payable monthly, an amount equal to the annual rate of 0.15% of the
Portfolio's average daily net assets.
7. Limitation of Liability of the Investment Adviser: Indemnification.
(a) The Investment Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by a Fund in connection
with the matters to which this Agreement relates, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement;
(b) Subject to the exceptions and limitations contained in
Section 7(c) below:
(i) the Investment Adviser (hereinafter referred to as
a "Covered Person") shall be indemnified by the respective Fund to the fullest
extent permitted by law, against liability and against all expenses reasonably
incurred or paid by him in connection with any claim, action, suit or proceeding
in which he becomes involved, as a party or otherwise, by virtue of his being or
having been the Investment Adviser of the Fund, and against amounts paid or
incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened while in office or
thereafter, and the words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(c) No indemnification shall be provided hereunder to a
Covered Person:
(i) who shall have been adjudicated by a court or body
before which the proceeding was brought (A) to be liable to the Trust or to one
or more Funds' investors by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, or (B) not to have acted in good faith in the reasonable belief that his
action was in the best interest of a Fund; or
(ii) in the event of a settlement, unless there has
been a determination that such Covered Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office;
<PAGE>
(A) by the court or other body approving the
settlement; or
(B) by at least a majority of those Trustees who
are neither Interested Persons of the Trust nor are parties to the matter based
upon a review of readily available facts (as opposed to a full trial-type
inquiry); or
(C) by written opinion of independent legal
counsel based upon a review of readily available facts (as opposed to a full
trial-type inquiry); provided, however, that any investor in a Fund may, by
appropriate legal proceedings, challenge any such determination by the Trustees
or by independent counsel.
(d) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be severable, shall
not be exclusive of or affect any other rights to which any Covered Person may
now or hereafter be entitled, shall continue as to a person who has ceased to be
a Covered Person and shall inure to the benefit of the successors and assigns of
such person. Nothing contained herein shall affect any rights to indemnification
to which Trust personnel and any other persons, other than a Covered Person, may
be entitled by contract or otherwise under law.
(e) Expenses in connection with the preparation and
presentation of a defense to any claim, suit or proceeding of the character
described in subsection (b) of this Section 7 may be paid by the Trust on behalf
of the respective Fund from time to time prior to final disposition thereto upon
receipt of an undertaking by or on behalf of such Covered Person that such
amount will be paid over by him to the Trust on behalf of the respective Fund if
it is ultimately determined that he is not entitled to indemnification under
this Section 7; provided, however, that either (i) such Covered Person shall
have provided appropriate security for such undertaking or (ii) the Trust shall
be insured against losses arising out of any such advance payments, or (iii)
either a majority of the Trustees who are neither Interested Persons of the
Trust nor parties to the matter, or independent legal counsel in a written
opinion, shall have determined, based upon a review of readily available facts
as opposed to a trial-type inquiry or full investigation, that there is reason
to believe that such Covered Person will be entitled to indemnification under
this Section 7.
8. Duration and Termination. This Agreement shall be effective as to a
Fund as of the date the Fund commences investment operations after this
Agreement shall have been approved by the Board of Trustees of the Trust with
respect to that Fund and the Investor(s) in the Fund in the manner contemplated
by Section 15 of the 1940 Act and, unless sooner terminated as provided herein,
shall continue until the second anniversary of such date. Thereafter, if not
terminated, this Agreement shall continue in effect as to such Fund for
successive periods of 12 months each, provided such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of the
Board of Trustees of the Trust who are not parties to this Agreement or
Interested Persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval, or (b) by Vote of a Majority of the
Outstanding Voting Securities of the Trust; provided, however, that this
Agreement may be terminated by the Trust at any time, without the payment of any
penalty, by the Board of Trustees of the Trust, by Vote of a Majority of the
Outstanding Voting Securities of the Trust on 60 days' written notice to the
Investment Adviser, or by the Investment Adviser as to the Trust at any time,
without payment of any penalty, on 90 days' written notice to the Trust. This
Agreement will immediately terminate in the event of its assignment (as used in
this Agreement, the terms "Vote of a Majority of the Outstanding Voting
Securities," "Interested Person" and "Assignment' shall have the same meanings
as such terms have in the 1940 Act and the rules and regulatory constructions
thereunder.)
<PAGE>
9. Amendment of this Agreement. No material term of this Agreement may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of a material term of this
Agreement shall be effective with respect to a Fund, until approved by Vote of a
Majority of the Outstanding Voting Securities of that Fund.
10. Representations and Warranties. The Investment Adviser hereby
represents and warrants as follows:
(a) The Investment Adviser is exempt from registration under
the 1940 Act:
(b) The Investment Adviser has all requisite authority to
enter into, execute, deliver and perform its obligations under this Agreement;
(c) This Agreement is legal, valid and binding, and
enforceable in accordance with its terms; and
(d) The performance by the Investment Adviser of its
obligations under this Agreement does not conflict with any law to which it is
subject.
11. Covenants. The Investment Adviser hereby covenants and agrees
that, so long as this Agreement shall remain in effect:
(a) The Investment Adviser shall remain either exempt from, or
registered under, the registration provisions of the Advisers Act; and
(b) The performance by the Investment Adviser of its
obligations under this Agreement shall not conflict with any law to which it is
then subject.
12. Notices. Any notice required to be given pursuant to this Agreement
shall be deemed duly given if delivered or mailed by registered mail, postage
prepaid, (a) to the Investment Adviser, Mutual Funds Services, 130 Liberty
Street (One Bankers Trust Plaza), New York, New York 10006 or (b) to the Trust,
c/o BT Alex. Brown, Inc., One South Street, Baltimore, Maryland 21202.
13. Waiver. With full knowledge of the circumstances and the effect of
its action, the Investment Adviser hereby waives any and all rights which it may
acquire in the future against the property of any investor in a Fund, other than
shares in that Fund, which arise out of any action or inaction of the Trust
under this Agreement.
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by the
laws of the State of New York, without reference to principles of conflicts of
law. The Trust is organized under the laws of the State of New York pursuant to
an Amended and Restated Declaration of Trust dated April 1, 1999, as amended. No
Trustee, officer or employee of the Trust shall be personally bound by or liable
hereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
CASH MANAGEMENT PORTFOLIO
By: /s/ Daniel O. Hirsch
Name: Daniel O. Hirsch
Title: Secretary
BANKERS TRUST COMPANY
By: /s/ Ross Youngman
Name: Ross Youngman
Title: Managing Director
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 28th day of October, 1997, amended as of February
18, 1998, and amended and restated as of October 15, 1999 and January ___, 2000,
between ProFunds, a Delaware business trust (the "Trust"), and ProFund 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 twenty series of shares, and may
offer additional portfolios in the future; and
WHEREAS, the Trust desires to retain the services of the Advisor to
provide a continuous program of investment management for the following
portfolios of the Trust: Bull ProFund, UltraBull ProFund, Bear ProFund,
UltraBear ProFund, Ultra OTC ProFund, UltraShort OTC ProFund, UltraEurope
ProFund, UltraShort Europe ProFund, UltraSmall-Cap ProFund, UltraMid-Cap
ProFund, UltraJapan ProFund, ProFund VP Bull, ProFund VP UltraBull, ProFund VP
UltraOTC, ProFund VP Europe 30, ProFund VP UltraEurope, ProFund VP SmallCap,
ProFund VP Bear, ProFund VP UltraBear, ProFund VP UltraShort OTC, ProFund VP
UltraShort Europe, and ProFund VP Money Market (each referred to hereinafter as
a "Portfolio" and collectively as the "Portfolios"); and
WHEREAS, the Advisor is willing, in accordance with the terms and
conditions hereof to provide such services to the Trust on behalf of such
Portfolios.
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein and intending to be legally bound hereby, it is agreed between the
parties as follows:
1. APPOINTMENT OF ADVISOR
The Trust hereby appoints Advisor to provide the advisory services set
forth herein to the Portfolios and Advisor agrees to accept such appointment and
agrees to render the services set forth herein for the compensation herein
provided. In carrying out its responsibilities under this Agreement, Advisor
shall at all times act in accordance with the investment objectives, policies
and restrictions applicable to the Portfolios as set forth in the then-current
Registration Statement of the Trust, applicable provisions of the 1940 Act and
the rules and regulations promulgated thereunder and other applicable federal
securities laws and regulations.
<PAGE>
2. 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, 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 (the "Code"), and to
ensure that the Portfolios that serve as the investment medium for
variable insurance contracts are managed in conformity with the
requirements of Section 817 of the Code and Treasury Regulatory
subsection 1.817-5 thereunder (or any successor or amended provision);
(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;
<PAGE>
(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 Agreement and provide all advisory services,
equipment, facilities and personnel necessary to perform its
obligations under this Agreement.
<PAGE>
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 calculated at the applicable annual rate set
forth on Schedule A hereto with respect to the average daily net asset
value of each Portfolio, which will be paid 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.
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.
<PAGE>
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.
(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.
<PAGE>
(f) Use of Name. The parties acknowledge and agree that the
names "ProFunds", "VP ProFunds" (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.
(c) Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of Maryland.
<PAGE>
ProFund Advisors LLC, a Maryland
limited liability company
ATTEST: _______________________________ By:________________________________
Michael L. Sapir
Chairman and Chief Executive Officer
Date: October 15, 1999
ProFunds, a Delaware business trust
ATTEST: ________________________________ By:________________________________
Michael L. Sapir
Trustee and Chairman
Date: October 15, 1999
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A (File No. 333-28339)
of our report dated February 8, 1999 on our audits of the financial statements
and financial highlights of ProFunds (comprising, respectively, the Bull
ProFund, UltraBull ProFund, Ultra OTC ProFund, Bear ProFund, UltraBear ProFund,
UltraShort OTC ProFund and Money Market Profund), which report is included in
the Annual Report to Shareholders for the year ended December 31, 1998, which is
incorporated by reference in the Statement of Additional Information in this
Post-Effective Amendment to the Registration Statement. We also consent to the
references to our Firm under the caption "Financial Highlights" in the
Prospectus and under the captions "Independent Accountants" and "Financial
Statements" in the Statements of Additional Information in this Post-Effective
Amendment No. 9 to the Registration Statement of ProFunds on Form N-1A (File No.
333-28339).
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
November 15, 1999
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[AVG-DEBT-OUTSTANDING] 0
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<FN>
<F1>Investor Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001039803
<NAME> PROFUNDS
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<NAME> ULTRABULL PROFUND
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Service Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001039803
<NAME> PROFUNDS
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<NAME> BEAR PROFUND
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Investor Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001039803
<NAME> PROFUNDS
<SERIES>
<NUMBER> 032
<NAME> BEAR PROFUND
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Service Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001039803
<NAME> PROFUNDS
<SERIES>
<NUMBER> 041
<NAME> ULTRABEAR PROFUND
<S> <C>
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Investor Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001039803
<NAME> PROFUNDS
<SERIES>
<NUMBER> 042
<NAME> ULTRABEAR PROFUND
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[AVG-DEBT-OUTSTANDING] 0
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<FN>
<F1>Service Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001039803
<NAME> PROFUNDS
<SERIES>
<NUMBER> 051
<NAME> ULTRAOTC PROFUND
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<FN>
<F1>Investor Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001039803
<NAME> PROFUNDS
<SERIES>
<NUMBER> 052
<NAME> ULTRAOTC PROFUND
<S> <C>
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[AVG-DEBT-OUTSTANDING] 0
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<FN>
<F1>Service Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001039803
<NAME> PROFUNDS
<SERIES>
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<NAME> MONEY MARKET PROFUND
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<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> .85<F1>
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Investor Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001039803
<NAME> PROFUNDS
<SERIES>
<NUMBER> 062
<NAME> MONEY MARKET PROFUND
<S> <C>
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<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 77623310
<INVESTMENTS-AT-VALUE> 77623310
<RECEIVABLES> 0
<ASSETS-OTHER> 49358
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 77672668
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 240253
<TOTAL-LIABILITIES> 240253
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77430020
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<SHARES-COMMON-PRIOR> 2511<F1>
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<OTHER-INCOME> 1787879
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<NET-INVESTMENT-INCOME> 1465933
<REALIZED-GAINS-CURRENT> 2398
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1468331
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 214526<F1>
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1182465274
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<SHARES-REINVESTED> 1242690
<NET-CHANGE-IN-ASSETS> 77140545
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3
<GROSS-ADVISORY-FEES> 49214
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 428695
<AVERAGE-NET-ASSETS> 5825419<F1>
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> .04<F1>
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .04<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> 1.87<F1>
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Service Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001039803
<NAME> PROFUNDS
<SERIES>
<NUMBER> 071
<NAME> ULTRASHORT OTC PROFUND
<S> <C>
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<SHARES-COMMON-STOCK> 1198485<F1>
<SHARES-COMMON-PRIOR> 0
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 13650687
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<NET-ASSETS> 20320764
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 170766
<OTHER-INCOME> 0
<EXPENSES-NET> 98688
<NET-INVESTMENT-INCOME> 72078
<REALIZED-GAINS-CURRENT> (13650687)
<APPREC-INCREASE-CURRENT> (697461)
<NET-CHANGE-FROM-OPS> (14276070)
<EQUALIZATION> 67602
<DISTRIBUTIONS-OF-INCOME> 4476<F1>
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7679964
<NUMBER-OF-SHARES-REDEEMED> 6428987
<SHARES-REINVESTED> 165
<NET-CHANGE-IN-ASSETS> 34601310
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 38021
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 107561
<AVERAGE-NET-ASSETS> 7645997<F1>
<PER-SHARE-NAV-BEGIN> 50.00<F1>
<PER-SHARE-NII> .26<F1>
<PER-SHARE-GAIN-APPREC> (34.02)<F1>
<PER-SHARE-DIVIDEND> 0.0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.24<F1>
<EXPENSE-RATIO> 1.83<F1>
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Investor Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001039803
<NAME> PROFUNDS
<SERIES>
<NUMBER> 072
<NAME> ULTRASHORT OTC PROFUND
<S> <C>
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<OTHER-ITEMS-LIABILITIES> 460395
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34668912
<SHARES-COMMON-STOCK> 52657<F1>
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 13650687
<ACCUM-APPREC-OR-DEPREC> (697461)
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<OTHER-INCOME> 0
<EXPENSES-NET> 98688
<NET-INVESTMENT-INCOME> 72078
<REALIZED-GAINS-CURRENT> (13650687)
<APPREC-INCREASE-CURRENT> (697461)
<NET-CHANGE-FROM-OPS> (14276070)
<EQUALIZATION> 67602
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7679964
<NUMBER-OF-SHARES-REDEEMED> 6428987
<SHARES-REINVESTED> 165
<NET-CHANGE-IN-ASSETS> 34601310
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 38021
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 107561
<AVERAGE-NET-ASSETS> 989476<F1>
<PER-SHARE-NAV-BEGIN> 50.00<F1>
<PER-SHARE-NII> .10<F1>
<PER-SHARE-GAIN-APPREC> (33.86)<F1>
<PER-SHARE-DIVIDEND> 0.0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.24<F1>
<EXPENSE-RATIO> 2.92<F1>
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Service Shares
</FN>
</TABLE>
C O M P 0 S I T E
AMENDED AND RESTATED
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
FOR
PROFUNDS
WHEREAS, ProFunds (the "Trust") engages in business as an open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Act");
WHEREAS, shares of beneficial interest of the Trust are currently
divided into a number of separate series, including the Bull ProFund, the
UltraBull ProFund, the Bear ProFund, the UltraBear ProFund, the UltraOTC
ProFund, the UltraShort OTC ProFund, the UltraEurope ProFund, the UltraShort
Europe ProFund, the UltraSmall-Cap ProFund, the UltraMid-Cap ProFund, the
UltraJapan ProFund, and the Money Market ProFund (collectively, the "Funds");
and
WHEREAS, the Trust desires to adopt, on behalf of each of the Funds, an
Amended and Restated Multiple Class Plan pursuant to Rule 18f-3 under the Act
(the "Plan") with respect to each of the Funds.
NOW, THEREFORE, the Trust hereby adopts, on behalf of the Funds, the
Plan, in accordance with Rule 18f-3 under the Act on the following terms and
conditions:
1. Features of the Classes. Each of the Funds issues its shares of
beneficial interest in two classes: "Investor Shares" and "Service Shares."
Shares of each class of a Fund shall represent an equal pro rata interest in
such Fund and, generally, shall have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations, qualifications
and terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any Class Expenses, as defined
in Section 4 below; and (c) each class shall have separate voting rights on any
matter submitted to shareholders in which the interests of one class differ from
the interests of any other class. In addition, Investor Shares and Service
Shares shall have the features described in Sections 3, 4 and 5 below.
2. Sales Charge Structure. Shares of each class shall be offered at the
then-current net asset value without the imposition of a front-end or contingent
deferred sales charge.
3. Service Plan.
(a) Service Shares have adopted a shareholder servicing plan
pursuant to which it may pay registered investment advisers, banks, trust
companies and other financial organizations a fee at an annual rate of up to
1.00% of the average daily net assets of a Fund's Service Shares attributable to
or held in the name of an Authorized Firm for providing service activities for
its clients who are beneficial owners of Service Shares.
<PAGE>
(b) As used herein, the term "service activities" shall mean
activities in connection with the provision of personal, continuing services to
investors in each Fund; receiving, aggregating and processing purchase and
redemption orders; providing and maintaining retirement plan records;
communicating periodically with shareholders and answering questions and
handling correspondence from shareholders about their accounts; acting as the
sole shareholder of record and nominee for shareholders; maintaining account
records and providing beneficial owners with account statements; processing
dividend payments; issuing shareholder reports and transaction confirmations;
providing subaccounting services for Fund shares held beneficially; forwarding
shareholder communications to beneficial owners; receiving, tabulating and
transmitting proxies executed by beneficial owners; performing daily investment
("sweep") functions for shareholders; providing investment advisory services;
and general account administration activities. Overhead and other expenses of an
Authorized Firm related to its "service activities," including telephone and
other communications expenses, may be included in the information regarding
amounts expended for such activities.
4. Allocation of Income and Expenses. (a) The gross income of each Fund
generally shall be allocated to each class on the basis of net assets. To the
extent practicable, certain expenses (other than Class Expenses as defined
below, which shall be allocated more specifically) shall be subtracted from the
gross income on the basis of the net assets of each class of the Fund. These
expenses include:
(1) Expenses incurred by the Trust (including, but not limited
to, fees of Trustees, insurance and legal counsel) not attributable to a
particular Fund or to a particular class of shares of a Fund ("Corporate Level
Expenses"); and
(2) Expenses incurred by a Fund not attributable to any
particular class of the Fund's shares (for example, advisory fees, custodial
fees, or other expenses relating to the management of the Fund's assets) ("Fund
Expenses").
(b) Expenses attributable to a particular class ("Class Expenses")
shall be limited to: (i) payments made pursuant to a shareholder services plan;
(ii) transfer agent fees attributable to a specific class; (iii) printing and
postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current shareholders of a
specific class; (iv) Blue Sky registration fees incurred by a class; (v)
Securities and Exchange Commission registration fees incurred by a class; (vi)
the expense of administrative personnel and services to support the shareholders
of a specific class; (vii) litigation or other legal expenses relating solely to
one class; and (viii) Trustees' fees incurred as a result of issues relating to
one class. Expenses in category (i) above must be allocated to the class for
which such expenses are incurred. All other "Class Expenses" listed in
categories (ii)-(viii) above may be allocated to a class, but only if the
President and Chief Financial Officer have determined, subject to Board approval
or ratification, which of such categories of expenses will be treated as Class
Expenses, consistent with applicable legal principles under the Act and the
Internal Revenue Code of 1986, as amended (the "Code").
<PAGE>
Therefore, expenses of a Fund shall be apportioned to each class of
shares depending on the nature of the expense item. Corporate Level Expenses and
Fund Expenses will be allocated among the classes of shares based on their
relative net asset values in relation to the net asset value of the Trust.
Approved Class Expenses shall be allocated to the particular class to which they
are attributable. In addition, certain expenses may be allocated differently if
their method of imposition changes. Thus, if a Class Expense can no longer be
attributed to a class, it shall be charged to a Fund for allocation among
classes, as determined by the Board of Trustees. Any additional Class Expenses
not specifically identified above which are subsequently identified and
determined to be properly allocated to one class of shares shall not be so
allocated until approved by the Board of Trustees of the Trust in light of the
requirements of the Act and the Code.
5. Exchange Privileges. Shareholders may exchange shares of one class
of a Fund at net asset value without any sales charge for shares of any other
class of the Fund or for shares of any class offered by another Fund, provided
that the amount to be exchanged meets the applicable minimum investment
requirements and the exchange is made in states where it is legally authorized.
6. Conversion Features. The Funds currently do not offer a conversion
feature.
7. Quarterly and Annual Reports. The Trustees shall receive quarterly
and annual statements concerning all allocated Class Expenses and servicing
expenditures. In the statements, only expenditures properly attributable to the
servicing of a particular class of shares will be used to justify any servicing
fee or other expenses charged to that class. Expenditures not related to the
servicing of a particular class shall not be presented to the Trustees to
justify any fee attributable to that class.
8. Accounting Methodology. The following procedures shall be
implemented in order to meet the objective of properly allocating income and
expenses among the Funds:
(1) On a daily basis, a fund accountant shall calculate the
shareholder services fee to be charged to the Service Shares by calculating the
average daily net asset value of such shares outstanding and applying the
applicable fee rate of the class to the result of that calculation.
(2) The fund accountant will allocate all other designated
Class Expenses, if any, to the respective classes.
(3) The fund accountant shall allocate income and Corporate
Level and Fund Expenses among the respective classes of shares based on the net
asset value of each class in relation to the net asset value of the Fund for
Fund Expenses, and in relation to the net asset value of the Trust for Corporate
Level Expenses. These calculations shall be based on net asset values for all
Funds except the Money Market ProFund, for which it will be based on the
relative value of settled shares.
<PAGE>
(4) The fund accountant shall then complete a worksheet
developed for purposes of complying with Section 8 of this Plan, using the
allocated income and expense calculations from paragraph (3) above, and the
additional fees calculated from paragraphs (1) and (2) above.
(5) The fund accountant shall develop and use appropriate
internal control procedures to assure the accuracy of its calculations and
appropriate allocation of income and expenses in accordance with this Plan.
9. Waiver or Reimbursement of Expenses. Expenses may be waived or
reimbursed by the adviser to the Trust or any other provider of services to the
Trust without the prior approval of the Trust's Board of Trustees.
10. Effectiveness of Plan. This Plan shall not take effect until it has
been approved by votes of a majority of both (a) the Trustees of the Trust and
(b) the independent Trustees.
11. Material Modifications. This Plan may not be amended to modify
materially its terms unless such amendment is approved in the manner provided
for initial approval in paragraph 10 hereof.
12. Limitation of Liability. The Trustees of the Trust and the
shareholders of each Fund shall not be liable for any obligations of the Trust
or any Fund under this Plan, and any person, in asserting any rights or claims
under this Plan, shall look only to the assets and property of the Trust or such
Funds in settlement of such right or claim, and not to such Trustees or
shareholders.
IN WITNESS WHEREOF, the Trust, on behalf of the Funds, has adopted this
Amended and Restated Multiple Class Plan as of [______], 2000.
PROFUNDS
By:
Title: Secretary
Power of Attorney
This Power of Attorney will be contingent upon the election of the
Trustee nominees at the Special Shareholder Meetings to be held in September and
October 1999.
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, 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.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand
as of the 8th day of September, 1999.
SIGNATURES TITLE
/s/ John Y. Keffer President and Chief Executive Officer of each Trust
John Y. Keffer and Portfolio Trust
/s/ Charles A. Rizzo Treasurer (Principal Financial and Accounting
Charles A. Rizzo Officer) of each Trust and
Portfolio Trust
/s/ Charles P. Biggar Trustee of each Trust and Portfolio Trust
Charles P. Biggar
/s/ S. Leland Dill Trustee of each Trust and Portfolio Trust
S. Leland Dill
/s/ Richard T. Hale Trustee of each Trust and Portfolio Trust
Richard T. Hale
/s/ Richard J. Herring Trustee of each Trust and Portfolio Trust
Richard J. Herring
/s/ Bruce E. Langton Trustee of each Trust and Portfolio Trust
Bruce E. Langton
/s/ Martin J. Gruber Trustee of each Trust and Portfolio Trust
Martin J. Gruber
/s/ Philip Saunders, Jr. Trustee of each Trust and Portfolio Trust
Philip Saunders, Jr.
/s/ Harry Van Benschoten Trustee of each Trust and Portfolio Trust
Harry Van Benschoten
