PROFUNDS, 497, 2000-05-05

PROFUNDS
497, 2000-05-05

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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 Bull ProFund, UltraBull
ProFund, UltraOTC ProFund, UltraEurope ProFund, UltraSmall-Cap ProFund,
UltraMid-Cap ProFund, UltraJapan ProFund, Bear ProFund, UltraBear ProFund,
UltraShort OTC ProFund and Money Market ProFund (each, a "ProFund", and
collectively, the "ProFunds"). Each ProFund offers two classes of shares:
Service Shares and Investor Shares. The ProFunds may be used by professional
money managers and investors as part of an asset-allocation or market-timing
investment strategy or to create specified investment exposure to a particular
segment of the securities market or to hedge an existing investment portfolio.
Sales are made without any sales charge at net asset value. Each non-money-
market ProFund seeks investment results that correspond each day to a specified
benchmark. The ProFunds may be used independently or in combination with each
other as part of an overall investment strategy. Additional ProFunds may be
created from time to time.

The ProFunds include the Money Market ProFund. The Money Market ProFund seeks
a high level of current income consistent with liquidity and the preservation of
capital through investment in high quality money market instruments. Unlike
other mutual funds, the Money Market ProFund seeks to achieve its investment
objective by investing all of its investable assets in the Cash Management
Portfolio (the "Portfolio"), a separate investment company with an identical
investment objective. The performance of the Money Market ProFund will
correspond directly to the investment performance of the Portfolio.

The ProFunds involve special risks, some not traditionally associated with
mutual funds. Investors should carefully review and evaluate these risks in
considering an investment in the ProFunds to determine whether an investment in
a particular ProFund is appropriate. None of the ProFunds alone constitutes a
balanced investment plan. Each non-money market Profund is not intended for
investors whose principal objective is current income or preservation of
capital. Because of the inherent risks in any investment, there can be no
assurance that the ProFunds' investment objectives will be achieved.

This Statement of Additional Information ("SAI") is not a prospectus. It
should be read in conjunction with ProFunds' Prospectus, dated May 1, 2000,
which incorporates this Statement of Additional Information by reference. The
financial statements and related report of the independent accountants included
in the ProFunds' annual report for the fiscal year ended December 31, 1999 are
incorporated by reference into this Statement of Additional Information. A copy
of the Prospectus or Annual Report is available, without charge, upon request to
the address above or by telephoning at the telephone numbers above.

The date of this Statement of Additional Information is May 1, 2000.
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STATEMENT OF ADDITIONAL INFORMATION

TABLE OF CONTENTS

PAGE

ProFunds........................................ 3
Investment Policies and Techniques.............. 3
Investment Restrictions......................... 21
Portfolio Transactions and Brokerage............ 27
Management of ProFunds.......................... 30
Costs and Expenses.............................. 39
Capitalization.................................. 39
Taxation........................................ 43
Performance Information......................... 48
Financial Statements............................ 50
Appendix -- Description of Securities Ratings... 52

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PROFUNDS

ProFunds (the "Trust") is an open-end management investment company, and
currently comprises thirty-nine separate series. Eleven of which are discussed
herein. Other series may be added in the future. The ProFunds may be used
independently or in combination with each other as part of an overall investment
strategy. Shares of any ProFund may be exchanged, without any charge, for
shares of the same class of any other ProFund on the basis of the respective net
asset values of the shares involved; provided, that, in connection with
exchanges for shares of the ProFund, certain minimum investment levels are
maintained (see "Shareholders Services -- Exchanges" in the Prospectus).

INVESTMENT POLICIES AND TECHNIQUES

GENERAL

Reference is made to the Prospectus for a discussion of the investment
objectives and policies of the ProFunds. In addition, set forth below is further
information relating to the ProFunds. The discussion below supplements and
should be read in conjunction with the Prospectus. Portfolio management is
provided to the non-money market ProFunds by its investment adviser, ProFund
Advisors LLC, a Maryland limited liability company with offices at 7900
Wisconsin Avenue, NW, Bethesda, Maryland (the "Advisor"). The Money Market
ProFund seeks to achieve its investment objective by investing all of its assets
in the Portfolio which has as its investment adviser, Bankers Trust Company
("Bankers Trust").

The investment restrictions of the ProFunds specifically identified as
fundamental policies may not be changed without the affirmative vote of at least
the majority of the outstanding shares of that ProFund, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). The investment
objectives and all other investment policies of the ProFunds not specified as
fundamental (including the benchmarks of the ProFunds) may be changed by the
Trustees of the ProFunds without the approval of shareholders.

A non-money market ProFund may consider changing its benchmark if, for
example, the current benchmark becomes unavailable; the ProFund believe the
current benchmark no longer serves the investment needs of a majority of
shareholders or another benchmark better serves their needs; or the financial or
economic environment makes it difficult for its investment results to correspond
sufficiently to its current benchmark. If believed appropriate, a ProFunds may
specify a benchmark for itself that is "leveraged" or proprietary. Of course,
there can be no assurance that a ProFund will achieve its objective.

Fundamental securities analysis is not generally used by the Advisor in
seeking to correlate with the respective benchmarks. Rather, the Advisor
primarily uses statistical and quantitative analysis to determine the
investments a non-money market ProFund makes and techniques it employs. While
the Advisor attempts to minimize any "tracking error" (that statistical measure
of the difference between the investment results of a ProFund and the
performance of its benchmark), certain factors will tend to cause a ProFund's
investment results to vary from a perfect correlation to its benchmark. The
ProFunds, however, do not expect that their total returns will vary adversely
from their respective current benchmarks by more than ten percent over the
course of a year. See "Special Considerations."

It is the policy of the non-money-market ProFunds to pursue their investment
objectives of correlating with their benchmarks regardless of market conditions,
to remain nearly fully invested and not to take defensive positions.

The investment strategies of the ProFunds discussed below, and as discussed in
the Prospectus, may be used by a ProFund if, in the opinion of the Advisor,
these strategies will be advantageous to the ProFund. The ProFund is free to
reduce or eliminate the ProFund's activity in any of those areas without
changing the ProFund's fundamental investment policies. There is no assurance
that any of these strategies or any other strategies and methods of investment
available to a ProFund will result in the achievement of the ProFund's
objectives.

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THE BULL PROFUND AND ULTRABULL PROFUND

The investment objective of the Bull ProFund is to provide investment returns
that correspond to the performance of the S&P 500 Index. The investment
objective of the UltraBull ProFund is to provide investment returns that
correspond to 200% of the performance of the S&P 500 Index. These ProFunds seek
to achieve this correlation on each trading day. Under their investment
objectives, the UltraBull ProFund should produce greater gains to investors when
the S&P 500 Index rises and greater losses when the S&P 500 Index declines over
the corresponding gain or loss of the Bull ProFund.

In attempting to achieve their objectives, the Bull ProFund and the UltraBull
ProFund expect that a substantial portion of their respective assets usually
will be devoted to employing certain specialized investment techniques. These
techniques include engaging in certain transactions in stock index futures
contracts, options on stock index futures contracts, and options on securities
and stock indexes. The amount of any gain or loss on an investment technique may
be affected by any premium or amounts in lieu of dividends or interest income
the ProFund pays or receives as the result of the transaction. These ProFunds
may also invest in shares of individual securities which are expected to track
the S&P 500 Index.

THE BEAR PROFUND AND ULTRABEAR PROFUND

The Bear ProFund and the UltraBear ProFund are designed to allow investors to
speculate on anticipated decreases in the S&P 500 Index or to hedge an existing
portfolio of securities or mutual fund shares. The Bear ProFund's investment
objective is to provide investment results that will inversely correlate to the
performance of the S&P 500 Index. The UltraBear ProFund's investment objective
is to provide investment results that will inversely correlate to 200% of the
performance of the S&P 500 Index. These ProFunds seek to achieve this inverse
correlation on each trading day.

If the Bear ProFund achieved a perfect inverse correlation for any single
trading day, the net asset value of the shares of the Bear ProFund would
increase for that day in direct proportion to any decrease in the level of the
S&P 500 Index. Conversely, the net asset value of the shares of the Bear ProFund
would decrease for that day in direct proportion to any increase in the level of
the S&P 500 Index for that day. The net asset value of the UltraBear ProFund on
the same days would increase or decrease approximately twice as much as the
price change of the Bear ProFund.

For example, if the S&P 500 Index were to decrease by 1% on a particular day,
investors in the Bear ProFund should experience a gain in net asset value of
approximately 1% for that day. The UltraBear ProFund should realize an increase
of approximately 2% of its net asset value on the same day. Conversely, if the
S&P 500 Index were to increase by 1% by the close of business on a particular
trading day, investors in the Bear ProFund and the UltraBear ProFund would
experience a loss in net asset value of approximately 1% and 2%, respectively.

Due to the nature of the Bear ProFund and the UltraBear ProFund, investors in
these ProFunds could experience substantial losses during sustained periods of
rising equity prices, with losses to investors in the UltraBear ProFund
approximately twice as large as the losses to investors in the Bear ProFund.
This is the opposite likely result expected of investing in a traditional equity
mutual fund in a generally rising stock market.

In pursuing its investment objectives, the Bear ProFund and the UltraBear
ProFund generally do not invest in traditional securities, such as common stock
of operating companies. Rather, the Bear ProFund and the UltraBear ProFund
employ certain investment techniques, including engaging in short sales and in
certain transactions in stock index futures contracts, options on stock index
futures contracts, and options on securities and stock indexes.

Under these techniques, the Bear ProFund and the UltraBear ProFund will
generally incur a loss if the price of the underlying security or index
increases between the date of the employment of the technique and the date on
which the ProFund terminates the position. These ProFunds will generally realize
a gain if the underlying security or index declines in price between those
dates. The amount of any gain or loss on an investment

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technique may be affected by any premium or amounts in lieu of dividends or
interest that the ProFund pays or receives as the result of the transaction.

THE ULTRAOTC PROFUND AND THE ULTRASHORT OTC PROFUND

The investment objective of the UltraOTC ProFund is to provide investment
results that correspond to 200% of the performance of the NASDAQ 100 Index(TM).

The UltraOTC ProFund does not intend to hold the 100 securities included in
the NASDAQ 100 Index(TM). Instead, the UltraOTC ProFund intends to engage in
transactions on stock index futures contracts, options on stock index futures
contracts, and options on securities and stock indexes. As a nonfundamental
policy, the UltraOTC ProFund will invest, under normal conditions, at least 65%
of its total assets in securities traded on the over-the-counter ("OTC") markets
and instruments with values that are representative of such securities such as
futures and option contracts in such securities or indices.

The investment objective of the UltraShort OTC ProFund is to provide
investment results that correspond each day to twice of the inverse (opposite)
of the performance of the NASDAQ 100 Index(TM). It is the policy of the
UltraShort OTC ProFund to pursue its investment objective of correlating with
its benchmark regardless of market conditions, to remain nearly fully invested
and not to take defensive positions.

The UltraShort OTC ProFund is designed to allow investors to seek to profit
from anticipated decreases in the NASDAQ 100 Index(TM) or to hedge an existing
portfolio of securities or mutual fund shares. The UltraShort OTC ProFund's
investment objective is to provide investment results that will inversely
correlate to 200% of the performance of the NASDAQ 100 Index(TM). The UltraShort
OTC ProFund seeks to achieve this inverse correlation on each trading day.

If the ProFund achieved a perfect inverse correlation for any single trading
day, the net asset value of the shares of the UltraShort OTC ProFund would
increase for that day proportional to twice any decrease in the level of the
NASDAQ 100 Index(TM). Conversely, the net asset value of the shares of the
UltraShort OTC ProFund would decrease for that day proportional to twice any
increase in the level of the NASDAQ 100 Index(TM) for that day.

For example, if the NASDAQ 100 Index(TM) were to decrease by 1% on a
particular day, investors in the UltraShort OTC ProFund should experience a gain
in net asset value of approximately 2% for that day. Conversely, if the NASDAQ
100 Index(TM) were to increase by 1% by the close of business on a particular
trading day, investors in the UltraShort OTC ProFund would experience a loss in
net asset value of approximately 2%.

In pursuing its investment objective, the UltraShort OTC ProFund generally
does not invest in traditional securities, such as common stock of operating
companies. Rather, the UltraShort OTC ProFund employs certain investment
techniques, including engaging in short sales and in certain transactions in
stock index futures contracts, options on stock index futures contracts, and
options on securities and stock indexes.

Under these techniques, the UltraShort OTC ProFund will generally incur a loss
if the price of the underlying security or index increases between the date of
the employment of the technique and the date on which the UltraShort OTC ProFund
terminates the position. The UltraShort OTC ProFund will generally realize a
gain if the underlying security or index declines in price between those dates.
The amount of any gain or loss on an investment technique may be affected by any
premium or amounts in lieu of dividends or interest that the UltraShort OTC
ProFund pays or receives as the result of the transaction. Due to the nature of
the UltraShort OTC ProFund, investors could experience substantial losses during
sustained periods of rising equity prices. This is the opposite likely result
expected of investing in a traditional equity mutual fund in a generally rising
stock market.

Companies whose securities are traded on the OTC markets generally have
smaller market capitalization or are newer companies than those listed on the
NYSE or the American Stock Exchange (the "AMEX"). OTC companies often have
limited product lines, or relatively new products or services, and may lack
established markets, depth of experienced management, or financial resources and
the ability to generate funds. The securities

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of these companies may have limited marketability and may be more volatile in
price than securities of larger capitalized or more well-known companies. Among
the reasons for the greater price volatility of securities of certain smaller
OTC companies are the less certain growth prospects of comparably smaller firms,
the lower degree of liquidity in the OTC markets for such securities, and the
greater sensitivity of smaller capitalization companies to changing economic
conditions than larger capitalization, exchange-traded securities. Conversely,
because many of these OTC securities may be overlooked by investors and
undervalued in the marketplace, there is potential for significant capital
appreciation.

THE ULTRAEUROPE PROFUND

The investment objective of the UltraEurope ProFund is to provide investment
returns that correspond to 200% of the daily performance of the ProFunds Europe
Index ("PEI"). Under its investment objective, the UltraEurope ProFund should
produce greater gains to investors when the PEI rises and greater losses when
the PEI declines over the corresponding gain or loss of the PEI itself.

In attempting to achieve its objectives, the UltraEurope ProFund expect that a
substantial portion of its assets usually will be devoted to employing certain
specialized investment techniques. These techniques include engaging in certain
transactions in stock index futures contracts, options on stock index futures
contracts, and options on securities and stock indexes. The amount of any gain
or loss on an investment technique may be affected by any premium or amounts in
lieu of dividends or interest income the UltraEurope ProFund pays or receives as
the result of the transaction. The UltraEurope ProFund may also invest in shares
of individual securities which are expected to track the PEI.

Investing in foreign companies or financial instruments by the UltraEurope
ProFund (directly or indirectly) may involve risks not typically associated with
investing in U.S. companies. The value of securities denominated in foreign
currencies, and of dividends from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. Dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices in some foreign markets can be extremely volatile. Many
foreign countries lack uniform accounting and disclosure standards. Because the
UltraEurope ProFund will invest indirectly in foreign markets, it will be
subject to the market, economic and political risks prevalent in these foreign
markets.

Changes in foreign exchange rates will affect the value of securities of
financial instruments denominated or quoted in currencies other than the U.S.
Dollar, and the ProFund will not engage in activities designed to hedge against
foreign currency exchange rate fluctuations. Foreign currency exchange rates may
fluctuate significantly over short periods of time. They generally are
determined by forces of supply and demand in the foreign exchange markets and
the relative merits of investments in different countries, actual or perceived
changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention (or failure to intervene) by U.S. or foreign
governments or central banks, by currency controls or by political developments
in the U.S. or abroad.

ULTRASMALL-CAP PROFUND

The investment objective of the UltraSmall-Cap ProFund is to provide daily
investment results that correspond to twice (200%) the performance of the
Russell 2000(R) Index.

The UltraSmall-Cap ProFund does not intend to hold the 2,000 securities
included in the Russell 2000(R) Index. Instead, the UltraSmall-Cap ProFund
intends to engage in transactions in equities, stock index futures contracts,
options on stock index futures contracts, and options on securities and stock
indexes. As a nonfundamental policy, the UltraSmall-Cap ProFund will invest,
under normal conditions, at least 65% of its total assets in the securities
comprising the Russell 2000(R) Index and instruments with values that are
representative of such securities, such as futures and option contracts on such
securities or such index.

The Russell 2000(R) Index is a capitalization-weighted index of domestic
equities traded on the NYSE, AMEX and NASDAQ Stock Market, Inc. ("NASDAQ"). The
index represents the bottom 2,000 companies of the 3,000 U.S. stocks with the
largest market capitalizations. As of June 30, 1999, the market capitalization
of these 2,000

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companies represented about 8% of the total market capitalization of the 3,000
companies. Companies whose stock comprises the Russell 2000(R) Index often have
limited product lines, or relatively new products or services, and may lack
established markets, depth of experienced management, or financial resources and
the ability to generate funds. The securities of these companies may have
limited marketability and may be more volatile in price than securities of
larger capitalized or more well-known companies. Among the reasons for the
greater price volatility of securities of smaller companies whose stock
comprises the Russell 2000(R) Index are the less certain growth prospects of
smaller firms, the lower degree of liquidity in the markets for such securities,
and the greater sensitivity of smaller capitalization companies to changing
economic conditions than larger capitalization companies. Conversely, because
many of these securities may be overlooked by investors and undervalued in the
marketplace, there is potential for significant capital appreciation.

ULTRAMID-CAP PROFUND

The investment objective of the UltraMid-Cap ProFund is to provide daily
investment results that correspond to twice (200%) the performance of the S&P
MidCap 400 Index(R).

The UltraMid-Cap ProFund does not intend to hold the 400 securities included
in the S&P Mid-Cap 400 Index(R). Instead, the UltraMid-Cap ProFund intends to
engage in transactions in equities, stock index futures contracts, options on
stock index futures contracts, and options on securities and stock indexes. As
a nonfundamental policy, the UltraMid-Cap ProFund will invest, under normal
conditions, at least 65% of its total assets in the securities comprising the
S&P Mid-Cap 400 Index(R) and instruments with values that are representative of
such securities, such as futures and option contracts on such securities or such
index.

The S&P MidCap 400 Index(R) is a widely used measure of medium capitalized
U.S. company stock performance. It consists of the common stocks of 400 major
corporations selected for their size and the frequency and ease which their
stocks trade. Standard & Poor's also attempts to assure that the Index reflects
the full range and diversity of the American economy. The securities of medium
capitalization companies, while typically not as volatile as the securities of
small capitalization companies, may be more volatile than securities of larger
or more well-known companies.

ULTRAJAPAN PROFUND

The investment objective of the UltraJapan ProFund is to provide daily
investment results that correspond to twice (200%) the performance of the Nikkei
225 Stock Average.

The UltraJapan ProFund does not intend to hold the 225 securities included in
the Nikkei 225 Stock Average. Instead, the UltraJapan ProFund intends to engage
in transactions in equities, stock index futures contracts, options on stock
index futures contracts, and options on securities and stock indexes. As a
nonfundamental policy, the UltraJapan ProFund will invest, under normal
conditions, at least 65% of its total assets in the securities comprising the
Nikkei 225 Stock Average and instruments with values that are representative of
such securities, such as futures and option contracts on such securities or such
index.

The Nikkei 225 Stock Average is a price-weighted index of 225 large, actively
traded Japanese stocks traded on the Tokyo Stock Exchange. The index is computed
and distributed by the Nihon Keizai Shimbun ("NKS")

Investing in foreign companies or financial instruments by this ProFund may
involve risks not typically associated with investing in U.S. companies. The
value of securities denominated in foreign currencies, and of dividends from
such securities, can change significantly when foreign currencies strengthen or
weaken relative to the U.S. Dollar. Foreign securities markets generally have
less trading volume and less liquidity than U.S. markets, and prices in some
foreign markets can be extremely volatile. Many foreign countries lack uniform
accounting and disclosure standards. Because this ProFund will invest directly
or indirectly, in foreign markets, it will be subject to certain of the market,
economic and political risks prevalent in these foreign markets, and
particularly the Japanese markets.

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Changes in foreign exchange rates will affect the value of securities of
financial instruments denominated or quoted in currencies other than the U.S.
Dollar, and this ProFund will not engage in activities designed to hedge against
foreign currency exchange rate fluctuations. Foreign currency exchange rates
may fluctuate significantly over short periods of time. They generally are
determined by forces of supply and demand in the foreign exchange markets and
the relative merits of investments in different countries, actual or perceived
changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention (or failure to intervene) by U.S. or foreign
governments or central banks, by currency controls or by political developments
in the U.S. or abroad.

By investing in American Depository Receipts ("ADRs") under normal market
conditions, the UltraJapan ProFund may reduce some of the risks of investing in
foreign securities. ADRs are denominated in the U.S. Dollar, which reduces the
risk of currency fluctuations during the settlement period for either purchases
or sales. Further, the information available for ADRs is subject to accounting,
auditing and financial reporting standards of the domestic market or exchange on
which they are traded, which standards are more uniform and more exacting than
those to which many foreign issuers may be subject. However, ADRs do not
eliminate all the risk inherent in investing in the securities of foreign
issuers.

THE MONEY MARKET PROFUND

The Money Market ProFund seeks a high level of current income consistent with
liquidity and the preservation of capital through investment in high quality
money market instruments. The Money Market ProFund offers investors a convenient
means of diversifying their holdings of short-term securities while relieving
those investors of the administrative burdens typically associated with
purchasing and holding these instruments, such as coordinating maturities and
reinvestments, providing for safekeeping and maintaining detailed records. High
quality, short-term instruments may result in a lower yield than instruments
with a lower quality and/or a longer term.

The Money Market ProFund seeks to achieve its investment objective by
investing its assets in the Portfolio, which has the same investment objective
as the Money Market ProFund and is managed by Bankers Trust, 130 Liberty St.
(One Bankers Trust Plaza), New York, New York 10006. There can be no assurance
that the investment objective of either the Money Market ProFund or the
Portfolio will be achieved. The investment objectives of the Money Market
ProFund and the Portfolio are fundamental policies and may not be changed
without the approval of the Money Market ProFund's shareholders or the
Portfolio's investors, respectively. See "Special Information Concerning
MasterFeeder Fund Structure" herein.

The Portfolio invests in money market instruments, including corporate debt
obligations, U.S. government securities, bank obligations and repurchase
agreements. See "Investment Policies and Techniques -- Cash Management
Portfolio" for a discussion of the Portfolio's investment policies. The
Portfolio follows practices which are designed to enable the Money Market
ProFund to maintain a $1.00 share price: limiting dollar-weighted average
maturity of the securities held by the Portfolio to 90 days or less; buying
securities which have remaining maturities of 397 days or less; and buying only
high quality securities with minimal credit risks. Of course, the Money Market
ProFund cannot guarantee a $1.00 share price, but these practices help to
minimize any price fluctuations that might result from rising or declining
interest rates. While the Portfolio invests in high quality money market
securities, you should be aware that your investment is not without risk. All
money market instruments can change in value when interest rates or an issuer's
creditworthiness changes.

FUTURES CONTRACTS AND RELATED OPTIONS

The ProFunds (other than the Money Market ProFund) may purchase or sell stock
index futures contracts and options thereon as a substitute for a comparable
market position in the underlying 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.

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When a ProFund purchases a put or call option on a futures contract, the
ProFund pays a premium for the right to sell or purchase the underlying futures
contract for a specified price upon exercise at any time during the option
period. By writing (selling) a put or call option on a futures contract, a
ProFund receives a premium in return for granting to the purchaser of the option
the right to sell to or buy from the ProFund the underlying futures contract for
a specified price upon exercise at any time during the option period.

Whether a ProFund realizes a gain or loss from futures activities depends
generally upon movements in the underlying commodity. The extent of the
ProFund's loss from an unhedged short position in futures contracts or from
writing options on futures contracts is potentially unlimited. The ProFunds may
engage in related closing transactions with respect to options on futures
contracts. The ProFunds will engage in transactions in futures contracts and
related options that are traded on a U.S. exchange or board of trade or that
have been approved for sale in the U.S. by the Commodity Futures Trading
Commission.

When a ProFund purchases or sells a stock index futures contract, or sells an
option thereon, the ProFund "covers" its position. To cover its position, a
ProFund may enter into an offsetting position or maintain with its custodian
bank (and mark-to-market on a daily basis) a segregated account consisting of
liquid instruments that, when added to any amounts deposited with a futures
commission merchant as margin, are equal to the market value of the futures
contract or otherwise "cover" its position.

The non-money market ProFunds may purchase and sell futures contracts and
options thereon only to the extent that such activities would be consistent with
the requirements of Section 4.5 of the regulations under the Commodity Exchange
Act promulgated by the Commodity Futures Trading Commission (the "CFTC
Regulations"), under which each of these ProFunds would be excluded from the
definition of a "commodity pool operator." Under Section 4.5 of the CFTC
Regulations, a ProFund may engage in futures transactions, either for "bona fide
hedging" purposes, as this term is defined in the CFTC Regulations, or for non-
hedging purposes to the extent that the aggregate initial margins and option
premiums required to establish such non-hedging positions do not exceed 5% of
the liquidation value of the ProFund's portfolio. In the case of an option on
futures contracts that is "in-the-money" at the time of purchase (i.e., the
amount by which the exercise price of the put option exceeds the current market
value of the underlying security or the amount by which the current market value
of the underlying security exceeds the exercise price of the call option), the
in-the-money amount may be excluded in calculating this 5% limitation.

The ProFunds will cover their positions when they write a futures contract or
option on a futures contract. A ProFund may "cover" its long position in a
futures contract by purchasing a put option on the same futures contract with a
strike price (i.e., an exercise price) as high or higher than the price of the
futures contract, or, if the strike price of the put is less than the price of
the futures contract, the ProFund will maintain in a segregated account cash or
liquid instruments equal in value to the difference between the strike price of
the put and the price of the future. A ProFund may also cover its long position
in a futures contract by taking a short position in the instruments underlying
the futures contract, or by taking positions in instruments the prices of which
are expected to move relatively consistently with the futures contract. A
ProFund may cover its short position in a futures contract by taking a long
position in the instruments underlying the futures contract, or by taking
positions in instruments the prices of which are expected to move relatively
consistently with the futures contract.

A ProFund may cover its sale of a call option on a futures contract by taking
a long position in the underlying futures contract at a price less than or equal
to the strike price of the call option, or, if the long position in the
underlying futures contract is established at a price greater than the strike
price of the written (sold) call, the ProFund will maintain in a segregated
account liquid instruments equal in value to the difference between the strike
price of the call and the price of the future. A ProFund may also cover its sale
of a call option by taking positions in instruments the prices of which are
expected to move relatively 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.

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Although the ProFunds intend to sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid market
will exist for any particular contract at any particular time. Many futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during the
day. Futures contract prices could move to the limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures positions and potentially subjecting a ProFund to substantial losses. If
trading is not possible, or if a ProFund determines not to close a futures
position in anticipation of adverse price movements, the ProFund will be
required to make daily cash payments of variation margin. The risk that the
ProFund will be unable to close out a futures position will be minimized by
entering into such transactions on a national exchange with an active and liquid
secondary market.

INDEX OPTIONS

The ProFunds (other than the Money Market ProFund) may purchase and write
options on stock indexes to create investment exposure consistent with their
investment objectives, hedge or limit the exposure of their positions and to
create synthetic money market positions. See "Taxation" herein.

A stock index fluctuates with changes in the market values of the stocks
included in the index. Options on stock indexes give the holder the right to
receive an amount of cash upon exercise of the option. Receipt of this cash
amount will depend upon the closing level of the stock index upon which the
option is based being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash received, if
any, will be the difference between the closing price of the index and the
exercise price of the option, multiplied by a specified dollar multiple. The
writer (seller) of the option is obligated, in return for the premiums received
from the purchaser of the option, to make delivery of this amount to the
purchaser. All settlements of index options transactions are in cash.

Index options are subject to substantial risks, including the risk of
imperfect correlation between the option price and the value of the underlying
securities composing the stock index selected and the risk that there might not
be a liquid secondary market for the option. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether a ProFund will realize a gain or loss from the
purchase or writing (sale) of options on an index depends upon movements in the
level of stock prices in the stock market generally or, in the case of certain
indexes, in an industry or market segment, rather than upon movements in the
price of a particular stock. Whether a ProFund will realize a profit or loss by
the use of options on stock indexes will depend on movements in the direction of
the stock market generally or of a particular industry or market segment. This
requires different skills and techniques than are required for predicting
changes in the price of individual stocks. A ProFund will not enter into an
option position that exposes the ProFund to an obligation to another party,
unless the ProFund either (i) owns an offsetting position in securities or other
options and/or (ii) maintains with the ProFund's custodian bank liquid
instruments that, when added to the premiums deposited with respect to the
option, are equal to the market value of the underlying stock index not
otherwise covered.

The non-money market ProFunds may engage in transactions in stock index
options listed on national securities exchanges or traded in the OTC market as
an investment vehicle for the purpose of realizing the ProFund's investment
objective. Options on indexes are settled in cash, not by delivery of
securities. The exercising holder of an index option receives, instead of a
security, cash equal to the difference between the closing price of the
securities index and the exercise price of the option.

Some stock index options are based on a broad market index such as the S&P 500
Index, the NYSE Composite Index, or the AMEX Major Market Index, or on a
narrower index such as the Philadelphia Stock Exchange Over-the-Counter Index.
Options currently are traded on the Chicago Board Options Exchange (the "CBOE"),
the AMEX, and other exchanges ("Exchanges"). Purchased OTC options and the cover
for written OTC options will be subject to the respective ProFund's 15%
limitation on investment in illiquid securities. See "Illiquid Securities."

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Each of the Exchanges has established limitations governing the maximum number
of call or put options on the same index which may be bought or written (sold)
by a single investor, whether acting alone or in concert with others (regardless
of whether such options are written on the same or different Exchanges or are
held or written on one or more accounts or through one or more brokers). Under
these limitations, option positions of all investment companies advised by the
same investment adviser are combined for purposes of these limits. Pursuant to
these limitations, an Exchange may order the liquidation of positions and may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which a ProFund may buy or sell; however, the Advisor
intends to comply with all limitations.

OPTIONS ON SECURITIES

The non-money market ProFunds may buy and write (sell) options on securities
for the purpose of realizing their respective ProFund's investment objective. By
buying a call option, a ProFund has the right, in return for a premium paid
during the term of the option, to buy the securities underlying the option at
the exercise price. By writing a call option on securities, a ProFund becomes
obligated during the term of the option to sell the securities underlying the
option at the exercise price if the option is exercised. By buying a put option,
a ProFund has the right, in return for a premium paid during the term of the
option, to sell the securities underlying the option at the exercise price. By
writing a put option, a ProFund becomes obligated during the term of the option
to purchase the securities underlying the option at the exercise price if the
option is exercised. During the term of the option, the writer may be assigned
an exercise notice by the broker-dealer through whom the option was sold. The
exercise notice would require the writer to deliver, in the case of a call, or
take delivery of, in the case of a put, the underlying security against payment
of the exercise price. This obligation terminates upon expiration of the option,
or at such earlier time that the writer effects a closing purchase transaction
by purchasing an option covering the same underlying security and having the
same exercise price and expiration date as the one previously sold. Once an
option has been exercised, the writer may not execute a closing purchase
transaction. To secure the obligation to deliver the underlying security in the
case of a call option, the writer of a call option is required to deposit in
escrow the underlying security or other assets in accordance with the rules of
the Options Clearing Corporation (the "OCC"), an institution created to
interpose itself between buyers and sellers of options. The OCC assumes the
other side of every purchase and sale transaction on an exchange and, by doing
so, gives its guarantee to the transaction. When writing call options on
securities, a ProFund may cover its position by owning the underlying security
on which the option is written. Alternatively, the ProFund may cover its
position by owning a call option on the underlying security, on a share for
share basis, which is deliverable under the option contract at a price no higher
than the exercise price of the call option written by the ProFund or, if higher,
by owning such call option and depositing and maintaining in a segregated
account cash or liquid instruments equal in value to the difference between the
two exercise prices. In addition, a ProFund may cover its position by depositing
and maintaining in a segregated account cash or liquid instruments equal in
value to the exercise price of the call option written by the ProFund. When a
ProFund writes a put option, the ProFund will have and maintain on deposit with
its custodian bank cash or liquid instruments having a value equal to the
exercise value of the option. The principal reason for a ProFund to write call
options on stocks held by the ProFund is to attempt to realize, through the
receipt of premiums, a greater return than would be realized on the underlying
securities alone.

If a ProFund that writes an option wishes to terminate the ProFund's
obligation, the ProFund may effect a "closing purchase transaction." The ProFund
accomplishes this by buying an option of the same series as the option
previously written by the ProFund. The effect of the purchase is that the
writer's position will be canceled by the OCC. However, a writer may not effect
a closing purchase transaction after the writer has been notified of the
exercise of an option. Likewise, a ProFund which is the holder of an option may
liquidate its position by effecting a "closing sale transaction." The ProFund
accomplishes this by selling an option of the same series as the option
previously purchased by the ProFund. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected. If any call or put
option is not exercised or sold, the option will become worthless on its
expiration date. A ProFund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put option previously written by the
ProFund if the premium, plus commission costs, paid by the ProFund to purchase
the call or put option to close the transaction is less (or greater) than the
premium, less commission costs, received by the ProFund on the sale of the call
or the put option. The ProFund also will realize a gain if a call or put option
which the ProFund has written lapses unexercised, because the ProFund would
retain the premium.

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Although certain securities exchanges attempt to provide continuously liquid
markets in which holders and writers of options can close out their positions at
any time prior to the expiration of the option, no assurance can be given that a
market will exist at all times for all outstanding options purchased or sold by
a ProFund. If an options market were to become unavailable, the ProFund would be
unable to realize its profits or limit its losses until the ProFund could
exercise options it holds, and the ProFund would remain obligated until options
it wrote were exercised or expired. Reasons for the absence of liquid secondary
market on an exchange include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be imposed by an
exchange on opening or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
the OCC may not at all times be adequate to handle current trading volume; or
(vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options) would cease to exist, although
outstanding options on that exchange that had been issued by the OCC as a result
of trades on that exchange would continue to be exercisable in accordance with
their terms.

SHORT SALES

The Bear ProFund, the UltraBear ProFund and the UltraShort OTC ProFund may
engage in short sales transactions under which the ProFund sells a security it
does not own. To complete such a transaction, the ProFund must borrow the
security to make delivery to the buyer. The ProFund then is obligated to replace
the security borrowed by purchasing the security at the market price at the time
of replacement. The price at such time may be more or less than the price at
which the security was sold by the ProFund. Until the security is replaced, the
ProFund is required to pay to the lender amounts equal to any dividends or
interest which accrue during the period of the loan. To borrow the security, the
ProFund also may be required to pay a premium, which would increase the cost of
the security sold. The proceeds of the short sale will be retained by the
broker, to the extent necessary to meet the margin requirements, until the short
position is closed out.

Until the ProFund closes its short position or replaces the borrowed security,
the ProFund will cover its position with an offsetting position or maintain a
segregated account containing cash or liquid instruments at such a level that
the amount deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short.

SWAP AGREEMENTS

The ProFunds (other than the Money Market ProFund) may enter into equity index
or interest rate swap agreements for purposes of attempting to gain exposure to
the stocks making up an index of securities in a market without actually
purchasing those stocks, or to hedge a position. Swap agreements are two-party
contracts entered into primarily by institutional investors for periods ranging
from a day to more than one year. In a standard "swap" transaction, two parties
agree to exchange the returns (or differentials in rates of return) earned or
realized on particular predetermined investments or instruments. The gross
returns to be exchanged or "swapped" between the parties are calculated with
respect to a "notional amount," i.e., the return on or increase in value of a
particular dollar amount invested in a "basket" of securities representing a
particular index. Forms of swap agreements include interest rate caps, under
which, in return for a premium, one party agrees to make payments to the other
to the extent that interest rates exceed a specified rate, or "cap"; interest
rate floors, under which, in return for a premium, one party agrees to make
payments to the other to the extent that interest rates fall below a specified
level, or "floor"; and interest rate collars, under which a party sells a cap
and purchases a floor or vice versa in an attempt to protect itself against
interest rate movements exceeding given minimum or maximum levels.

Most swap agreements entered into by the ProFunds calculate the obligations of
the parties to the agreement on a "net basis." Consequently, a ProFund's current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").

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A ProFund's current obligations under a swap agreement will be accrued daily
(offset against any amounts owing to the ProFund) and any accrued but unpaid net
amounts owed to a swap counterparty will be covered by segregating assets
determined to be liquid. Obligations under swap agreements so covered will not
be construed to be "senior securities" for purposes of a ProFund's investment
restriction concerning senior securities. Because they are two party contracts
and because they may have terms of greater than seven days, swap agreements may
be considered to be illiquid for the ProFunds' illiquid investment limitations.
A Portfolio will not enter into any swap agreement unless the Advisor believes
that the other party to the transaction is creditworthy. A ProFund bears the
risk of loss of the amount expected to be received under a swap agreement in the
event of the default or bankruptcy of a swap agreement counterparty.

Each non-money market ProFund may enter into swap agreements to invest in a
market without owning or taking physical custody of securities in circumstances
in which direct investment is restricted for legal reasons or is otherwise
impracticable. The counterparty to any swap agreement will typically be a bank,
investment banking firm or broker/dealer. The counterparty will generally agree
to pay the ProFund the amount, if any, by which the notional amount of the swap
agreement would have increased in value had it been invested in the particular
stocks, plus the dividends that would have been received on those stocks. The
ProFund will agree to pay to the counterparty a floating rate of interest on the
notional amount of the swap agreement plus the amount, if any, by which the
notional amount would have decreased in value had it been invested in such
stocks. Therefore, the return to the ProFund on any swap agreement should be the
gain or loss on the notional amount plus dividends on the stocks less the
interest paid by the ProFund on the notional amount.

Swap agreements typically are settled on a net basis, which means that the two
payment streams are netted out, with the ProFund receiving or paying, as the
case may be, only the net amount of the two payments. Payments may be made at
the conclusion of a swap agreement or periodically during its term. Swap
agreements do not involve the delivery of securities or other underlying assets.
Accordingly, the risk of loss with respect to swap agreements is limited to the
net amount of payments that a ProFund is contractually obligated to make. If the
other party to a swap agreement defaults, a ProFund's risk of loss consists of
the net amount of payments that such Fund is contractually entitled to receive,
if any. The net amount of the excess, if any, of a ProFund's obligations over
its entitlements with respect to each equity swap will be accrued on a daily
basis and an amount of cash or liquid assets, having an aggregate net asset
value at least equal to such accrued excess will be maintained in a segregated
account by a ProFund's custodian. Inasmuch as these transactions are entered
into for hedging purposes or are offset by segregated cash of liquid assets, as
permitted by applicable law, the ProFunds and their Advisor believe that
transactions do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a ProFund's borrowing
restrictions.

The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the markets for other similar
instruments which are traded in the over-the-counter market. The Advisor, under
the supervision of the Board of Trustees, are responsible for determining and
monitoring the liquidity of the ProFunds' transactions in swap agreements.

The use of equity swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions.

AMERICAN DEPOSITORY RECEIPTS

For many foreign securities, U.S. Dollar denominated ADRs, which are traded in
the United States on exchanges or over-the-counter, are issued by domestic
banks. ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. ADRs do not eliminate all
the risk inherent in investing in the securities of foreign issuers. However,
by investing in ADRs rather than directly in foreign issuers' stock, the
UltraJapan ProFund can avoid currency risks during the settlement period for
either purchase or sales.

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bear most of the costs of such facilities, while issuers of sponsored facilities
normally pay more of the costs thereof. The depository of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through the voting rights to facility holders with respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through the voting rights.

The UltraJapan ProFund may invest in both sponsored and unsponsored ADRs.
Unsponsored ADRs programs are organized independently and without the
cooperation of the issuer of the underlying securities. As result, available
information concerning the issuers may not be as current for sponsored ADRs, and
the prices of unsponsored depository receipts may be more volatile than if such
instruments were sponsored by the issuer.

U.S. GOVERNMENT SECURITIES

Each non-money market ProFund and the Portfolio also may invest in U.S.
government securities in pursuit of their investment objectives, as "cover" for
the investment techniques these ProFunds employ, or for liquidity purposes.

Yields on U.S. government securities are dependent on a variety of factors,
including the general conditions of the money and bond markets, the size of a
particular offering, and the maturity of the obligation. Debt securities with
longer maturities tend to produce higher yields and are generally subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities and lower yields. The market value of U.S. government
securities generally varies inversely with changes in market interest rates. An
increase in interest rates, therefore, would generally reduce the market value
of a ProFund's portfolio investments in U.S. government securities, while a
decline in interest rates would generally increase the market value of a
ProFund's portfolio investments in these securities.

U.S. government securities include U.S. Treasury securities, which are backed
by the full faith and credit of the U.S. Treasury and which differ only in their
interest rates, maturities, and times of issuance. U.S. Treasury bills have
initial maturities of one year or less; U.S. Treasury notes have initial
maturities of 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

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minimize the risks inherent in such agreements. These procedures include
effecting repurchase transactions only with large, well-capitalized and well-
established financial institutions whose condition will be continually monitored
by the Advisor and, in the case of the Money Market ProFund, Bankers Trust. In
addition, the value of the collateral underlying the repurchase agreement will
always be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, a ProFund will seek to liquidate such collateral
which could involve certain costs or delays and, to the extent that proceeds
from any sale upon a default of the obligation to repurchase were less than the
repurchase price, the ProFund could suffer a loss. A ProFund also may experience
difficulties and incur certain costs in exercising its rights to the collateral
and may lose the interest the ProFund expected to receive under the repurchase
agreement. Repurchase agreements usually are for short periods, such as one week
or less, but may be longer. It is the current policy of the ProFunds not to
invest in repurchase agreements that do not mature within seven days if any such
investment, together with any other liquid assets held by the ProFund, amounts
to more than 15% (10% with respect to the Money Market ProFund) of the ProFund's
total net assets. The investments of each of the ProFunds in repurchase
agreements at times may be substantial when, in the view of the Advisor and, in
the case of the Money Market ProFund, Bankers Trust, liquidity, investment,
regulatory, or other considerations so warrant.

CASH RESERVES

To seek its investment objective as a cash reserve, for liquidity purposes, or
as "cover" for positions it has taken, each ProFund may temporarily invest all
or part of the ProFund's assets in cash or cash equivalents, which include, but
are not limited to, short-term money market instruments, U.S. government
securities, certificates of deposit, bankers acceptances, or repurchase
agreements secured by U.S. government securities.

REVERSE REPURCHASE AGREEMENTS

The non-money market ProFunds and the Portfolio may use reverse repurchase
agreements as part of that ProFund's investment strategy. Reverse repurchase
agreements involve sales by a ProFund/Portfolio of portfolio assets concurrently
with an agreement by the ProFund/Portfolio to repurchase the same assets at a
later date at a fixed price. Generally, the effect of such a transaction is that
the ProFund/Portfolio can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while the ProFund/Portfolio will be able to keep the interest income
associated with those portfolio securities. Such transactions are advantageous
only if the interest cost to the ProFund/Portfolio of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise. Opportunities
to achieve this advantage may not always be available, and the
ProFund/Portfolios intend to use the reverse repurchase technique only when it
will be to the ProFund/Portfolio's advantage to do so and the Money Market
ProFund will not invest more than 5% of its total assets in reverse repurchase
agreements. The ProFund/Portfolios will establish a segregated account with
their custodian bank in which the ProFund/Portfolio will maintain cash or liquid
instruments equal in value to the ProFund/Portfolio's obligations in respect of
reverse repurchase agreements.

BORROWING

The ProFunds (other than the Portfolio except to the degree the Portfolio may
borrow for temporary or emergency purposes) may borrow money for cash management
purposes or investment purposes. Each of the non-money market ProFunds may also
enter into reverse repurchase agreements, which may be viewed as a form of
borrowing, with financial institutions. However, to the extent a ProFund
"covers" its repurchase obligations as described above in "Reverse Repurchase
Agreements," such agreement will not be considered to be a "senior security"
and, therefore, will not be subject to the 300% asset coverage requirement
otherwise applicable to borrowings by the ProFunds. Borrowing for investment is
known as leveraging. Leveraging investments, by purchasing securities with
borrowed money, is a speculative technique which increases investment risk, but
also increases investment opportunity. Since substantially all of a ProFund's
assets will fluctuate in value, whereas the interest obligations on borrowings
may be fixed, the net asset value per share of the ProFund will increase more
when the ProFund's portfolio assets increase in value and decrease more when the
ProFund's portfolio assets decrease in value than would otherwise be the case.
Moreover, interest costs on borrowings may fluctuate with changing market rates
of interest and may partially offset or exceed the returns on the borrowed
funds. Under

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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

Subject to the investment restrictions set forth below, each of the ProFunds
and the Portfolio may lend its portfolio securities to brokers, dealers, and
financial institutions, provided that cash equal to at least 100% of the market
value of the securities loaned is deposited by the borrower with the
ProFund/Portfolio and is maintained each business day in a segregated account
pursuant to applicable regulations. While such securities are on loan, the
borrower will pay the lending ProFund/Portfolio any income accruing thereon, and
the ProFund/Portfolio may invest the cash collateral in portfolio securities,
thereby earning additional income. A ProFund/Portfolio will not lend more than
33 1/3 of the value of the ProFund's total assets, except that the Portfolio
will not lend more than 20% of the value of its total assets. Loans would be
subject to termination by the lending ProFund/Portfolio on four business days'
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
lending ProFund/Portfolio and that ProFund's/Portfolio's shareholders. There may
be risks of delay in receiving additional collateral or risks of delay in
recovery of the securities or even loss of rights in the securities lent should
the borrower of the securities fail financially. A lending ProFund/Portfolio may
pay reasonable finders, borrowers, administrative, and custodial Trustees in
connection with a loan. With respect to the Portfolio, cash collateral may be
invested in a money market fund managed by Bankers Trust (or its affiliate) and
Bankers Trust may serve as the Portfolio's lending agent and may share in
revenue received from securities lending transactions as compensation for this
service.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES

Each non-money market ProFund (and to the extent allowable by its investment
policies, the Money Market ProFund), from time to time, in the ordinary course
of business, may purchase securities on a when-issued or delayed-delivery basis
(i.e., delivery and payment can take place between a month and 120 days after
the date of the transaction). These securities are subject to market fluctuation
and no interest accrues to the purchaser during this period. At the time a
ProFund makes the commitment to purchase securities on a when-issued or delayed-
delivery basis, the ProFund will record the transaction and thereafter reflect
the value of the securities, each day, in determining the ProFund's net asset
value. Each non-money market ProFund will not purchase securities on a when-
issued or delayed-delivery basis if, as a result, more than 15% of the ProFund's
net assets would be so invested. At the time of delivery of the securities, the
value of the securities may be more or less than the purchase price.

The Portfolio will enter into when-issued or delayed-delivery transactions for
the purpose of acquiring securities and not for the purpose of leverage. When
issued securities purchased by the Portfolio may include securities purchased on
a "when, as and if issued" basis under which the issuance of the securities
depends on the occurrence of a subsequent event. Upon purchasing a security on a
when-issued or delayed-delivery basis, the Portfolio will identify, as part of a
segregated account, cash or liquid securities in an amount at least equal to the
when-issued or delayed-delivery commitment.

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The Trust will also establish a segregated account with the Trust's custodian
bank in which the ProFunds will maintain liquid instruments equal to or greater
in value than the ProFund's purchase commitments for such when-issued or
delayed-delivery securities, or the Trust does not believe that a ProFund's net
asset value or income will be adversely affected by the ProFund's purchase of
securities on a when-issued or delayed delivery basis.

INVESTMENTS IN OTHER INVESTMENT COMPANIES

The ProFunds and the Portfolio may invest in the securities of other
investment companies to the extent that such an investment would be consistent
with the requirements of the 1940 Act. If a ProFund / Portfolio invests in, and,
thus, is a shareholder of, another investment company, the ProFund / Portfolio's
shareholders will indirectly bear the ProFund / Portfolio's proportionate share
of the fees and expenses paid by such other investment company, including
advisory fees, in addition to both the management fees payable directly by the
ProFund to the ProFund's own investment adviser and the other expenses that the
ProFund / Portfolio bears directly in connection with the ProFund's / Portfolio
own operations. The Portfolio may invest its assets in other money market funds
with comparable investment objectives. In general, the Portfolio may not (1)
purchase more than 3% of any other money market fund's voting stock; (2) invest
more than 5% of its assets in any single money market fund; and (3) invest more
than 10% of its assets in other money market funds unless permitted to exceed
these limitations by an exemptive order of the SEC.

ILLIQUID SECURITIES

While none of the ProFunds anticipates doing so, each of the ProFunds and the
Portfolio may purchase illiquid securities, including securities that are not
readily marketable and securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "1933 Act"), but
which can be sold to qualified institutional buyers under Rule 144A of the 1933
Act. A ProFund will not invest more than 15% (10% with respect to the Portfolio)
of the ProFund's/Portfolio's net assets in illiquid securities. The term
"illiquid securities" for this purpose means securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the ProFund has valued the securities. Under the current
guidelines of the staff of the Securities and Exchange Commission (the
"Commission"),illiquid securities also are considered to include, among other
securities, purchased over-the-counter options, certain cover for OTC options,
repurchase agreements with maturities in excess of seven days, and certain
securities whose disposition is restricted under the Federal securities laws.
The ProFund/Portfolio may not be able to sell illiquid securities when the
Advisor or Bankers Trust considers it desirable to do so or may have to sell
such securities at a price that is lower than the price that could be obtained
if the securities were more liquid. In addition, the sale of illiquid securities
also may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and
investments in illiquid securities may have an adverse impact on net asset
value.

At the time of investment, the Portfolio's aggregate holdings of repurchase
agreements having remaining maturities of more than seven calendar days (or
which may not be terminated within seven calendar days upon notice by the
Portfolio), time deposits having remaining maturities of more than seven
calendar days, illiquid securities, restricted securities and securities lacking
readily available market quotations will not exceed 10% of the Portfolio's net
assets. If changes in the liquidity of certain securities cause the Portfolio to
exceed such 10% limit, the Portfolio will take steps to bring the aggregate
amount of its illiquid securities back below 10% of its net assets as soon as
practicable, unless such action would not be in the best interest of the
Portfolio.

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ProFunds have delegated this responsibility for determining the liquidity of
Rule 144A restricted securities which may be invested in by a ProFund to the
Advisor or, in the case of the Portfolio, to Bankers Trust. It is not possible
to predict with assurance exactly how the market for Rule 144A restricted
securities or any other security will develop. A security which when purchased
enjoyed a fair degree of marketability may subsequently become illiquid and,
accordingly, a security which was deemed to be liquid at the time of acquisition
may subsequently become illiquid. In such event, appropriate remedies will be
considered to minimize the effect on the ProFund's liquidity.

PORTFOLIO QUALITY AND MATURITY (MONEY MARKET PROFUND AND THE PORTFOLIO)

The Portfolio will maintain a dollar-weighted average maturity of 90 days or
less. All securities in which the Portfolio invests will have or be deemed to
have remaining maturities of 397 days or less on the date of their purchase,
will be denominated in U.S. dollars and will have been granted the required
ratings established herein by two nationally recognized statistical rating
organizations ("NRSRO") (or one such NRSRO if that NRSRO is the only such NRSRO
which rates the security), or if unrated, are believed by Bankers Trust, under
the supervision of the Portfolio's Board of Trustees, to be of comparable
quality. Currently, there are five rating agencies which have been designated by
the Securities and Exchange Commission (the "SEC") as an NRSRO. These
organizations and their highest short-term rating category (which may also be
modified by a "+") are : Duff and Phelps Credit Rating Co., D-1; Fitch IBCA,
Inc., F1; Moody's Investors Service Inc. ("Moody's"), Prime-1; Standard &
Poor's, A-1; and Thomson BankWatch, Inc., T-1. A description of such ratings is
provided in the Appendix. Bankers Trust, acting under the supervision of and
procedures adopted by the Board of Trustees of each Portfolio, will also
determine that all securities purchased by the Portfolio present minimal credit
risks. Bankers Trust will cause the Portfolio to dispose of any security as soon
as practicable if the security is no longer of the requisite quality, unless
such action would not be in the best interest of the Portfolio.

OBLIGATIONS OF BANKS AND OTHER FINANCIAL INSTITUTIONS (MONEY MARKET PROFUND AND
THE PORTFOLIO)

The Portfolio may invest in U.S. dollar-denominated fixed rate or variable
rate obligations of U.S. or foreign institutions, including banks which are
rated in the highest short-term rating category by any two NRSROs (or one NRSRO
if that NRSRO is the only such NRSRO which rates such obligations) or, if not so
rated, are believed by Bankers Trust, acting under the supervision of the Board
of Trustees of the Portfolio, to be of comparable quality. Bank obligations in
which the Portfolio invests include certificates of deposit, bankers'
acceptances, time deposits, commercial paper, and other U.S. dollar-denominated
instruments issued or supported by the credit of U.S. or foreign institutions
including banks. For purposes of the Portfolio's investment policies with
respect to bank obligations, the assets of a bank will be deemed to include the
assets of its domestic and foreign branches. Obligations of foreign branches of
U.S. banks and foreign banks may be general obligations of the parent bank in
addition to the issuing bank or may be limited by the terms of a specific
obligation and by government regulation. If Bankers Trust, acting under the
supervision of the Portfolio's Board of Trustees, deems the instruments to
present minimal credit risk, the Portfolio may invest in obligations of foreign
banks or foreign branches of U.S. banks which include banks located in the
United Kingdom, Grand Cayman Island, Nassau, Japan and Canada. Investments in
these obligations may entail risks that are different from those of investments
in obligations of U.S. domestic banks because of differences in political,
regulatory and economic systems and conditions. These risks include, without
limitation, future political and economic developments, currency blockage, the
possible imposition of withholding taxes on interest payments, possible seizure
or nationalization of foreign deposits, and difficulty or inability of pursuing
legal remedies and obtaining judgment in foreign courts, possible establishment
of exchange controls or the adoption of other foreign governmental restrictions
that might affect adversely the payment of principal and interest on bank
obligations. Foreign branches of U.S. banks and foreign banks may also be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
branches of U.S. banks. Under normal market conditions, the Portfolio will
invest more than 25% of its assets in the foreign and domestic bank obligations
described above. The Portfolio's concentration of its investments in bank
obligations will cause the Portfolio to be subject to the risks peculiar to the
domestic and foreign banking industries to a greater extent than if its
investments were not so concentrated. A description of the ratings set forth
above is provided in the Appendix.

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COMMERCIAL PAPER, OTHER DEBT OBLIGATIONS AND CREDIT ENHANCEMENT (MONEY MARKET
PROFUND AND THE PORTFOLIO)

COMMERCIAL PAPER. The Portfolio may invest in fixed rate or variable rate
commercial paper, including variable rate master demand notes, issued by U.S. or
foreign entities. Commercial paper when purchased by the Portfolio must be rated
the highest short-term rating category by any two NRSROs (or one NRSRO if that
NRSRO is the only such NRSRO which rates the obligation) or if not rated, must
be believed by Bankers Trust, acting under the supervision of the Board of
Trustees of the Portfolio, to be of comparable quality. Any commercial paper
issued by a foreign entity and purchased by the Portfolio must be U.S. dollar-
denominated and must not be subject to foreign withholding tax at the time of
purchase. Investing in foreign commercial paper generally involves risks similar
to those described above relating to obligations of foreign banks or foreign
branches of U.S. banks.

Variable rate master demand notes are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. Because variable rate master demand notes are direct lending
arrangements between the Portfolio and the issuer, they are not normally traded.
Although no active secondary market may exist for these notes, the Portfolio
will purchase only those notes under which it may demand and receive payment on
principal and accrued interest daily or may resell the note to a third party.
While the notes are not typically rated by credit rating agencies, issuers of
variable rate master demand notes must satisfy Bankers Trust, acting under the
supervision of the Board of Trustees of the Portfolio, that the same criterion
set forth above for issuers of commercial paper are met. In the event an issuer
of a variable rate master demand note defaulted on its payment obligation, the
Portfolio might be unable to dispose of the note because of the absence of a
secondary market and could, for this or other reasons, suffer a loss to the full
extent of the default. The face maturities of variable rate notes subject to a
demand feature may exceed 397 days in certain circumstances.

OTHER DEBT OBLIGATIONS. The Portfolio may invest in deposits, bonds, notes and
debentures and other debt obligations that at the time of purchase have, or are
comparable in priority and security to other securities of such issuer which
have, outstanding short-term obligations meeting the above short-term rating
requirements, or if there are no such short-term ratings, are determined by
Bankers Trust, acting under the supervision of the Board of Trustees, to be of
comparable quality and are rated in the top three highest long-term categories
by the NRSROs rating such security.

CREDIT ENHANCEMENT. Certain of the Portfolio's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to the Portfolio and affect the
Money Market ProFund's share price. The Portfolio may have more than 25% of its
total assets invested in securities credit-enhanced by banks.

ASSET-BACKED SECURITIES. The Portfolio may also invest in securities generally
referred to as asset-backed securities, which directly or indirectly represent a
participation interest in, or are secured by and payable from, a stream of
payments generated by particular assets, such as motor vehicle or credit card
receivables. Asset-backed securities may provide periodic payments that consist
of interest and/or principal payments. Consequently, the life of an asset-backed
security varies with the prepayment and loss experience of the underlying
assets.

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

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<PAGE>

maturities of less than one year are excluded from the calculation of portfolio
turnover rate. Instruments excluded from the calculation of portfolio turnover
generally would include the futures contracts and option contracts in which the
non-money market ProFunds invest since such contracts generally have a remaining
maturity of less than one year. Pursuant to the formula prescribed by the
Commission, the portfolio turnover rate for each ProFund is calculated without
regard to instruments, including options and futures contracts, having a
maturity of less than one year.

SPECIAL CONSIDERATIONS

To the extent discussed above and in the prospectus, the ProFunds present
certain risks, some of which are further described below.

TRACKING ERROR. While the non-money market ProFunds do not expect that their
returns over a year will deviate adversely from their respective benchmarks by
more than ten percent, several factors may affect their ability to achieve this
correlation. Among these factors are: (1) ProFund expenses, including brokerage
(which may be increased by high portfolio turnover) and the cost of the
investment techniques employed by the ProFunds; (2) less than all of the
securities in the benchmark being held by a ProFund and securities not included
in the benchmark being held by a ProFund; (3) an imperfect correlation between
the performance of instruments held by a ProFund, such as futures contracts and
options, and the performance of the underlying securities in the cash market;
(4) bid-ask spreads (the effect of which may be increased by portfolio
turnover); (5) holding instruments traded in a market that has become illiquid
or disrupted; (6) ProFund share prices being rounded to the nearest cent;
(7) changes to the benchmark index that are not disseminated in advance; (8) the
need to conform a ProFund's portfolio holdings to comply with investment
restrictions or policies or regulatory or tax law requirements, and (9) early
and unanticipated closings of the markets on which the holdings of a ProFund
trade, resulting in the inability of the ProFund to execute intended portfolio
transactions. While a close correlation of any ProFund to its benchmark may be
achieved on any single trading day, over time the cumulative percentage increase
or decrease in the net asset value of the shares of a ProFund may diverge
significantly from the cumulative percentage decrease or increase in the
benchmark due to a compounding effect.

LEVERAGE. Each UltraProFund intend to regularly use leveraged investment
techniques in pursuing their investment objectives. Utilization of leveraging
involves special risks and should be considered to be speculative. Leverage
exists when a ProFund achieves the right to a return on a capital base that
exceeds the amount the ProFund has invested. Leverage creates the potential for
greater gains to shareholders of these ProFunds during favorable market
conditions and the risk of magnified losses during adverse market conditions.
Leverage should cause higher volatility of the net asset values of these
ProFunds' shares. Leverage may involve the creation of a liability that does not
entail any interest costs or the creation of a liability that requires the
ProFund to pay interest which would decrease the ProFund's total return to
shareholders. If these ProFunds achieve their investment objectives, during
adverse market conditions, shareholders should experience a loss of
approximately twice the amount they would have incurred had these ProFunds not
been leveraged.

NON-DIVERSIFIED STATUS. Each non-money market ProFund is a "non-diversified"
series. A non-money market ProFund is considered "non-diversified" because a
relatively high percentage of the ProFund's assets may be invested in the
securities of a limited number of issuers, primarily within the same economic
sector. That ProFund's portfolio securities, therefore, may be more susceptible
to any single economic, political, or regulatory occurrence than the portfolio
securities of a more diversified investment company. A ProFund's classification
as a "non-diversified" investment company means that the proportion of the
ProFund's assets that may be invested in the securities of a single issuer is
not limited by the 1940 Act. Each ProFund, however, intends to seek to qualify
as a "regulated investment company" for purposes of the Internal Revenue Code,
which imposes diversification requirements on these ProFunds that are less
restrictive than the requirements applicable to the "diversified" investment
companies under the 1940 Act.

SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE

Unlike other open-end management investment companies (mutual funds) which
directly acquire and manage their own portfolio securities, the Money Market
ProFund seeks to achieve its investment objective by investing all of its assets
in the Portfolio, a separate registered investment company with the same
investment objective

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<PAGE>

as the Money Market ProFund. Therefore, an investor's interest in the
Portfolio's securities is indirect. In addition to selling a beneficial interest
to the Money Market ProFund, the Portfolio may sell beneficial interests to
other mutual funds or institutional investors. Such investors will invest in the
Portfolio on the same terms and conditions and will pay a proportionate share of
the Portfolio's expenses. However, the other investors investing in the
Portfolio are not required to sell their shares at the same public offering
price as the Money Market ProFund or subject to comparable variations in sales
loads and other operating expenses. Therefore, investors in the Money Market
ProFund should be aware that these differences may result in differences in
returns experienced by investors in the different funds that may invest in the
Portfolio. Such differences in returns are also present in other mutual fund
structures. Information concerning other holders of interests in the Portfolio
is available from Bankers Trust at 1-800-368-4031.

The ProFunds' Board of Trustees believes that the Money Market ProFund will
achieve certain efficiencies and economies of scale through the master-feeder
structure, and that the aggregate expenses of the Money Market ProFund will be
less than if the Money Market ProFund invested directly in the securities held
by the Portfolio.

Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds which have large institutional
investors). Additionally, the Portfolio may become less diverse, resulting in
increased portfolio concentration and potential risk. Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Except as permitted by the Commission, whenever the
ProFunds are requested to vote on matters pertaining to the Portfolio, the
ProFunds will hold a meeting of shareholders of the Money Market ProFund and
will cast all of its votes in the same proportion as the votes of the Money
Market ProFund's shareholders. Money Market ProFund shareholders who do not vote
will not affect the ProFunds votes at the Portfolio meeting. The percentage of
the Trust's votes representing Money Market ProFund shareholders not voting will
be voted by the Trustees or officers of the ProFunds in the same proportion as
the Money Market ProFund shareholders who do, in fact, vote.

Certain changes in the Portfolio's investment objective, policies or
restrictions may require the Money Market ProFund to withdraw its interest in
the Portfolio. Such withdrawal could result in a distribution "in kind" of
portfolio securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, the Money Market ProFund could incur brokerage, tax
or other charges in converting the securities to cash. In addition, the
distribution in kind may result in a less diversified portfolio of investments
or adversely affect the liquidity of the Money Market ProFund. Notwithstanding
the above, there are other means for meeting redemption requests, such as
borrowing.

The Money Market ProFund may withdraw its investment from the Portfolio at any
time, if the Board of Trustees of the ProFunds determines that it is in the best
interests of the shareholders of the Money Market ProFund to do so. Upon any
such withdrawal, the Board of Trustees of the Trust would consider what action
might be taken, including the investment of all the assets of the Money Market
ProFund in another pooled investment entity having the same investment objective
as the Money Market ProFund or the retaining of an investment adviser to manage
the Money Market ProFund's assets in accordance with the investment policies
described above with respect to the Portfolio.

INVESTMENT RESTRICTIONS

The ProFunds and the Portfolio have adopted certain investment restrictions as
fundamental policies which cannot be changed without the approval of the holders
of a "majority" of the outstanding shares of the ProFund or the Portfolio, as
that term is defined in the 1940 Act. The term "majority" is defined in the 1940
Act as the lesser of: (i) 67% or more of the shares of the series present at a
meeting of shareholders, if the holders of more than 50% of the outstanding
shares of the ProFund are present or represented by proxy; or (ii) more than 50%
of the outstanding shares of the series. (All policies of a ProFund not
specifically identified in this Statement of Additional Information or the
Prospectus as fundamental may be changed without a vote of the shareholders of
the ProFund.) For purposes of the following limitations, all percentage
limitations apply immediately after a purchase or initial investment.

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A non-money market ProFund may not:

1. Invest more than 25% of its total assets, taken at market value at the
time of each investment, in the securities of issuers in any
particular industry (excluding the U.S. government and its agencies
and instrumentalities).

2. Make investments for the purpose of exercising control or management.

3. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the ProFund may invest in securities directly or
indirectly secured by real estate or interests therein or issued by
companies that invest in real estate or interests therein.

4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers' acceptances and repurchase
agreements and purchase and sale contracts and any similar instruments
shall not be deemed to be the making of a loan, and except further
that the ProFund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Prospectus and this
Statement of Additional Information, as they may be amended from time
to time.

5. Issue senior securities to the extent such issuance would violate
applicable law.

6. Borrow money, except that the ProFund (i) may borrow from banks (as
defined in the Investment Company Act of 1940) in amounts up to
33 1/3% of its total assets (including the amount borrowed), (ii) may,
to the extent permitted by applicable law, borrow up to an additional
5% of its total assets for temporary purposes, (iii) may obtain such
short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities, (iv) may purchase securities on
margin to the extent permitted by applicable law and (v) may enter
into reverse repurchase agreements. The ProFund may not pledge its
assets other than to secure such borrowings or, to the extent
permitted by the ProFund's investment policies as set forth in the
Prospectus and this Statement of Additional Information, as they may
be amended from time to time, in connection with hedging transactions,
short sales, when-issued and forward commitment transactions and
similar investment strategies.

7. Underwrite securities of other issuers, except insofar as the ProFund
technically may be deemed an underwriter under the Securities Act of
1933, as amended (the "Securities Act"), in selling portfolio
securities.

8. Purchase or sell commodities or contracts on commodities, except to
the extent the ProFund may do so in accordance with applicable law and
the ProFund's Prospectus and Statement of Additional Information, as
they may be amended from time to time.

THE FOLLOWING FUNDAMENTAL INVESTMENT RESTRICTIONS AND NON-FUNDAMENTAL
INVESTMENT OPERATING POLICIES HAVE BEEN ADOPTED BY THE TRUST, WITH RESPECT TO
THE MONEY MARKET PROFUND, AND BY THE PORTFOLIO. UNLESS AN INVESTMENT INSTRUMENT
OR TECHNIQUE IS DESCRIBED IN THE PROSPECTUS OR ELSEWHERE HEREIN, THE MONEY
MARKET PROFUND AND THE PORTFOLIO MAY NOT INVEST IN THAT INVESTMENT INSTRUMENT OR
ENGAGE IN THAT INVESTMENT TECHNIQUE.

The investment restrictions below have been adopted by the Trust with respect
to the Money Market ProFund and by the Portfolio as fundamental policies (as
defined above). Whenever the Money Market ProFund is requested to vote on a
change in the investment restrictions of the Portfolio, the Trust will hold a
meeting of the Money Market ProFund shareholders and will cast its votes as
instructed by the shareholders. The Money Market ProFund shareholders who do not
vote will not affect the Trust's votes at the Portfolio meeting. The percentage
of

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<PAGE>

the Trust's votes representing ProFund shareholders not voting will be voted by
the Trustees of the Trust in the same proportion as the Fund shareholders who
do, in fact, vote.

Under investment policies adopted by the Money Market ProFund and by the
Portfolio, each of the Money Market ProFund and Portfolio may not:

1. Borrow money, except for temporary or emergency (not leveraging)
purposes in an amount not exceeding 5% of the value of the ProFund's
or the Portfolio's total assets (including the amount borrowed), as
the case may be, calculated in each case at market.

2. Pledge, hypothecate, mortgage or otherwise encumber more than 5% of
the total assets of the ProFund or the Portfolio, as the case may be,
and only to secure borrowings for temporary or emergency purposes.

3. Invest more than 5% of the total assets of the ProFund or the
Portfolio, as the case may be, in any one issuer (other than U.S.
government obligations) or purchase more than 10% of any class of
securities of any one issuer; provided, however, that (i) up to 25% of
the assets of the ProFund and the Portfolio may be invested without
regard to this restriction; provided, however, that nothing in this
investment restriction shall prevent the Trust from investing all or
part of a ProFund's assets in an open-end management investment
company with substantially the same investment objectives as the
ProFund.

4. Invest more than 25% of the total assets of the ProFund or the
Portfolio, as the case may be, in the securities of issuers in any
single industry; provided that: (i) this limitation shall not apply to
the purchase of U.S. government obligations; (ii) under normal market
conditions more than 25% of the total assets of the Money Market
ProFund and the Portfolio will be invested in obligations of U.S. and
foreign banks and other financial institutions Banks provided,
however, that nothing in this investment restriction shall prevent a
Trust from investing all or part of a ProFund's assets in an open-end
management investment company with substantially the same investment
objectives as the ProFund.

5. Make short sales of securities, maintain a short position or purchase
any securities on margin, except for such short-term credits as are
necessary for the clearance of transactions.

6. Underwrite the securities issued by others (except to the extent the
ProFund or Portfolio may be deemed to be an underwriter under the
Federal securities laws in connection with the disposition of its
portfolio securities) or knowingly purchase restricted securities,
provided, however, that nothing in this investment restriction shall
prevent the Trust from investing all of the ProFund's assets in an
open-end management investment company with substantially the same
investment objectives as the ProFund.

7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil, gas or mineral interests,
but this shall not prevent the ProFund or the Portfolio from investing
in obligations secured by real estate or interests therein.

8. Make loans to others, except through the purchase of qualified debt
obligations, the entry into repurchase agreements and, with respect to
the ProFund and the Portfolio, the lending of portfolio securities.

9. Invest more than an aggregate of 10% of the net assets of the ProFund
or the Portfolio's, respectively, (taken, in each case, at current
value) in (i) securities that cannot be readily resold to the public
because of legal or contractual restrictions or because there are no
market quotations readily available or (ii) other "illiquid"
securities (including time deposits and repurchase agreements maturing
in more than seven calendar days); provided, however, that nothing in
this investment restriction shall prevent the Trust from investing all
or part of the

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<PAGE>

ProFund's assets in an open-end management investment company with
substantially the same investment objective as the ProFund.

10. Purchase more than 10% of the voting securities of any issuer or
invest in companies for the purpose of exercising control or
management; provided, however, that nothing in this investment
restriction shall prevent the Trust from investing all or part of the
ProFund's assets in an open-end management investment company with
substantially the same investment objectives as the ProFund.

11. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act or in connection with a merger,
consolidation, reorganization, acquisition of assets or an offer of
exchange; provided, however, that nothing in this investment
restriction shall prevent the Trust from investing all or part of the
ProFunds' assets in an open-end management investment company with
substantially the same investment objectives as the ProFund.

12. Issue any senior securities, except insofar as it may be deemed to
have issued a senior security by reason of (i) entering into a reverse
repurchase agreement or (ii) borrowing in accordance with terms
described in the Prospectus and this SAI.

13. Purchase or retain the securities of any issuer if any of the officers
or trustees of the ProFund or the Portfolio or Bankers Trust owns
individually more than 1/2 of 1% of the securities of such issuer, and
together such officers and directors own more than 5% of the
securities of such issuer.

14. Invest in warrants, except that the ProFund or the Portfolio may
invest in warrants if, as a result, the investments (valued in each
case at the lower of cost or market) would not exceed 5% of the value
of the net assets of the ProFund or the Portfolio, as the case may be,
of which not more than 2% of the net assets of the ProFund or the
Portfolio, as the case may be, may be invested in warrants not listed
on a recognized domestic stock exchange. Warrants acquired by the
ProFund or the Portfolio as part of a unit or attached to securities
at the time of acquisition are not subject to this limitation.

ADDITIONAL RESTRICTIONS. In order to comply with certain statutes and
policies, the Portfolio (or, as applicable, the Trust, on behalf of the Money
Market ProFund) will not as a matter of operating policy (except that no
operating policy shall prevent the ProFund from investing all of its assets in
an open-end investment company with substantially the same investment
objective):

(i) borrow money (including through dollar roll transactions) for any
purpose in excess of 10% of the Portfolio's (ProFund's) total assets
(taken at market), except that the Portfolio (ProFund) may borrow
for temporary or emergency purposes up to 1/3 of its net assets;

(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's (ProFund's) total assets (taken at market value),
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation margin,
are not considered a pledge of assets for purposes of this
restriction;

(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and
except that deposits of initial deposit and variation margin may be
made in connection with the purchase, ownership, holding or sale of
futures;

(iv) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to
obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided
that if such right is conditional the sale is made upon the same
conditions;

24
<PAGE>

(v) invest for the purpose of exercising control or management;

(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though
not made in the open market, is part of a plan of merger or
consolidation; provided, however, that securities of any investment
company will not be purchased for the Portfolio (ProFund) if such
purchase at the time thereof would cause (a) more than 10% of the
Portfolio's (ProFund's) total assets (taken at the greater of cost
or market value) to be invested in the securities of such issuers;
(b) more than 5% of the Portfolio's (ProFund's) total assets (taken
at the greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding voting
securities of any such issuer to be held for the Portfolio
(ProFund); and, provided further, that the Portfolio shall not
invest in any other open-end investment company unless the Portfolio
(ProFund) (1) waives the investment advisory fee with respect to
assets invested in other open-end investment companies and (2)
incurs no sales charge in connection with the investment (as an
operating policy, each Portfolio will not invest in another open-end
registered investment company);

(vii) invest more than 15% of the Portfolio's (ProFund's) total net assets
(taken at the greater of cost or market value) in securities that
are illiquid or not readily marketable not including (a) Rule 144A
securities that have been determined to be liquid by the Board of
Trustees; and (b) commercial paper that is sold under section 4(2)
of the 1933 Act which: (i) is not traded flat or in default as to
interest or principal; and (ii) is rated in one of the two highest
categories by at least two nationally recognized statistical rating
organizations; (iii) is rated one of the two highest categories by
one nationally recognized statistical rating agency and the
Portfolio's (ProFund's) Board of Trustees have determined that the
commercial paper is equivalent quality and is liquid;

(viii) with respect to 75% of the Portfolio's total assets, purchase
securities of any issuer if such purchase at the time thereof would
cause the Portfolio (ProFund) to hold more than 10% of any class of
securities of such issuer, for which purposes all indebtedness of an
issuer shall be deemed a single class and all preferred stock of an
issuer shall be deemed a single class, except that futures or option
contracts shall not be subject to this restriction;

(ix) if the Portfolio is a "diversified" ProFund with respect to 75% of
its assets, invest more than 5% of its total assets in the
securities (excluding U.S. government securities) of any one
issuer*;

(x) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount
of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the
same issue and equal in amount to, the securities sold short, and
unless not more than 10% of the Portfolio's (ProFund's) net assets
(taken at market value) is represented by such securities, or
securities convertible into or exchangeable for such securities, at
any one time (the Portfolio (ProFund) has no current intention to
engage in short selling).

*With respect to (ix) as an operating policy, the Portfolio may not invest
more than 5% of its total assets in the securities of any one issuer except for
U.S. government obligations and repurchase agreements, which may be purchased
without limitation.

The Money Market ProFund will comply with the state securities laws and
regulations of all states in which it is registered. The Portfolio will comply
with the permitted investments and investment limitations in the securities laws
and regulations of all states in which the Portfolio, or any other registered
investment company investing in the Portfolio, is registered.

25
<PAGE>

DETERMINATION OF NET ASSET VALUE

The net asset values of the shares of the ProFunds (except the UltraEurope
ProFund) are determined as of the close of business of the NYSE (ordinarily,
4:00 p.m. Eastern Time) on each day the NYSE and the Chicago Mercantile Exchange
("CME") are open for business (in the case of the Money Market ProFund, net
asset value is determined as of the close of business on each day the NYSE is
open for business.)

The net asset values of the shares of the UltraEurope ProFund are determined
as of the latest close of trading on three exchanges tracked by the PEI
(ordinarily 11:30 a.m. Eastern Time) on each day the NYSE, London Stock
Exchange, Frankfurt Stock Exchange and Paris Stock Exchange are open for
business (see prospectus for applicable holiday closings).

To the extent that portfolio securities of a ProFund 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 each class of shares of a ProFund serves as the basis
for the purchase and redemption price of the shares. The net asset value per
share of each class of a ProFund is calculated by dividing the market value of
the ProFund's assets attributed to a specific class (in the case of the Money
Market ProFund, the value of its investment in the Portfolio), less all
liabilities attributed to the specific class, by the number of outstanding
shares of the class. If market quotations are not readily available, a security
will be valued at fair value by the Trustees of ProFunds or by the Advisor using
methods established or ratified by the Trustees of ProFunds. The Money Market
ProFund's net asset value per share will normally be $1.00. There is no
assurance that the $1.00 net asset value will be maintained.

The Portfolio will utilize the amortized cost method in valuing its portfolio
securities. This method involves valuing each security held by the Portfolio at
its cost at the time of its purchase and thereafter assuming a constant
amortization to maturity of any discount or premium. Accordingly, immaterial
fluctuations in the market value of the securities held by the Portfolio will
not be reflected in the Money Market ProFund's net asset value. The Board of
Trustees of the Portfolio will monitor the valuation of assets of this method
and will make such changes as it deems necessary to assure that the assets of
the Portfolio are valued fairly in good faith.

The securities in the portfolio of a non-money market ProFund, except as
otherwise noted, that are listed or traded on a stock exchange, are valued on
the basis of the last sale on that day or, lacking any sales, at a price that is
the mean between the closing bid and asked prices. Other securities that are
traded on the OTC markets are priced using NASDAQ, which provides information on
bid and asked prices quoted by major dealers in such stocks. Bonds, other than
convertible bonds, are valued using a third-party pricing system. Convertible
bonds are valued using this pricing system only on days when there is no sale
reported. Short-term debt securities are valued using this pricing system only
on days when there is no sale reported. Short-term debt securities are valued at
amortized cost, which approximates market value. When market quotations are not
readily available, securities and other assets are valued at fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the Trust's Board of Trustees.

Except for the UltraEurope ProFund, futures contracts are valued at their last
sale price prior to the valuation time. Options on futures contracts generally
are valued at fair value as determined with reference to 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 contracts
will be valued on the basis of settlement prices on the futures exchange or fair
value.

26
<PAGE>

For the UltraEurope ProFund, futures contracts are valued at their last
transaction prices for the respective futures contracts that occur immediately
prior to the close of the underlying stock exchange.

PORTFOLIO TRANSACTIONS AND BROKERAGE

NON-MONEY MARKET PROFUNDS

Subject to the general supervision by the Trustees, the Advisor is responsible
for decisions to buy and sell securities for each of the ProFunds, the selection
of brokers and dealers to effect the transactions, and the negotiation of
brokerage commissions, if any. The Advisor expects that the ProFunds may execute
brokerage or other agency transactions through registered broker-dealers, for a
commission, in conformity with the 1940 Act, the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder. The Advisor may
serve as an investment manager to a number of clients, including other
investment companies. It is the practice of the Advisor to cause purchase and
sale transactions to be allocated among the ProFunds and others whose assets the
Advisor manages in such manner as the Advisor deems equitable. The main factors
considered by the Advisor in making such allocations among the ProFunds and
other client accounts of the Advisor are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinions of the person(s) responsible, if any, for
managing the portfolios of the ProFunds and the other client accounts.

The policy of each ProFund regarding purchases and sales of securities for a
ProFund's portfolio is that primary consideration will be given to obtaining the
most favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange, each
ProFund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. Each ProFund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the ProFund and the Advisor from obtaining a high quality of brokerage
and research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Advisor relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily subjective
and imprecise, as in most cases an exact dollar value for those services is not
ascertainable.

Purchases and sales of U.S. government securities are normally transacted
through issuers, underwriters or major dealers in U.S. government securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased from
an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between bid
and asked prices.

In seeking to implement a ProFund's policies, the Advisor effects transactions
with those brokers and dealers who the Advisor believes provide the most
favorable prices and are capable of providing efficient executions. If the
Advisor believes such prices and executions are obtainable from more than one
broker or dealer, the Advisor may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the ProFund or the Advisor. Such services may include, but are not
limited to, any one or more of the following: information as to the availability
of securities for purchase or sale; statistical or factual information or
opinions pertaining to investment; wire services; and appraisals or evaluations
of portfolio securities. If the broker-dealer providing these additional
services is acting as a principal for its own account, no commissions would be
payable. If the broker-dealer is not a principal, a higher commission may be
justified, at the determination of the Advisor, for the additional services.

The information and services received by the Advisor from brokers and dealers
may be of benefit to the Advisor in the management of accounts of some of the
Advisor's other clients and may not in all cases benefit a ProFund directly.
While the receipt of such information and services is useful in varying degrees
and would generally reduce the amount of research or services otherwise
performed by the Advisor and thereby reduce the Advisor's expenses, this
information and these services are of indeterminable value and the management
fee paid to the Advisor is not reduced by any amount that may be attributable to
the value of such information and services.

27
<PAGE>

MONEY MARKET PROFUND AND THE PORTFOLIO

Decisions to buy and sell securities and other financial instruments for the
Money Market ProFund and the Portfolio are made by Bankers Trust, which also is
responsible for placing these transactions, subject to the overall review of the
Portfolio's Board of Trustees. Although investment requirements for the
Portfolio are reviewed independently from those of the other accounts managed by
Bankers Trust (the "Other Portfolios"), investments of the type the Portfolio
may make may also be made by these Other Portfolios. When the Portfolio and one
or more Other Portfolios or accounts managed by Bankers Trust are prepared to
invest in, or desire to dispose of, the same security or other financial
instrument, available investments or opportunities for sales will be allocated
in a manner believed by Bankers Trust to be equitable to each. In some cases,
this procedure may affect adversely the price paid or received by the Portfolio
or the size of the position obtained or disposed of by the Portfolio.

Purchases and sales of securities on behalf of the Portfolio usually are
principal transactions. These securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. The cost
of securities purchased from underwriters includes an underwriting commission or
concession and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. U.S. government obligations are
generally purchased from underwriters or dealers, although certain newly issued
U.S. government obligations may be purchased directly from the U.S. Treasury or
from the issuing agency or instrumentality.

OTC purchases and sales are transacted directly with principal market makers
except in those cases in which better prices and executions may be obtained
elsewhere and principal transactions are not entered into with persons
affiliated with the Portfolios except pursuant to exemptive rules or orders
adopted by the Commission. Under rules adopted by the Commission, broker-dealers
may not execute transactions on the floor of any national securities exchange
for the accounts of affiliated persons, but may effect transactions by
transmitting orders for execution.

In selecting brokers or dealers to execute portfolio transactions on behalf of
the Portfolio, Bankers Trust seeks the best overall terms available. In
assessing the best overall terms available for any transaction, Bankers Trust
will consider the factors it deems relevant, including the breadth of the market
in the investment, the price of the investment, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, Bankers Trust is authorized, in selecting parties to execute a
particular transaction and in evaluating the best overall terms available to
consider the brokerage, but not research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to
the Portfolio involved, the other Portfolios and/or other accounts over which
Bankers Trust or its affiliates exercise investment discretion. Bankers Trust's
fees under its agreements with the Portfolios are not reduced by reason of its
receiving brokerage services.

The valuation of the Portfolio's securities is based on their amortized cost,
which does not take into account unrealized capital gains or losses. Amortized
cost valuation involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates on
the market value of the instrument. Although this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price a Portfolio would receive if
it sold the instrument.

The Portfolio's use of the amortized cost method of valuing its securities is
permitted by a rule adopted by the Commission. Under this rule, the Portfolio
must maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 397 days or and invest
only in securities determined by or under the supervision of the Board of
Trustees to be of high quality with minimal credit risks.

Pursuant to the rule, the Board of Trustees of the Portfolio also has
established procedures designed to allow investors in the Portfolio, such as the
Money Market ProFund, to stabilize, to the extent reasonably possible, the
investors' price per share as computed for the purpose of sales and redemptions
at $1.00. These procedures include review of the Portfolio's holdings by the
Portfolio's Board of Trustees, at such intervals as it

28
<PAGE>

deems appropriate, to determine whether the value of the Portfolio's assets
calculated by using available market quotations or market equivalents deviates
from such valuation based on amortized cost.

The rule also provides that the extent of any deviation between the value of
the Portfolio's assets based on available market quotations or market
equivalents and such valuation based on amortized cost must be examined by the
Portfolio's Board of Trustees. In the event the Portfolio's Board of Trustees
determines that a deviation exists that may result in material dilution or other
unfair results to investors or existing shareholders, pursuant to the rule, the
Portfolio's Board of Trustees must cause the Portfolio to take such corrective
action as such Board of Trustees regards as necessary and appropriate,
including: selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding dividends
or paying distributions from capital or capital gains; redeeming shares in kind;
or valuing the Portfolio's assets by using available market quotations.

Each investor in the Portfolio, including the Money Market ProFund, may add to
or reduce its investment in the Portfolio on each day the Portfolio determines
its Net Asset Value ("NAV"). At the close of each such business day, the value
of each investor's beneficial interest in the Portfolio will be determined by
multiplying the NAV of the Portfolio by the percentage, effective for that day,
which represents that investor's share of the aggregate beneficial interests in
the Portfolio. Any additions or withdrawals, which are to be effected as of the
close of business on that day, will then be effected. The investor's percentage
of the aggregate beneficial interests in the Portfolio will then be recomputed
as the percentage equal to the fraction (i) the numerator of which is the value
of such investor's investment in the Portfolio as of the close of business on
such day plus or minus, as the case may be, the amount of net additions to or
withdrawals from the investor's investment in the Portfolio effected as of the
close of business on such day, and (ii) the denominator of which is the
aggregate NAV of the Portfolio as of the close of business on such day plus or
minus, as the case may be, the amount of net additions to or withdrawals from
the aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of the close of the following business
day.

For the fiscal years ended December 31, 1998 and 1999, each non-money ProFund
paid brokerage commissions in the following amounts:

<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
FYE 12/31

1998 1999
---- ----
<S> <C> <C>
Bull ProFund $ 4,605 $ 103,401
UltraBull ProFund 70,575 273,433
Bear ProFund 3,005 14,180
UltraBear ProFund 50,160 112,090
UltraOTC ProFund 726,475 1,762,180
UltraShort OTC ProFund 44,560 170,455
UltraEurope ProFund -- 21,312
</TABLE>

The UltraEurope ProFund had not commenced operations as of December 31, 1998.
The UltraSmall-Cap ProFund, UltraMid-Cap ProFund and UltraJapan ProFund had not
commenced operations as of December 31, 1999.

29
<PAGE>

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 Trust's officers. The names and addresses (and ages) of the
Trustees of the Trust and the Portfolio, the officers of the Trust and the
Portfolio, and the officers of the Advisor, together with information as to
their principal business occupations during the past five years, are set forth
below. Fees and expenses for non-interested Trustees will be paid by the Trust;
Trustee expenses for interested Trustees will be paid the Advisor.

TRUSTEES AND OFFICERS OF PROFUNDS

MICHAEL L. SAPIR* (birthdate: May 19, 1958): Currently: Trustee and Chairman
and Chief Executive Officer of the Trust; Chairman and Chief Executive Officer,
the Advisor. Formerly: Principal, Law Offices of Michael L. Sapir; Senior Vice
President and General Counsel, Padco Advisors, Inc.; Partner, Jorden Burt
Berenson & Klingensmith. His address is 7900 Wisconsin Avenue, Suite 300,
Bethesda, Maryland 20814.

LOUIS M. MAYBERG* (birthdate: August 9, 1962): Currently: Trustee and
Secretary of the Trust; President, the Advisor. Formerly: Potomac Securities,
Inc., President; National Capital Companies, LLC, Managing Director. His address
is 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814.

MICHAEL C. WACHS (birthdate: October 21, 1961): Currently: Trustee of the
Trust; Vice President, Delancy Investment Group, Inc. Formerly: First Union
National Bank, Vice President/Senior Underwriter; First Union Capital Markets
Corp., Vice President; Vice President/Senior Credit Officer; Vice President/Team
Leader. His address is 1528 Powder Mill Lane, Wynnewood, Pennsylvania 19096.

RUSSELL S. REYNOLDS, III (birthdate: July 21, 1957): Currently: Trustee of the
Trust; Directorship, Inc., Managing Director, Chief Financial Officer and
Secretary; Formerly: Quadcom Services, Inc., President. His address is 7 Stag
Lane, Greenwich, Connecticut 06831.

GARY R. TENKMAN: (birthdate: September 16, 1970): Currently: Treasurer of the
Trust; BISYS Fund Services, Vice President, Financial Services; Formerly: Ernst
& Young LLP, 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.

No director, officer or employee of BISYS or any of its affiliates will
receive any compensation from the Trust or Portfolio for serving as an officer
or Trustee of the Trust or the Portfolio.

PROFUNDS TRUSTEE COMPENSATION TABLE

The following table reflects actual fees paid by the Trust, with respect to
all series of the Trust, to the Trustees for the year ended December 31, 1999.

NAME OF
PERSON: POSITION COMPENSATION
- ---------------- ------------

Michael L. Sapir, Trustee, 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

30
<PAGE>

As of April 3, 2000, the Trustees and Officers of the ProFunds beneficially
owned in the aggregate less than 1% of the shares of each ProFund.

TRUSTEES AND OFFICERS OF THE PORTFOLIO:

The Board of Trustees of the Portfolio ("Portfolio Trustees") is composed of
persons experienced in financial matters who meet throughout the year to oversee
the activities of the Portfolio. In addition the Portfolio Trustees review
contractual arrangements with companies that provide services to the Portfolio.

The Portfolio Trustees and officers of the Portfolio, their birthdates and
their principal occupations during the past five years are set forth below.
Their titles may have varied during that period.

TRUSTEES OF THE PORTFOLIO:

CHARLES P. BIGGAR (birth date: October 13, 1930) - Trustee of the Portfolio;
Trustee of each of the other investment companies in the Deutsche Asset
Management Fund Complex/1/; Retired; former Vice President, International
Business Machines ("IBM") and President, National Services and the Field
Engineering Divisions of IBM. His address is 12 Hitching Post Lane, Chappaqua,
New York 10514.

S. LELAND DILL (birth date: March 28, 1930) - Trustee of the Portfolio;
Trustee of each of the other investment companies in the Deutsche Asset
Management Fund Complex/1/; Retired; former Partner, KPMG Peat Marwick;
Director, Coutts (U.S.A.) International; Trustee, Phoenix-Zweig Series Trust/2/
and Phoenix-Euclid Market Neutral Fund/2/; Director, Vintners International
Company Inc.; Director, Coutts Trust Holdings Ltd., Director, Coutts Group;
General Partner, Pemco/2/. His address is 5070 North Ocean Drive, Singer Island,
Florida 33404.

MARTIN J. GRUBER (birth date: July 15, 1937) - Trustee of the Portfolio;
Trustee of each of the other investment companies in the Deutsche Asset
Management Fund Complex/1/; Nomura Professor of Finance, Leonard N. Stern School
of Business, New York University (since 1964); Trustee, TIAA/2/; Trustee, SG
Cowen Mutual Funds/2/; Trustee, Japan Equity Fund/2/; Trustee, Taiwan Equity
Fund/2/. His address is 229 South Irving Street, Ridgewood, New Jersey 07450.

RICHARD HALE* (birth date: July 17, 1945) - Trustee of the Portfolio; Trustee
of each of the other investment companies in the Deutsche Asset Management Fund
Complex/1/; Managing Director, Deutsche Asset Management; Director, Flag
Investors Funds/2/; Managing Director, Deutsche Banc Alex. Brown Incorporated;
Director and President, Investment Company Capital Corp. His address is 205
Woodbrook Lane, Baltimore, Maryland 21212.

RICHARD J. HERRING (birth date: February 18, 1946) - Trustee of the Portfolio;
Trustee of each of the other investment companies in the Deutsche Asset
Management Fund Complex/1/; Jacob Safra Professor of International Banking and
Professor of Finance Department, The Wharton School, University of Pennsylvania
(since 1972). His address is 325 South Roberts Road, Bryn Mawr, Pennsylvania
19010.

BRUCE E. LANGTON (birth date: May 10, 1931) - Trustee of the Portfolio;
Trustee of each of the other investment companies in the Deutsche Asset
Management Fund Complex/1/; Retired; formerly, Assistant Treasurer of IBM
Corporation (until 1986); Trustee and Member, Investment Operations Committee,
Allmerica Financial Mutual Funds (1992 - present); Member, Pension and Thrift
Plans Investment Committee, Unilever U.S.

- ------------------
/1/ The "Deutsche Asset Management Fund Complex" consists of BT Investment
Funds, BT Institutional Funds, BT Pyramid Mutual Funds, BT Advisor Funds,
Cash Management Portfolio, Intermediate Tax Free Portfolio, Tax Free Money
Portfolio, NY Tax Free Money Portfolio, Treasury Money Portfolio,
International Equity Portfolio, Equity 500 Index Portfolio, Capital
Appreciation Portfolio, Asset Management Portfolio, and BT Investment
Portfolios.

/2/ An investment company registered under the 1940 Act.

31
<PAGE>

Corporation (1989-present)/3/; Director, TWA Pilots Directed Account Plan and
401(k) Plan (1988-present). His address is 99 Jordan Lane, Stamford, Connecticut
06903.

PHILIP SAUNDERS, JR. (birth date: October 11, 1935) - Trustee of the
Portfolio; Trustee of each of the other investment companies in the Deutsche
Asset Management Fund Complex/1/; Principal, Philip Saunders Associates
(Economic and Financial Consulting); former Director, Financial Industry
Consulting, Wolf & Company; President, John Hancock Home Mortgage Corporation;
Senior Vice President of Treasury and Financial Services, John Hancock Mutual
Life Insurance Company, Inc. His address is 445 Glen Road, Weston, Massachusetts
02193.

HARRY VAN BENSCHOTEN (birth date: February 18, 1928) - Trustee of the
Portfolio; Trustee of each of the other investment companies in the Deutsche
Asset Management Fund Complex/1/; Retired; Corporate Vice President, Newmont
Mining Corporation (prior to 1987); Director, Canada Life Insurance of New York
(Since 1987). His address is 6581 Ridgewood Drive, Naples, Florida 34108.

* "Interested Person" within the meaning of Section 2(a)(19) of the Act. Mr.
Hale is a Managing Director of Deutsche Asset Management, the U.S. asset
management unit of Deutsche Bank and its affiliates.

The Board has an Audit Committee that meets with the Trust's independent
accountants to review the financial statements of the Trust, the adequacy of
internal controls, and the accounting procedures and policies of the Trust.
Each member of the Board, except Mr. Hale, also is a member of the Audit
Committee.

Officers of the Portfolio

DANIEL O. HIRSCH (birth date: March 27, 1954) - Secretary of the Portfolio;
Director, Deutsche Banc Alex. Brown Incorporated and Investment Company Capital
Corp. since July 1998; Assistant General Counsel, Office of the General Counsel,
United States Securities and Exchange Commission from 1993 to 1998. His address
is One South Street, Baltimore, Maryland 21202.

JOHN A. KEFFER (birth date: July 14, 1942) - President and Chief Executive
Officer of the Portfolio; President, Forum Financial Group L.L.C. and its
affiliates; President ICC Distributors, Inc./4/ His address is ICC Distributors,
Inc., Two Portland Square, Portland, Maine 04101.

CHARLES A. RIZZO (birth date: August 5, 1958) - Treasurer of the Portfolio;
Director and Department Head, Deutsche Asset Management since 1998; Senior
Manager, PricewaterhouseCoopers LLP from 1993 to 1998. His address is One South
Street, Baltimore, Maryland 21202.

No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Trust.

Mssrs. Hirsch, Keffer and Rizzo also hold similar positions for other
investment companies for which ICC Distributors, Inc., or an affiliate, serves
as principal underwriter.

- -------------------
/3/ A publicly held company with securities registered pursuant to Section 12 of
the Securities and Exchange Act of 1934, as amended.

/4/ Underwriter/distributor for the Trust. Mr. Keffer owns 100% of the shares of
ICC Distributors, Inc.

32
<PAGE>

PORTFOLIO TRUSTEE COMPENSATION TABLE

The following table reflects fees paid to the Portfolio Trustees for the year
ended December 31, 1999.

<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
NAME OF FROM CASH TOTAL COMPENSATION
PERSON; POSITION MANAGEMENT PORTFOLIO* FROM FUND COMPLEX**
- ---------------- ---------------------- -------------------
<S> <C> <C>
Charles P. Biggar $1,235 $43,750
Trustee, Portfolio

S. Leland Dill $1,075 $43,750
Trustee, Portfolio

Martin J. Gruber $ 212 $45,000
Trustee, Portfolio

Richard Hale None None
Trustee, Portfolio

Richard Herring $ 189 $43,750
Trustee, Portfolio

Bruce E. Langton $ 212 $43,750
Trustee, Portfolio

Philip Saunders, Jr. $1,108 $45,000
Trustee, Portfolio

Harry Van Benschoten $ 212 $45,000
Trustee, Portfolio
</TABLE>

* The information provided is for Cash Management Portfolio for the
Portfolio's most recent fiscal year ended December 31, 1999.

* * Aggregated information is furnished for the Deutsche Asset Management
Family of Funds which consists of the following: BT Investment Funds, BT
Institutional Funds, BT Pyramid Mutual Funds, BT Advisor Funds, BT Investment
Portfolios, Cash Management Portfolio, Treasury Money Portfolio, Tax Free
Money Portfolio, NY Tax Free Money Portfolio, International Equity Portfolio,
Intermediate Tax Free Portfolio, Asset Management Portfolio, Equity 500 Index
Portfolio, and Capital Appreciation Portfolio.

INVESTMENT ADVISERS

PROFUND ADVISORS LLC

Under an investment advisory agreement between the Advisor and the Trust, on
behalf of each ProFund other than the Money Market ProFund, dated October 28,
1997 and amended February 18, 1998 and as amended and restated October 15, 1999
and January 24, 2000 (the "Agreement"), each such ProFund, except the
UltraEurope ProFund and the UltraJapan ProFund, pays the Advisor a fee at an
annualized rate, based on its average daily net assets of 0.75%. Under the
Agreement, each the UltraEurope ProFund and the UltraJapan ProFund pays the
Advisor a fee at an annualized rate, based on its average daily net assets of
0.90%. The Advisor manages the investment and the reinvestment of the assets of
each of the Funds, in accordance with the investment objectives, policies, and
limitations of the ProFund, subject to the general supervision and control of
Trustees and the officers of ProFunds. The Advisor bears all costs associated
with providing these advisory services. The Advisor, from its own resources,

33
<PAGE>

including profits from advisory fees received from the Funds, provided such
Trustees are legitimate and not excessive, also may make payments to broker-
dealers and other financial institutions for their expenses in connection with
the distribution of ProFunds' shares. The Advisor's address is 7900 Wisconsin
Avenue, Suite 300, Bethesda, Maryland 20814.

For the fiscal years ended December 31, 1997, 1998 and 1999, the Advisor was
entitled to, and voluntarily waived, advisory fees in the following amounts for
each of the ProFunds:

ADVISORY FEES
FYE 12/31

<TABLE>
<CAPTION>
1997 1998 1999
Earned Waived Earned Waived Earned Waived
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bull ProFund $ 28 $ 28 $ 21,580 $16,135 $ 256,852 $19,821
UltraBull ProFund 1,609 1,609 247,991 13,585 1,126,462 --
Bear ProFund 52 52 11,044 10,205 104,541 23,324
UltraBear ProFund 615 615 126,301 -- 458,760 --
UltraOTC ProFund 751 751 419,023 -- 3,446,266 --
UltraShort OTC ProFund 38,021 -- 499,786 --
UltraEurope ProFund 41,329 41,329
</TABLE>

The UltraShort OTC ProFund had not commenced operations as of December 31,
1997. The UltraEurope ProFund had not commenced operations as of December 31,
1998. The UltraSmall-Cap ProFund, UltraMid-Cap ProFund and UltraJapan ProFund
had not commenced operations as of December 31, 1999

BANKERS TRUST

Under the terms of an investment advisory agreement (the "Advisory Agreement")
between the Portfolio and Bankers Trust, Bankers Trust manages the Portfolio
subject to the supervision and direction of the Board of Trustees of the
Portfolio. Bankers Trust will: (i) act in strict conformity with the Portfolio's
Declaration of Trust, the 1940 Act and the Investment Advisers Act of 1940, as
the same may from time to time be amended; (ii) manage the Portfolio in
accordance with the Portfolio's and/or the Money Market ProFund's investment
objectives, restrictions and policies, as stated herein and in the Prospectus;
(iii) make investment decisions for the Portfolio; and (iv) place purchase and
sale orders for securities and other financial instruments on behalf of the
Portfolio.

Bankers Trust is a wholly owned subsidiary of Deutsche Bank. Deutsche Bank is
a banking company with limited liability organized under the laws of the Federal
Republic of Germany. Deutsche Bank is the parent company of a group consisting
of banks, capital markets companies, fund management companies, mortgage banks,
a property finance company, installments financing and leasing companies,
insurance companies, research and consultancy companies and other domestic and
foreign companies.

Bankers Trust, subject to the supervision and direction of the Board of
Trustees of the Portfolio, manages the Portfolio in accordance with the
Portfolio's investment objectives and stated investment policies, makes
investment decisions for the Portfolio, places orders to purchase and sell
securities and other financial instruments on behalf of the Portfolio and
employs professional investment managers and securities analysts who provide
research services to the Portfolio. Bankers Trust may utilize the expertise of
any of its worldwide subsidiaries or affiliates to assist it in its role as
investment adviser. All orders for investment transactions on behalf of the
Portfolio are placed by Bankers Trust with brokers, dealers and other financial
intermediaries that it selects, including those affiliated with Bankers Trust. A
Bankers Trust affiliate will be used in connection with a purchase or sale of an
investment for the Portfolio only if Bankers Trust believes that the affiliate's
charge for transaction does not exceed usual and customary levels. The Portfolio
will not invest in obligations for which Bankers Trust or any of its affiliates
is the ultimate obligor or accepting bank. The Portfolio may, however, invest in
the obligations of correspondents or customers of Bankers Trust.

34
<PAGE>

Bankers Trust bears all expenses in connection with the performance of
services under the Advisory Agreement. The Money Market ProFund and the
Portfolio bear certain other expenses incurred in their operation, including:
taxes, interest, brokerage fees and commissions, if any; fees of Trustees of the
Trust or Portfolio who are not officers, directors or employees of Bankers
Trust, the Advisor, the administrator or any of their affiliates; SEC fees and
state Blue Sky qualification fees, if any; administrative and services fees;
certain insurance premiums, outside auditing and legal expenses, and costs of
maintenance of corporate existence; costs attributable to investor services,
including without limitation, telephone and personnel expenses; and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trust or the
Portfolio; and any extraordinary expenses.

For the fiscal years ended December 31, 1999, 1998 and 1997 Banker's Trust
earned $10,613,250, $8,019,093, and $6,544,181 respectively, in compensation for
investment advisory services provided to the Portfolio. During the same periods,
Bankers Trust reimbursed $1,445,608, $1,151,727 and $940,530, respectively, to
the Portfolio to cover expenses.

Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Portfolio, including outstanding loans to such issuers which could be
repaid in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. Bankers
Trust has informed the Portfolio that, in making its investment decisions, it
does not obtain or use material inside information in its possession or in the
possession of any of its affiliates. In making investment recommendations for
the Portfolio, Bankers Trust will not inquire or take into consideration whether
an issuer of securities proposed for purchase or sale by the Portfolio is a
customer of Bankers Trust, its parent or its subsidiaries or affiliates and, in
dealing with its customers, Bankers Trust, its parent, subsidiaries, and
affiliates will not inquire or take into consideration whether securities of
such customers are held by any fund managed by Bankers Trust or any such
affiliate.

On March 11, 1999, Bankers Trust announced that it had reached an agreement
with the United States Attorney's Office in the Southern District of New York to
resolve an investigation concerning inappropriate transfers of unclaimed funds
and related record-keeping problems that occurred between 1994 and early 1996.
Bankers Trust pleaded guilty to misstating entries in the bank's books and
records and agreed to pay a $63.5 million fine to state and federal authorities.
On July 26, 1999, the federal criminal proceedings were concluded with Bankers
Trust's formal sentencing. The events leading up to the guilty pleas did not
arise out of the investment advisory or mutual fund management activities of
Bankers Trust or its affiliates.

As a result of the plea, absent an order from the SEC, Bankers Trust would not
be able to continue to provide investment advisory services to the Funds. The
SEC has granted a temporary order to permit Bankers Trust and its affiliates to
continue to provide investment advisory services to registered investment
companies. There is no assurance that the SEC will grant a permanent order.

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 ProFunds with
all required general administrative services, including, without limitation,
office space, equipment, and personnel; clerical and general back office
services; bookkeeping, internal accounting, and secretarial services; the
determination of net asset values; and the preparation and filing of all
reports, registration statements, proxy statements, and all other materials
required to be filed or furnished by ProFunds under Federal and state securities
laws. The Administrator also maintains the shareholder account

35
<PAGE>

records for ProFunds, distributes dividends and distributions payable by the
ProFunds, and produces statements with respect to account activity for the
ProFunds and their shareholders. The Administrator pays all fees and expenses
that are directly related to the services provided by the Administrator to
ProFunds; each ProFund reimburses the Administrator for all fees and expenses
incurred by the Administrator which are not directly related to the services the
Administrator provides to the ProFunds under the service agreement.

For its services as Administrator, each ProFund pays BISYS an annual fee
ranging from 0.15% of average daily net assets of $0 to $300 million to .05% of
average daily net assets of $1 billion and over. BISYS Funds Services, Inc.
("BFSI"), an affiliate of BISYS, acts as transfer agent and fund accounting
agent for the ProFunds, for which it receives additional fees. Additionally,
ProFunds and BISYS and BFSI have entered into an Omnibus Fee Agreement in which
the amount of compensation due and payable to BISYS shall be the greater of (i)
the aggregate fee amount due and payable for services pursuant to the
Administration, Fund Accounting and Transfer Agency Agreements and (ii) the
minimum relationship fee described as specific dollar amounts payable over a
period of ten calendar quarters ($1,100,000). The address for BISYS and BFSI is
3435 Stelzer Road, Suite 1000, Columbus, Ohio 43219.

For the fiscal years ended December 31, 1997, 1998 and 1999, BISYS, as
Administrator, was entitled to, and voluntarily waived, administration fees in
the following amounts for each of the ProFunds:

ADMINISTRATION FEES
FYE 12/31

<TABLE>
<CAPTION>
1997 1998 1999
Earned Waived Earned Waived Earned Waived
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bull ProFund $ 6 $ 6 $ 4,316 $ 876 $ 42,221 $ 1,621
UltraBull ProFund 322 322 49,599 6,321 218,932 19,797
Bear ProFund 10 10 2,208 944 19,034 429
UltraBear ProFund 123 123 25,260 2,500 96,949 11,660
UltraOTC ProFund 150 150 83,805 7,605 691,106 87,526
Money Market ProFund 422 422 49,213 5,728 189,248 --
UltraShort OTC ProFund -- -- 6,616 -- 100,112 10,042
UltraEurope ProFund -- -- -- -- 6,888 --
</TABLE>

The UltraShort OTC ProFund had not commenced operation as of December 31,
1997. The UltraEurope ProFund had not commenced operations as of December 31,
1998. The UltraSmall-Cap ProFund, UltraMid-Cap ProFund and UltraJapan ProFund
had not commenced operations as of December 31, 1999.

The Advisor, pursuant to a separate Management Services Agreement, performs
certain client support and other administrative services on behalf of the
ProFunds and feeder fund management and administrative services to the Money
Market ProFund. These services include monitoring the performance of the
underlying investment company in which the Money Market ProFund invests,
coordinating the Money Market ProFund's relationship with that investment
company, and communicating with the Trust's Board of Trustees and shareholders
regarding such entity's performance and the Money Market ProFund's two tier
structure and, in general, assisting the Board of Trustees of the Trust in all
aspects of the administration and operation of the Money Market ProFund. For
these services, the ProFunds will pay to ProFunds Advisors LLC a fee at the
annual rate of .15% of its average daily net assets for all non-money market
ProFunds and .35% of its average daily net assets for the Money Market ProFund.

For the fiscal years ended December 31, 1997, 1998 and 1999, the Advisor was
entitled to, and voluntarily waived, management services fees in the following
amounts for each of the ProFunds:

36
<PAGE>

MANAGEMENT SERVICES FEES
FYE 12/31

<TABLE>
<CAPTION>
1997 1998 1999
Earned Waived Earned Waived Earned Waived
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bull ProFund $ 6 $ 6 $ 4,316 $ 4,316 $ 51,512 $22,746
UltraBull ProFund 322 322 49,599 -- 225,294 --
Bear ProFund 10 10 2,209 2,209 20,908 17,841
UltraBear ProFund 123 123 25,260 4,986 91,752 --
UltraOTC ProFund 150 150 83,805 10,681 689,257 --
Money Market ProFund 984 984 114,832 55,586 744,520 --
UltraShort OTC ProFund -- -- 6,985 934 99,958 --
UltraEurope ProFund -- -- -- -- 6,888 6,888
</TABLE>

Under an Administration and Services Agreement, Bankers Trust is obligated on
a continuous basis to provide such administrative services as the Board of
Trustees of the Portfolio reasonably deems necessary for the proper
administration of the Portfolio. Bankers Trust will generally assist in all
aspects of the Portfolio's operations and will: supply and maintain office
facilities (which may be in Bankers Trust's own offices); statistical and
research data, data processing services, clerical, accounting, bookkeeping and
recordkeeping services (including, without limitation, the maintenance of such
books and records as are required under the 1940 Act and the rules thereunder,
except as maintained by other agents of the Portfolio); internal auditing,
executive and administrative services; and information and supporting data for
reports to and filings with the Commission and various state Blue Sky
authorities; supply supporting documentation for meetings of the Board of
Trustees; provide monitoring reports and assistance regarding compliance with
the Portfolio's Declaration of Trust, by-laws, investment objectives and
policies and with federal and state securities laws; arrange for appropriate
insurance coverage; calculate the net asset value, net income and realized
capital gains or losses of the Portfolio; and negotiate arrangements with, and
supervise and coordinate the activities of, agents and others retained to supply
services. Pursuant to a sub-administration agreement (the "Sub-Administration
Agreement") Federated Securities Company performs sub-administration duties for
the Portfolio as from time to time may be agreed upon by Bankers Trust and
Federated Securities Company. The Sub-Administration Agreement provides that
Federated Securities Company will receive such compensation as from time to time
may be agreed upon by Federated Securities Company and Bankers Trust. All such
compensation will be paid by Bankers Trust.

For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned compensation of $3,539,131, $2,673,031 and $2,181,394, respectively, for
administrative and other services provided to the Portfolio.

UMB Bank, N.A. acts as custodian to the non-money market ProFunds. UMB Bank,
N.A.'s address is 928 Grand Avenue, Kansas City, Missouri.

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP serves as independent auditors to the ProFunds.
PricewaterhouseCoopers LLP provides audit services, tax return preparation and
assistance and consultation in connection with certain SEC filings.
PricewaterhouseCoopers LLP is located at 100 East Broad Street, Columbus, Ohio
43215.

LEGAL COUNSEL

Dechert Price & Rhoads serves as counsel to the ProFunds. The firm's address
is 1775 Eye Street, N.W., Washington, DC 20006-2401.

37
<PAGE>

DISTRIBUTOR

Concord Financial Group, Inc. will serve as the distributor and principal
underwriter in all fifty states and the District of Columbia. Concord Financial
Group, Inc. receives no compensation from the ProFunds for serving as
distributor. Concord Financial Group, Inc.'s address is 3435 Stelzer Road,
Columbus, Ohio 43219.

SHAREHOLDER SERVICES PLAN

Each ProFund has adopted a Shareholder Services Plan (the "Plan") which
provides that each ProFund may make payments of up to 1.00% (on an annual basis)
of the average daily value of the net assets of such ProFund's Service Shares
attributable to or held in the name of investment advisers and other authorized
institutions that sell Service Shares ("Authorized Firms") for providing account
administration services to their clients who are beneficial owners of such
shares. The Administrator may act as an Authorized Firm. The Trust will enter
into agreements ("Shareholder Services Agreements") with Authorized Firms that
purchase Service Shares on behalf of their clients. The Shareholder Services
Agreements will provide for compensation to the Authorized Firms in an amount up
to 1.00% (on an annual basis) of the average daily net assets of the Service
Shares of the applicable ProFund attributable to or held in the name of the
Authorized Firm for its clients. The ProFunds may pay different service fee
amounts to Authorized Firms, which may provide different levels of services to
their clients or customers.

The Trustees of the Trust, including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or the related Shareholder Services
Agreements, voted to adopt the Plan and Shareholder Services Agreements at a
meeting called for the purpose of voting on such Plan and Shareholder Services
Agreements on October 28, 1997. The Plan and Shareholder Services Agreements
will remain in effect for a period of one year and will continue in effect
thereafter only if such continuance is specifically approved annually by a vote
of the Trustees in the manner described above. All material amendments of the
Plan must also be approved by the Trustees in the manner described above. The
Plan may be terminated at any time by a majority of the Trustees as described
above or by vote of a majority of the outstanding Service Shares of the affected
ProFund. The Shareholder Services Agreements may be terminated at any time,
without payment of any penalty, by vote of a majority of the Trustees as
described above or by a vote of a majority of the outstanding Service Shares of
the affected ProFund on not more than 60 days' written notice to any other party
to the Shareholder Services Agreements. The Shareholder Services Agreements
shall terminate automatically if assigned. The Trustees have determined that, in
their judgment, there is a reasonable likelihood that the Plan will benefit the
ProFunds and holders of Service 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 Shares and growth of the ProFunds. In light of this, the
ProFunds intend to observe the procedural requirements of Rule 12b-1 under the
1940 Act in considering the continued appropriateness of the Plan and
Shareholder Services Agreements.

For the last fiscal year ended December 31, 1999, each ProFund paid
shareholder services fees to authorized firms in the following amounts:

SHAREHOLDER SERVICES FEES
FYE 12/31

Bull ProFund $ 67,494
UltraBull ProFund 320,281
Bear ProFund 6,925
UltraBear ProFund 85,433
UltraOTC ProFund 596,659
Money Market ProFund 620,680
UltraShort OTC ProFund 18,370
UltraEurope ProFund 31,660

38
<PAGE>

The UltraSmall-Cap ProFund, UltraMid-Cap ProFund and UltraJapan ProFund had
not commenced operation as of December 31, 1999.

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 agency and shareholder servicing fees; custodian and
accounting fees and expenses, legal and auditing fees; securities valuation
expenses; fidelity bonds and other insurance premiums; expenses of preparing and
printing prospectuses, confirmations, proxy statements, and shareholder reports
and notices; registration fees and expenses; proxy and annual meeting expenses,
if any; all Federal, state, and local taxes (including, without limitation,
stamp, excise, income, and franchise taxes); organizational costs; and non-
interested Trustees' fees and expenses.

ORGANIZATION AND DESCRIPTION OF SHARES OF BENEFICIAL INTEREST

ProFunds (the "Trust") is a registered open-end investment company under the
1940 Act. The Trust was organized as a Delaware business trust on April 17,
1997, and has authorized capital of unlimited shares of beneficial interest of
no par value which may be issued in more than one class or series. Currently,
the Trust consists of thirty-nine separately managed series. Other separate
series may be added in the future. Each ProFund offers two classes of shares:
the Service Shares and the Investor Shares.

All shares of the ProFund are freely transferable. The Trust shares do not
have preemptive rights or cumulative voting rights, and none of the shares have
any preference to conversion, exchange, dividends, retirements, liquidation,
redemption, or any other feature. Trust shares have equal voting rights, except
that, in a matter affecting a particular series or class of shares, only shares
of that series or class may be entitled to vote on the matter.

Under Delaware law, the Trust is not required to hold an annual shareholders
meeting if the 1940 Act does not require such a meeting. Generally, there will
not be annual meetings of Trust shareholders. Trust shareholders may remove
Trustees from office by votes cast at a meeting of Trust shareholders or by
written consent. If requested by shareholders of at least 10% of the
outstanding shares of the Trust, the Trust will call a meeting of ProFunds'
shareholders for the purpose of voting upon the question of removal of a Trustee
of the Trust and will assist in communications with other Trust shareholders.

The Declaration of Trust of the 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 ProFunds shareholder held personally liable for the obligations of the
Trust. The risk of a Trust shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which loss of account of
shareholder liability is limited to circumstances in which the ProFunds itself
would not be able to meet the Trust's obligations and this risk, thus, should be
considered remote.

If a ProFund does not grow to a size to permit it to be economically viable,
the ProFund may cease operations. In such an event, investors may be required to
liquidate or transfer their investments at an inopportune time.

CAPITALIZATION

As of April 3, 2000, no person owned of record, or to the knowledge of
management beneficially owned, five percent or more of the outstanding shares of
the ProFunds or classes except as set forth below:

MONEY MARKET PROFUND--INVESTOR SHARES TOTAL SHARES PERCENTAGE
- ------------------------------------- ------------ ----------

Independent Trust Corp 91,728,738.700 26.3689%
Funds 84
15255 S 94th Ave 3rd Floor
Orland Park, IL 60462

39
<PAGE>

MONEY MARKET PROFUND--SERVICE SHARES TOTAL SHARES PERCENTAGE
- ------------------------------------ -------------- ----------

Fred Kavli 15,643,748.991 10.1009%
14501 E. Los Angeles Ave.
Moorpark, CA 93021

BULL PROFUND--INVESTOR SHARES TOTAL SHARES PERCENTAGE
- ----------------------------- ------------ ----------

National Investor Services Corp 80,660.494 19.5783%
Exclusive Benefit of Customers
55 Water St. 32nd FL
New York, NY 10041-3299

Dawn & Co. 63,088.549 15.3150%
346 Main St.
Kensington, CT 06037

Charles Schwab and Co. Inc. 56,064.766 13.6100%
Special Custody Account of Customers
101 Montgomery St.
San Francisco, CA 94104

FMCO 51,441.438 12.4876%
One Financial Plaza
Holland, MI 49423

Independent Trust Corp 46,417.553 11.2661%
Funds CMSI
15255 S 94th Ave 3rd Floor
Orland Park, IL 60462

BULL PROFUND--SERVICE SHARES TOTAL SHARES PERCENTAGE
- ---------------------------- ------------ ----------

National Investor Services Corp 34,939.610 59.0523%
Exclusive Benefit of Customers
55 Water St. 32nd FL
New York, NY 10041

First Trust Corporation 10,715.961 18.1113%
P.O. Box 173736
Denver, CO 80217

ULTRABULL PROFUND--INVESTOR SHARES TOTAL SHARES PERCENTAGE
- ---------------------------------- ------------ ----------

National Investor Services Corp 1,689,851.753 24.9493%
Exclusive Benefit of Customers
55 Water St. 32nd FL
New York, NY 10041-3299

Charles Schwab and Co. Inc. 1,062,166.389 15.6820%
Special Custody Account of Customers
101 Montgomery St.
San Francisco, CA 94104

40
<PAGE>

ULTRABULL PROFUND--SERVICE SHARES TOTAL SHARES PERCENTAGE
- --------------------------------- ------------ ----------

Southwest Securities Inc. 549,535.693 23.3179%
Special Custody Account of Customers
101 Montgomery St.
San Francisco, CA 94104

National Investor Services Corp 284,312.026 10.2066%
Exclusive Benefit of Customers
55 Water St. 32nd FL
New York, NY 10041-3299

BEAR PROFUND--INVESTOR CLASS SHARES TOTAL SHARES PERCENTAGE
- ----------------------------------- ------------ ----------

Charles Schwab and Co. Inc. 21,107.445 35.9618%
Special Custody Account of Customers
101 Montgomery St.
San Francisco, CA 94104

BEAR PROFUND--SERVICE SHARES TOTAL SHARES PERCENTAGE
- ---------------------------- ------------ ----------

Edward D. Meyer 5,719.233 62.4333%
2918 Sandy Hollow
Rockford, IL 61109

National Investors Services Corp. 1,154.707 12.5052%
Exclusive Benefit of Customers
56 Water St., 32nd fl
New York, NY 10041

ULTRABEAR PROFUND--INVESTOR SHARES TOTAL SHARES PERCENTAGE
- ---------------------------------- ------------ ----------

Charles Schwab and Co. Inc. 402,876.982 25.9749%
Special Custody Account of Customers
101 Montgomery St.
San Francisco, CA 94104

National Investors Services Corp. 188,008.944 12.1216%
Exclusive Benefit of Customers
56 Water St., 32nd Floor
New York, NY 10041

ULTRABEAR PROFUND--SERVICE SHARES TOTAL SHARES PERCENTAGE
- --------------------------------- ------------ ----------

NFSC FEBO AFS-245577 84,609.682 17.9098%
Sabrina Vezaley
6140 SW 88th St.
Miami, FL 33156

Trust Company of America, PSI 50,143.568 10.6142%
7103 S. Revere PKY
Englewood, CO 80112

41
<PAGE>

ULTRAOTC PROFUND--INVESTOR SHARES TOTAL SHARES PERCENTAGE
- --------------------------------- ------------ ----------

Charles Schwab and Co., Inc. 3,380,431.303 26.2563%
Special Custody Account of Customers
101 Montgomery St.
San Francisco, CA 94104

National Investor Services Corp. 2,706,952.205 21.0254%
Exclusive Benefit of Customers
55 Water St. 32nd FL
New York, NY 10041-3299

ULTRAOTC PROFUND--SERVICE SHARES TOTAL SHARES PERCENTAGE
- -------------------------------- ------------ ----------

Donaldson Lufkin & Jenrette Sec Corp 239,768.287 13.8349%
P.O. Box 2052
Jersey City, NJ 07303

Stockton Nominee Partnership 305,118.588 17.6057%
3001 E. Camelback Rd No. 100
Phoenix, AZ 86016

ULTRASHORT OTC PROFUND--INVESTOR SHARES TOTAL SHARES PERCENTAGE
- --------------------------------------- ------------ ----------

Charles Schwab and Co., Inc. 467,084.655 25.0015%
Special Custody Account of Customers
101 Montgomery St.
San Francisco, CA 94104

National Investor Services Corp. 223,315.830 11.9533%
Exclusive Benefit of Customers
55 Water St. 32nd FL
New York, NY 10041

ULTRASHORT OTC PROFUND--SERVICE SHARES TOTAL SHARES PERCENTAGE
- -------------------------------------- ------------ ----------

Scottsdale Securities Inc. FBO 33,444.815 31.8592%
Gregory S. Young
P.O. Box 31759
St. Louis, MO 63131

ULTRAEUROPE PROFUND--INVESTOR SHARES TOTAL SHARES PERCENTAGE
- ------------------------------------ ------------ ----------

First Trust Corporation 23,158.328 19.2558%
P.O. Box 173736
Denver, CO 80217

ULTRAEUROPE PROFUND--SERVICE SHARES TOTAL SHARES PERCENTAGE
- ----------------------------------- ------------ ----------

Trust Company of America, FSI 3,679.000 18.4712%
7103 S. Revere PKY
Englewood, CO 80112

42
<PAGE>

Donaldson Lufkin & Jenrette Sec Corp 3,157.277 15.8518%
P.O. Box 2052
Jersey City, NJ 07303

ULTRASMALL-CAP PROFUND--SERVICE SHARES TOTAL SHARES PERCENTAGE
- -------------------------------------- ------------ ----------

Donaldson Lufkin & Jenrette Sec Corp 50,468.203 24.3118%
P.O. Box 2052
Jersey City, NJ 07303

Fred Kavli 28,425.085 13.6958%
14501 E. Los Angeles Ave.
Moorpark, CA 93021

ULTRAMID-CAP PROFUND--SERVICE SHARES TOTAL SHARES PERCENTAGE
- ------------------------------------ ------------ ----------

FJ O'Neil Charitable Corporation 21,293.632 16.6064%
3550 Lander Rd, Room 140
Pepper Pike, OH 44124

Trust Company of America, DGS 15,993.598 12.4730%
7103 S. Revere PKY
Englewood, CO 80112

ULTRAJAPAN PROFUND--INVESTOR SHARES TOTAL SHARES PERCENTAGE
- ----------------------------------- ------------ ----------

Key Group Investors Limited Partnership 50,568.900 45.5013%
P.O. Box 5485
Beverly Farms, MA 01915

ULTRAJAPAN PROFUND--SERVICE SHARES TOTAL SHARES PERCENTAGE
- ---------------------------------- ------------ ----------

FJ O'Neil Charitable Corporation 40,488.844 72.7393%
3550 Lander Rd, Room 140
Pepper Pike, OH 44124

A shareholder who beneficially owns, directly or indirectly, more than 25% of
a ProFund's voting securities may be deemed a "control person" (as defined in
the 1940 Act) of the ProFund and may be able to determine the outcome of any
matter submitted for shareholder consideration with respect to that
ProFund.

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.

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<PAGE>

Dividends out of net ordinary income and distribution of net short-term
capital gains are taxable to the recipient U.S. shareholders as ordinary income,
whether received in cash or reinvested in ProFund shares. Dividends from net
ordinary income may be eligible for the corporate dividends-received deduction.

The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by a ProFund to its U.S. shareholders as capital
gains distributions is taxable to the shareholders as gain from the sale of a
capital asset held for more than one year, regardless of the length of time a
shareholder has held the ProFund shares. If a shareholder holds ProFund shares
for six months or less and during that period receives a distribution taxable to
the shareholder as long-term capital gain, any loss realized on the sale of the
ProFund shares will be long-term loss to the extent of such distribution.

The amount of an income dividend or capital gains distribution declared by a
ProFund during October, November or December of a year to shareholder of record
as of a specified date in such a month that is paid during January of the
following year will be deemed to be received by shareholders on December 31 of
the prior year.

Any dividend or distribution paid by a ProFund has the effect of reducing the
ProFund's net asset value per share. Investors should be careful to consider the
tax effect of buying shares shortly before a distribution by a ProFund. The
price of shares purchased at that time will include the amount of the
forthcoming distribution, but the distribution will be taxable to the
shareholder.

A dividend or capital gains distribution with respect to shares of a ProFund
held by a tax-deferred or qualified plan, such as an IRA, retirement plan or
corporate pension or profit sharing plan, will not be taxable to the plan.
Distribution from such plans will be taxable to individual participants under
applicable tax rules without regard to the character of the income earned by the
qualified plan.

Shareholders will be advised annually as to the federal tax status of
dividends and capital gains distribution made by the ProFunds for the preceding
year. Distributions by ProFunds generally will be subject to state and local
taxes.

Each of the ProFunds intends to qualify and elect to be treated each year as a
regulated investment company (a "RIC") under Subchapter M of the Code. A RIC
generally is not subject to federal income tax on income and gains distributed
in a timely manner to its shareholders. Accordingly, each ProFund generally
must, among other things, (a) derive in each taxable year at least 90% of its
gross income from dividends, interest, payments with respect to certain
securities loans, and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income derived with respect to its
business of investing in such stock, securities or currencies; and (b) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the ProFund's assets is represented by cash, U.S. government
securities, the securities of other regulated investment companies and other
securities, with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the value of the ProFund's total assets and 10%
of the outstanding voting securities of such issuer, and (ii) not more 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

44
<PAGE>

paid by the ProFund during January of the following year. Such distributions
will be taxable to shareholders in the calendar year in which the distributions
are declared, rather than the calendar year in which the distributions are
received.

MARKET DISCOUNT

If ProFund purchases a debt security at a price lower than the stated
redemption price of such debt security, the excess of the stated redemption
price over the purchase price is "market discount". If the amount of market
discount is more than a de minimis amount, a portion of such market discount
must be included as ordinary income (not capital gain) by the ProFund in each
taxable year in which the ProFund owns an interest in such debt security and
receives a principal payment on it. In particular, the ProFund will be required
to allocate that principal payment first to the portion of the market discount
on the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by a ProFund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the ProFund, at
a constant yield to maturity which takes into account the semi-annual
compounding of interest. Gain realized on the disposition of a market discount
obligation must be recognized as ordinary interest income (not capital gain) to
the extent of the "accrued market discount."

ORIGINAL ISSUE DISCOUNT

Certain debt securities acquired by the ProFunds may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by a ProFund, original issue discount that accrues on a
debt security in a given year generally is treated for federal income tax
purposes as interest and, therefore, such income would be subject to the
distribution requirements applicable to regulated investment companies.

Some debt securities may be purchased by the ProFunds at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes
(see above).

OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS

Any regulated futures contracts and certain options (namely, nonequity
options and dealer equity options) in which a ProFund may invest may be "section
1256 contracts." Gains (or losses) on these contracts generally are considered
to be 60% long-term and 40% short-term capital gains or losses; however foreign
currency gains or losses arising from certain section 1256 contracts are
ordinary in character. Also, section 1256 contracts held by a ProFund at the end
of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.

Transactions in options, futures and forward contracts undertaken by the
ProFunds may result in "straddles" for federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by a ProFund, and
losses realized by the ProFund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. In addition, certain carrying charges (including interest expense)
associated with positions in a straddle may be required to be capitalized rather
than deducted currently. Certain elections that a ProFund may make with respect
to its straddle positions may also affect the amount, character and timing of
the recognition of gains or losses from the affected positions.

Because only a few regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to the ProFunds are not
entirely clear. The straddle rules may increase the amount of short-term capital
gain realized by a ProFund, which is taxed as ordinary income when distributed
to shareholders. Because application of the straddle rules may affect the
character of gains or losses, defer losses and/or

45
<PAGE>

accelerate the recognition of gains or losses from the affected straddle
positions, the amount which must be distributed to shareholders as ordinary
income or long-term capital gain may be increased or decreased substantially as
compared to a fund that did not engage in such transactions.

CONSTRUCTIVE SALES

Recently enacted rules may affect the timing and character of gain if a
ProFund engages in transactions that reduce or eliminate its risk of loss with
respect to appreciated financial positions. If the ProFund enters into certain
transactions in property while holding substantially identical property, the
ProFund would be treated as if it had sold and immediately repurchased the
property and would be taxed on any gain (but not loss) from the constructive
sale. The character of gain from a constructive sale would depend upon the
ProFund's holding period in the property. Loss from a constructive sale would be
recognized when the property was subsequently disposed of, and its character
would depend on the ProFund's holding period and the application of various loss
deferral provisions of the Code.

PASSIVE FOREIGN INVESTMENT COMPANIES

The ProFunds may invest in shares of foreign corporations that may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a ProFund receives a so-called "excess
distribution" with respect to PFIC stock, the ProFund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the ProFund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the ProFund held the PFIC shares. Each ProFund will
itself be subject to tax on the portion, if any, of an excess distribution that
is so allocated to prior ProFund taxable years and an interest factor will be
added to the tax, as if the tax had been payable in such prior taxable years.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gains.

The ProFunds may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, a ProFund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions were received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election would
involve marking to market the ProFund's PFIC shares at the end of each taxable
year, with the result that unrealized gains would be treated as though they were
realized and reported as ordinary income. Any mark-to-market losses and any loss
from an actual disposition of ProFund shares would be deductible as ordinary
losses to the extent of any net mark-to-market gains included in income in prior
years.

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.

46
<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, ProFunds will change the distribution option so that all
distributions are automatically reinvested in additional shares. 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.

47
<PAGE>

PERFORMANCE INFORMATION

TOTAL RETURN CALCULATIONS

From time to time, each of the non-money market 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.

The average annual return for each ProFund for the one year and since
inception periods ended December 31, 1999, were as follows:

RETURN INVESTOR SHARES
INCEPTION DATE SINCE INCEPTION 1YR. RETURN
------------- --------------- ---------------
<S> <C> <C> <C>
Bull ProFund 12/02/97 20.20% 17.18%
UltraBull ProFund 11/28/97 36.08% 29.56%
Bear ProFund 12/31/97 -15.95% -12.32%
UltraBear ProFund 12/23/97 -33.06% -30.54%
UltraOTC ProFund 12/02/97 170.63% 233.25%
Money Market ProFund 11/17/97 4.69% 4.48%
UltraShort OTC ProFund 6/02/98 -82.45% -80.36%
UltraEurope ProFund 3/15/99 36.63% N/A
<CAPTION>

RETURN SERVICE SHARES
INCEPTION DATE SINCE INCEPTION 1YR. RETURN
------------- --------------- --------------
<S> <C> <C> <C>
Bull ProFund 12/02/97 19.20% 15.97%
UltraBull ProFund 11/28/97 34.85% 28.42%
Bear ProFund 12/31/97 -16.73% -13.32%
UltraBear ProFund 12/23/97 -33.47% -31.20%
UltraOTC ProFund 12/02/97 168.67% 229.73%
Money Market ProFund 11/17/97 3.43% 3.44%
UltraShort OTC ProFund 6/02/98 -82.61% -80.62%
UltraEurope ProFund 3/15/99 35.73% N/A
</TABLE>

This performance data represents past performance and is not an indication of
future results. The recent growth in the stock market, particularly the
technology industry, has helped produce short-term returns that are not typical
and may not continue in the future. Because of ongoing market volatility, the
ProFunds' performance may be subject to substantial short-term changes. The
ProFunds' total return does not show the effects of income taxes on an
individual's investments.

The UltraSmall-Cap ProFund, UltraMid-Cap ProFund and UltraJapan ProFund had
not commenced operations as of December 31, 1999.

48
<PAGE>

YIELD CALCULATIONS

From time to time, the Money Market ProFund advertises its "yield" and
"effective yield." Both yield figures are based on historical earnings and are
not intended to indicate future performance. The "yield" of the Money Market
ProFund refers to the income generated by an investment in the Money Market
ProFund over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in the Money Market ProFund is assumed to be reinvested.
The "effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.

Since yield fluctuates, yield data cannot necessarily be used to compare an
investment in the Money Market ProFund's shares with bank deposits, savings
accounts, and similar investment alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders of the Money
Market ProFund should remember that yield generally is a function of the kind
and quality of the instrument held in portfolio, portfolio maturity, operating
expenses, and market conditions.

For the seven-day period ended December 31, 1999, the seven-day effective
yield for the Investor Shares and Service Shares of the Money Market ProFund was
5.25% and 4.21%, respectively.

COMPARISONS OF INVESTMENT PERFORMANCE

In conjunction with performance reports, promotional literature, and/or
analyses of shareholder service for a ProFund, comparisons of the performance
information of the ProFund for a given period to the performance of recognized,
unmanaged indexes for the same period may be made. Such indexes include, but are
not limited to, ones provided by Dow Jones & Company, Standard & Poor's
Corporation, Lipper Analytical Services, Inc., Shearson Lehman Brothers, the
National Association of Securities Dealers, Inc., The Frank Russell Company,
Value Line Investment Survey, the American Stock Exchange, the Philadelphia
Stock Exchange, Morgan Stanley Capital International, Wilshire Associates, the
Financial Times-Stock Exchange, and the Nikkei Stock Average and Deutcher
Aktienindex, all of which are unmanaged market indicators. Such comparisons can
be a useful measure of the quality of a ProFund's investment performance. In
particular, performance information for the Bull ProFund, the UltraBull ProFund,
the Bear ProFund and the UltraBear ProFund may be compared to various unmanaged
indexes, including, but not limited to, the S&P 500 Index or the Dow Jones
Industrial Average; performance information for the UltraOTC ProFund may be
compared to various unmanaged indexes, including, but not limited to its current
benchmark, the NASDAQ 100 Index(TM).

In addition, rankings, ratings, and comparisons of investment performance
and/or assessments of the quality of shareholder service appearing in
publications such as Money, Forbes, Kiplinger's Magazine, Personal Investor,
Morningstar, Inc., and similar sources which utilize information compiled
(i) internally, (ii) by Lipper Analytical Services, Inc. ("Lipper"), or (iii) by
other recognized analytical services, may be used in sales literature. The total
return of each ProFund (other than the Money Market ProFund) also may be
compared to the performances of broad groups of comparable mutual funds with
similar investment goals, as such performance is tracked and published by such
independent organizations as Lipper and CDA Investment Technologies, Inc., among
others. The Lipper ranking and comparison, which may be used by the ProFunds in
performance reports, will be drawn from the "Capital Appreciation ProFunds"
grouping for the Bull ProFund, the UltraBull ProFund, the Bear ProFund and the
UltraBear ProFund and from the "Small Company Growth ProFunds" grouping for the
UltraOTC ProFund. In addition, the broad-based Lipper groupings may be used for
comparison to any of the ProFunds.

Further information about the performance of the ProFunds will be contained in
the ProFunds' annual reports to shareholders, which may be obtained without
charge by writing to the ProFunds at the address or telephoning the ProFunds at
the telephone number set forth on the cover page of this SAI.

49
<PAGE>

RATING SERVICES

The ratings of Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group represent their opinions as to the quality of the securities that they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality. Although these ratings
are an initial criterion for selection of portfolio investments, Bankers Trust
also makes its own evaluation of these securities, subject to review by the
Board of Trustees. After purchase by the Portfolio, an obligation may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Portfolio. Neither event would require the Portfolio to eliminate the
obligation from its portfolio, but Bankers Trust will consider such an event in
its determination of whether the Portfolio should continue to hold the
obligation. A description of the ratings used herein and in the Prospectus is
set forth in the Appendix to this SAI.

Other Information

The ProFunds are not sponsored, endorsed, sold or promoted by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), NASDAQ Stock
Markets, Inc. ("NASDAQ") or Frank Russell Company. S&P, NASDAQ and the Frank
Russell Company make no representation or warranty, express or implied, to the
owners of shares of the ProFunds or any member of the public regarding the
advisability of investing in securities generally or in the ProFunds
particularly or the ability of the S&P 500 Index(R), NASDAQ 100 Index(TM) or the
Russell 2000(R) Index, respectively, to track general stock market performance.
S&P's, NASDAQ's and Frank Russell Company's only relationship to the ProFunds
(the "Licensee") is the licensing of certain trademarks and trade names of S&P,
NASDAQ and the Frank Russell Company, respectively, and of the S&P 500 Index(R),
NASDAQ 100 Index(TM) and Russell 2000(R) Index, respectively. S&P, NASDAQ and
the Frank Russell Company have no obligation to take the needs of the Licensee
or owners of the shares of the ProFunds into consideration in determining,
composing or calculating the S&P 500 Index(R), the NASDAQ 100 Index(TM) and the
Russell 2000(R) Index , respectively. S&P, NASDAQ and the Frank Russell Company
are not responsible for and have not participated in the determination or
calculation of the equation by which the shares of ProFunds are to be converted
into cash. S&P, NASDAQ and the Frank Russell Company have no obligation or
liability in connection with the administration, marketing or trading of
ProFunds.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX(R) OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX(R) OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX(R) OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

FINANCIAL STATEMENTS

The Report of Independent Accountants and Financial Statements of the ProFunds
for the fiscal year ended December 31, 1999 are incorporated herein by reference
to the Trust's Annual Report, such Financial Statements having been audited by
PricewaterhouseCoopers LLP, independent accountants, and are so included and
incorporated by reference in reliance upon the report of said firm, which report
is given upon their authority as experts in auditing and accounting. Copies of
such Annual Report are available without charge upon request by writing to
ProFunds, 3435 Stelzer Road, Columbus, Ohio 43219-8006 or telephoning
(888) 776-3637.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS, OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE

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OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PROFUNDS.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN OFFERING BY
PROFUNDS IN ANY JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.

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APPENDIX

DESCRIPTION OF SECURITIES RATINGS

DESCRIPTION OF S&P'S CORPORATE RATINGS:

AAA-Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issuers only in small degree.

S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major categories,
except in the AAA rating category.

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:

Aaa-Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt-
edge". Interest payments are protected by a large or exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.

Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.

DESCRIPTION OF FITCH INVESTORS SERVICE'S CORPORATE BOND RATINGS:

AAA-Securities of this rating are regarded as strictly high-grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions, and
liable to slight market fluctuation other than through changes in the money
rate. The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong companies, and are
most numerous in the railway and public utility fields, though some industrial
obligations have this rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Other features may enter in, such as a wide margin
of protection through collateral security or direct lien on specific property as
in the case of high class equipment certificates or bonds that are first
mortgages on valuable real estate. Sinking funds or voluntary reduction of the
debt by call or purchase are often factors, while guarantee or assumption by
parties other than the original debtor may also influence the rating.

AA-Securities in this group are of safety virtually beyond question, and as a
class are readily salable while many are highly active. Their merits are not
greatly unlike those of the AAA class, but a security so rated may be of junior
though strong lien in many cases directly following an AAA security or the
margin of safety is less strikingly broad. The issue may be the obligation of a
small company, strongly secure but influenced as the ratings by the lesser
financial power of the enterprise and more local type of market.

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DESCRIPTION OF DUFF & PHELPS' CORPORATE BOND RATINGS:

AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury Funds.

AA+, AA-High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.

DESCRIPTION OF S&P'S MUNICIPAL BOND RATINGS:

AAA-Prime-These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.

General Obligation Bonds-In a period of economic stress, the issuers will
suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.

Revenue Bonds-Debt service coverage has been, and is expected to remain,
substantial; stability of the pledged revenues is also exceptionally strong due
to the competitive position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenant, earnings test for
issuance of additional bonds and debt service reserve requirements) are
rigorous. There is evidence of superior management.

AA-High Grade-The investment characteristics of bonds in this group are only
slightly less marked than those of the prime quality issues. Bonds rated AA have
the second strongest capacity for payment of debt service.

S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA rating category.

DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS:

Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa-Bonds which are rated Aa judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.

Moody's may apply the numerical modifier in each generic rating classification
from Aa through B. The modifier 1 indicates that the security within its generic
rating classification possesses the strongest investment attributes.

DESCRIPTION OF S&P'S MUNICIPAL NOTE RATINGS:

Municipal notes with maturities of three years or less are usually given note
ratings (designated SP-1 or SP-2) to distinguish more clearly the credit quality
of notes as compared to bonds. Notes rated SP-1 have a very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given the designation of SP-1+. Notes
rated SP-2 have a satisfactory capacity to pay principal and interest.

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DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS:

Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and long-
term risk. Loans bearing the designation MIG-1/VMIG-1 are of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both. Loans the designation MIG-2/VMIG-2 are of high quality,
with ample margins of protection, although not as large as the preceding group.

DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:

Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to posses overwhelming safety characteristics are denoted A-1+.

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:

The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.

DESCRIPTION OF FITCH INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS:

F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1-Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than the strongest
issue.

DESCRIPTION OF DUFF & PHELPS' COMMERCIAL PAPER RATINGS:

Duff 1+-Highest certainly of timely payment. Short term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk free U.S. Treasury short term
obligations.

Duff 1-Very high certainty of timely +.

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:

The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or relating supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.

DESCRIPTION OF FITCH INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS:

F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business economic or financial conditions may increase investment
risk albeit not very significantly.

A-Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.

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BBB-Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are more
likely to lead to increased investment risk than for obligations in higher
categories.

BB-Obligations for which there is a possibility of investment risk developing.
Capacity for timely repayment of principal and interest exists, but is
susceptible over time to adverse changes in business, economic or financial
conditions.

B-Obligations for which investment risk exists. Timely repayment of principal
and interest is not sufficiently protected against adverse changes in business,
economic or financial conditions.

CCC-Obligations for which there is a current perceived possibility of default.
Timely repayment of principal and interest is dependent on favorable business,
economic or financial conditions.

CC-Obligations which are highly speculative or which have a high risk of
default.

C-Obligations which are currently in default.

Notes: "+" or "-".

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:

DESCRIPTION OF FITCH INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS:

F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely business,
economic or financial conditions.

A3-Obligations supported by an adequate capacity for timely repayment. Such
capacity is more susceptible to adverse changes in business, economic or
financial conditions than for obligations in higher categories.

B-Obligations for which the capacity for timely repayment is susceptible to
adverse changes in business, economic or financial conditions.

C-Obligations for which there is an inadequate capacity to ensure timely
repayment.

D-Obligations which have a high risk of default or which are currently in
default.

DESCRIPTION OF THOMSON BANK WATCH SHORT-TERM RATINGS:

TBW-1-The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis.

TBW-2-The second-highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as of issues rated `TBW-1'.

TWB-3-The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.

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TWB-4-The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.

DESCRIPTION OF THOMSON BANKWATCH LONG-TERM RATINGS:

AAA-The highest category; indicates that the ability to repay principal and
interest on a timely basis is extremely high.

AA-The second-highest category; indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highs category.

A-The third-highest category; indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

BBB-The lowest investment-grade category; indicates an acceptable capacity to
repay principal and interest. Issues rated "BBB" are, however, more vulnerable
to adverse developments (both internal and external) than obligations with
higher ratings.

NON-INVESTMENT GRADE (ISSUES REGARDED AS HAVING SPECULATIVE CHARACTERISTICS IN
THE LIKELIHOOD OF TIMELY REPAYMENT OF PRINCIPAL AND INTEREST.)

BB-While not investment grade, the "BB" rating suggests that the likelihood of
default is considerably less than for lower-rated issues. However, there are
significant uncertainties that could affect the ability to adequately service
debt obligations.

B-Issues rated "B" show a higher degree of uncertainty and therefore greater
likelihood of default than higher-rated issues. Adverse development could well
negatively affect the payment of interest and principal on a timely basis.

CCC-Issues rate "CCC" clearly have a high likelihood of default, with little
capacity to address further adverse changes in financial circumstances.

CC-"CC" is applied to issues that are subordinate to other obligations rated
"CCC" and are afforded less protection in the event of bankruptcy or
reorganization.

D-Default

These long-term debt ratings can also be applied to local currency debt. In
such cases the ratings defined above will be preceded by the designation "local
currency".

A RATING IN THE LONG-TERM DEBT CATEGORIES MAY INCLUDE A PLUS (+) OR MINUS (-)
DESIGNATION, WHICH INDICATES WHERE WITHIN THE RESPECTIVE CATEGORY THE ISSUE IS
PLACED.

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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 ProFund VP UltraOTC
("UltraOTC VP"), ProFund VP UltraSmall-Cap ("UltraSmall-Cap VP") (formerly,
ProFund VP Small Cap) and ProFund VP Europe 30 ("Europe 30 VP") (collectively,
the "ProFunds VP"); three series of the ProFunds. The ProFunds VP may be used
by professional money managers and investors as part of an asset-allocation or
market-timing investment strategy or to create specified investment exposure to
a particular segment of the securities market or to hedge an existing investment
portfolio. Each ProFund VP seeks investment results that correspond each day to
a specified benchmark. The ProFunds VP may be used independently or in
combination with each other as part of an overall investment strategy.

Shares of the ProFunds VP are available for purchase by insurance company
separate accounts to serve as an investment medium for variable insurance
contracts, and by qualified pension and retirement plans, certain insurance
companies, and ProFund Advisors LLC (the "Advisor").

The ProFunds VP involve special risks, some not traditionally associated with
mutual funds. Investors should carefully review and evaluate these risks in
considering an investment in the ProFunds VP to determine whether an investment
in a particular ProFund VP is appropriate. None of the ProFunds VP alone
constitutes a balanced investment plan. Each ProFund VP is not intended for
investors whose principal objective is current income or preservation of
capital. Because of the inherent risks in any investment, there can be no
assurance that the investment objectives of the ProFunds VP will be achieved.

This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus, dated May 1, 2000, as supplemented from
time to time, which incorporates this Statement of Additional Information by
reference. The financial statements and related report of the independent
accountants included in the annual report of the ProFunds VP for the fiscal year
ended December 31, 1999 are incorporated by reference into this Statement of
Additional Information. 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 or Annual Report 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 May 1, 2000.
<PAGE>

TABLE OF CONTENTS

PAGE
----
ProFunds........................................................ 3
Investment Policies and Techniques.............................. 3
Investment Restrictions......................................... 16
Determination of Net Asset Value................................ 17
Portfolio Transactions and Brokerage............................ 17
Management of ProFunds.......................................... 19
Costs and Expenses.............................................. 24
Organization and Description of Shares of Beneficial Interest... 24
Taxation........................................................ 25
Performance Information......................................... 29
Financial Statements............................................ 30
Appendix -- Europe 30 Index.................................... 31

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PROFUNDS

ProFunds (the "Trust") is an open-end management investment company, and
currently comprises thirty-nine separate series. The three series described in
this Statement of Additional Information ("SAI") are offered to insurance
company separate accounts and qualified pension and retirement plans and are
discussed herein. All of the ProFunds VP are classified as non-diversified,
although they currently intend to operate in a diversified manner.

INVESTMENT POLICIES AND TECHNIQUES

GENERAL

Reference is made to the Prospectus for a discussion of the investment
objectives and policies of the ProFunds VP. In addition, set forth below is
further information relating to the ProFunds VP. The discussion below
supplements and should be read in conjunction with the Prospectus.

The investment restrictions of the ProFunds VP specifically identified as
fundamental policies may not be changed without the affirmative vote of at least
the majority of the outstanding shares of that ProFund VP, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). The investment
objective and all other investment policies of the ProFunds VP not specified as
fundamental (including the benchmarks of the ProFunds VP) may be changed by the
Trustees of the ProFunds VP without the approval of shareholders.

A ProFund VP may consider changing its benchmark if, for example, the current
benchmark becomes unavailable, the ProFund VP believes the current benchmark no
longer serves the investment needs of a majority of shareholders or another
benchmark better serves their needs, or the financial or economic environment
makes it difficult for its investment results to correspond sufficiently to its
current benchmark. If believed appropriate, a ProFund VP may specify a
benchmark for itself that is "leveraged" or proprietary. Of course, there can
be no assurance that a ProFund VP will achieve its objective.

Fundamental securities analysis is not generally used by the Advisor in
seeking to correlate with the respective benchmarks. Rather, the Advisor
primarily uses statistical and quantitative analysis to determine the
investments a ProFund VP makes and techniques it employs. While the Advisor
attempts to minimize any "tracking error" (that statistical measure of the
difference between the investment results of a ProFund VP and the performance of
its benchmark), certain factors will tend to cause a ProFund VP's investment
results to vary from a perfect correlation to its benchmark. The ProFunds VP,
however, do not expect that their total returns will vary adversely from their
respective current benchmarks by more than ten percent over the course of a
year. See "Special Considerations."

It is the policy of the ProFunds VP to pursue their investment objectives of
correlating with their benchmarks regardless of market conditions, to remain
nearly fully invested and not to take defensive positions.

The investment strategies of the ProFunds VP discussed below, and as discussed
in the Prospectus, may be used by a ProFund VP if, in the opinion of the
Advisor, these strategies will be advantageous to the ProFunds VP. The ProFunds
VP are free to reduce or eliminate the ProFunds VP's activity in any of those
areas without changing the ProFunds VP fundamental investment policies. There
is no assurance that any of these strategies or any other strategies and methods
of investment available to a ProFund VP will result in the achievement of its
objectives.

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ULTRAOTC VP

The investment objective of UltraOTC VP is to provide daily investment results
that correspond to twice (200%) the performance of the NASDAQ 100 Index(TM).

UltraOTC VP does not intend to hold the 100 securities included in the NASDAQ
100 Index(TM). Instead, UltraOTC VP intends to engage in transactions on stock
index futures contracts, options on stock index futures contracts, and options
on securities and stock indexes. As a nonfundamental policy, UltraOTC VP will
invest, under normal conditions, at least 65% of its total assets in securities
traded on the over-the-counter ("OTC") markets and instruments with values that
are representative of such securities such as futures and option contracts in
such securities or indices.

If the UltraOTC VP achieved a perfect correlation for any single trading day,
the net asset value of the shares of UltraOTC VP would increase for that day
proportional to twice any increase in the level of the NASDAQ 100 Index(TM).
Conversely, the net asset value of the shares of UltraOTC VP would decrease for
that day proportional to twice any decrease in the level of the NASDAQ 100
Index(TM) for that day.

For example, if the NASDAQ 100 Index(TM) were to increase by 1% on a
particular day, investors in UltraOTC VP should experience a gain in net asset
value of approximately 2% for that day. Conversely, if the NASDAQ 100 Index(TM)
were to decrease by 1% by the close of business on a particular trading day,
investors in UltraOTC VP would experience a loss in net asset value of
approximately 2%.

Companies whose securities are traded on the OTC markets generally have
smaller market capitalization or are newer companies than those listed on the
New York Stock Exchange ("NYSE") or the American Stock Exchange (the "AMEX").
OTC companies often have limited product lines, or relatively new products or
services, and may lack established markets, depth of experienced management, or
financial resources and the ability to generate funds. The securities of these
companies may have limited marketability and may be more volatile in price than
securities of larger capitalized or more well-known companies. Among the
reasons for the greater price volatility of securities of certain smaller OTC
companies are the less certain growth prospects of comparably smaller firms, the
lower degree of liquidity in the OTC markets for such securities, and the
greater sensitivity of smaller capitalization companies to changing economic
conditions than larger capitalization, exchange-traded securities. Conversely,
because many of these OTC securities may be overlooked by investors and
undervalued in the marketplace, there is potential for significant capital
appreciation.

ULTRASMALL-CAP VP

The investment objective of UltraSmall-Cap VP is to provide daily investment
results that correspond to twice (200%) the performance of the Russell 2000(R)
Index.

UltraSmall-Cap VP does not intend to hold the 2,000 securities included in the
Russell 2000(R) Index. Instead, UltraSmall-Cap VP intends to engage in
transactions in equities, stock index futures contracts, options on stock index
futures contracts, and options on securities and stock indexes. As a
nonfundamental policy, UltraSmall-Cap VP will invest, under normal conditions,
at least 65% of its total assets in the securities comprising the Russell
2000(R) Index and instruments with values that are representative of such
securities, such as futures and option contracts on such securities or such
index.

If the UltraSmall-Cap VP achieved a perfect correlation for any single trading
day, the net asset value of the shares of UltraSmall-Cap VP would increase for
that day proportional to twice any increase in the level of the Russell 2000(R)
Index. Conversely, the net asset value of the shares of UltraSmall-Cap VP would
decrease for that day proportional to twice any decrease in the level of the
Russell 2000(R) Index for that day.

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For example, if the Russell 2000(R) Index were to increase by 1% on a
particular day, investors in UltraSmall-Cap VP should experience a gain in net
asset value of approximately 2% for that day. Conversely, if the Russell
2000(R) Index were to decrease by 1% by the close of business on a particular
trading day, investors in UltraSmall-Cap VP would experience a loss in net asset
value of approximately 2%.

The Russell 2000(R) Index is a capitalization-weighted index of domestic
equities traded on the NYSE, AMEX and NASDAQ Stock Markets, Inc. ("NASDAQ"). The
index represents the bottom 2,000 companies of the 3,000 U.S. stocks with the
largest market capitalizations. As of June 30, 1999, the market capitalization
of these 2,000 companies represented about 8% of the total market capitalization
of the 3,000 companies. Companies whose stock comprises the Russell 2000(R)
Index often have limited product lines, or relatively new products or services,
and may lack established markets, depth of experienced management, or financial
resources and the ability to generate funds. The securities of these companies
may have limited marketability and may be more volatile in price than securities
of larger capitalized or more well-known companies. Among the reasons for the
greater price volatility of securities of smaller companies whose stock
comprises the Russell 2000(R) Index are the less certain growth prospects of
smaller firms, the lower degree of liquidity in the markets for such securities,
and the greater sensitivity of smaller capitalization companies to changing
economic conditions than larger capitalization companies. Conversely, because
many of these securities may be overlooked by investors and undervalued in the
marketplace, there is potential for significant capital appreciation.

EUROPE 30 VP

The investment objective of Europe 30 VP is to provide daily investment
results that correspond to the performance of the ProFunds Europe 30 Index
("PEI").

If Europe 30 VP achieved a perfect correlation for any single trading day, the
net asset value of the shares of this ProFund VP would increase for that day
proportional to any increase in the level of the PEI. Conversely, the net asset
value of the shares of Europe 30 VP would decrease for that day proportional to
any decrease in the level of the PEI for that day.

Investing in foreign companies or financial instruments by this ProFund VP may
involve risks not typically associated with investing in U.S. companies. The
value of securities denominated in foreign currencies, and of dividends from
such securities, can change significantly when foreign currencies strengthen or
weaken relative to the U.S. Dollar. Foreign securities markets generally have
less trading volume and less liquidity than U.S. markets, and prices in some
foreign markets can be extremely volatile. Many foreign countries lack uniform
accounting and disclosure standards. Because this ProFund VP will invest
indirectly in foreign markets, it will be subject to certain of the market,
economic and political risks prevalent in these foreign markets.

Changes in foreign exchange rates will affect the value of securities of
financial instruments denominated or quoted in currencies other than the U.S.
Dollar, and this ProFund VP will not engage in activities designed to hedge
against foreign currency exchange rate fluctuations. Foreign currency exchange
rates may fluctuate significantly over short periods of time. They generally
are determined by forces of supply and demand in the foreign exchange markets
and the relative merits of investments in different countries, actual or
perceived changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention (or failure to intervene) by U.S. or foreign
governments or central banks, by currency controls or by political developments
in the U.S. or abroad.

By investing in American Depository Receipts ("ADRs") under normal market
conditions, Europe 30 VP may reduce some of the risks of investing in foreign
securities. ADRs are denominated in the U.S. Dollar, which reduces the risk of
currency fluctuations during the settlement period for either purchase or sales.
Further, the information available for ADRs is subject to the accounting,
auditing and financial reporting standards of the domestic market or exchange on
which they are traded, which standards are more uniform

5
<PAGE>

and more exacting than those to which many foreign issuers may be subject.
However, ADRs do not eliminate all the risk inherent in investing in the
securities of foreign issuers.

FUTURES CONTRACTS AND RELATED OPTIONS

The ProFunds VP may purchase or sell stock index futures contracts and options
thereon as a substitute for a comparable market position in the underlying
securities or to satisfy regulation requirements. A futures contract obligates
the seller to deliver (and the purchaser to take delivery of) the specified
commodity on the expiration date of the contract. A stock index futures
contract obligates the seller to deliver (and the purchaser to take) an amount
of cash equal to a specific dollar amount multiplied by the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying stocks in the index is made.

When a ProFund VP purchases a put or call option on a futures contract, the
ProFund VP pays a premium for the right to sell or purchase the underlying
futures contract for a specified price upon exercise at any time during the
option period. By writing (selling) a put or call option on a futures contract,
a ProFund VP receives a premium in return for granting to the purchaser of the
option the right to sell to or buy from the ProFund VP the underlying futures
contract for a specified price upon exercise at any time during the option
period.

Whether a ProFund VP realizes a gain or loss from futures activities depends
generally upon movements in the underlying commodity. The extent of the ProFund
VP's loss from an unhedged short position in futures contracts or from writing
options on futures contracts is potentially unlimited. The ProFunds VP may
engage in related closing purchase or sale transactions with respect to options
on futures contracts by buying an option of the same series as an option
previously written by a ProFund VP, or selling an option of the same series as
an option previously purchased by a ProFund VP. The ProFunds VP will engage in
transactions in futures contracts and related options that are traded on a U.S.
exchange or board of trade or that have been approved for sale in the U.S. by
the Commodity Futures Trading Commission.

When a ProFund VP purchases or sells a stock index futures contract, or sells
an option thereon, the ProFund VP "covers" its position. To cover its position,
a ProFund VP may enter into an offsetting position or maintain with its
custodian bank (and mark-to-market on a daily basis) a segregated account
consisting of liquid instruments that, when added to any amounts deposited with
a futures commission merchant as margin, are equal to the market value of the
futures contract or otherwise "cover" its position.

The ProFunds VP may purchase and sell futures contracts and options thereon
only to the extent that such activities would be consistent with the
requirements of Section 4.5 of the regulations promulgated by the Commodity
Futures Trading Commission (the "CFTC Regulations") under the Commodity Exchange
Act under which each of these ProFunds VP would be excluded from the definition
of a "commodity pool operator." Under Section 4.5 of the CFTC Regulations, a
ProFund VP may engage in futures transactions, either for "bona fide hedging"
purposes, as this term is defined in the CFTC Regulations, or for non- bona fide
hedging purposes to the extent that the aggregate initial margins and option
premiums required to establish such non- bona fide hedging positions do not
exceed 5% of the liquidation value of the ProFund VP's portfolio. In the case
of an option on futures contracts that is "in-the-money" at the time of purchase
(i.e., the amount by which the exercise price of the put option exceeds the
current market value of the underlying security or the amount by which the
current market value of the underlying security exceeds the exercise price of
the call option), the in-the-money amount may be excluded in calculating this 5%
limitation.

The ProFunds VP will cover their positions when they write a futures contract
or option on a futures contract. A ProFund VP may "cover" its long position in
a futures contract by purchasing a put option on the same futures contract with
a strike price (i.e., an exercise price) as high or higher than the price of the
futures contract, or, if the strike price of the put is less than the price of
the futures contract, the ProFund VP will maintain in a segregated account cash
or liquid instruments equal in value to the difference

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between the strike price of the put and the price of the futures contract. A
ProFund VP may also cover its long position in a futures contract by taking a
short position in the instruments underlying the futures contract, or by taking
positions in instruments the prices of which are expected to move relatively
consistently with the futures contract. A ProFund VP may cover its short
position in a futures contract by taking a long position in the instruments
underlying the futures contract, or by taking positions in instruments the
prices of which are expected to move relatively consistently with the futures
contract.

A ProFund VP may cover its sale of a call option on a futures contract by
taking a long position in the underlying futures contract at a price less than
or equal to the strike price of the call option, or, if the long position in the
underlying futures contract is established at a price greater than the strike
price of the written (sold) call, the ProFund VP will maintain in a segregated
account liquid instruments equal in value to the difference between the strike
price of the call and the price of the futures contract. A ProFund VP may also
cover its sale of a call option by taking positions in instruments the prices of
which are expected to move relatively consistently with the call option. A
ProFund VP may cover its sale of a put option on a futures contract by taking a
short position in the underlying futures contract at a price greater than or
equal to the strike price of the put option, or, if the short position in the
underlying futures contract is established at a price less than the strike price
of the written put, the ProFund VP will maintain in a segregated account cash or
high-grade liquid debt securities equal in value to the difference between the
strike price of the put and the price of the future. A ProFund VP may also
cover its sale of a put option by taking positions in instruments the prices of
which are expected to move relatively consistently with the put option.

Although the ProFunds VP intend to sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid market
will exist for any particular contract at any particular time. Many futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during the
day. Futures contract prices could move to the limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures positions and potentially subjecting a ProFund VP to substantial losses.
If trading is not possible, or if a ProFund VP determines not to close a futures
position in anticipation of adverse price movements, the ProFund VP will be
required to make daily cash payments of variation margin. The risk that the
ProFund VP will be unable to close out a futures position will be minimized by
entering into such transactions on a national exchange with an active and liquid
secondary market.

INDEX OPTIONS

The ProFunds VP may purchase and write options on stock indexes to create
investment exposure consistent with their investment objectives, to hedge or
limit the exposure of their positions and to create synthetic money market
positions. See "Taxation" herein.

A stock index fluctuates with changes in the market values of the stocks
included in the index. Options on stock indexes give the holder the right to
receive an amount of cash upon exercise of the option. Receipt of this cash
amount will depend upon the closing level of the stock index upon which the
option is based being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash received,
if any, will be the difference between the closing price of the index and the
exercise price of the option, multiplied by a specified dollar multiple. The
writer (seller) of the option is obligated, in return for the premiums received
from the purchaser of the option, to make delivery of this amount to the
purchaser. All settlements of index options transactions are in cash.

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ProFund VP will realize a profit or loss by the use of options on stock indexes
will depend on movements in the direction of the stock market generally or of a
particular industry or market segment. This requires different skills and
techniques than are required for predicting changes in the price of individual
stocks. A ProFund VP will not enter into an option position that exposes the
ProFund VP to an obligation to another party, unless the ProFund VP either (i)
owns an offsetting position in securities or other options and/or (ii) maintains
with the ProFund VP's custodian bank liquid instruments that, when added to the
premiums deposited with respect to the option, are equal to the market value of
the underlying stock index not otherwise covered.

The ProFunds VP may engage in transactions in stock index options listed on
national securities exchanges or traded in the OTC market as an investment
vehicle for the purpose of realizing their investment objectives. Options on
indexes are settled in cash, not by delivery of securities. The exercising
holder of an index option receives, instead of a security, cash equal to the
difference between the closing price of the securities index and the exercise
price of the option.

Some stock index options are based on a broad market index such as the S&P 500
Index, the NYSE Composite Index, or the AMEX Major Market Index, or on a
narrower index such as the Philadelphia Stock Exchange Over-the-Counter Index.
Options currently are traded on the Chicago Board Options Exchange (the "CBOE"),
the AMEX, and other exchanges ("Exchanges"). Purchased OTC options and the
cover for written OTC options will be subject to the 15% limitation on
investment in illiquid securities by the ProFunds VP. See "Illiquid
Securities."

Each of the Exchanges has established limitations governing the maximum number
of call or put options on the same index which may be bought or written (sold)
by a single investor, whether acting alone or in concert with others (regardless
of whether such options are written on the same or different Exchanges or are
held or written on one or more accounts or through one or more brokers). Under
these limitations, option positions of all investment companies advised by the
same investment adviser are combined for purposes of these limits. Pursuant to
these limitations, an Exchange may order the liquidation of positions and may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which a ProFund VP may buy or sell; however, the
Advisor intends to comply with all limitations.

OPTIONS ON SECURITIES

Each ProFund VP may buy and write (sell) options on securities for the purpose
of realizing its investment objectives. By buying a call option, a ProFund VP
has the right, in return for a premium paid during the term of the option, to
buy the securities underlying the option at the exercise price. By writing a
call option on securities, a ProFund VP becomes obligated during the term of the
option to sell the securities underlying the option at the exercise price if the
option is exercised. By buying a put option, a ProFund VP has the right, in
return for a premium paid during the term of the option, to sell the securities
underlying the option at the exercise price. By writing a put option, a ProFund
VP becomes obligated during the term of the option to purchase the securities
underlying the option at the exercise price if the option is exercised. During
the term of the option, the writer may be assigned an exercise notice by the
broker-dealer through whom the option was sold. The exercise notice would
require the writer to deliver, in the case of a call, or take delivery of, in
the case of a put, the underlying security against payment of the exercise
price. This obligation terminates upon expiration of the option, or at such
earlier time that the writer effects a closing purchase transaction by
purchasing an option covering the same underlying security and having the same
exercise price and expiration date as the one previously sold. Once an option
has been exercised, the writer may not execute a closing purchase transaction.
To secure the obligation to deliver the underlying security in the case of a
call option, the writer of a call option is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation (the "OCC"), an institution created to interpose itself
between buyers and sellers of options. The OCC assumes the other side of every
purchase and sale transaction on an exchange and, by doing so, gives its
guarantee to the transaction. When writing call options on securities, a
ProFund VP may cover its position by owning the underlying security on which the
option is written. Alternatively, the ProFund VP may cover its position by
owning a call option on the underlying security, on a share for share basis,
which is deliverable under the option contract at a price no higher than the
exercise price of the call option written

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by the ProFund VP or, if higher, by owning such call option and depositing and
maintaining in a segregated account cash or liquid instruments equal in value to
the difference between the two exercise prices. In addition, a ProFund VP may
cover its position by depositing and maintaining in a segregated account cash or
liquid instruments equal in value to the exercise price of the call option
written by the ProFund VP. When a ProFund VP writes a put option, the ProFund VP
will have and maintain on deposit with its custodian bank cash or liquid
instruments having a value equal to the exercise value of the option. The
principal reason for a ProFund VP to write call options on stocks held by the
ProFund VP is to attempt to realize, through the receipt of premiums, a greater
return than would be realized on the underlying securities alone.

If a ProFund VP that writes an option wishes to terminate the ProFund VP's
obligation, the ProFund VP may effect a "closing purchase transaction." The
ProFund VP accomplishes this by buying an option of the same series as the
option previously written by the ProFund VP. The effect of the purchase is that
the writer's position will be canceled by the OCC. However, a writer may not
effect a closing purchase transaction after the writer has been notified of the
exercise of an option. Likewise, a ProFund VP which is the holder of an option
may liquidate its position by effecting a "closing sale transaction." The
ProFund VP accomplishes this by selling an option of the same series as the
option previously purchased by the ProFund VP. There is no guarantee that
either a closing purchase or a closing sale transaction can be effected. If any
call or put option is not exercised or sold, the option will become worthless on
its expiration date. A ProFund VP will realize a gain (or a loss) on a closing
purchase transaction with respect to a call or a put option previously written
by the ProFund VP if the premium, plus commission costs, paid by the ProFund VP
to purchase the call or put option to close the transaction is less (or greater)
than the premium, less commission costs, received by the ProFund VP on the sale
of the call or the put option. The ProFund VP also will realize a gain if a
call or put option which the ProFund VP has written lapses unexercised, because
the ProFund VP would retain the premium.

Although certain securities exchanges attempt to provide continuously liquid
markets in which holders and writers of options can close out their positions at
any time prior to the expiration of the option, no assurance can be given that a
market will exist at all times for all outstanding options purchased or sold by
a ProFund VP. If an options market were to become unavailable, the ProFund VP
would be unable to realize its profits or limit its losses until the ProFund VP
could exercise options it holds, and the ProFund VP would remain obligated until
options it wrote were exercised or expired. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or the OCC may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued by the OCC as
a result of trades on that exchange would continue to be exercisable in
accordance with their terms.

SWAP AGREEMENTS

The ProFunds VP may enter into equity index or interest rate swap agreements
for purposes of attempting to gain exposure to the stocks making up an index of
securities in a market without actually purchasing those stocks, or to hedge a
position. Swap agreements are two-party contracts entered into primarily by
institutional investors for periods ranging from a day to more than one year.
In a standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount," i.e.,
the return on or increase in value of a particular dollar amount invested in a
"basket" of securities representing a particular index. Forms of swap
agreements include interest rate caps, under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
exceed a specified rate, or "cap"; interest rate floors, under which, in return
for a premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; and interest rate
collars, under which a

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party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels.

Most swap agreements entered into by the ProFunds VP calculate the obligations
of the parties to the agreement on a "net basis." Consequently, a ProFund VP's
current obligations (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount").

A ProFund VP's current obligations under a swap agreement will be accrued
daily (offset against any amounts owing to the ProFund VP) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by segregating
assets determined to be liquid. Obligations under swap agreements so covered
will not be construed to be "senior securities" for purposes of a ProFund VP's
investment restriction concerning senior securities. Because they are two party
contracts and because they may have terms of greater than seven days, swap
agreements may be considered to be illiquid for the ProFund VP illiquid
investment limitations. A ProFund VP will not enter into any swap agreement
unless the Advisor believes that the other party to the transaction is
creditworthy. A ProFund VP bears the risk of loss of the amount expected to be
received under a swap agreement in the event of the default or bankruptcy of a
swap agreement counterparty.

Each ProFund VP may enter into swap agreements to invest in a market without
owning or taking physical custody of securities in circumstances in which direct
investment is restricted for legal reasons or is otherwise impracticable. The
counterparty to any swap agreement will typically be a bank, investment banking
firm or broker/dealer. The counterparty will generally agree to pay the ProFund
VP the amount, if any, by which the notional amount of the swap agreement would
have increased in value had it been invested in the particular stocks, plus the
dividends that would have been received on those stocks. The ProFund VP will
agree to pay to the counterparty a floating rate of interest on the notional
amount of the swap agreement plus the amount, if any, by which the notional
amount would have decreased in value had it been invested in such stocks.
Therefore, the return to the ProFund VP on any swap agreement should be the gain
or loss on the notional amount plus dividends on the stocks less the interest
paid by the ProFund VP on the notional amount.

Swap agreements typically are settled on a net basis, which means that the two
payment streams are netted out, with the ProFund VP receiving or paying, as the
case may be, only the net amount of the two payments. Payments may be made at
the conclusion of a swap agreement or periodically during its term. Swap
agreements do not involve the delivery of securities or other underlying assets.
Accordingly, the risk of loss with respect to swap agreements is limited to the
net amount of payments that a ProFund VP is contractually obligated to make. If
the other party to a swap agreement defaults, a ProFund VP's risk of loss
consists of the net amount of payments that such ProFund VP is contractually
entitled to receive, if any. The net amount of the excess, if any, of a ProFund
VP's obligations over its entitlements with respect to each equity swap will be
accrued on a daily basis and an amount of cash or liquid assets, having an
aggregate net asset value at least equal to such accrued excess will be
maintained in a segregated account by a ProFund VP's custodian. Inasmuch as
these transactions are entered into for hedging purposes or are offset by
segregated cash of liquid assets, as permitted by applicable law, the ProFunds
VP and their Advisor believe that transactions do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to a ProFund VP's borrowing restrictions.

The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the markets for other similar
instruments which are traded in the OTCmarket. The Advisor, under the
supervision of the Board of Trustees, are responsible for determining and
monitoring the liquidity of the ProFund VP transactions in swap agreements.

The use of equity swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions.

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AMERICAN DEPOSITORY RECEIPTS

For many foreign securities, U.S. Dollar denominated ADRs, which are traded in
the United States on exchanges or over-the-counter, are issued by domestic
banks. ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. ADRs do not eliminate all
the risk inherent in investing in the securities of foreign issuers. However,
by investing in ADRs rather than directly in foreign issuers' stock, Europe 30
VP can avoid currency risks during the settlement period for either purchase or
sales.

In general, there is a large, liquid market in the United States for many
ADRs. The information available for ADRs is subject to the accounting, auditing
and financial reporting standards of the domestic market or exchange on which
they are traded, which standards are more uniform and more exacting than those
to which many foreign issuers may be subject. Certain ADRs, typically those
denominated as unsponsored, require the holders thereof to bear most of the
costs of such facilities, while issuers of sponsored facilities normally pay
more of the costs thereof. The depository of an unsponsored facility frequently
is under no obligation to distribute shareholder communications received from
the issuer of the deposited securities or to pass through the voting rights to
facility holders with respect to the deposited securities, whereas the
depository of a sponsored facility typically distributes shareholder
communications and passes through the voting rights.

Europe 30 VP may invest in both sponsored and unsponsored ADRs. Unsponsored
ADR programs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information
concerning the issuers may not be as current as for sponsored ADRs, and the
prices of unsponsored depository receipts may be more volatile than if such
instruments were sponsored by the issuer.

U.S. GOVERNMENT SECURITIES

Each ProFund VP also may invest in U.S. government securities in pursuit of
its investment objectives, as "cover" for the investment techniques these
ProFunds VP employ, or for liquidity purposes.

Yields on U.S. government securities are dependent on a variety of factors,
including the general conditions of the money and bond markets, the size of a
particular offering, and the maturity of the obligation. Debt securities with
longer maturities tend to produce higher yields and are generally subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities and lower yields. The market value of U.S. government
securities generally varies inversely with changes in market interest rates. An
increase in interest rates, therefore, would generally reduce the market value
of a ProFund VP's portfolio investments in U.S. government securities, while a
decline in interest rates would generally increase the market value of a ProFund
VP's portfolio investments in these securities.

U.S. government securities include U.S. Treasury securities, which are backed
by the full faith and credit of the U.S. Treasury and which differ only in their
interest rates, maturities, and times of issuance. U.S. Treasury bills have
initial maturities of one year or less; U.S. Treasury notes have initial
maturities of one to ten years; and U.S. Treasury bonds generally have initial
maturities of greater than ten years. Certain U.S. government securities are
issued or guaranteed by agencies or instrumentalities of the U.S. government
including, but not limited to, obligations of U.S. government agencies or
instrumentalities, such as the Federal National Mortgage Association, the
Government National Mortgage Association, the Small Business Administration, the
Federal Farm Credit Administration, the Federal Home Loan Banks, Banks for
Cooperatives (including the Central Bank for Cooperatives), the Federal Land
Banks, the Federal Intermediate Credit Banks, the Tennessee Valley Authority,
the Export-Import Bank of the United States, the Commodity Credit Corporation,
the Federal Financing Bank, the Student Loan Marketing Association, and the
National Credit Union Administration. Some obligations issued or guaranteed by
U.S. government agencies and instrumentalities, including, for example,
Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury. Other obligations
issued by or guaranteed by Federal agencies, such as those securities issued by
the Federal National Mortgage Association, are supported by the discretionary
authority of the U.S. government to purchase certain obligations of the federal
agency, while other obligations issued by or guaranteed by federal agencies,
such as those of the Federal Home Loan Banks, are supported by the right of the
issuer to borrow

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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 VP may enter into repurchase agreements with financial
institutions. Under a repurchase agreement, a ProFund VP purchases a debt
security and simultaneously agrees to sell the security back to the seller at a
mutually agreed-upon future price and date, normally one day or a few days
later. The resale price is greater than the purchase price, reflecting an
agreed-upon market interest rate during the purchaser's holding period. While
the maturities of the underlying securities in repurchase transactions may be
more than one year, the term of each repurchase agreement will always be less
than one year. The ProFunds VP follow certain procedures designed to minimize
the risks inherent in such agreements. These procedures include effecting
repurchase transactions only with large, well-capitalized and well-established
financial institutions whose condition will be continually monitored by the
Advisor. In addition, the value of the collateral underlying the repurchase
agreement will always be at least equal to the repurchase price, including any
accrued interest earned on the repurchase agreement. In the event of a default
or bankruptcy by a selling financial institution, a ProFund VP will seek to
liquidate such collateral which could involve certain costs or delays and, to
the extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the ProFund VP could suffer a
loss. A ProFund VP also may experience difficulties and incur certain costs in
exercising its rights to the collateral and may lose the interest the ProFund VP
expected to receive under the repurchase agreement. Repurchase agreements
usually are for short periods, such as one week or less, but may be longer. It
is the current policy of the ProFunds VP not to invest in repurchase agreements
that do not mature within seven days if any such investment, together with any
other liquid assets held by the ProFund VP, amounts to more than 15% of its
total net assets. The investments of each of the ProFunds VP in repurchase
agreements at times may be substantial when, in the view of the Advisor,
liquidity, investment, regulatory, or other considerations so warrant.

CASH RESERVES

To seek its investment objective as a cash reserve, for liquidity purposes, or
as "cover" for positions it has taken, each ProFund VP may temporarily invest
all or part of the ProFund VP's assets in cash or cash equivalents, which
include, but are not limited to, short-term money market instruments, U.S.
government securities, certificates of deposit, bankers acceptances, or
repurchase agreements secured by U.S. government securities.

REVERSE REPURCHASE AGREEMENTS

The ProFunds VP may use reverse repurchase agreements as part of their
investment strategies. Reverse repurchase agreements involve sales by a ProFund
VP of portfolio assets concurrently with an agreement by the ProFund VP to
repurchase the same assets at a later date at a fixed price. Generally, the
effect of such a transaction is that the ProFund VP can recover all or most of
the cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while the ProFund VP will be able to keep the
interest income associated with those portfolio securities. Such transactions
are advantageous only if the interest cost to the ProFund VP of the reverse
repurchase transaction is less than the cost of obtaining the cash otherwise.
Opportunities to achieve this advantage may not always be available, and the
ProFund VP intend to use the reverse repurchase technique only when it will be
to the ProFund VP's advantage to do so. The ProFund VP will establish a
segregated account with its custodian bank in which the ProFund VP will maintain
cash or liquid instruments equal in value to the ProFund VP's obligations in
respect of reverse repurchase agreements.

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BORROWING

The ProFunds VP may borrow money for cash management purposes or investment
purposes. Each of the ProFunds VP may also enter into reverse repurchase
agreements, which may be viewed as a form of borrowing, with financial
institutions. However, to the extent a ProFund VP "covers" its repurchase
obligations as described above in "Reverse Repurchase Agreements," such
agreement will not be considered to be a "senior security" and, therefore, will
not be subject to the 300% asset coverage requirement otherwise applicable to
borrowings by the ProFunds VP. Borrowing for investment is known as leveraging.
Leveraging investments, by purchasing securities with borrowed money, is a
speculative technique which increases investment risk, but also increases
investment opportunity. Since substantially all of a ProFund VP's assets will
fluctuate in value, whereas the interest obligations on borrowings may be fixed,
the net asset value per share of the ProFund VP will increase more when the
ProFund VP's portfolio assets increase in value and decrease more when the
ProFund VP's portfolio assets decrease in value than would otherwise be the
case. Moreover, interest costs on borrowings may fluctuate with changing market
rates of interest and may partially offset or exceed the returns on the borrowed
funds. Under adverse conditions, a ProFund VP might have to sell portfolio
securities to meet interest or principal payments at a time when investment
considerations would not favor such sales.

As required by the 1940 Act, a ProFund VP must maintain continuous asset
coverage (total assets, including assets acquired with borrowed funds, less
liabilities exclusive of borrowings) of 300% of all amounts borrowed. If at any
time the value of the ProFund VP's assets should fail to meet this 300% coverage
test, the ProFund VP, within three days (not including Sundays and holidays),
will reduce the amount of the ProFund VP's borrowings to the extent necessary to
meet this 300% coverage. Maintenance of this percentage limitation may result
in the sale of portfolio securities at a time when investment considerations
otherwise indicate that it would be disadvantageous to do so. In addition to
the foregoing, the ProFunds VP are authorized to borrow money from a bank as a
temporary measure for extraordinary or emergency purposes in amounts not in
excess of 5% of the value of the ProFund VP's total assets. This borrowing is
not subject to the foregoing 300% asset coverage requirement. The ProFunds VP
are authorized to pledge portfolio securities as the Advisor deems appropriate
in connection with any borrowings.

LENDING OF PORTFOLIO SECURITIES

Each of the ProFunds VP may lend its portfolio securities to brokers, dealers,
and financial institutions, provided that cash equal to at least 100% of the
market value of the securities loaned is deposited by the borrower with the
ProFund VP and is maintained each business day in a segregated account pursuant
to applicable regulations. While such securities are on loan, the borrower will
pay the lending ProFund VP any income accruing thereon, and the ProFund VP may
invest the cash collateral in portfolio securities, thereby earning additional
income. A ProFund VP will not lend more than 33 1/3% of the value of the
ProFund VP's total assets. Loans would be subject to termination by the lending
ProFund VP on four business days' notice, or by the borrower on one day's
notice. Borrowed securities must be returned when the loan is terminated. Any
gain or loss in the market price of the borrowed securities which occurs during
the term of the loan inures to the lending ProFund VP. There may be risks of
delay in receiving additional collateral or risks of delay in recovery of the
securities or even loss of rights in the securities lent should the borrower of
the securities fail financially. A lending ProFund VP may pay reasonable
finders, borrowers, administrative, and custodial fees in connection with a
loan.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES

Each ProFund VP, from time to time, in the ordinary course of business, may
purchase securities on a when-issued or delayed-delivery basis (i.e., delivery
and payment can take place between a month and 120 days after the date of the
transaction). These securities are subject to market fluctuation and no
interest accrues to the purchaser during this period. At the time a ProFund VP
makes the commitment to purchase securities on a when-issued or delayed-delivery
basis, the ProFund VP will record the transaction and thereafter reflect the
value of the securities, each day, in determining the ProFund VP's net asset
value. Each ProFund VP will not purchase securities on a when-issued or
delayed-delivery basis if, as a result,

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more than 15% of the ProFund VP's net assets would be so invested. At the time
of delivery of the securities, the value of the securities may be more or less
than the purchase price.

The Trust will also establish a segregated account with the Trust's custodian
bank in which the ProFunds VP will maintain liquid instruments equal to or
greater in value than the ProFund VP's purchase commitments for such when-issued
or delayed-delivery securities, or the Trust does not believe that a ProFund
VP's net asset value or income will be adversely affected by the ProFund VP's
purchase of securities on a when-issued or delayed delivery basis.

INVESTMENTS IN OTHER INVESTMENT COMPANIES

The ProFunds VP may invest in the securities of other investment companies to
the extent that such an investment would be consistent with the requirements of
the 1940 Act. If a ProFund VP invests in, and, thus, is a shareholder of,
another investment company, the ProFund VP's shareholders will indirectly bear
the ProFund VP's proportionate share of the fees and expenses paid by such other
investment company, including advisory fees, in addition to both the management
fees payable directly by the ProFund VP to the ProFund VP's own investment
adviser and the other expenses that the ProFund VP bears directly in connection
with the ProFund VP's own operations.

ILLIQUID SECURITIES

While none of the ProFunds VP anticipates doing so, each of the ProFunds VP
may purchase illiquid securities, including securities that are not readily
marketable and securities that are not registered ("restricted securities")
under the Securities Act of 1933, as amended (the "1933 Act"), but which can be
sold to qualified institutional buyers under Rule 144A of the 1933 Act. A
ProFund VP will not invest more than 15% of the ProFund VP's net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the ProFund VP has valued the
securities. Under the current guidelines of the staff of the Securities and
Exchange Commission (the "Commission"), illiquid securities also are considered
to include, among other securities, purchased OTC options, certain cover for OTC
options, repurchase agreements with maturities in excess of seven days, and
certain securities whose disposition is restricted under the Federal securities
laws. The ProFund VP may not be able to sell illiquid securities when the
Advisor considers it desirable to do so or may have to sell such securities at a
price that is lower than the price that could be obtained if the securities were
more liquid. In addition, the sale of illiquid securities also may require more
time and may result in higher dealer discounts and other selling expenses than
does the sale of securities that are not illiquid. Illiquid securities also may
be more difficult to value due to the unavailability of reliable market
quotations for such securities, and investments in illiquid securities may have
an adverse impact on net asset value.

Institutional markets for restricted securities have developed as a result of
the promulgation of Rule 144A under the 1933 Act, which provides a safe harbor
from 1933 Act registration requirements for qualifying sales to institutional
investors. When Rule 144A restricted securities present an attractive
investment opportunity and otherwise meet selection criteria, a ProFund VP may
make such investments. Whether or not such securities are illiquid depends on
the market that exists for the particular security. The Commission staff has
taken the position that the liquidity of Rule 144A restricted securities is a
question of fact for a board of trustees to determine, such determination to be
based on a consideration of the readily-available trading markets and the review
of any contractual restrictions. The staff also has acknowledged that, while a
board of trustees retains ultimate responsibility, trustees may delegate this
function to an investment adviser. Trustees of ProFunds VP have delegated this
responsibility for determining the liquidity of Rule 144A restricted securities
which may be invested in by a ProFund VP to the Advisor. It is not possible to
predict with assurance exactly how the market for Rule 144A restricted
securities or any other security will develop. A security which when purchased
enjoyed a fair degree of marketability may subsequently become illiquid and,
accordingly, a security which was deemed to be liquid at the time of acquisition
may subsequently become illiquid. In such event, appropriate remedies will be
considered to minimize the effect on the ProFund VP's liquidity.

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<PAGE>

PORTFOLIO TURNOVER

The nature of the ProFunds VP will cause the ProFunds VP to experience
substantial portfolio turnover. A higher portfolio turnover rate would likely
involve correspondingly greater brokerage commissions and transaction and other
expenses which would be borne by the ProFunds VP. In addition, a ProFund VP's
portfolio turnover level may adversely affect the ability of the ProFund VP to
achieve its investment objective. Because each ProFund VP's portfolio turnover
rate to a great extent will depend on the purchase, redemption, and exchange
activity of the ProFund VP's investors, it is difficult to estimate what the
ProFund VP's actual turnover rate will be in the future. "Portfolio Turnover
Rate" is defined under the rules of the Commission as the value of the
securities purchased or securities sold, excluding all securities whose
maturities at time of acquisition were one year or less, divided by the average
monthly value of such securities owned during the year. Based on this
definition, instruments with remaining maturities of less than one year are
excluded from the calculation of portfolio turnover rate. Instruments excluded
from the calculation of portfolio turnover generally would include the futures
contracts and option contracts in which the ProFunds VP invest since such
contracts generally have a remaining maturity of less than one year. Pursuant
to the formula prescribed by the Commission, the portfolio turnover rate for
each ProFund VP is calculated without regard to instruments, including options
and futures contracts, having a maturity of less than one year.

SPECIAL CONSIDERATIONS

To the extent discussed above and in the prospectus, the ProFunds VP present
certain risks, some of which are further described below.

TRACKING ERROR. While the ProFunds VP do not expect that their returns over a
year will deviate adversely from their respective benchmarks by more than ten
percent, several factors may affect their ability to achieve this correlation.
Among these factors are: (1) ProFund VP expenses, including brokerage (which may
be increased by high portfolio turnover) and the cost of the investment
techniques employed by the ProFunds VP; (2) less than all of the securities in
the benchmark being held by a ProFund VP and securities not included in the
benchmark being held by a ProFund VP; (3) an imperfect correlation between the
performance of instruments held by a ProFund VP, such as futures contracts and
options, and the performance of the underlying securities in the cash market;
(4) bid-ask spreads (the effect of which may be increased by portfolio
turnover); (5) holding instruments traded in a market that has become illiquid
or disrupted; (6) a ProFund VP share prices being rounded to the nearest cent;
(7) changes to the benchmark index that are not disseminated in advance; (8) the
need to conform a ProFund VP's portfolio holdings to comply with investment
restrictions or policies or regulatory or tax law requirements, and (9) early
and unanticipated closings of the markets on which the holdings of a ProFund VP
trade, resulting in the inability of the ProFund VP to execute intended
portfolio transactions. While a close correlation of any ProFund VP to its
benchmark may be achieved on any single trading day, over time the cumulative
percentage increase or decrease in the net asset value of the shares of a
ProFund VP may diverge significantly from the cumulative percentage decrease or
increase in the benchmark due to a compounding effect.

LEVERAGE. UltraOTC VP and UltraSmall-Cap VP intend 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 VP achieves the right to a return on a capital
base that exceeds the amount the ProFund VP has invested. Leverage creates the
potential for greater gains to shareholders of these ProFund VP during favorable
market conditions and the risk of magnified losses during adverse market
conditions. Leverage should cause higher volatility of the net asset values of
these ProFund VP's shares. Leverage may involve the creation of a liability
that does not entail any interest costs or the creation of a liability that
requires the ProFund VP to pay interest which would decrease the ProFund VP's
total return to shareholders. If these ProFunds VP achieve their investment
objectives, during adverse market conditions, shareholders should experience a
loss of approximately twice the amount they would have incurred had these
ProFunds VP not been leveraged.

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<PAGE>

NON-DIVERSIFIED STATUS. Each ProFund VP is a "non-diversified" series. Each
ProFund VP is considered "non-diversified" because a relatively high percentage
of the ProFund VP's assets may be invested in the securities of a limited number
of issuers, primarily within the same economic sector. That ProFund VP's
portfolio securities, therefore, may be more susceptible to any single economic,
political, or regulatory occurrence than the portfolio securities of a more
diversified investment company. A ProFund VP's classification as a "non-
diversified" investment company means that the proportion of the ProFund VP's
assets that may be invested in the securities of a single issuer is not limited
by the 1940 Act. Each ProFund VP, however, intends to seek to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code, which
imposes diversification requirements on these ProFund VP that are less
restrictive than the requirements applicable to the "diversified" investment
companies under the 1940 Act.

INVESTMENT RESTRICTIONS

The ProFunds VP have adopted certain investment restrictions as fundamental
policies which cannot be changed without the approval of the holders of a
"majority" of the outstanding shares of a ProFund VP, as that term is defined in
the 1940 Act. The term "majority" is defined in the 1940 Act as the lesser of:
(i) 67% or more of the shares of the series present at a meeting of
shareholders, if the holders of more than 50% of the outstanding shares of the
ProFund VP are present or represented by proxy; or (ii) more than 50% of the
outstanding shares of the series. (All policies of a ProFund VP not
specifically identified in this Statement of Additional Information or the
Prospectus as fundamental may be changed without a vote of the shareholders of
the ProFund VP.) For purposes of the following limitations, all percentage
limitations apply immediately after a purchase or initial investment.

A ProFund VP may not:

1. Invest more than 25% of its total assets, taken at market value at the time
of each investment, in the securities of issuers in any particular industry
(excluding the U.S. government and its agencies and instrumentalities or
repurchase agreements with respect thereto).

2. Make investments for the purpose of exercising control or management.

3. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the ProFund VP may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies that invest
in real estate or interests therein.

4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers' acceptances and repurchase agreements and purchase and sale
contracts and any similar instruments shall not be deemed to be the making of a
loan, and except further that the ProFund VP may lend its portfolio securities,
provided that the lending of portfolio securities may be made only in accordance
with applicable law and the guidelines set forth in the Prospectus and this
Statement of Additional Information, as they may be amended from time to time.

5. Issue senior securities to the extent such issuance would violate
applicable law.

6. Borrow money, except that the ProFund VP (i) may borrow from banks (as
defined in the Investment Company Act of 1940) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) may, to the extent permitted
by applicable law, borrow up to an additional 5% of its total assets for
temporary purposes, (iii) may obtain such short-term credit as may be necessary
for the clearance of purchases and sales of portfolio securities, (iv) may
purchase securities on margin to the extent permitted by applicable law and (v)
may enter into reverse repurchase agreements. The ProFund VP may not pledge its
assets other than to secure such borrowings or, to the extent permitted by the
ProFund VP's investment policies as set forth in the Prospectus and this
Statement of Additional Information, as they may be amended from time to time,
in connection with hedging transactions, short sales, when-issued and forward
commitment transactions and similar investment strategies.

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<PAGE>

7. Underwrite securities of other issuers, except insofar as the ProFund VP
technically may be deemed an underwriter under the Securities Act of 1933, as
amended, in selling portfolio securities.

8. Purchase or sell commodities or contracts on commodities, except to the
extent the ProFund VP may do so in accordance with applicable law and the
ProFund VP's Prospectus and Statement of Additional Information, as they may be
amended from time to time.

DETERMINATION OF NET ASSET VALUE

The net asset values of the shares of the ProFunds VP 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 VP are traded in other
markets on days when the ProFund VP's principal trading market(s) is closed, the
ProFund VP's net asset value may be affected on days when investors do not have
access to the ProFund VP to purchase or redeem shares. Although the ProFunds VP
expect the same holiday schedules to be observed in the future, the exchanges
may modify their holiday schedules at any time.

The net asset value of shares of a ProFund VP serves as the basis for the
purchase and redemption price of the shares. The net asset value per share of a
ProFund VP is calculated by dividing the market value of the ProFund VP's
assets, less all liabilities attributed to the ProFund VP, by the number of
outstanding shares of the ProFund VP. If market quotations are not readily
available, a security will be valued at fair value by the Trustees of the Trust
or by the Advisor using methods established or ratified by the Trustees of the
Trust.

The securities in the portfolio of a ProFund VP, except as otherwise noted,
that are listed or traded on a stock exchange, are valued on the basis of the
last sale on that day or, lacking any sales, at a price that is the mean between
the closing bid and asked prices. Other securities that are traded on the OTC
markets are priced using NASDAQ, which provides information on bid and asked
prices quoted by major dealers in such stocks. Bonds, other than convertible
bonds, are valued using a third-party pricing system. Convertible bonds are
valued using this pricing system only on days when there is no sale reported.
Short-term debt securities are valued using this pricing system only on days
when there is no sale reported. Short-term debt securities are valued at
amortized cost, which approximates market value. When market quotations are not
readily available, securities and other assets are valued at fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the Trust's Board of Trustees.

Futures contracts maintained by ProFunds VP are valued at their last sale
price prior to the valuation time. Options on futures contracts generally are
valued at fair value as determined with reference to established futures
exchanges. Options on securities and indices purchased by a ProFund VP are
valued at their last sale price prior to the valuation time or at fair value.
In the event of a trading halt that closes the NYSE early, futures contracts
will be valued on the basis of settlement prices on futures exchanges, options
on futures will be valued at fair value as determined with reference to such
settlement prices, and options on securities and indices will be valued at their
last sale price prior to the trading halt or at fair value.

In the event a trading halt closes a futures exchange for a given day and that
closure occurs prior to the close of the NYSE on that day, futures positions
traded on such exchange and held by a ProFund VP will be valued on the basis of
the day's settlement prices on the futures exchange or fair value.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to the general supervision by the Trustees, the Advisor is responsible
for decisions to buy and sell securities for each of the ProFunds VP, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. The Advisor expects that the ProFunds VP may

17
<PAGE>

execute brokerage or other agency transactions through registered broker-
dealers, for a commission, in conformity with the 1940 Act, the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder. The
Advisor may serve as an investment manager to a number of clients, including
other investment companies. It is the practice of the Advisor to cause purchase
and sale transactions to be allocated among the ProFunds VP and others whose
assets the Advisor manages in such manner as the Advisor deems equitable. The
main factors considered by the Advisor in making such allocations among the
ProFunds VP and other client accounts of the Advisor are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the opinions of the person(s)
responsible, if any, for managing the portfolios of the ProFunds VP and the
other client accounts.

The policy of each ProFund VP regarding purchases and sales of securities for
a ProFund VP's portfolio is that primary consideration will be given to
obtaining the most favorable prices and efficient executions of transactions.
Consistent with this policy, when securities transactions are effected on a
stock exchange, each ProFund VP's policy is to pay commissions which are
considered fair and reasonable without necessarily determining that the lowest
possible commissions are paid in all circumstances. Each ProFund VP believes
that a requirement always to seek the lowest possible commission cost could
impede effective portfolio management and preclude the ProFund VP and the
Advisor from obtaining a high quality of brokerage and research services. In
seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Advisor relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.

In seeking to implement a ProFund VP's policies, the Advisor effects
transactions with those brokers and dealers who the Advisor believes provide the
most favorable prices and are capable of providing efficient executions. If the
Advisor believes such prices and executions are obtainable from more than one
broker or dealer, the Advisor may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the ProFund VP or the Advisor. Such services may include, but are
not limited to, any one or more of the following: information as to the
availability of securities for purchase or sale; statistical or factual
information or opinions pertaining to investment; wire services; and appraisals
or evaluations of portfolio securities. If the broker-dealer providing these
additional services is acting as a principal for its own account, no commissions
would be payable. If the broker-dealer is not a principal, a higher commission
may be justified, at the determination of the Advisor, for the additional
services.

The information and services received by the Advisor from brokers and dealers
may be of benefit to the Advisor in the management of accounts of some of the
Advisor's other clients and may not in all cases benefit a ProFund VP directly.
While the receipt of such information and services is useful in varying degrees
and would generally reduce the amount of research or services otherwise
performed by the Advisor and thereby reduce the Advisor's expenses, this
information and these services are of indeterminable value and the management
fee paid to the Advisor is not reduced by any amount that may be attributable to
the value of such information and services.

For the period from October 19, 1999 (the commencement of operations) to
December 31, 1999, each ProFund VP paid brokerage commissions in the following
amount:

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BROKERAGE COMMISSIONS
FYE 12/31/99

UltraOTC VP $13,904
UltraSmall-Cap VP 37,300
Europe 30 VP 2,856

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,
the Advisor. Formerly: Principal, Law Offices of Michael L. Sapir; Senior Vice
President, General Counsel, Padco Advisors, Inc.; Partner, Jorden Burt Berenson
& Klingensmith. His address is 7900 Wisconsin Avenue, Suite 300, Bethesda,
Maryland 20814.

LOUIS M. MAYBERG* (birthdate: August 9, 1962). Currently: Trustee and
Secretary of ProFunds; President, the Advisor. Formerly: President, Potomac
Securities, Inc.; Managing Director, National Capital Companies, LLC. His
address is 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814.

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 R. TENKMAN: (birthdate: September 16, 1970): Currently: Treasurer of
ProFunds; Vice President - Financial Services, BISYS Fund Services. Formerly:
Audit Manager - Investment Management Services Group, Ernst & Young LLP. 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.

No director, officer or employee of BISYS or any of its affiliates will
receive any compensation from the Trust for serving as an officer or Trustee of
the Trust.

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PROFUNDS TRUSTEE COMPENSATION TABLE

The following table reflect fees paid by the Trust, with respect to all series
of the Trust, to the Trustees for the year ended December 31, 1999.

NAME OF
PERSON: POSITION COMPENSATION
- ---------------- ------------

Michael L. Sapir, Chairman and Chief Executive Officer None

Louis M. Mayberg, Trustee, President, Secretary None

Russell S. Reynolds, III, Trustee $5,500

Michael C. Wachs, Trustee $5,500

As of April 3, 2000, the Trustees and Officers of the ProFunds beneficially
owned in the aggregate less than 1% of the shares of each ProFund VP.

PROFUND ADVISORS LLC

Under an investment advisory agreement between the Trust, on behalf of the
ProFunds VP, and the Advisor, dated October 18, 1999, each of the ProFunds VP
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 VP, in accordance with the investment
objectives, policies, and limitations of each ProFund VP, subject to the general
supervision and control of Trustees and the officers of ProFunds VP. The
Advisor bears all costs associated with providing these advisory services. The
Advisor, from its own resources, including profits from advisory fees received
from the ProFunds VP, provided such fees are legitimate and not excessive, also
may make payments to broker-dealers and other financial institutions for their
expenses in connection with the distribution of ProFund VP shares. The
Advisor's address is 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814.

For the period from October 19, 1999 (commencement of operations) to December
31, 1999, the Advisor was entitled to, and voluntarily waived, advisory fees in
the following amounts for each of the ProFunds VP:

ADVISORY FEES
FYE 12/31/99

Earned Waived
--------------------------
UltraOTC VP $55,095 $6,554
UltraSmall-Cap VP 7,551 6,071
Europe 30 VP 2,323 1,195

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 VP (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.

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ADMINISTRATION, TRANSFER AGENT, FUND ACCOUNTING AGENT AND CUSTODIAN

BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS")
acts as Administrator to the ProFunds VP. The Administrator provides the
ProFunds VP with all required general administrative services, including,
without limitation, office space, equipment, and personnel; clerical and general
back office services; bookkeeping, internal accounting, and secretarial
services; the determination of net asset values; and the preparation and filing
of all reports, registration statements, proxy statements, and all other
materials required to be filed or furnished by the ProFunds VP under Federal and
state securities laws. The Administrator also maintains the shareholder account
records for the ProFunds VP, distributes dividends and distributions payable by
the ProFunds VP, and produces statements with respect to account activity for
the ProFunds VP and their shareholders. The Administrator pays all fees and
expenses that are directly related to the services provided by the Administrator
to the ProFunds VP; each ProFund VP reimburses the Administrator for all fees
and expenses incurred by the Administrator which are not directly related to the
services the Administrator provides to the ProFunds VP under the service
agreement.

BISYS and its affiliate, BISYS Fund Services, Inc. ("BFSI"), have entered into
an Omnibus Fee Agreement with ProFunds pursuant to which BISYS is entitled to
receive fee payments for the provision of administration services and BISYS is
entitled to receive on behalf of BFSI fee payments for the provision of fund
accounting and transfer agency services. Pursuant to such agreement, BISYS is
entitled to receive the greater of (i) the aggregate fee amount set forth in a
contractual fee schedule or (ii) the fee amount set forth in a minimum
relationship fee schedule. The contractual fee schedule calls for the payment of
(i) an annual fee of five one-hundredths of one percent (.05%) of the average
daily net assets of the ProFunds VP for administration services, (ii) an annual
fee of $37,000 for transfer agency services and (iii) an annual fee for fund
accounting services based on the following schedule: three one-hundredths of one
percent (.03%) of each ProFund VP's average daily net assets up to $300
million; two one-hundredths of one percent (.02%) of each ProFund VP's average
daily net assets in excess of $300 million up to $500 million; one one-
hundredths of one percent (.01%) of each ProFund VP's average daily net assets
in excess of $500 million. The minimum relationship fee schedule sets forth
specific dollar amounts for ten calendar quarters. The aggregate amount payable
under such schedule is $1,100,000. The address for BISYS and BFSI is 3435
Stelzer Road, Suite 1000, Columbus, Ohio 43219.

For the period from October 19, 1999 (commencement of operations) to December
31, 1999, BISYS, as Administrator, was entitled to, and voluntarily waived,
administration fees in the following amounts for each of the ProFunds VP:

ADMINISTRATION FEES
FYE 12/31/99

Earned Waived
------ ------
UltraOTC VP $3,633 $3,633
UltraSmall-Cap VP 503 503
Europe 30 VP 155 155

The Advisor, pursuant to a separate Management Services Agreement, performs
certain client support and other administrative services on behalf of the
ProFunds VP. For these services, each ProFund VP will pay to the Advisor a fee
at the annual rate of .15% of its average daily net assets for all ProFunds VP.

For the period from October 19, 1999 (commencement of operations) to December
31, 1999, ProFunds Advisors LLC was entitled to, and voluntarily waived,
management services fees in the following amounts for each of the ProFunds VP:

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<PAGE>

MANAGEMENT SERVICES FEES
FYE 12/31/99

Earned Waived
--------------------------
UltraOTC VP $10,900 $10,900
UltraSmall-Cap VP 1,510 1,510
Europe 30 VP 465 465

UMB Bank, N.A. acts as custodian to the ProFunds VP. UMB Bank, N.A.'s address
is 928 Grand Avenue, Kansas City, Missouri.

ADMINISTRATIVE SERVICES

The Trust, on behalf of the ProFunds VP, has entered into an administrative
services agreement with American Skandia Life Assurance Corporation ("American
Skandia") pursuant to which American Skandia will provide administrative
services with respect to these ProFunds VP. These services may include, but are
not limited to: coordinating matters relating to the operation of American
Skandia's separate account with these ProFunds VP, including necessary
coordination with other service providers; coordinating the preparation of
necessary documents to be submitted to regulatory authorities; providing
assistance to variable contract owners who use or intend to use the ProFunds VP
as funding vehicles for their variable contracts; coordinating with the Advisor
regarding investment limitations and parameters to which these ProFunds VP are
subject; and generally assisting with compliance with applicable regulatory
requirements. For these services, the Trust pays American Skandia a quarterly
fee equal on an annual basis to 0.25% of the average daily net assets of each
ProFund VP that were invested in such ProFund VP through American Skandia's
separate account.

From time to time the ProFunds VP and/or the Advisor may enter into
arrangements under which certain administrative services may be performed by
other insurance companies that purchase shares of the ProFunds VP. These
administrative services may include, among other things, the services set forth
above, as well as responding to ministerial inquiries concerning the ProFunds VP
investment objectives, investment programs, policies and performance,
transmitting, on behalf of the ProFunds VP, proxy statements, annual reports,
updated prospectuses, and other communications regarding the ProFunds VP, and
providing any related services as the ProFunds VP or their investors may
reasonably request. Depending on the arrangements, the ProFunds VP and/or the
Advisor may compensate such insurance companies or their agents directly or
indirectly for the administrative services. To the extent the ProFunds VP
compensate the insurance company for these services, the ProFunds VP will pay
the insurance company an annual fee that will vary depending upon the number of
investors that utilize the ProFunds VP as the funding medium for their
contracts. The insurance company may impose other account or service charges.
See the prospectus for the separate account of the insurance company for
additional information regarding such charges.

For the period from October 19, 1999 (commencement of operations) to December
31, 1999, American Skandia received the following administrative services fees
for each of the ProFunds VP:

ADMINISTRATIVE SERVICES FEES
FYE 12/31/99

UltraOTC VP $18,166
UltraSmall-Cap VP 2,517
Europe 30 VP 774

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INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP serves as independent auditors to the ProFunds VP.
PricewaterhouseCoopers LLP provides audit services, tax return preparation and
assistance and consultation in connection with certain SEC filings.
PricewaterhouseCoopers LLP is located at 100 East Broad Street, Columbus, Ohio
43215.

LEGAL COUNSEL

Dechert Price & Rhoads serves as counsel to the ProFunds VP. The firm's
address is 1775 Eye Street, N.W., Washington, DC 20006-2401.

DISTRIBUTION PLAN

Pursuant to a Distribution Plan, the ProFunds VP may reimburse or compensate
financial intermediaries from their assets for services rendered and expenses
borne in connection with activities primarily intended to result in the sale of
shares of the ProFunds VP. It is anticipated that a portion of the amounts paid
by the ProFunds VP will be used to defray various costs incurred in connection
with the printing and mailing of prospectuses, statements of additional
information, and any supplements thereto and shareholder reports, and holding
seminars and sales meetings with wholesale and retail sales personnel designed
to promote the distribution of the Funds' shares. The ProFunds VP also may
reimburse or compensate financial intermediaries and third-party broker-dealers
for their services in connection with the distribution of the shares of the
ProFunds VP.

The Distribution Plan provides that the Trust, on behalf of each ProFund VP,
will pay annually up to 0.25% of the average daily net assets of a ProFund VP in
respect of activities primarily intended to result in the sale of its shares.
Under the terms of the Distribution Plan and related agreements, each ProFund VP
is authorized to make quarterly payments that may be used to reimburse or
compensate entities providing distribution and shareholder servicing with
respect to the shares of the ProFund VP for such entities' fees or expenses
incurred or paid in that regard.

The Distribution Plan is of a type known as a "compensation" plan because
payments may be made for services rendered to the ProFunds VP regardless of the
level of expenditures by the financial intermediaries. The Trustees will,
however, take into account such expenditures for purposes of reviewing
operations under the Distribution Plan in connection with their annual
consideration of the Distribution Plan's renewal. Expenditures under the
Distribution Plan may include, without limitation: (a) the printing and mailing
of ProFunds VP prospectuses, statements of additional information, any
supplements thereto and shareholder reports for prospective investors; (b) those
relating to the development, preparation, printing and mailing of
advertisements, sales literature and other promotional materials describing
and/or relating to the ProFunds VP; (c) holding seminars and sales meetings
designed to promote the distribution of the ProFunds VP shares; (d) obtaining
information and providing explanations to wholesale and retail distributors of
contracts regarding the investment objectives and policies and other information
about the ProFunds VP, including the performance of the ProFunds VP; (e)
training sales personnel regarding the ProFunds VP; and (f) financing any other
activity that is primarily intended to result in the sale of shares of the
ProFunds VP. In addition, a financial intermediary may enter into an agreement
with the Trust under which it would be entitled to receive compensation for,
among other things, making the ProFunds VP available to its contract owners as
funding vehicles for variable insurance contracts.

The Distribution Plan and any related agreement that is entered into by the
Trust in connection with the Distribution Plan will continue in effect for a
period of more than one year only so long as continuance is specifically
approved at least annually by a vote of a majority of the Trust's Board of
Trustees, and of a majority of the Trustees who are not "interested persons" of
the Trust and who have no financial interest in the operation of the
Distribution Plan (the "Independent Trustees"), cast in person at a meeting
called for the

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<PAGE>

purpose of voting on the Distribution Plan or any related agreement, as
applicable. In addition, the Distribution Plan and any related agreement may be
terminated as to a ProFund VP at any time, without penalty, by vote of a
majority of the outstanding shares of the ProFund VP or by vote of a majority of
the Independent Trustees. The Distribution Plan also provides that it may not be
amended to increase materially the amount (up to 0.25% of average daily net
assets annually) that may be spent for distribution of shares of any ProFund VP
without the approval of shareholders of that ProFund VP.

For the period from October 19, 1999 (commencement of operations) to December
31, 1999, each ProFund VP paid the following amount pursuant to the Distribution
Plan for shareholder servicing with respect to the shares of the ProFund VP:

DISTRIBUTION PLAN FEES
FYE 12/31/99

UltraOTC VP $18,166

UltraSmall-Cap VP 2,517

Europe 30 VP 774

COSTS AND EXPENSES

Each ProFund VP bears all expenses of its operations other than those assumed
by the Advisor or the Administrator. ProFund VP expenses include: the
management fee; administrative and transfer agent fees; custodian and accounting
fees and expenses, legal and auditing fees; securities valuation expenses;
fidelity bonds and other insurance premiums; expenses of preparing and printing
prospectuses, confirmations, proxy statements, and shareholder reports and
notices; registration fees and expenses; proxy and annual meeting expenses, if
any; all Federal, state, and local taxes (including, without limitation, stamp,
excise, income, and franchise taxes); organizational costs; and non-interested
Trustees' fees and expenses.

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 thirty-nine separately managed series, three of which are described
herein.

All shares of the ProFunds VP are freely transferable. The Trust shares do
not have preemptive rights or cumulative voting rights, and none of the shares
have any preference to conversion, exchange, dividends, retirements,
liquidation, redemption, or any other feature. Trust shares have equal voting
rights, except that, in a matter affecting only a particular series or class of
shares, only shares of that series or class may be entitled to vote on the
matter.

Under Delaware law, the Trust is not required to hold an annual shareholders
meeting if the 1940 Act does not require such a meeting. Generally, there will
not be annual meetings of Trust shareholders. Trust shareholders may remove
Trustees from office by votes cast at a meeting of Trust shareholders or by
written consent of such Trustees. If requested by shareholders of at least 10%
of the outstanding shares of the Trust, the Trust will call a meeting of
shareholders for the purpose of voting upon the question of removal of a Trustee
of the Trust and will assist in communications with other Trust shareholders.

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<PAGE>

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.

If a ProFund VP does not grow to a size to permit it to be economically
viable, the ProFund VP may cease operations. In such an event, investors may be
required to liquidate or transfer their investments at an inopportune time.

CAPITALIZATION

As of April 3, 2000, no person owned of record, or to the knowledge of
management beneficially owned, five percent or more of the outstanding shares of
the ProFunds VP except as set forth below:

ULTRAOTC VP TOTAL SHARES PERCENTAGE
- ----------- ------------ ----------

America Skandia Life Assurance Corp. 2,319,515.529 95.5715%
One Corporate Drive
Shelton, CT 06484

ULTRASMALL-CAP VP TOTAL SHARES PERCENTAGE
- ----------------- ------------ ----------

America Skandia Life Assurance Corp. 2,546,850.952 89.6626%
One Corporate Drive
Shelton, CT 06484

ULTRAJAPAN VP TOTAL SHARES PERCENTAGE
- ------------- ------------ ----------

America Skandia Life Assurance Corp. 2,524,319.686 99.6944%
One Corporate Drive
Shelton, CT 06484

A shareholder who beneficially owns, directly or indirectly, more than 25%
of a ProFund's voting securities may be deemed a "control person" (as defined in
the 1940 Act) of the ProFund and may be able to determine the outcome of any
matter submitted for shareholder consideration with respect to that ProFund.

TAXATION

Set forth below is a discussion of certain U.S. federal income tax issues
concerning the ProFunds VP and the purchase, ownership, and disposition of
ProFund VP shares. This discussion does not purport to be complete or to deal
with all aspects of federal income taxation that may be relevant to shareholders
in light of their particular circumstances, nor to certain types of shareholders
subject to special treatment under the federal income tax laws (for example,
banks and life insurance companies). This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisors with
regard to the federal tax consequences of the purchase, ownership, or
disposition of ProFund VP shares, as well as the tax consequences arising under
the laws of any state, foreign country, or other taxing jurisdiction.

Each of the ProFunds VP intends to qualify and elect to be treated each year
as a regulated investment company (a "RIC") under Subchapter M of the Code. A
RIC generally is not subject to federal income tax on income and gains
distributed in a timely manner to its shareholders. Accordingly, each ProFund
VP generally must, among other things, (a) derive in each taxable year at least
90% of its gross income from dividends, interest, payments with respect to
certain securities loans, and gains from the sale or other

25
<PAGE>

disposition of stock, securities or foreign currencies, or other income derived
with respect to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the ProFund VP's assets is
represented by cash, U.S. government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the ProFund VP's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
government securities and the securities of other regulated investment
companies).

As a RIC, a ProFund VP generally will not be subject to U.S. federal income
tax on income and gains that it distributes to shareholders, if at least 90% of
the ProFund VP's investment company taxable income (which includes, among other
items, dividends, interest and the excess of any net short-term capital gains
over net long-term capital losses) for the taxable year is distributed. Each
ProFund VP intends to distribute substantially all of such income.

Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
ProFund VP level. To avoid the tax, each ProFund VP must distribute during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for a one-year period generally ending on
October 31 of the calendar year, and (3) all ordinary income and capital gains
for previous years that were not distributed during such years. To avoid
application of the excise tax, the ProFunds VP intend to make distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of a calendar year if it is declared by the
ProFund VP in October, November or December of that year with a record date in
such a month and paid by the ProFund VP during January of the following year.
Such distributions will be taxable to shareholders in the calendar year in which
the distributions are declared, rather than the calendar year in which the
distributions are received.

MARKET DISCOUNT

If a ProFund VP purchases a debt security at a price lower than the stated
redemption price of such debt security, the excess of the stated redemption
price over the purchase price is "market discount". If the amount of market
discount is more than a de minimis amount, a portion of such market discount
must be included as ordinary income (not capital gain) by the ProFund VP in each
taxable year in which the ProFund VP owns an interest in such debt security and
receives a principal payment on it. In particular, the ProFund VP will be
required to allocate that principal payment first to the portion of the market
discount on the debt security that has accrued but has not previously been
includable in income. In general, the amount of market discount that must be
included for each period is equal to the lesser of (i) the amount of market
discount accruing during such period (plus any accrued market discount for prior
periods not previously taken into account) or (ii) the amount of the principal
payment with respect to such period. Generally, market discount accrues on a
daily basis for each day the debt security is held by a ProFund VP at a constant
rate over the time remaining to the debt security's maturity or, at the election
of the ProFund VP, at a constant yield to maturity which takes into account the
semi-annual compounding of interest. Gain realized on the disposition of a
market discount obligation must be recognized as ordinary interest income (not
capital gain) to the extent of the "accrued market discount."

ORIGINAL ISSUE DISCOUNT

Certain debt securities acquired by the ProFunds VP may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by a ProFund VP, original issue discount that accrues on a
debt security in a given year generally is treated for federal income tax
purposes as interest and, therefore, such income would be subject to the
distribution requirements applicable to regulated investment companies.

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<PAGE>

Some debt securities may be purchased by the ProFunds VP at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes
(see above).

OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS

Any regulated futures contracts and certain options (namely, nonequity
options and dealer equity options) in which a ProFund VP may invest may be
"section 1256 contracts." Gains (or losses) on these contracts generally are
considered to be 60% long-term and 40% short-term capital gains or losses;
however foreign currency gains or losses arising from certain section 1256
contracts are ordinary in character. Also, section 1256 contracts held by a
ProFund VP at the end of each taxable year (and on certain other dates
prescribed in the Code) are "marked to market" with the result that unrealized
gains or losses are treated as though they were realized.

Transactions in options, futures and forward contracts undertaken by the
ProFunds VP may result in "straddles" for federal income tax purposes. The
straddle rules may affect the character of gains (or losses) realized by a
ProFund VP, and losses realized by the ProFund VP on positions that are part of
a straddle may be deferred under the straddle rules, rather than being taken
into account in calculating the taxable income for the taxable year in which
the losses are realized. In addition, certain carrying charges (including
interest expense) associated with positions in a straddle may be required to be
capitalized rather than deducted currently. Certain elections that a ProFund VP
may make with respect to its straddle positions may also affect the amount,
character and timing of the recognition of gains or losses from the affected
positions.

Because only a few regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to the ProFunds VP are not
entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by a ProFund VP, which is taxed as ordinary income when
distributed to shareholders. Because application of the straddles rules may
affect the character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected straddle positions, the amount
which must be distributed to shareholders as ordinary income or long-term
capital gain may be increased or decreased substantially as compared to a fund
that did not engage in such transactions.

CONSTRUCTIVE SALES

Recently enacted rules may affect the timing and character of gain if a
ProFund VP engages in transactions that reduce or eliminate its risk of loss
with respect to appreciated financial positions. If the ProFund VP enters into
certain transactions in property while holding substantially identical property,
the ProFund VP would be treated as if it had sold and immediately repurchased
the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the ProFund VP's holding period in the property. Loss from a constructive
sale would be recognized when the property was subsequently disposed of, and its
character would depend on the ProFund VP's holding period and the application of
various loss deferral provisions of the Code.

PASSIVE FOREIGN INVESTMENT COMPANIES

The ProFunds VP may invest in shares of foreign corporations that may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a ProFund VP receives a so-called "excess
distribution" with respect to PFIC stock, the ProFund VP itself may be subject
to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the ProFund VP to shareholders. In
general, under the PFIC rules, an excess distribution is treated as having been
realized ratably over the period during which the ProFund VP held the PFIC
shares. Each ProFund VP will itself be subject to tax on the portion, if any,
of an excess distribution that is so allocated to prior ProFund VP taxable
years and an interest factor will be added to the tax, as if the tax had been
payable in such prior taxable years. Certain distributions

27
<PAGE>

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 VP may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, a ProFund VP generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions were received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election would
involve marking to market the ProFund VP's PFIC shares at the end of each
taxable year, with the result that unrealized gains would be treated as though
they were realized and reported as ordinary income. Any mark-to-market losses
and any loss from an actual disposition of ProFund VP shares would be
deductible as ordinary losses to the extent of any net mark-to-market gains
included in income in prior years.

BACKUP WITHHOLDING

Each ProFund VP generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to shareholders if (1) the shareholder
fails to furnish the ProFund VP with the shareholder's correct taxpayer
identification number or social security number, (2) the IRS notifies the
shareholder or the ProFund VP that the shareholder has failed to report
properly certain interest and dividend income to the IRS and to respond to
notices to that effect, or (3) when required to do so, the shareholder fails to
certify that he or she is not subject to backup withholding. Any amounts
withheld may be credited against the shareholder's federal income tax liability.

OTHER TAXATION

EQUALIZATION ACCOUNTING

Each ProFund VP distributes its net investment income and capital gains to
shareholders as dividends annually to the extent required to qualify as a
regulated investment company under the Code and generally to avoid federal
income or excise tax. Under current law, each ProFund VP may on its tax return
treat as a distribution of investment company taxable income and net capital
gain the portion of redemption proceeds paid to redeeming shareholders that
represents the redeeming shareholders' portion of the ProFund VP's undistributed
investment company taxable income and net capital gain. This practice, which
involves the use of equalization accounting, will have the effect of reducing
the amount of income and gains that the ProFund VP is required to distribute as
dividends to shareholders in order for the ProFund VP to avoid federal income
tax and excise tax. This practice may also reduce the amount of distributions
required to be made to nonredeeming shareholders and the amount of any
undistributed income will be reflected in the value of the ProFund VP's shares;
the total return on a shareholder's investment will not be reduced as a result
of the ProFund VP's distribution policy. Investors who purchase shares shortly
before the record date of a distribution will pay the full price for the shares
and then receive some portion of the price back as a taxable distribution.

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<PAGE>

PERFORMANCE INFORMATION

TOTAL RETURN CALCULATIONS

From time to time, each of the ProFunds VP 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 VP. Other total return quotations, aggregate or average, over other
time periods for the ProFund VP also may be included.

The total return of a ProFund VP for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the ProFund
VP from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; this
calculation assumes that the initial investment is made at the current net asset
value and that all income dividends or capital gains distributions during the
period are reinvested in shares of the ProFund VP at net asset value. Total
return is based on historical earnings and 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 VP.

The aggregate return for each ProFund VP for the period October 19, 1999
(commencement of operations) to December 31, 1999, were as follows:

UltraOTC VP 136.43%

UltraSmall-Cap VP 19.97%

Europe 30 VP 22.73%

This performance data represents past performance and is not an indication of
future results. The recent growth in the stock market, particularly the
technology industry, has helped produce short-term returns that are not typical
and may not continue in the future. Because of ongoing market volatility, the
ProFunds VP's performance may be subject to substantial short-term changes. The
ProFunds VP's total returns do not show the effects of income taxes on an
individual's investments.

COMPARISONS OF INVESTMENT PERFORMANCE

In conjunction with performance reports, promotional literature, and/or
analyses of shareholder service for a ProFund VP, comparisons of the performance
information of the ProFund VP for a given period to the performance of
recognized, unmanaged indexes for the same period may be made. Such indexes
include, but are not limited to, ones provided by Dow Jones & Company, Standard
& Poor's Corporation, Lipper Analytical Services, Inc., Shearson Lehman
Brothers, the National Association of Securities Dealers, Inc., The Frank
Russell Company, Value Line Investment Survey, the American Stock Exchange, the
Philadelphia Stock Exchange, Morgan Stanley Capital International, Wilshire
Associates, the Financial Times-Stock Exchange, and the Nikkei Stock Average and
Deutche Aktienindex, all of which are unmanaged market indicators. Such
comparisons can be a useful measure of the quality of a ProFund VP's investment
performance. In particular, performance information for UltraOTC VP may be
compared to various unmanaged indexes, including, but not limited to its current
benchmark, the NASDAQ 100 Index(TM); and performance information for UltraSmall-
Cap VP may be compared to various unmanaged indexes, including, but not limited
to, its current benchmark, the Russell 2000(R) Index.

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<PAGE>

In addition, rankings, ratings, and comparisons of investment performance
and/or assessments of the quality of shareholder service appearing in
publications such as Money, Forbes, Kiplinger's Magazine, Personal Investor,
Morningstar, Inc., and similar sources which utilize information compiled
(i) internally, (ii) by Lipper Analytical Services, Inc. ("Lipper"), or (iii) by
other recognized analytical services, may be used in sales literature. The
total return of each ProFund VP also may be compared to the performances of
broad groups of comparable mutual funds with similar investment goals, as such
performance is tracked and published by such independent organizations as Lipper
and CDA Investment Technologies, Inc., among others. The Lipper ranking and
comparison, which may be used by the ProFunds VP in performance reports, will be
drawn from the "Small Company Growth Funds" grouping for UltraOTC VP and
UltraSmall-Cap VP. In addition, the broad-based Lipper groupings may be used
for comparison to any of the ProFunds VP. Further information about the
performance of the ProFunds VP is contained in the ProFunds VP annual reports to
shareholders, which may be obtained without charge by writing to the ProFunds VP
at the address or telephoning the ProFunds VP at the telephone number set forth
on the cover page of this SAI.

Other Information
-----------------

The ProFunds VP are not sponsored, endorsed, sold or promoted by the NASDAQ
Stock Markets, Inc. ("NASDAQ") or the Frank Russell Company. NASDAQ or the
Frank Russell Company make no representation or warranty, express or implied, to
the owners of shares of the ProFunds VP or any member of the public regarding
the advisability of investing in securities generally or in the ProFunds VP
particularly or the ability of the NASDAQ 100 Index(TM) or the Russell(R)2000
Index to track general stock market performance. NASDAQ's and the Frank Russell
Company's only relationship to the ProFunds VP (the "Licensee") is the licensing
of certain trademarks and trade names of NASDAQ and the Frank Russell Company,
respectively, and of the NASDAQ 100 Index(TM) and the Russell(R)2000 Index,
respectively. NASDAQ and the Frank Russell Company have no obligation to take
the needs of the Licensee or the owners of shares of the ProFunds VP into
consideration in determining, composing or calculating the NASDAQ 100 Index(TM)
and the Russell(R)2000 Index, respectively. NASDAQ and the Frank Russell
Company are not responsible for and have not participated in the determination
or calculation of the equation by which the shares of the ProFunds VP are to be
converted into cash. NASDAQ and the Frank Russell Company have no obligation or
liability in connection with the administration, marketing or trading of the
ProFunds VP.

FINANCIAL STATEMENTS

The Report of Independent Accountants and Financial Statements of the ProFunds
VP for the fiscal year ended December 31, 1999 are incorporated herein by
reference to the Trust's Annual Report, such Financial Statements having been
audited by PricewaterhouseCoopers LLP, independent accountants, and are so
included and incorporated by reference in reliance upon the report of said firm,
which report is given upon their authority as experts in auditing and
accounting. Copies of such Annual Report are available without charge upon
request by writing to ProFunds, 3435 Stelzer Road, Columbus, Ohio 43219-8006 or
telephoning (888) 776-3637, or, for financial professionals only, (888) 776-5717
or, for financial professionals only, (888) 776-5717.

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.

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APPENDIX A

EUROPE 30 INDEX

Company Name
- ------------

BP Amoco PLC
Royal Dutch Petro
Deutsche Telekom AG
Vodafone Airtouch PLC
HSBC Holdings PLC
Nokia Corp
British Telecom PLC
Glaxo Holdings PLC
Shell Transport & Trading
France Telecom SA
Smithkline Beecham
Astrazeneca
Ericsson (LM) Tel
Aegon
ING Groep
Telecon Italia SPA
Telefonica
ENI SPA
Barclays PLC
AXA Adrock
Unilever N V
Total Fina SA
Banco Santander
Diageo PLC
ABN Amro Holding NV
Philips Electronics
Veba AG
LVMH
Banco Bilboa Vizcaya
Alkatel