AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 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. 8 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 11 [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)
- ------ 75 days after filing pursuant to paragraph (a) (2)
X
- ------ On October 18, 1999 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. 8 to Registrant's Registration Statement
on Form N-1A is filed for the purpose of adding disclosure regarding eleven new
series of Registrant to the Registration Statement. Accordingly, this
Post-Effective Amendment No. 8 does not relate to the nine existing series of
Registrant, disclosure concerning which is hereby incorporated by reference from
the following documents ( File Nos. 333-28339, 811-08239): (1) Prospectus dated
May 1, 1999 as filed pursuant to Rule 497 under the Securities Act of 1933 on
May 17, 1999, as supplemented; and (2) Statement of Additional Information dated
May 1, 1999 as filed pursuant to Rule 497 on May 17, 1999, as supplemented.
<PAGE>
October 18, 1999
PROSPECTUS
The ProFunds VP
ProFund VP Bull
ProFund VP UltraBull
ProFund VP UltraOTC
ProFund VP Europe 30
ProFund VP UltraEurope
ProFund VP Small Cap
ProFund VP Bear
ProFund VP UltraBear
ProFund VP UltraShort OTC
ProFund VP UltraShort Europe
ProFund VP Money Market
[Logo]
This prospectus should be read in conjunction with the separate account's
prospectus describing the variable insurance contract in which you invest.
Please read both prospectuses and retain them for future reference.
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>
[Logo]
TABLE OF CONTENTS
Page
Benchmark ProFunds VP................................................[ ]
Benchmark ProFunds VP Strategy.......................................[ ]
Money Market VP......................................................[ ]
Money Market VP Strategy.............................................[ ]
General Information..................................................[ ]
Tax Information......................................................[ ]
ProFunds VP Management...............................................[ ]
Similar Fund Performance.............................................[ ]
ProFund Advisors LLC
Investment Advisor
<PAGE>
Benchmark ProFunds VP
Overview
The Benchmark ProFunds VP each seek to achieve a daily return equal to the
performance of a particular stock market benchmark.*
. For example, Bull VP seeks to match the daily performance of a stock market
index--the S&P 500 Composite Stock Price Index(R) ("S&P 500 Index")--like a
conventional index fund.
. Unlike conventional index funds, certain ProFunds VP seek to double the
daily return of a specified stock market index.
. Other ProFunds VP seek to produce a daily return of the inverse (opposite)
or double the inverse (opposite) of a particular stock market index. The value
of these ProFunds VP should go up when the index underlying their benchmark goes
down, and their value should go down when the index goes up.
* A stock index reflects the price of a group of stocks of specified
companies. A benchmark can be any standard of investment performance to
which a mutual fund seeks to match its return. For example, UltraBull VP
has a benchmark of twice the daily return of the S&P 500 Index.
<PAGE>
These ProFunds VP seek to match or double an index's daily performance:
<TABLE>
<S> <C> <C> <C>
ProFund VP Index Daily Objective Types of Companies in Index
Bull VP S&P 500 Match Diverse, widely traded, large
capitalization
UltraBull VP S&P 500 Double Diverse, widely traded, large
capitalization
UltraOTC VP NASDAQ 100 Double Large capitalization, most with
technology and/or growth orientation
Europe 30 VP ProFunds Europe 30 Match Large capitalization European stocks
represented by American Depository
Receipts.
UltraEurope VP ProFunds Europe Double Large capitalization, widely traded
European stocks
SmallCap VP Russell 2000 Match Diverse, widely traded, small
capitalization
These ProFunds VP seek to match or double the inverse (opposite) of an index's
daily performance:
ProFund VP Index Daily Objective Types of Companies in Index
Bear VP S&P 500 Inverse Diverse, widely traded, large
capitalization
UltraBear VP S&P 500 Double the inverse Diverse, widely traded, large
capitalization
UltraShort OTC VP NASDAQ 100 Double the inverse Large capitalization, most with
technology and/or growth orientation
UltraShort Europe VP ProFunds Europe Double the inverse Large capitalization, widely traded
European stocks
The ProFunds VP include Money Market VP, which is discussed later
in this prospectus.
<PAGE>
Benchmark ProFunds VP Objectives
The investment objective of each of the Benchmark ProFunds VP is set forth
below:
. ProFund VP Bull ("Bull VP") - seeks daily investment results that
correspond to the performance of the S&P 500 Index.
. ProFund VP UltraBull ("UltraBull VP") - seeks daily investment results that
correspond to twice (200%) the performance of the S&P 500 Index. If UltraBull VP
is successful in meeting its objective, it should gain approximately twice as
much as Bull VP when the prices of the securities in the S&P 500 Index rise on a
given day and should lose approximately twice as much when such prices decline
on that day.
. ProFund VP UltraOTC ("UltraOTC VP") - seeks daily investment results that
correspond to twice (200%) the performance of the NASDAQ 100 Index(TM). If
UltraOTC VP is successful in meeting its objective, it should gain approximately
twice as much as the growth oriented NASDAQ 100 Index(TM) 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.
. ProFund VP Europe 30 ("Europe 30 VP") - seeks daily investment results that
correspond to the performance of the ProFunds Europe 30 Index.
. ProFund VP UltraEurope ("UltraEurope VP")- seeks daily investment results
that correspond to twice (200%) the performance of the ProFunds Europe Index.
<PAGE>
. ProFund VP Small Cap ("Small Cap VP") - seeks daily investment results that
correspond to the performance of the Russell 2000(R) Index.
. ProFund VP Bear ("Bear VP") - seeks daily investment results that
correspond to the inverse (opposite) of the performance of the S&P 500 Index. If
Bear VP is successful in meeting its objective, the net asset value of Bear VP
shares will increase in direct proportion to any decrease in the level of the
S&P 500 Index. Conversely, the net asset value of Bear VP shares will decrease
in direct proportion to any increase in the level of the S&P 500 Index.
. ProFund VP UltraBear ("UltraBear VP") - seeks daily investment results that
correspond to twice (200%) the inverse (opposite) of the performance of the S&P
500 Index. The net asset value of shares of UltraBear VP should increase or
decrease approximately twice as much as does that of Bear VP on any given day.
- --------------------------------------------------------------------------------
For example, if the S&P 500 Index were to decrease by 1% on a particular day,
investors in Bear VP should experience a gain in net asset value of
approximately 1% for that day. UltraBear VP should realize an increase of
approximately 2% of its net asset value on the same day. Conversely, if the S&P
500 Index were to increase by 1% by the close of business on a particular
trading day, investors in Bear VP and UltraBear VP would experience a loss in
net asset value of approximately 1% and 2% respectively.
- --------------------------------------------------------------------------------
. ProFund VP UltraShort OTC ("UltraShort OTC") - seeks daily investment
results that correspond to twice (200%) the inverse (opposite) of the
performance of the NASDAQ 100 Index(TM). This ProFund VP operates similarly to
UltraBear VP, but UltraShort OTC VP is benchmarked to the NASDAQ 100 Index(TM).
. ProFund VP UltraShort Europe ("UltraShort Europe VP") - seeks daily
investment results that correspond to twice (200%) the inverse (opposite) of the
performance of the ProFunds Europe Index. This ProFund VP should reflect twice
the inverse (opposite) of the performance of the European companies included in
the ProFunds Europe Index.
<PAGE>
The securities indexes that these ProFunds VP use as their benchmarks are
described below under "Benchmark Indexes."
Strategy
The investments made by a ProFund VP and the results achieved by the ProFund VP
at any given time are not expected to be the same as those made by other mutual
funds for which ProFund Advisors acts as investment advisor, including mutual
funds with names, investment objectives and policies similar to the ProFund VP.
Investors should carefully consider their investment goals and willingness to
tolerate investment risk before allocating their investment to a ProFund VP.
ProFund Advisors uses quantitative and statistical analysis it developed in
seeking to achieve each ProFund's VP investment objective. This analysis
determines the type, quantity and mix of investment positions that a Benchmark
ProFund VP should hold to approximate the performance of its benchmark.
Bull VP, UltraBull VP, UltraOTC VP, Europe 30 VP, UltraEurope VP and SmallCap VP
principally invest in:
. Futures contracts on stock indexes, and options on futures contracts; and
. Financial instruments such as equity caps, collars and floors, swaps,
depository receipts, and options on securities and stock indexes.
<PAGE>
These ProFunds VP invest in the above instruments generally as a substitute for
investing directly in stocks. In addition, these ProFunds VP may invest in a
combination of stocks that in ProFund Advisors' opinion should simulate the
movement of the appropriate benchmark index.
The Ultra ProFunds VP 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 Benchmark ProFund VP's
investments.
Bear VP, UltraBearVP, UltraShort OTC VP and UltraShort Europe VP generally do
not invest in traditional securities, such as common stock of operating
companies. Rather, these ProFunds VP principally invest in futures contracts,
options contracts and other financial instruments, and engage in short sales.
Using these techniques, these ProFunds VP will generally incur a loss if the
price of the underlying security or index increases between the date of the
employment of the technique and the date on which the ProFund VP terminates the
position. These ProFunds VP will generally realize a gain if the underlying
security or index declines in price between those dates.
Europe 30 VP , UltraEurope VP and UltraShort Europe VP invest in financial
instruments with values that reflect the performance of stocks of European
companies.
Benchmark ProFund VP's Risks
Like all investments, the ProFunds VP entail risk. ProFund Advisors cannot
guarantee that any of the Benchmark ProFunds VP will achieve its objective. As
with any mutual fund, the Benchmark ProFunds VP could lose money, or their
performance could trail that of other investment alternatives.
<PAGE>
In addition, the Benchmark ProFunds VP 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 VP.
The following chart summarizes certain risks associated with the Benchmark
ProFunds VP:
Inverse Correlation
Market Risk Leverage Risk Risk Foreign Risk
Bull VP X
UltraBull VP X X
UltraOTC VP X X
Europe 30 VP X X
UltraEurope VP X X X
SmallCap VP X
Bear VP X X
UltraBear VP X X X
UltraShortOTC VP X X X
UltraShortEurope VP X X X X
These and other risks are described below.
Certain Risks Associated with Particular ProFunds VP
Leverage Risk The Ultra ProFunds VP employ leveraged investment techniques.
Leverage is the ability to get a return on a capital base that is larger than a
ProFund's VP investment. Use of leverage can magnify the effects of changes in
the value of these ProFunds VP and makes them more volatile. The leveraged
investment techniques that the Ultra ProFunds VP employ should cause investors
in these ProFunds VP to lose more money in adverse environments.
<PAGE>
Inverse Correlation Risk Shareholders in the negatively correlated ProFunds VP
should lose money when the index underlying their benchmark rises - a result
that is the opposite from traditional equity mutual funds.
Foreign Investment Risk Europe 30 VP, UltraEurope VP and UltraShort Europe VP
entail the risk of foreign investing, which may involve risks not typically
associated with investing in U.S. securities alone:
. Many foreign countries lack uniform accounting and
disclosure standards, or have standards that differ from U.S.
standards. Accordingly, these ProFunds VP may not have access to
adequate or reliable company information.
. Europe 30 VP, UltraEurope VP and UltraShort Europe VP will
be subject to the market, economic and political risks of the
countries where they invest or where the companies represented in
their benchmarks are located.
. The value of American Depository Receipts 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.
. Securities purchased by these three ProFunds VP may be
priced in foreign currencies, although the Europe 30 VP anticipates
investing in U.S. Dollar denominated American Depository Receipts
(representing the right to receive securities of foreign issuers)
under normal market conditions. The value of securities denominated in
foreign currencies 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.
<PAGE>
. On January 1, 1999, the eleven nations of the European
Monetary Union, including Germany and France, began the process of
introducing a uniform currency. The new currency, the euro, is
expected to reshape financial markets, banking systems and monetary
policy in Europe and throughout the world. The continued transition to
the euro may also have a worldwide impact on the economic environment
and behavior of investors.
Risks in Common
Each Benchmark ProFund VP faces certain risks in common:
Market Risk The Benchmark ProFunds VP 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. This risk may be especially acute with respect to Small Cap VP, which
is benchmarked to an index of small company stocks. While potentially offering
greater opportunities for growth than larger, more established companies, the
stocks of smaller companies may be particularly volatile, especially during
periods of economic uncertainty. Shareholders in the positively correlated
ProFunds VP should lose money when the index underlying their benchmark
declines. Shareholders in the negatively correlated ProFunds VP should lose
money when the index underlying their benchmark rises. 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 they invest, the ProFunds VP
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 VP from limiting losses or realizing gains.
<PAGE>
Correlation Risk While ProFund Advisors expects that each of the Benchmark
ProFunds VP will track its benchmark with an average correlation of .90 or
better over a year, there can be no guarantee that the ProFunds VP will be able
to achieve this level of correlation. Actual purchases and sales of the shares
of the ProFunds VP by insurance company separate accounts may differ from
estimated trades submitted prior to the time that the ProFunds VP calculate
their share prices. Any such difference may adversely affect the performance or
correlation of the ProFunds VP, and particularly the performance or correlation
of the Ultra ProFunds VP. A failure to achieve a high degree of correlation may
prevent a Benchmark ProFund VP from achieving its investment goal.
Non-Diversification Risk The Benchmark ProFunds VP 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 Benchmark ProFund VP more susceptible to a single economic,
political or regulatory event than a more diversified mutual fund might be.
Nevertheless, the Benchmark ProFunds VP intend to invest on a diversified basis.
Risks of Aggressive Investment Techniques The Benchmark ProFunds VP 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.
<PAGE>
Benchmark Indexes
. The S&P 500 Index is a widely used measure of large U.S. company stock
performance. It consists of the common stocks of 500 major corporations selected
for their size and the frequency and ease with which their stocks trade.
Standard & Poor's also attempts to assure that the Index reflects the full range
and diversity of the American economy. The companies in the S&P 500 account for
nearly three-quarters of the value of all U.S. stocks.
. The NASDAQ 100 Index contains 100 of the largest and most active
non-financial domestic and international issues listed on the NASDAQ Stock
Market based on market capitalization. Eligibility criteria for the NASDAQ 100
Index includes a minimum average daily trading volume of 100,000 shares. If the
security is a foreign security, the company must have a world wide market value
of at least $10 billion, a U.S. market value of at least $4 billion, and average
trading volume of at least 200,000 shares per day.
. 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.
. ProFunds Europe Index ("PEI") is a combined measure of European stock
performance created by ProFund Advisors from the leading stock indexes of
Europe's three largest economies giving equal weight to each index each day. The
PEI averages the daily results of:
<PAGE>
. The Financial Times Stock Exchange 100 ("FTSE-100") Share Index, a
capitalization-weighted index of the 100 most highly capitalized
companies traded on the London Stock Exchange.
. The Deutsche Aktienindex ("DAX"), is a total rate of return index of
30 selected German blue-chip stocks traded on the Frankfurt Stock
Exchange.
. The CAC-40, a capitalization-weighted index of 40 companies listed on
the Paris Stock Exchange (the Bourse).
. ProFunds Europe 30 Index, created by ProFund Advisors, is composed of the
30 most highly capitalized European companies whose securities are traded on
U.S. exchanges or on the NASDAQ Stock Market as American Depository Receipts.
The component companies of the Index as of the date of this Prospectus are
listed in an appendix to the Statement of Additional Information.
The Board of Trustees may change benchmarks without shareholder approval if, for
example, it believes another benchmark might better suit shareholder needs.
Who May Want to Consider an Investment
Bull VP, Europe 30 VP and SmallCap VP may be appropriate for investors who want
to receive investment results approximating the performance of the S&P 500
Index, the ProFunds Europe 30 Index or the Russell 2000(R) Index, which are,
respectively, measures of large capitalization stock performance, European stock
performance, and small capitalization stock performance.
<PAGE>
UltraBull VP, UltraOTC VP, and UltraEurope VP 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 these ProFunds
VP should understand that since each Ultra ProFund VP 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 S&P 500 Index ProFund VP.
Alternatively that same investor could invest half that amount-$50,000-in
UltraBull VP and target the same daily return.
- --------------------------------------------------------------------------------
Bear VP, UltraBear VP, UltraShort OTC VP and UltraShort Europe VP may be
appropriate for investors who:
. expect the underlying index to go down and desire to earn a profit as a
result of the index declining.
. want to protect (or hedge) the value of a diversified portfolio of stocks
and/or stock mutual funds from a stock market downturn that they anticipate.
<PAGE>
- --------------------------------------------------------------------------------
An investor with a diversified portfolio of stocks or stock mutual funds valued
at $100,000 might be concerned that the general stock market could decrease or
be volatile for the next six months. The investor could try to protect the
portfolio against downturns in the stock market by investing $50,000 in Bear VP,
UltraBear VP, UltraShort OTC VP or UltraShort Europe VP - or in a combination of
these ProFunds VP. Of course, the investor likely would also be giving up gains
that the portfolio would otherwise produce if the markets go up rather than down
in value. The ProFunds VP cannot assure that doing so would protect against
market downturns.
- --------------------------------------------------------------------------------
All of the ProFunds VP may be appropriate for investors who:
. are executing a strategy that relies on frequent buying, selling or
exchanging among stock mutual funds.
. want the impact of their investment to range from double the index to
double the inverse of the index based on their current view, positive or
negative, of the index.
Benchmark ProFunds VP Performance
Because the ProFunds VP 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 Benchmark ProFund VP Operating Expenses
The tables below describe the estimated fees and expenses you may pay if you buy
and hold shares in any of the Benchmark ProFunds VP. These expenses are
reflected in the share prices of the ProFunds VP.
<PAGE>
Annual Operating Expenses
(percentage of average daily net assets)
Bull VP UltraBull VP UltraOTC VP Europe 30 VP UltraEurope VP
------- ------------ ----------- ------------ --------------
Management 0.75% 0.75% 0.75% 0.75% 0.90%
Fees
Distribution 0.25% 0.25% 0.25% 0.25% 0.25%
(12b-1) Fees
Other Expenses [0.67%] [0.67%] 0.67% 0.67% [0.67%]
Total Annual Operating [1.67%] [1.67%] 1.67% 1.67% [1.92%]
Expenses
SmallCap VP Bear VP UltraBear VP UltraShortOTC UltraShort
VP Europe VP
Management 0.75% 0.75% 0.75% 0.75% 0.90%
Fees
Distribution 0.25% 0.25% 0.25% 0.25% 0.25%
(12b-1) Fees
Other Expenses 0.67% [0.67%] [0.67%] [0.67%] [0.67%]
Total Annual Operating 1.67% [1.67%] [1.67%] [1.67%] [1.92%]
Expenses
Expense Examples
The following examples illustrate the expenses you would incur on a $10,000
investment in each Benchmark ProFund VP, and are intended to help you compare
the cost of investing in the Benchmark ProFunds VP 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 VP earns an
annual return of 5% over the periods shown, that you reinvest all dividends and
distributions, and that gross operating expenses remain constant. The examples
do not reflect separate account or insurance contract fees and charges. Because
these examples are hypothetical and for comparison only, your actual costs will
be different.
1 Year 3 Years
------ -------
UltraBull VP $____ $____
UltraOTC VP $____ $____
Bull VP $____ $____
Bear VP $____ $____
UltraBear VP $____ $____
UltraShort OTC VP $____ $____
SmallCap VP $____ $____
Europe 30 VP $____ $____
UltraEurope VP $____ $____
UltraShort Europe VP $____ $____
<PAGE>
Benchmark ProFunds' VP
Strategy
What the Benchmark ProFunds VP Do Each Benchmark ProFund VP:
. Seeks to provide its investors 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 Benchmark ProFunds VP Do Not Do
ProFund Advisors does not:
. Conduct conventional stock research or analysis or forecast stock market
movement in managing the assets of the Benchmark ProFunds VP.
. Invest the assets of the Benchmark ProFunds VP 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.
<PAGE>
In addition, the Ultra ProFunds VP do not seek to provide correlation with their
benchmark over a period of time other than daily, such as monthly or annually,
since mathematical compounding prevents these ProFunds VP 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. American Depository Receipts are an
alternative to purchasing the underlying securities in their national markets
and currencies. Investment in American Depository Receipts has certain
advantages over direct investment in the underlying foreign securities since:
(i) American Depository Receipts 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 American Depository
Receipts are generally subject to auditing, accounting and financial reporting
standards similar to those applied to domestic issuers.
<PAGE>
. Selling short, or borrowing stock to sell to a third party, is a technique
that may be employed by the ProFunds VP to seek gains when their benchmark index
declines. If a ProFund VP replaces the security to the lender at a price lower
than the price it borrowed it at plus interest incurred, it makes a profit on
the difference. If the current market price is greater when the time comes to
replace the stock, the ProFund VP will incur a loss on the transaction.
Portfolio Turnover
ProFund Advisors expects a significant portion of the assets of the Benchmark
ProFunds VP to come from professional money managers and investors who use the
ProFunds VP as part of "market timing" investment strategies. These strategies
often call for frequent trading of ProFund VP shares to take advantage of
anticipated changes in market conditions. Although ProFund Advisors believes its
accounting methodology should minimize the effect on the ProFunds VP of such
trading, market timing trading could increase the rate of the ProFunds' VP
portfolio turnover, increasing transaction expenses. In addition, while the
ProFunds VP do not expect it, large movements of assets into and out of the
ProFunds VP may negatively impact their abilities to achieve their investment
objectives or their levels of operating expenses.
<PAGE>
Money Market VP
Objective
As its investment objective, Money Market VP seeks as high a level of current
income as is consistent with liquidity and preservation of capital. This ProFund
VP seeks this objective by investing in high quality short-term money market
instruments.
Strategy
Money Market VP invests for current income. In order to maintain a stable share
price, it maintains a dollar-weighted average maturity of 90 days or less.
Generally, securities in Money Market VP are valued in U.S. dollars and have
remaining maturities of 397 days (about 13 months) or less on their purchase
date. Money Market VP may also invest in securities that have features that
reduce their maturities to 397 days or less on their purchase date. Money Market
VP buys U.S. government debt obligations, money market instruments and other
debt obligations that at the time of purchase:
. have received the highest short-term rating from two nationally recognized
statistical rating organizations; or
. have received the highest short-term rating from one rating organization
(if only one organization rates the security);
. if unrated, are determined to be of similar quality by ProFund Advisors; or
. have no short-term rating, but are rated in the top three highest long-term
rating categories, or are determined to be of similar quality by ProFund
Advisors.
<PAGE>
Risks
All money market instruments, including U.S. government debt obligations, are
subject to interest rate risk, which is the risk that an investment will change
in value when interest rates change. Generally, investments subject to interest
rate risk will decrease in value when interest rates rise and increase when
interest rates decline.
Money market instruments are subject to credit risk, which is the risk that the
issuer of the instrument will default, or fail to meet its payment obligations.
In addition, they may change in value if an issuer's creditworthiness changes,
although such a circumstance would be extremely unlikely in the case of U.S.
government debt obligations.
An investment in Money Market VP is not a deposit of a bank, nor is it insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. While Money Market VP tries to maintain a stable net asset
value of $1.00 per share, there is no guarantee that it will do so, and you
could lose money by investing in this ProFund VP.
Considering a Money Market VP Investment Investors can take advantage of Money
Market VP in two ways:
. during periods when investors want to maintain a neutral exposure to the
stock market, the income earned from an investment in Money Market VP can keep
their capital at work.
. Money Market VP can be invested in conjunction with other ProFunds VP to
adjust an investor's target exposure to an index.
- --------------------------------------------------------------------------------
For instance, an investor who desires to target a daily return of 1.5 times the
daily performance of the S&P 500 Index could allocate 75% of his or her
investment to UltraBull VP and 25% of the investment to Money Market VP .
- --------------------------------------------------------------------------------
<PAGE>
Money Market VP Performance
Because Money Market VP is newly formed and has no investment track record, it
has no performance information to compare against other mutual funds, or a broad
measure of securities market performance.
Annual Operating Expenses
The table below describes the estimated fees and expenses you may pay if you buy
and hold shares of Money Market VP. Theses fees and expenses are reflected in
the share price of Money Market VP. Annual Operating Expenses (percentage of
average daily net assets)
Management Fees ____%
Distribution (12b-1) Fees 0.25%
Other Expenses ____%
Total Annual Operating Expenses ____%
Expense Examples
The examples below illustrate the expenses you would incur on a $10,000
investment in shares of Money Market VP, and are intended to help you compare
the cost of investing in this ProFund VP compared to other mutual funds. They
assume that you invest for the time periods shown and redeem all of your shares
at the end of each period, that Money Market VP earns an annual return of 5%
over the periods shown, that you reinvest all dividends and distributions, and
that gross operating expenses remain constant. They do not reflect separate
account or insurance contract fees and charges. Because these examples are
hypothetical and for comparison only, your actual costs will be different.
1 Year 3 Years
------ -------
$--- $---
<PAGE>
Money Market VP
Strategy
Money Market VP may invest in high-quality, short-term, dollar-denominated money
market instruments paying a fixed, variable or floating interest rate. These
include:
. Debt securities issued by U.S. and foreign banks, financial institutions,
and corporations, including certificates of deposit, euro-time deposits,
commercial paper (including asset-backed commercial paper), notes, funding
agreements and U.S. government securities. Securities that do not satisfy the
maturity restrictions for a money market fund may be specifically structured so
that they are eligible investments for money market funds. For example, some
securities have features which have the effect of shortening the security's
maturity.
. U.S. government securities that are issued or guaranteed by the U.S.
Treasury, or by agencies or instrumentalities of the U.S. Government.
. Repurchase agreements, which are agreements to buy securities at one price,
with a simultaneous agreement to sell back the securities at a future date at an
agreed-upon price.
. Asset-backed securities, which are generally participations in a pool of
assets whose payment is derived from the payments generated by the underlying
assets. Payments on the asset-backed security generally consist of interest
and/or principal.
Because many of Money Market VP's principal investments are issued or
credit-enhanced by banks, it may invest more than 25% of its total assets in
obligations of domestic banks. Money Market VP may invest in other types of
instruments, as described in the Statement of Additional Information.
<PAGE>
Specific Risks and Measures Taken to Limit Them
Credit Risk
A money market instrument's credit quality depends on the issuer's ability to
pay interest on the security and repay the debt: the lower the credit rating,
the greater the risk that the security's issuer will default, or fail to meet
its payment obligations. The credit risk of a security may also depend on the
credit quality of any bank or financial institution that provides credit
enhancement for it. Money Market VP only buys high quality securities with
minimal credit risk. If a security no longer meets Money Market VP's credit
rating requirements, ProFund Advisors will attempt to sell that security within
a reasonable time, unless selling the security would not be in Money Market VP's
best interest.
Repurchase Agreement Risk
A repurchase agreement exposes Money Market VP to the risk that the party that
sells the securities defaults on its obligation to repurchase them. In this
circumstance, Money Market VP can lose money because:
. it may not be able to sell the securities at the agreed-upon time and
price.
. the securities lose value before they can be sold.
ProFund Advisors seeks to reduce Money Market VP's risk by monitoring, under the
supervision of the Board of Trustees, the creditworthiness of the sellers with
whom it enters into repurchase agreements. ProFund Advisors also monitors the
value of the securities to ensure that they are at least equal to the total
amount of the repurchase obligations, including interest.
<PAGE>
Interest Rate Risk
Money market instruments, like all debt securities, face the risk that the
securities will decline in value because of changes in interest rates.
Generally, investments subject to interest rate risk will decrease in value when
interest rates rise and increase when interest rates decline. To minimize such
price fluctuations, Money Market VP adheres to the following practices:
. it limits the dollar-weighted average maturity of the securities held by
Money Market VP to 90 days or less. Generally, rates of short-term investments
fluctuate less than longer-term bonds.
. it primarily buys securities with remaining maturities of 13 months or
less. This reduces the risk that the issuer's creditworthiness will change, or
that the issuer will default on the principal and interest payments of the
obligations.
Market Risk
Although individual securities may outperform their market, the entire market
may decline as a result of rising interest rates, regulatory developments or
deteriorating economic conditions.
Security Selection Risk
While Money Market VP invests in short-term securities, which by nature are
relatively stable investments, the risk remains that the securities selected
will not perform as expected. This could cause its returns to lag behind those
of similar money market funds. ProFund Advisors attempts to limit this risk by
diversifying Money Market VP's investments so that a single setback need not
undermine the pursuit of its objective and by investing in money market
instruments that receive the highest short-term debt ratings as described above.
Concentration Risk
Because Money Market VP may invest more than 25% of its total assets in the
financial services industry, it may be vulnerable to setbacks in that industry.
Banks and other financial service companies are highly dependent on short-term
interest rates and can be adversely affected by downturns in the U.S. and
foreign economies or changes in banking regulations.
Prepayment Risk
When a bond issuer, such as an issuer of asset-backed securities, retains the
right to pay off a high-yielding bond before it comes due, Money Market VP may
have no choice but to reinvest the proceeds at lower interest rates. Thus,
prepayment may reduce its income. It may also create a capital gains tax
liability, because bond issuers usually pay a premium for the right to pay off
bonds early.
<PAGE>
General Information
Calculating the Benchmark Funds' Share Prices
Except for UltraEurope VP and UltraShort Europe VP, each Benchmark ProFund VP
calculates daily share prices on the basis of the net asset value of its 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. UltraEurope VP and UltraShort Europe
VP calculate their daily share prices on the basis of net asset value of their
shares at the latest close of trading of the three exchanges tracked by the PEI:
the London Stock Exchange, the Frankfurt Stock Exchange and the Paris Bourse
(normally, 11:30 a.m., Eastern time), on each day that all three of these
exchanges and the NYSE are open.
Purchases and redemptions of shares are effected at the net asset value per
share next determined after receipt and acceptance of an order. If portfolio
investments of a ProFund VP are traded in markets on days when the ProFund's VP
principal trading market(s) is closed, the ProFund's VP net asset value may vary
on days when investors cannot purchase or redeem shares.
The ProFunds VP value shares by dividing the market value of the assets
attributable to a ProFund VP, less the liabilities attributable to the ProFund
VP, by the number of its outstanding shares. The Benchmark ProFunds VP use the
following methods for arriving at the current market price of investments held
by them:
. 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;
<PAGE>
. futures contracts and options on indexes and securities--the last sale
price prior to the close of regular trading on the NYSE (for all Benchmark
ProFunds VP except UltraEurope VP and UltraShort Europe VP);
. futures prices used to calculate net asset values for UltraEurope VP and
UltraShort Europe VP will be the last transaction prices for the respective
futures contracts that occur immediately prior to the close of the underlying
stock exchange;
. 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;
. the foreign exchange rates used to calculate the net asset values for
UltraEurope VP and UltraShort Europe VP will be the mean of the bid price and
the asked price for the respective foreign currency occurring immediately before
the last underlying stock exchange closes.
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 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 VP 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.
<PAGE>
The New York Stock Exchange and the Chicago Mercantile Exchange, a leading
market for futures and options, are open every week, Monday through Friday,
except when the following holidays are celebrated: New Year's Day, Martin Luther
King, Jr. Day (the third Monday in January), Presidents' Day (the third Monday
in February), Good Friday, Memorial Day (the last Monday in May), July 4th,
Labor Day (the first Monday in September), Thanksgiving Day (the fourth Thursday
in November) and Christmas Day. 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.
The London Stock Exchange, Frankfurt Stock Exchange or Paris Bourse closes for
the following holidays in 1999: May Day (May 3), Ascension (May 13), Pentecost
Monday (May 24), Spring Bank Holiday (May 31), Corpus Christi Day (June 3),
Independence Day (July 5), Bastille Day (July 14), Summer Bank Holiday (August
30), Labor Day (September 6), All Saints Day (November 1), Thanksgiving Day
(November 25), Christmas Eve, Christmas Day (observed December 27), Boxing Day
(observed December 28) and New Year's Eve. Holidays scheduled for 2000 include:
New Years Day (January 3), Good Friday (April 21) and Easter Monday (April 24).
Please note that holiday schedules are subject to change without notice.
Calculating Money Market VP's Share Price
Money Market VP calculates daily share prices on the basis of the net asset
value of its shares at the close of regular trading on the NYSE (normally, 4:00
p.m., Eastern time) every day the NYSE is open for business. Purchases and
redemptions of shares are effected at the net asset value per share next
determined after receipt and acceptance of an order. If the market for the
primary investments in Money Market VP closes early, Money Market VP may close
early, and it will cease taking purchase orders at that time. Money Market VP's
net asset value per share will normally be $1.00, although ProFund Advisors
cannot guarantee that this will always be the case. Money Market VP uses the
amortized cost method to account for any premiums or discounts above or below
the face value of any securities it buys. This method does not reflect daily
fluctuations in market value.
<PAGE>
Purchasing and Redeeming Shares
Shares of the ProFunds VP are available for purchase by insurance company
separate accounts to serve as an investment medium for variable insurance
contracts, and by qualified pension and retirement plans, certain insurance
companies, and ProFund Advisors. Shares of the ProFunds VP are purchased or
redeemed at the net asset value per share next determined after receipt of a
purchase order or redemption request.
Payment for shares redeemed normally will be made within seven days. The
ProFunds VP intend to pay cash for all shares redeemed, but under abnormal
conditions which make payment in cash unwise, payment may be made wholly or
partly in portfolio securities at their then market value equal to the
redemption price. A shareholder may incur brokerage costs in converting such
securities to cash. Payment for shares may be delayed under extraordinary
circumstances or as permitted by the Securities and Exchange Commission in order
to protect remaining investors.
Investors do not deal directly with the ProFunds VP to purchase or redeem
shares. Please refer to the prospectus for the separate account for information
on the allocation of premiums and on transfers of accumulated value among
sub-accounts of the separate accounts that invest in the ProFunds VP.
The ProFunds VP currently do not foresee any disadvantages to investors if the
ProFunds VP served as investment media for both variable annuity contracts and
variable life insurance policies. However, it is theoretically possible that the
interest of owners of annuity contracts and insurance policies for which a
ProFund VP served as an investment medium might at some time be in conflict due
to differences in tax treatment or other considerations. The Board of Trustees
and each participating insurance company would be required to monitor events to
identify any material conflicts between variable annuity contract owners and
variable life insurance policy owners, and would have to determine what action,
if any, should be taken in the event of such a conflict. If such a conflict
occurred, an insurance company participating in the ProFund VP might be required
to redeem the investment of one or more of its separate accounts from the
ProFund VP, which might force the ProFund VP to sell securities at
disadvantageous prices.
<PAGE>
The ProFunds VP reserve the right to discontinue offering shares at any time. In
the event that a ProFund VP ceases offering its shares, any investments
allocated to the ProFund VP may, subject to any necessary regulatory approvals,
be invested in another ProFund VP deemed appropriate by the Board of Trustees.
Distribution of Shares
Under a distribution plan adopted by the Board of Trustees, each ProFund VP may
pay financial intermediaries an annual fee of up to 0.25% of its average daily
net assets as reimbursement or compensation for providing or procurring a
variety of services relating to the promotion, sale and servicing of shares of
the ProFund VP. Over time, fees paid under the plan will increase the cost of
your investment and may cost you more than other types of sales charges.
Tax Information
To comply with regulations under the Internal Revenue Code, each ProFund VP is
required to diversify its investments. Generally, a ProFund VP will be required
to diversify its investments so that on the last day of each quarter of a
calendar year no more than 55% of the value of its total assets is represented
by any one investment, no more than 70% is represented by any two investments,
no more than 80% is represented by any three investments, and no more than 90%
is represented by any four investments. For this purpose, securities of a given
issuer generally are treated as one investment, but each U.S. Government agency
and instrumentality is treated as a separate issuer. Any security issued,
guaranteed, or insured (to the extent so guaranteed or insured) by the U.S. or
an agency or instrumentality of the U.S. is treated as a security issued by the
U.S. Government or its agency or instrumentality, whichever is applicable.
<PAGE>
If a ProFund VP fails to meet this diversification requirement, income with
respect to variable insurance contracts invested in that ProFund VP at any time
during the calendar quarter in which the failure occurred could become currently
taxable to the owners of the contracts. Similarly, income for prior periods with
respect to such contracts also could be taxable, most likely in the year of the
failure to achieve the required diversification. Other adverse tax consequences
also could ensue.
Because you do not own shares in the ProFunds VP directly, generally you are not
taxed directly on distributions from the ProFunds VP. However, you may be
subject to taxation when you receive distributions from your variable annuity
contract or variable life insurance policy. You should refer to the prospectus
for your contract or policy for information on the taxes relating to your
investment and the tax consequences of any withdrawal of your investment. You
may also wish to consult with your own tax advisor about your particular
situation, and the tax consequences of your investment under state and local
laws.
Reference is made to the prospectus for the separate account and variable
insurance contract for information regarding the federal income tax treatment of
distributions to the separate account. See the Statement of Additional
Information for more information on taxes.
<PAGE>
ProFunds VP Management
Board of Trustees and Officers
The ProFunds VP are series of ProFunds (the "Trust"), a registered investment
company. The Board of Trustees is responsible for the general supervision of all
series of the Trust, including the ProFunds VP. The Trust's officers are
responsible for day-to-day operations of the ProFunds VP.
Investment Advisor
ProFund Advisors LLC, located at 7900 Wisconsin Avenue, Suite 300, Bethesda,
Maryland 20814, serves as the investment advisor to the ProFunds VP, providing
investment advice and management services. ProFund Advisors oversees the
investment and reinvestment of the assets in each ProFund VP. It receives fees
equal to 0.75% of the average daily net assets of each Benchmark ProFund VP,
except UltraEurope VP and ProFund VP UltraShort Europe VP, for which it receives
a fee equal to 0.90% of the average daily net assets. ProFund Advisors also
receives an investment advisory fee equal to [ ]% of the average daily net
assets of Money Market VP. 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.).
<PAGE>
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 Benchmark ProFund VP 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 VP, providing operations,
compliance and administrative services. Each ProFund VP pays BISYS a fee for its
administrative services. The fee is equal to 0.05% of average daily net assets.
ProFund Advisors also performs client support and administrative services for
the ProFunds VP. The Benchmark ProFunds VP each pay a fee equal, on an annual
basis, to 0.15% of average daily net assets for these services. ProFund Advisors
may receive a fee equal, on an annual basis, to __% of average daily net assets
from Money Market VP for these services.
<PAGE>
Year 2000
Like other funds and business organizations around the world, the ProFunds VP
could be adversely affected if the computer systems used by their investment
advisor 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 VP invest, which
could impact the share prices of the ProFunds VP. Europe 30 VP, UltraEurope VP
and UltraShort Europe VP may be particularly susceptible to this risk, as they
primarily invest, directly or indirectly, in issuers located outside the U.S.,
and the governments and companies in many foreign countries have not prepared as
extensively as have most U.S. issuers for the arrival of the Year 2000.
The ProFunds VP have been assured that their service providers have developed
and are implementing clearly defined and documented plans intended to minimize
risks to services critical to the operations of the ProFunds VP associated with
Year 2000 issues. The service providers are likewise seeking assurances from
their respective vendors and suppliers that these entities are addressing any
Year 2000 issues.
In the event that any systems upon which the ProFunds VP depend are not Year
2000 ready by December 31, 1999, administrative errors and account maintenance
failures would likely occur. While the ultimate costs or consequences of
incomplete or untimely resolution of Year 2000 issues by the service providers
of the ProFunds VP cannot be accurately assessed at this time, the ProFunds VP
currently have no reason to believe that the Year 2000 plans of the investment
advisor and other service providers will not be completed by December 31, 1999.
The ProFunds VP will continue to closely monitor developments relating to this
issue.
Other Information
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500(R)," and
"500(R)" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by the Trust. "NASDAQ 100 Index" is a trademark of the NASDAQ
Stock Markets, Inc. ("NASDAQ"). "Russell 2000 Index" is a trademark of the Frank
Russell Company. The ProFunds VP are not sponsored, endorsed, sold or promoted
by Standard & Poor's, NASDAQ, or the Frank Russell Company, and neither Standard
& Poor's, NASDAQ nor the Frank Russell Company makes any representation
regarding the advisability of investing in the ProFunds VP.
(Please see the Statement of Additional Information, which sets forth certain
additional disclaimers and limitations of liabilities on behalf of S&P).
<PAGE>
Similar Fund Performance
The following table provides information concerning the historical total return
performance of the Investor Class shares of the Bull ProFund, UltraBull ProFund,
UltraOTC ProFund, Bear ProFund, and UltraBear ProFund (the "Similar Funds"),
each a series of the Trust, which are similar to Bull VP, UltraBull VP, UltraOTC
VP, Bear VP, and UltraBear VP, respectively. Each Similar Funds' investment
objectives, policies and strategies are substantially similar to those of its
corresponding ProFund VP, and each is currently managed by the same investment
team. While the investment objectives, policies and risks of the Similar Funds
and the ProFunds VP are similar, the performance of a Similar Fund and its
corresponding ProFund VP will vary. The data is provided to illustrate the past
performance of ProFund Advisors in managing a substantially similar investment
portfolio and does not represent the past performance of the ProFunds VP or the
future performance of the ProFunds VP or their investment team. Consequently,
potential investors should not consider this performance data as an indication
of the future performance of the ProFunds VP or of their investment team.
The performance data shown below reflects the net operating expenses of the
Similar Funds, which are lower than the estimated operating expenses of the
ProFunds VP. Performance would have been lower for each Similar Fund if the
expenses of its corresponding ProFund VP were used. In addition, the Similar
Funds, unlike the ProFunds VP, are not sold to insurance company separate
accounts to fund variable insurance contracts. As a result, the performance
results presented below do not take into account charges or deductions against a
separate account or variable insurance contract for cost of insurance charges,
premium loads, administrative fees, maintenance fees, premium taxes, mortality
and expense risk charges, or other charges that may be incurred under a variable
insurance contract for which the ProFunds VP serve as an underlying investment
vehicle. By contrast, investors with contract value allocated to the ProFunds VP
will be subject to charges and expenses relating to variable insurance contracts
and separate accounts.
<PAGE>
The Similar Funds' performance data shown below is calculated in accordance with
standards prescribed by the Securities and Exchange Commission for the
calculation of average annual total return information. The investment results
of the Similar Funds presented below are unaudited and are not intended to
predict or suggest results that might be experienced by the Similar Funds or the
ProFunds VP. Share prices and investment returns will fluctuate reflecting
market conditions. The performance data for the benchmark index identified below
does not reflect the fees or expenses of the Similar Funds or the ProFunds VP.
Average Annual Total Return for the Similar Funds and for their Benchmark
Indexes for Periods Ended December 31, 1998
Similar Fund/Benchmark Index One Year Since Inception Inception Date
Bull ProFund 26.57% 23.07% 12/02/97
S&P 500 Index* 26.67% 24.18%
UltraBull ProFund 42.95% 42.34% 11/28/97
S&P 500 Index* 26.67% 26.92%
UltraOTC ProFund 185.34% 123.30% 12/02/97
NASDAQ 100 IndexTM* 85.31% 70.12%
Bear ProFund -19.46% -19.41% 12/31/97
S&P 500 Index* 26.67% 26.67%
UltraBear ProFund -38.34% -35.43% 12/23/97
S&P 500 Index* 26.67% 28.27%
- -------------
* Excludes dividends.
# The Similar Fund performance information set forth above reflects fee
waivers and/or expense reimbursements. Absent such waivers and/or
reimbursements, Similar Fund performance would have been lower.
</TABLE>
<PAGE>
[Back Cover]
You can find more detailed information about each of the ProFunds VP in their
current Statement of Additional Information, dated October 18, 1999, which we
have filed electronically with the Securities and Exchange Commission (SEC) and
which is incorporated by reference into, and is legally a part of, this
prospectus dated October 18, 1999. To receive your free copy of a Statement of
Additional Information, or if you have questions about the ProFunds VP, 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 VP 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 VP, 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 eleven series of the
ProFunds (the "Pro Funds VP"): ten non-money market ("Benchmark") ProFunds VP
and the ProFund VP Money Market ("Money Market VP"). The ProFunds VP 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 Benchmark ProFund VP seeks investment results that correspond
each day to a specified benchmark. Money Market VP seeks as high a level of
current income as is consistent with liquidity and preservation of capital. The
ProFunds VP may be used independently or in combination with each other as part
of an overall investment strategy. Additional ProFunds VP may be created from
time to time.
Shares of the ProFunds VP are available for purchase by insurance company
separate accounts to serve as an investment medium for variable insurance
contracts, and by qualified pension and retirement plans, certain insurance
companies, and ProFund Advisors LLC (the "Advisor").
The ProFunds VP 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 VP to determine whether an investment
in a particular ProFund VP is appropriate. None of the ProFunds VP alone
constitutes a balanced investment plan. Each Benchmark ProFund VP 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 VP will be
achieved.
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus, dated October 18, 1999, 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 October 18, 1999.
<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 -- Europe 30 Index .............................................__
Appendix -- Description of Securities Ratings ...........................__
<PAGE>
PROFUNDS
ProFunds (the "Trust") is an open-end management investment company, and
currently comprises twenty separate series. Eleven of these series, the ProFunds
VP, are offered to insurance company separate accounts and qualified pension and
retirement plans and are discussed herein. All of the ProFunds VP, except for
Money Market VP, are classified as non-diversified, although they currently
intend to operate in a diversified manner. Other series may be added in the
future.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL
Reference is made to the Prospectus for a discussion of the investment
objectives and policies of the ProFunds VP. In addition, set forth below is
further information relating to the ProFunds VP. The discussion below
supplements and should be read in conjunction with the Prospectus.
The investment objectives (except the specific benchmarks which are tracked
by the ProFunds VP) and certain investment restrictions of the ProFunds VP
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 VP, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). All other investment policies of the ProFunds VP not specified as
fundamental (including the benchmarks of the ProFunds VP) may be changed by the
trustees of the ProFunds VP without the approval of shareholders.
A Benchmark ProFund VP may consider changing its benchmark if, for example,
the current benchmark becomes unavailable, the ProFunds VP 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 Funds' investment results to correspond
sufficiently to its current benchmark. If believed appropriate, a Benchmark
ProFund VP may specify a benchmark for itself that is "leveraged" or
proprietary. Of course, there can be no assurance that a ProFund VP will achieve
its objective.
Fundamental securities analysis is not generally used by the Advisor in
seeking to correlate with the respective benchmarks. Rather, the Advisor
primarily uses statistical and quantitative analysis to determine the
investments a Benchmark ProFund VP 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 Benchmark ProFunds VP and the
performance of its benchmark), certain factors will tend to cause a Benchmark
ProFunds VP's investment results to vary from a perfect correlation to its
benchmark. The Benchmark ProFunds VP, 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 Benchmark ProFunds VP 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 VP discussed below, and as
discussed in the Prospectus, may be used by a ProFund VP if, in the opinion of
the Advisor, these strategies will be advantageous to the ProFunds VP. The
ProFunds VP are free to reduce or eliminate the ProFunds VP's activity in any of
those areas without changing the ProFunds' VP fundamental investment policies.
There is no assurance that any of these strategies or any other strategies and
methods of investment available to a ProFund VP will result in the achievement
of the its objectives.
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BULL VP AND ULTRABULL VP
The investment objective of Bull VP is to provide daily investment results
that correspond to the performance of the S&P 500 Index. The investment
objective of UltraBull VP is to provide daily investment results that correspond
to twice (200%) the performance of the S&P 500 Index. These ProFunds VP seek to
achieve this correlation on each trading day. Under their investment objectives,
UltraBull VP should produce greater gains to investors when the S&P 500 Index
rises and greater losses when the S&P 500 Index declines over the corresponding
gain or loss of Bull VP.
In attempting to achieve their objectives, Bull VP and UltraBull VP expect
that a substantial portion of their respective assets usually will be devoted to
employing certain specialized investment techniques. These techniques include
engaging in certain transactions in stock index futures contracts, options on
stock index futures contracts, and options on securities and stock indexes. The
amount of any gain or loss on an investment technique may be affected by any
premium or amounts in lieu of dividends or interest income the ProFund VP pays
or receives as the result of the transaction. These ProFunds VP may also invest
in shares of individual securities which are expected to track the S&P 500
Index.
BEAR VP AND ULTRABEAR VP
Bear VP and UltraBear VP are designed to allow investors to speculate on
anticipated decreases in the S&P 500 Index or to hedge an existing portfolio of
securities or mutual fund shares. The Bear VP's investment objective is to
provide daily investment results that correspond to the inverse (opposite) of
the performance of the S&P 500 Index. UltraBear VP's investment objective is to
provide daily investment results that correspond to twice (200%) the inverse
(opposite) of the performance of the S&P 500 Index.
If Bear VP achieved a perfect inverse correlation for any single trading
day, the net asset value of the shares of Bear VP would increase for that day in
direct proportion to any decrease in the level of the S&P 500 Index. Conversely,
the net asset value of the shares of Bear VP would decrease for that day in
direct proportion to any increase in the level of the S&P 500 Index for that
day. The net asset value of UltraBear VP on the same days would increase or
decrease approximately twice as much as the price change of Bear VP.
For example, if the S&P 500 Index were to decrease by 1% on a particular
day, investors in Bear VP should experience a gain in net asset value of
approximately 1% for that day. UltraBear VP should realize an increase of
approximately 2% of its net asset value on the same day. Conversely, if the S&P
500 Index were to increase by 1% by the close of business on a particular
trading day, investors in Bear VP and UltraBear VP would experience a loss in
net asset value of approximately 1% and 2%, respectively.
Due to the nature of Bear VP and UltraBear VP, investors in these ProFunds
VP could experience substantial losses during sustained periods of rising equity
prices, with losses to investors in UltraBear VP approximately twice as large as
the losses to investors in the Bear VP. This is the opposite likely result
expected of investing in a traditional equity mutual fund in a generally rising
stock market.
In pursuing its investment objectives, Bear VP and UltraBear VP generally
do not invest in traditional securities, such as common stock of operating
companies. Rather, Bear VP and UltraBear VP employ certain investment
techniques, including engaging in short sales and in certain transactions in
stock index futures contracts, options on stock index futures contracts, and
options on securities and stock indexes.
Under these techniques, Bear VP and UltraBear VP will generally incur a
loss if the price of the underlying security or index increases between the date
of the employment of the technique and the date on which the ProFund VP
terminates the position. These ProFunds VP will generally realize a gain if the
underlying security or index declines in price between those dates. The amount
of any gain or loss on an investment technique may be affected by any premium or
amounts in lieu of dividends or interest that the ProFund VP pays or receives as
the result of the transaction.
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ULTRAOTC VP AND ULTRASHORT OTC VP
The investment objective of UltraOTC VP is to provide daily investment
results that correspond to twice (200%), the performance of the NASDAQ 100
Index(TM).
UltraOTC VP does not intend to hold the 100 securities included in the
NASDAQ 100 Index(TM). Instead, UltraOTC VP intends to engage in transactions on
stock index futures contracts, options on stock index futures contracts, and
options on securities and stock indexes. As a nonfundamental policy, UltraOTC VP
will invest, under normal conditions, at least 65% of its total assets in
securities traded on the over-the-counter markets and instruments with values
that are representative of such securities such as futures and option contracts
in such securities or indices.
The investment objective of UltraShort OTC VP is to provide daily
investment results that correspond to twice (200%) the inverse (opposite) of the
performance of the NASDAQ 100 Index(TM). It is the policy of UltraShort OTC VP
to pursue its investment objective of correlating with its benchmark regardless
of market conditions, to remain nearly fully invested and not to take defensive
positions.
UltraShort OTC VP is designed to allow investors to seek to profit from
anticipated decreases in the NASDAQ 100 Index(TM) or to hedge an existing
portfolio of securities or mutual fund shares. UltraShort OTC VP's investment
objective is to provide investment results that will inversely correlate to 200%
of the performance of the NASDAQ 100 Index(TM). UltraShort OTC VP seeks to
achieve this inverse correlation on each trading day.
If the ProFund VP achieved a perfect inverse correlation for any single
trading day, the net asset value of the shares of UltraShort OTC VP would
increase for that day proportional to twice any decrease in the level of the
NASDAQ 100 Index(TM). Conversely, the net asset value of the shares of
UltraShort OTC VP would decrease for that day proportional to twice any increase
in the level of the NASDAQ 100 Index(TM) for that day.
For example, if the NASDAQ 100 Index(TM) were to decrease by 1% on a
particular day, investors in UltraShort OTC VP should experience a gain in net
asset value of approximately 2% for that day. Conversely, if the NASDAQ 100
Index(TM) were to increase by 1% by the close of business on a particular
trading day, investors in UltraShort OTC VP would experience a loss in net asset
value of approximately 2%.
In pursuing its investment objective, UltraShort OTC VP generally does not
invest in traditional securities, such as common stock of operating companies.
Rather, UltraShort OTC VP employs certain investment techniques, including
engaging in short sales and in certain transactions in stock index futures
contracts, options on stock index futures contracts, and options on securities
and stock indexes.
Under these techniques, UltraShort OTC VP will generally incur a loss if
the price of the underlying security or index increases between the date of the
employment of the technique and the date on which UltraShort OTC VP terminates
the position. UltraShort OTC VP will generally realize a gain if the underlying
security or index declines in price between those dates. The amount of any gain
or loss on an investment technique may be affected by any premium or amounts in
lieu of dividends or interest that UltraShort OTC VP pays or receives as the
result of the transaction. Due to the nature of UltraShort OTC VP, investors
could experience substantial losses during sustained periods of rising equity
prices. This is the opposite likely result expected of investing in a
traditional equity mutual fund in a generally rising stock market.
<PAGE>
Companies whose securities are traded on the over-the-counter ("OTC")
markets generally have smaller market capitalization or are newer companies than
those listed on the NYSE or the American Stock Exchange (the "AMEX"). OTC
companies often have limited product lines, or relatively new products or
services, and may lack established markets, depth of experienced management, or
financial resources and the ability to generate funds. The securities of these
companies may have limited marketability and may be more volatile in price than
securities of larger capitalized or more well-known companies. Among the reasons
for the greater price volatility of securities of certain smaller OTC companies
are the less certain growth prospects of comparably smaller firms, the lower
degree of liquidity in the OTC markets for such securities, and the greater
sensitivity of smaller capitalization companies to changing economic conditions
than larger capitalization, exchange-traded securities. Conversely, because many
of these OTC securities may be overlooked by investors and undervalued in the
marketplace, there is potential for significant capital appreciation.
SMALL CAP VP
The investment objective of Small Cap VP is to provide daily investment
results that correspond to the performance of the Russell 2000(R) Index.
Small Cap VP does not intend to hold the 2,000 securities included in the
Russell 2000(R) Index. Instead, Small Cap VP 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, Small Cap VP 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.
EUROPE 30 VP, ULTRAEUROPE VP, AND ULTRASHORT EUROPE VP
The investment objective of Europe 30 VP is to provide daily investment
results that correspond to the performance of the ProFunds Europe 30 Index
("PEI").
The investment objective of UltraEurope VP is to provide daily investment
results that correspond to twice (200%) the performance of the PEI. Under its
investment objective, UltraEurope VP should produce greater gains to investors
when the PEI rises and greater losses when the PEI declines over the
corresponding gain or loss of the PEI itself.
UltraShort Europe VP is designed to allow investors to seek to profit from
anticipated decreases in the PEI or to hedge an existing portfolio of securities
or mutual fund shares. UltraShort Europe VP's investment objective is to provide
daily investment results that correspond to twice (200%) the inverse (opposite)
of the performance of the PEI.
If UltraShort Europe VP achieved a perfect inverse correlation for any
single trading day, the net asset value of the shares of this ProFund VP would
increase for that day proportional to twice any decrease in the level of the
PEI. Conversely, the net asset value of the shares of UltraShort Europe VP would
decrease for that day proportional to twice any increase in the level of the PEI
for that day.
<PAGE>
For example, if the PEI were to decrease by 1% on a particular day,
investors in UltraShort Europe VP should experience a gain in net asset value of
approximately 2% for that day. Conversely, if the PEI were to increase by 1% by
the close of business on a particular trading day, investors in UltraShort
Europe VP would experience a loss in net asset value of approximately 2%.
In pursuing their investment objectives, UltraEurope VP and UltraShort
Europe VP generally do not invest in traditional securities, such as common
stock of operating companies. Rather, UltraEurope VP and UltraShort Europe VP
employ certain investment techniques, including engaging in short sales and in
certain transactions in stock index future contracts, options on stock index
future contracts, and options on securities and stock indexes.
Investing in foreign companies or financial instruments by these ProFunds
VP (directly or indirectly) may involve risks not typically associated with
investing in U.S. companies. The value of securities denominated in foreign
currencies, and of dividends from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. Dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices in some foreign markets can be extremely volatile. Many
foreign countries lack uniform accounting and disclosure standards. Because
these ProFunds VP will invest indirectly in foreign markets, they will be
subject to certain of the market, economic and political risks prevalent in
these foreign markets.
Changes in foreign exchange rates will affect the value of securities of
financial instruments denominated or quoted in currencies other than the U.S.
Dollar, and these ProFunds VP 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, Europe 30 VP 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 purchase or sales.
Further, 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. However, ADRs do not
eliminate all the risk inherent in investing in the securities of foreign
issuers.
On January 1, 1999, the European Monetary Union (EMU) began to implement a
new currency unit, the Euro, which is expected to reshape financial markets,
banking systems and monetary policy in Europe and other parts of the world.
Although it is not possible to predict the impact of the Euro implementation
plan on Europe 30 VP, UltraEurope VP, and UltraShort Europe VP, the transition
to the Euro may change the economic environment and behavior of investors,
particularly in European markets.
<PAGE>
MONEY MARKET VP
Money Market VP seeks as high a level of current income as is consistent
with liquidity and the preservation of capital. It seeks this objective by
investing in high quality money market instruments. Money Market VP offers
investors a convenient means of diversifying their holdings of short-term
securities while relieving those investors of the administrative burdens
typically associated with purchasing and holding these instruments, such as
coordinating maturities and reinvestments, providing for safekeeping and
maintaining detailed records. High quality, short-term instruments may result in
a lower yield than instruments with a lower quality and/or a longer term.
There can be no assurance that the investment objective of Money Market VP
will be achieved.
Money Market VP invests in money market instruments, including corporate
debt obligations, U.S. government securities, bank obligations and repurchase
agreements. Money Market VP follows practices which are designed to enable Money
Market VP to maintain a $1.00 share price: limiting dollar-weighted average
maturity of the securities held by Money Market VP to 90 days or less; buying
securities which have remaining maturities of 397 days or less; and buying only
high quality securities with minimal credit risks. Of course, Money Market VP
cannot guarantee a $1.00 share price, but these practices help to minimize any
price fluctuations that might result from rising or declining interest rates.
While Money Market VP invests in high quality money market securities, you
should be aware that your investment is not without risk. All money market
instruments can change in value when interest rates or an issuer's
creditworthiness changes.
FUTURES CONTRACTS AND RELATED OPTIONS
The ProFunds VP (other than Money Market VP) 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 VP purchases a put or call option on a futures contract, the
ProFund VP 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 VP receives a premium in return for granting to the purchaser of the
option the right to sell to or buy from the ProFund VP the underlying futures
contract for a specified price upon exercise at any time during the option
period.
Whether a ProFund VP realizes a gain or loss from futures activities
depends generally upon movements in the underlying commodity. The extent of the
ProFund VP's loss from an unhedged short position in futures contracts or from
writing options on futures contracts is potentially unlimited. The ProFunds VP
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 VP, or selling an option of the same series as
an option previously purchased by a ProFund VP. The ProFunds VP 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 VP purchases or sells a stock index futures contract, or
sells an option thereon, the ProFund VP "covers" its position. To cover its
position, a ProFund VP 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.
<PAGE>
The Benchmark ProFunds VP 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 VP would be excluded from the definition
of a "commodity pool operator." Under Section 4.5 of the CFTC Regulations, a
ProFund VP 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 VP'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 VP will cover their positions when they write a futures
contract or option on a futures contract. A ProFund VP 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 VP will maintain in a
segregated account cash or liquid instruments equal in value to the difference
between the strike price of the put and the price of the future. A ProFund VP
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 VP 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 VP 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 VP will maintain in a segregated
account liquid instruments equal in value to the difference between the strike
price of the call and the price of the future. A ProFund VP 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 VP 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 VP 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 VP may also cover
its sale of a put option by taking positions in instruments the prices of which
are expected to move relatively consistently with the put option.
Although the ProFunds VP 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 VP to substantial losses.
If trading is not possible, or if a ProFund VP determines not to close a futures
position in anticipation of adverse price movements, the ProFund VP will be
required to make daily cash payments of variation margin. The risk that the
ProFund VP 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.
<PAGE>
INDEX OPTIONS
The ProFunds VP (other than Money Market VP) 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 VP 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 VP 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 VP will not enter into an
option position that exposes the ProFund VP to an obligation to another party,
unless the ProFund VP either (i) owns an offsetting position in securities or
other options and/or (ii) maintains with the ProFund VP'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 Benchmark ProFunds VP 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 VP. See
"Illiquid Securities."
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same index which may be bought or written
(sold) by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
Exchanges or are held or written on one or more accounts or through one or more
brokers). Under these limitations, option positions of all investment companies
advised by the same investment adviser are combined for purposes of these
limits. Pursuant to these limitations, an Exchange may order the liquidation of
positions and may impose other sanctions or restrictions. These position limits
may restrict the number of listed options which a ProFund VP may buy or sell;
however, the Advisor intends to comply with all limitations.
<PAGE>
OPTIONS ON SECURITIES
Each Benchmark ProFund VP may buy and write (sell) options on securities
for the purpose of realizing its investment objectives. By buying a call option,
a ProFund VP 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 VP 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 VP 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 VP 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
VP may cover its position by owning the underlying security on which the option
is written. Alternatively, the ProFund VP 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 VP 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 VP 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 VP. When a ProFund
VP writes a put option, the ProFund VP 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 VP to write
call options on stocks held by the ProFund VP 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 VP that writes an option wishes to terminate the ProFund VP's
obligation, the ProFund VP may effect a "closing purchase transaction." The
ProFund VP accomplishes this by buying an option of the same series as the
option previously written by the ProFund VP. 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 VP which is the holder of an option
may liquidate its position by effecting a "closing sale transaction." The
ProFund VP accomplishes this by selling an option of the same series as the
option previously purchased by the ProFund VP. 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 VP 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 VP if the premium, plus commission costs, paid by the ProFund VP
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 VP on the sale
of the call or the put option. The ProFund VP also will realize a gain if a call
or put option which the ProFund VP has written lapses unexercised, because the
ProFund VP 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 VP. If an options market were to become
unavailable, the ProFund VP would be unable to realize its profits or limit its
losses until the ProFund VP could exercise options it holds, and the ProFund VP
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.
SHORT SALES
Bear VP, UltraBear VP, UltraShort OTC VP and UltraShort Europe VP may
engage in short sales transactions under which the ProFund VP sells a security
it does not own. To complete such a transaction, the ProFund VP must borrow the
security to make delivery to the buyer. The ProFund VP then is obligated to
replace the security borrowed by purchasing the security at the market price at
the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the ProFund VP. Until the security is
replaced, the ProFund VP is required to pay to the lender amounts equal to any
dividends or interest which accrue during the period of the loan. To borrow the
security, the ProFund VP also may be required to pay a premium, which would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet the margin requirements,
until the short position is closed out.
Until the ProFund VP closes its short position or replaces the borrowed
security, the ProFund VP will cover its position with an offsetting position or
maintain a segregated account containing cash or liquid instruments at such a
level that the amount deposited in the account plus the amount deposited with
the broker as collateral will equal the current value of the security sold
short.
SWAP AGREEMENTS
The ProFunds VP (other than Money Market VP) 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 VP calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
ProFund VP'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 VP's current obligations under a swap agreement will be accrued
daily (offset against any amounts owing to the ProFund VP) 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 VP'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 VP illiquid
investment limitations. A ProFund VP will not enter into any swap agreement
unless the Advisor believes that the other party to the transaction is
creditworthy. A ProFund VP 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.
<PAGE>
Each Benchmark ProFund VP 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 VP 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 VP 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 VP 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 VP on the notional amount.
Swap agreements typically are settled on a net basis, which means that the
two payment streams are netted out, with the ProFund VP 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 VP is contractually obligated to make. If
the other party to a swap agreement defaults, a ProFund VP's risk of loss
consists of the net amount of payments that such ProFund VP is contractually
entitled to receive, if any. The net amount of the excess, if any, of a ProFund
VP'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 VP'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
VP 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 VP'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 VP 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, Europe 30 VP
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.
<PAGE>
Europe 30 VP may invest in both sponsored and unsponsored ADRs. Unsponsored
ADR programs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information
concerning the issuers may not be as current as for sponsored ADRs, and the
prices of unsponsored depository receipts may be more volatile than if such
instruments were sponsored by the issuer.
U.S. GOVERNMENT SECURITIES
Each ProFund VP also may invest in U.S. government securities in pursuit of
its investment objectives, as "cover" for the investment techniques these
ProFunds VP 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 VP's portfolio investments in U.S. government securities, while a
decline in interest rates would generally increase the market value of a ProFund
VP'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.
<PAGE>
REPURCHASE AGREEMENTS
Each of the ProFunds VP may enter into repurchase agreements with financial
institutions. Under a repurchase agreement, a ProFund VP 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 VP 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 VP 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 VP could suffer a
loss. A ProFund VP also may experience difficulties and incur certain costs in
exercising its rights to the collateral and may lose the interest the ProFund VP
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 VP 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 a ProFund VP, amounts to more than 15% (10% with
respect to Money Market VP) of its total net assets. The investments of each of
the ProFunds VP in repurchase agreements at times may be substantial when, in
the view of the Advisor, liquidity, investment, regulatory, or other
considerations so warrant.
CASH RESERVES
To seek its investment objective as a cash reserve, for liquidity purposes,
or as "cover" for positions it has taken, each ProFund VP may temporarily invest
all or part of the ProFund VP'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 VP may use reverse repurchase agreements as part of their
investment strategies. Reverse repurchase agreements involve sales by a ProFund
VP of portfolio assets concurrently with an agreement by the ProFund VP to
repurchase the same assets at a later date at a fixed price. Generally, the
effect of such a transaction is that the ProFund VP 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 VP 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 VP of the reverse
repurchase transaction is less than the cost of obtaining the cash otherwise.
Opportunities to achieve this advantage may not always be available, and the
ProFund VP intend to use the reverse repurchase technique only when it will be
to the ProFund VP's advantage to do so. The ProFund VP will establish a
segregated account with its custodian bank in which the ProFund VP will maintain
cash or liquid instruments equal in value to the ProFund VP's obligations in
respect of reverse repurchase agreements.
BORROWING
The ProFunds VP may borrow money for cash management purposes or investment
purposes. Each of the ProFunds VP 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 VP "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 VP. 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 VP's assets will
fluctuate in value, whereas the interest obligations on borrowings may be fixed,
the net asset value per share of the ProFund VP will increase more when the
ProFund VP's portfolio assets increase in value and decrease more when the
ProFund VP'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 VP might have to sell portfolio
securities to meet interest or principal payments at a time when investment
considerations would not favor such sales.
<PAGE>
As required by the 1940 Act, a ProFund VP 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 VP's assets should fail to meet this 300% coverage
test, the ProFund VP, within three days (not including Sundays and holidays),
will reduce the amount of the ProFund VP'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 VP 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 VP's total assets. This borrowing is
not subject to the foregoing 300% asset coverage requirement. The ProFunds VP
are authorized to pledge portfolio securities as the Advisor deems appropriate
in connection with any borrowings.
LENDING OF PORTFOLIO SECURITIES
Each of the ProFunds VP 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 VP 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 VP any income accruing thereon, and the
ProFund VP may invest the cash collateral in portfolio securities, thereby
earning additional income. A ProFund VP will not lend more than 33 1/3% of the
value of the ProFund VP's total assets. Loans would be subject to termination by
the lending ProFund VP 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 VP. 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 VP may pay reasonable
finders, borrowers, administrative, and custodial fees in connection with a
loan.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each Benchmark ProFund VP, 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 VP makes the commitment to purchase securities on a when-issued or
delayed-delivery basis, the ProFund VP will record the transaction and
thereafter reflect the value of the securities, each day, in determining the
ProFund VP's net asset value. Each Benchmark ProFund VP will not purchase
securities on a when-issued or delayed-delivery basis if, as a result, more than
15% of the ProFund VP'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 VP will maintain liquid instruments equal
to or greater in value than the ProFund VP's purchase commitments for such
when-issued or delayed-delivery securities, or the Trust does not believe that a
ProFund VP's net asset value or income will be adversely affected by the ProFund
VP's purchase of securities on a when-issued or delayed delivery basis.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The ProFunds VP 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 VP invests in, and, thus, is a shareholder of,
another investment company, the ProFund VP's shareholders will indirectly bear
the ProFund VP'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 VP to the ProFund VP's own investment
adviser and the other expenses that the ProFund VP bears directly in connection
with the ProFund VP's own operations.
<PAGE>
ILLIQUID SECURITIES
While none of the ProFunds VP anticipates doing so, each of the ProFunds VP
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 VP will not invest more than 15% (10% with respect to Money Market VP)
of the ProFund VP'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 VP 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 VP 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.
At the time of investment, Money Market VP's aggregate holdings of
repurchase agreements having remaining maturities of more than seven calendar
days (or which may not be terminated within seven calendar days upon notice by
Money Market VP), time deposits having remaining maturities of more than seven
calendar days, illiquid securities, restricted securities and securities lacking
readily available market quotations will not exceed 10% of Money Market VP's net
assets. If changes in the liquidity of certain securities cause Money Market to
exceed such 10% limit, Money Market VP will take steps to bring the aggregate
amount of its illiquid securities back below 10% of its net assets as soon as
practicable, unless such action would not be in the best interest of Money
Market VP.
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 VP 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 VP have delegated this responsibility
for determining the liquidity of Rule 144A restricted securities which may be
invested in by a ProFund VP 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 VP's liquidity.
<PAGE>
PORTFOLIO QUALITY AND MATURITY (MONEY MARKET VP)
Money Market VP will maintain a dollar-weighted average maturity of 90 days
or less. All securities in which Money Market VP invests will have or be deemed
to have remaining maturities of 397 days or less on the date of their purchase,
will be denominated in U.S. dollars and will have been granted the required
ratings established herein by two nationally recognized statistical rating
organizations ("NRSRO") (or one such NRSRO if that NRSRO is the only such NRSRO
which rates the security), or if unrated, are believed by the Advisor, under the
supervision of Board of Trustees, to be of comparable quality. Currently, there
are five rating agencies which have been designated by the Commission as an
NRSRO. These organizations and their highest short-term rating category (which
may also be modified by a "+") are: Duff and Phelps Credit Rating Co., D-1;
Fitch IBCA, Inc., F1; Moody's Investors Service Inc. ("Moody's"), Prime-1;
Standard & Poor's, A-1; and Thomson BankWatch, Inc., T-1. A description of such
ratings is provided in the Appendix. The Advisor, acting under the supervision
of and procedures adopted by the Board of Trustees, will also determine that all
securities purchased by Money Market VP present minimal credit risks. The
Advisor will cause Money Market VP to dispose of any security as soon as
practicable if the security is no longer of the requisite quality, unless such
action would not be in the best interest of Money Market VP.
OBLIGATIONS OF BANKS AND OTHER FINANCIAL INSTITUTIONS (MONEY MARKET VP)
Money Market VP may invest in U.S. dollar-denominated fixed rate or
variable rate obligations of U.S. or foreign institutions, including banks which
are rated in the highest short-term rating category by any two NRSROs (or one
NRSRO if that NRSRO is the only such NRSRO which rates such obligations) or, if
not so rated, are believed by the Advisor, acting under the supervision of the
Board of Trustees, to be of comparable quality. Bank obligations in which Money
Market VP invests include certificates of deposit, bankers' acceptances, time
deposits, commercial paper, and other U.S. dollar-denominated instruments issued
or supported by the credit of U.S. or foreign institutions including banks. For
purposes of Money Market VP's investment policies with respect to bank
obligations, the assets of a bank will be deemed to include the assets of its
domestic and foreign branches. Obligations of foreign branches of U.S. banks and
foreign banks may be general obligations of the parent bank in addition to the
issuing bank or may be limited by the terms of a specific obligation and by
government regulation. If the Advisor, acting under the supervision of the Board
of Trustees, deems the instruments to present minimal credit risk, Money Market
VP may invest in obligations of foreign banks or foreign branches of U.S. banks
which include banks located in the United Kingdom, Grand Cayman Island, Nassau,
Japan and Canada. Investments in these obligations may entail risks that are
different from those of investments in obligations of U.S. domestic banks
because of differences in political, regulatory and economic systems and
conditions. These risks include, without limitation, future political and
economic developments, currency blockage, the possible imposition of withholding
taxes on interest payments, possible seizure or nationalization of foreign
deposits, and difficulty or inability of pursuing legal remedies and obtaining
judgment in foreign courts, possible establishment of exchange controls or the
adoption of other foreign governmental restrictions that might affect adversely
the payment of principal and interest on bank obligations. Foreign branches of
U.S. banks and foreign banks may also be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
standards than those applicable to branches of U.S. banks. Under normal market
conditions, Money Market VP will invest more than 25% of its assets in the
foreign and domestic bank obligations described above. Money Market VP's
concentration of its investments in bank obligations will cause Money Market VP
to be subject to the risks peculiar to the domestic and foreign banking
industries to a greater extent than if its investments were not so concentrated.
A description of the ratings set forth above is provided in the Appendix.
COMMERCIAL PAPER, OTHER DEBT OBLIGATIONS AND CREDIT ENHANCEMENT (MONEY MARKET
VP)
COMMERCIAL PAPER. Money Market VP may invest in fixed rate or variable rate
commercial paper, including variable rate master demand notes, issued by U.S. or
foreign entities. Commercial paper when purchased by Money Market VP must be
rated the highest short-term rating category by any two NRSROs (or one NRSRO if
that NRSRO is the only such NRSRO which rates objections, or if not rated, must
be believed by the Advisor, acting under the supervision of the Board of
Trustees, to be of comparable quality. Any commercial paper issued by a foreign
entity and purchased by Money Market VP must be U.S. dollar-denominated and must
not be subject to foreign withholding tax at the time of purchase. Investing in
foreign commercial paper generally involves risks similar to those described
above relating to obligations of foreign banks or foreign branches of U.S.
banks.
<PAGE>
Variable rate master demand notes are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. Because variable rate master demand notes are direct lending
arrangements between Money Market VP and the issuer, they are not normally
traded. Although no active secondary market may exist for these notes, Money
Market VP will purchase only those notes under which it may demand and receive
payment on principal and accrued interest daily or may resell the note to a
third party. While the notes are not typically rated by credit rating agencies,
issuers of variable rate master demand notes must satisfy the Advisor, acting
under the supervision of the Board of Trustees, that the same criterion set
forth above for issuers of commercial paper are met. In the event an issuer of a
variable rate master demand note defaulted on its payment obligation, Money
Market VP might be unable to dispose of the note because of the absence of a
secondary market and could, for this or other reasons, suffer a loss to the full
extent of the default. The face maturities of variable rate notes subject to a
demand feature may exceed 397 days in certain circumstances.
OTHER DEBT OBLIGATIONS. Money Market VP may invest in deposits, bonds,
notes and debentures and other debt obligations that at the time of purchase
have, or are comparable in priority and security to other securities of such
issuer which have, outstanding short-term obligations meeting the above
short-term rating requirements, or if there are no such short-term ratings, are
determined by the Advisor, acting under the supervision of the Board of
Trustees, to be of comparable quality and are rated in the top three highest
long-term categories by the NRSROs rating such security.
CREDIT ENHANCEMENT. Certain of Money Market VP's acceptable investments may
be credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the party
providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to Money Market
VP and affect Money Market VP's share price. Money Market VP may have more than
25% of its total assets invested in securities credit-enhanced by banks.
ASSET-BACKED SECURITIES. Money Market VP may also invest in securities
generally referred to as asset-backed securities, which directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets, such as motor vehicle or
credit card receivables. Asset-backed securities may provide periodic payments
that consist of interest and/or principal payments. Consequently, the life of an
asset-backed security varies with the prepayment and loss experience of the
underlying assets.
PORTFOLIO TURNOVER
The nature of the ProFunds VP will cause the ProFunds VP 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 VP. In addition, a ProFund VP's
portfolio turnover level may adversely affect the ability of the ProFund VP to
achieve its investment objective. Because each ProFund VP's portfolio turnover
rate to a great extent will depend on the purchase, redemption, and exchange
activity of the ProFund VP's investors, it is difficult to estimate what the
ProFund VP'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 Benchmark ProFunds VP 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 VP is calculated without regard to instruments, including
options and futures contracts, having a maturity of less than one year. Bull VP,
UltraBull VP, Bear VP, UltraBear VP, and Small Cap VP typically hold most of
their investments in short-term options and futures contracts, which, therefore,
are excluded for purposes of computing portfolio turnover. Therefore, based on
the Commission's portfolio turnover formula, each of these ProFunds VP expects a
portfolio turnover rate of approximately 0%.
<PAGE>
SPECIAL CONSIDERATIONS
To the extent discussed above and in the prospectus, the ProFunds VP
present certain risks, some of which are further described below.
TRACKING ERROR. While the Benchmark ProFunds VP 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 VP expenses, including
brokerage (which may be increased by high portfolio turnover) and the cost of
the investment techniques employed by the ProFunds VP; (2) less than all of the
securities in the benchmark being held by a ProFund VP and securities not
included in the benchmark being held by a ProFund VP; (3) an imperfect
correlation between the performance of instruments held by a ProFund VP, such as
futures contracts and options, and the performance of the underlying securities
in the cash market; (4) bid-ask spreads (the effect of which may be increased by
portfolio turnover); (5) holding instruments traded in a market that has become
illiquid or disrupted; (6) ProFund VP 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 VP'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 VP trade, resulting in the inability of the ProFund VP to execute
intended portfolio transactions. While a close correlation of any ProFund VP 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 VP may diverge significantly from the cumulative percentage
decrease or increase in the benchmark due to a compounding effect.
LEVERAGE. UltraBull VP, UltraBear VP, UltraOTC VP, UltraEurope VP,
UltraShort OTC VP and UltraShort Europe VP intend to regularly use leveraged
investment techniques in pursuing their investment objectives. Utilization of
leveraging involves special risks and should be considered to be speculative.
Leverage exists when a ProFund VP achieves the right to a return on a capital
base that exceeds the amount the ProFund VP has invested. Leverage creates the
potential for greater gains to shareholders of these ProFund VP 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 VP'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 VP to pay interest which would decrease the ProFund VP's total
return to shareholders. If these ProFunds VP 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 VP not been leveraged.
NON-DIVERSIFIED STATUS. Each Benchmark ProFund VP is a "non-diversified"
series. Each Benchmark ProFund VP is considered "non-diversified" because a
relatively high percentage of the ProFund VP's assets may be invested in the
securities of a limited number of issuers, primarily within the same economic
sector. That ProFund VP'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 VP's
classification as a "non-diversified" investment company means that the
proportion of the ProFund VP's assets that may be invested in the securities of
a single issuer is not limited by the 1940 Act. Each ProFund VP, 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 VP that are less restrictive than the requirements applicable to the
"diversified" investment companies under the 1940 Act.
INVESTMENT RESTRICTIONS
The ProFunds VP 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 VP, 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 VP are present or represented by proxy; or (ii) more than 50% of the
outstanding shares of the series. (All policies of a ProFund VP 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
VP.) For purposes of the following limitations, all percentage limitations apply
immediately after a purchase or initial investment.
<PAGE>
A ProFund VP 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). With respect to Money Market VP,
this restriction does not apply to securities or obligations issued by U.S.
banks.
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 VP 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 VP 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 VP (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 VP may not pledge its
assets other than to secure such borrowings or, to the extent permitted by the
ProFund VP'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 VP
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 VP may do so in accordance with applicable law and the
ProFund VP'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 VP (except UltraEurope
VP and UltraShort Europe VP) are determined as of the close of business of the
NYSE (ordinarily, 4:00 p.m. Eastern Time) on each day the NYSE and the Chicago
Mercantile Exchange ("CME") are open for business (in the case of Money Market
VP, net asset value is determined as of the close of business on each day the
NYSE is open for business.)
<PAGE>
The net asset values of the shares of UltraEurope VP and UltraShort Europe
VP are determined as of the latest close of trading of the three exchanges
tracked by the PEI (ordinarily 11:30 AM Eastern Time) on each day the NYSE,
London Stock Exchange, Frankfurt Stock Exchange and Paris Stock Exchange are
open for business (see Prospectus for applicable holiday closings). To the
extent that portfolio securities of a ProFund VP are traded in other markets on
days when the ProFund VP's principal trading market(s) is closed, the ProFund
VP's net asset value may be affected on days when investors do not have access
to the ProFund VP to purchase or redeem shares. Although the ProFunds VP expect
the same holiday schedules to be observed in the future, the exchanges may
modify their holiday schedules at any time.
The net asset value of shares of a ProFund VP serves as the basis for the
purchase and redemption price of that class of shares. The net asset value per
share of a ProFund VP is calculated by dividing the market value of the ProFund
VP's assets, less all liabilities attributed to the ProFund VP, by the number of
outstanding shares of the ProFund VP. 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. Money Market VP's net asset value per share will normally be $1.00. There
is no assurance that the $1.00 net asset value will be maintained.
The securities in the portfolio of a Benchmark ProFund VP, except as
otherwise noted, that are listed or traded on a stock exchange, are valued on
the basis of the last sale on that day or, lacking any sales, at a price that is
the mean between the closing bid and asked prices. Other securities that are
traded on the OTC markets are priced using NASDAQ, which provides information on
bid and asked prices quoted by major dealers in such stocks. Bonds, other than
convertible bonds, are valued using a third-party pricing system. Convertible
bonds are valued using this pricing system only on days when there is no sale
reported. Short-term debt securities are valued using this pricing system only
on days when there is no sale reported. Short-term debt securities are valued at
amortized cost, which approximates market value. When market quotations are not
readily available, securities and other assets are valued at fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the ProFunds' Board of Trustees.
Except for futures contracts held by UltraEurope VP and UltraShort Europe
VP, futures contracts maintained by ProFunds VP 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 VP 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 VP will be valued on the
basis of the day's settlement prices on the futures exchange or fair value.
For UltraEurope VP and UltraShort Europe VP, futures contracts are valued
at their last transaction prices for the respective futures contracts that occur
immediately prior to the close of the underlying stock exchange. 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 these ProFunds VP are valued at their last sale price immediately
prior to the close of the underlying stock exchange.
AMORTIZED COST VALUATION
Money Market VP will utilize the amortized cost method in valuing its
portfolio securities, which does not take into account unrealized capital gains
or losses. This method involves valuing each security held by Money Market VP at
its cost at the time of its purchase and thereafter assuming a constant
amortization to maturity of any discount or premium. Accordingly, immaterial
fluctuations in the market value of the securities held by Money Market VP will
not be reflected in Money Market VP's net asset value. The Board of Trustees
will monitor the valuation of assets of this method and will make such changes
as it deems necessary to assure that the assets of Money Market VP are valued
fairly in good faith.
<PAGE>
Money Market VP's use of the amortized cost method of valuing its
securities is permitted by a rule adopted by the Commission. Under this rule,
Money Market VP must maintain a dollar-weighted average portfolio maturity of 90
days or less, purchase only instruments having remaining maturities of 397 days
or and invest only in securities determined by or under the supervision of the
Board of Trustees to be of high quality with minimal credit risks.
Pursuant to the rule, the Board of Trustees also has established procedures
designed to stabilize, to the extent reasonably possible, the investors' price
per share as computed for the purpose of sales and redemptions at $1.00. These
procedures include review of Money Market VP's holdings by the Board of
Trustees, at such intervals as it deems appropriate, to determine whether the
value of Money Market VP's assets calculated by using available market
quotations or market equivalents deviates from such valuation based on amortized
cost.
The rule also provides that the extent of any deviation between the value
of Money Market VP's assets based on available market quotations or market
equivalents and such valuation based on amortized cost must be examined by the
Board of Trustees. In the event the Board of Trustees determines that a
deviation exists that may result in material dilution or other unfair results to
investors or existing shareholders, pursuant to the rule, the Board of Trustees
must cause Money Market VP to take such corrective action as the Board of
Trustees regards as necessary and appropriate, including: selling portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding dividends or paying distributions from
capital or capital gains; redeeming shares in kind; or valuing Money Market VP's
assets by using available market quotations.
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
VP, the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. The Advisor expects that the
ProFunds VP 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 VP
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 VP 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 VP and the
other client accounts.
The policy of each ProFund VP regarding purchases and sales of securities
for a ProFund VP'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 VP'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 VP believes
that a requirement always to seek the lowest possible commission cost could
impede effective portfolio management and preclude the ProFund VP 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.
<PAGE>
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. Similarly, purchases and sales of securities on behalf of
Money Market VP usually are principal transactions. Such transactions are made
on a net basis and do not involve payment of brokerage commissions. The cost of
securities purchased from an underwriter usually includes a commission paid by
the issuer to the underwriters; transactions with dealers normally reflect the
spread between bid and asked prices.
In seeking to implement a ProFund VP'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 VP 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 VP
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 ProFunds' 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; President,
Rydex Distributors, Inc.; Senior Vice President, General Counsel, Padco
Advisors, Inc.; Partner, Jorden Burt Berenson & Klingensmith. His address is
7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814.
LOUIS M. MAYBERG* (birthdate: August 9, 1962). 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.
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.
<PAGE>
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 ProFunds VP and the
Advisor, dated October 18, 1999, each of Bull VP, UltraBull VP, Bear VP,
UltraBear VP, UltraOTC VP, UltraShort OTC VP, SmallCap VP and Europe 30 VP pays
the Advisor a fee at an annualized rate, based on its average daily net assets,
of 0.75%, each of UltraEurope VP and UltraShort Europe VP pays the Advisor a fee
at an annualized rate, based on its average daily net assets, of __%, and Money
Market VP pays the Advisor a fee at an annualized rate, based on its average
daily net assets, of __%. The Advisor manages the investment and the
reinvestment of the assets of each of the ProFunds VP, in accordance with the
investment objectives, policies, and limitations of each ProFund VP, subject to
the general supervision and control of Trustees and the officers of ProFunds VP.
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 VP, 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
VP 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 VP. The Administrator provides the
ProFunds VP 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 VP under Federal and
state securities laws. The Administrator also maintains the shareholder account
records for the ProFunds VP, distributes dividends and distributions payable by
the ProFunds VP, and produces statements with respect to account activity for
the ProFunds VP and their shareholders. The Administrator pays all fees and
expenses that are directly related to the services provided by the Administrator
to the ProFunds VP; each ProFund VP 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 VP under the service
agreement.
For its services as Administrator, each ProFund VP 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 VP, for which it receives additional fees. Additionally, ProFunds VP
and BISYS and BFSI have entered into an Omnibus Fee Agreement in which the
amount of compensation due and payable to BISYS shall be $12,500 per CUSIP per
year. 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 VP. These services include, in general, assisting the Board of Trustees
of the Trust in all aspects of the administration and operation of Money Market
VP. For these services, each ProFund VP will pay to the Advisor a fee at the
annual rate of .15% of its average daily net assets for all Benchmark ProFunds
VP.
UMB Bank, N.A. acts as custodian to the Benchmark ProFunds VP. UMB Bank,
N.A.'s address is 928 Grand Avenue, Kansas City, Missouri.
ADMINISTRATIVE SERVICES
The Trust, on behalf of the UltraOTC VP, Small Cap VP, and Europe 30 VP,
has entered into an administrative services agreement with American Skandia Life
Assurance Corporation ("American Skandia") pursuant to which American Skandia
will provide administrative services with respect to these ProFunds VP. These
services may include, but are not limited to: coordinating matters relating to
the operation of American Skandia's separate account with these ProFunds VP,
including necessary coordination with other service providers; coordinating the
preparation of necessary documents to be submitted to regulatory authorities;
providing assistance to variable contract powers who use or intend to use the
ProFunds VP as funding vehicles for their variable contracts; coordinating with
the Advisor regarding investment limitations and parameters to which these
ProFunds VP are subject; and generally assisting with compliance with applicable
regulatory requirements. For these services, the Trust pays American Skandia a
quarterly fee equal on an annual basis to 0.25% of the average daily net assets
of each ProFund VP that were invested in such ProFund VP through American
Skandia's separate account.
From time to time the ProFunds VP and/or the Advisor may enter into
arrangements under which certain administrative services may be performed by
other insurance companies that purchase shares of the ProFunds VP. These
administrative services may include, among other things, the services set forth
above, as well as responding to ministerial inquiries concerning the ProFunds VP
investment objectives, investment programs, policies and performance,
transmitting, on behalf of the ProFunds VP, proxy statements, annual reports,
updated prospectuses, and other communications regarding the ProFunds VP, and
providing any related services as the ProFunds VP or their investors may
reasonably request. Depending on the arrangements, the ProFunds VP and/or the
Advisor may compensate such insurance companies or their agents directly or
indirectly for the administrative services. To the extent the ProFunds VP
compensate the insurance company for these services, the ProFunds VP will pay
the insurance company an annual fee that will vary depending upon the number of
investors that utilize the ProFunds VP as the funding medium for their
contracts. The insurance company may impose other account or service charges.
See the prospectus for the separate account of the insurance company for
additional information regarding such charges.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP serves as independent auditors to the ProFunds
VP. 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 VP. The firm's
address is 1775 Eye Street, N.W., Washington, DC 20006-2401.
DISTRIBUTION PLAN
Pursuant to a Distribution Plan, the ProFunds VP may reimburse or
compensate financial intermediaries from their assets for services rendered and
expenses borne in connection with activities primarily intended to result in the
sale of ProFunds VP shares. It is anticipated that a portion of the amounts
paid by ProFunds VP will be used to defray various costs incurred in connection
with the printing and mailing of prospectuses, statements of additional
information, and any supplements thereto and shareholder reports, and holding
seminars and sales meetings with wholesale and retail sales personnel designed
to promote the distribution of the Funds' shares. The ProFunds VP also may
reimburse or compensate financial intermediaries and third-party broker-dealers
for their services in connection with the distribution of the shares of the
ProFunds VP.
The Distribution Plan provides that the Trust, on behalf of each ProFund
VP, will pay annually up to 0.25% of the average daily net assets of a ProFund
VP in respect of activities primarily intended to result in the sale of its
shares. Under the terms of the Distribution Plan and related agreements, each
ProFund VP is authorized to make quarterly payments that may be used to
reimburse or compensate entities providing distribution and shareholder
servicing with respect to the shares of the ProFund VP for such entities' fees
or expenses incurred or paid in that regard.
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The Distribution Plan is of a type known as a "compensation" plan because
payments may be made for services rendered to the ProFunds VP regardless of the
level of expenditures by the financial intermediaries. The Trustees will,
however, take into account such expenditures for purposes of reviewing
operations under the Distribution Plan in connection with their annual
consideration of the Distribution Plan's renewal. Expenditures under the
Distribution Plan may include, without limitation: (a) the printing and mailing
of ProFunds VP prospectuses, statements of additional information, any
supplements thereto and shareholder reports for prospective investors; (b) those
relating to the development, preparation, printing and mailing of
advertisements, sales literature and other promotional materials describing
and/or relating to the ProFunds VP; (c) holding seminars and sales meetings
designed to promote the distribution of the ProFunds VP shares; (d) obtaining
information and providing explanations to wholesale and retail distributors of
contracts regarding the investment objectives and policies and other information
about the ProFunds VP, including the performance of the ProFunds VP; (e)
training sales personnel regarding the ProFunds VP; and (f) financing any other
activity that is primarily intended to result in the sale of shares of the
ProFunds VP. In addition, a financial intermediary may enter into an agreement
with the Trust under which it would be entitled to receive compensation for,
among other things, making the ProFunds VP available to its contract owners as
funding vehicles for variable insurance contracts.
The Distribution Plan and any related agreement that is entered into by the
Trust in connection with the Distribution Plan will continue in effect for a
period of more than one year only so long as continuance is specifically
approved at least annually by a vote of a majority of the Trust's Board of
Trustees, and of a majority of the Trustees who are not "interested persons" of
the Trust and who have no financial interest in the operation of the
Distribution Plan (the "Independent Trustees"), cast in person at a meeting
called for the purpose of voting on the Distribution Plan or any related
agreement, as applicable. In addition, the Distribution Plan and any related
agreement may be terminated as to a ProFund VP at any time, without penalty, by
vote of a majority of the outstanding shares of the ProFund VP or by vote of a
majority of the Independent Trustees. The Distribution Plan also provides that
it may not be amended to increase materially the amount (up to 0.25% of average
daily net assets annually) that may be spent for distribution of shares of any
ProFund VP without the approval of shareholders of that ProFund VP.
COSTS AND EXPENSES
Each ProFund VP bears all expenses of its operations other than those
assumed by the Advisor or the Administrator. ProFund VP expenses include: the
management fee; administrative and transfer agent 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.
<PAGE>
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 separately managed series, eleven of which are described
herein. Other separate series may be added in the future. As of the date of this
SAI, only three of the eleven series described herein have been offered to the
public.
All shares of the ProFunds VP 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.
TAXATION
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the ProFunds VP and the purchase, ownership, and disposition of
ProFund VP 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 VP shares, as well as the tax consequences arising under
the laws of any state, foreign country, or other taxing jurisdiction.
Each of the ProFunds VP 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 VP
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 VP'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 VP'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 VP 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 VP'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 VP 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 VP level. To avoid the tax, each ProFund VP 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 VP 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 VP in October, November or December of that year with a
record date in such a month and paid by the ProFund VP 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 VP 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 VP in each
taxable year in which the ProFund VP owns an interest in such debt security and
receives a principal payment on it. In particular, the ProFund VP 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 VP at a constant
rate over the time remaining to the debt security's maturity or, at the election
of the ProFund VP, 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 VP 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 VP, 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 VP 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).
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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 VP 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 VP 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 VP may result in "straddles" for federal income tax purposes. The
straddle rules may affect the character of gains (or losses) realized by a
ProFund VP, and losses realized by the ProFund VP 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 VP
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 VP are not
entirely clear. The straddle rules may increase the amount of short-term capital
gain realized by a ProFund VP, 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 VP engages in transactions that reduce or eliminate its risk of loss
with respect to appreciated financial positions. If the ProFund VP enters into
certain transactions in property while holding substantially identical property,
the ProFund VP 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 VP'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 VP's holding period and the application of various
loss deferral provisions of the Code.
PASSIVE FOREIGN INVESTMENT COMPANIES
The ProFunds VP 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 VP receives a so-called "excess
distribution" with respect to PFIC stock, the ProFund VP 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 VP 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 VP held the PFIC
shares. Each ProFund VP will itself be subject to tax on the portion, if any, of
an excess distribution that is so allocated to prior ProFund VP 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.
<PAGE>
The ProFunds VP 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 VP 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 VP'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 VP shares would be deductible
as ordinary losses to the extent of any net mark-to-market gains included in
income in prior years.
BACKUP WITHHOLDING
Each ProFund VP 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 VP with the shareholder's correct taxpayer
identification number or social security number, (2) the IRS notifies the
shareholder or the ProFund VP 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.
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 VP 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 VP 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 VP'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 VP is required to distribute as
dividends to shareholders in order for the ProFund VP 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 VP's shares;
the total return on a shareholder's investment will not be reduced as a result
of the ProFund VP'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 VP may advertise the total return
of the ProFund VP 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 VP. Other total return quotations,
aggregate or average, over other time periods for the ProFund VP also may be
included.
<PAGE>
The total return of a ProFund VP for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the ProFund
VP 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 VP 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 VP.
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equal the initial amount invested to the ending redeemable value.
YIELD CALCULATIONS
From time to time, Money Market VP advertises its "yield" and "effective
yield." Both yield figures are based on historical earnings and are not intended
to indicate future performance. The "yield" of Money Market VP refers to the
income generated by an investment in Money Market VP over a seven-day period
(which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly, but, when annualized, the income earned by an investment in Money
Market VP is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
Since yield fluctuates, yield data cannot necessarily be used to compare an
investment in Money Market VP's shares with bank deposits, savings accounts, and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders of Money Market VP should
remember that yield generally is a function of the kind and quality of the
instrument held in portfolio, portfolio maturity, operating expenses, and market
conditions.
COMPARISONS OF INVESTMENT PERFORMANCE
In conjunction with performance reports, promotional literature, and/or
analyses of shareholder service for a ProFund VP, comparisons of the performance
information of the ProFund VP 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
Deutche Aktienindex, all of which are unmanaged market indicators. Such
comparisons can be a useful measure of the quality of a ProFund VP's investment
performance. In particular, performance information for Bull VP, UltraBull VP,
Bear VP and UltraBear VP may be compared to various unmanaged indexes,
including, but not limited to, the S&P 500 Index or the Dow Jones Industrial
Average; performance information for UltraOTC VP and UltraShort OTC VP may be
compared to various unmanaged indexes, including, but not limited to its current
benchmark, the NASDAQ 100 Index; and performance information for Small Cap may
be compared to various unmanaged indexes, including, but not limited to, its
current benchmark, the VP Russell 2000(R) Index.
<PAGE>
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 VP also may be compared to the performances of broad
groups of comparable mutual funds with similar investment goals, as such
performance is tracked and published by such independent organizations as Lipper
and CDA Investment Technologies, Inc., among others. The Lipper ranking and
comparison, which may be used by the ProFunds VP in performance reports, will be
drawn from the "Capital Appreciation Funds" grouping for Bull VP, UltraBull VP,
Bear VP and UltraBear VP and from the "Small Company Growth Funds" grouping for
UltraOTC VP and Small Cap VP. In addition, the broad-based Lipper groupings may
be used for comparison to any of the ProFunds VP. Further information about the
performance of the ProFunds VP will be contained in the ProFunds VP annual
reports to shareholders, which may be obtained without charge by writing to the
ProFunds VP at the address or telephoning the ProFunds VP at the telephone
number set forth on the cover page of this SAI. However, because the ProFunds VP
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. After purchase by Money Market VP, an obligation may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Money Market VP. Neither event would require Money Market VP to
eliminate the obligation from its portfolio, but the Advisor will consider such
an event in its determination of whether Money Market VP should continue to hold
the obligation. A description of the ratings used herein and in the Prospectus
is set forth in the Appendix to this SAI.
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"). S&P makes no
representation or warranty, express or implied, to the owners of shares of the
ProFunds VP or any member of the public regarding the advisability of investing
in securities generally or in the ProFunds VP particularly or the ability of the
S&P 500 Index to track general stock market performance. S&P's only relationship
to the Licensee is the licensing of certain trademarks and trade names of S&P
and of the S&P 500 Index which is determined, composed and calculated by S&P
without regard to the Licensee or the ProFunds VP. S&P has no obligation to take
the needs of the Licensee or the owners of shares of the ProFunds VP into
consideration in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination or calculation
of the equation by which the shares of the ProFunds VP are to be converted into
cash. S&P has no obligation or liability in connection with the administration,
marketing or trading of the ProFunds VP.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX 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 VP, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX 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 500 INDEX 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 VP 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
EUROPE 30 INDEX
As of the date of the Prospectus, the following companies comprise the
Europe Index.
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS
DESCRIPTION OF S&P'S CORPORATE RATINGS:
AAA-Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issuers only in small degree.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major categories,
except in the AAA rating category.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
Aaa-Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
DESCRIPTION OF FITCH INVESTORS SERVICE'S CORPORATE BOND RATINGS:
AAA-Securities of this rating are regarded as strictly high-grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions, and
liable to 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 VP.
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.
<PAGE>
DESCRIPTION OF S&P'S MUNICIPAL NOTE RATINGS:
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1 or SP-2) to distinguish more clearly the credit
quality of notes as compared to bonds. Notes rated SP-1 have a very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given the designation of SP-1+.
Notes rated SP-2 have a satisfactory capacity to pay principal and interest.
DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS:
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG-1/VMIG-1 are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the market for
refinancing, or both. Loans the designation MIG-2/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
(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 incorporated by reference to Bankers Trust
Company's Registration Statement on Form N-1A ('40 Act
file no. 811-06073) filed with the Commission on April
24, 1996.
(d)(3) Amendment to Investment Advisory Agreement between
ProFunds and ProFund Advisors LLC (3)
(d)(4) Investment Advisory Agreement for UltraEurope and
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
(h)(9) Form of Participation Agreement
(h)(10) Form of Administrative Services Agreement
(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
(m)(2) Form of Services Agreement
(n) Financial Data Schedules
(o)(1) Multiple Class Plan (2)
(o)(2) Amended and Restated Multi-Class Plan (4)
(p)(1) Power of Attorney of Cash Management Portfolio
incorporated by reference to Bankers Trust Company's
Registration Statement on Form N-1A filed with the
Commission on March 19, 1997.
(p)(2) Power of Attorney of Charles A. Rizzo(5)
(p)(3) 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.
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:
<TABLE>
<S> <C> <C>
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 certifies that it meets all of
the requirements for effectiveness of this post-effective amendment to its
Registration Statement under Rule 485(b) under the Securities Act of 1933 and
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 October 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 October 15, 1999
Michael L. Sapir
/s/ LOUIS MAYBERG* Trustee, Secretary October 15, 1999
Louis Mayberg
/s/ RUSSELL S. REYNOLDS, III* Trustee October 15, 1999
Russell S. Reynolds, III
/s/ MICHAEL WACHS* Trustee October 15, 1999
Michael Wachs
/s/ NIMISH BHATT* Treasurer October 15, 1999
Nimish Bhatt
*By: /s/ KEITH T. ROBINSON
Keith T. Robinson
as Attorney-in-Fact
Date: October 15, 1999
<PAGE>
SIGNATURES
CASH MANAGEMENT PORTFOLIO
CASH MANAGEMENT PORTFOLIO has duly caused this Post-Effective Amendment No.
8 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 14th day of October, 1999.
CASH MANAGEMENT PORTFOLIO
/s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
This Post-Effective Amendment No. 8 to the Registration Statement on Form
N-1A of ProFunds has been signed below by the following persons in the
capacities indicated with respect to Cash Management Portfolio on October 14th
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/ Philip Saunders, Jr.* Trustee
- --------------------------------------
Philip Saunders, Jr.
*By: /s/ DANIEL O. HIRSCH
Daniel O. Hirsch, Secretary of Cash Management Portfolio
as Attorney-in-Fact
Date: October 14, 1999
<PAGE>
Exhibit Index
Exhibit Description
(a)(5) Form of Establishment and Designation of Eleven Series dated
October 15, 1999
(d)(5) Form of Amended and Restated Investment Advisory Agreement
(h)(8) Form of Amendment to Omnibus Fee Agreement
(h)(9) Form of Participation Agreement
(h)(10) Form of Administrative Services Agreement
(j) Consent of Independent Auditors
(m)(1) Form of Distribution Plan
(m)(2) Form of Services Agreement
(n) Financial Data Schedules
PROFUNDS
Establishment and Designation of Eleven 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 eleven
additional separate series (the "Funds"), 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:
ProFund VP Bull
ProFund VP UltraBull
ProFund VP UltraOTC
ProFund VP Europe 30
ProFund VP UltraEurope
ProFund VP Small Cap
ProFund VP Bear
ProFund VP UltraBear
ProFund VP UltraShort OTC
ProFund VP UltraShort Europe
ProFund VP Money Market
2. The Funds 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 Funds 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 the Funds 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 the Funds if acted upon as provided
in Rule 18f-2 under such Act, or any successor rule, and in the Declaration of
Trust.
<PAGE>
4. The assets and liabilities of the Trust shall be allocated among the
Funds 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, rule or accounting standard or
principle; 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, rule or accounting standard or principle.
(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 any class of each Fund may vary between themselves as to
rights of redemption and conversion rights, as may be approved by the Trustees
and set out in each 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 Funds now or hereafter created or to otherwise change the
special and relative rights of any such Funds, provided that such change shall
not adversely affect the rights of the Shareholders of such Funds.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the date set forth below.
Date: October 15, 1999
------------------------------------
Michael Sapir, as Trustee
------------------------------------
Louis Mayberg, as Trustee
------------------------------------
Russel S. Reynolds, III, as Trustee
------------------------------------
Michael Wachs, as Trustee
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 28th day of October, 1997 and amended as of
February 18, 1998 and amended and restated as of October 15, 1999, 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, 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
AMENDMENT TO
OMNIBUS FEE AGREEMENT
This Amendment is made as of October 15, 1999, among ProFunds (the
"Company"), BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS LP") and BISYS Fund Services, Inc. ("BISYS"). The parties hereby amend
the Omnibus Fee Agreement (the "Agreement") among the Company, BISYS LP and
BISYS, dated as of October 28, 1997, as set forth below.
WHEREAS, the parties hereto wish to modify the fee schedule set forth
in the section of Schedule A to the Agreement entitled "Transfer Agency
Services".
NOW THEREFORE, in consideration of the foregoing and the mutual
premises and covenants herein set forth, the parties agree as follows:
1. Capitalized terms not otherwise defined herein shall have the
same meaning as in the Agreement.
2. Schedule A to the Agreement shall be amended by replacing the
section entitled "Transfer Agency Services" with the following:
Transfer Agency Services
The Company shall pay to BISYS LP on the first
business day of each month, or at such time(s) as
BISYS LP shall request and the parties hereto shall
agree, the fees set forth below.
For the ProFund VP UltraOTC, the ProFund VP
SmallCap and the ProFund VP Europe 30:
$12,500 per cusip per year
For all other Funds of the Company*: an annual fee of
$15.00 per shareholder account.
The fees set forth above shall be in addition to the payment
of out-of-pocket expenses, as provided for in the Transfer
Agency Agreement.
*Excluded from this fee schedule are the following Funds,
which have been registered but have not commenced operations:
ProFund VP Bull, ProFund VP UltraBull, ProFund VP UltraEurope,
ProFund VP Bear, ProFund VP UltraBear, ProFund VP UltraShort
OTC, ProFund VP UltraShort Europe, and ProFund VP Money
Market.
<PAGE>
3. This Amendment may be executed in one or more counterparts, each
of which will be deemed an original, but all of which together
shall constitute one and the same instrument.
4. Except as specifically set forth herein, all other provisions of
the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as
of the date first written above.
PROFUNDS
By: __________________________________
Title:________________________________
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By: __________________________________
Title:________________________________
BISYS FUND SERVICES, INC.
By: __________________________________
Title: _______________________________
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 18th day of October 1999 (the
"Agreement") by and among American Skandia Life Assurance Corporation, organized
under the laws of the State of Connecticut (the "Company"), on behalf of itself
and each separate account of the Company named in Schedule A to this Agreement,
as may be amended from time to time (each separate account referred to as the
"Separate Account" and collectively as the "Separate Accounts"); ProFunds, an
open-end management investment company organized under the laws of the State of
Delaware, solely on behalf of each of its "VP ProFunds" series named in Schedule
B to this Agreement ("Trust"); and ProFunds Advisors LLC, a limited liability
corporation organized under the laws of the State of Maryland and investment
adviser to the Trust (the "Adviser").
WHEREAS, the Trust engages in business as an open-end diversified, management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
contracts and variable annuity contracts to be offered by insurance companies
that have entered into participation agreements substantially similar to this
Agreement ("Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Trust are divided into several series of
shares, each representing the interest in a particular managed portfolio of
securities and other assets (each, a "Fund" and collectively, the "Funds"); and
WHEREAS, the Company, as depositor, has established the Separate Accounts to
serve as investment vehicles for certain variable annuity contracts and variable
life insurance policies and funding agreements offered by the Company set forth
on Schedule A (the "Contracts"); and
WHEREAS, the Separate Accounts are duly organized, validly existing segregated
asset accounts, established by resolutions of the Board of Directors of the
Company under the insurance laws of the State of Connecticut, to set aside and
invest assets attributable to the Contracts; and
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the VP ProFunds series named in
Schedule B, as such schedule may be amended from time to time ("Designated
Funds") on behalf of the Separate Accounts to fund the Contracts; and
WHEREAS, the Adviser is authorized to sell such shares of each Designated Fund
to unit investment trusts such as the Separate Accounts at net asset value.
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Trust and the Adviser agree as follows:
ARTICLE I - SALE OF FUND SHARES
1.1 The Adviser agrees to sell to the Company those shares of the
Designated Funds that the Company orders on behalf of each Separate
Account, executing such orders on a daily basis at the net asset value
(and with no sales charges) next computed after receipt and acceptance
by the Trust or its designee of the order for the shares of the
Designated Fund. For purposes of this Section 1.1, the Company will be
the designee of the Trust solely for the purpose of receiving such
orders from each Separate Account and receipt by such designee will
constitute receipt by the Trust, provided that the Company provides the
Trust with a purchase order by 8:30 a.m. Eastern Time on the next
following Business Day. "Business Day" will mean any day on which the
New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the Securities
and Exchange Commission (the "Commission"). However, to facilitate the
Trust's daily trading practices, the Company has agreed to provide the
Trust with an "estimated trade" and other information relating to the
Designated Funds at certain times prior to the close of business on
each Business Day. The Trust may net redemption requests it receives
from the Company under Section 1.3 of this Agreement against purchase
orders it receives from the Company under this Section 1.1.
1.2 The Company will transmit payment for shares of any Designated Fund
purchased by 2:00 p.m. Eastern Time on the same Business Day an order
to purchase such shares is provided to the Trust, in accordance with
Section 1.1. Payment will be made in federal funds transmitted by wire.
If payment is not transmitted by 2:00 p.m. Eastern Time, the Trust may
temporarily advance funds in an amount equal to the amount of federal
funds, to be transmitted by the Company pursuant to this Section 1.2.,
and Designated Fund shares purchased using those funds will be issued.
The Company shall promptly reimburse the Trust for such funds advanced
as well as any reasonable charges, costs, fees, interest or other
expenses incurred by the Trust in connection with any advances to, or
borrowing or overdrafts by, the Trust, or any similar reasonable
expenses incurred by the Trust, as a result of portfolio transactions
effected by the Trust based upon such purchase request. Upon receipt by
the Trust of the purchase payment, such funds shall cease to be the
responsibility of the Company and shall become the responsibility of
the Trust.
<PAGE>
1.3 The Trust agrees to redeem, upon the Company's request, any full or
fractional shares of the Designated Fund held by the Company, executing
such requests on a daily basis at the net asset value next computed
after receipt and acceptance by the Trust or its designee. Except as
otherwise provided herein, the Company shall not redeem Trust shares
attributable to the Contracts (as opposed to Trust shares attributable
to the Company's assets held in the Separate Accounts) except (i) as
necessary to implement Contract owner initiated or approved
transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general
application, (iii) upon written notice to the Trust as permitted by an
order of the Commission pursuant to Section 26(b) of the Investment
Company Act of 1940, as amended (the "1940 Act"), or (iv) as permitted
under the terms of the Contract. For purposes of this Section 1.3, the
Company will be the designee of the Trust solely for the purpose of
receiving requests for redemption from each Separate Account and
receipt by such designee will constitute receipt by the Trust, provided
that the Company provides the Trust with a redemption request by 8:30
a.m. Eastern Time on the next following Business Day. However, to
facilitate the Trust's daily trading practices, the Company has agreed
to provide the Trust with "estimated trade" and other information
relating to the Funds at certain times prior to the close of business
on each Business Day. Payment will be made in federal funds transmitted
by wire to the Company's account as designated by the Company in
writing from time to time, and the Trust will use its best efforts to
assure that such funds will be transmitted by 2:00 p.m. Eastern Time on
the next following Business Day after the Trust or its designee
receives notice of the redemption request from the Company. After
consulting with the Company, the Trust reserves the right to delay
payment of redemption proceeds, but in no event may such payment be
delayed longer than the period permitted under Section 22(e) of the
1940 Act. The Trust will not bear any responsibility whatsoever for the
proper disbursement or crediting of redemption proceeds, the Company
alone will be responsible for such action. If a redemption request is
received by the Trust after 8:30 a.m. Eastern Time on the next
following Business Day, such redemption request will be considered to
be received on the next following Business Day and payment for redeemed
shares will be made by the Trust on the Business Day that is the
Business Day after that Business Day. The Trust may net the purchases
orders it receives from the Company under Section 1.1 of this Agreement
against the redemptions orders it receives from the Company under this
Section 1.3.
<PAGE>
1.4 The Trust agrees to make shares of the Designated Funds available
indefinitely for purchase at the applicable net asset value per share
by Participating Insurance Companies and their separate accounts on
those days on which the Trust calculates the net asset value of each
Designated Fund pursuant to rules of the Commission; provided, however,
that the Board of Trustees of the Trust (the "Trustees") may refuse to
sell shares of any Designated Fund to any person, or suspend or
terminate the offering of shares of any Designated Fund if such action
is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Trustees, acting in good faith and in
light of their fiduciary duties under federal and any applicable state
laws, necessary in the best interests of the shareholders of such Fund.
1.5 The Company shall not (unless otherwise required by applicable law),
induce Contract owners to change or modify the Trust or change the
Adviser.
1.6 The Company shall not, without prior notice to the Trust, induce
Contract owners to vote on any matter submitted for consideration by
the shareholders of the Trust in a manner other than as recommended by
the Trustees.
1.7 The Trust and the Adviser agree that shares of the Trust will be sold
only to Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are
permitted under applicable provisions of the Internal Revenue Code of
1986, as amended, (the "Code"), and regulations promulgated thereunder,
the sale to which will not impair the tax treatment currently afforded
the Contracts. No shares of any Fund will be sold directly to the
general public.
1.8 The Trust will not sell Trust shares to any insurance company or
separate account unless an agreement containing provisions
substantially similar to those in Articles I, III, V, and VII and
Section 2.8 of Article II of this Agreement are in effect to govern
such sales.
1.9 The Company agrees to purchase and redeem the shares of the Designated
Funds offered by the then current prospectus of the Trust in accordance
with the provisions of such prospectus.
1.10 Issuance and transfer of the Trust's shares will be by book entry only.
Share certificates will not be issued to the Company or to any Separate
Account. Purchase and redemption orders for Trust shares will be
recorded in an appropriate title for each Separate Account or the
appropriate sub-account of each Separate Account.
<PAGE>
1.11 The Trust will furnish same day notice (by facsimile) to the Company of
the declaration of any income, dividends or capital gain distributions
payable on each Designated Fund's shares. The Company hereby elects to
receive all such income, dividends and distributions as are payable on
the Fund shares in the form of additional shares of that Fund at the
ex-dividend date net asset values. The Company reserves the right to
revoke this election upon prior reasonable written notice to the Trust
and to receive all such dividends and distributions in cash. The Trust
will notify the Company of the number of shares so issued as payment of
such dividends and distributions.
1.12 The Trust will make the net asset value per share for each Designated
Fund available to the Company via electronic means on a daily basis as
soon as reasonably practical after the net asset value per share is
calculated and will use its best efforts to make such net asset value
per share available by 6:30 p.m. Eastern Time, each Business Day. If
the Trust provides the Company materially incorrect net asset value per
share information (as determined under SEC guidelines), the Company and
the Trust shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct net asset value per share.
Neither the Trust, any Designated Fund nor the Adviser shall be liable
for any information provided to the Company pursuant to this Agreement
that is based on incorrect information supplied by the Company or any
other Participating Insurance Company to the Trust. Any material error
in the calculation or reporting of net asset value per share, dividend
or capital gain information shall be reported to the Company upon
discovery by the Trust.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will be
registered under the Securities Act of 1933 ("1933 Act"), or are exempt
from registration thereunder, and that the Contracts will be issued and
sold in compliance with all applicable federal and state laws. The
Company further represents and warrants that: (i) it is an insurance
company duly organized and in good standing under applicable law; (ii)
it has legally and validly established each Separate Account as a
separate account under Section 38a-433 of the General Statutes of
Connecticut; (iii) each Separate Account is or will be registered as a
unit investment trust in accordance with the provisions of the 1940 Act
to serve as a segregated investment account for the Contracts, or is
excluded from registration thereunder, and will comply in all material
respects with the provisions of the 1940 Act, to the extent applicable;
and (iv) it will maintain such registration for so long as any
Contracts are outstanding. The Company will amend each registration
statement under the 1933 Act for the Contracts and the registration
statement under the 1940 Act for the Separate Accounts from time to
time as required under applicable law in order to effect the continuous
offering of the Contracts or as may otherwise be required by applicable
law. The Company will register and qualify the Contracts for sale in
accordance with the securities laws of the various states as
applicable.
<PAGE>
2.2 Subject to the Trust's representations in Article III, the Company
represents and warrants that the Contracts are currently and at all
times will be treated as annuity contracts, life insurance policies
and/or variable contracts (as applicable) under applicable provisions
of the Code, and that it will maintain such treatment and that it will
notify the Trust and the Adviser immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or
that they might not be so treated in the future. The Company agrees
that to the extent any of the Designated Funds are offered as
investment options in a Contract that is a "modified endowment
contract" as that terms is defined in Section 7702A of the Code (or any
successor or similar provision), the prospectus for such Contract shall
identify such Contract as a modified endowment contract.
2.3 The Company represents and warrants to the Trust and the Adviser that
it has a Year 2000 compliance program in existence and that it intends
to be Year 2000 compliant so as to be able perform all of the services
and/or obligations contemplated by or under this Agreement without
interruption. The Company shall immediately notify the Trust and the
Adviser if it determines that it will be unable to perform all of the
services and/or obligations contemplated by or under this Agreement in
a manner that is Year 2000 compliant.
2.4 The Company represents and warrants that it will not purchase shares of
the Designated Fund(s) with assets derived from tax-qualified
retirement plans except, indirectly, through Contracts purchased in
connection with such plans.
2.5 The Trust represents and warrants that shares of the Designated Fund(s)
sold pursuant to this Agreement will be registered under the 1933 Act
and duly authorized for issuance in accordance with applicable law and
that the Trust is and will remain registered as an open-end, management
investment company under the 1940 Act for as long as such shares of the
Designated Fund(s) are sold. The Trust will amend the registration
statement for its shares under the 1933 Act and itself under the 1940
Act from time to time as required under applicable law in order to
effect the continuous offering of its shares.
2.6 The Trust represents that it will use its best efforts to comply with
any applicable state insurance laws or regulations as they may apply to
the investment objectives, policies and restrictions of the Funds, to
the extent specifically requested in writing by the Company. If the
Trust cannot reasonably comply with such state insurance laws or
regulations, it will so notify the Company in writing. The Trust makes
no other representation as to whether any aspect of its operations
(including, but not limited to, fees and expenses, and investment
policies) complies with the insurance laws or regulations of any state.
The Company represents that it will use its best efforts to notify the
Trust of any restrictions imposed by state insurance laws that may
become applicable to the Trust as a result of the Separate Accounts'
investments therein. The Trust and the Adviser agree that they will
furnish the information reasonably required by state insurance laws to
assist the Company in obtaining the authority needed to issue the
Contracts in various states.
<PAGE>
2.7 The Trust represents and warrants that, to the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1 under the 1940
Act, the Trust undertakes to have the Trustees, a majority of whom are
not "interested" persons of the Trust, formulate and approve any plan
under Rule 12b-1 to finance distribution expenses. The Trust shall
notify the Company immediately in writing upon determining to finance
distribution expenses pursuant to a plan adopted in accordance with
Rule 12b-1 under the 1940 Act.
2.8 The Trust represents that it is lawfully organized and validly existing
under the laws of the State of Delaware and that it does and will
comply in all material respects with applicable provisions of the 1940
Act.
2.9 The Trust represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Trust are and continue to
be at all times covered by a blanket fidelity bond or similar coverage
for the benefit of the Trust in an amount not less than the minimal
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond
includes coverage for larceny and embezzlement and is issued by a
reputable bonding company.
2.10 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed by the
Company dealing with the money and/or securities of the Separate
Accounts are covered by a blanket fidelity bond or similar coverage in
an amount not less than $5 million. The aforesaid bond includes
coverage for larceny and embezzlement and is issued by a reputable
bonding company. The Company agrees to hold for the benefit of the
Trust and to pay to the Trust any amounts lost from larceny,
embezzlement or other events covered by the aforesaid bond to the
extent such amounts derive from activities described in this Agreement.
The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and
agrees to notify the Trust in the event that such coverage no longer
applies.
<PAGE>
2.11 The Adviser represents and warrants that: (i) it is duly registered as
an investment adviser under the Investment Advisers Act of 1940, as
amended, and will remain duly registered under all applicable federal
and state securities laws; and (ii) it will perform its obligations for
the Trust in accordance in all material respects with the laws of the
State of Maryland and any applicable state and federal securities laws.
2.12 The Trust and the Adviser represent and warrant to the Company that
each has a Year 2000 compliance program in existence and that each
intends to be Year 2000 compliant so as to be able to perform all of
the services and/or obligations contemplated by or under this Agreement
without interruption. The Trust or the Adviser shall immediately notify
the Company if it determines that it will be unable to perform all of
the services and/or obligations contemplated by or under this Agreement
in a manner that is Year 2000 compliant.
ARTICLE III - FUND COMPLIANCE
3.1 The Trust and the Adviser acknowledge that any failure (whether
intentional or in good faith or otherwise) of any Designated Fund to
comply with the requirements of Subchapter M of the Code or the
diversification requirements of Section 817(h) of the Code may result
in the Contracts not being treated as variable contracts for federal
income tax purposes, which would have adverse tax consequences for
Contract owners and could also adversely affect the Company's corporate
tax liability. The Trust and the Adviser further acknowledge that any
such failure of a Designated Fund may result in costs and expenses
being incurred by the Company in obtaining whatever regulatory
authorizations are required to substitute shares of another investment
company for those of the failed Designated Fund or as well as fees and
expenses of legal counsel and other advisers to the Company and any
federal income taxes, interest or tax penalties incurred by the Company
in connection with any such failure of a Designated Fund.
3.2 The Trust represents and warrants that each Designated Fund is
currently qualified as a Regulated Investment Company under Subchapter
M of the Code, and that it will maintain such qualification (under
Subchapter M or any successor or similar provision) and that the Trust
will notify the Company immediately upon having a reasonable basis for
believing that any Designated Fund has ceased to so qualify or that it
might not so qualify in the future.
3.3 Subject to the Company's representations and warranties in Sections 2.1
and 2.2, the Trust represents that it will at all times invest money
from the Contracts in such a manner as to ensure that the Contracts
will be treated as variable contracts under the Code and the
regulations issued thereunder; including, but not limited to, that each
Designated Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, as amended from time to time,
relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and with Section 817(d) of the
Code, relating to the definition of a variable contract, and any
amendments or other modifications to such Section or Regulation. The
Trust will notify the Company immediately upon having a reasonable
basis for believing that any Designated Fund has ceased to comply with
the diversification requirements or that any Designated Fund might not
comply with the diversification requirements in the future. In the
event of a breach of this representation by the Trust, the Trust will
take all reasonable steps to adequately diversify the affected
Designated Fund so as to achieve compliance within the grace period
afforded by Treasury Regulation 1.817-5.
<PAGE>
3.4 The Adviser agrees to provide the Company with a certificate or
statement indicating compliance by each Fund of the Trust with Section
817(h) of the Code, such certificate or statement to be sent to the
Company no later than thirty (30) days following the end of each
calendar quarter.
ARTICLE IV - PROSPECTUS AND PROXY STATEMENTS; VOTING
4.1 The Trust or the Adviser will provide the Company with as many copies
of the current Trust prospectus and any supplements thereto for the
Designated Fund(s) as the Company may reasonably request for
distribution to Contract owners at the time of Contract fulfillment and
confirmation. To the extent that the Designated Fund(s) are one or more
of several Funds of the Trust, the Trust shall be obligated to provide
the Company only with disclosure related to the Designated Fund(s). The
Trust will provide the copies of said prospectus to the Company or to
its mailing agent. If requested by the Company, in lieu thereof, the
Trust or the Adviser will provide such documentation, including a final
copy of a current prospectus set in type or camera ready or electronic
format and other assistance as is reasonably necessary in order for the
Company at least annually (or more frequently if the Trust prospectus
is amended more frequently) to have the new prospectus for the
Contracts and the Trust's new prospectus printed together. The Trust or
the Adviser will, upon request, provide the Company with a copy of the
Trust's prospectus through electronic means to facilitate the Company's
efforts to provide Trust prospectuses via electronic delivery.
4.2 The Trust's prospectus will state that a Statement of Additional
Information ("SAI") for the Trust is available, and will disclose how
investors may obtain the SAI.
4.3 The Trust will provide the Company or its mailing agent with copies of
its proxy material, if any with respect to the Designated Funds,
reports to shareholders/Contract owners and other communications to
shareholders/ Contract owners in such quantity as the Company will
reasonably require. The Company will distribute this proxy material,
reports and other communications to existing Contract owners.
<PAGE>
4.4 If and to the extent required by law, the Company will:
(a) solicit voting instructions from Contract owners;
(b) vote the shares of the Designated Funds held in the Separate
Account in accordance with instructions received from Contract
owners; and
(c) vote shares of the Designated Funds held in the Separate
Account for which no timely instructions have been received in
the same proportion as shares of such Designated Fund for
which instructions have been received from the Company's
Contract owners,
so long as and to the extent that the Commission continues to interpret
the 1940 Act to require pass-through voting privileges for variable
Contract owners. The Company reserves the right to vote shares of the
Designated Funds held in any segregated asset account in its own right,
to the extent permitted by law. The Company will be responsible for
assuring that the Separate Accounts participating in the Trust
calculate voting privileges in a manner consistent with all legal
requirements, including the Proxy Voting Procedures set forth in
Schedule C and the Mixed and Shared Funding Order, as described in
Section 7.1.
4.5 The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders.
ARTICLE V - SALES MATERIAL AND INFORMATION
5.1 The Company will furnish, or will cause to be furnished, to the Trust
or the Adviser, each piece of sales literature or other promotional
material in which the Trust or the Adviser is named, at least ten (10)
business days prior to its use. No such material will be used if the
Trust or the Adviser reasonably objects to such use within five (5)
business days after receipt of such material, or to its continued use.
5.2 The Company will not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust or the
Adviser in connection with the sale of the Contracts other than the
information or representations contained in the registration statement,
prospectus or SAI for shares of Designated Funds, as such registration
statement, prospectus and SAI may be amended or supplemented from time
to time, or in reports or proxy statements for the Designated Funds, or
in published reports for the Designated Funds which are in the public
domain or approved by the Trust or the Adviser for distribution, or in
sales literature or other material provided by the Trust or the
Adviser, except with permission of the Trust or the Adviser. The Trust
or the Adviser agree to respond to any request for approval on a prompt
and timely basis.
<PAGE>
5.3 The Trust or the Adviser will furnish, or will cause to be furnished,
to the Company or its designee, each piece of sales literature or other
promotional material in which the Company or its separate account is
named, at least ten (10) business days prior to its use. No such
material will be used if the Company reasonably objects to such use
within five (5) business days after receipt of such material, or to its
continued use.
5.4 The Trust or the Adviser will not give any information or make any
representations or statements on behalf of the Company or concerning
the Company, each Separate Account, or the Contracts other than the
information or representations contained in a registration statement,
prospectus or SAI for the Contracts, as such registration statement,
prospectus and SAI may be amended or supplemented from time to time, or
in published reports for each Separate Account or the Contracts which
are in the public domain or approved by the Company for distribution to
Contract owners, or in sales literature or other material provided by
the Company, except with permission of the Company. The Company agrees
to respond to any request for approval on a prompt and timely basis.
5.5 The Trust will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Trust or shares of the Designated
Funds, within a reasonable time after filing of each such document with
the Commission or the NASD.
5.6 The Company will provide to the Trust at least one complete copy of all
definitive prospectuses, definitive SAI, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Contracts or each
Separate Account, contemporaneously with the filing of each such
document with the Commission or the NASD (except that with respect to
post-effective amendments to such prospectuses and SAIs and sales
literature and promotional material, only those prospectuses and SAIs
and sales literature and promotional material that relate to or refer
to the Trust or the Designated Funds will be provided). In addition,
the Company will provide to the Trust at least one complete copy of (i)
a registration statement that relates to the Contracts or each Separate
Account, containing representative and relevant disclosure concerning
the Trust; and (ii) any post-effective amendments to any registration
statements relating to the Contracts or such Separate Account that
refer to or relate to the Trust. The Company shall promptly notify the
Trust regarding any complaints received from Contract owners pertaining
to the Trust or the Designated Funds.
<PAGE>
5.7 For purposes of this Article V, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or
other public media, (i.e., on-line networks such as the Internet or
other electronic messages)), sales literature (i.e., any written
communication distributed or made generally available to customers or
the public, including brochures, circulars, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made
generally available to some or all agents or employees, registration
statements, prospectuses, SAIs, shareholder reports, and proxy
materials and any other material constituting sales literature or
advertising under the NASD Conduct Rules, the 1933 Act or the 1940 Act.
5.8 The Trust and the Adviser hereby consent to the Company's use of the
names of the ProFunds, ProFunds VP and ProFund Advisors LLC as well as
the names of the Designated Funds set forth in Schedule B of this
Agreement, in connection with marketing the Contracts, subject to the
terms of Sections 5.1 and 5.2 of this Agreement. The Trust and the
Adviser hereby consent to the use of any trademark, trade name, service
mark or logo used by the Trust and the Adviser, subject to the Trust's
or the Adviser's approval of such use and in accordance with reasonable
requirements of the Trust or the Adviser. Such consent will terminate
with the termination of this Agreement. The Company agrees and
acknowledges that any of the Trust or the Adviser are the owner of the
name, trademark, trade name, service mark and logo customarily used by
each of them and that all use of any designation comprised in whole or
in part of the name, trademark, trade name, service mark and logo
customarily used by each of them under this Agreement shall inure to
the benefit of the Trust and/or the Adviser.
5.9 The Trust, the Adviser and the Company agree to adopt and implement
procedures reasonably designed to ensure that information concerning
the Company, the Trust or the Adviser, respectively, and their
respective affiliated companies, that is intended for use only by
brokers or agents selling the Contracts (i.e., information that is not
intended for distribution to Contract owners or prospective Contract
owners) and is properly marked as "Not For Use With The Public" or "For
Broker-Dealer Use Only" and that such information is only so used.
<PAGE>
ARTICLES VI - FEES, COSTS AND EXPENSES
6.1 Each party shall, in accordance with the allocation of expenses
specified in this Agreement, reimburse other parties for expenses
initially paid by one party but allocated to another party. In
addition, nothing herein shall prevent the parties hereto from
otherwise agreeing to perform and arranging for appropriate
compensation for (i) for distribution and shareholder-related services
under a plan adopted in accordance with Rule 12b-1 under the 1940 Act
and (ii) other services that are not primarily intended to result in
the sale of shares of the Designated Funds, which are provided to
Contract owners relating to the Designated Funds.
6.2 All expenses incident to performance by the Trust of this Agreement
will be paid by the Trust or the Adviser to the extent permitted by
law. All shares of the Designated Funds will be duly authorized for
issuance and registered in accordance with applicable federal law and,
to the extent deemed advisable by the Trust or the Adviser, qualified
for sale in accordance with applicable state law, prior to sale. The
Trust will bear the expenses for the cost of registration and
qualification of the Trust's shares, including without limitation, the
preparation of and filing with the SEC Form N-1A and Rule 24f-2 Notices
on behalf of the Trust and payment of all applicable registration or
filing fees (if applicable) with respect to shares of the Trust;
preparation and filing of the Trust's prospectus, SAI and registration
statement, proxy materials and reports; typesetting the Trust's
prospectus; typesetting and printing proxy materials and reports to
Contract owners (including the costs of printing a Trust prospectus
that constitutes an annual report); the preparation of all statements
and notices required by any federal or state law; all taxes on the
issuance or transfer of the shares of the Designated Funds; any
expenses permitted to be paid or assumed by the Trust with respect to
the Designated Funds pursuant to a plan, if any, under Rule 12b-1 under
the 1940 Act; and other costs associated with preparation of
prospectuses and SAIs regarding the Designated Funds in electronic or
typeset format for distribution to existing Contract owners.
6.3 The Company shall bear all expenses associated with the registration,
qualification, and filing of the Contracts under applicable federal
securities and state insurance laws; the cost of preparing, printing,
and distributing the Contracts' prospectus and SAI; the cost of
printing the Trust's prospectus for use in connection with offering the
Contracts; and the cost of printing and distributing annual individual
account statements for Contract owners are required by state law.
<PAGE>
ARTICLE VII - MIXED & SHARED FUNDING RELIEF
7.1 The Trust represents and warrants that it may rely on an order that was
granted by the Commission granting Participating Insurance Companies
and variable annuity separate accounts and variable life insurance
separate accounts relief from the provisions of Sections 9(a), 13(a),
15(a), and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of
the Designated Funds to be sold to and held by variable annuity
separate accounts and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and
qualified pension and retirement plans outside of the separate account
context (the "Mixed and Shared Funding Order"). The parties to this
Agreement agree that the conditions or undertakings required by the
Mixed and Shared Funding Order that may be imposed on the Company, the
Trust and/or the Adviser by virtue of the receipt of such order by the
Commission: (i) shall apply only upon the sale of shares of the
Designated Funds, to variable life insurance separate accounts (and
then only to the extent required under the 1940 Act); (ii) will be
incorporated herein by reference; and (iii) such parties agree to
comply with such conditions and undertakings to the extent applicable
to each such party notwithstanding any provision of this Agreement to
the contrary.
7.2 The Trustees will monitor the Trust for the existence of any material
irreconcilable conflict among the interests of the Contract owners of
all separate accounts investing in the Designated Funds. A material
irreconcilable conflict may arise for a variety of reasons, including,
but not limited to: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax,
or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Designated Fund are being
managed; (e) a difference in voting instructions given by Participating
Insurance Companies or by variable annuity and variable life insurance
Contract owners; or (f) a decision by an insurer to disregard the
voting instructions of Contract owners. The Trustees will promptly
inform the Company if it determines that a material irreconcilable
conflict exists and the implications thereof. In reliance upon the
Mixed and Shared Funding Order, a majority of the Trustees will consist
of persons who are not "interested" persons of the Trust (i.e.,
"disinterested Trustees").
<PAGE>
7.3 The Company will promptly report any potential or existing conflicts of
which it is aware to the Trustees. The Company agrees to assist the
Trustees in carrying out their responsibilities under the Mixed and
Shared Funding Order by promptly providing the Trustees with all
information reasonably necessary for the Trustees to consider any
issues raised. This includes, but is not limited to, an obligation by
the Company to promptly inform the Trustees whenever Contract owner
voting instructions are to be disregarded. The Board will record in its
minutes, or other appropriate records, all reports received by it and
all action with regard to a conflict.
7.4 If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees of the Board, that a material irreconcilable
conflict exists, the Company and other Participating Insurance
Companies will, at their expense and to the extent reasonably
practicable (as determined by a majority of the disinterested
trustees), take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, up to and including: (a) withdrawing
the assets allocable to some or all of the Separate Accounts from the
Designated Fund and reinvesting such assets in a different investment
medium, including (but not limited to) another Designated Fund of the
Trust, or submitting the question whether such segregation should be
submitted to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
variable annuity Contract owners or variable life insurance Contract
owners of one or more Participating Insurance Companies) that votes in
favor of such segregation, or offering to the affected Contract owners
the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account.
7.5 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions, and such
disregard of voting instructions could conflict with the majority of
Contract owner voting instructions, and the Company's judgment
represents a minority position or would preclude a majority vote, the
Company may be required, at the Trust's election, to withdraw the
affected sub-account of the Separate Account's investment in the
Designated Fund and terminate this Agreement with respect to such
sub-account; provided, however, that such withdrawal and termination
will be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the
disinterested Trustees. No charge or penalty will be imposed as a
result of such withdrawal. Any such withdrawal and termination must
take place within six (6) months after the Trust gives written notice
to the Company that this provision is being implemented. Until the end
of such six-month period the Adviser and Trust will, to the extent
permitted by law and the Mixed and Shared Funding Order, continue to
accept and implement orders by the Company for the purchase (and
redemption) of shares of the Trust.
<PAGE>
7.6 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with
the decisions of the majority of other state insurance regulators, then
the Company will withdraw the affected sub-account of the Separate
Account's investment in the Designated Fund and terminate this
Agreement with respect to such sub-account; provided, however, that
such withdrawal and termination will be limited to the extent required
by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested Trustees. No charge or penalty will be
imposed as a result of such withdrawal. Any such withdrawal and
termination must take place within six (6) months after the Trust gives
written notice to the Company that this provision is being implemented.
Until the end of such six-month period the Trust will, to the extent
permitted by law and the Mixed and Shared Funding order, continue to
accept and implement orders by the Company for the purchase (and
redemption) of shares of the Designated Funds.
7.7 For purposes of Sections 7.4 through 7.7 of this Agreement, a majority
of the disinterested Trustees will determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in
no event will the Trust be required to establish a new funding medium
for the Contracts. The Company will not be required by Section 7.4 to
establish a new funding medium for the Contracts if an offer to do so
has been declined by vote of a majority of Contract owners affected by
the material irreconcilable conflict. In the event that the Trustees
determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the
Separate Account's investment in the Designated Funds and terminate
this Agreement within six (6) months after the Trustees inform the
Company in writing of the foregoing determination; provided, however,
that such withdrawal and termination shall be limited to the extent
required by any such material irreconcilable conflict as determined by
a majority of the disinterested Trustees.
7.8 The Company will at least annually submit to the Trustees such reports,
materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon it as delineated
in the Mixed and Shared Funding Order, and said reports, materials and
data will be submitted more frequently if deemed appropriate by the
Trustees.
7.9 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Order) on terms and
conditions materially different from those contained in the Mixed and
Shared Funding Order, then: (a) the Trust and/or the Participating
Insurance Companies, as appropriate, will take such steps as may be
necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable; and (b)
Sections 4.3, 4.4, 4.5, 7.1, 7.2, 7.3, 7.4, 7.5, and 7.6 of this
Agreement will continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in
such Rule(s) as so amended or adopted.
<PAGE>
ARTICLE VIII - INDEMNIFICATION
8.1 Indemnification by the Company
(a) The Company agrees to indemnify and hold harmless the Trust, the
Adviser, and each of the Trust's or the Adviser's trustees,
directors, officers, employees or agents and each person, if any,
who controls or is associated with the Trust or the Adviser
within the meaning of such terms under the federal securities
laws (collectively, the "Indemnified Parties" for purposes of
this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of the Company) or actions in respect thereof
(including reasonable legal and other expenses), to which the
Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or litigation in
respect thereof) or settlements:
(1) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact
contained in the registration statement, prospectus or
SAI for the Contracts or contained in the Contracts or
sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated or necessary to
make such statements not misleading in light of the
circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission of such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to the
Company by or on behalf of the Trust or the Adviser for
use in the registration statement, prospectus or SAI
for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or shares; or
(2) arise out of or as a result of statements or
representations by the Company (other than statements
or representations contained in the Trust registration
statement, prospectus, SAI or sales literature or other
promotional material of the Trust, or any amendment or
supplement to the foregoing, not supplied by the
Company or persons under its control) or wrongful
conduct of the Company or persons under its control,
with respect to the sale or distribution of the
Contracts or shares of the Designated Funds; or
<PAGE>
(3) arise out of untrue statement or alleged untrue
statement of a material fact contained in the Trust
registration statement, prospectus, SAI or sales
literature or other promotional material of the Trust
(or any amendment or supplement thereto) or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make such statements not misleading in
light of the circumstances in which they were made, if
such a statement or omission was made in reliance upon
and in conformity with information furnished to the
Trust by or on behalf of the Company or persons under
its control; or
(4) arise as a result of any failure by the Company to
provide the services and furnish the materials under
the terms of this Agreement; or
(5) arise out of any material breach of any representation
and/or warranty made by the Company in this Agreement
or arise out of or result from any other material
breach by the Company of this Agreement; or
(6) arise as a result of the provision by the Company to
the Trust of insufficient or incorrect information
regarding the purchase or sale of shares of the
Designated Funds, or the failure of the Company to
provide such information in accordance with the
deadlines stated in Sections 1.1 and 1.3;
except to the extent provided in Sections 8.1(b) and 8.4
hereof. This indemnification will be in addition to any
liability that the Company otherwise may have.
(b) No party will be entitled to indemnification under Section 8.1(a)
if such loss, claim, damage, liability or litigation is due to
the willful misfeasance, bad faith, gross negligence, or reckless
disregard in the performance of such party's duties and
obligations under this Agreement.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or
litigation by regulatory authorities against them in connection
with the issuance or sale of the Designated Funds or the
Contracts or the operation of the Trust.
8.2 Indemnification by the Adviser
(a) The Adviser agrees to indemnify and hold harmless the Company and
each of its directors, officers, employees or agents and each
person, if any, who controls or is associated with the Company
within the meaning of such terms under the federal securities
(collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of the Adviser) or litigation in respect thereof
(including reasonable legal and other expenses) to which the
Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or litigation in
respect thereof) or settlements:
<PAGE>
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or SAI for the Trust or sales
literature or other promotional material of the Trust (or any
amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated or necessary to
make such statements not misleading in light of the circumstances
in which they were made; provided that this agreement to
indemnify will not apply as to any Indemnified Party if such
statement or omission of such alleged statement or omission was
made in reliance upon and in conformity with information
furnished to the Adviser or the Trust by or on behalf of the
Company for use in the registration statement, prospectus or SAI
for the Trust or in sales literature generated or approved by the
Adviser on behalf of the Trust (or any amendment or supplement
thereto) or otherwise for use in connection with the sale of the
Contracts or shares of the Designated Funds; or
(2) arise out of or as a result of statements or representations by
the Adviser (other than statements or representations contained
in the Contracts or in the Contract or Trust registration
statements, prospectuses or statements of additional information
or sales literature or other promotional material for the
Contracts or of the Trust, or any amendment or supplement to the
foregoing, not supplied by the Adviser or persons under the
control of the Adviser) or wrongful conduct of the Adviser or
persons under the control of the Adviser, with respect to the
sale or distribution of the Contracts or shares of the Designated
Funds; or
(3) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, SAI or sales literature or other promotional material
covering the Contracts (or any amendment or supplement thereto),
or the omission or alleged omission to state therein a material
fact required to be stated or necessary to make such statement or
statements not misleading in light of the circumstances in which
they were made, if such statement or omission was made in
reliance upon and in conformity with information furnished to the
Company by or on behalf of the Adviser or persons under the
control of the Adviser; or
(4) arise as a result of any failure by the Adviser to provide the
services and furnish the materials under the terms of this
Agreement; or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this
Agreement, or arise out of or result from any other material
breach of this Agreement by the Adviser, including a failure,
whether intentional or in good faith or otherwise, to comply with
the requirements of Subchapter M of the Code specified in Article
III, Section 3.2 of this Agreement and the diversification
requirements specified in Article III, Section 3.3 of this
Agreement, as described more fully in Section 8.5 below;
except to the extent provided in Sections 8.2(b) and 8.4 hereof.
This indemnification will be in addition to any liability that
the Adviser otherwise may have.
<PAGE>
(b) No party will be entitled to indemnification under Section 8.2(a)
if such loss, claim, damage, liability or litigation is due to
the willful misfeasance, bad faith, gross negligence, or reckless
disregard in the performance of such party's duties and
obligations under this Agreement.
(c) The Indemnified Parties will promptly notify the Adviser of the
commencement of any litigation, proceedings, complaints or
litigation by regulatory authorities against them in connection
with the issuance or sale of the Contracts or the operation of
the Separate Accounts.
8.3 Indemnification by the Trust
(a) The Trust agrees to indemnify and hold harmless the Company and
each of its directors, officers, employees or agents and each
person, if any, who controls or is associated with the Company
within the meaning of such terms under the federal securities
laws (collectively, the "Indemnified Parties" for purposes of
this Section 8.3) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of the Trust) or litigation in respect thereof
(including reasonable legal and other expenses) to which the
Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or litigation in
respect thereof) or settlements, are related to the operations of
the Trust and:
(1) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this
Agreement; or
(2) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Trust (including a failure,
whether intentional or in good faith or otherwise, to comply
with the requirements of Subchapter M of the Code specified
in Article III, Section 3.2 of this Agreement and the
diversification requirements specified in Article III,
Section 3.3 of this Agreement as described more fully in
Section 8.5 below);
(3) arise out of or result from the materially incorrect or
untimely calculation or reporting of daily net asset value
per share or dividend or capital gain distribution;
except to the extent provided in Sections 8.3(b) and 8.4
hereof. This indemnification will be in addition to any
liability that the Trust otherwise may have.
(b) No party will be entitled to indemnification under Section 8.3(a)
if such loss, claim, damage, liability or litigation is due to
the willful misfeasance, bad faith, gross negligence, or reckless
disregard in the performance of such party's duties and
obligations under this Agreement.
<PAGE>
(c) In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or
entity, including without limitation, the Company, or any
Contract owner, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from the
failure by the Company to maintain its segregated asset account
under applicable state law and as a duly registered unit
investment trust under the provisions of the 1940 Act (unless
exempt therefrom) or, subject to compliance by the Designated
Funds with the diversification requirements specified in Article
III, the failure by the Company to maintain its Contracts (with
respect to which any Designated Fund serves as an underlying
funding vehicle) as life insurance, endowment or annuity
contracts under applicable provisions of the Code.
(d) The Indemnified Parties will promptly notify the Trust of the
commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection
with the issuance or sale of the Contracts or the operation of
the Separate Account.
8.4 Indemnification Procedure
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.4) will not be
liable under the indemnification provisions of this Article VIII with
respect to any claim made against a party entitled to indemnification
under this Article VIII ("Indemnified Party" for the purpose of this
Section 8.4) if such Indemnified Party will has failed to notify the
Indemnifying Party in accordance with its obligations under Section
8.1(c), 8.2(c) or 8.3(d), whichever is relevant, but failure to notify
the Indemnifying Party of any such claim will not relieve the
Indemnifying Party from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on
account of the indemnification provision of this Article VIII, except
to the extent that the failure to notify results in the failure of
actual notice to the Indemnifying Party and such Indemnifying Party is
damaged solely as a result of failure to give such notice. In case any
such action is brought against the Indemnified Party, the Indemnifying
Party will be entitled to participate, at its own expense, in the
defense thereof. The Indemnifying Party also will be entitled to assume
the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Indemnifying Party to the Indemnified
Party of the Indemnifying Party's election to assume the defense
thereof, the Indemnified Party will bear the fees and expenses of any
additional counsel retained by it, and the Indemnifying Party will not
be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation, unless: (a) the Indemnifying Party and the Indemnified
Party will have mutually agreed to the retention of such counsel; or
(b) the named parties to any such proceeding (including any impleaded
parties) include both the Indemnifying Party and the Indemnified Party
and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. The Indemnifying Party will not be liable for any settlement of
any proceeding effected without its written consent but if settled with
such consent or if there is a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and
against any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement will be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII will survive
any termination of this Agreement.
<PAGE>
8.5 Indemnification for Failure to Comply with Diversification Requirements
The Trust and the Adviser acknowledge that if the Designated Funds fail
(whether intentionally or in good faith or otherwise) to comply with
the diversification requirements specified in Article III, Section 3.3
of this Agreement, the Contracts consequently may not be treated as
variable contracts for federal income tax purposes, which would have
adverse tax consequences for Contract owners and could also adversely
affect the Company's corporate tax liability. Accordingly, without in
any way limiting the effect of Sections 8.3(a) and 8.4 hereof and
without in any way limiting or restricting any other remedies available
to the Company, the Trust and the Adviser will pay on a joint and
several basis all costs associated with or arising out of any failure,
or any anticipated or reasonably foreseeable failure, of any Designated
Fund to comply with Section 3.3 of this Agreement, including all costs
associated with correcting or responding to any such failure; such
costs may include, but are not limited to, the costs involved in
creating, organizing, and registering a new investment company as a
funding medium for the Contracts and/or the costs of obtaining whatever
regulatory authorizations are required to substitute shares of another
investment company for those of the failed Designated Fund (including
but not limited to an order pursuant to Section 26(b) of the 1940 Act);
reasonable fees and expenses of legal counsel and other advisors to the
Company and any federal income taxes or tax penalties (or "toll
charges" or exactments or amounts paid in settlement) reasonably
incurred by the Company in connection with any such failure or
anticipated or reasonably foreseeable failure. Such indemnification and
reimbursement obligation shall be in addition to any other
indemnification and reimbursement obligations of the Trust, and/or the
Adviser under this Agreement.
<PAGE>
ARTICLE IX - APPLICABLE LAW
9.1 This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Maryland.
9.2 This Agreement will be subject to the provisions of the 1933 Act, the
1934 Act and the 1940 Act, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the Commission may grant (including, but not limited to,
the Mixed and Shared Funding Order) and the terms hereof will be
interpreted and construed in accordance therewith.
ARTICLE X - TERMINATION
10.1 This Agreement will terminate automatically in the event of its
assignment, unless made with the written consent of each party, or:
(a) at the option of any party, with or without cause, with respect
to one, some or all of the Designated Funds, upon six (6) month's
advance written notice to the other parties or, if later, upon
receipt of any required exemptive relief or orders from the SEC,
unless otherwise agreed in a separate written agreement among the
parties; or
(b) at the option of the Company, upon written notice to the other
parties, with respect to any Designated Fund if shares of the
Designated Fund are not reasonably available to meet the
requirements of the Contracts as determined in good faith by the
Company; or
(c) at the option of the Company, upon written notice to the other
parties, with respect to any Fund in the event any of the Fund's
shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use
of such shares as the underlying investment media of the
Contracts issued or to be issued by Company; or
(d) at the option of the Trust or the Adviser upon institution of
formal proceedings against the Company by the NASD, the
Commission, the insurance commission of any state or any other
regulatory body, provided that the Trust determines in its
reasonable judgment that any such proceeding would have a
material adverse effect on the Company's ability to perform its
obligations under this Agreement; or
<PAGE>
(e) at the option of the Company upon institution of formal
proceedings against the Trust or the Adviser by the NASD, the
Commission or any state securities or insurance commission or
any other regulatory body, provided that the Company
determines in its reasonable judgment that any such proceeding
would have a material adverse effect on the Trust's or the
Adviser's ability to perform its obligations under this
Agreement; or
(f) at the option of the Company, if any Designated Fund ceases to
qualify as a Regulated Investment Company under Subchapter M
of the Code, or under any successor or similar provision, or
if the Company reasonably believes that any Designated Fund
may fail to so qualify; or
(g) subject to the Company's compliance with Article II, at the
option of the Company, with respect to any Designated Fund, if
any Designated Fund fails to meet the diversification
requirements specified in Section 3.3 hereof or if the Company
reasonably believes any Designated Fund may fail to meet such
requirements; or
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
(i) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith that the Trust or the
Adviser has suffered a material adverse change in its
business, operations or financial condition since the date of
this Agreement or is the subject of material adverse publicity
which is likely to have a material adverse impact upon the
business and operations of the Company or the Contracts
(including the sale thereof); or
(j) at the option of the Trust or the Adviser, if the Trust or the
Adviser, respectively, determines in its sole judgment
exercised in good faith that the Company has suffered a
material adverse change in its business, operations or
financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have
a material adverse impact upon the business and operations of
the Trust or the Adviser; or
<PAGE>
(k) at the option of the Company or the Trust upon receipt of any
necessary regulatory approvals and/or the vote of the Contract
owners having an interest in the Separate Account (or any
sub-account) to substitute the shares of another investment
company for the corresponding Designated Fund's shares in
accordance with the terms of the Contracts for which those Fund
shares had been selected to serve as the underlying portfolio.
The Company will give sixty (60) days' prior written notice to
the Trust of the date of any proposed vote or other action taken
to replace the Designated Fund shares or of the filing of any
required regulatory approval(s); or
(1) at the option of the Company or the Trust upon a determination by
a majority of the Trust Board, or a majority of the disinterested
Trustees, that a material irreconcilable conflict exists among
the interests of: (1) all Contract owners of variable insurance
products of all separate accounts; or (2) the interests of the
Participating Insurance Companies investing in the Trust as set
forth in Article VII of this Agreement; or
(m) subject to the Trust's compliance with Article III, at the option
of the Trust in the event any of the Contracts are not issued or
sold in accordance with applicable federal and/or state law, or
will not be treated as annuity contracts, life insurance policies
and/or variable contracts (as applicable) under applicable
provisions of the Code, or in the event any representation or
warranty of the Company in Section 2.1 is no longer true.
Termination will be effective immediately upon such occurrence
without notice.
10.2 Notice Requirement
(a) In the event that any termination of this Agreement is based upon
the provisions of Article VII, such prior written notice will be
given in advance of the effective date of termination as required
by such provisions.
(b) In the event that a party to this Agreement terminates the
Agreement based upon the provisions of Sections 10.1(b)-(h),
prompt written notice of the election to terminate this Agreement
for cause shall be furnished by the party terminating the
Agreement to the non-terminating party(ies). The Agreement shall
be terminated effective upon receipt of such notice by the
non-terminating party(ies).
(c) In the event that a party to this Agreement terminates the
Agreement based upon the provisions of Sections 10.1(i) or (j),
prior written notice of the election to terminate this Agreement
for cause shall be furnished by the party terminating the
Agreement to the non-terminating party(ies). Such prior written
notice shall be given by the party terminating this Agreement to
the non-terminating party(ies) at least sixty (60) days before
the effective date of termination.
<PAGE>
10.3 Effect of Termination
Notwithstanding any termination of this Agreement, the Trust and the
Adviser will, at the option of the Company, continue to make available
additional shares of the Trust pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the
Existing Contracts will be permitted to reallocate investments in the
Designated Funds (as in effect on such date), redeem investments in the
Designated Funds and/or invest in the Designated Funds upon the making
of additional purchase payments under the Existing Contracts. The
parties agree that this Section 10.3 will not apply to any terminations
under Article VII and the effect of such Article VII terminations will
be governed by Article VII of this Agreement.
10.4 Surviving Provisions
Notwithstanding any termination of this Agreement, each party's
obligations under Article VIII to indemnify other parties will survive
and not be affected by any termination of this Agreement. In addition,
with respect to Existing Contracts, all provisions of this Agreement
also will survive and not be affected by any termination of this
Agreement.
ARTICLE XI - NOTICES
Any notice will be deemed duly given when sent by certified mail, return receipt
requested, to the other party at the address of such party set forth below or at
such other address as such party may from time to time specify in writing to the
other parties. All notices will be deemed given three (3) business days after
the date received or rejected by the addressee:
If to the Company:
American Skandia Life Assurance Corporation
1 Corporate Drive
P.O. Box 883
Shelton, Connecticut 08484-0883
Attn: Mr. Gordon C. Boronow
If to the Trust:
ProFunds
7900 Wisconsin Avenue, Suite 300
Bethesda, Maryland 20814
Attention: Michael L. Sapir
If to the Adviser:
ProFund Advisors LLC
7900 Wisconsin Avenue, Suite 300
Bethesda, Maryland 20814
Attention: Michael L. Sapir
<PAGE>
ARTICLE XII - MISCELLANEOUS
12.1 All persons dealing with the Trust must look solely to the property of
the Trust or the relevant Designated Fund for the enforcement of any
claims against the Trust or the Designated Fund, as neither the
trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Trust, or any
Designated Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and,
except as permitted by this Agreement, shall not disclose, disseminate
or utilize such names and addresses and other confidential information
without the express written consent of the affected party until such
time as such information has come into the public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the
same instrument.
12.5 If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement will not be affected thereby.
12.6 This Agreement will not be assigned by any party hereto without the
prior written consent of all the parties.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled
to under state and federal law.
12.8 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect.
12.9 Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including without limitation
the Commission, the NASD and state insurance regulators) and will
permit each other and such authorities reasonable access to its books
and records in connection with any investigation or inquiry relating to
this Agreement or the transactions contemplated hereby.
12.10 Each party represents that the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as
applicable, by such party and when so executed and delivered this
Agreement will be the valid and binding obligation of such party
enforceable in accordance with its terms.
<PAGE>
12.11 This Agreement may be amended by written instrument signed by all
parties to the Agreement. Notwithstanding the above, the parties to
this Agreement may amend the schedules to this Agreement from time to
time to reflect changes in or relating to the Contracts, the Separate
Accounts or the Funds of the Trust or other applicable terms of this
Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the date specified below.
AMERICAN SKANDIA I.IFE ASSURANCE
CORPORATION
By: ______________________________
Gordon C. Boronow
Deputy Chief Executive Officer and President
PROFUNDS
By: ______________________________
Michael L. Sapir
PROFUND ADVISORS LLC
By: ______________________________
Michael L. Sapir
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE A
The following Separate Accounts and Associated Contracts of American Skandia
Life Assurance Corporation are permitted in accordance with the provisions of
this Agreement to invest in Funds of the Trust shown in Schedule B:
NAME OF SEPARATE ACCOUNT:
American Skandia Life Assurance Corporation Variable Account B (Class 1
Sub-accounts)
CONTRACT(S):
American Skandia Advisor Plan (ASAPSM)
American Skandia Advisor Plan IISM (ASAP II)
American Skandia XTra CreditSM (ASXT)
American Skandia LifeVest(R) (ASL(R))
American Skandia ProtectorSM (AS ProSM)
NAME OF SEPARATE ACCOUNT:
American Skandia Life Assurance Corporation Variable Account B (Class 2
Sub-accounts)
CONTRACT(S):
American Skandia Advisors Choice(R)2000 (Choice2000)
NAME OF SEPARATE ACCOUNT:
American Skandia Life Assurance Corporation Variable Account B (Class 3
Sub-accounts)
CONTRACT(S):
American Skandia Impact (AS ImpactSM)
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE B
The Separate Account(s) shown on Schedule A may invest in the following Funds of
the Trust.
ProFund VP Europe 30
ProFund VP SmallCap
ProFund VP UltraOTC
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Trust. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Trust as early as
possible before the date set by the Trust for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Trust will inform
the Company of the Record, Mailing and Meeting dates.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call in
the number of Customers to the Trust, as soon as possible, but no later
than two weeks after the Record Date.
3. The Trust's Annual Report (if any) must be sent to each Customer by the
Company either before or together with the Customers' receipt of voting
instruction solicitation material. The Trust will provide the last Annual
Report to the Company pursuant to the terms of Section 6.2 of the Agreement
to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Trust. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Trust or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
. name (legal name as found on account registration)
. address
. Trust or account number
. coding to state number of units
. individual Card number for use in tracking and verification
of votes (already on Cards as printed by the Trust).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Trust will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
<PAGE>
. Voting Instruction Card(s)
. one proxy notice and statement (one document)
. return envelope (postage pre-paid by Company) addressed to
the Company or its tabulation agent
. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is
important. One copy will be supplied by the Trust.)
. cover letter - optional, supplied by Company and reviewed and
approved in advance by the Trust
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Trust.
7. Package mailed by the Company.
* The Trust must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation time is
calculated as calendar days from (but NOT including,) the meeting, counting
backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used procedure is to sort Cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card. Note: For Example, if the account registration is
under "John A. Smith, Trustee," then that is the exact legal name to be
printed on the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Trust receives the tabulations
stated in terms of a percentage and the number of SHARES.) The Trust must
review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Trust on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Trust may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Trust will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Trust will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
ADMINISTRATIVE SERVICES AGREEMENT
This AGREEMENT is made this 18th day of October, 1999 by and between
ProFunds (the "Fund"), a Delaware business trust, and American Skandia Life
Assurance Corporation ("American Skandia"), a __________________________ life
insurance company.
WHEREAS, the Fund is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund is authorized to issue interests ("Shares") in
separate portfolios, with each such portfolio representing interests in a
separate portfolio of securities and other assets; and
WHEREAS, the Fund has established a number of portfolios designated as
the ProFunds VP and set forth in Schedule A, and may establish other portfolios
in the future (each a "Portfolio" and collectively the "Portfolios"); and
WHEREAS, the Fund is currently available to offer shares of one or more
of its Portfolios to a separate account of American Skandia that funds variable
annuity contracts ("Variable Contracts") and, therefore, to serve as an
underlying investment medium for Variable Contracts offered by American Skandia;
and
WHEREAS, pursuant to an Amended and Restated Investment Advisory
Agreement between the Fund and ProFund Advisors LLC (the "Adviser") ("Advisory
Agreement"), the Fund has retained the Adviser to furnish investment advisory
and other services with respect to the Portfolios in the manner and on the terms
thereinafter set forth; and
WHEREAS, the Fund wishes to retain American Skandia to provide certain
administrative services to the Fund with respect to the Portfolios in the manner
and on the terms hereinafter set forth, and
WHEREAS, American Skandia is willing to furnish such services in the
manner and on the terms hereinafter set forth;
NOW, THEREFORE in consideration of the premises and mutual covenants
herein contained, the parties agree as follows:
1. Appointment. The Fund hereby appoints American Skandia as one of the
administrators (the "Administrator") to provide certain administrative and other
services with respect to the Portfolios for the period and on the terms set
forth in this Agreement. The Administrator accepts such appointment and agrees
during such period to render the services herein set forth for the compensation
herein provided.
<PAGE>
In the event the Fund establishes and designates additional portfolios
with respect to which it desires to retain the Administrator to render the
administrative and other services hereunder, it shall notify the Administrator
in writing. If the Administrator is willing to render such services it shall
notify the Fund in writing, whereupon such additional portfolios shall become a
Portfolio hereunder.
2. Duties. Subject to the general supervision of the Board of Trustees
of the Fund, the Administrator shall provide those administrative services
reasonably necessary for the operation of the Portfolios, other than the
services provided by the Adviser pursuant to the Advisory Agreement or the
services provided to the Fund pursuant to any other service, operational or
administrative agreement.
(a) The services hereunder shall include, without limitation, the
following: (i) coordinating matters relating to the operation of the Separate
Account with the Portfolios, including any necessary coordination with the
custodian, transfer agent, dividend disbursing agent, recordkeeping agent,
accountants, attorneys, and other parties performing services, operational
functions or administration for the Portfolios; (ii) coordinating the
preparation of the necessary documents for submission to or filing with the SEC
and other federal and state regulatory authorities as may be required; (iii)
taking such other action as may be required by applicable law, with respect to
the foregoing, including without limitation the rules and regulations of the SEC
and of state insurance authorities and other regulatory agencies; (iv) providing
assistance to Variable Contract owners who use or who intend to use the
Portfolios as funding vehicles for their Variable Contracts; and (v)
coordinating with the Adviser regarding investment limitations and parameters
imposed on funding vehicles for variable annuities by the insurance laws of the
various states and by the Internal Revenue Code.
(b) The Administrator shall also make its officers and employees
available to the Board of Trustees and the officers of the Fund for consultation
and discussions regarding the operations of the Separate Account and the
Variable Contracts in connection with the administration of the Portfolios and
services provided to the Portfolios under this Agreement.
(c) In performing these services, the Administrator:
(i) Shall conform with the 1940 Act and all rules and
regulations thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the Fund's Board
of Trustees, and with the provisions of the Fund's registration
statement filed on Form N-1A, as supplemented or amended from time to
time.
(ii) Will make available to the Fund, promptly upon request,
appropriate books and records as are maintained under this agreement,
and will furnish to regulatory authorities having the requisite
authority any such books and records and any information or reports in
connection with the Administrator's services under this Agreement that
may be requested, following notice to the Fund.
(iii) Will regularly report to the Fund's Board of Trustees on
the services provided under this Agreement and will furnish the Fund's
Board of Trustees with respect to the Portfolios such periodic and
special reports with respect to such services as the Board of Trustees
may reasonably request.
3. Documentation. The Fund has made available to the Administrator
copies of each of the following documents, and will make available to it all
future amendments and supplements thereto, if any:
(a) the Fund's registration statement as filed with the SEC
and any amendments thereto; and
<PAGE>
(b) exhibits, powers of attorneys, certificates and any and
all other documents relating to this Agreement or filed in connection
with the registration statement described above.
4. Independent Contractor. The Administrator shall for all purposes
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided herein or authorized by the Board of Trustees of the Fund
from time to time, have no authority to act for or represent the Fund in any way
or otherwise be deemed its agent.
5. Administrative Fee. As compensation for the services rendered under
this Agreement, the Fund shall pay to the Administrator a fee at an annual rate
of up to 0.25% of the average daily net assets of each Portfolio that were
invested in such Portfolio through the Separate Account. The fee payable to the
Administrator for all of the Portfolios shall be computed and accrued daily and
paid quarterly. If the Administrator shall serve for less than an entire
quarter, the foregoing compensation shall be prorated.
6. Non-Exclusivity. It is understood that the services of the
Administrator hereunder are not exclusive, and the Administrator shall be free
to render similar services to other investment companies and other clients, and
the Fund may retain other service providers to furnish operational,
administrative and other services appropriate to the Fund's operations.
7. Expenses. During the term of this Agreement, the Administrator will
pay all ordinary expenses incurred by it in connection with its obligations
under this Agreement.
8. Standard of Care. The Administrator shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which this Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or the reckless disregard by it of its obligations and
duties under this Agreement.
9. Terms and Continuation. This Agreement shall take effect as of the
date indicated above, and shall remain in effect, unless sooner terminated as
provided herein, for up to two years from such date, and shall continue
thereafter on an annual basis with respect to the Portfolios provided that such
continuance is approved at least annually by the vote of a majority of the Board
of Trustees of the Fund.
This Agreement may be terminated with respect to any Portfolio:
(a) by the Fund at any time, without the payment of any penalty, with
respect to the services provided by the Administrator, by vote of a majority of
the entire Board of Trustees of the Fund and upon written notice to the
Administrator by the Fund;
(b) by the Administrator at any time, without the payment of any
penalty, upon sixty (60) days' written notice to the Fund.
10. Notice. Any notice shall be sufficiently given when sent by
registered or certified mail to the other party at the address of such party set
forth below or at such other address as such party may from time to time specify
in writing to the other party.
<PAGE>
If to the Administrator:
American Skandia Life Assurance Company
One Corporate Drive
P.O. Box 883
Shelton, Connecticut 06484-0883
Attention: ___________________
If to the Fund:
ProFunds
7900 Wisconsin Avenue, Suite 300
Bethesda, Maryland 20814
Attention: Michael L. Sapir
11. Fund Obligations. The Certificate of Formation of the Fund on file
with the Secretary of State of the State of Delaware was executed on behalf of
the Fund by its authorized person, and any obligation of the Fund shall be
binding only upon the assets of the Fund (or applicable Portfolio(s) thereof)
and shall not be binding upon any trustee, officer or shareholder of the Fund.
Neither the authorization of any action by the Trustees or shareholders of the
Fund nor the execution of this Agreement on behalf of the Fund shall impose any
liability upon any Trustee, officer or shareholder of the Fund.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.
13. Miscellaneous. (a) This Agreement shall be governed by Maryland law
(without regard to principles of conflicts of law) except for Section 11, which
shall be governed by Delaware law; provided that nothing herein shall be
construed in a manner inconsistent with the 1940 Act or any rule or regulation
of the Securities and Exchange Commission thereunder.
(b) 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.
(c) The captions in this Agreement are included for convenience only
and in no way define any of the provisions hereof or otherwise affect their
construction or effect.
(d) This Agreement may not be assigned (as defined under the 1940 Act)
by the Fund or the Administrator without the consent of the other party.
(e) This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below effective on the day and year first
above written.
ProFunds
By __________________________________
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION,
a _________________ insurance company
By ___________________________________
<PAGE>
Schedule A
Dated: October 18, 1999
Portfolios
ProFund VP UltraOTC
ProFund VP Small Cap
ProFund VP Europe 30
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 8 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. 8 to the Registration Statement of ProFunds on Form N-1A (File No.
333-28339).
PricewaterhouseCoopers LLP
Columbus, Ohio
October 14, 1999
DISTRIBUTION PLAN
This Distribution Plan ("Plan") dated October 18, 1999 constitutes the
written plan of ProFunds ("Trust") contemplated by Rule 12b-1 under the
Investment Company Act of 1940, as amended ("1940 Act"), relating to the shares
of each of the ProFunds VP series set forth on Schedule A, as such schedule may
be amended from time to time ("Funds").
Section 1. Each Fund is authorized to pay to insurance companies,
broker-dealers, banks and other financial institutions (each an "Authorized
Firm") a quarterly fee in an amount not to exceed, in the aggregate on an annual
basis, 0.25% of the average daily net asset value of the shares of such Fund
("Plan Fee") attributable to or held in the name of an Authorized Firm for its
contract owners or other permissible purchasers as reimbursement for providing
Services (as defined in Section 2) or for paying compensation to Authorized
Firms or their affiliates for services performed and expenses incurred in
connection with the sale of shares of the Funds pursuant to an agreement with an
Authorized Firm.
Section 2. Pursuant to an agreement with the Trust, an Authorized Firm
may provide the following services ("Services"), among others: the printing and
mailing of Fund prospectuses, statements of additional information, any
supplements thereto and shareholder reports for prospective investors; the
development, preparation, printing and mailing of advertisements, sales
literature and other promotional materials describing and/or relating to the
Funds; holding seminars and sales meetings designed to promote the distribution
of the Funds' shares; obtaining information and providing explanations to
wholesale and retail distributors of contracts regarding the investment
objectives and policies and other information about the Funds, including the
performance of the Funds; training sales personnel regarding the Funds; and
financing any other activity that is primarily intended to result in the sale of
shares of the Funds. In addition, Authorized Firms may enter into an agreement
with the Trust under which it would be entitled to receive compensation for,
among other things, making the Funds available to its contract owners as funding
vehicles for their variable insurance contracts.
Section 3. In the event that expenses are not specifically attributable
to the distribution of shares of any particular Fund, an Authorized Firm may
allocate such expenses to each Fund deemed to be reasonably likely to benefit
therefrom based upon the ratio of the average daily net assets of each such Fund
during the previous quarter to the aggregate average daily net assets of all
such Funds for such quarter; provided, however that any such allocation may be
subject to such adjustments as the Authorized Firm shall deem appropriate to
render the allocation fair and equitable under the circumstances, which
allocations and adjustments shall be subject to review and approval by the Board
of Trustees.
Section 4. The Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority of both (a) the
Trustees of the Trust, and (b) the Independent Trustees of the Trust, cast in
person at a meeting called for the purpose of voting on the Plan or such related
agreements.
<PAGE>
Section 5. The Plan shall continue in effect for a period beyond one
year from the date hereof only so long as such continuance is specifically
approved at least annually in the manner provided for approval of the Plan in
Section 4.
Section 6. Any person authorized to direct the disposition of the
monies paid or payable by the Funds pursuant to the Plan or any related
agreement shall provide to the Trustees of the Trust, and the Trustees shall
review, at least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.
Section 7. The Plan may be terminated with respect to any Fund at any
time by vote of a majority of the Independent Trustees, or by vote of a majority
of the outstanding shares of the Fund.
Section 8. All agreements with any person relating to implementation of
the Plan shall be in writing, and any agreements related to the Plan shall
provide:
(a) That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the
Independent Trustees or by vote of a majority of the
outstanding shares of a Fund, on not more than 60 days'
written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the
event of its assignment.
Section 9. The Plan may not be amended to increase materially the
amount of the Plan Fee permitted pursuant to Section 1 hereof without the
approval of the shareholders of the Fund(s) affected by such increase, and no
material amendments to the Plan shall be made unless approved in the manner
provided for approval of the Plan in Section 4.
Section 10. So long as this Plan is in effect, the selection and
nomination of persons to be Trustees of the Trust who are not "interested
persons" (as defined in Section 2(a)(19) of the 1940 Act) of the Trust shall be
committed to the discretion of such disinterested Trustees then in office.
Section 11. As used in the Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not "interested persons" of the
Trust (as defined in Section 2(a)(19) of the 1940 Act), and who have no direct
or indirect financial interest in the operation of the Plan or any agreements
related to it, and (b) the terms "assignment" and "interested person" shall have
the respective meanings specified in the 1940 Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
<PAGE>
Schedule A
Date: October 18, 1999
Funds
ProFund VP Bull
ProFund VP UltraBull
ProFund VP UltraOTC
ProFund VP Europe 30
ProFund VP UltraEurope
ProFund VP Small Cap
ProFund VP Bear
ProFund VP UltraBear
ProFund VP UltraShort OTC
ProFund VP UltraShort Europe
ProFund VP Money Market
ProFunds
7900 Wisconsin Avenue, Suite 300
Bethesda, Maryland 20814
SERVICES AGREEMENT
[Name]
[Address]
[City, State, Zip]
Ladies and Gentlemen:
ProFunds ("Trust") is an open-end management investment company
organized as a Delaware business trust and registered with the Securities and
Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended
("1940 Act"). On behalf of each of the ProFunds VP series of the Trust
identified in Schedule A ("Funds"), the Trustees of the Trust have adopted a
Distribution Plan ("Plan") that, among other things, authorizes the Trust to
enter into this Agreement with you ("Authorized Firm") concerning the provision
of the services ("Services") set forth in Section 2 to your contract owners or
other permissible purchasers ("Customers") who may from time to time be
investors, or prospective investors, in the Funds. The terms and conditions of
this Agreement are as follows:
1. REFERENCE TO PROSPECTUS; DETERMINATION OF NET ASSET VALUE.
1.1 Reference is made to the prospectus for each Fund as from time to time
are effective under the Securities Act of 1933 (the "1933 Act"). Terms
defined therein and not otherwise defined herein are used herein with
the meaning so defined.
1.2 For purposes of determining the fees payable to you under Section 3,
the average daily net asset value of a Fund's shares will be computed
in the manner specified in the Trust's registration statement (as the
same is in effect from time to time) in connection with the computation
of the net asset value of such Fund's shares for purposes of purchases
and redemptions.
2. SERVICES AS AUTHORIZED FIRM.
2.1 Authorized Firm is hereby authorized and may from time to time
undertake to perform the following non-exclusive list of Services: the
printing and mailing of Fund prospectuses, statements of additional
information, any supplements thereto and shareholder reports for
prospective investors; the development, preparation, printing and
mailing of advertisements, sales literature and other promotional
materials describing and/or relating to the Funds; holding seminars and
sales meetings designed to promote the distribution of the Funds'
shares; obtaining information and providing explanations to wholesale
and retail distributors of contracts regarding the investment
objectives and policies and other information about the Funds,
including the performance of the Funds; training sales personnel
regarding the Funds; and financing any other activity that is primarily
intended to result in the sale of shares of the Funds. Overhead and
other expenses of Authorized Firm related to the provision of Services,
including telephone and other communications expenses, may be included
in the information regarding amounts expended for such activities.
<PAGE>
2.2 In addition, Authorized Firm may receive compensation pursuant to this
Agreement for making the Funds available to its Customers as funding
vehicles for their variable insurance contracts, or compensation for
services performed and expenses incurred by Authorized Firm or its
affiliates in connection with the sale of shares of the Funds.
2.3 Authorized Firm will provide such office space and equipment, telephone
facilities, and personnel (which may be any part of the space,
equipment, and facilities currently used in Authorized Firm's business,
or any personnel employed by Authorized Firm) as may be reasonably
necessary or beneficial in order to provide such Services.
2.4 The procedures relating to the handling of orders shall be subject to
instructions which the Trust shall forward from time to time to
Authorized Firm. All orders for a Fund's shares are subject to
acceptance or rejection by the Trust in its sole discretion, and the
Trust may, in its discretion and without notice, suspend or withdraw
the sale of a Fund's shares, including the sale of such shares to
Authorized Firm for the account of any Customer or Customers, unless
otherwise agreed to by the parties to this Agreement.
2.5 In no transaction shall Authorized Firm act as dealer for its own
account; Authorized Firm shall act solely for, upon the specific or
pre-authorized instructions of, and for the account of, its Customers.
For all purposes of this Agreement, Authorized Firm will be deemed to
be an independent contractor, and will have no authority to act as
agent for the Trust or any dealer of the shares in any matter or in any
respect. No person is authorized to make any representations concerning
the Trust or a Fund's shares except those representations contained in
the Fund's then-current prospectus and statement of additional
information and in such printed information as the Trust may
subsequently prepare, unless otherwise agreed to by the parties to this
Agreement.
2.6 Authorized Firm and its employees will, upon request, be available
during normal business hours to consult with the Trust or its designees
concerning the performance of Authorized Firm's responsibilities under
this Agreement. Authorized Firm will provide to the Trust's Board of
Trustees (or assist in the provision of), and the Trust's Trustees will
review at least quarterly, a written report of the amounts so expended.
In addition, Authorized Firm will furnish to the Trust or its designees
such information as the Trust or its designees may reasonably request
(including, without limitation, periodic certifications confirming the
rendering of Services as described herein), and will otherwise
cooperate with the Trust and its designees (including, without
limitation, any auditors designated by the Trust), in the preparation
of reports to the Trust's Board of Trustees concerning this Agreement
and the monies paid, reimbursed, payable, or reimbursable pursuant
hereto, the Services provided hereunder and related expenses, and any
other reports or filings that may be required by law.
<PAGE>
3. FEES.
3.1 In consideration of the costs and expenses of furnishing the Services
and facilities provided by Authorized Firm hereunder, and subject to
the limitations of applicable law and regulations, Authorized Firm will
be reimbursed and/or compensated (as applicable) quarterly at an annual
rate of up to, but not more than, 0.25% of the average daily net assets
of a Fund attributable to the Fund's shares which are attributable to
or held in the name of Authorized Firm for its Customers. The fee will
not be paid to Authorized Firm with respect to shares of a Fund that
are redeemed or repurchased by the Trust within seven business days of
receipt of confirmation of such sale.
3.2 The fee rate with respect to any Fund or Funds may be prospectively
increased or decreased by the Trust, in its sole discretion, at any
time upon notice to Authorized Firm.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
4.1 By written acceptance of this Agreement, Authorized Firm represents,
warrants, and agrees that, to the extent required by law: (i)
Authorized Firm will provide to Customers a schedule of the services it
will perform pursuant to this Agreement and a schedule of any fees that
Authorized Firm may charge directly to Customers for services it
performs in connection with investments in the Trust on the Customer's
behalf; and (ii) any and all compensation payable to Authorized Firm by
Customers in connection with the investment of their assets in the
Trust will be disclosed by Authorized Firm to Customers and will be
authorized by Customers and will not result in an excessive fee to
Authorized Firm.
4.2 Authorized Firm agrees to comply with all requirements applicable to it
by reason of all applicable laws, including federal and state
securities laws, the rules and regulations of the SEC, including,
without limitation, all applicable requirements of the 1933 Act, the
Securities Exchange Act of 1934, the Investment Advisers Act of 1940,
and the 1940 Act. The Trust has informed Authorized Firm of the states
or other jurisdictions in which the Trust believes the shares of the
Funds are qualified for sale, and Authorized Firm agrees that it will
not purchase a Fund's shares on behalf of a Customer's account in any
jurisdiction in which such shares are not qualified for sale.
Authorized Firm further agrees that it will maintain all records
required by applicable law or otherwise reasonably requested by the
Trust relating to the services provided by it pursuant to the terms of
this Agreement.
4.3 Authorized Firm agrees that under no circumstances shall the Trust be
liable to Authorized Firm or any other person under this Agreement as a
result of any action by the SEC affecting the operation or continuation
of the Plan.
5. EXCULPATION; INDEMNIFICATION.
5.1 The Trust shall not be liable to Authorized Firm and Authorized Firm
shall not be liable to the Trust except for acts or failures to act
which constitute lack of good faith or gross negligence and for
obligations expressly assumed by either party hereunder. Nothing
contained in this Agreement is intended to operate as a waiver by the
Trust or by Authorized Firm of compliance with any applicable law,
rule, or regulation.
<PAGE>
5.2 Authorized Firm will indemnify the Trust and hold it harmless from any
claims or assertions relating to the lawfulness of Authorized Firm's
participation in this Agreement and the transactions contemplated
hereby or relating to any activities of any persons or entities
affiliated with Authorized Firm performed in connection with the
discharge of its responsibilities under this Agreement. If any such
claims are asserted, the Trust shall have the right to manage its own
defense, including the selection and engagement of legal counsel of its
choosing, and all costs of such defense shall be borne by Authorized
Firm.
6. EFFECTIVE DATE; TERMINATION.
6.1 This Agreement will become effective with respect to each Fund on the
date of its acceptance by Authorized Firm. Unless sooner terminated
with respect to any Fund, this Agreement will continue with respect to
a Fund until terminated in accordance with its terms, provided that the
continuance of the Plan is specifically approved at least annually in
accordance with the terms of the Plan.
6.2 This Agreement will automatically terminate with respect to a Fund in
the event of its assignment (as such term is defined in the 1940 Act).
This Agreement may be terminated with respect to any Fund by the Trust
or by Authorized Firm, without penalty, upon sixty days' prior written
notice to the other party. This Agreement may also be terminated with
respect to any Fund at any time without penalty by the vote of a
majority of the Independent Trustees (as defined in the Plan) or a
majority of the outstanding shares of a Fund on sixty days' written
notice.
7. GENERAL.
7.1 All notices and other communications to either Authorized Firm or the
Trust will be duly given if mailed, telegraphed or telecopied to the
appropriate address set forth on page 1 hereof, or at such other
address as either party may provide in writing to the other party.
7.2 The Trust may enter into other similar agreements for the provision of
Services with any other person or persons without Authorized Firm's
consent.
7.3 Upon receiving the consent of the Trust, Authorized Firm may, at its
expense, subcontract with any entity or person concerning the provision
of the Services contemplated hereunder; provided, however, that
Authorized Firm shall not be relieved of any of its obligations under
this Agreement by the appointment of such subcontractor and provided
further, that Authorized Firm shall be responsible, to the extent
provided in Article 5 hereof, for all acts of such subcontractor as if
such acts were its own.
<PAGE>
7.4 This Agreement supersedes any other agreement between the Trust and
Authorized Firm relating to the Services and relating to any other
matters discussed herein. All covenants, agreements, representations,
and warranties made herein shall be deemed to have been material and
relied on by each party, notwithstanding any investigation made by
either party or on behalf of either party, and shall survive the
execution and delivery of this Agreement. The invalidity or
unenforceability of any term or provision hereof shall not affect the
validity or enforceability of any other term or provision hereof. The
headings in this Agreement are for convenience of reference only and
shall not alter or otherwise affect the meaning hereof. This Agreement
may be executed in any number of counterparts which together shall
constitute one instrument and shall be governed by and construed in
accordance with the laws (other than the conflict of laws rules) of the
State of Ohio and shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns.
7.5 It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust personally, but shall bind
only the trust property of the Trust. The execution and delivery of
this Agreement have been authorized by the Trustees, and this Agreement
has been signed and delivered by an authorized officer of the Trust,
acting as such, and neither such authorization by the Trustees nor such
execution and delivery by such officer shall be deemed to have been
made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Trust as
provided in the Trust's Amended and Restated Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below.
ProFunds
By:
--------------------
Title:
-------------------
The foregoing Agreement is hereby accepted:
[Authorized Firm]
By:
--------------------------
Title:
--------------------------
Date:
--------------------------
<PAGE>
Schedule A
Date: October 18, 1999
Funds
ProFund VP Bull
ProFund VP UltraBull
ProFund VP UltraOTC
ProFund VP Europe 30
ProFund VP UltraEurope
ProFund VP Small Cap
ProFund VP Bear
ProFund VP UltraBear
ProFund VP UltraShort OTC
ProFund VP UltraShort Europe
ProFund VP Money Market
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001039803
<NAME> PROFUNDS
<SERIES>
<NUMBER> 011
<NAME> BULL PROFUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 7951029
<INVESTMENTS-AT-VALUE> 8125998
<RECEIVABLES> 1027
<ASSETS-OTHER> 34734
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8161759
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28290
<TOTAL-LIABILITIES> 28290
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8112397
<SHARES-COMMON-STOCK> 120736<F1>
<SHARES-COMMON-PRIOR> 936<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 249167
<ACCUM-APPREC-OR-DEPREC> 270239
<NET-ASSETS> 8133469
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 129335
<OTHER-INCOME> 0
<EXPENSES-NET> 50293
<NET-INVESTMENT-INCOME> 79042
<REALIZED-GAINS-CURRENT> 456309
<APPREC-INCREASE-CURRENT> 269984
<NET-CHANGE-FROM-OPS> 805355
<EQUALIZATION> 772048
<DISTRIBUTIONS-OF-INCOME> 5082<F1>
<DISTRIBUTIONS-OF-GAINS> 6056<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2037211
<NUMBER-OF-SHARES-REDEEMED> 1908101
<SHARES-REINVESTED> 180
<NET-CHANGE-IN-ASSETS> 8087178
<ACCUMULATED-NII-PRIOR> 85
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 846
<GROSS-ADVISORY-FEES> 21581
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 75932
<AVERAGE-NET-ASSETS> 2571192<F1>
<PER-SHARE-NAV-BEGIN> 49.45<F1>
<PER-SHARE-NII> 1.63<F1>
<PER-SHARE-GAIN-APPREC> 11.49<F1>
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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>
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<NAME> BULL PROFUND INVESTOR CLASS
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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> 021
<NAME> ULTRABULL 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> 022
<NAME> ULTRABULL PROFUND
<S> <C>
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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> 031
<NAME> BEAR 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> 032
<NAME> BEAR PROFUND
<S> <C>
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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>
<PERIOD-TYPE> YEAR
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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
<S> <C>
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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> 051
<NAME> ULTRAOTC 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>
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<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>
<NUMBER> 061
<NAME> MONEY MARKET 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> 062
<NAME> MONEY MARKET PROFUND
<S> <C>
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[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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<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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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Service Shares
</FN>
</TABLE>
