As Filed with the Securities and Exchange Commission on July 13, 2000
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. 14 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 17 [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)
Registrant's Telephone Number, including Area Code: (301) 657-1970
Michael L. Sapir With copy to:
Chairman William J. Tomko
PROFUND Advisors LLC President
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)
______ on (date) pursuant to paragraph (b)
______ 60 days after filing pursuant to paragraph (a)(1)
______ on (date) pursuant to paragraph (a)(1)
_X____ 75 days after filing pursuant to paragraph (a)(2)
______ 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. 14 to the Registrant's Registration
Statement on Form N-1A is filed for the purpose of adding disclosure regarding
four new series of the Registrant. Accordingly, this filing does not relate to
the existing series of the Registrant, disclosure of which is hereby
incorporated by reference from the following documents (File Nos. 333-28339,
811-08239): (1) the prospectus and statement of additional information relating
to the 10 "Benchmark" ProFunds and the Money Market ProFund included in
Post-Effective Amendment No. 13 to the Registrant's Registration Statement on
Form N-1A, filed pursuant to Rule 485(b) under the Securities Act of 1933, on
May 1, 2000; (2) the two prospectuses and statements of additional information
relating to the 11 "VP" ProFunds included in Post-Effective Amendment No. 13 to
the Registrant's Registration Statement on Form N-1A, filed pursuant to Rule
485(b) under the Securities Act of 1933, on May 1, 2000; (3) the prospectus and
statement of additional information relating to the OTC ProFund included in
Post-Effective Amendment No. 11 to the Registrant's Registration Statement on
Form N-1A, filed pursuant to Rule 485(a)(2) under the Securities Act of 1933, on
March 13, 2000; and (4) the definitive prospectus and statement of additional
information relating to the 17 "UltraSector" ProFunds filed pursuant to Rule 497
under the Securities Act of 1933, on June 19, 2000 for the prospectus, and on
June 21, 2000 for the Statement of Additional Information.
<PAGE>
[ ], 2000
PROSPECTUS
ProFunds Mutual Funds
The UltraSector ProFunds
. Airline UltraSector ProFund
. Banking UltraSector ProFund
. Entertainment and Leisure UltraSector ProFund
. Oilfield Equipment and Services UltraSector ProFund
[Logo]
Like shares of all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission, nor has the Securities
and Exchange Commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
<PAGE>
[Table of Contents]
<PAGE>
OVERVIEW
THE ULTRASECTOR PROFUNDS' INVESTMENT OBJECTIVES
Each UltraSector ProFund seeks to provide daily investment results,
before fees and expenses, that correspond to 150% of the performance of a
specified Dow Jones sector index.
PRINCIPAL INVESTMENT STRATEGIES
ProFund Advisors LLC (the "Advisor"), the investment advisor of each
UltraSector ProFund, uses a "passive" approach to investing, employing
quantitative analysis. On the basis of this analysis, the Advisor determines the
type, quantity and mix of investment positions that an UltraSector ProFund
should hold to approximate the performance of its benchmark (150% of a specified
Dow Jones sector index). The Advisor does not make judgments about the
investment merit of a particular stock, nor does it attempt to apply any
economic, financial or market analysis. The UltraSector ProFunds do not take
temporary defensive positions.
Under normal market conditions, each UltraSector ProFund will invest
primarily in equity securities of companies principally engaged in the business
activities of an indicated economic sector, or in instruments that provide
exposure to those companies. An UltraSector ProFund will invest in securities
and other instruments that the Advisor believes should have a similar investment
profile as, and simulate the movement of, the underlying index. The UltraSector
ProFunds may invest in securities that are not included in their underlying
indices if the Advisor decides it is appropriate in view of the UltraSector
ProFunds' investment objectives.
Each UltraSector ProFund may invest in the following instruments as
a substitute for investing directly in stocks, as a means of achieving leverage,
or as a way of pursuing its investment objective:
. Futures contracts on stock indexes, and options on future
contracts; and
. Financial instruments such as equity caps, collars and floors,
swaps, American Depository Receipts, and options on securities
and securities indices.
Each UltraSector ProFund generally invests as described above in
order to produce "leveraged" investment results. Leverage is a way to change
small market movements into larger changes in the value of an UltraSector
ProFund's investment. An UltraSector ProFund also may borrow money for
investment purposes in order to achieve leveraged investment results.
Each UltraSector ProFund may also invest in U.S. Government
securities and enter into repurchase agreements.
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE ULTRASECTOR PROFUNDS
Like all investments, the UltraSector ProFunds entail risk. The
Advisor cannot guarantee that any UltraSector ProFund will achieve its
investment objective. As with any mutual fund, the UltraSector ProFunds could
lose money, or their performance could trail that of other investment
alternatives. Some of the risks that are common to each of the UltraSector
ProFunds are:
. Market Risk -- The UltraSector ProFunds are subject to market
risks that will affect the value of their shares, including
general economic and market conditions, as well as developments
that impact specific economic sectors, industries or companies.
Shareholders should lose money when the index underlying their
benchmark declines.
. Equity Risk -- The equity markets are volatile, and the value of
an UltraSector ProFund's securities and futures and options
contracts may fluctuate dramatically from day-to-day. This
volatility may cause the value of your investment in an
UltraSector ProFund to decrease. The risk of equity investing may
be particularly acute when an UltraSector ProFund invests in the
securities of issuers with small market capitalization. Small
capitalization companies may lack the financial and personnel
resources to handle economic setbacks, and their securities
typically are less liquid than larger companies' stock.
. Concentration Risk -- Since each UltraSector ProFund invests in
the securities of a limited number of issuers conducting business
in a specific market sector, it is subject to the risk that those
issuers (or that market sector) will perform poorly, and the
UltraSector ProFund will be negatively impacted by that poor
performance.
. Leverage Risk -- The UltraSector ProFunds employ leveraged
investment techniques and may borrow money for investment
purposes. Leverage is the ability to get a return on a capital
base that is larger than an UltraSector ProFund's investment. Use
of leverage can magnify the effects of changes in the value of
the UltraSector ProFunds and makes them more volatile. The
leveraged investment techniques that the UltraSector ProFunds
employ subject investors in the UltraSector ProFunds to one and
one-half times the potential risk of loss of a conventional index
fund that seeks to track the performance of an underlying index.
. Correlation Risk -- The Advisor expects that each of the
UltraSector ProFunds will track its benchmark with a high level
of correlation. There can be, however, no guarantee that the
UltraSector ProFunds will be able to achieve a high level of
correlation. Investment by an UltraSector ProFund in securities
not included in its underlying index or in other financial
instruments may adversely affect an UltraSector ProFund's
correlation with its benchmark. A failure to achieve a high
degree of correlation may prevent an UltraSector ProFund from
achieving its investment goal.
. Risks of Aggressive Investment Techniques -- The UltraSector
ProFunds use investment techniques that may be considered
aggressive. Risks associated with the use of options, futures
contracts, swaps 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>
. Liquidity Risk -- In certain circumstances, such as disruption of
the orderly markets for financial instruments in which the
UltraSector ProFunds invest, the UltraSector ProFunds might not
be able to dispose of certain holdings quickly or at prices that
represent true market value in the judgment of the Advisor. This
may prevent the UltraSector ProFunds from limiting losses or
realizing gains.
. Non-Diversification Risk --The UltraSector ProFunds are
classified as "non-diversified" under the federal securities
laws. They have the ability to concentrate a relatively high
percentage of their investments in the securities of a small
number of companies, if the Advisor determines that doing so is
the most efficient means of tracking the relevant benchmark. This
would make the performance of an UltraSector ProFund more
susceptible to a single economic, political or regulatory event
than a more diversified mutual fund might be.
. New Fund Risk -- There can be no assurances that an UltraSector
ProFund will grow to an economically viable size, in which case
management may determine to liquidate the UltraSector ProFund at
a time that may not be opportune for shareholders.
The investment objective of each UltraSector ProFund is
non-fundamental and may be changed without shareholder approval. There can be no
assurance that an UltraSector ProFund will achieve its investment objective.
The UltraSector ProFunds:
. Are not federally insured
. Are not guaranteed by any government agency
. Are not bank deposits
. Are not guaranteed to achieve their objectives
<PAGE>
FUND INFORMATION - AIRLINE ULTRASECTOR PROFUND
FUND STRATEGY
The Airline UltraSector ProFund seeks daily investment results, before
fees and expenses, that correspond to 150% of the performance of the Dow Jones
U.S. [Airline] Sector Index.
The Index measures the performance of the portion of the airline
industry which is listed in the U.S. equity market. Component companies are
involved in [__________], [__________], and [__________]. The Airline
UltraSector ProFund primarily invests in airline companies or in instruments
that provide exposure to these companies.
As of March 31, 2000, the Index consisted of [ ] stocks. Its three
largest stocks were [______]; [__________]; and [__________] (which comprised
[_____%], [_____%], and [_____%], respectively, of its market capitalization).
The Airline UltraSector ProFund will concentrate its investments in a particular
industry or group of industries to approximately the same extent the Index is so
concentrated. As of March 31, 2000, the Index was concentrated in [__________],
which comprised [_____%] of its market capitalization (based on the composition
of the Index).
RISK CONSIDERATIONS
In addition to the risks discussed in the Overview for all UltraSector
ProFunds, the Airline UltraSector ProFund is subject to the following risks:
. Companies in this sector could be adversely affected by commodity
price volatility, exchange rates, foreign market access
restrictions, and increased competition.
. The prices of the securities of airline companies may fluctuate
widely due to their cyclical nature, economic trends, and changes
in disposable consumer income.
. Airline companies are subject to regulations by, and restrictions
of, the Federal Aviation Authority, [federal, state and local
governments], and foreign regulatory authorities.
. The profitability of companies in this sector is related to
worldwide fuel prices, labor agreements, and insurance costs.
. Airline companies face intense competition, both domestically and
internationally. Many foreign airline companies, many of which
are partially funded by foreign governments, may be less
sensitive to short-term economic pressures.
. The stocks in the Index may underperform fixed income investments
and stock market indices that track other markets, segments and
sectors.
<PAGE>
FUND PERFORMANCE
Because the Airline UltraSector ProFund is newly formed and has no
investment track record, it has no performance to compare against other mutual
funds or broad measures of securities market performance, such as indexes.
FEES AND EXPENSES OF THE FUND
The table below describes the estimated fees and expenses you may pay
if you buy and hold shares of the Airline UltraSector ProFund during its first
year of operations. The Airline UltraSector ProFund is a "no-load" mutual fund.
You pay no sales charge when you buy or sell shares, or when you reinvest
dividends.
Shareholder Fees - Investor Class Shares and Service Class Shares
(paid directly from your investment)
Wire Redemption Fee* $15
*This charge may be waived at the discretion of ProFunds.
Annual Operating Expenses
(as a percentage of average daily net assets)
Investor Service
Class Class
-------- -------
Management Fees 0.75% 0.75%
Service Fees None 1.00%*
Other Expenses 0.60% 0.60%
----- -----
Total Annual ProFund Operating Expenses 1.35% 2.35%
--------------
* ProFunds has adopted a Shareholder Services Plan pursuant to which each
UltraSector ProFund may pay fees of up to 1.00% of the net asset value of its
Service Class shares to financial intermediaries that agree to provide services
to customers holding Service Class shares. For additional information concerning
the terms of the Shareholder Services Plan and related service agreements with
financial intermediaries, see "Share Prices, Classes and Tax Information --
Classes of Shares."
<PAGE>
EXAMPLE
The following example illustrates the expenses you would have incurred
on a $10,000 investment in the Airline UltraSector ProFund, and is intended to
help you compare the cost of investing in the Airline UltraSector ProFund
compared to other mutual funds. The example assumes that you invest for the time
periods shown and redeem all of your shares at the end of each period, that the
Airline UltraSector ProFund earns an annual return of 5% over the periods shown,
that you reinvest all dividends and distributions, and that gross operating
expenses remain constant. Because this example is hypothetical and for
comparison only, your actual costs will be different.
1 YEAR 3 YEARS
----------------
Investor Class $137 $428
Service Class $238 $733
<PAGE>
FUND INFORMATION -- BANKING ULTRASECTOR PROFUND
FUND STRATEGY
The Banking UltraSector ProFund seeks daily investment results, before
fees and expenses, that correspond to 150% of the performance of the Dow Jones
U.S. Banking Sector Index.
The Index measures the performance of the banking economic sector of
the U.S. equity market. Component companies include [_________________________].
The Banking UltraSector ProFund primarily invests in banking companies or in
instruments that provide exposure to these companies.
As of March 31, 2000, the Index consisted of [ ] stocks. Its three
largest stocks were [____________________] (which comprised [_____%], [_____%],
and [_____%], respectively, of its market capitalization). The Banking
UltraSector Profund will concentrate its investments in a particular industry or
group of industries to approximately the same extent the Index is so
concentrated. As of March 31, 2000, the Index was concentrated in [__________],
which comprised [_____%] and [_____%], respectively, of its market
capitalization (based on the composition of the Index).
RISK CONSIDERATIONS
In addition to the risks discussed in the Overview for all UltraSector
ProFunds, the Banking UltraSector ProFund is subject to the following risks:
. Companies in this sector are subject to extensive governmental
regulation that affects the scope of their activities, the prices
they can charge and the amount of capital they must maintain.
. The profitability of companies in this sector is adversely
affected by increases in interest rates.
. The profitability of companies in this sector is adversely
affected by loan losses, which usually increase in economic
downturns.
. Banks may be subject to severe price competition.
. Newly enacted laws are expected to result in increased
inter-industry consolidation and competition in the banking
sector.
. The stocks in the Index may underperform fixed income investments
and stock market indices that track other markets, segments and
sectors.
<PAGE>
FUND PERFORMANCE
Because the Banking UltraSector ProFund is newly formed and has no
investment track record, it has no performance to compare against other mutual
funds or broad measures of securities market performance, such as indexes.
FEES AND EXPENSES OF THE FUND
The table below describes the estimated fees and expenses you may pay
if you buy and hold shares of the Banking UltraSector ProFund during its first
year of operations. The Banking UltraSector ProFund is a "no-load" mutual fund.
You pay no sales charge when you buy or sell shares, or when you reinvest
dividends.
Shareholder Fees - Investor Class Shares and Service Class Shares
(paid directly from your investment)
Wire Redemption Fee* $15
*This charge may be waived at the discretion of ProFunds.
Annual Operating Expenses
(as a percentage of average daily net assets)
Investor Service
Class Class
Management Fees 0.75% 0.75%
Service Fees None 1.00%*
Other Expenses 0.60% 0.60%
----- -----
Total Annual ProFund Operating Expenses 1.35% 2.35%
-------------------
* ProFunds has adopted a Shareholder Services Plan pursuant to which each
UltraSector ProFund may pay fees of up to 1.00% of the net asset value of its
Service Class shares to Banking intermediaries that agree to provide services to
customers holding Service Class shares. For additional information concerning
the terms of the Shareholder Services Plan and related service agreements with
Banking intermediaries, see "Share Prices, Classes and Tax Information --
Classes of Shares."
<PAGE>
EXAMPLE
The following example illustrates the expenses you would have incurred
on a $10,000 investment in the Banking UltraSector ProFund, and is intended to
help you compare the cost of investing in the Banking UltraSector ProFund
compared to other mutual funds. The example assumes that you invest for the time
periods shown and redeem all of your shares at the end of each period, that the
Banking UltraSector ProFund earns an annual return of 5% over the periods shown,
that you reinvest all dividends and distributions, and that gross operating
expenses remain constant. Because this example is hypothetical and for
comparison only, your actual costs will be different.
1 YEAR 3 YEARS
------------------
Investor Class $137 $428
Service Class $238 $733
<PAGE>
FUND INFORMATION -- ENTERTAINMENT AND
LEISURE ULTRASECTOR PROFUND
FUND STRATEGY
The Entertainment and Leisure UltraSector ProFund seeks daily
investment results, before fees and expenses, that correspond to 150% of the
performance of the Dow Jones U.S. Entertainment and Leisure Sector Index.
The Index measures the performance of the entertainment sector of the
U.S. equity market. Component companies include [__________], [__________]. The
Entertainment and Leisure UltraSector ProFund primarily invests in entertainment
companies or in instruments that provide exposure to these companies.
As of March 31, 2000, the Index consisted of [ ] stocks. Its three
largest stocks were [__________], [__________], and [__________] (which
comprised [_____%], [_____%], and [_____%], respectively, of its market
capitalization).
RISK CONSIDERATIONS
In addition to the risks discussed in the Overview for all the
UltraSector ProFunds, the Entertainment and Leisure UltraSector ProFund is
subject to the following risks:
. The success of the entertainment [industry] is tied closely to
the performance of the domestic and international economy, and
competition.
. Companies in this sector are increasingly affected by government
regulation.
. The success of companies in this sector depends heavily on
disposable household income and consumer spending.
. Companies in this sector are subject to severe competition.
. Changes in demographics and consumer tastes can affect the
success of companies in the entertainment industry.
. Companies in this sector are subject to risks of new
technologies.
. The stocks in the Index may underperform fixed income investments
and stock market indices that track other markets, segments and
sectors.
FUND PERFORMANCE
Because the Entertainment and Leisure UltraSector ProFund is newly
formed and has no investment track record, it has no performance to compare
against other mutual funds or broad measures of securities market performance,
such as indexes.
<PAGE>
FEES AND EXPENSES OF THE FUND
The table below describes the estimated fees and expenses you may pay
if you buy and hold shares of the Entertainment and Leisure UltraSector ProFund
during its first year of operations. The Entertainment and Leisure UltraSector
ProFund is a "no-load" mutual fund. You pay no sales charge when you buy or sell
shares, or when you reinvest dividends.
Shareholder Fees - Investor Class Shares and Service Class Shares
(paid directly from your investment)
Wire Redemption Fee* $15
*This charge may be waived at the discretion of ProFunds.
Annual Operating Expenses
(as a percentage of average daily net assets)
Investor Service
Class Class
Management Fees 0.75% 0.75%
Service Fees None 1.00%*
Other Expenses 0.60% 0.60%
----- -----
Total Annual ProFund Operating Expenses 1.35% 2.35%
-------------------
* ProFunds has adopted a Shareholder Services Plan pursuant to which each
UltraSector ProFund may pay fees of up to 1.00% of the net asset value of its
Service Class shares to financial intermediaries that agree to provide services
to customers holding Service Class shares. For additional information concerning
the terms of the Shareholder Services Plan and related service agreements with
financial intermediaries, see "Share Prices, Classes and Tax Information --
Classes of Shares."
EXAMPLE
The following example illustrates the expenses you would have
incurred on a $10,000 investment in the Entertainment and Leisure UltraSector
ProFund, and is intended to help you compare the cost of investing in the
Entertainment and Leisure UltraSector ProFund compared to other mutual funds.
The example assumes that you invest for the time periods shown and redeem all of
your shares at the end of each period, that the Entertainment and Leisure
UltraSector ProFund earns an annual return of 5% over the periods shown, that
you reinvest all dividends and distributions, and that gross operating expenses
remain constant. Because this example is hypothetical and for comparison only,
your actual costs will be different.
1 YEAR 3 YEARS
----------------
Investor Class $137 $428
Service Class $238 $733
<PAGE>
FUND INFORMATION -- OILFIELD EQUIPMENT AND SERVICES
ULTRASECTOR PROFUND
FUND STRATEGY
The Oilfield Equipment and Services UltraSector ProFund seeks daily
investment results, before fees and expenses, that correspond to 150% of the
performance of the Dow Jones U.S. Oilfield Equipment and Services Sector Index.
The Index measures the performance of the oilfield equipment and
services sector of the U.S. equity market. Component companies include
[_________________________]. The Oilfield Equipment and Services UltraSector
ProFund primarily invests in oil equipment and service companies or in
instruments that provide exposure to these companies.
As of March 31, 2000, the Index consisted of [ ] stocks. Its three
largest stocks were [__________], [__________], and [__________] (which
comprised [_____%], [_____%], and [_____%], respectively, of its market
capitalization). The Oilfield Equipment and Services UltraSector ProFund will
concentrate its investments in a particular industry or group of industries to
approximately the same extent the Index is so concentrated. As of March 31,
2000, the Index was concentrated in [_____], which comprised [_____%] of its
market capitalization (based on the composition of the Index).
RISK CONSIDERATIONS
In addition to the risks discussed in the Overview for all UltraSector
ProFunds, the Oilfield Equipment and Services UltraSector ProFund is subject to
the following risks:
. The profitability of companies in this sector is related to
worldwide oil exploration and production spending.
. Companies in this sector could be adversely affected by changes
in currency exchange rates.
. Companies in this sector are affected by government environmental
regulations, world events and economic conditions, and are
subject to market, economic and political risks of the countries
where oil companies are located or do business.
. Low consumer demand, warmer winters, and energy efficiency may
lower demand for oil-related products.
. Companies in this sector are at risk for environmental damage
claims.
. The stocks in the Index may underperform fixed income investments
and stock market indices that track other markets, segments and
sectors.
<PAGE>
FUND PERFORMANCE
Because the Oilfield Equipment and Services UltraSector ProFund is
newly formed and has no investment track record, it has no performance to
compare against other mutual funds or broad measures of securities market
performance, such as indexes.
FEES AND EXPENSES OF THE FUND
The table below describes the estimated fees and expenses you may pay
if you buy and hold shares of the Oilfield Equipment and Services UltraSector
ProFund during its first year of operations. The Oilfield Equipment and Services
UltraSector ProFund is a "no-load" mutual fund. You pay no sales charge when you
buy or sell shares, or when you reinvest dividends.
Shareholder Fees - Investor Class Shares and Service Class Shares
(paid directly from your investment)
Wire Redemption Fee* $15
*This charge may be waived at the discretion of the ProFunds.
Annual Operating Expenses
(as a percentage of average daily net assets)
Investor Service
Class Class
Management Fees 0.75% 0.75%
Service Fees None 1.00%*
Other Expenses 0.60% 0.60%
----- -----
Total Annual ProFund Operating Expenses 1.35% 2.35%
-------------------
* ProFunds has adopted a Shareholder Services Plan pursuant to which each
UltraSector ProFund may pay fees of up to 1.00% of the net asset value of its
Service Class shares to financial intermediaries that agree to provide services
to customers holding Service Class shares. For additional information concerning
the terms of the Shareholder Services Plan and related service agreements with
financial intermediaries, see "Share Prices, Classes and Tax Information --
Classes of Shares."
<PAGE>
EXAMPLE
The following example illustrates the expenses you would have incurred
on a $10,000 investment in the Oilfield Equipment and Services UltraSector
ProFund, and is intended to help you compare the cost of investing in the
Oilfield Equipment and Services UltraSector ProFund compared to other mutual
funds. The example assumes that you invest for the time periods shown and redeem
all of your shares at the end of each period, that the Oilfield Equipment and
Services UltraSector ProFund earns an annual return of 5% over the periods
shown, that you reinvest all dividends and distributions, and that gross
operating expenses remain constant. Because this example is hypothetical and for
comparison only, your actual costs will be different.
1 YEAR 3 YEARS
-----------------------
Investor Class $137 $428
Service Class $238 $733
<PAGE>
ULTRASECTOR PROFUNDS STRATEGY
What the UltraSector ProFunds Do
Each UltraSector ProFund:
. Seeks to provide its shareholders with predictable investment returns
approximating its benchmark by investing in securities and other
financial instruments, such as futures and options on futures.
. Uses a mathematical and quantitative approach.
. Pursues its objective regardless of market conditions, trends or
direction.
. Seeks to provide correlation with its benchmark on a daily basis.
What the UltraSector ProFunds Do Not Do
The Advisor does not:
. Conduct conventional stock research or analysis or forecast stock
market movement in managing the UltraSector ProFunds' assets.
. Invest the UltraSector ProFunds' assets in stocks or instruments based
on the Advisor's 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 the UltraSector
ProFunds' investments.
. Seek to provide correlation with the UltraSector ProFunds' benchmarks
over a period of time other than daily, such as monthly or annually,
since mathematical compounding prevents the UltraSector ProFunds from
achieving such results.
Important Concepts
. Leverage offers a means of magnifying small market movements, up or
down, into large changes in an investment's value.
. Futures, or futures contracts, are contracts to pay a fixed price for
an agreed-upon amount of commodities or securities, or the cash value
of the commodity or securities, on an agreed-upon date.
<PAGE>
. 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, or to receive cash upon
exercise of the option (in the case of an index option).
. American Depository Receipts represent the right to receive securities
of foreign issuers deposited in a bank or trust company. ADRs are an
alternative to purchasing the underlying securities in their national
markets and currencies. Investment in ADRs has certain advantages over
direct investment in the underlying foreign securities since: (i) ADRs
are U.S. dollar-denominated investments that are easily transferable
and for which market quotations are readily available, and (ii)
issuers whose securities are represented by ADRs are generally subject
to auditing, accounting and financial reporting standards similar to
those applied to domestic issuers.
Portfolio Turnover
The Advisor expects a significant portion of the UltraSector ProFunds'
assets to come from professional money managers and investors who use the
UltraSector ProFunds as part of "market timing" investment strategies. These
strategies often call for frequent trading of UltraSector ProFund shares to take
advantage of anticipated changes in market conditions. Although the Advisor
believes its accounting methodology should minimize the effect on the
UltraSector ProFunds of such trading, market timing trading could increase the
rate of UltraSector ProFunds' portfolio turnover, forcing realization of
substantial capital gains and losses and increasing transaction expenses. In
addition, while the UltraSector ProFunds do not expect it, large movements of
assets into and out of the UltraSector ProFunds may negatively impact their
abilities to achieve their investment objectives or their level of operating
expenses.
SHARE PRICES, CLASSES AND TAX INFORMATION
Calculating the UltraSector ProFunds' Share Prices
Each UltraSector ProFund calculates daily share prices on the basis of
the net asset value of each class of shares at the close of regular trading on
the New York Stock Exchange ("NYSE") (normally, 4:00 p.m., Eastern time) every
day the NYSE and the Chicago Mercantile Exchange are open for business.
Purchases and redemptions of shares are effected at the net asset
value per share next determined after receipt and acceptance of an order. If
portfolio investments of an UltraSector ProFund are traded in markets on days
when the UltraSector ProFund's principal trading markets are closed, the
UltraSector ProFund's net asset value may vary on days when investors cannot
purchase or redeem shares.
<PAGE>
The UltraSector ProFunds value shares of each class of shares by
dividing the market value of the assets attributable to each class, less the
liabilities attributable to the class, by the number of the class's outstanding
shares. The UltraSector ProFunds use the following methods for arriving at the
current market price of investments held by the UltraSector ProFunds:
. securities listed and traded on exchanges--the last price the stock
traded at on a given day, or if there were no sales, the mean between
the closing bid and asked prices.
. securities traded over-the-counter--NASDAQ-supplied information on the
prevailing bid and asked prices.
. futures contracts and options on indexes and securities--the last sale
price prior to the close of regular trading on the NYSE.
. options on futures contracts--priced at fair value determined with
reference to established future exchanges.
. bonds and convertible bonds generally are valued using a third-party
pricing system.
. short-term debt securities are valued at amortized cost, which
approximates market value.
. foreign exchange values used to calculate net asset values will be the
mean of the bid price and the asked price for the respective foreign
currency occurring immediately before the NYSE 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 UltraSector ProFunds
sold them. In the event that a trading halt closes the NYSE or a futures
exchange early, portfolio investments may be valued at fair value, or in a
manner that is different from the discussion above. See the Statement of
Additional Information for more details.
The New York Stock Exchange and the Chicago Mercantile Exchange, a
leading market for futures and options, are open every week, Monday through
Friday, except when the following holidays are celebrated: New Year's Day,
Martin Luther King, Jr. Day (the third Monday in January), Presidents' Day (the
third Monday in February), Good Friday, Memorial Day (the last Monday in May),
July 4th, Labor Day (the first Monday in September), Thanksgiving Day (the
fourth Thursday in November) and Christmas Day. Either or both of these
Exchanges may close early on the business day before each of these holidays.
Either or both of these Exchanges also may close early on the day after
Thanksgiving Day and the day before Christmas holiday.
Dividends and Distributions
Each of the UltraSector ProFunds intends to distribute to its
shareholders every year all of the year's net investment income and net capital
gains. Each UltraSector ProFund will reinvest these distributions in additional
shares unless a shareholder has written to request a direct cash distribution.
<PAGE>
Tax Consequences
An UltraSector ProFund does not ordinarily pay income tax on its net
investment income (which includes short-term capital gains) and net capital
gains that it distributes to shareholders, but individual shareholders pay tax
on the dividends and distributions they receive. Shareholders will generally be
taxed regardless of how long they have held UltraSector ProFund shares and
regardless of whether distributions and dividends are reinvested or they choose
to receive cash. Distributions and dividends generally will be taxable as either
ordinary income or long-term capital gains. For example, if an UltraSector
ProFund designates a particular distribution as a long-term capital gain
distribution, it will be taxable to shareholders at their long-term capital
gains rate. Dividends and distributions may also be subject to state and local
taxes.
Every year, the UltraSector ProFunds will send shareholders tax
information on the dividends and distributions for the previous year.
If shareholders sell or redeem their UltraSector ProFund shares, they
may have a capital gain or loss, which will be long-term or short-term,
generally depending upon how long they have held the shares. An exchange of
UltraSector ProFund shares may be treated as a sale.
The tax consequences for tax deferred retirement accounts or
non-taxable shareholders will be different.
Please keep in mind:
. Whether a distribution by an UltraSector ProFund is taxable to
shareholders as ordinary income or at the lower capital gains rate
depends on whether it is a long-term capital gain of the ProFund, not on
how long an investor has owned shares of the UltraSector ProFund.
. Dividends and distributions declared by an UltraSector ProFund in
October, November or December of one year and paid in January of the next
year may be taxable in the year the UltraSector ProFund declared them.
. As with all mutual funds, an UltraSector ProFund may be required to
withhold U.S. federal income tax at the rate of 31% of all taxable
distributions and redemption proceeds, payable to shareholders who fail
to provide the UltraSector ProFund with correct taxpayer identification
numbers or to make required certifications, or who have been notified by
the IRS that they are subject to backup withholding. Backup withholding
is not an additional tax; rather, it is a way in which the IRS ensures it
will collect taxes otherwise due. Any amounts withheld may be credited
against the shareholder's U.S. federal income tax liability. You also may
be subject to a $50 fee to reimburse the UltraSector ProFunds for any
penalty that the IRS may impose.
Please see the Statement of Additional Information for more
information. Because each investor's tax circumstances are unique and because
the tax laws are subject to change, the Advisor recommends that shareholders
consult their tax advisors about federal, state, local and foreign tax
consequences of investment in the UltraSector ProFunds.
<PAGE>
Classes of Shares
Investors in any of the UltraSector ProFunds can purchase either
Investor Class shares directly, or Service Class shares through an authorized
firm, such as a registered investment advisor, a bank or a trust company. Under
a shareholder services plan for Service Class shares, each UltraSector ProFund
may pay an authorized firm up to 1.00% on an annualized basis of average daily
net assets attributable to its customers who are Service Class shareholders.
For this fee, the authorized firms may provide a variety of services,
such as:
. receiving and processing shareholder orders,
. performing the accounting for the shareholder's account,
. maintaining retirement plan accounts,
. answering questions and handling correspondence for individual accounts,
. acting as the sole shareholder of record for individual shareholders,
. issuing shareholder reports and transaction confirmations,
. executing daily investment "sweep" functions, and
. furnishing investment advisory services.
Service Class shareholders pay all fees and expenses applicable to
Service Class shares.
Because ProFunds adopted the shareholder services plan to compensate
authorized firms for providing the types of services described above, ProFunds
believes the shareholder services plan is not covered by Rule 12b-1 under the
Investment Company Act of 1940, which relates to payment of distribution fees.
ProFunds does, however, follow the procedural requirements of Rule 12b-1 in
connection with the implementation and administration of the shareholder
services plan.
An authorized firm generally represents in a service agreement used in
connection with the shareholder services plan that all compensation payable to
the authorized firm from its customers in connection with the investment of
their assets in the UltraSector ProFunds will be disclosed by the authorized
firm to its customers. It also generally provides that all such compensation
will be authorized by the authorized firm's customers.
ProFunds does not monitor the actual services being performed by an
authorized firm under the plan and related service agreement. ProFunds also does
not monitor the reasonableness of the total compensation that an authorized firm
may receive, including any service fee that an authorized firm may receive from
the UltraSector ProFunds and any compensation the authorized firm may receive
directly from its clients.
<PAGE>
SHAREHOLDER SERVICES GUIDE
Contacting the UltraSector ProFunds
By telephone: (888) 776-3637 or (614) 470-8122--
for investors
(888) 776-5717--a phone line dedicated
for use by financial professionals only
By mail: ProFunds
P.O. Box 182800
Columbus, OH 43218-2800
By overnight mail: ProFunds
c/o BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
Minimum Initial Investments
. $5,000 for discretionary accounts controlled by a financial professional.
. $15,000 for self-directed accounts controlled directly by investors.
These minimums apply to all accounts, including retirement plans, and
apply to the total value of an investor's initial UltraSector ProFund
investment. The UltraSector ProFunds reserve the right to reject or refuse, at
their discretion, any order for the purchase of an UltraSector ProFund's shares
in whole or in part.
Opening Your UltraSector ProFunds Account
By mail: Send a completed application, along with a check payable to
"ProFunds," to the aforementioned address. Cash, credit cards and credit card
checks are not accepted. Please contact the UltraSector ProFunds in advance if
you wish to send third party checks. All purchases must be made in US dollars
through a US bank.
By wire transfer: First, complete an application and fax it to the
UltraSector ProFunds at (800) 782-4797 (toll-free) or (614) 470-8718. Next, call
the UltraSector ProFunds at (888) 776-3637 (toll-free) or (614) 470-8122 to: a)
confirm receipt of the faxed application, b) request your new account number, c)
inform the UltraSector ProFunds of the amount to be wired and d) receive a
confirmation number for your purchase order. After receiving your confirmation
number, instruct your bank to transfer money by wire to:
UMB Bank, N.A.
Kansas City, MO
Routing/ABA #:101000695
ProFunds DDA #9870857952
<PAGE>
For further credit to: Your name, the name of the UltraSector
ProFund(s), and your UltraSector ProFunds account number.
Confirmation number: The confirmation number given to you by the
ProFunds representative.
After faxing a copy of the completed application, send the original to
the UltraSector ProFunds via mail or overnight delivery. The addresses are shown
above under "Contacting the UltraSector ProFunds by mail."
Instructions, written or telephonic, given to the UltraSector ProFunds
for wire transfer requests do not constitute a purchase order until the wire
transfer has been received and accepted by the UltraSector ProFunds. The
UltraSector ProFunds are not liable for any loss incurred due to a wire transfer
not having been received.
Please note that your bank may charge a fee to send or receive wires.
Establishing Accounts For Tax-Sheltered Retirement Plans
The UltraSector ProFunds sponsor Individual Retirement Accounts
("IRAs") that enable individual investors to set up their own retirement savings
programs. The ProFund Advisor charges an annual fee of $15 per social security
number for all types of IRAs to pay for the extra maintenance and tax reporting
that these plans require. Investors in other types of retirement plans also may
invest in the UltraSector ProFunds. For additional information and an
application, contact the UltraSector ProFunds directly by phone or at the above
address.
Purchasing Additional UltraSector ProFunds Shares
By mail: Send a check payable to "ProFunds", noting the UltraSector
ProFund and account number, to the aforementioned address. Cash, credit cards,
and credit card checks are not accepted. Please contact the UltraSector ProFunds
in advance if you wish to send third party checks. All purchases need to be made
in US dollars through a US bank.
By wire transfer: Call the UltraSector ProFunds to inform us of the
amount you will be wiring and to receive a confirmation number.
You can then instruct your bank to transfer your funds to:
UMB Bank, N.A.
Kansas City, MO
Routing/ABA #:101000695
ProFunds DDA #9870857952
For further credit to: Your name, the name of the UltraSector
ProFund(s), and your UltraSector ProFunds account number.
Confirmation number: The confirmation number given to you by the
ProFunds representative.
Instructions, written or telephonic, given to the UltraSector ProFunds
for wire transfer requests do not constitute a purchase order until the wire
transfer has been received and accepted by the UltraSector ProFunds. The
UltraSector ProFunds are not liable for any loss incurred due to a wire transfer
not having been received. Please note that your bank may charge a fee to send or
receive wires.
<PAGE>
Please keep in mind when purchasing shares:
. The minimum subsequent purchase amount is $100.
. The UltraSector ProFunds price shares you purchase at the price per share
next computed after we receive and accept your purchase order in good
order. To be in good order, a purchase order must include a properly
completed application and wire, check or other form of payment.
. A wire order is considered in good order only if (i) you have called
ProFunds under the procedures described above and (ii) the ProFunds
receive and accept your wire. The UltraSector ProFunds can only accept
wires during the times they process wires: between 8:00 a.m. and 3:10
p.m., Eastern time for all the UltraSector ProFunds. Wires received after
the UltraSector ProFunds' wire processing times will be processed the
next business day and will receive that day's share price. If the primary
exchange or market on which an UltraSector ProFund transacts business
closes early, the above cut-off time will be 25 minutes prior to the
close of such exchange or market.
. If your purchase is cancelled, you will be responsible for any losses
that may result from any decline in the value of the cancelled purchase.
The UltraSector ProFunds (or their agents) have the authority to redeem
shares in your account(s) to cover any losses due to fluctuations in
share price. Any profit on a cancelled transaction will accrue to the
UltraSector ProFunds.
. Securities brokers and dealers have the responsibility of transmitting
your orders promptly. Brokers and dealers may charge transaction fees on
the purchase and/or sale of a ProFund shares.
Exchanges
Shareholders can exchange shares of either class of any UltraSector
ProFund for shares of either class of another ProFund, including ProFunds that
are not described in this prospectus, free of charge. The ProFunds can only
honor exchanges between accounts registered in the same name, and having the
same address and taxpayer identification number.
The ProFunds accept exchange orders either by phone, in writing, or
from the Internet. You will need to specify the number of shares, or the
percentage or dollar value of the shares you wish to exchange, and the ProFunds
(and classes of shares) involved in the transaction. The ProFunds can only
accept exchange orders by phone between 8:00 a.m. and 3:30 p.m. and between 4:00
p.m. and 9:00 p.m. Eastern time. The ProFunds may not receive or accept orders
at any other time by phone. If the primary exchange or market (generally, the
CME) on which a ProFund transacts business closes early, the above cut-off time
for phone exchanges will be 25 minutes prior to the close of such exchange or
market.
Shareholder may use their personal computer to transact on-line
exchanges of the ProFunds' shares at ProFunds' website (www.profunds.com). The
ProFunds can only accept exchange orders by Internet between 8:00 a.m. and 3:35
p.m. and between 4:30 p.m. and 9:00 p.m. Eastern Time. The ProFunds may not
receive or accept orders at any other time by Internet. To access this service
through the website, you click on the "Trade/Access Account" icon and you will
be prompted to enter your Social Security Number. You should then follow the
instructions to establish your Personal Identification Number (PIN), which will
allow you to execute exchanges between ProFunds and to access ProFunds account
information.
<PAGE>
Internet exchange transactions are extremely convenient, but are not
risk free. To ensure that all Internet transactions are safe, secure and as
risk-free as possible, ProFunds has instituted certain safeguards and procedures
for determining the identity of website users. As a result, neither ProFunds nor
its transfer agent will be responsible for any loss, liability, cost or expense
for following Internet instructions they reasonably believe to be genuine. If
you or your intermediary make exchange requests by Internet, you will generally
bear the risk of any loss.
The ProFunds' Prospectuses are readily available for viewing on the
website.
The ProFunds may terminate the ability to exchange ProFund shares on
its website at any time, in which case you may continue to exchange shares as
otherwise provided in this Prospectus.
Please keep in mind when exchanging shares:
. An exchange is actually a redemption (sale) of shares of one ProFund
and purchase of shares of another ProFund.
. The minimum exchange for self-directed accounts is $1,000 or, if less,
for the account's entire current value.
. You may exchange, on a regular basis, shares of the Money Market
ProFund (described in another prospectus) for shares of other ProFunds
through an Automatic Exchange Plan. For more information on this
option, please call the ProFunds at (888) 776-3637.
. Before executing an exchange between the UltraSector ProFunds
described in this prospectus for shares of another ProFund, a
shareholder must first review the prospectus related to the other
ProFund. Such prospectus may be obtained by contacting the ProFunds by
letter or telephone at the address or telephone number noted on the
back cover of this prospectus.
Redeeming UltraSector ProFund Shares
You can redeem all or part of your shares at the price next determined
after we receive and accept your request. The UltraSector ProFunds only accept
redemption orders by phone between 8:00 a.m. and 3:30 p.m. and between 4:00 p.m.
and 9:00 p.m. Eastern time. The UltraSector ProFunds may not receive or accept
orders at any other time. If the primary exchange or market on which an
UltraSector ProFund transacts business closes early, the above cut-off time will
be 25 minutes prior to the close of such exchange or market.
<PAGE>
Written Redemptions
To redeem all or part of your shares in writing, your request needs to
include the following information to the aforementioned address:
. the name of the UltraSector ProFund(s),
. the account number(s),
. the amount of money or number of shares being redeemed,
. the name(s) of the account owners,
. the signature(s) of all registered account owners, and
. your daytime telephone number.
Wire Redemptions
If your account is authorized for wire redemption, your proceeds will
be wired directly into the bank account you have designated. The UltraSector
ProFunds charge a $15 service fee for a wire transfer of redemption proceeds,
and your bank may charge an additional fee to receive the wire. If you would
like to establish this option on an existing account, please call the
UltraSector ProFunds to request the appropriate form. Wire redemptions are not
available for retirement accounts.
Signature Guarantee
Certain redemption requests must include a signature guarantee. Your
request needs to be in writing and include a signature guarantee if any of the
following situations apply:
. Your account registration or address has changed within the last 30
calendar days.
. The check is being mailed to a different address than the one on your
account.
. The check or wire is being made payable to someone other than the
account owner.
. The redemption proceeds are being transferred to an account with a
different registration.
. You wish to redeem more than $100,000.
. You are adding or changing wire instructions on your account.
. Other unusual situations as determined by the UltraSector ProFunds'
transfer agent.
Signature guarantees may be provided by an eligible guarantor
institution such as a commercial bank, an NASD member firm such as a stock
broker, a savings association or a national securities exchange.
<PAGE>
Please keep in mind when redeeming shares:
. Redemptions from self-directed accounts must be for at least $1,000 or,
if less, for the account's entire current value. The remaining balance
needs to be above the applicable minimum investment.
. The ProFunds normally remit redemption proceeds within seven days of
completing your liquidation out of the relevant UltraSector ProFund. For
redemption of shares purchased by check or Automatic Investment, the
UltraSector ProFunds may wait up to 15 days before sending redemption
proceeds to assure that the transfer agent has collected the purchase
payment.
. The UltraSector ProFunds will remit payment of telephone redemptions only
to the address or bank of record on the account application. You must
submit, in writing, a request for payment to any other address, along
with a signature guarantee from a financial service organization.
. To redeem shares in a retirement account, your request needs to be in
writing, except for exchanges to other ProFunds, which can be requested
by phone or in writing. Call the UltraSector ProFunds to request a
retirement distribution form.
. Involuntary Redemptions: The UltraSector ProFunds reserve the right to
redeem involuntarily an investor's account, including a retirement
account, which falls below the applicable minimum investment in total
value in the UltraSector ProFunds due to redemption. In addition, both a
request for a partial redemption by an investor whose account balance is
below the minimum investment and a request for partial redemption by an
investor that would bring the account below the minimum investment will
be treated as a request by the investor for a complete redemption of the
account.
Suspension of Redemptions
Your right of redemption may be suspended, or the date of payment
postponed: (i) for any period during which the NYSE or the Federal Reserve Bank
of New York, as appropriate, is closed (other than customary weekend or holiday
closings) or trading on the NYSE, as appropriate, is restricted, as determined
by the Securities and Exchange Commission; (ii) for any period during which an
emergency exists, as determined by the Securities and Exchange Commission, so
that disposal of a ProFund's investments or the determination of its net asset
value is not reasonably practicable; or (iii) for such other periods as the
Securities and Exchange Commission, by order, may permit for protection of the
UltraSector ProFunds' investors.
Automatic Investment and Redemption Plans
Shareholders may buy and redeem shares automatically on a monthly,
bimonthly, quarterly or annual basis. The minimum automatic purchase is $100 and
the minimum automatic redemption is $500. These minimums are waived for IRA
shareholders 70 1/2 years of age or older.
If you would like to establish such an option on an existing account,
please call the UltraSector ProFunds.
<PAGE>
About Telephone Transactions
. It may be difficult to reach the UltraSector ProFunds by telephone during
periods of heavy market activity or other times. If you are unable to
reach us by telephone, consider sending written instructions.
. You may initiate numerous transactions by telephone. Please note,
however, that the ProFunds and their agents will not be responsible for
losses resulting from unauthorized transactions when procedures designed
to verify the identity of the caller are followed.
PROFUNDS MANAGEMENT
Board of Trustees and Officers
The UltraSector ProFunds' Board of Trustees is responsible for the
general supervision of the UltraSector ProFunds. The UltraSector ProFunds'
officers are responsible for day-to-day operations of the UltraSector ProFunds.
Investment Advisor
ProFund Advisors LLC
ProFund Advisors LLC, located at 7900 Wisconsin Avenue, Suite 300,
Bethesda, Maryland 20814, serves as the investment advisor to all of the
UltraSector ProFunds. Founded in 1997, ProFund Advisors provides investment
advisory and/or management services to 10 other mutual funds not included in
this prospectus, totaling approximately $2.4 billion in assets, as of March 31,
2000. ProFund Advisors oversees the investment and reinvestment of the assets in
each UltraSector ProFund and the ProFund family of funds. It is entitled to
receive fees equal to 0.75% of the average daily net assets of each of the
UltraSector ProFunds. ProFund Advisors bears the costs of advisory services.
Michael L. Sapir, Chairman and Chief Executive Officer of ProFund
Advisors LLC, served as senior vice president of Padco Advisors, Inc., which
advised Rydex(R) Funds. In addition, Mr. Sapir practiced law for over 13 years,
most recently as a partner in a Washington-based law firm. As an attorney, Mr.
Sapir advised and represented mutual funds and other financial institutions. He
holds degrees from Georgetown University Law Center (J.D.) and University of
Miami (M.B.A. and B.A.).
Louis M. Mayberg, President of ProFund Advisors LLC, co-founded
National Capital Companies, L.L.C., an investment bank in 1986, and manages its
hedge fund. He holds a Bachelor of Business Administration degree with a major
in Finance from George Washington University.
William E. Seale, Ph.D., Director of Portfolio for ProFund Advisors
LLC, has more than 29 years of experience in the commodity futures markets. His
background includes a five-year presidential appointment as a commissioner of
the U.S. Commodity Futures Trading Commission. He earned his degrees at
University of Kentucky. Dr. Seale also holds an appointment as Professor of
Finance at George Washington University.
Each UltraSector ProFund is managed by an investment team chaired by
Dr. Seale.
<PAGE>
Other Service Providers
BISYS Fund Services, located at 3435 Stelzer Road, Suite 1000,
Columbus, Ohio 43219, acts as the administrator to the UltraSector ProFunds,
providing operations, compliance and administrative services. Each UltraSector
ProFund pays BISYS a fee, on a sliding scale, for its administrative services.
For average daily net assets in the ProFund family of funds up to $300 million,
the fee is 0.15% of the assets, and it declines to 0.05% for average daily net
assets of $1 billion or more.
ProFund Advisors also performs client support and administrative
services for the UltraSector ProFunds. Each UltraSector ProFund pays a fee of
0.15% of its average daily net assets for these services.
Index Providers
"Dow Jones" and each Dow Jones sector index are service marks of Dow
Jones & Company, Inc. Dow Jones has no relationship to ProFunds, other than the
licensing of the Dow Jones sector indices and its service marks for use in
connection with the UltraSector ProFunds.
Dow Jones does not:
. Sponsor, endorse, sell or promote the UltraSector ProFunds.
. Recommend that any person invest in the UltraSector ProFunds or any other
securities.
. Have any responsibility or liability for or make any decisions about
timing, amount or pricing of the UltraSector ProFunds.
. Have any responsibility or liability for the administration, management or
marketing of the UltraSector ProFunds.
. Consider the needs of the UltraSector ProFunds or the shareholders of the
UltraSector ProFunds in determining, composing or calculating the Dow Jones
sector indices or have any obligation to do so.
--------------------------------------------------------------------------------
Dow Jones will not have any liability in connection with the
UltraSector ProFunds.
Specifically,
o Dow Jones does not make any warranty, express or implied, and Dow Jones
disclaims any warranty about:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
o The results to be obtained by the UltraSector ProFunds, the
shareholders of the UltraSector ProFunds or any other person in
connection with the use of the Dow Jones sector indices and the data
included in the Dow Jones sector indices;
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
o The accuracy or completeness of the Dow Jones sector indices and
their data; or
o The merchantability and the fitness for a particular purpose or
use of the Dow Jones sector indices and their data;
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
o Dow Jones will have no liability for any errors, omission or
interruptions in the Dow Jones sector indices or its data;
o Under no circumstances will Dow Jones be liable for any lost profits
or indirect, punitive, special or consequential damages or losses,
even if Dow Jones knows that they might occur.
The licensing agreement between ProFunds and Dow Jones is solely for
their benefit and not for the benefit of the shareholders of the UltraSector
ProFunds or any other third parties.
--------------------------------------------------------------------------------
<PAGE>
[Back Cover]
You can find more detailed information about each of the UltraSector
ProFunds in their current Statement of Additional Information, dated [ ], 2000,
which we have filed electronically with the Securities and Exchange Commission
(SEC) and which is incorporated by reference into, and is legally a part of,
this prospectus dated [ ], 2000. To receive your free copy of a Statement of
Additional Information, or if you have questions about investing in the
UltraSector ProFunds, write to us at:
ProFunds
P.O. Box 182800
Columbus, OH 43218-2800
or call our toll-free numbers:
(888) PRO-FNDS (888) 776-3637 For Investors
(888) PRO-5717 (888) 776-5717 Financial Professionals Only
or visit our website www.profunds.com.
You can find other information about the UltraSector ProFunds on the
SEC's website (http://www.sec.gov), or you can get copies of this information,
after payment of a duplicating fee, by electronic request at [email protected]
or by writing to the Public Reference Section of the SEC, Washington, D.C.
20549-0102. Information about the UltraSector ProFunds, including their
Statement of Additional Information, can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. For information on the Public
Reference Room, call the SEC at 1-202-942-8090.
ProFunds Executive Offices
Bethesda, MD
[Logo]
811-08239
<PAGE>
PROFUNDS
STATEMENT OF ADDITIONAL INFORMATION
7900 WISCONSIN AVENUE, SUITE 300
BETHESDA, MARYLAND 20814
(888) 776-3637 RETAIL SHAREHOLDERS
(888) 776-5717 FINANCIAL PROFESSIONALS ONLY
This Statement of Additional Information describes the Airline UltraSector
ProFund, the Banking UltraSector ProFund, the Entertainment and Leisure
UltraSector ProFund, and the Oilfield Equipment and Services UltraSector ProFund
(collectively, the "ProFunds"). Each ProFund offers two classes of shares:
Service Class shares and Investor Class shares. The ProFunds may be used by
professional money managers and investors as part of an asset-allocation or
market-timing investment strategy or to create specified investment exposure to
a particular segment of the securities market or to hedge an existing investment
portfolio. The ProFunds may be used independently or in combination with each
other as part of an overall investment strategy.
The ProFunds involve special risks, some not traditionally associated with
mutual funds. Investors should carefully review and evaluate these risks in
considering an investment in the ProFunds to determine whether an investment in
a particular ProFund is appropriate. None of the ProFunds alone constitutes a
balanced investment plan. The ProFunds are not intended for investors whose
principal objective is current income or preservation of capital. Because of the
inherent risks in any investment, there can be no assurance that the investment
objectives of the ProFunds will be achieved.
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the ProFunds' Prospectus, dated [ ], 2000, as
supplemented from time to time, which incorporates this Statement of Additional
Information by reference. Words or phrases used in the Statement of Additional
Information without definition have the same meaning as ascribed to them in the
Prospectus. A copy of the Prospectus is available, without charge, upon request
to the address above or by telephoning at the telephone numbers above.
The date of this Statement of Additional Information is [ ], 2000.
<PAGE>
TABLE OF CONTENTS
PAGE
ProFunds..................................................................
Investment Policies and Techniques........................................
Investment Restrictions...................................................
Determination of Net Asset Value..........................................
Portfolio Transactions and Brokerage......................................
Management of ProFunds....................................................
Costs and Expenses........................................................
Organization and Description of Shares of Beneficial Interest.............
Taxation .................................................................
Performance Information ..................................................
Financial Statements......................................................
<PAGE>
PROFUNDS
ProFunds (the "Trust") is an open-end management investment company, and
currently comprises forty-three separate series. Four of the series are
discussed herein. All of the ProFunds are classified as non-diversified. Other
series may be added in the future. The ProFunds may be used independently or in
combination with each other as part of an overall investment strategy. Shares of
any ProFund may be exchanged, without any charge, for shares of the same class
of any other ProFund on the basis of the respective net asset values of the
shares involved; provided that, in connection with exchanges for shares of the
ProFund, certain minimum investment levels are maintained (see "Shareholders
Services Guide -- Exchanges " in the Prospectus).
INVESTMENT POLICIES AND TECHNIQUES
GENERAL
Reference is made to the Prospectus for a discussion of the investment
objectives and policies of the ProFunds. In addition, set forth below is further
information relating to the ProFunds. The discussion below supplements and
should be read in conjunction with the Prospectus. Portfolio management is
provided to the ProFunds by its investment adviser, ProFund Advisors LLC, a
Maryland limited liability company with offices at 7900 Wisconsin Avenue, NW,
Bethesda, Maryland 20814 (the "Advisor").
Certain investment restrictions of a ProFund specifically identified as
fundamental policies may not be changed without the affirmative vote of at least
the majority of the outstanding shares of that ProFund, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). All investment
objectives or investment policies of the ProFunds not specified as fundamental
(including the benchmarks of the ProFunds) may be changed by the Trustees of the
Trust without the approval of shareholders.
It is the policy of the ProFunds to pursue their investment objectives and
investment strategies regardless of market conditions, to remain nearly fully
invested and not to take defensive positions.
The investment strategies of the ProFunds discussed below, and as discussed
in the Prospectus, may be used by a ProFund if, in the opinion of the Advisor,
these strategies will be advantageous to the ProFunds. The ProFunds are free to
reduce or eliminate their activity in any of those areas without changing their
fundamental investment policies. There is no assurance that any of these
strategies or any other strategies and methods of investment available to a
ProFund will result in the achievement of its objective.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and general investment polices of each ProFund
are described in the Prospectus. Each ProFund seeks to provide daily investment
results, before fees and expenses, that correspond to 150% of the performance of
a specified Dow Jones sector index. The ProFunds invest as described in the
Prospectus in order to produce leveraged investment results. The combination of
sector-specific funds and leveraging may increase the volatility of the
ProFunds.
Additional information concerning the characteristics of the ProFunds'
investments is set forth below.
EQUITY SECURITIES
The market price of securities owned by a ProFund may go up or down,
sometimes rapidly or unpredictably. Securities may decline in value due to
factors affecting securities markets generally or particular industries
represented in the securities markets. The value of a security may decline due
to general market conditions which are not specifically related to a particular
company, such as real or perceived adverse economic conditions, changes in the
general outlook for corporate earnings, changes in interest or currency rates,
or adverse investor sentiment generally. They may also decline due to factors
which affect a particular industry or industries, such as labor shortages or
increased production costs and competitive conditions within an industry. The
value of a security may also decline for a number of reasons which directly
relate to the issuer, such as management performance, financial leverage and
reduced demand for the issuer's goods or services. Equity securities generally
have greater price volatility than fixed income securities, and the ProFunds are
particularly sensitive to these market risks.
<PAGE>
FOREIGN INVESTMENT RISK
Each ProFund may invest in securities of foreign issuers ("foreign
securities"). Investments in foreign securities may experience more rapid and
extreme changes in value than investments in securities of U.S. issuers or
securities that trade exclusively in U.S. markets. The securities markets of
many foreign countries are relatively small, and foreign securities often trade
with less frequency and volume than domestic securities and are usually not
subject to the same degree of regulation as U.S. issuers. Special U.S. tax
considerations may apply to a ProFund's investment in foreign securities.
CURRENCY RISK
The ProFunds may invest in securities that trade in, or receive revenues
in, foreign currencies. To the extent that a ProFund does so, that ProFund will
be subject to the risk that those currencies will decline in value relative to
the U.S. dollar. Currency rates in foreign countries may fluctuate significantly
over short periods of time. ProFund assets which are denominated in foreign
currencies may be devalued against the U.S. dollar, resulting in a loss.
FUTURES CONTRACTS AND RELATED OPTIONS
The ProFunds may purchase or sell stock index futures contracts and options
thereon as a substitute for a comparable market position in the underlying
securities or to satisfy regulation requirements. A futures contract obligates
the seller to deliver (and the purchaser to take delivery of) the specified
commodity on the expiration date of the contract. A stock index futures contract
obligates the seller to deliver (and the purchaser to take) an amount of cash
equal to a specific dollar amount multiplied by the difference between the value
of a specific stock index at the close of the last trading day of the contract
and the price at which the agreement is made. No physical delivery of the
underlying stocks in the index is made.
When a ProFund purchases a put or call option on a futures contract, the
ProFund pays a premium for the right to sell or purchase the underlying futures
contract for a specified price upon exercise at any time during the option
period. By writing (selling) a put or call option on a futures contract, a
ProFund receives a premium in return for granting to the purchaser of the option
the right to sell to or buy from the ProFund the underlying futures contract for
a specified price upon exercise at any time during the option period.
Whether a ProFund realizes a gain or loss from futures activities depends
generally upon movements in the underlying commodity. The extent of the
ProFund's loss from an unhedged short position in futures contracts or from
writing options on futures contracts is potentially unlimited. The ProFunds may
engage in related closing purchase or sale transactions with respect to options
on futures contracts by buying an option of the same series as an option
previously written by a ProFund, or selling an option of the same series as an
option previously purchased by a ProFund. The ProFunds will engage in
transactions in futures contracts and related options that are traded on a U.S.
exchange or board of trade or that have been approved for sale in the U.S. by
the Commodity Futures Trading Commission.
When a ProFund purchases or sells a stock index futures contract, or sells
an option thereon, the ProFund "covers" its position. To cover its position, a
ProFund may enter into an offsetting position or maintain with its custodian
bank (and mark-to-market on a daily basis) a segregated account consisting of
liquid instruments that, when added to any amounts deposited with a futures
commission merchant as margin, are equal to the market value of the futures
contract or otherwise "cover" its position.
<PAGE>
The ProFunds may purchase and sell futures contracts and options thereon
only to the extent that such activities would be consistent with the
requirements of Section 4.5 of the regulations promulgated by the Commodity
Futures Trading Commission (the "CFTC Regulations") under the Commodity Exchange
Act under which each of these ProFunds would be excluded from the definition of
a "commodity pool operator." Under Section 4.5 of the CFTC Regulations, a
ProFund may engage in futures transactions, either for "bona fide hedging"
purposes, as this term is defined in the CFTC Regulations, or for non- bona fide
hedging purposes to the extent that the aggregate initial margins and option
premiums required to establish such non- bona fide hedging positions do not
exceed 5% of the liquidation value of the ProFund's portfolio. In the case of an
option on futures contracts that is "in-the-money" at the time of purchase
(i.e., the amount by which the exercise price of the put option exceeds the
current market value of the underlying security or the amount by which the
current market value of the underlying security exceeds the exercise price of
the call option), the in-the-money amount may be excluded in calculating this 5%
limitation.
The ProFunds will cover their positions when they write a futures contract
or option on a futures contract. A ProFund may "cover" its long position in a
futures contract by purchasing a put option on the same futures contract with a
strike price (i.e., an exercise price) as high or higher than the price of the
futures contract, or, if the strike price of the put is less than the price of
the futures contract, the ProFund will maintain in a segregated account cash or
liquid instruments equal in value to the difference between the strike price of
the put and the price of the futures contract. A ProFund may also cover its long
position in a futures contract by taking a short position in the instruments
underlying the futures contract, or by taking positions in instruments the
prices of which are expected to move relatively consistently with the futures
contract. A ProFund may cover its short position in a futures contract by taking
a long position in the instruments underlying the futures contract, or by taking
positions in instruments the prices of which are expected to move relatively
consistently with the futures contract.
A ProFund may cover its sale of a call option on a futures contract by
taking a long position in the underlying futures contract at a price less than
or equal to the strike price of the call option, or, if the long position in the
underlying futures contract is established at a price greater than the strike
price of the written (sold) call, the ProFund will maintain in a segregated
account liquid instruments equal in value to the difference between the strike
price of the call and the price of the futures contract. A ProFund may also
cover its sale of a call option by taking positions in instruments the prices of
which are expected to move relatively consistently with the call option. A
ProFund may cover its sale of a put option on a futures contract by taking a
short position in the underlying futures contract at a price greater than or
equal to the strike price of the put option, or, if the short position in the
underlying futures contract is established at a price less than the strike price
of the written put, the ProFund will maintain in a segregated account cash or
high-grade liquid debt securities equal in value to the difference between the
strike price of the put and the price of the future. A ProFund may also cover
its sale of a put option by taking positions in instruments the prices of which
are expected to move relatively consistently with the put option.
Although the ProFunds intend to sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid market
will exist for any particular contract at any particular time. Many futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during the
day. Futures contract prices could move to the limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures positions and potentially subjecting a ProFund to substantial losses. If
trading is not possible, or if a ProFund determines not to close a futures
position in anticipation of adverse price movements, the ProFund will be
required to make daily cash payments of variation margin. The risk that the
ProFund will be unable to close out a futures position will be minimized by
entering into such transactions on a national exchange with an active and liquid
secondary market.
<PAGE>
INDEX OPTIONS
The ProFunds may purchase and write options on stock indexes to create
investment exposure consistent with their investment objectives, to hedge or
limit the exposure of their positions and to create synthetic money market
positions. See "Taxation" herein.
A stock index fluctuates with changes in the market values of the stocks
included in the index. Options on stock indexes give the holder the right to
receive an amount of cash upon exercise of the option. Receipt of this cash
amount will depend upon the closing level of the stock index upon which the
option is based being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash received, if
any, will be the difference between the closing price of the index and the
exercise price of the option, multiplied by a specified dollar multiple. The
writer (seller) of the option is obligated, in return for the premiums received
from the purchaser of the option, to make delivery of this amount to the
purchaser. All settlements of index options transactions are in cash.
Index options are subject to substantial risks, including the risk of
imperfect correlation between the option price and the value of the underlying
securities composing the stock index selected and the risk that there might not
be a liquid secondary market for the option. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether a ProFund will realize a gain or loss from the
purchase or writing (sale) of options on an index depends upon movements in the
level of stock prices in the stock market generally or, in the case of certain
indexes, in an industry or market segment, rather than upon movements in the
price of a particular stock. Whether a ProFund will realize a profit or loss by
the use of options on stock indexes will depend on movements in the direction of
the stock market generally or of a particular industry or market segment. This
requires different skills and techniques than are required for predicting
changes in the price of individual stocks. A ProFund will not enter into an
option position that exposes the ProFund to an obligation to another party,
unless the ProFund either (i) owns an offsetting position in securities or other
options and/or (ii) maintains with the ProFund's custodian bank liquid
instruments that, when added to the premiums deposited with respect to the
option, are equal to the market value of the underlying stock index not
otherwise covered.
The ProFunds may engage in transactions in stock index options listed on
national securities exchanges or traded in the over-the-counter market as an
investment vehicle for the purpose of realizing their investment objectives.
Options on indexes are settled in cash, not by delivery of securities. The
exercising holder of an index option receives, instead of a security, cash equal
to the difference between the closing price of the securities index and the
exercise price of the option.
Some stock index options are based on a broad market index such as the S&P
500 Index, the NYSE Composite Index, or the AMEX Major Market Index, or on a
narrower index such as the Philadelphia Stock Exchange Over-the-Counter Index.
Options currently are traded on the Chicago Board of Options Exchange (the
"CBOE"), the AMEX, and other exchanges ("Exchanges"). Purchased over-the-counter
options and the cover for written over-the-counter options will be subject to
the 15% limitation on investment in illiquid securities by the ProFunds. See
"Illiquid Securities."
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same index which may be bought or written
(sold) by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
Exchanges or are held or written on one or more accounts or through one or more
brokers). Under these limitations, option positions of all investment companies
advised by the same investment adviser are combined for purposes of these
limits. Pursuant to these limitations, an Exchange may order the liquidation of
positions and may impose other sanctions or restrictions. These position limits
may restrict the number of listed options which a ProFund may buy or sell;
however, the Advisor intends to comply with all limitations.
<PAGE>
OPTIONS ON SECURITIES
Each ProFund may buy and write (sell) options on securities for the purpose
of realizing its investment objectives. By buying a call option, a ProFund has
the right, in return for a premium paid during the term of the option, to buy
the securities underlying the option at the exercise price. By writing a call
option on securities, a ProFund becomes obligated during the term of the option
to sell the securities underlying the option at the exercise price if the option
is exercised. By buying a put option, a ProFund has the right, in return for a
premium paid during the term of the option, to sell the securities underlying
the option at the exercise price. By writing a put option, a ProFund becomes
obligated during the term of the option to purchase the securities underlying
the option at the exercise price if the option is exercised. During the term of
the option, the writer may be assigned an exercise notice by the broker-dealer
through whom the option was sold. The exercise notice would require the writer
to deliver, in the case of a call, or take delivery of, in the case of a put,
the underlying security against payment of the exercise price. This obligation
terminates upon expiration of the option, or at such earlier time that the
writer effects a closing purchase transaction by purchasing an option covering
the same underlying security and having the same exercise price and expiration
date as the one previously sold. Once an option has been exercised, the writer
may not execute a closing purchase transaction. To secure the obligation to
deliver the underlying security in the case of a call option, the writer of a
call option is required to deposit in escrow the underlying security or other
assets in accordance with the rules of the Options Clearing Corporation (the
"OCC"), an institution created to interpose itself between buyers and sellers of
options. The OCC assumes the other side of every purchase and sale transaction
on an exchange and, by doing so, gives its guarantee to the transaction. When
writing call options on securities, a ProFund may cover its position by owning
the underlying security on which the option is written. Alternatively, the
ProFund may cover its position by owning a call option on the underlying
security, on a share for share basis, which is deliverable under the option
contract at a price no higher than the exercise price of the call option written
by the ProFund or, if higher, by owning such call option and depositing and
maintaining in a segregated account cash or liquid instruments equal in value to
the difference between the two exercise prices. In addition, a ProFund may cover
its position by depositing and maintaining in a segregated account cash or
liquid instruments equal in value to the exercise price of the call option
written by the ProFund. When a ProFund writes a put option, the ProFund will
have and maintain on deposit with its custodian bank cash or liquid instruments
having a value equal to the exercise value of the option. The principal reason
for a ProFund to write call options on stocks held by the ProFund is to attempt
to realize, through the receipt of premiums, a greater return than would be
realized on the underlying securities alone.
If a ProFund that writes an option wishes to terminate the ProFund's
obligation, the ProFund may effect a "closing purchase transaction." The ProFund
accomplishes this by buying an option of the same series as the option
previously written by the ProFund. The effect of the purchase is that the
writer's position will be canceled by the OCC. However, a writer may not effect
a closing purchase transaction after the writer has been notified of the
exercise of an option. Likewise, a ProFund which is the holder of an option may
liquidate its position by effecting a "closing sale transaction." The ProFund
accomplishes this by selling an option of the same series as the option
previously purchased by the ProFund. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected. If any call or put
option is not exercised or sold, the option will become worthless on its
expiration date. A ProFund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put option previously written by the
ProFund if the premium, plus commission costs, paid by the ProFund to purchase
the call or put option to close the transaction is less (or greater) than the
premium, less commission costs, received by the ProFund on the sale of the call
or the put option. The ProFund also will realize a gain if a call or put option
which the ProFund has written lapses unexercised, because the ProFund would
retain the premium.
Although certain securities exchanges attempt to provide continuously
liquid markets in which holders and writers of options can close out their
positions at any time prior to the expiration of the option, no assurance can be
given that a market will exist at all times for all outstanding options
purchased or sold by a ProFund. If an options market were to become unavailable,
the ProFund would be unable to realize its profits or limit its losses until the
ProFund could exercise options it holds, and the ProFund would remain obligated
until options it wrote were exercised or expired. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or the OCC may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued by the OCC as
a result of trades on that exchange would continue to be exercisable in
accordance with their terms.
<PAGE>
SWAP AGREEMENTS
The ProFunds may enter into equity index or interest rate swap agreements
for purposes of attempting to gain exposure to the stocks making up an index of
securities in a market without actually purchasing those stocks, or to hedge a
position. Swap agreements are two-party contracts entered into primarily by
institutional investors for periods ranging from a day to more than one year. In
a standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount," i.e.,
the return on or increase in value of a particular dollar amount invested in a
"basket" of securities representing a particular index. Forms of swap agreements
include interest rate caps, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap"; interest rate floors, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; and interest rate
collars, under which a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.
Most swap agreements entered into by the ProFunds calculate the obligations
of the parties to the agreement on a "net basis." Consequently, a ProFund's
current obligations (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount").
A ProFund's current obligations under a swap agreement will be accrued
daily (offset against any amounts owing to the ProFund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by segregating
assets determined to be liquid. Obligations under swap agreements so covered
will not be construed to be "senior securities" for purposes of a ProFund's
investment restriction concerning senior securities. Because they are two party
contracts and because they may have terms of greater than seven days, swap
agreements may be considered to be illiquid for the ProFund illiquid investment
limitations. A ProFund will not enter into any swap agreement unless the Advisor
believes that the other party to the transaction is creditworthy. A ProFund
bears the risk of loss of the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of a swap agreement
counterparty.
Each ProFund may enter into swap agreements to invest in a market without
owning or taking physical custody of securities in circumstances in which direct
investment is restricted for legal reasons or is otherwise impracticable. The
counterparty to any swap agreement will typically be a bank, investment banking
firm or broker/dealer. The counterparty will generally agree to pay the ProFund
the amount, if any, by which the notional amount of the swap agreement would
have increased in value had it been invested in the particular stocks, plus the
dividends that would have been received on those stocks. The ProFund will agree
to pay to the counterparty a floating rate of interest on the notional amount of
the swap agreement plus the amount, if any, by which the notional amount would
have decreased in value had it been invested in such stocks. Therefore, the
return to the ProFund on any swap agreement should be the gain or loss on the
notional amount plus dividends on the stocks less the interest paid by the
ProFund on the notional amount.
Swap agreements typically are settled on a net basis, which means that the
two payment streams are netted out, with the ProFund receiving or paying, as the
case may be, only the net amount of the two payments. Payments may be made at
the conclusion of a swap agreement or periodically during its term. Swap
agreements do not involve the delivery of securities or other underlying assets.
Accordingly, the risk of loss with respect to swap agreements is limited to the
net amount of payments that a ProFund is contractually obligated to make. If the
other party to a swap agreement defaults, a ProFund's risk of loss consists of
the net amount of payments that such ProFund is contractually entitled to
receive, if any. The net amount of the excess, if any, of a ProFund's
obligations over its entitlements with respect to each equity swap will be
accrued on a daily basis and an amount of cash or liquid assets, having an
aggregate net asset value at least equal to such accrued excess will be
maintained in a segregated account by a ProFund's custodian. Inasmuch as these
transactions are entered into for hedging purposes or are offset by segregated
cash of liquid assets, as permitted by applicable law, the ProFunds and their
Advisor believe that transactions do not constitute senior securities under the
1940 Act and, accordingly, will not treat them as being subject to a ProFund's
borrowing restrictions.
<PAGE>
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the markets for other similar
instruments which are traded in the over-the-counter market. The Advisor, under
the supervision of the Board of Trustees, are responsible for determining and
monitoring the liquidity of the ProFund transactions in swap agreements.
The use of equity swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions.
AMERICAN DEPOSITORY RECEIPTS
For many foreign securities, U.S. dollar denominated ADRs, which are traded
in the United States on exchanges or over-the-counter, are issued by domestic
banks. ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. ADRs do not eliminate all
the risk inherent in investing in the securities of foreign issuers. However, by
investing in ADRs rather than directly in foreign issuers' stock, a ProFund can
avoid currency risks during the settlement period for either purchase or sales.
In general, there is a large, liquid market in the United States for many
ADRs. The information available for ADRs is subject to the accounting, auditing
and financial reporting standards of the domestic market or exchange on which
they are traded, which standards are more uniform and more exacting than those
to which many foreign issuers may be subject. Certain ADRs, typically those
denominated as unsponsored, require the holders thereof to bear most of the
costs of such facilities, while issuers of sponsored facilities normally pay
more of the costs thereof. The depository of an unsponsored facility frequently
is under no obligation to distribute shareholder communications received from
the issuer of the deposited securities or to pass through the voting rights to
facility holders with respect to the deposited securities, whereas the
depository of a sponsored facility typically distributes shareholder
communications and passes through the voting rights.
A ProFund 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 also may invest in U.S. government securities in pursuit of
its investment objectives, as "cover" for the investment techniques these
ProFunds employ, or for liquidity purposes.
Yields on U.S. government securities are dependent on a variety of factors,
including the general conditions of the money and bond markets, the size of a
particular offering, and the maturity of the obligation. Debt securities with
longer maturities tend to produce higher yields and are generally subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities and lower yields. The market value of U.S. government
securities generally varies inversely with changes in market interest rates. An
increase in interest rates, therefore, would generally reduce the market value
of a ProFund's portfolio investments in U.S. government securities, while a
decline in interest rates would generally increase the market value of a
ProFund's portfolio investments in these securities.
<PAGE>
U.S. government securities include U.S. Treasury securities, which are
backed by the full faith and credit of the U.S. Treasury and which differ only
in their interest rates, maturities, and times of issuance. U.S. Treasury bills
have initial maturities of one year or less; U.S. Treasury notes have initial
maturities of one to ten years; and U.S. Treasury bonds generally have initial
maturities of greater than ten years. Certain U.S. government securities are
issued or guaranteed by agencies or instrumentalities of the U.S. government
including, but not limited to, obligations of U.S. government agencies or
instrumentalities, such as the Federal National Mortgage Association, the
Government National Mortgage Association, the Small Business Administration, the
Federal Farm Credit Administration, the Federal Home Loan Banks, Banks for
Cooperatives (including the Central Bank for Cooperatives), the Federal Land
Banks, the Federal Intermediate Credit Banks, the Tennessee Valley Authority,
the Export-Import Bank of the United States, the Commodity Credit Corporation,
the Federal Financing Bank, the Student Loan Marketing Association, and the
National Credit Union Administration. Some obligations issued or guaranteed by
U.S. government agencies and instrumentalities, including, for example,
Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury. Other obligations
issued by or guaranteed by Federal agencies, such as those securities issued by
the Federal National Mortgage Association, are supported by the discretionary
authority of the U.S. government to purchase certain obligations of the federal
agency, while other obligations issued by or guaranteed by federal agencies,
such as those of the Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the U.S. Treasury. While the U.S. government provides
financial support to such U.S. government-sponsored Federal agencies, no
assurance can be given that the U.S. government will always do so, since the
U.S. Government is not so obligated by law. U.S. Treasury notes and bonds
typically pay coupon interest semi-annually and repay the principal at maturity.
REPURCHASE AGREEMENTS
Each of the ProFunds may enter into repurchase agreements with financial
institutions. Under a repurchase agreement, a ProFund purchases a debt security
and simultaneously agrees to sell the security back to the seller at a mutually
agreed-upon future price and date, normally one day or a few days later. The
resale price is greater than the purchase price, reflecting an agreed-upon
market interest rate during the purchaser's holding period. While the maturities
of the underlying securities in repurchase transactions may be more than one
year, the term of each repurchase agreement will always be less than one year.
The ProFunds follow certain procedures designed to minimize the risks inherent
in such agreements. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
whose condition will be continually monitored by the Advisor. In addition, the
value of the collateral underlying the repurchase agreement will always be at
least equal to the repurchase price, including any accrued interest earned on
the repurchase agreement. In the event of a default or bankruptcy by a selling
financial institution, a ProFund will seek to liquidate such collateral which
could involve certain costs or delays and, to the extent that proceeds from any
sale upon a default of the obligation to repurchase were less than the
repurchase price, the ProFund could suffer a loss. A ProFund also may experience
difficulties and incur certain costs in exercising its rights to the collateral
and may lose the interest the ProFund expected to receive under the repurchase
agreement. Repurchase agreements usually are for short periods, such as one week
or less, but may be longer. It is the current policy of the ProFunds not to
invest in repurchase agreements that do not mature within seven days if any such
investment, together with any other liquid assets held by the ProFund, amounts
to more than 15% of its total net assets. The investments of each of the
ProFunds in repurchase agreements at times may be substantial when, in the view
of the Advisor, liquidity, investment, regulatory, or other considerations so
warrant.
<PAGE>
CASH RESERVES
To seek its investment objective, as a cash reserve, for liquidity
purposes, or as "cover" for positions it has taken, each ProFund may temporarily
invest all or part of the ProFund's assets in cash or cash equivalents, which
include, but are not limited to, short-term money market instruments, U.S.
government securities, certificates of deposit, bankers acceptances, or
repurchase agreements secured by U.S.
government securities.
REVERSE REPURCHASE AGREEMENTS
The ProFunds may use reverse repurchase agreements as part of their
investment strategies. Reverse repurchase agreements involve sales by a ProFund
of portfolio assets concurrently with an agreement by the ProFund to repurchase
the same assets at a later date at a fixed price. Generally, the effect of such
a transaction is that the ProFund can recover all or most of the cash invested
in the portfolio securities involved during the term of the reverse repurchase
agreement, while the ProFund will be able to keep the interest income associated
with those portfolio securities. Such transactions are advantageous only if the
interest cost to the ProFund of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise. Opportunities to achieve this
advantage may not always be available, and the ProFunds intend to use the
reverse repurchase technique only when it will be to a ProFund's advantage to do
so. A ProFund will establish a segregated account with its custodian bank in
which the ProFund will maintain cash or liquid instruments equal in value to the
ProFund's obligations in respect of reverse repurchase agreements.
BORROWING
The ProFunds may borrow money for cash management purposes or investment
purposes. Each of the ProFunds may also enter into reverse repurchase
agreements, which may be viewed as a form of borrowing, with financial
institutions. However, to the extent a ProFund "covers" its repurchase
obligations as described above in "Reverse Repurchase Agreements," such
agreement will not be considered to be a "senior security" and, therefore, will
not be subject to the 300% asset coverage requirement otherwise applicable to
borrowings by the ProFunds. Borrowing for investment is known as leveraging.
Leveraging investments, by purchasing securities with borrowed money, is a
speculative technique which increases investment risk, but also increases
investment opportunity. Since substantially all of a ProFund's assets will
fluctuate in value, whereas the interest obligations on borrowings may be fixed,
the net asset value per share of the ProFund will increase more when the
ProFund's portfolio assets increase in value and decrease more when the
ProFund's portfolio assets decrease in value than would otherwise be the case.
Moreover, interest costs on borrowings may fluctuate with changing market rates
of interest and may partially offset or exceed the returns on the borrowed
funds. Under adverse conditions, a ProFund might have to sell portfolio
securities to meet interest or principal payments at a time when investment
considerations would not favor such sales.
As required by the 1940 Act, a ProFund must maintain continuous asset
coverage (total assets, including assets acquired with borrowed funds, less
liabilities exclusive of borrowings) of 300% of all amounts borrowed. If at any
time the value of the ProFund's assets should fail to meet this 300% coverage
test, the ProFund, within three days (not including Sundays and holidays), will
reduce the amount of the ProFund's borrowings to the extent necessary to meet
this 300% coverage. Maintenance of this percentage limitation may result in the
sale of portfolio securities at a time when investment considerations otherwise
indicate that it would be disadvantageous to do so. In addition to the
foregoing, the ProFunds are authorized to borrow money from a bank as a
temporary measure for extraordinary or emergency purposes in amounts not in
excess of 5% of the value of the ProFund's total assets. This borrowing is not
subject to the foregoing 300% asset coverage requirement. The ProFunds are
authorized to pledge portfolio securities as the Advisor deems appropriate in
connection with any borrowings.
LENDING OF PORTFOLIO SECURITIES
Each of the ProFunds may lend its portfolio securities to brokers, dealers,
and financial institutions, provided that cash equal to at least 100% of the
market value of the securities loaned is deposited by the borrower with the
ProFund and is maintained each business day in a segregated account pursuant to
applicable regulations. While such securities are on loan, the borrower will pay
the lending ProFund any income accruing thereon, and the ProFund may invest the
cash collateral in portfolio securities, thereby earning additional income. A
ProFund will not lend more than 33 1/3% of the value of the ProFund's total
assets. Loans would be subject to termination by the lending ProFund on four
business days' notice, or by the borrower on one day's notice. Borrowed
securities must be returned when the loan is terminated. Any gain or loss in the
market price of the borrowed securities which occurs during the term of the loan
inures to the lending ProFund. There may be risks of delay in receiving
additional collateral or risks of delay in recovery of the securities or even
loss of rights in the securities lent should the borrower of the securities fail
financially. A lending ProFund may pay reasonable finders, borrowers,
administrative, and custodial fees in connection with a loan.
<PAGE>
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each ProFund, from time to time, in the ordinary course of business, may
purchase securities on a when-issued or delayed-delivery basis (i.e., delivery
and payment can take place between a month and 120 days after the date of the
transaction). These securities are subject to market fluctuation and no interest
accrues to the purchaser during this period. At the time a ProFund makes the
commitment to purchase securities on a when-issued or delayed-delivery basis,
the ProFund will record the transaction and thereafter reflect the value of the
securities, each day, in determining the ProFund's net asset value. Each ProFund
will not purchase securities on a when-issued or delayed-delivery basis if, as a
result, more than 15% of the ProFund's net assets would be so invested. At the
time of delivery of the securities, the value of the securities may be more or
less than the purchase price.
The Trust will also establish a segregated account with the Trust's
custodian bank in which the ProFunds will maintain liquid instruments equal to
or greater in value than the ProFund's purchase commitments for such when-issued
or delayed-delivery securities, or the Trust does not believe that a ProFund's
net asset value or income will be adversely affected by the ProFund's purchase
of securities on a when-issued or delayed delivery basis.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The ProFunds may invest in the securities of other investment companies to
the extent that such an investment would be consistent with the requirements of
the 1940 Act. If a ProFund invests in, and, thus, is a shareholder of, another
investment company, the ProFund's shareholders will indirectly bear the
ProFund's proportionate share of the fees and expenses paid by such other
investment company, including advisory fees, in addition to both the management
fees payable directly by the ProFund to the ProFund's own investment adviser and
the other expenses that the ProFund bears directly in connection with the
ProFund's own operations.
ILLIQUID SECURITIES
While none of the ProFunds anticipates doing so, each of the ProFunds may
purchase illiquid securities, including securities that are not readily
marketable and securities that are not registered ("restricted securities")
under the Securities Act of 1933, as amended (the "1933 Act"), but which can be
sold to qualified institutional buyers under Rule 144A of the 1933 Act. A
ProFund will not invest more than 15% of the ProFund's net assets in illiquid
securities. The term "illiquid securities" for this purpose means securities
that cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which the ProFund has valued the securities.
Under the current guidelines of the staff of the Securities and Exchange
Commission (the "Commission"), illiquid securities also are considered to
include, among other securities, purchased over-the-counter options, certain
cover for over-the-counter options, repurchase agreements with maturities in
excess of seven days, and certain securities whose disposition is restricted
under the Federal securities laws. The ProFund may not be able to sell illiquid
securities when the Advisor considers it desirable to do so or may have to sell
such securities at a price that is lower than the price that could be obtained
if the securities were more liquid. In addition, the sale of illiquid securities
also may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and
investments in illiquid securities may have an adverse impact on net asset
value.
<PAGE>
Institutional markets for restricted securities have developed as a result
of the promulgation of Rule 144A under the 1933 Act, which provides a safe
harbor from 1933 Act registration requirements for qualifying sales to
institutional investors. When Rule 144A restricted securities present an
attractive investment opportunity and otherwise meet selection criteria, a
ProFund may make such investments. Whether or not such securities are illiquid
depends on the market that exists for the particular security. The Commission
staff has taken the position that the liquidity of Rule 144A restricted
securities is a question of fact for a board of trustees to determine, such
determination to be based on a consideration of the readily-available trading
markets and the review of any contractual restrictions. The staff also has
acknowledged that, while a board of trustees retains ultimate responsibility,
trustees may delegate this function to an investment adviser. Trustees of
ProFunds have delegated this responsibility for determining the liquidity of
Rule 144A restricted securities which may be invested in by a ProFund to the
Advisor. It is not possible to predict with assurance exactly how the market for
Rule 144A restricted securities or any other security will develop. A security
which when purchased enjoyed a fair degree of marketability may subsequently
become illiquid and, accordingly, a security which was deemed to be liquid at
the time of acquisition may subsequently become illiquid. In such event,
appropriate remedies will be considered to minimize the effect on the ProFund's
liquidity.
PORTFOLIO TURNOVER
The nature of the ProFunds will cause the ProFunds to experience
substantial portfolio turnover. A higher portfolio turnover rate would likely
involve correspondingly greater brokerage commissions and transaction and other
expenses which would be borne by the ProFunds. In addition, a ProFund's
portfolio turnover level may adversely affect the ability of the ProFund to
achieve its investment objective. Because each ProFund's portfolio turnover rate
to a great extent will depend on the purchase, redemption, and exchange activity
of the ProFund's investors, it is difficult to estimate what the ProFund's
actual turnover rate will be in the future. "Portfolio Turnover Rate" is defined
under the rules of the Commission as the value of the securities purchased or
securities sold, excluding all securities whose maturities at time of
acquisition were one year or less, divided by the average monthly value of such
securities owned during the year. Based on this definition, instruments with
remaining maturities of less than one year are excluded from the calculation of
portfolio turnover rate. Instruments excluded from the calculation of portfolio
turnover generally would include the futures contracts and option contracts in
which the ProFunds invest since such contracts generally have a remaining
maturity of less than one year. Pursuant to the formula prescribed by the
Commission, the portfolio turnover rate for each ProFund is calculated without
regard to instruments, including options and futures contracts, having a
maturity of less than one year. Each ProFund expects to typically hold many of
its investments in short-term options and futures contracts, which, therefore,
are excluded for purposes of computing portfolio turnover.
SPECIAL CONSIDERATIONS
To the extent discussed above and in the Prospectus, the ProFunds present
certain risks, some of which are further described below.
LEVERAGE. Each ProFund intends to use leveraged investment techniques in
pursuing their investment objectives. Utilization of leveraging involves special
risks and should be considered to be speculative. Leverage exists when a ProFund
achieves the right to a return on a capital base that exceeds the amount the
ProFund has invested. Leverage creates the potential for greater gains to
shareholders of the ProFunds during favorable market conditions and the risk of
magnified losses during adverse market conditions. Leverage should cause higher
volatility of the net asset values of a ProFund's shares. Leverage may involve
the creation of a liability that does not entail any interest costs or the
creation of a liability that requires a ProFund to pay interest which would
decrease the ProFund's total return to shareholders. If the ProFunds achieve
their investment objectives, during adverse market conditions, shareholders
should experience a loss of approximately one and one-half times the amount they
would have incurred had these ProFunds not been leveraged.
<PAGE>
NON-DIVERSIFIED STATUS. Each ProFund is a "non-diversified" series. Each
ProFund is considered "non-diversified" because a relatively high percentage of
the ProFund's assets may be invested in the securities of a limited number of
issuers, primarily within the same economic sector. A ProFund's portfolio
securities, therefore, may be more susceptible to any single economic,
political, or regulatory occurrence than the portfolio securities of a more
diversified investment company. A ProFund's classification as a
"non-diversified" investment company means that the proportion of the ProFund's
assets that may be invested in the securities of a single issuer is not limited
by the 1940 Act. Each ProFund, however, intends to seek to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code, which
imposes diversification requirements on these ProFund that are less restrictive
than the requirements applicable to the "diversified" investment companies under
the 1940 Act.
INVESTMENT RESTRICTIONS
The ProFunds have adopted certain investment restrictions as fundamental
policies which cannot be changed without the approval of the holders of a
"majority" of the outstanding shares of a ProFund, as that term is defined in
the 1940 Act. The term "majority" is defined in the 1940 Act as the lesser of:
(i) 67% or more of the shares of the series present at a meeting of
shareholders, if the holders of more than 50% of the outstanding shares of the
ProFund are present or represented by proxy; or (ii) more than 50% of the
outstanding shares of the series. (All policies of a ProFund not specifically
identified in this Statement of Additional Information or the Prospectus as
fundamental may be changed without a vote of the shareholders of the ProFund.)
For purposes of the following limitations, all percentage limitations apply
immediately after a purchase or initial investment.
A ProFund may not:
1. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the ProFunds 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, including real estate investment trusts.
2. Make loans to other persons, except that the acquisition of bonds, debentures
or other corporate debt securities and investment in government obligations,
commercial paper, pass-through instruments, certificates of deposit, bankers'
acceptances and repurchase agreements and purchase and sale contracts and any
similar instruments shall not be deemed to be the making of a loan, and except
further that the ProFund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with applicable
law and the guidelines set forth in the Prospectus and this Statement of
Additional Information, as they may be amended from time to time.
3. Issue senior securities to the extent such issuance would violate applicable
law.
4. Borrow money, except that the ProFund (i) may borrow from banks (as defined
in the Investment Company Act of 1940) in amounts up to 33 1/3% of its total
assets (including the amount borrowed), (ii) may, to the extent permitted by
applicable law, borrow up to an additional 5% of its total assets for temporary
purposes, (iii) may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities, (iv) may purchase
securities on margin to the extent permitted by applicable law and (v) may enter
into reverse repurchase agreements. The ProFund may not pledge its assets other
than to secure such borrowings or, to the extent permitted by the ProFund's
investment policies as set forth in the Prospectus and this Statement of
Additional Information, as they may be amended from time to time, in connection
with hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.
5. Underwrite securities of other issuers, except insofar as the ProFund
technically may be deemed an underwriter under the Securities Act of 1933, as
amended, in selling portfolio securities.
6. Purchase or sell commodities or contracts on commodities, except to the
extent the ProFund may do so in accordance with applicable law and the ProFund's
Prospectus and Statement of Additional Information, as they may be amended from
time to time.
<PAGE>
Each ProFund will concentrate its investment in the securities of
companies engaged in a single industry or group of industries in accordance with
its investment objective and policies as disclosed in the ProFunds' Prospectus
and Statement of Additional Information, as they may be revised from time to
time.
DETERMINATION OF NET ASSET VALUE
The net asset values of the shares of the ProFunds are determined as of the
close of business of the NYSE (ordinarily, 4:00 p.m. Eastern Time) on each day
the NYSE and the Chicago Mercantile Exchange ("CME") are open for business. To
the extent that portfolio securities of a ProFund are traded in other markets on
days when the ProFund's principal trading market(s) is closed, the ProFund's net
asset value may be affected on days when investors do not have access to the
ProFund to purchase or redeem shares.
The net asset value of shares of a ProFund serves as the basis for the
purchase and redemption price of the class of shares. The net asset value per
share of a ProFund is calculated by dividing the market value of the ProFund's
assets, less all liabilities attributed to the ProFund, by the number of
outstanding shares of the ProFund. If market quotations are not readily
available, a security will be valued at fair value by the Trustees of the Trust
or by the Advisor using methods established or ratified by the Trustees of the
Trust.
The securities in the portfolio of a ProFund, except as otherwise noted,
that are listed or traded on a stock exchange, are valued on the basis of the
last sale on that day or, lacking any sales, at a price that is the mean between
the closing bid and asked prices. Other securities that are traded on the
over-the-counter markets are priced using NASDAQ, which provides information on
bid and asked prices quoted by major dealers in such stocks. Bonds, other than
convertible bonds, are valued using a third-party pricing system. Convertible
bonds are valued using this pricing system only on days when there is no sale
reported. Short-term debt securities are valued using this pricing system only
on days when there is no sale reported. Short-term debt securities are valued at
amortized cost, which approximates market value. When market quotations are not
readily available, securities and other assets are valued at fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the ProFunds' Board of Trustees.
Futures contracts maintained by ProFunds are valued at their last sale
price prior to the valuation time. Options on futures contracts generally are
valued at fair value as determined with reference to established futures
exchanges. Options on securities and indices purchased by a ProFund are valued
at their last sale price prior to the valuation time or at fair value. In the
event of a trading halt that closes the NYSE early, futures contracts will be
valued on the basis of settlement prices on futures exchanges, options on
futures will be valued at fair value as determined with reference to such
settlement prices, and options on securities and indices will be valued at their
last sale price prior to the trading halt or at fair value.
In the event a trading halt closes a futures exchange for a given day and
that closure occurs prior to the close of the NYSE on that day, futures
positions traded on such exchange and held by a ProFund will be valued on the
basis of the day's settlement prices on the futures exchange or fair value.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, the Advisor is
responsible for decisions to buy and sell securities for each of the ProFunds,
the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. The Advisor expects that the
ProFunds may execute brokerage or other agency transactions through registered
broker-dealers, for a commission, in conformity with the 1940 Act, the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder. The Advisor may serve as an investment manager to a number of
clients, including other investment companies. It is the practice of the Advisor
to cause purchase and sale transactions to be allocated among the ProFunds and
others whose assets the Advisor manages in such manner as the Advisor deems
equitable. The main factors considered by the Advisor in making such allocations
among the ProFunds and other client accounts of the Advisor are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the opinions of the person(s)
responsible, if any, for managing the portfolios of the ProFunds and the other
client accounts.
<PAGE>
The policy of each ProFund regarding purchases and sales of securities for
a ProFund's portfolio is that primary consideration will be given to obtaining
the most favorable prices and efficient executions of transactions. Consistent
with this policy, when securities transactions are effected on a stock exchange,
each ProFund's policy is to pay commissions which are considered fair and
reasonable without necessarily determining that the lowest possible commissions
are paid in all circumstances. Each ProFund believes that a requirement always
to seek the lowest possible commission cost could impede effective portfolio
management and preclude the ProFund and the Advisor from obtaining a high
quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Advisor
relies upon its experience and knowledge regarding commissions generally charged
by various brokers and on its judgment in evaluating the brokerage and research
services received from the broker effecting the transaction. Such determinations
are necessarily subjective and imprecise, as in most cases an exact dollar value
for those services is not ascertainable.
Purchases and sales of U.S. government securities are normally transacted
through issuers, underwriters or major dealers in U.S. government securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased from
an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between bid
and asked prices.
In seeking to implement a ProFund's policies, the Advisor effects
transactions with those brokers and dealers who the Advisor believes provide the
most favorable prices and are capable of providing efficient executions. If the
Advisor believes such prices and executions are obtainable from more than one
broker or dealer, the Advisor may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the ProFund or the Advisor. Such services may include, but are not
limited to, any one or more of the following: information as to the availability
of securities for purchase or sale; statistical or factual information or
opinions pertaining to investment; wire services; and appraisals or evaluations
of portfolio securities. If the broker-dealer providing these additional
services is acting as a principal for its own account, no commissions would be
payable. If the broker-dealer is not a principal, a higher commission may be
justified, at the determination of the Advisor, for the additional services.
The information and services received by the Advisor from brokers and
dealers may be of benefit to the Advisor in the management of accounts of some
of the Advisor's other clients and may not in all cases benefit a ProFund
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Advisor and thereby reduce the Advisor's expenses,
this information and these services are of indeterminable value and the
management fee paid to the Advisor is not reduced by any amount that may be
attributable to the value of such information and services.
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 Trust are the
responsibilities of the Trust's officers. The names and addresses (and ages) of
the Trustees of the Trust, the officers of the Trust, and the officers of the
Advisor, together with information as to their principal business occupations
during the past five years, are set forth below. Fees and expenses for
non-interested Trustees will be paid by the Trust; Trustee expenses for
interested Trustees will be paid by the Advisor.
TRUSTEES AND OFFICERS OF PROFUNDS
MICHAEL L. SAPIR* (birthdate: May 19, 1958). Currently: Trustee, Chairman
and Chief Executive Officer of ProFunds; Chairman and Chief Executive Officer of
the Advisor. Formerly: Principal, Law Offices of Michael L. Sapir; Senior Vice
President, General Counsel, Padco Advisors, Inc.; Partner, Jorden Burt Berenson
& Klingensmith. His address is 7900 Wisconsin Avenue, Suite 300, Bethesda,
Maryland 20814.
<PAGE>
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.
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.
GARY TENKMAN (birthdate: September 16, 1970). Currently: Treasurer of
ProFunds; Vice President, Financial Services, BISYS Fund Services. Formerly:
Audit Manager, Investment Management Services Group. His address is 3435 Stelzer
Road, Columbus, Ohio 43219.
*This Trustee is deemed to be an "interested person" within the meaning of
Section 2(a)(19) of the 1940 Act, inasmuch as this person is affiliated with the
Advisor, as described herein.
PROFUNDS TRUSTEE COMPENSATION TABLE
The following table reflect fees paid to the Trustees for the year ended
December 31, 1999.
NAME OF
PERSON: POSITION COMPENSATION
Mchael L. Sapir, Chairman and Chief Executive Officer None
Louis M. Mayberg, Trustee, President, Secretary None
Russell S. Reynolds, III, Trustee $5,500
Michael C. Wachs, Trustee $5,500
PROFUND ADVISORS LLC
Under an investment advisory agreement between the Trust, on behalf of the
UltraSector ProFunds and the Advisor with respect to the ProFunds, dated
__________, 2000, each ProFund pays the Advisor a fee at an annualized rate,
based on its average daily net assets, of 0.75%. The Advisor manages the
investment and the reinvestment of the assets of each of the ProFunds, in
accordance with the investment objectives, policies, and limitations of each
ProFund, subject to the general supervision and control of Trustees and the
officers of the Trust. The Advisor bears all costs associated with providing
these advisory services. The Advisor, from its own resources, including profits
from advisory fees received from the ProFunds, provided such fees are legitimate
and not excessive, also may make payments to broker-dealers and other financial
institutions for their expenses in connection with the distribution of ProFund
shares. The Advisor's address is 7900 Wisconsin Avenue, Suite 300, Bethesda,
Maryland 20814.
<PAGE>
CODE OF ETHICS
The Trust and the Advisor each have adopted a code of ethics, as required
by applicable law, which is designed to prevent affiliated persons of the Trust
and the Advisor from engaging in deceptive, manipulative, or fraudulent
activities in connection with securities held or to be acquired by the ProFunds
(which may also be held by persons subject to a code). There can be no assurance
that the codes will be effective in preventing such activities.
ADMINISTRATION, TRANSFER AGENT, FUND ACCOUNTING AGENT AND CUSTODIAN
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS")
acts as Administrator to the ProFunds. The Administrator provides the ProFunds
with all required general administrative services, including, without
limitation, office space, equipment, and personnel; clerical and general back
office services; bookkeeping, internal accounting, and secretarial services; the
determination of net asset values; and the preparation and filing of all
reports, registration statements, proxy statements, and all other materials
required to be filed or furnished by the ProFunds under Federal and state
securities laws. The Administrator also maintains the shareholder account
records for the ProFunds, distributes dividends and distributions payable by the
ProFunds, and produces statements with respect to account activity for the
ProFunds and their shareholders. The Administrator pays all fees and expenses
that are directly related to the services provided by the Administrator to the
ProFunds; each ProFund reimburses the Administrator for all fees and expenses
incurred by the Administrator which are not directly related to the services the
Administrator provides to the ProFunds under the service agreement.
For its services as Administrator, each ProFund pays BISYS an annual fee
equal to .15% of the Trust's average daily net assets up to $300 million,
declining to .05% of the Trust's average daily net assets over $1 billion. BISYS
Funds Services, Inc. ("BFSI"), an affiliate of BISYS, acts as transfer agent and
fund accounting agent for the ProFunds, for which it receives additional fees.
Additionally, ProFunds and BISYS and BFSI have entered into an Omnibus Fee
Agreement in which the amount of compensation due and payable to BISYS shall be
the greater of (i) the aggregate fee amount due and payable for services
pursuant to the Administration, Fund Accounting and Transfer Agency Agreements
and (ii) the minimum relationship fee described as specific dollar amounts
payable over a period of ten calendar quarters. The address for BISYS and BFSI
is 3435 Stelzer Road, Suite 1000, Columbus, Ohio 43219.
The Advisor, pursuant to a separate Management Services Agreement, performs
certain client support and other administrative services on behalf of the
ProFunds. For these services, each ProFund will pay to the Advisor a fee at the
annual rate of .15% of its average daily net assets for all ProFunds.
UMB Bank, N.A. acts as custodian to the ProFunds. UMB Bank, N.A.'s address
is 928 Grand Avenue, Kansas City, Missouri.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP serves as independent auditors to the ProFunds.
PricewaterhouseCoopers LLP provides audit services, tax return preparation and
assistance and consultation in connection with certain SEC filings.
PricewaterhouseCoopers LLP is located at 100 East Broad Street, Columbus, Ohio
43215.
LEGAL COUNSEL
Dechert Price & Rhoads serves as counsel to the ProFunds. The firm's
address is 1775 Eye Street, N.W., Washington, DC 20006-2401.
<PAGE>
DISTRIBUTOR
Concord Financial Group, Inc., 3435 Stelzer Road, Columbus, Ohio 43219,
serves as the distributor and principal underwriter of the ProFunds' shares in
all fifty states and the District of Columbia. Concord Financial Group, Inc.
receives no compensation from the ProFunds for serving as distributor.
SHAREHOLDER SERVICES PLAN
Each ProFund has adopted a Shareholder Services Plan (the "Plan") which
provides that each ProFund will make payments equal to 1.00% (on an annual
basis) of the average daily value of the net assets of such ProFund's Service
Class shares attributable to or held in the name of the investment advisers and
other authorized institutions that sell Service Class shares ("Authorized
Firms") for providing account administration services to their clients who are
beneficial owners of such shares. The Administrator may act as an Authorized
Firm. The Trust will enter into agreements ("Shareholder Services Agreements")
with Authorized Firms that purchase Service Class shares on behalf of their
clients. The Shareholder Services Agreements will provide for compensation to
the Authorized Firms in an amount up to 1.00% (on an annual basis) of the
average daily net assets of the Service Class shares of the applicable ProFund
attributable to or held in the name of the Authorized Firm for its clients. The
ProFunds may pay different service fee amounts to Authorized Firms, which may
provide different levels of services to their clients or customers.
The Trustees of the Trust, including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or the related Shareholder Services
Agreements, have voted to adopt the Plan and Shareholder Services Agreements at
a meeting called for the purposes of voting on such Plan and Shareholder
Services Agreements. The Plan and Shareholder Services Agreements will remain in
effect for a period of one year and will continue in effect thereafter only if
such continuance is specifically approved annually by a vote of the Trustees in
the manner described above. The Plan may be terminated at any time by a majority
of the Trustees as described above or by a vote of a majority of the outstanding
Service Class shares of the affected ProFund. The Shareholder Services
Agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Trustees as described above or by a vote of a majority
of the outstanding Service Class shares of the affected ProFund on not more than
60 days' written notice to any other party to the Shareholder Services
Agreements. The Shareholder Services Agreements shall terminate automatically if
assigned. The Trustees have determined that, in their judgment, there is a
reasonable likelihood that the Plan will benefit the ProFunds and holders of
Service Class shares of the ProFunds. In the Trustees' quarterly review of the
Plan and Shareholder Services Agreements, they will consider their continued
appropriateness and the level of compensation provided therein.
The intent of the Plan and Shareholder Services Agreements is to procure
quality shareholder services on behalf of ProFund shareholders; in adopting the
Plan and Shareholder Services Agreements, the Trustees considered the fact that
such shareholder services may have the effect of enhancing distribution of
ProFund Service Class shares and the growth of the ProFunds. In light of this,
the ProFunds intend to observe the procedural requirements of Rule 12b-1 under
the 1940 Act in considering the continued appropriateness of the Plan and
Shareholder Services Agreements.
COSTS AND EXPENSES
Each ProFund bears all expenses of its operations other than those assumed
by the Advisor or the Administrator. ProFund expenses include: the management
fee; administrative and transfer agent fees; shareholder servicing fees;
custodian and accounting fees and expenses, legal and auditing fees; securities
valuation expenses; fidelity bonds and other insurance premiums; expenses of
preparing and printing prospectuses, confirmations, proxy statements, and
shareholder reports and notices; registration fees and expenses; proxy and
annual meeting expenses, if any; all Federal, state, and local taxes (including,
without limitation, stamp, excise, income, and franchise taxes); organizational
costs; and non-interested Trustees' fees and expenses.
<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 forty-three separately managed series, four of which are described
herein. Other series may be added in the future. Each ProFund offers two classes
of shares: the Service Class shares and the Investor Class shares.
All shares of the ProFunds are freely transferable. The Trust shares do not
have preemptive rights or cumulative voting rights, and none of the shares have
any preference to conversion, exchange, dividends, retirements, liquidation,
redemption, or any other feature. Trust shares have equal voting rights, except
that, in a matter affecting only a particular series or class of shares, only
shares of that series or class may be entitled to vote on the matter.
Under Delaware law, the Trust is not required to hold an annual
shareholders meeting if the 1940 Act does not require such a meeting. Generally,
there will not be annual meetings of Trust shareholders. Trust shareholders may
remove Trustees from office by votes cast at a meeting of Trust shareholders or
by written consent of such Trustees. If requested by shareholders of at least
10% of the outstanding shares of the Trust, the Trust will call a meeting of
shareholders for the purpose of voting upon the question of removal of a Trustee
of the Trust and will assist in communications with other Trust shareholders.
The Declaration of Trust of the Trust disclaims liability of the
shareholders or the officers of the Trust for acts or obligations of the Trust
which are binding only on the assets and property of the Trust. The Declaration
of Trust provides for indemnification of the Trust's property for all loss and
expense of any shareholder held personally liable for the obligations of the
Trust. The risk of a Trust shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would not be able to meet the Trust's obligations. This risk should be
considered remote.
TAXATION
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the ProFunds and the purchase, ownership, and disposition of ProFund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in light
of their particular circumstances, nor to certain types of shareholders subject
to special treatment under the federal income tax laws (for example, banks and
life insurance companies). This discussion is based upon present provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder, and judicial and administrative ruling authorities, all
of which are subject to change, which change may be retroactive. Prospective
investors should consult their own tax advisors with regard to the federal tax
consequences of the purchase, ownership, or disposition of ProFund shares, as
well as the tax consequences arising under the laws of any state, foreign
country, or other taxing jurisdiction.
Dividends out of net ordinary income and distribution of net short-term
capital gains are taxable to the recipient U.S. shareholders as ordinary income,
whether received in cash or reinvested in ProFund shares. Dividends from net
ordinary income may be eligible for the corporate dividends-received deduction.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by a ProFund to its U.S. shareholders as capital
gains distributions is taxable to the shareholders as gain from the sale of a
capital asset held for more than one year, regardless of the length of time a
shareholder has held the ProFund shares. If a shareholder holds ProFund shares
for six months or less and during that period receives a distribution taxable to
the shareholder as long-term capital gain, any loss realized on the sale of the
ProFund shares will be long-term loss to the extent of such distribution.
The amount of an income dividend or capital gains distribution declared by
a ProFund during October, November or December of a year to shareholder of
record as of a specified date in such a month that is paid during January of the
following year will be deemed to be received by shareholders on December 31 of
the prior year.
<PAGE>
Any dividend or distribution paid by a ProFund has the effect of reducing
the ProFund's net asset value per share. Investors should be careful to consider
the tax effect of buying shares shortly before a distribution by a ProFund. The
price of shares purchased at that time will include the amount of the
forthcoming distribution, but the distribution will be taxable to the
shareholder.
A dividend or capital gains distribution with respect to shares of a
ProFund held by a tax-deferred or qualified plan, such as an IRA, retirement
plan or corporate pension or profit sharing plan, will not be taxable to the
plan. Distribution from such plans will be taxable to individual participants
under applicable tax rules without regard to the character of the income earned
by the qualified plan.
Shareholders will be advised annually as to the federal tax status of
dividends and capital gains distribution made by the ProFunds for the preceding
year. Distributions by the ProFunds generally will be subject to state and local
taxes.
Each of the ProFunds intends to qualify and elect to be treated each year
as a regulated investment company (a "RIC") under Subchapter M of the Code. A
RIC generally is not subject to federal income tax on income and gains
distributed in a timely manner to its shareholders. Accordingly, each ProFund
generally must, among other things, (a) derive in each taxable year at least 90%
of its gross income from dividends, interest, payments with respect to certain
securities loans, and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income derived with respect to its
business of investing in such stock, securities or currencies; and (b) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the ProFund's assets is represented by cash, U.S. government
securities, the securities of other regulated investment companies and other
securities, with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the value of the ProFund's total assets and 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total assets is invested in the securities of any one issuer
(other than U.S. government securities and the securities of other regulated
investment companies).
As a RIC, a ProFund generally will not be subject to U.S. federal income
tax on income and gains that it distributes to shareholders, if at least 90% of
the ProFund's investment company taxable income (which includes, among other
items, dividends, interest and the excess of any net short-term capital gains
over net long-term capital losses) for the taxable year is distributed. Each
ProFund intends to distribute substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the ProFund level. To avoid the tax, each ProFund must distribute during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for a one-year period generally ending on
October 31 of the calendar year, and (3) all ordinary income and capital gains
for previous years that were not distributed during such years. To avoid
application of the excise tax, the ProFunds intend to make distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of a calendar year if it is declared by the
ProFund in October, November or December of that year with a record date in such
a month and paid by the ProFund during January of the following year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received.
<PAGE>
MARKET DISCOUNT
If a ProFund purchases a debt security at a price lower than the stated
redemption price of such debt security, the excess of the stated redemption
price over the purchase price is the "market discount". If the amount of the
market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the ProFund
in each taxable year in which the ProFund owns an interest in such debt security
and receives a principal payment on it. In particular, the ProFund will be
required to allocate that principal payment first to the portion of the market
discount on the debt security that has accrued but has not previously been
includable in income. In general, the amount of the market discount that must be
included for each period is equal to the lesser of (i) the amount of the market
discount accruing during such period (plus any accrued market discount for prior
periods not previously taken into account) or (ii) the amount of the principal
payment with respect to such period. Generally, market discount accrues on a
daily basis for each day the debt security is held by a ProFund at a constant
rate over the time remaining to the debt security's maturity or, at the election
of the ProFund, at a constant yield to maturity which takes into account the
semi-annual compounding of interest. Gain realized on the disposition of a
market discount obligation must be recognized as ordinary interest income (not
capital gain) to the extent of the "accrued market discount."
ORIGINAL ISSUE DISCOUNT
Certain debt securities acquired by the ProFunds may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by a ProFund, original issue discount that accrues on a
debt security in a given year generally is treated for federal income tax
purposes as interest and, therefore, such income would be subject to the
distribution requirements applicable to regulated investment companies.
Some debt securities may be purchased by the ProFunds at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes
(see above).
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
Any regulated futures contracts and certain options (namely, nonequity
options and dealer equity options) in which a ProFund may invest may be "section
1256 contracts." Gains (or losses) on these contracts generally are considered
to be 60% long-term and 40% short-term capital gains or losses; however foreign
currency gains or losses arising from certain section 1256 contracts are
ordinary in character. Also, section 1256 contracts held by a ProFund at the end
of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.
Transactions in options, futures and forward contracts undertaken by the
ProFunds may result in "straddles" for federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by a ProFund, and
losses realized by the ProFund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. In addition, certain carrying charges (including interest expense)
associated with positions in a straddle may be required to be capitalized rather
than deducted currently. Certain elections that a ProFund may make with respect
to its straddle positions may also affect the amount, character and timing of
the recognition of gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to the ProFunds are not
entirely clear. The straddle rules may increase the amount of short-term capital
gain realized by a ProFund, which is taxed as ordinary income when distributed
to shareholders. Because application of the straddles rules may affect the
character of gains or losses, defer losses and/or accelerate the recognition of
gains or losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
<PAGE>
CONSTRUCTIVE SALES
Recently enacted rules may affect the timing and character of gain if a
ProFund engages in transactions that reduce or eliminate its risk of loss with
respect to appreciated financial positions. If the ProFund enters into certain
transactions in property while holding substantially identical property, the
ProFund would be treated as if it had sold and immediately repurchased the
property and would be taxed on any gain (but not loss) from the constructive
sale. The character of gain from a constructive sale would depend upon the
ProFund's holding period in the property. Loss from a constructive sale would be
recognized when the property was subsequently disposed of, and its character
would depend on the ProFund's holding period and the application of various loss
deferral provisions of the Code.
PASSIVE FOREIGN INVESTMENT COMPANIES
The ProFunds may invest in shares of foreign corporations that may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a ProFund receives a so-called "excess
distribution" with respect to PFIC stock, the ProFund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the ProFund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the ProFund held the PFIC shares. Each ProFund will
itself be subject to tax on the portion, if any, of an excess distribution that
is so allocated to prior ProFund taxable years and an interest factor will be
added to the tax, as if the tax had been payable in such prior taxable years.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gains.
The ProFunds may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, a ProFund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions were received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election would
involve marking to market the ProFund's PFIC shares at the end of each taxable
year, with the result that unrealized gains would be treated as though they were
realized and reported as ordinary income. Any mark-to-market losses and any loss
from an actual disposition of ProFund shares would be deductible as ordinary
losses to the extent of any net mark-to-market gains included in income in prior
years.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by a ProFund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the ProFund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may deduct the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the ProFund as capital gain dividends, whether paid in cash or in shares, are
taxable as gain from the sale or exchange of an asset held for more than one
year, regardless of how long the shareholder has held the ProFund's shares.
Capital gains dividends are not eligible for the dividends received deduction.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received.
<PAGE>
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by a ProFund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of a ProFund just
prior to a distribution. The price of shares purchased at this time will include
the amount of the forthcoming distribution, but the distribution will generally
be taxable.
If a shareholder has chosen to receive distributions in cash, and the
postal ( or other delivery ) service is unable to deliver checks to the
shareholder's address of record, the ProFunds will change the distribution
option so that all distributions are automatically reinvested in additional
shares. The ProFunds will not pay interest on uncashed distribution checks.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of shares of a ProFund, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. A gain or loss will be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands and generally will be long-term,
mid-term or short-term, depending upon the shareholder's holding period for the
shares. Any loss realized on a redemption, sale or exchange will be disallowed
to the extent the shares disposed of are replaced (including through
reinvestment of dividends) within a period of 61 days, beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case the basis of
the shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on the disposition of a ProFund's shares held by the
shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any distributions of capital gain
dividends received or treated as having been received by the shareholder with
respect to such shares.
BACKUP WITHHOLDING
Each ProFund generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to shareholders if (1) the shareholder
fails to furnish the ProFund with the shareholder's correct taxpayer
identification number or social security number, (2) the IRS notifies the
shareholder or the ProFund that the shareholder has failed to report properly
certain interest and dividend income to the IRS and to respond to notices to
that effect, or (3) when required to do so, the shareholder fails to certify
that he or she is not subject to backup withholding. Any amounts withheld may be
credited against the shareholder's federal income tax liability.
OTHER TAXATION
Distributions may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Non-U.S. shareholders and
certain types of U.S. shareholders subject to special treatment under the U.S.
federal income tax laws (e.g. banks and life insurance companies) may be subject
to U.S. tax rules that differ significantly from those summarized above.
EQUALIZATION ACCOUNTING
Each ProFund distributes its net investment income and capital gains to
shareholders as dividends annually to the extent required to qualify as a
regulated investment company under the Code and generally to avoid federal
income or excise tax. Under current law, each ProFund may on its tax return
treat as a distribution of investment company taxable income and net capital
gain the portion of redemption proceeds paid to redeeming shareholders that
represents the redeeming shareholders' portion of the ProFund's undistributed
investment company taxable income and net capital gain. This practice, which
involves the use of equalization accounting, will have the effect of reducing
the amount of income and gains that the ProFund is required to distribute as
dividends to shareholders in order for the ProFund to avoid federal income tax
and excise tax. This practice may also reduce the amount of distributions
required to be made to nonredeeming shareholders and the amount of any
undistributed income will be reflected in the value of the ProFund's shares; the
total return on a shareholder's investment will not be reduced as a result of
the ProFund's distribution policy. Investors who purchase shares shortly before
the record date of a distribution will pay the full price for the shares and
then receive some portion of the price back as a taxable distribution.
<PAGE>
PERFORMANCE INFORMATION
TOTAL RETURN CALCULATIONS
From time to time, each of the ProFunds may advertise its total return for
prior periods. Any such advertisement would include at least average annual
total return quotations for one, five, and ten-year periods, or for the life of
the ProFund. Other total return quotations, aggregate or average, over other
time periods for the ProFund also may be included.
The total return of a ProFund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the ProFund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; this
calculation assumes that the initial investment is made at the current net asset
value and that all income dividends or capital gains distributions during the
period are reinvested in shares of the ProFund at net asset value. Total return
is based on historical earnings and net asset value fluctuations and is not
intended to indicate future performance. No adjustments are made to reflect any
income taxes payable by shareholders on dividends and distributions paid by the
ProFund.
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equal the initial amount invested to the ending redeemable value.
COMPARISONS OF INVESTMENT PERFORMANCE
In conjunction with performance reports, promotional literature, and/or
analyses of shareholder service for a ProFund, comparisons of the performance
information of the ProFund for a given period to the performance of recognized,
unmanaged indexes for the same period may be made. Such indexes include, but are
not limited to, ones provided by Dow Jones & Company, Standard & Poor's
Corporation, Lipper Analytical Services, Inc., Shearson Lehman Brothers, the
National Association of Securities Dealers, Inc., The Frank Russell Company,
Value Line Investment Survey, the American Stock Exchange, the Philadelphia
Stock Exchange, Morgan Stanley Capital International, Wilshire Associates, the
Financial Times-Stock Exchange, and the Nikkei Stock Average and Deutsche
Aktienindex, all of which are unmanaged market indicators. Such comparisons can
be useful measures of the quality of a ProFund's investment performance.
In addition, rankings, ratings, and comparisons of investment performance
and/or assessments of the quality of shareholder service appearing in
publications such as Money, Forbes, Kiplinger's Magazine, Personal Investor,
Morningstar, Inc., and similar sources which utilize information compiled (i)
internally, (ii) by Lipper Analytical Services, Inc. ("Lipper"), or (iii) by
other recognized analytical services, may be used in sales literature. The total
return of each ProFund also may be compared to the performances of broad groups
of comparable mutual funds with similar investment goals, as such performance is
tracked and published by such independent organizations as Lipper and CDA
Investment Technologies, Inc., among others.
Further information about the performance of the ProFunds is contained in
the ProFunds annual reports to shareholders, which may be obtained without
charge by writing to the ProFunds at the address or telephoning the ProFunds at
the telephone number set forth on the cover page of this SAI.
<PAGE>
FINANCIAL STATEMENTS
Since the ProFunds had not commenced operation as of the date of this
Statement of Additional Information, there are no financial statements to
include in the Statement of Additional Information.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS, OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION, IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR PRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY PROFUNDS. THIS STATEMENT OF ADDITIONAL INFORMATION
DOES NOT CONSTITUTE AN OFFERING BY PROFUNDS IN ANY JURISDICTION IN WHICH SUCH AN
OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE>
Part C
Other Information
<TABLE>
<S> <C> <C>
ITEM 23. Exhibits
(a)(1) Certificate of Trust of ProFunds (the "Registrant") (1)
(a)(2) First Amended Declaration of Trust of the Registrant (2)
(a)(3) Form of Establishment and Designation of Series dated February 18, 1998(5)
(a)(4) Form of Establishment and Designation of Series dated
February 23, 1999 (5)
(a)(5) Form of Establishment and Designation of Eleven Series
dated October 15, 1999 (6)
(a)(6) Form of Establishment and Designation of Three Series (7)
(a)(7) Form of Establishment and Designation of Seventeen
Series (8)
(a)(8) Form of Establishment and Designation of Series (9)
(a)(9) Form of Amended Designation of Series (9)
(a)(10) Form of Establishment and Designation of Series
(b) By-laws of Registrant (2)
(c) Not Applicable
(d)(1) Form of Investment Advisory Agreement (2)
(d)(2) Investment Advisory Agreement for Cash Management
Portfolio (7)
(d)(3) Amendment to Investment Advisory Agreement between
ProFunds and ProFund Advisors LLC (7)
(d)(4) Investment Advisory Agreement for UltraEurope and
UltraShort Europe ProFunds (4)
(d)(5) Form of Amended and Restated Investment Advisory
Agreement (8)
(d)(6) Form of Amended and Restated Investment Advisory
Agreement (9)
(d)(7) 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)
(g)(3) Form of Foreign Custody Manager Delegation Agreement
(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 (File No.
811-06073) filed with the Commission on April 24, 1996.
(h)(4) Form of Fund Accounting Agreement (2)
(h)(5)(i) Form of Management Services Agreement (2)
(h)(5)(ii) Amendment to Management Services Agreement with
respect to the UltraShort OTC ProFund (3)
(h)(5)(iii) Form of Amended and Restated Management Services
Agreement (4)
(h)(6) Form of Shareholder Services Agreement related to
Adviser Shares (2)
(h)(7) Form of Omnibus Fee Agreement with BISYS Fund Services
LP (2)
(h)(8) Form of Amendment to Omnibus Fee Agreement (6)
(h)(9) Form of Participation Agreement (6)
(h)(10) Form of Administrative Services Agreement(6)
<PAGE>
(i) Opinion and Consent of Counsel to the Registrant (2)
(j) Consent of Independent Auditors
(k) None
(l) Purchase Agreement dated October 10, 1997 between the
Registrant and National Capital Group, Inc. (2)
(m)(1) Form of Distribution Plan (6)
(m)(2) Form of Services Agreement (6)
(n)(1) Multiple Class Plan (previously o(1)) (7)
(n)(2) Form of Amended and Restated Multi-Class Plan (8)
(n)(3) Form of Amended and Restated Multi-Class Plan (9)
(n)(4) Form of Amended and Restated Multi-Class Plan
(o)(1) Power of Attorney of Cash Management Portfolio
(previously p(1)) (7)
(o)(2) Power of Attorney of ProFunds (previously p(2))(4)
(o)(3) Power of Attorney of ProFunds (9)
(p)(1) Form of Code of Ethics of Registrant (9)
(p)(2) Form of Code of Ethics of ProFund Advisors LLC (9)
</TABLE>
(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.
(5) Previously filed on August 4, 1999 as part of Post-Effective Amendment No.6
and incorporated by reference herein.
(6) Previously filed on October 15, 1999 as part of Post-Effective Amendment
No. 8 and incorporated by reference herein.
(7) Previously filed on November 15, 1999 as part of Post-Effective Amendment
No. 9 and incorporated by reference herein.
(8) Previously filed on December 23, 1999 as part of Post-Effective Amendment
No. 10 and incorporated by reference herein.
(9) Previously filed on May 1, 2000 as part of Post-Effective Amendment No. 13
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.
<PAGE>
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, 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) as filed on March 17, 1997 with the
Securities and Exchange Commission.
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>
Principal Position and Offices Position and Offices
Name with CFG with Registrant
---- ------------------------------ --------------------
Lynn J. Magnum Chairman none
Walter B. Grimm President none
Dennis Sheehan Sr. Executive Vice President none
Kevin Dell Vice President/Secretary/ none
General Counsel
Dale Smith Vice President/ none
Chief Financial Officer
Irimga McKay Supervising Principal none
</TABLE>
<PAGE>
ITEM 28. Location of Accounts and Records
All accounts, books, and records required to be maintained and
preserved by Section 31(a) of the Investment Company Act of 1940, as
amended, and Rules 31a-1 and 31a-2 thereunder, will be kept by the
Registrant at:
(1) ProFund Advisors LLC, 7900 Wisconsin Avenue, Suite 300,
Bethesda, Maryland (records relating to its functions as
investment adviser and manager to the portfolios other than
the Money Market ProFund);
(2) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
(records relating to the administrator, fund accountant and
transfer agent).
(3) UMB Bank, N.A., 928 Grand Avenue, Kansas City, Missouri for
each ProFund (records relating to its function as Custodian)
ITEM 29. Management Services
None.
ITEM 30. Undertakings
(a) Registrant undertakes to call a meeting of shareholders for
the purpose of voting upon the question of removal of a
Trustee or Trustees when requested to do so by the holders of
at least 10% of the Registrant's outstanding shares and, in
connection with such meeting, to comply with the shareholder
communications provisions of Section 16(c) of the Investment
Company Act of 1940.
(b) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
Annual Report to shareholders, upon request and without
charge.
<PAGE>
SIGNATURES
PROFUNDS
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in Washington, D.C. on July 13, 2000.
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.
<TABLE>
<S> <C> <C> <C>
Signatures Title Date
/s/ MICHAEL L. SAPIR* Trustee, President July 13, 2000
---------------------------------
Michael L. Sapir
/s/ LOUIS MAYBERG* Trustee, Secretary July 13, 2000
---------------------------------
Louis Mayberg
/s/ RUSSELL S. REYNOLDS, III* Trustee July 13, 2000
---------------------------------
Russell S. Reynolds, III
/s/ MICHAEL WACHS* Trustee July 13, 2000
----------------------------------
Michael Wachs
/s/ GARY TENKMAN Treasurer July 13, 2000
----------------------------------
Gary Tenkman
</TABLE>
*By: /s/ KEITH T. ROBINSON
Keith T. Robinson
as Attorney-in-Fact
Date: July 13, 2000
<PAGE>
SIGNATURES
CASH MANAGEMENT PORTFOLIO
CASH MANAGEMENT PORTFOLIO has duly caused this Post-Effective Amendment No.
14 to the Registration Statement on Form N-1A of ProFunds to be signed on its
behalf by the undersigned, there unto duly authorized in the City of Baltimore
and the State of Maryland on the 11th day of July, 2000.
CASH MANAGEMENT PORTFOLIO
/s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary of
the Cash Management Portfolio
This Post-Effective Amendment No. 14 to the Registration Statement on
Form N-1A of ProFunds has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<S> <C> <C>
Signatures Title Date
/s/ John Y. Keffer* President and July 11, 2000
--------------------------------------------
John Y. Keffer Chief Executive Officer
/s/ Charles A. Rizzo* Treasurer and Principal July 11, 2000
--------------------------------------------
Charles A. Rizzo Financial Officer
/s/ Charles P. Biggar* Trustee July 11, 2000
--------------------------------------------
Charles P. Biggar
/s/ S. Leland Dill* Trustee July 11, 2000
--------------------------------------------
S. Leland Dill
/s/ Richard T. Hale* Trustee July 11, 2000
--------------------------------------------
Richard T. Hale
/s/ Richard J. Herring* Trustee July 11, 2000
--------------------------------------------
Richard J. Herring
/s/ Bruce E. Langton* Trustee July 11, 2000
--------------------------------------------
Bruce E. Langton
/s/ Martin J. Gruber* Trustee July 11, 2000
--------------------------------------------
Martin J. Gruber
/s/ Philip Saunders, Jr.* Trustee July 11, 2000
--------------------------------------------
Philip Saunders, Jr.
/s/ Harry Van Benschoten* Trustee July 11, 2000
--------------------------------------------
Harry Van Benschoten
*By: /s/ Daniel O.Hirsch
Daniel O. Hirsch, Secretary of Cash Management Portfolio
Attorney-in-Fact
</TABLE>
Date: July 11, 2000
<PAGE>
EXHIBIT INDEX
Exhibit Description
(a)(10) Form of Establishment and Designation of Series
(d)(7) Form of Amended and Restated Investment Advisory Agreement
(g)(3) Form of Foreign Custody Manager Delegation Agreement
(j) Consent of Independent Auditors
(n)(4) Form of Amended and Restated Multi-Class Plan
