-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S8QAxzg52j3KrzToXcqnhUqcmDM3iPgD+rP8xcwabrptPEkx7fPRuZ9ClkNfQIP9 TQNHpr9tZsQB3ScVFrF1qw== 0000950152-97-007451.txt : 19971030 0000950152-97-007451.hdr.sgml : 19971030 ACCESSION NUMBER: 0000950152-97-007451 CONFORMED SUBMISSION TYPE: N-1A/A PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19971029 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROFUNDS CENTRAL INDEX KEY: 0001039803 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 522035197 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-1A/A SEC ACT: SEC FILE NUMBER: 333-28339 FILM NUMBER: 97702855 FILING VALUES: FORM TYPE: N-1A/A SEC ACT: SEC FILE NUMBER: 811-08239 FILM NUMBER: 97702856 BUSINESS ADDRESS: STREET 1: 4600 N PARK AVE STREET 2: STE 100 CITY: CHEVY CHASE STATE: MD ZIP: 20815 BUSINESS PHONE: 3016570850 MAIL ADDRESS: STREET 1: 4600 N PARK AVE STREET 2: STE 100 CITY: CHEVY CHASE STATE: MD ZIP: 20815 N-1A/A 1 PROFUNDS FORM N-1A/PRE-EFFECTIVE AMENDMENT NO.3 1 Registration Nos. 333-28339 811-08239 As filed with the Securities and Exchange Commission on October 29, 1997 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X) Pre-Effective Amendment No. 3 (X) Post-Effective Amendment No. ___ ( ) and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X) Amendment No. 3 (X) PROFUNDS (Exact Name of Registrant as Specified in Charter) 7900 Wisconsin Avenue, Suite 300 Bethesda, Maryland 20814 (Address of Principal Executive Offices) (Zip Code) (301) 657-1970 (Registrant's Telephone Number, Including Area Code) Michael L. Sapir, Chairman with a copy to: ProFund Advisors LLC George O. Martinez, Esq 7900 Wisconsin Avenue, Suite 300 BISYS Fund Services Bethesda, Maryland 20814 3435 Stelzer Road (Name and Address of Agent for Service of Process) Columbus, Ohio 43219 Approximate Date of Commencement of the Proposed Public Offering of the Securities: Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant hereby elects to register an indefinite number of shares of beneficial interest. Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Cash Management Portfolio has also executed this Registration Statement. 2 PROFUNDS REGISTRATION STATEMENT ON FORM N-1A CROSS REFERENCE SHEET Form N-1A Item No. Location in Registration Statement ------------------ ---------------------------------- Part A: Information Required in Prospectus ------------------------------------------ 1. Cover Page Outside Front Cover Page of Prospectus 2. Synopsis Overview; Fees and Expenses 3. Condensed Financial Information Not Applicable 4. General Description of Registrant General Information about the Trust; Investment Objectives; Investment Policies and Techniques; Special Considerations 5. Management of the Fund Management of the Trust 6. Capital Stock and Other Securities Dividends and Distributions; Taxes 7. Purchase of Securities Being Offered Shareholders Guide 8. Redemption or Repurchase Shareholders Guide 9. Legal Proceedings Not Applicable Part B: Information Required in Statement of Additional Information ----------------------------------- 10. Cover Page Outside Front Cover Page of Statement 11. Table of Contents Table of Contents 12. General Information and History Not Applicable 13. Investment Objectives and Policies Investment Policies and Techniques 14. Management of the Registrant Management of ProFunds 15. Control Persons and Principal Principal Holders of the Trust Holders of Securities 16. Investment Advisory and Other Management of ProFunds Services 17. Brokerage Allocation and Brokerage Portfolio Transactions 18. Capital Stock and Other Securities Not Applicable 19. Purchase, Redemption, and Not Applicable Pricing of Securities Being Offered 20. Tax Status Not Applicable 2 3 21. Underwriters Management of the Trust 22. Calculation of Performance Data Performance Information 23. Financial Statements Financial Statements 3 4 PART A 4 5 SUBJECT TO COMPLETION OCTOBER ___, 1997 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROFUNDS 7900 Wisconsin Avenue, Suite 300 Bethesda, Maryland 20814 (888) 776-5717 (Registered Investment Advisers Only) (888) PRO-FNDS ((888) 776-3637) (For All Others) This prospectus describes six ProFunds. Each ProFund offers two classes of shares: Adviser 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 following are the non-money market ProFunds and their benchmarks: FUND BENCHMARK Bull ProFund S&P 500 Composite Stock Price Index(TM) ("S&P 500 Index") UltraBull ProFund Twice (200%) the performance of the S&P 500 Index Bear ProFund Inverse (opposite) of the performance of the S&P 500 Index UltraBear ProFund Twice (200%) of the inverse (opposite) of the performance of the S&P 500 Index UltraOTC ProFund Twice (200%) of the performance of the NASDAQ 100 Index The ProFunds also include the Money Market ProFund. The Money Market ProFund seeks a high level of current income consistent with liquidity and preservation of capital through investment in high quality money market instruments. UNLIKE OTHER MUTUAL FUNDS (AND THE OTHER PROFUNDS), 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. SHARES OF THE MONEY MARKET PROFUND ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, AND ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND AN INVESTMENT IN THIS PROFUND IS NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES GOVERNMENT. THE MONEY MARKET PROFUND SEEKS TO MAINTAIN A CONSTANT $1.00 NET ASSET VALUE PER SHARE, ALTHOUGH THIS CANNOT BE ASSURED. 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 the ProFunds is appropriate. None of the ProFunds alone constitutes a balanced investment plan and the non-money market ProFunds are not intended for investors whose principal objective is current income or preservationof capital. See "Special Risk Considerations." Because of the inherent risks in any investment, there can be no assurance that the ProFunds' investment objectives will be achieved. Investors should read this Prospectus and retain it for future reference. This Prospectus is designed to set forth concisely the information an investor should know about the ProFunds before investing. A Statement of Additional Information, dated October ___, 1997, containing additional information about ProFunds has been filed with the Securities and Exchange Commission and is incorporated herein by reference. A copy of this Statement of 5 6 Additional Information is available, without charge, upon request to ProFunds at the address above or by telephoning ProFunds at the telephone numbers above. INVESTMENT ADVISORS PROFUND ADVISORS LLC BANKERS TRUST COMPANY BULL PROFUND; ULTRABULL PROFUND; CASH MANAGEMENT PORTFOLIO BEAR PROFUND; ULTRABEAR PROFUND; ULTRAOTC PROFUND THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is October , 1997 6 7 TABLE OF CONTENTS [to be filed by amendment pursuant to Rule 497c] 7 8 OVERVIEW PROFUNDS Each ProFund has its own distinct investment objective. There is, of course, no guarantee that any mutual fund will achieve its investment objective. The investment objectives of the ProFunds are as follows: The Bull ProFund and the UltraBull ProFund. The Bull ProFund's investment objective is to provide investment returns that correspond to the performance of the Standard & Poor's 500 Composite Stock Price Index. The UltraBull ProFund's investment objective is to provide investment returns that correspond to 200% of the performance of the S&P 500 Index. The UltraBull ProFund should gain more than the Bull ProFund when the prices of the securities in the S&P 500 Index rise and lose more when such prices decline. The Bear ProFund and the UltraBear ProFund. 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. If the Bear ProFund is successful in meeting its objective, the net asset value of Bear ProFund shares will increase in direct proportion to any decrease in the level of the S&P 500 Index. Conversely, the net asset value of Bear ProFund shares will decrease in direct proportion to any increases in the level of the S&P 500 Index. The net asset value of shares of the UltraBear ProFund should increase or decrease approximately twice as much as does that of the Bear ProFund on any given day. The UltraOTC 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. The NASDAQ 100 Index includes 100 of the largest non-financial domestic companies listed on the NASDAQ National Market tier of The NASDAQ Stock Market. The Money Market ProFund. The Money Market ProFund seeks, as its investment objective, a high level of current income consistent with liquidity and preservation of capital. To achieve its objective, the Money Market ProFund invests all of its investable assets in the Portfolio, which has the same investment objective as the Money Market ProFund. This two-tiered investment approach is commonly referred to as a master-feeder fund structure. See "Special Information Concerning Master-Feeder Fund Structure." * * * A discussion of each ProFund's investment objective(s) and policies is provided below under "Investment Objectives and Policies", "Investment Techniques" and "General Information about the Trust -- Fundamental Policies". SPECIAL RISK CONSIDERATIONS The ProFunds present certain risks to investors, some that are usually not associated with mutual funds, which are discussed below and elsewhere in this Prospectus. Investors should carefully review and evaluate these risks in considering an investment in the ProFunds to determine whether an investment in the ProFunds is appropriate. This discussion should be read in conjunction with the rest of the prospectus and "Special Considerations." The ProFunds expect that a substantial portion of the assets of the ProFunds will be derived from professional money managers and investors who intend to invest in the ProFunds as part of their tactical investment strategies. These investors are likely to redeem or exchange their ProFund shares frequently to take advantage of anticipated changes in market conditions. The strategies employed by ProFund shareholders may result in considerable assets 1 9 moving in and out of the ProFunds. Consequently, the ProFunds expect that the ProFunds will experience unusually high portfolio turnover. This portfolio turnover will likely cause higher expenses and additional costs. Additionally, a high portfolio turnover may adversely affect the ability of a ProFund to meet its investment objective. For further information concerning the portfolio turnover of the ProFunds, see "Investment Objectives and Policies" in this Prospectus. Shareholders in the Bear ProFund and the UltraBear ProFund should lose money while prices of the securities in the S&P 500 Index increase. This is the opposite likely result expected of investing in a traditional equity mutual fund in a generally rising stock market. Investors in the UltraBull ProFund and the UltraBear ProFund employ leveraged investment techniques. Investors in these ProFunds will experience magnified losses in market conditions that are adverse to their investment objectives. While the ProFunds do not expect that their returns over the course of a year will deviate adversely from their respective current benchmarks by more than 10%, certain factors may affect their ability to achieve this correlation. The ProFunds (other than the Money Market ProFund) may engage in certain aggressive investment techniques, which may include engaging in short sales and transactions in futures contracts and options on securities, stock indexes, and futures contracts. Employing these techniques requires special skills and knowledge. Also, there may be periods when the ProFunds may not be able to liquidate their positions. These and other risks are more fully discussed under "Investment Objectives and Policies" and "Investment Techniques and Other Investment Policies." Each non-money-market ProFund is a "non-diversified" series of the ProFunds. A 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. Such 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. See "Risk Considerations" for a discussion of these factors. PURCHASES, REDEMPTIONS, AND EXCHANGES OF TRUST SHARES The shares of the ProFunds may be purchased and redeemed, without any sales or redemption charge, at the next determined net asset value per share of the ProFund. Purchases of shares may be made by check or wire transfer. The minimum initial investment in the ProFunds for investors who have engaged a registered investment adviser with discretionary authority over the shareholder's account is $5,000. The minimum is $15,000 for all other shareholders. Shares of any of the ProFunds may be exchanged at any time for shares of the same class of any other ProFund, without any charge, on the basis of their relative net asset values next computed. See "Shareholders Guide" for more information about buying, exchanging and redeeming ProFund shares. Investment Advisors The investment advisor of the non-money market ProFunds is ProFund Advisors LLC (the "Advisor"). The Advisor is located in Bethesda, Maryland. See "Management of the ProFunds." The investment advisor of the Portfolio is Bankers Trust Company ("Bankers Trust"), a wholly-owned subsidiary of Bankers Trust New York Corporation. 2 10 ADMINISTRATOR, 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. ProFunds Advisers LLC, pursuant to a separate Administration Agreement, performs certain administrative and shareholder services on behalf of the ProFunds. 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. UMB Bank, N.A. serves as the custodian of the ProFunds' securities and other assets. FEES AND EXPENSES FEE TABLES ---------- The following table illustrates all expenses and fees that a shareholder of the ProFunds' INVESTOR Shares will incur in the first year of operations:
MONEY BULL ULTRABULL BEAR ULTRABEAR ULTRAOTC MARKET PROFUND PROFUND PROFUND PROFUND PROFUND PROFUND Shareholder Transaction Expenses: Sales Load Imposed On Purchases None None None None None None Sales Load Imposed On Reinvested Dividends None None None None None None Deferred Sales Load None None None None None None Redemption Fees (1) None None None None None None Exchange Fees None None None None None None Annual Fund Operating Expenses: Advisory Fees 0.75% 0.75% 0.75% 0.75% 0.75% 0.15%(2) 12b-1 Fees None None None None None None Other Expenses(3)(4) 0.66% 0.66% 0.66% 0.66% 0.66% 0.82% Total ProFund Operating Expenses 1.41% 1.41% 1.41% 1.41% 1.41% 0.97%
The following table illustrates all expenses and fees that a shareholder of the ProFunds' Adviser Shares will incur in the first year of operations:
MONEY BULL ULTRABULL BEAR ULTRABEAR ULTRAOTC MARKET PROFUND PROFUND PROFUND PROFUND PROFUND PROFUND Shareholder Transaction Expenses: Sales Load Imposed on Purchases None None None None None None Sales Load Imposed on Reinvested Dividends None None None None None None Deferred Sales Load None None None None None None Redemption Fees (1) None None None None None None Exchange Fees None None None None None None Annual Fund Operating Expenses:
3 11 Advisory Fees 0.75% 0.75% 0.75% 0.75% 0.75% 0.15%(2) 12b-1 Fees None None None None None None Other Expenses(3)(4) 1.66% 1.66% 1.66% 1.66% 1.66% 1.82% Total ProFund Operating Expenses 2.41% 2.41% 2.41% 2.41% 2.41% 1.97%
1) The ProFunds charge $15 for each wire transfer of redemption proceeds; this charge may be waived at the discretion of the ProFunds. 2) The Portfolio pays Bankers Trust a .15% advisory fee, of which the Money Market ProFund bears its pro rata portion. The Trust's Board of Trustees believes that the aggregate per share expenses of the Money Market ProFund and the Portfolio will be approximately equal to the expenses the Fund would incur if its assets were invested directly in money market securities. 3) Based on estimated expenses to be incurred in the ProFunds' first year of operations. Other expenses include fees of .15% (.35% in the case of the Money Market ProFund) for administration and shareholder services, and in the case of the Portfolio, an administration and services fee of .05%. The fee under each ProFund's Shareholder Services Plan is calculated on the basis of the average net assets of each ProFund's Adviser Shares at an annual rate not to exceed 1.00%. 4) Without waiver of administration fees, "Other Expenses" and "Total Operating Expenses" would be 0.71% and 1.46%, respectively, for the Investor Class and 0.71% and 2.46%, respectively, for the Adviser Class of the non-money market ProFunds. In the case of the Money Market ProFund, without waiver of administration fees, the amounts would be 0.87% and 1.02%, respectively for the Investor Class and 0.87% and 2.02%, respectively for the Adviser Class. EXAMPLES - -------- Assuming hypothetical investments of $1,000 in Investor Shares of each of the ProFunds, a 5% annual return, and redemption at the end of each time period, an investor in each of the ProFunds would pay operating expenses as follows: 1 Year 3 Years Bull ProFund $14 $45 UltraBull ProFund 14 45 Bear ProFund 14 45 UltraBear ProFund 14 45 UltraOTC ProFund 14 45 Money Market ProFund 10 31 Assuming hypothetical investments of $1,000 in Adviser Shares of each of the ProFunds, a 5% annual return, and redemption at the end of each time period, an investor in each of the ProFunds would pay operating expenses as follows: 1 Year 3 Years Bull ProFund $24 $75 UltraBull ProFund 24 75 Bear ProFund 24 75 UltraBear ProFund 24 75 UltraOTC ProFund 24 75 Money Market ProFund 20 62 The preceding tables of fees and expenses are provided to assist investors in understanding the various costs and expenses which may be borne directly or indirectly by an investor in each of the ProFunds' Adviser Shares and Investor Shares. The fees and expenses of the Money Market ProFund reflect the expenses of both that ProFund and its pro rata share of the expenses of the Portfolio. The percentages shown above are based on estimates. The 5% assumed annual return is for comparison purposes only. For a more complete discussion of the fees connected with an investment in the ProFunds and the services provided to the ProFunds, see "Management of the ProFunds" in this Prospectus and in the Statement of Additional Information. THE PRECEDING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 4 12 SHAREHOLDERS GUIDE HOW TO INVEST IN THE PROFUNDS GENERAL The shares of each ProFund are offered at the net asset value per share next computed after receipt of the investor's order. No sales charges are imposed on initial or subsequent investments in a ProFund. See "Determination of Net Asset Value". MINIMUM INVESTMENT The minimum initial investment in the ProFunds for investors who have engaged a registered investment adviser with discretionary authority over the shareholder's account is $5,000. For all other shareholder accounts ("Self-Directed Accounts"), the minimum initial investment in the ProFunds is $15,000. These minimums apply to retirement plan accounts and are determined based upon the total investment in all ProFunds. ProFunds, at its discretion, may accept lesser amounts in certain circumstances. There is no minimum amount for subsequent investments, other than those made pursuant to the automatic investment plan, in a ProFund. ProFunds reserves the right to reject or refuse, at ProFunds' discretion, any order for the purchase of a ProFund's shares in whole or in part. HOW TO INVEST BY MAIL Fill out an application and make out a check payable to "ProFunds." Mail the check along with the application to: ProFunds P.O. Box 182800 Columbus, OH 43218-2800 HOW TO INVEST BY WIRE TRANSFER New accounts opened by Self-Directed Accounts with initial minimum purchases of $50,000 and by registered investment advisers, may use the following procedures. First, fill out an application and fax the completed application, along with the request for a confirmation number to the ProFunds at (800) 782-4797. Once you have received your confirmation number, you must then request that your bank wire transfer the purchase amount to the applicable ProFund along with the following instructions: Request a wire transfer to: UMB BANK, N.A. Routing Number: For Account of ProFunds Account Number: YOUR NAME YOUR CONFIRMATION NUMBER After instructing your bank to transfer money by wire, call the ProFunds at 888-PRO-FNDS and inform the ProFunds as to the amount that you have transferred and the name of the bank sending the transfer. Wire transfer requests may be made between 8:00 AM and 9:00 PM Eastern Time. However, wire transfers must be received by 3:30 PM Eastern Time to receive that day's net asset value. Wire transfer requests received after 3:30 PM Eastern Time are deemed to be received on the next business day of ProFunds and will be placed at the next determined net asset value on the next business day. If the primary exchange or market on which a ProFund transacts business closes early, the above cut-off time will be thirty minutes prior to the close of such exchange or market. Your bank 5 13 may charge a fee for such services. Instructions, written or telephonic, given to ProFunds for wire transfer requests do not constitute a purchase order until the wire transfer has been received by ProFunds. ProFunds is not liable for any loss incurred due to a wire transfer not having been received. PURCHASE THROUGH SECURITIES DEALERS Investments in the ProFunds may be made through securities dealers who have the responsibility to transmit orders promptly and who may charge a processing fee. HOW TO EXCHANGE SHARES OF THE PROFUNDS Shares of any ProFunds may be exchanged, without any charge, for shares of the same class of any other ProFunds on the basis of the respective net asset values of the shares involved. Exchanges may be made by letter or by telephone at the address or numbers indicated on the cover of this Prospectus. Telephone requests may be made between 8:00 AM and 9:00 PM Eastern Time. However, telephone exchanges must be received by 3:45 PM Eastern Time to receive that day's net asset value. Exchange requests received after 3:45 PM Eastern Time are deemed to be received on the next business day of ProFunds and will receive the next determined net asset value on the next business day. If the primary exchange or market on which a ProFund transacts business closes early, the above cut-off time will be fifteen minutes prior to the close of such exchange or market. Exchanges with respect to Self-Directed Accounts must be for at least $1,000 or 100% of the account value for the ProFund, whichever is less, from which the transfer is made. See "Special Information Regarding Telephone Requests for Redemptions and Exchanges". To implement an exchange, shareholders must provide the following information: -- Name and telephone number; -- Account name and number; -- Taxpayer identification number; -- Number of or percentage of shares or dollar value of shares to be exchanged; -- The name of the ProFunds from which the exchange is to be made; and -- The name of the ProFunds to which the exchange is to be made. The privilege to initiate exchange transactions by telephone will be made available to ProFund shareholders automatically. Exchanges may only be made between identically registered accounts. The exchange privilege is available only in states where the exchange legally may be made and may be modified or discontinued at any time. In addition, see "Special Information Regarding Written and Telephone Requests for Redemptions and Exchanges" regarding instructions received by telephone. HOW TO WITHDRAW MONEY (REDEEM SHARES) GENERAL An investor can withdraw all or any portion of his investment by redeeming ProFund shares at the next-determined net asset value per share after receipt of the order. Withdrawals may be made by letter or by telephone at the address or numbers indicated on the cover of this Prospectus. Telephone requests for redemptions may be made between 8:00 AM and 9:00 PM Eastern Time. However, telephone redemptions must be received by 3:45 PM Eastern Time to receive that day's net asset value. Redemption requests received after 3:45 PM Eastern Time are deemed to be received on the next business day of ProFunds and will be placed at the next determined net asset value on the next business day. If the primary exchange or market on which a ProFund transacts business closes early, the above cut-off time will be thirty minutes prior to the close of such exchange or market. 6 14 The privilege to initiate redemption transactions by telephone will be made available to ProFund shareholders automatically. Redemptions from Self-Directed Accounts must be for at least $1,000 or 100% of the account value for the ProFund, whichever is less, from which the transfer is made. Payment of the redemption proceeds will be made within seven days after the ProFunds' receipt of the request for redemption. For investments that have been made by check, payment on withdrawal requests will be delayed until the ProFunds' transfer agent is reasonably satisfied that the purchase payment has been collected by the ProFunds (which may require up to 15 business days). An investor may avoid a delay in receiving redemption proceeds by purchasing shares with a certified check. WIRE OF WITHDRAWALS Shareholders may request payment by wire of withdrawal proceeds from a ProFund. The ProFunds charge $15 for each wire transfer of redemption proceeds; this charge may be waived at the discretion of the ProFunds. DRAFT CHECKS Investors may elect to redeem shares of the Money Market ProFund by draft check (minimum check - $500) made payable to the order of any person or institution. Upon the ProFunds' receipt of a completed signature card, investors will be supplied with draft checks which are drawn on the Money Market ProFund's account. There is a $25 charge for each stop payment request on the draft checks. Investors are subject to the same rules and regulations that banks apply to checking accounts. A Money Market ProFund account may not be closed by draft check. This option is not available to IRA shareholders. REDEMPTIONS TO THIRD PARTY OR OTHER ADDRESS Telephone redemptions are sent only to the address of record of the redeeming investor or to bank accounts specified by the redeeming investor in his account application. If the investor desires payment of redemption proceeds to a third party or to a location other than the investor's address of record or a bank account specified in the investor's account application, this request must be in writing, and the investor's signature must be guaranteed by a commercial bank, a broker, dealer, municipal securities dealer, municipal securities broker, government securities dealer, or government securities broker, a credit union, a national securities exchange, registered securities association, or clearing agency, or a savings association. SPECIAL INFORMATION REGARDING TELEPHONE REQUESTS FOR REDEMPTIONS AND EXCHANGES When acting on telephone instructions believed to be genuine, the ProFunds will not be liable for any loss resulting from a fraudulent telephone transaction request and the investor will bear the risk of any such loss. The ProFunds will employ reasonable procedures to confirm the telephone instructions are genuine; and if the ProFunds do not employ such procedures, then the ProFunds may be liable for any losses due to unauthorized or fraudulent instructions. The ProFunds follow specific procedures for transactions initiated by telephone, including, among others, requiring some form of personal form of identification prior to acting upon instructions received by telephone, providing written confirmation not later than 5 business days after such transaction and/or tape recording of telephone instructions. Investors also should be aware that telephone redemptions or exchanges may be difficult to implement in a timely manner during periods of drastic economic or market changes. If such conditions occur, redemption or exchange orders can be made by mail. Telephone redemption and exchange privileges may be terminated or modified by the ProFunds at any time. HOW TO MAKE AUTOMATIC INVESTMENTS, EXCHANGES AND WITHDRAWALS Investors may also purchase and redeem ProFund shares by arranging systematic monthly, bimonthly, quarterly or annual investments into the ProFunds(the "Automatic Investment Plan"), and redemptions from the ProFunds 7 15 (the "Automatic Withdrawal Plan"). The minimum investment amounts are $1,000 per transfer and minimum withdrawal amounts are $500 per transfer. These minimums are waived for IRA shareholders 70-1/2 or older. Additionally, investors may exchange, on a regular basis, shares of the Money Market ProFund for shares of other ProFunds through ProFunds' Automatic Exchange Plan. For more information, including terms and conditions, about automatic investment, exchange and withdrawal features, please call the ProFunds at 888-PRO-FNDS. DIVIDENDS AND DISTRIBUTIONS GENERAL All income dividends and capital gains distributions of each ProFund automatically will be reinvested in additional shares of the ProFund at the net asset value calculated on the ex-dividend date, unless an investor has requested otherwise in writing. Dividends and distributions of a ProFund are taxable to the shareholders of the ProFund, as discussed below under "Taxes," whether such dividends and distributions are reinvested in additional shares of the ProFund or received in cash. Statements of account will be sent to the ProFund shareholders at least quarterly. ALL PROFUNDS EXCEPT MONEY MARKET PROFUND The ProFunds other than the Money Market ProFund intend to distribute annually any net investment income and net realized capital gains to shareholders. The ProFunds may declare a special distribution for any of these ProFunds if the ProFunds believe that such a distribution would be in the best interests of its shareholders. MONEY MARKET PROFUND Shares begin accruing dividends on the day the purchase order is received in proper form by the Transfer Agent, and continue to earn dividends through the day before a redemption order for such shares is processed by the Transfer Agent. The Money Market ProFund ordinarily (i) declares dividends of net investment income (and net short-term capital gains, if any) for shares of the Money Market ProFund on a daily basis and (ii) distributes such dividends to shareholders of the Money Market ProFund on a monthly basis. Net realized capital gains will be distributed annually. The Money Market ProFund's net investment income consists of its share of the Portfolio's dividends and interest (including discount) accrued on its securities, less applicable expenses. The Money Market ProFund, however, may revise this dividend and distribution policy, postpone the payment of dividends thereunder, or take any other action necessary with respect thereto in order to facilitate, to the extent possible, the maintenance by the Money Market ProFund of a constant net asset value per share of $1.00. TAX-SHELTERED RETIREMENT PLANS ProFunds sponsors IRAs which enable individuals to establish their own retirement program (including spousal IRAs, Rollover IRAs, SEP IRAs and Simple IRAs). Fund-sponsored retirement plans are charged an annual $15.00 maintenance fee and receive tax reporting services. In addition, investors in the following retirement plans are eligible to invest in ProFunds: -- Keogh Accounts - Defined Contribution Plans (Profit-Sharing Plans) -- Keogh Accounts -- Money Purchase Plans -- Pension Plans -- Internal Revenue Code Section 403(b) Plans All ProFunds' IRA distribution requests must be made in writing to the transfer agent. Any additional deposits to the ProFunds must distinguish the type and year of the contribution. 8 16 For more information on ProFunds IRAs, or any other retirement plan, please call the ProFunds at 888-PRO-FNDS. Shareholders are advised to consult a tax adviser on ProFunds IRA contribution and withdrawal requirements and restrictions. 9 17 MISCELLANEOUS INVOLUNTARY REDEMPTIONS OF SMALL ACCOUNTS Because of the administrative expense of handling small accounts, the ProFunds reserve the right to redeem involuntarily an investor's account, including a retirement account, which falls below the applicable minimum investment in total value in the ProFunds due to redemptions. In addition, both a request for a partial redemption by an investor whose account balance is below the minimum investment and a request for a partial redemption by an investor that would bring the account balance below the minimum investment will be treated as a request by the investor for a complete redemption of that account. Investors holding shares in a retirement account should be aware that any redemption from a retirement account may result in tax consequences including, but not limited to, a 10% penalty on the amount withdrawn if the shareholder is under the age of 59-1/2. Shareholders should consult with their tax advisers if they are not familiar with such tax consequences. The ProFunds reserve the right to modify their minimum investment requirements and the corresponding amounts below which involuntary redemptions may be effected. SUSPENSION OF REDEMPTIONS The right of redemption may be suspended, or the date of payment postponed: (i) for any period during which the New York Stock Exchange ("NYSE"), the Federal Reserve Bank of New York (the "New York Fed"), the NASDAQ or the Chicago Mercantile Exchange ("CME"), as appropriate, is closed (other than customary weekend or holiday closings) or trading on the NYSE, the NASDAQ, or the CME, as appropriate, is restricted; (ii) for any period during which an emergency exists so that disposal of a ProFund's investments or the determination of its net assetvalue is not reasonably practicable; or (iii) for such other periods as the Securities and Exchange Commission (the "Commission"), by order, may permit for protection of the ProFunds' investors. "UNDELIVERABLE" OR "UNCASHED" DIVIDEND CHECKS If you elect to receive distribution in cash and checks (1) are returned and marked as "undeliverable" or (2) remain uncashed for six months, your cash election will be changed automatically and your future dividend and capital gains distributions will be reinvested in the ProFunds at the per share net asset value determined as of the date of payment of the distribution. In addition, any undeliverable checks or checks that remain uncashed for six months will be canceled and will be reinvested in the ProFunds at the per share net asset value determined as of the date of cancellation. TRANSACTION CHARGES In addition to charges described elsewhere in this Prospectus, the ProFunds also may make a charge of $25 for items returned for insufficient or uncollectible funds. NO CERTIFICATES In the interest of economy and convenience, physical certificates representing a ProFund's shares are not issued. Shares of each ProFund are recorded on a register by the ProFunds' transfer agent. 10 18 SPECIAL CONSIDERATIONS The ProFunds present certain risks, some not typically associated with mutual funds. Shareholders should consider the special factors discussed below that are associated with the investment policies of the ProFunds in determining the appropriateness of investing in the ProFunds. PORTFOLIO TURNOVER The ProFunds anticipate that their investors, as part of an asset-allocation or market-timing investment strategy, will frequently exchange their shares of a particular ProFund for shares in other ProFunds pursuant to theexchange policy, the ProFunds (see "How to Exchange Shares of ProFunds"), which would cause that ProFund to experience high portfolio turnover. A higher portfolio turnover rate would likely involve correspondingly greater brokerage commissions 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. Pursuant to the formula prescribed by the Commission, the portfolio turnover rate for each ProFund is calculated without regard to instruments, including options and futures contracts, having a maturity of less than one year. The Bull ProFund, the UltraBull ProFund, the Bear ProFund and the UltraBear ProFund typically hold most of their investments in short-term options and futures contracts which are excluded for purposes of computing portfolio turnover. Therefore, based on the Commission's portfolio turnover formula, each of these ProFunds expects a portfolio turnover rate of approximately 0%. TRACKING ERROR While the ProFunds do not expect that their returns over a year will deviate adversely from their respective benchmarks by more than ten percent, several factors may affect their ability to achieve this correlation. Among these factors are: (1) ProFund expenses, including brokerage (which may be increased by high portfolio turnover) and the cost of the investment techniques employed by the ProFunds; (2) less than all of the securities in the benchmark being held by a ProFund and securities not included in the benchmark being held by a ProFund; (3) an imperfect correlation between the performance of instruments held by a ProFund, such as futures contracts and options, and the performance of the underlying securities in the cash market; (4) bid-ask spreads (the effect of which may be increased by portfolio turnover); (5) a ProFund holds 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. AGGRESSIVE INVESTMENT TECHNIQUES Each of the ProFunds (other than the Money Market ProFund) may engage in certain aggressive investment techniques which may include engaging in short sales and transactions in futures contracts and options on securities, securities indexes, and futures contracts. These ProFunds expect that they will primarily use these techniques in seeking to achieve their objectives and that a significant portion (up to 100%) of the assets of these ProFunds will be held in liquid instruments in a segregated account by these ProFunds as "cover" for these investment techniques. Participation in the options or futures markets by a ProFund involves distinct investment risks and transaction costs. Risks inherent in the use of options, futures contracts, and options on futures contracts include: (1) adverse changes in the value of such instruments; (2) imperfect correlation between the price of options and futures contracts and options thereon and movements in the price of the underlying securities, index, or futures contracts; (3) the fact that the skills needed to use these strategies are different from those needed to select portfolio securities; 11 19 and (4) the possible absence of a liquid secondary market for any particular instrument at any time. For further information regarding these investment techniques, see "Investment Techniques and Other Investment Policies." LEVERAGE The Ultra Bull ProFund and the Ultra Bear ProFund intend to regularly use leveraged investment techniques in pursuing their investment objectives. Utilization of leveraging involves special risks and should be considered speculative. Leverage exists when a ProFund achieves the right to a return on a capital base that exceeds the investment the ProFund has invested. Leverage creates the potential for greater capital gains to shareholders of these ProFunds during favorable market conditions and the risk of magnified capital 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 Investment Company Act of 1940 (the "1940 Act"). The Trust, 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. INVESTMENT OBJECTIVES GENERAL 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. Except for the Money Market ProFund, each ProFund seeks investment results that correspond each day to a specified benchmark. The ProFunds may be used independently or in combination with each other as part of an overall investment strategy. Additional ProFunds may be created from time to time. 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 the 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 the ProFunds' investment results to vary from a perfect correlation to its benchmark. The ProFunds, however, do not expect that their total returns will vary adversely from their respective current benchmarks by more than ten percent over the course of a year. See "Special Considerations." It is the policy of the 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. 12 20 BENCHMARKS OF THE PROFUNDS The S&P 500 Index. Standard & Poor's Corporation chooses the 500 stocks composing the S&P 500 Index on the basis of market values and industry diversification. Most of the stocks in the S&P 500 Index are issued by the 500largest companies, in terms of the aggregate market value of their outstanding stock, and such companies are generally listed on the NYSE. Additional stocks that are not among the 500 largest market value stocks are included in the S&P 500 Index for diversification purposes. The S&P 500 Index as referred to in this Prospectus does not include the effect of dividends paid on the stock of the companies included in the index. S&P will not be a sponsor of, or in any other way be affiliated with, the ProFunds. The NASDAQ 100 Index. The NASDAQ 100 Index includes 100 of the largest non-financial domestic companies listed on the NASDAQ National Market tier of The NASDAQ Stock Market. Launched in January 1985, each security in the Index is proportionately represented by its market capitalization in relation to the total market value of the NASDAQ 100 Index. The NASDAQ 100 Index reflects NASDAQ's largest growth companies across major industry groups. All index components have a minimum market capitalization of $500 million, and an average daily trading volume of at least 100,000 shares. NASDAQ will not be a sponsor of, or in any other way be affiliated with, the ProFunds. 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 (100%) 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 13 21 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 much as the losses to investors in the Bear Fund. In pursuing its investment objective, the Bear ProFund generally does not invest in traditional securities, such as common stock of operating companies. Rather, the Bear 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 Bear ProFund and the UltraBear ProFund will generally incur a loss if the price of the underlying security or index increases between the date of the employment of the technique and the date on which the ProFund terminates the position. These ProFunds will generally realize a gain if the underlying security or index declines in price between those dates. The amount of any gain or loss on an investment technique may be affected by any premium or amounts in lieu of dividends or interest that the ProFund pays or receives as the result of the transaction. THE ULTRAOTC PROFUND The investment objective of the UltraOTC ProFund is to provide investment results that correspond to 200% of the performance of the NASDAQ 100 Index. The UltraOTC ProFund does not intend to hold the 100 securities included in the NASDAQ 100 Index. 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 the foregoing securities, instruments and transactions. Companies whose securities are traded on the over-the-counter ("OTC") markets generally have smaller market capitalization or are newer companies than those listed on the NYSE or the American Stock Exchange (the "AMEX"). OTC companies often have limited product lines, or relatively new products or services, and may lack established markets, depth of experienced management, or financial resources and the ability to generate funds. The securities of these companies may have limited marketability and may be more volatile in price than securities of larger capitalized or more well-known companies. Among the reasons for the greater price volatility of securities of certain smaller OTC companies are the less certain growth prospects of comparably smaller firms, the lower degree of liquidity in the OTC markets for such securities, and the greater sensitivity of smaller capitalized companies to changing economic conditions than larger capitalized, 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 MONEY MARKET PROFUND The Money Market ProFund seeks a high level of current income consistent with liquidity and 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 a longer term. The Money Market ProFund seeks to achieve its investment objective by investing the assets of the Money Market ProFund in the Portfolio, which has the same investment objective as the Money Market ProFund and is managed by Bankers Trust Company ("Bankers Trust"), 280 Park Avenue, New York, New York. There can be no 14 22 assurances that the investment objective of either the Money Market ProFund or the Portfolio will be achieved. The investment objective of the Money Market ProFund and the Portfolio is a fundamental policy 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 Master-Feeder 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 Techniques--Cash Management Portfolio" discussion of the Portfolio's investment policies. The Portfolio follows practices which enable the Money Market ProFund to attempt to maintain a $1.00 share price: limiting average maturity of the securities held by the Portfolio to 90 days or less; buying securities which mature in 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. INVESTMENT POLICIES AND TECHNIQUES 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. The ProFunds anticipate that that they will primarily engage in transactions in futures contracts and related options on the Chicago Mercantile Exchange (the "CME"). A futures contract obligates the seller to deliver (and the purchaser to take delivery of) the specified commodity on the expiration date of the contract. A stock index futures contract obligates the seller to deliver (and the purchaser to take) an amount of cash equal to a specific dollar amount multiplied by the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement is made. No physical delivery of the underlying stocks in the index is made. When a ProFund purchases a put or call option on a futures contract, the ProFund pays a premium for the right to sell or purchase the underlying futures contract for a specified price upon exercise at any time during the option period. By writing (selling) a put or call option on a futures contract, a ProFund receives a premium in return for granting to the purchaser of the option the right to sell to or buy from the ProFund the underlying futures contract for a specified price upon exercise at any time during the option period. Whether a ProFund realizes a gain or loss from futures activities depends generally upon movements in the underlying commodity. The extent of the ProFund's loss from an unhedged short position in futures contracts or from writing options on futures contracts is potentially unlimited. The ProFunds may engage in related closing transactions with respect to options on futures contracts. The ProFunds will only engage in transactions in futures contracts and options thereupon that are traded on a United States exchange or board of trade. 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. 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 15 23 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 TRANSACTIONS 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 "Taxes" 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. OPTIONS ON SECURITIES The ProFunds (other than the Money Market ProFund), may buy options and write (sell) options on securities. 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 (selling) a call option and receiving a premium, a ProFund becomes obligated during the term of the option to deliver 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. Options on securities written (sold) by the ProFunds will be conducted on recognized securities exchanges. A ProFund will realize a gain (or a loss) on a call or a put option previously purchased by the ProFund if the premium, less commission costs, received by the ProFund on the sale of the call or the put option to close the transaction is greater (or less) than the premium, plus commission costs, paid by the ProFund to purchase the call or the put option. If a put or a call option which the ProFund has purchased expires out-of-the-money (i.e., the exercise price of the option is less than the current market value of the underlying security), the option will become worthless on the expiration date, and the ProFund will realize a loss in the amount of the premium paid, plus commission costs. 16 24 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. Because option premiums paid or received by a ProFund are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in common stocks. SHORT SALES The Bear ProFund and the UltraBear 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. U.S. GOVERNMENT SECURITIES The ProFunds 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. Some obligations issued or guaranteed by agencies or instrumentalities of the U.S. government are backed by the full faith and credit of the U.S. Treasury. Such agencies and instrumentalities may borrow funds from the U.S. Treasury. However, no assurances can be given that the U.S. government will provide such financial support to the obligations of the other U.S. government agencies or instrumentalities in which a ProFund invests, since the U.S. government is not obligated to do so. These other agencies and instrumentalities are supported by either the issuer's right to borrow, under certain circumstances, an amount limited to a specific line of credit from the U.S. Treasury, the discretionary authority of the U.S. government to purchase certain obligations of an agency or instrumentality, or the credit of the agency or instrumentality itself. 17 25 REPURCHASE AGREEMENTS 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. A ProFund will enter into repurchase agreements only with member banks of the Federal Reserve System or primary dealers of U.S. government securities. The Advisor and, with respect to the Portfolio, Bankers Trust, will monitor the creditworthiness of each of the firms which is a party to a repurchase agreement with any of the ProFunds. In the event of a default or bankruptcy by the seller, the ProFund will liquidate those securities (whose market value, including accrued interest, must be at least equal to 100% of the dollar amount invested by the ProFund in each repurchase agreement) held under the applicable repurchase agreement, which securities constitute collateral for the seller's obligation to pay. However, liquidation could involve costs or delays and, to the extent proceeds from the sales of these securities were less than the agreed-upon repurchase price, the ProFund would 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 to treat repurchase agreements that do not mature within seven days (or which may not be terminated within seven calendar days upon notice by the ProFund) as illiquid for the purposes of their investment policies. CASH RESERVES 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. OTHER INVESTMENT POLICIES The ProFunds also may engage in certain other investment practices described below. However, none of the ProFunds presently intends to invest more than 5% of the ProFund's net assets in any of these practices. Each of the ProFunds may purchase securities on a when-issued or delayed-delivery basis, and also may lend portfolio securities to brokers, dealers, and financial institutions. Each ProFund (other than the Money Market ProFund) may borrow money for investment purposes or invest in illiquid securities. Each of the ProFunds also 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. A more-detailed explanation of these investment practices, including the risks associated with each practice, is included in the Statement of Additional Information. In addition, see the discussion of risk factors involved in investing in non-diversified funds under "Classification of the ProFunds". CASH MANAGEMENT PORTFOLIO INVESTMENT POLICIES Since the investment characteristics of the Money Market ProFund will correspond directly to those of the Portfolio, set forth below is a discussion of the various investments and investment policies of the Portfolio. Additional information about the investment policies of the Portfolio appears in the SAI. The Portfolio will attempt to achieve its investment objective by investing in the following money market instruments: Bank Obligations. The Portfolio may invest in fixed rate or variable rate obligations of U.S. or foreign banks which have total assets at the time of purchase in excess of $1 billion and are rated Prime-1 by Moody's Investors Services, Inc. ("Moody's") or A-1 or higher by Standard & Poor's Ratings Group ("S&P Ratings") or, if not rated, 18 26 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 and other U.S. dollar-denominated instruments issued or supported by the credit of U.S. or foreign banks. If Bankers Trust, acting under the supervision of the Board of Trustees of the Portfolio, 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 may include subsidiaries of U.S. 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 domestic banks because of differences in political, regulatory and economic systems and conditions. These risks include future political and economic developments, currency blockage, the possible imposition of withholding taxes, interest payments, differing reserve requirements, reporting and recordkeeping requirements and accounting standards, possible seizure or nationalization of foreign deposits, difficulty or inability of pursuing legal remedies and obtaining judgments 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. 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 to the SAI. Commercial Paper. The Portfolio may invest in fixed rate or variable rate commercial paper, including variable rate master demand notes, issued by U.S. and foreign corporations. Commercial paper when purchased by the Portfolio must be rated Prime-1 by Moody's or A-1 or higher by S&P Ratings 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 corporation 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. Other Debt Obligations. The Portfolio may invest in bonds, notes and debentures that at the time of purchase have outstanding short-term ratings meeting the above rating requirements, or if such commercial paper is unrated or if no such commercial paper is outstanding, are rated at least AA by S&P Ratings or Aa by Moody's. Such obligations, at the time of investment, must have or be deemed to have less than 397 days to maturity. U.S. government obligations. The Portfolio may invest in obligations issued and guaranteed by the U.S. Treasury or by agencies or instrumentalities of the U.S. government. See "Investment Techniques--U.S. Government Securities" herein. Repurchase Agreements. The Portfolio may engage in repurchase agreement transactions counterparties approved by the Board of Trustees of the Portfolio. Bankers Trust, acting under the supervision of the Board of Trustees of the Portfolio, reviews the creditworthiness of those counterparties with which the Portfolio enters into repurchase agreements and monitors on an ongoing basis the value of the securities subject to repurchase agreements to ensure that the value is maintained at the required level. See "Investment Techniques--Repurchase Agreements". 19 27 Securities Lending. The Portfolio is permitted to lend up to 20% of the total value of its securities to brokers, dealers and other financial organizations. These loans must be secured continuously by cash or equivalent collateral or a letter of credit at least equal to 100% of the current market value of the securities loaned plus accrued income. By lending its securities, the Portfolio can increase its income by continuing to receive income on the loaned securities as well as by the opportunity to receive interest on the collateral. During the term of the loan, the Portfolio continues to bear the risk of fluctuations in the price of loaned securities. 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. Reverse Repurchase Agreement. The Portfolio may enter into reverse repurchase agreements. See "Investment Objective and Policies" in the SAI for a more detailed description of reverse repurchase agreements. 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. Additional Investment Limitations. The Money Market ProFund has the same investment restrictions as the Portfolio, except that the Money Market ProFund may invest all of its assets in another open-end investment company with the same investment objective, such as the Portfolio. The Portfolio may not invest more than 25% of its total assets in the securities of issuers in any single industry, except that, under normal market conditions, more than 25% of the total assets of the Portfolio will be invested in foreign and domestic bank obligations. 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 Portfolio is also authorized to borrow, including entering into reverse repurchase transactions, in an amount up to 5% of its total assets for temporary purposes, but not for leverage, and to pledge its assets to the same extent in connection with these borrowings. See the SAI for additional information with respect to reverse repurchase transactions. 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. The SAI contains further information on the Money Market ProFund's and the Portfolio's investment restrictions. Portfolio Quality and Maturity. 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 NR 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. A description of such ratings is provided in the Appendix to the SAI. 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. When-Issued and Delayed-Delivery Securities. To secure prices deemed advantageous at a particular time, the Portfolio may purchase securities on a when-issued or delayed-delivery basis, in which case delivery of the securities occurs beyond the normal settlement period; payment for or delivery of the securities occurs beyond the normal settlement period; and payment for or delivery of the securities would be made at the same time as the reciprocal delivery or payment by the other party to the transaction. 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- 20 28 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. Securities purchased on a when-issued or delayed-delivery basis may expose the Portfolio to risk because the securities may experience fluctuations in value prior to their actual delivery. The Portfolio does not accrue income with respect to a when-issued or delayed-delivery security prior to its stated delivery date. Purchasing securities on a when-issued or delayed-delivery basis can involve the additional risk that the yield available in the market when the delivery takes place may be higher than that obtained in the transaction itself. Upon purchasing a security on a when-issued or delayed-delivery basis, the Portfolio will segregate with the Portfolio's custodian liquid instruments in an amount at least equal to the when-issued or delayed-delivery commitment. 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. SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE Unlike other open-end management investment companies (mutual funds) which directly acquire and manage their own portfolio securities, the Money Market ProFund seeks to achieve its investment objective by investing all of its assets in the Portfolio, a separate registered investment company with the same investment objective as the Money Market ProFund. Therefore, an investor's interest in the Portfolio's securities is indirect. In addition to selling a beneficial interest to the Money Market ProFund, the Portfolio may sell beneficial interests to other mutual funds or institutional investors. Such investors will invest in the Portfolio on the same terms and conditions and will pay a proportionate share of the Portfolio's expenses. However, the other investors investing in the Portfolio are not required to sell their shares at the same public offering price as the Money Market ProFund or subject to comparable variations in sales loads and other operating expenses. Therefore, investors in the Money Market ProFund should be aware that these differences may result in differences in returns experienced by investors in the different funds that may invest in the Portfolio. Such differences in returns are also present in other mutual fund structures. Information concerning other holders of interests in the Portfolio is available from Bankers Trust at 1-800-368-4031. The Trust's 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 Trust is requested to vote on matters pertaining to the Portfolio, the Trust 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 Trust's 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 Trust 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 21 29 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 Trust 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. TAXES The Internal Revenue Code (the "Code") provides that each investment portfolio of a series investment company is to be treated as a separate corporation. Accordingly, each of the ProFunds will seek to qualify for treatment as a regulated investment company (a "RIC") under Subchapter M of the Code. If a ProFund qualifies as a RIC and satisfies the distribution requirements under the Code for any taxable year, the ProFund itself will not be subject to income tax on the ordinary income and capital gains it has distributed to its shareholders for that year. To qualify as a RIC under the Code, a ProFund must satisfy certain requirements, including the requirements that the ProFund receive at least 90% of the ProFund's gross income each year from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of securities or foreign currencies, certain options, futures, or forward contracts or other income derived with respect to the ProFund's investments in stock, securities, and foreign currencies (or certain options, futures, or forward contracts on such foreign currencies). Provided that a ProFund (i) is a RIC and (ii) distributes at least 90% of the ProFund's net investment income (including, for this purpose, net realized short-term capital gains), the ProFund itself will not be subject to Federal income taxes to the extent the ProFund's net investment income and the ProFund's net realized long-and short-term capital gains, if any, are distributed to the shareholders of that ProFund. To avoid an excise tax on its undistributed income, each ProFund generally must distribute at least 98% of its income, including its net long-term capital gains. The Portfolio in which the Money Market ProFund invests is not required to pay Federal income taxes on its net investment income and capital gain (if any), as it is treated as a partnership for Federal income for tax purposes. All interest, dividends and gains and losses of the Portfolio are deemed to have been "passed through" to the Money Market ProFund in proportion to its holdings of the Portfolio, regardless of whether such interest, dividends or gains have been distributed by the Portfolio or losses have been realized by the Portfolio. Under current law, dividends derived from interest and dividends received by a ProFund, together with distributions of any short-term capital gains, if any, are taxable to the shareholders of the ProFund, as ordinary income at Federal income tax rates of up to 39.6%, whether or not such dividends and distributions are reinvested in shares of such ProFund or are received in cash. Under current law, distributions of net long-term gains, if any, realized by a ProFund and designated as capital gains distributions will be taxed to the shareholders of that ProFund as long-term capital gains regardless of the length of time the shares of that ProFund have been held. Currently, long-term capital gains of individual investors are taxed at rates of up to 28%. Statements as to the Federal tax status of shareholders dividends and distributions will be mailed annually. Shareholders should consult their tax advisors concerning the tax status of the ProFunds dividends in their own states and localities. U.S. government securities and other securities may be purchased at a discount. Such securities, when held to maturity or retired, may include an element of capital gain. Capital losses may be realized when such securities purchased at a premium are held to maturity or are called or redeemed at a price lower than their purchase price. Capital gains or losses also may be realized upon the sale of securities. Ordinary dividends paid to corporate or individual residents of foreign countries generally are subject to a 30% withholding tax. The rate of withholding tax may be reduced if the United States has an income tax treaty with the 22 30 foreign country where the recipient resides. Capital gains distributions received by foreign investors should, in most cases, be exempt from U.S. tax. A foreign investor will be required to provide the ProFund with supporting documentation in order for the ProFund to apply a reduced rate or exemption from U.S. withholding tax. Shareholders are required by law to certify that their tax identification number is correct and that they are not subject to back-up withholding. In the absence of this certification, the ProFunds is required to withhold taxes at the rate of 31% on dividends, capital gains distributions, and redemptions. Shareholders who are non-resident aliens may be subject to a withholding tax on dividends earned. MANAGEMENT OF THE TRUST INVESTMENT ADVISERS PROFUND ADVISORS LLC The ProFunds are provided investment advice and management services by ProFund Advisors LLC, a Maryland limited liability company formed on May 8, 1997, with offices at 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814. Louis M. Mayberg and Michael L. Sapir own a controlling interest in the Advisor. Under an investment advisory agreement between the non-money market ProFunds and the Advisor, dated October ___, 1997, the non-money market ProFunds each pay the Advisor a fee at an annualized rate, based on the average daily net assets for each respective ProFund, of 0.75%. The Advisor manages the investment and the reinvestment ofthe assets of each of the ProFunds, in accordance with the investment objectives, policies, and limitations of the ProFunds, subject to the general supervision and control of the ProFunds' Board of Trustees and officers. The Advisor bears all costs associated with providing these advisory services and the expenses of the ProFunds who are affiliated persons of the Advisor. The Advisor, from its own resources, including profits from advisory fees received from the ProFunds, also may make payments to broker-dealers and other financial institutions for their expenses in connection with the distribution of ProFund shares, and otherwise currently pays all distribution costs for ProFund shares. As recently created entities, the non-money market ProFunds will be subject to all the risks incident to the creation of a new business, including the absence of a history of operations. The Advisor is a newly created entity and, as such, prior to the commencement of operations of the ProFunds, had no previous experience in providing investment management services to an investment company. Michael L. Sapir, the Advisor's chairman and chief executive officer, is the former senior vice president of Padco Advisors, Inc., the investment adviser to RydexTR Funds and was an attorney in private practice for over thirteen years specializing in advising issuers of investment products, including mutual funds. Louis M. Mayberg, the Advisor's president, co-founded an investment banking firm in 1986 and has been responsible for, among other things, managing the investment "hedge" fund sponsored by that firm. William E. Seale, Ph.D., the Advisor's and the ProFunds' portfolio director, has over twenty-five years of experience with respect to the commodity futures markets, including serving for five years pursuant to a presidential appointment as commissioner to the United States Commodities Futures Trading Commission. The ProFunds' Administrator, BISYS, provides operations, compliance and administrative services for investment companies. BANKERS TRUST The Money Market ProFund seeks to achieve its investment objective by investing all of its investable assets in the Portfolio, which has as its investment adviser, Bankers Trust, a New York banking corporation with principal offices at 130 Liberty Street, New York, New York 10006 and a wholly-owned subsidiary of Bankers Trust New York Corporation. Bankers Trust currently receives an investment management fee for its services to the Portfolio in the amount of 0.15% of the average daily net assets of the Portfolio. Bankers Trust conducts a variety of general banking and trust activities and is a major wholesale supplier of financial services to international and domestic institutional markets. As of June 30, 1997, Bankers Trust New York Corporation was the seventh largest bank holding company in the United States with total assets of approximately 23 31 $129 billion. Bankers Trust is a worldwide merchant bank dedicated to servicing the needs of corporations, governments, financial institutions and private clients through a global network of over 120 offices in more than 50 countries. Investment management is a core business of Bankers Trust, built on a tradition of excellence from its roots as a trust bank founded in 1903. The scope of Bankers Trust's investment management capability is unique due to its leadership positions in both active and passive quantitative management and its presence in major equity and fixed income markets around the world. Bankers Trust is one of the nation's largest and most experienced investment managers, with approximately $240 billion in assets under management globally. Bankers Trust has more than 50 years of experience managing retirement assets for the nation's largest corporations and institutions. In the past, these clients have been serviced through separate account and commingled fund structures. Bankers Trust's officers have had extensive experience in managing investment portfolios having objectives similar to those of the Portfolio. 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 objective 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. All orders for investment transactions on behalf of the Portfolio are placed by Bankers Trust with broker-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 the 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 and customers of Bankers Trust. SERVICE PROVIDERS ADMINISTRATOR, TRANSFER AGENT, FUND ACCOUNTING AGENT AND CUSTODIAN BISYS acts as Administrator to the ProFunds. BISYS provides administrative services necessary for the operation of the Funds, including among other things, (i) preparation of shareholder reports and communications, (ii) regulatory compliance, such as reports to and filings with the Commission and state securities commissions, and (iii) general supervision of the operation of the Funds, including coordination of the services performed by the Funds' Advisor, custodians, independent accountants, legal counsel and others. In addition, BISYS furnishes office space and facilities required for conducting the business of the Funds and pays the compensation of the Funds' officers and employees affiliated with BISYS. 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. The address of BISYS and BFSI is 3435 Stelzer Road, Suite 1000, Columbus, Ohio 43219. ProFunds Advisors LLC, pursuant to a separate Management Services Agreement, performs certain client support services and other administrative services on behalf of the ProFunds. 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 ProFund. Under this agreement, ProFund Advisors LLC may receive up to .35% of the Money Market ProFund's average daily net assets for providing feeder fund management and administrative services to the Money Market ProFund, which 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 such entity, communicating with the Trust's Board of Trustees and shareholders regarding such entity's performance and the 24 32 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. Under an Administration and Services Agreement with the Portfolio, Bankers Trust calculates the value of the assets of the Portfolio and generally assists the Board of Trustees of the Portfolio in all aspects of the administration and operation of the Portfolio. The Administration and Services Agreement provides for the Portfolio to pay Bankers Trust a fee, computed daily and paid monthly, at the annual rate of .05% of the average daily net assets of the Portfolio. Under the Administration and Services Agreement, Bankers Trust may delegate one or more of its responsibilities to others at Bankers Trust's expense. UMB Bank, N.A. acts as custodian to the ProFunds; its address is 928 Grand Avenue, Kansas City, Missouri. INTERIM DISTRIBUTOR Concord Financial Group, Inc. will serve as the distributor and principal underwriter in all fifty states and the District of Columbia until such time as ProFunds has filed and duly registered with the appropriate regulatory agencies of those jurisdictions, at which time ProFunds will self-distribute the ProFunds' shares in all fifty states and the District of Columbia. Concord Financial Group, Inc. receives no compensation from the ProFunds for serving as distributor. Concord Financial Group, Inc.'s address is 3435 Stelzer Road, Columbus, Ohio 43215. SHAREHOLDER SERVICES PLAN - ADVISER SHARES Each ProFund has adopted a Shareholder Services Plan (the "Plan"). The Plan provides that each ProFund will make payments to Authorized Firms (defined below) equal to up to 1.00% (on an annual basis) of the average daily value of the net assets of such ProFund's Adviser class of shares attributable to or held in the name of an Authorized Firm for its clients. The Plan provides that the fee will be paid to registered investment advisers, banks, trust companies and other financial organizations ("Authorized Firms"), for providing account administration and other services to their clients who are beneficial owners of such shares. The services provided by the Authorized Firms may include, among other things, receiving, aggregating and processing shareholder or beneficial owner (collectively "shareholder") orders; furnishing shareholder subaccounting; providing and maintaining retirement plan records; communicating periodically with shareholders; acting as the sole shareholder of record and nominee for shareholders; maintaining account records for shareholders; answering questions and handling correspondence from shareholders about their accounts; issuing various shareholder reports and confirmations for transactions by shareholders; performing daily investment ("sweep") functions for shareholders; and account administration services. ProFunds expects that the level of services provided with respect to these accounts will be more extensive than typically occurs under shareholder servicing plans. Holders of Adviser Shares of a ProFund will bear all fees paid under the Plan with respect to such shares as well as any other expenses which are directly attributable to such shares. Authorized Firms may charge other fees to their clients who are the beneficial owners of Adviser Shares in connection with their client accounts. These fees would be in addition to any amounts received by the Authorized Firms and would be for services other than those provided under such an Agreement. Under the terms of such Service Agreements, Authorized Firms are required to provide their clients with a schedule of fees charged to such clients which relate to the investment of customers' assets in Adviser Shares at the time of any investment and whenever changes to the schedule are made. Each ProFund will accrue payments made pursuant to the Plan daily. The payments under the Plan which are required to be accrued to the ProFunds' Adviser Shares on any day will not exceed the distributable income to be accrued to such shares on that day. All inquiries by a beneficial owner of Adviser Shares must be directed to such owner's Authorized Firm. 25 33 COSTS AND EXPENSES The ProFunds bear all expenses of their operations other than those assumed by the Advisor or BISYS. Expenses of the ProFunds include, but are not limited to: the advisory fee; administrative, transfer agent, and shareholder servicing fees; custodian and accounting fees and expenses; legal and auditing fees; securities valuation expenses; fidelity bonds and other insurance premiums; expenses of preparing and printing prospectuses, confirmations, proxy statements, and shareholder reports and notices; registration 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 Trustee's fees and expenses. In order to increase the return to investors, both the Advisor and Bankers Trust may from time to time agree to voluntarily waive or reduce their respective fees, while retaining their ability to be reimbursed for such fees prior to the end of each fiscal year. PORTFOLIO TRADING PRACTICES The Advisor determines which securities to purchase and sell for each non-money market ProFund, selects brokers and dealers to effect the transactions, and negotiates commissions. The Advisor expects that the non-money market 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. In placing orders for portfolio transactions, the Advisor's policy is to obtain the most favorable price and efficient execution available. Brokerage commissions are normally paid on exchange-traded securities transactions and on options and futures transactions, as well as on common stock transactions. In order to obtain the brokerage and research services described below, a higher commission may sometimes be paid. The ability to receive research services may be a factor in the selection of one dealer acting as a principal over another. When selecting broker-dealers to execute portfolio transactions, the Advisor considers many factors, including the rate of commission or size of the broker-dealer's "spread," the size and difficulty of the order, the nature of the market for the security, the willingness of the broker-dealer to position, the reliability, financial condition, general execution and operational capabilities of the broker-dealer, and the research, statistical and economic data furnished by the broker-dealer to the Advisor. The Advisor may use these services in connection with all of the Advisor's investment activities, including other investment accounts the Advisor advises. Conversely, brokers or dealers which supply research may be selected for execution of transactions for such other accounts, while the data may be used by the Advisor in providing investment advisory services to the non-money market ProFunds. GENERAL INFORMATION ABOUT THE TRUST ORGANIZATION AND DESCRIPTION OF SHARES OF BENEFICIAL INTEREST ProFunds (the "Trust") is a registered open-end investment company under the 1940 Act. The Trust was organized as a Delaware business trust on April 17, 1997, and has authorized capital of unlimited shares of beneficial interest of no par value which may be issued in more than one class or series. Currently, the Trust consists of six separately managed series. Other separate series may be added in the future. Each ProFund offers two classes of shares: the Adviser Shares and the Investor Shares. All shares of the ProFunds are freely transferable. The Trust shares do not have preemptive rights or cumulative voting rights, and none of the shares have any preference to conversion, exchange, dividends, retirements, liquidation, redemption, or any other feature. Trust shares have equal voting rights, except that, in a matter affecting a particular series in the Trust, only shares of that series 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' 26 34 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. Unlike stockholders of a corporation, shareholders of a business trust such as the Trust could be held personally liable, under certain circumstances, for the obligations of the business trust. The Declaration Trust of the ProFunds, however, 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 out 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 the ProFunds itself would not be able to meet the Trust's obligations and this risk, thus, should be considered remote. DETERMINATION OF NET ASSET VALUE The net asset values of the shares of the ProFunds are determined as of the close of business on each day the CME is open for business (in the case of the Money Market ProFund, net asset value is determined as of the close of business of each day the New York Stock Exchange is open for business). Currently, the CME is closed on weekends, and the following holiday closings have been scheduled for 1997: (i) New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day (ii) the preceding Friday when any of those holidays falls on a Saturday or the subsequent Monday when any of these holidays falls on a Sunday. To the extent that portfolio securities of a ProFund are traded in other markets on days when the ProFund's principal trading market(s) is closed, the ProFund's net asset value may be affected on days when investors do not have access to the ProFund to purchase or redeem shares. Although the ProFunds expect the same holiday schedules to be observed in the future, the CME may modify its holiday schedule at any time. The net asset value of each class of shares of a ProFund serves as the basis for the purchase and redemption price of that ProFund's class. 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 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 (National Association of Securities Dealers Automated Quotations), 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 at amortized cost, which approximates market. When market quotations are not readily available, securities and other assets are valued at fair value as determined in good faith under procedures established by and under the general supervision and responsibility of the ProFunds' Board of Trustees. 27 35 Puts, calls and futures contracts purchased and held by the ProFunds are valued at the close of the securities or commodities exchanges on which they are traded. (Ordinarily, the close of the regular session for options trading on national securities exchanges is 4:15 p.m. Eastern Time and the close of the regular session of commodities exchanges is 4:15 p.m. Eastern Time.) Options on securities and indices purchased by a ProFund generally are valued at their last bid price in the case of exchange-traded options or, in the case of options traded in the OTC market, the average of the last bid price as obtained from two or more dealers unless there is only one dealer, in which case that dealer's price is used. Futures contracts will be valued with reference to established futures exchanges. The value of a futures contract purchased by the ProFunds will be either the closing price of that contract or the bid price. Conversely, the value of a futures contract sold by the ProFunds will be either the closing price or the asked price. The value of options on futures contracts is determined based upon the current settlement price for a like option acquired on the day on which the option is being valued. A settlement price may not be used for the foregoing purposes if the market makes a limit move with respect to a particular commodity. FUNDAMENTAL POLICIES The investment objectives (except the specific benchmarks which are tracked by the ProFunds) and certain investment restrictions of the ProFunds specifically identified as fundamental policies may not be changed without the affirmative vote of at least the majority of the outstanding shares of that ProFund, as defined in the 1940 Act. All other investment policies of the ProFunds not specified as fundamental (including the benchmarks of the ProFunds) may be changed by the trustees of the ProFunds without the approval of shareholders. The ProFunds may consider changing a ProFund's benchmark if, for example, the current benchmark becomes unavailable; the ProFunds believe the current benchmark no longer serves the investment needs of a majority of shareholders or another benchmark better serves their needs; or the financial or economic environment makes it difficult for the ProFund's investment results to correspond sufficiently to its current benchmark. If believed appropriate, the ProFunds may specify a benchmark for a ProFund that is "leveraged" or proprietary. Of course, there can be no assurance that a ProFund will achieve its objective. TRUSTEES AND OFFICERS The ProFunds has a Board of Trustees which is responsible for the general supervision of ProFunds' business. The day-to-day operations of the ProFunds are the responsibility of the ProFunds' officers. AUDITORS Coopers & Lybrand LLP are the auditors of and the independent public accountants for ProFunds. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE PROFUNDS IN ANY JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE. 28 36 PART B 1 37 SUBJECT TO COMPLETION OCTOBER ____, 1997 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A PROSPECTUS. PROFUNDS STATEMENT OF ADDITIONAL INFORMATION 7900 Wisconsin Avenue, Suite 300 Bethesda, Maryland 20814 (888) 776-5717 (Registered Investment Advisers Only) (888) PRO-FNDS (For All Others) This prospectus describes six ProFunds. Each ProFund offers two classes of shares: Adviser 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 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 and are not intended for investors whose principal objective is current income or preservation of capital. Because of the inherent risks in any investment, there can be no assurance that the ProFunds' investment objectives will be achieved. This Statement of Additional Information is not a prospectus. It should be read in conjunction with ProFunds' Prospectus, dated October __, 1997, which incorporates this Statement of Additional Information by reference. A copy of the Prospectus is available, without charge, upon request to at the address above or by telephoning at the telephone numbers above. The date of this Statement of Additional Information is October ___, 1997. 2 38 STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS Page ---- THE PROFUNDS INVESTMENT POLICIES AND TECHNIQUES INVESTMENT RESTRICTIONS PORTFOLIO TRANSACTIONS AND BROKERAGE MANAGEMENT OF PROFUNDS TAXATION PERFORMANCE INFORMATION FINANCIAL STATEMENTS APPENDIX FOR RATINGS SERVICES 3 39 PROFUNDS ProFunds (the "Trust") is an open-end management investment company, and currently comprises six separate series. Other series may be added in the future. The ProFunds may be used independently or in combination with each other as part of an overall investment strategy. Shares of any ProFund may be exchanged, without any charge, for shares of the same class of any other ProFund on the basis of the respective net asset values of the shares involved; provided, that, in connection with exchanges for shares of the ProFund, certain minimum investment levels are maintained (see "How to Exchange Shares of the ProFunds" in the Prospectus). INVESTMENT POLICIES AND TECHNIQUES GENERAL Reference is made to the sections entitled "Investment Objectives" and "Investment Policies and Techniques" in the ProFund's Prospectus for a discussion of the investment objectives and policies of the ProFunds. In addition, set forth below is further information relating to the ProFunds. The discussion below supplements and should be read in conjunction with the Prospectus. Portfolio management is provided to the non-money market ProFunds by its investment adviser, ProFund Advisors LLC, a Maryland limited liability company with offices at 7900 Wisconsin Avenue, NW, Bethesda, Maryland (the "Advisor"). The Money Market ProFund seeks to achieve its investment objective by investing all of its assets in the Portfolio which has as its investment adviser, Bankers Trust Company ("Bankers Trust"). The investment 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. FUTURES CONTRACTS 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 4 40 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. INDEX OPTIONS The non-money market ProFunds may engage in transactions in stock index options listed on national securities exchanges or traded in the over-the-counter market as an investment vehicle for the purpose of realizing the ProFund's investment objective. Options on indexes are settled in cash, not by delivery of securities. The exercising holder of an index option receives, instead of a security, cash equal to the difference between the closing price of the securities index and the exercise price of the option. Some stock index options are based on a broad market index such as the S&P 500 Index, the NYSE Composite Index, or the AMEX Major Market Index, or on a narrower index such as the Philadelphia Stock Exchange Over-the-Counter Index. Options currently are traded on the Chicago Board Options Exchange (the "CBOE"), the AMEX, and other exchanges ("Exchanges"). Purchased over-the-counter options and the cover for written over-the-counter options will be subject to the respective ProFund's 15% limitation on investment in illiquid securities. See "Illiquid Securities." Each of the Exchanges has established limitations governing the maximum number of call or put options on the same index which may be bought or written (sold) by a single investor, whether acting alone or in concert with others (regardless of whether such options are written on the same or different Exchanges or are held or written on one or more accounts or through one or more brokers). Under these limitations, option positions of all investment companies advised by the same investment adviser are combined for purposes of these limits. Pursuant to these limitations, an Exchange may order the liquidation of positions and may impose other sanctions or restrictions. These position limits may restrict the number of listed options which a ProFund may buy or sell; however, the Advisor intends to comply with all limitations. OPTIONS ON SECURITIES The non-money market ProFunds may buy and write (sell) options on securities for the purpose of realizing their ProFund's investment objective. 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 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 5 41 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. U.S. GOVERNMENT SECURITIES Each non-money market ProFund and the Portfolio also may invest in U.S. government 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. 6 42 REPURCHASE AGREEMENTS Each of the ProFunds may enter into repurchase agreements with financial institutions. The ProFunds follow certain procedures designed to minimize the risks inherent in such agreements. These procedures include effecting repurchase transactions only with large, well-capitalized and well-established financial institutions whose condition will be continually monitored by the Advisor and, in the case of the Money Market ProFund, Bankers Trust. In addition, the value of the collateral underlying the repurchase agreement will always be at least equal to the repurchase price, including any accrued interest earned on the repurchase agreement. In the event of a default or bankruptcy by a selling financial institution, a ProFund will seek to liquidate such collateral which could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less than the repurchase price, the ProFund could suffer a loss. 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. 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 this will be to the ProFund/Portfolio's advantage to do so. The ProFund/Portfolios will establish a segregated account with their custodian bank in which the ProFund/Portfolio will maintain cash or liquid instruments equal in value to the ProFund/Portfolio's obligations in respect of reverse repurchase agreements. BORROWING The ProFunds (other than the Portfolio except to the degree the Portfolio may borrow for temporary or emergency purposes) may borrow money for cash management purposes or investment purposes. Each of the non-money market ProFunds may also enter into reverse repurchase agreements, which may be viewed as a form of borrowing, with financial institutions. However, to the extent a ProFund "covers" its repurchase obligations as described above in "Reverse Repurchase Agreements," such agreement will not be considered to be a "senior security" and, therefore, will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by the ProFunds. Borrowing for investment is known as leveraging. Leveraging investments, by purchasing securities with borrowed money, is a speculative technique which increases investment risk, but also increases investment opportunity. Since substantially all of a ProFund's assets will fluctuate in value, whereas the interest obligations on borrowings may be fixed, the net asset value per share of the ProFund will increase more when the ProFund's portfolio assets increase in value and decrease more when the ProFund's portfolio assets decrease in value than would otherwise be the case. Moreover, interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the returns on the borrowed funds. Under adverse conditions, a ProFund might have to sell portfolio securities to meet interest or principal payments at a time when investment considerations would not favor such sales. As required by the Investment Company Act of 1940, as amended (the "1940 Act"), a ProFund must maintain continuous asset coverage (total assets, including assets acquired with borrowed funds, less liabilities exclusive of borrowings) of 300% of all amounts borrowed. If at any time the value of the ProFund's assets should 7 43 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 or 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% 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. A lending ProFund/Portfolio may pay reasonable finders, borrowers, administrative, and custodial Trustees in connection with a loan. 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. A ProFund will not purchase securities on a when-issued or delayed-delivery basis if, as a result, more than 15% of the ProFund's net assets would be so invested. At the time of delivery of the securities, the value of the securities may be more or less than the purchase price. The Trust will also establish a segregated account with the Trust's custodian bank in which the ProFunds will maintain liquid instruments equal to greater in value than the ProFund's purchase commitments for such when-issued or delayed-delivery securities, or the Trust does not believe that a ProFund's net asset value or income will be adversely affected by the ProFund's purchase of securities on a when-issued or delayed delivery basis. INVESTMENTS IN OTHER INVESTMENT COMPANIES The ProFunds may invest in the securities of other investment companies to the extent that such an investment would be consistent with the requirements of the 1940 Act. If a ProFund invests in, and, thus, is a shareholder of, another investment company, the ProFund's shareholders will indirectly bear the ProFund's proportionate share of the fees and expenses paid by such other investment company, including advisory fees, in addition to both the management fees payable directly by the ProFund to the ProFund's own investment adviser and the other expenses that the ProFund bears directly in connection with the ProFund's own operations. 8 44 ILLIQUID SECURITIES While none of the ProFunds anticipates doing so, each of the ProFunds and the Portfolio may purchase illiquid securities, including securities that are not readily marketable and securities that are not registered (restricted securities) under the Securities Act of 1933, as amended (the 1933 Act ), but which can be sold to qualified institutional buyers under Rule 144A of the 1933 Act. A ProFund will not invest more than 15% (10%with respect to the Portfolio) of the ProFund's/Portfolio's net assets in illiquid securities. The term illiquid securities for this purpose means securities that cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the ProFund has valued the securities. Under the current guidelines of the staff of the Securities and Exchange Commission (the "Commission"),illiquid securities also are considered to include, among other securities, purchased over-the-counter options, certain cover for over-the-counter options, repurchase agreements with maturities in excess of seven days, and certain securities whose disposition is restricted under the Federal securities laws. The ProFund/Portfolio may not be able to sell illiquid securities when the Advisor or Bankers Trust considers it desirable to do so or may have to sell such securities at a price that is lower than the price that could be obtained if the securities were more liquid. In addition, the sale of illiquid securities also may require more time and may result in higher dealer discounts and other selling expenses than does the sale of securities that are not illiquid. Illiquid securities also may be more difficult to value due to the unavailability of reliable market quotations for such securities, and investment 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 may make such investments. Whether or not such securities are illiquid depends on the market that exists for the particular security. The Commission staff has taken the position that the liquidity of Rule 144A restricted securities is a question of fact for a board of trustees to determine, such determination to be based on a consideration of the readily-available trading markets and the review of any contractual restrictions. The staff also has acknowledged that, while a board of trustees retains ultimate responsibility, trustees may delegate this function to an investment adviser. Trustees of ProFunds have delegated this responsibility for determining the liquidity of Rule 144A restricted securities which may be invested in by a ProFund to the Advisor or, in the case of the Portfolio, to Bankers Trust. It is not possible to predict with assurance exactly how the market for Rule 144A restricted securities or any other security will develop. A security which when purchased enjoyed a fair degree of marketability may subsequently become illiquid and, accordingly, a security which was deemed to be liquid at the time of acquisition may subsequently become illiquid. In such event, appropriate remedies will be considered to minimize the effect on the ProFund's liquidity. BANK OBLIGATIONS (MONEY MARKET PROFUND AND THE PORTFOLIO) 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 concerning the types of securities and other instruments in which the Portfolio may invest. 9 45 COMMERCIAL PAPER AND OTHER DEBT OBLIGATIONS (MONEY MARKET PROFUND AND THE PORTFOLIO) The commercial paper and other debt obligations in which the Portfolio may invest are short-term, unsecured negotiable promissory notes of U.S. or foreign corporations that at the time of purchase meet the rating criteria described in the Prospectus. Investments in foreign commercial paper generally involve risks similar to those described above relating to obligations of foreign banks or foreign branches of U.S. banks. PORTFOLIO TURNOVER As discussed in the Prospectus, the ProFunds anticipate that their investors as part of their strategy, will frequently exchange shares of the ProFunds for shares in other ProFunds pursuant to the exchange policy, as well as frequently redeem shares of the ProFunds (see "How to Exchange Shares of the ProFunds" in the Prospectus). The nature of the ProFunds will cause the ProFunds to experience substantial portfolio turnover. 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 oneyear or less, divided by the average monthly value of such securities owned during the year. Based on this definition, instruments with remaining maturities of less than one year are excluded from the calculation of portfolio turnover rate. Instruments excluded from the calculation of portfolio turnover generally would include the futures contracts and option contracts in which the non-money market ProFunds invest since such contracts generally have a remaining maturity of less than one year. Pursuant to the formula prescribed by the Commission, the portfolio turnover rate for each ProFund is calculated without regard to instruments, including options and futures contracts, having a maturity of less than one year. The Bull ProFund, the UltraBull ProFund, the Bear ProFund and the UltraBear ProFund typically hold most of their investments in short-term options and futures contracts, which, therefore, are excluded for purposes of computing portfolio turnover. Therefore, based on the Commission's portfolio turnover formula, each of these ProFunds expects a portfolio turnover rate of approximately 0%. INVESTMENT RESTRICTIONS The ProFunds and the Portfolio have adopted certain investment restrictions as fundamental policies which cannot be changed without the approval of the holders of a "majority" of the outstanding shares of the ProFund or the Portfolio, as that term is defined in the 1940 Act. The term "majority" is defined in the 1940 Act as the lesser of: (i) 67% or more of the shares of the series present at a meeting of shareholders, if the holders of more than 50% of the outstanding shares of the ProFund are present or represented by proxy; or (ii) more than 50% of the outstanding shares of the series. (All policies of a ProFund not specifically identified in this Statement of Additional Information or the Prospectus as fundamental may be changed without a vote of the shareholders of the ProFund.) For purposes of the following limitations, all percentage limitations apply immediately after a purchase or initial investment. A non-money market ProFund may not: 1. Invest more than 25% of its total assets, taken at market value at the time of each investment, in the securities of issuers in any particular industry (excluding the U.S. Government and its agencies and instrumentalities). 2. Make investments for the purpose of exercising control or management. 3. Purchase or sell real estate, except that, to the extent permitted by applicable law, the ProFund may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies that invest in real estate or interests therein. 4. Make loans to other persons, except that the acquisition of bonds, debentures or other corporate debt securities and investment in government obligations, commercial paper, pass- 10 46 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 the Trust's votes representing ProFund shareholders not voting will be voted by the Trustees of the Trust in the same proportion as the Fund shareholders who do, in fact, vote. Under investment policies adopted by the Money Market ProFund and by the Portfolio, each of the Money Market ProFund and Portfolio may not: 1. Borrow money, except for temporary or emergency (not leveraging) purposes in an amount not exceeding 5% of the value of the ProFund's or the Portfolio's total assets (including the amount borrowed), as the case may be, calculated in each case at the lower of cost or market. 11 47 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 foreign and U.S. 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 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. 12 48 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 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 cost), except that the Portfolio (ProFund) may borrow for temporary or emergency purposes up to 1/3 of its total assets; (ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of the Portfolio's (ProFund's) total assets (taken at market value), provided that collateral arrangements with respect to options and futures, including deposits of initial deposit and variation margin, are not considered a pledge of assets for purposes of this restriction; (iii) purchase any security or evidence of interest therein on margin, except that such short-term credit as may be necessary for the clearance of purchases and sales of securities may be obtained and except that deposits of initial deposit and variation margin may be made in connection with the purchase, ownership, holding or sale of futures; (iv) sell any security which it does not own unless by virtue of its ownership of other securities it has at the time of sale a right to obtain securities, without payment of further consideration, equivalent in kind and amount to the securities sold and provided that if such right is conditional the sale is made upon the same conditions; (v) invest for the purpose of exercising control or management; (vi) purchase securities issued by any investment company except by purchase in the open market where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission, or except when such purchase, though not made in the open market, is part of a plan of merger or consolidation; provided, however, that securities 13 49 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) invest no more than 5% of the Portfolio's (ProFund's) total assets are in securities issued by issuers which (including predecessors) have been in operation less than three years; (ix) invest more than 10% of the Portfolio's (ProFund's) total assets (taken at the greater of cost or market value) in securities that are restricted as to resale under the 1933 Act (other than Rule 144A securities deemed liquid by the Portfolio's (ProFund's) Board of Trustees); (x) with respect to 75% of the Portfolio's (ProFund'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; (xi) if the Portfolio (ProFund) 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; (xii) purchase or retain in the Portfolio's (ProFund's) portfolio any securities issued by an issuer any of whose officers, directors, trustees or security holders is an officer or Trustee of the Portfolio (Trust), or is an officer or partner of the Adviser, if after the purchase of the securities of such issuer for the Portfolio (ProFund) one or more of such persons owns beneficially more than 1/2 of 1% of the shares or securities, or both, all taken at market value, of such issuer, and such persons owning more than 1/2 of 1% of such shares or securities together own beneficially more than 5% of such shares or securities, or both, all taken at market value; (xiii) invest more than 5% of the Portfolio's (ProFund's) net assets in warrants (valued at the lower of cost or market) (other than warrants acquired by the Portfolio (ProFund) as part of a unit or attached to securities at the time of purchase), but not more than 2% of the Portfolio's (ProFund's) net assets may be invested in warrants not listed on the American Stock Exchange or the New York Stock Exchange, Inc. ("NYSE"); 14 50 (xiv) 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). 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. 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 15 51 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 degree and would generally reduce the amount of research or services otherwise performed by the Advisor and thereby reduce the Advisor's expenses, this information and these services are of indeterminable value and the management fee paid to the Advisor is not reduced by any amount that may be attributable to the value of such information and services. MONEY MARKET PROFUND AND THE PORTFOLIO Decisions to buy and sell securities and other financial instruments for the Money Market ProFund and the Portfolio are made by Bankers Trust, which also is responsible for placing these transactions, subject to the overall review of the Portfolio's Board of Trustees. Although investment requirements for the Portfolio are reviewed independently from those of the other accounts managed by Bankers Trust (the "Other Portfolios"), investments of the type the Portfolio may make may also be made by these Other Portfolios. When the Portfolio and one or more Other Portfolios or accounts managed by Bankers Trust are prepared to invest in, or desire to dispose of, the same security or other financial instrument, available investments or opportunities for sales will be allocated in a manner believed by Bankers Trust to be equitable to each. In some cases, this procedure may affect adversely the price paid or received by the Portfolio or the size of the position obtained or disposed of by the Portfolio. Purchases and sales of securities on behalf of the Portfolio usually are principal transactions. These securities are normally purchased directly from the issuer or from an underwriter or market maker for the securities. The cost of securities purchased from underwriters includes an underwriting commission or concession and the prices at which securities are purchased from and sold to dealers include a dealer's mark-up or mark-down. U.S. government obligations are generally purchased from underwriters or dealers, although certain newly issued U.S. government obligations may be purchased directly from the U.S. Treasury or from the issuing agency or instrumentality. Over-the-counter purchases and sales are transacted directly with principal market makers except in those cases in which better prices and executions may be obtained elsewhere and principal transactions are not entered into with persons affiliated with the Portfolios except pursuant to exemptive rules or orders adopted by the Commission. Under rules adopted by the Commission, broker-dealers may not execute transactions on the floor of any national securities exchange for the accounts of affiliated persons, but may effect transactions by transmitting orders for execution. In selecting brokers or dealers to execute portfolio transactions on behalf of the Portfolio, Bankers Trust seeks the best overall terms available. In assessing the best overall terms available for any transaction. Bankers Trust will consider the factors it deems relevant, including the breadth of the market in the investment, the price of the investment, the financial condition and execution capability of the broker or dealer and the reasonableness of the commission, if any, for the specific transaction and on a continuing bases. In addition, Bankers Trust is authorized, in selecting parties to execute a particular transaction and in evaluating the best overall terms available to consider the brokerage, but not research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to the Portfolio involved, the other Portfolios and/or other accounts over which Bankers Trust or its affiliates exercise investment discretion. Bankers Trust's fees under its agreements with the Portfolios are not reduced by reason of its receiving brokerage services. The valuation of the Portfolio's securities is based on their amortized cost, which does not take into account unrealized capital gains or losses. Amortized cost valuation involves initially valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium, generally without regard to the 16 52 impact of fluctuating interest rates on the market value of the instrument. Although this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price a Portfolio would receive if it sold the instrument. The Portfolio's use of the amortized cost method of valuing its securities is permitted by a rule adopted by the Commission. Under this rule, the Portfolio must maintain a dollar-weighted average portfolio maturity of 90 days or less, purchase only instruments having remaining maturities of 397 days or and invest only in securities determined by or under the supervision of the Board of Trustees to be of high quality with minimal credit risks. Pursuant to the rule, the Board of Trustees of the Portfolio also has established procedures designed to allow investors in the Portfolio, such as the Money Market ProFund, to stabilize, to the extent reasonably possible, the investors' price per share as computed for the purpose of sales and redemptions at $1.00. These procedures include review of the Portfolio's holdings by the Portfolio's Board of Trustees, at such intervals as it deems appropriate, to determine whether the value of the Portfolio's assets calculated by using available market quotations or market equivalents deviates from such valuation based on amortized cost. The rule also provides that the extent of any deviation between the value of the Portfolio's assets based on available market quotations or market equivalents and such valuation based on amortized cost must be 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 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. 17 53 MANAGEMENT OF PROFUNDS The Board of Trustees is responsible for the general supervision of the Trust's business. The day-to-day operations of the ProFunds are the responsibilities of ProFunds' officers. The names and addresses (and ages) of the Trustees, of the Trust and the Portfolio, the officers of the Trust and the Portfolio, and the officers of the Advisor, together with information as to their principal business occupations during the past five years, are set forth below. Fees and expenses for non-interested Trustees will be paid by the Trust; Trustee expenses for interested Trustees will be paid by ProFund Advisors LLC. TRUSTEES AND OFFICERS OF PROFUNDS Michael L. Sapir* (birthdate: May 19, 1958): Trustee, Chairman and Chief Executive Officer; Trustee, Chairman and Chief Executive Officer; Chairman and Chief Executive Officer, ProFund Advisors LLC; Principal, Law Offices of Michael L. Sapir; President, Rydex Distributors, Inc.; Senior Vice President, General Counsel, Padco Advisors, Inc.; Partner, Jorden Burt Berenson & Klingensmith. His address is 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814. Louis M. Mayberg* (birthdate: August 9, 1962): Trustee, Secretary; ProFund Advisors LLC, President; Potomac Securities, Inc., President; National Capital Companies, LLC, Managing Director. His address is 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814. Thresa Dewar: (birthdate: March 13, 1954): Treasurer; BISYS Fund Services, Vice President, Financial Administration; Healthy You Food Market of Marco, Inc.; Federated Administrative Services, Vice President and Controller. Michael C. Wachs (birthdate: October 21, 1961): Trustee, Vice President, Delancy Investment Group, Inc.; Vice President/Senior Underwriter, First Union National Bank; Vice President, First Union Capital Markets Corp.; 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): Trustee, Managing Director, CFO and Secretary, Directorship, Inc.; President, Quadcom Services, Inc. His address is 7 Stag Lane, Greenwich, Connecticut 06831. Michael D. Miller (birthdate: May 5, 1971): Vice President; Client Service Manager, Transfer Agency Client Relationship Manager, Supervisor, Client Technology Support BISYS Fund Services. *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. TRUSTEE COMPENSATION TABLE The following table reflects estimated fees paid to the Trustees for the year ended December 31, 1997. Name of Person: Position Compensation - ---------------- ------------ Michael L. Sapir, Trustee, Chairman and Chief Executive Officer None Louis M. Mayberg, Trustee, President None Russell S. Reynolds, III Trustee $1,250 Michael C. Wachs Trustee $1,250 TRUSTEES AND OFFICERS OF THE PORTFOLIO: The Board of Trustees of the Portfolio ("Portfolio Trustees") is composed of persons experienced in financial matters who meet throughout the year to oversee the activities of the Portfolio. In addition the Portfolio Trustees review contractual arrangements with companies that provide services to the Portfolio. The Portfolio Trustees and officers of the Portfolio, their birthdates and their principal occupations during the past five years are set forth below. Their titles may have varied during that period. Unless otherwise indicated the address of each officer is Clearing Operations, P.O. Box 897, Pittsburgh, Pennsylvania 15230-0897. Trustees of the Portfolio: -------------------------- Philip Saunders, Jr. (birthdate: October 11, 1935): Portfolio Trustee; Principal, Philip Saunders Associates (Consulting); former Director of Financial Industry Consulting, Wolf & Company; President, John HancockHome Mortgage Corporation; and Senior Vice President of Treasury and Financial Services, John Hancock Mutual Life Insurance Company, Inc. His address is 445 Glen Road, Weston, Massachusetts 02193. Charles P. Biggar (birthdate: October 13, 1930): Portfolio Trustee; Retired; Director of Chase/NBW Bank Advisory Board; Director, Batement, Eichler, Hill, Richards Inc.; formerly Vice President of International Business Machines and President of the National Services and the Field Engineering Divisions of IBM. His address is 12 Hitching Post Lane, Chappaqua, New York 10514. 18 54 S. Leland Dill (birthdate: March 28, 1930): Portfolio Trustee; Retired; Director, Coutts Group; Coutts (U.S.A.) International; Coutts Trust Holdings Ltd; director, Sweig Series Trust; formerly Partner of KPMG Peat Marwick; director, Vinters International Company Inc.; General Partner of Pemco (an investment company registered under the 1940 Act). His address is 5070 North Ocean Drive, Singer Island, Florida 33404. Officers of the Portfolio: -------------------------- Ronald M. Petnuch (birthdate: February 27, 1960): President and Treasurer; Senior Vice President, Federated Services Company ("FSC"); formerly, Director of Proprietary Client Services, Federated Administrative Services ("FAS"), and Associate Corporate Counsel, Federated Investors ("FI"). Charles L. Davis, Jr. (birthdate: March 23, 1960): Vice President and Assistant Treasurer; Vice President, FAS. Jay S. Neuman (birthdate: April 22, 1950): Secretary; Corporate Counsel, FI. No person who is an officer or director of Bankers Trust is an officer or Trustee of the Trust or the Portfolio. No director, officer or employee of BISYS or any of its affiliates will receive any compensation from the Trust or Portfolio for serving as an officer or Trustee of the Trust or the Portfolio. PORTFOLIO TRUSTEE COMPENSATION TABLE The following table reflects fees paid to the Portfolio Trustees for the year ended December 31, 1996.
Aggregate Compensation Name of from Cash Total Compensation Person; Position Management Portfolio* from Fund Complex * ---------------- --------------------- ------------------- Philip W. Coolidge** Trustee, BT Institutional Funds, BT Pyramid Mutual Funds and Portfolio $ 78.13 $ 140 Charles P. Biggar Trustee, BT Institutional Funds and Portfolio $1,796.88 $12,350 S. Leland Dill Trustee, Portfolio $1,796.88 $ 625 Philip Saunder, Jr. Trustee, Portfolio $1,796.88 $ 625
* Aggregated information is furnished for the BT Family of Funds which consists of the following: BT Investment Funds, BT Institutional Funds, BT Pyramid 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, Utility Portfolio, Short Intermediate U.S. Government Securities Portfolio, Intermediate Tax Free Portfolio, Asset Management Portfolio, Equity 500 Index Portfolio, and Capital Appreciation Portfolio. ** Mr. Coolidge resigned as a Trustee effective August 11, 1997. 19 55 As of October 20, 1997, the Portfolio Trustees and Officers owned in the aggregate less than 1% of the shares of the Portfolio. INVESTMENT ADVISERS PROFUND ADVISORS LLC Under an investment advisory agreement between the ProFunds, other than the Money Market ProFund, and the Advisor, dated October ___, 1997, each such ProFund pays the Advisor a fee at an annualized rate, based on its average daily net assets of 0.75%. The Advisor manages the investment and the reinvestment of the assets of each of the Funds, in accordance with the investment objectives, policies, and limitations of the ProFund, subject to the general supervision and control of Trustees and the officers of ProFunds. The Advisor bears all costs associated with providing these advisory services. The Advisor, from its own resources, including profits from advisory fees received from the Funds, provided such Trustees are legitimate and not excessive, also may make payments to broker-dealers and other financial institutions for their expenses in connection with the distribution of ProFunds' shares, and otherwise currently pays all distribution costs for ProFunds' shares. BANKERS TRUST Under the terms of an investment advisory agreement (the "Advisory Agreement") between the Portfolio and Bankers Trust, Bankers Trust manages the Portfolio subject to the supervision and direction of the Board of Trustees of the Portfolio. Bankers Trust will: (i) act in strict conformity with the Portfolio's Declaration of Trust, the 1940 Act and the Investment Advisers Act of 1940, as the same may from time to time be amended; (ii) manage the Portfolio in accordance with the Portfolio's and/or the Money Market ProFund's investment objectives, restrictions and policies, as stated herein and in the Prospectus; (iii) make investment decisions for the Portfolio; and (iv) place purchase and sale orders for securities and other financial instruments on behalf of the Portfolio. Bankers Trust bears all expenses in connection with the performance of services under the Advisory Agreement. The Money Market ProFund and the Portfolio bear certain other expenses incurred in their operation, including: taxes, interest, brokerage fees and commissions, if any; fees of Trustees of the Trust or Portfolio who are not officers, directors or employees of Bankers Trust, the Advisor, the administrator or any of their affiliates; SEC fees and state Blue Sky qualification fees, if any; administrative and services fees; certain insurance premiums, outside auditing and legal expenses, and costs of maintenance of corporate existence; costs attributable to investor services, including without limitation, telephone and personnel expenses; and printing prospectuses and statements of additional information for regulatory purposes and for distribution to existing shareholders; costs of shareholders' reports and meetings of shareholders, officers and Trustees of the Trust or the Portfolio; and any extraordinary expenses. For the fiscal years ended December 31, 1996, 1995 and 1994, Bankers Trust earned $4,935,288, $3,847,729 and $3,807,085, respectively, in compensation for investment advisory services provided to the Portfolio. During the same periods, Bankers Trust reimbursed $761,230, $578,251 and $537,651, 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. 20 56 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 and the Funds under Federal and state securities laws. The Administrator also maintains the shareholder account records for ProFunds, distributes dividends and distributions payable by the ProFunds, and produces statements with respect to account activity for the ProFunds and their shareholders. The Administrator pays all fees and expenses that are directly related to the services provided by the Administrator to ProFunds; each ProFund reimburses the Administrator for all fees and expenses incurred by the Administrator which are not directly related to the services the Administrator provides to the ProFunds under the service agreement For its services as Administrator, each ProFund pays BISYS an annual fee ranging from 0.15% of average daily net assets of $0 to $300 million to .05% of average daily net assets of $1 billion and over. BISYS Funds Services, Inc. ("BFSI"), an affiliate of BISYS, acts as transfer agent and fund accounting agent for the ProFunds, for which it receives additional fees. Additionally, ProFunds and BISYS and BFSI have entered into an Omnibus Fee Agreement in which the amount of compensation due and payable to BISYS shall be the greater of (i) the aggregate fee amount due and payable for services pursuant to the Administration, Fund Accounting and Transfer Agency Agreements and (ii) the minimum relationship fee described as specific dollar amounts payable over a period of ten calendar quarters ($1,100,000). The address for BISYS and BFSI is 3435 Stelzer Road, Suite 1000, Columbus, Ohio 43219. ProFunds Advisors LLC, pursuant to a separate Management Services Agreement, performs certain client support and other administrative services on behalf of the ProFunds and feeder fund management and administrative services to 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. 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. 21 57 For the fiscal years ended December 31, 1996, 1995 and 1994, Bankers Trust earned compensation of $1,645,096, $1,282,576 and $1,269,028, 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 Coopers & Lybrand LLP serves as independent auditors to the ProFunds. Coopers & Lybrand LLP provides audit services, tax return preparation and assistance and consultation in connection with certain SEC filings. Coopers & Lybrand 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 1500 K Street, N.W., Washington, DC 20005-1208, INTERIM DISTRIBUTOR Concord Financial Group, Inc. will serve as the distributor and principal underwriter in all fifty states and the District of Columbia until such time as ProFunds has filed and duly registered with the appropriate regulatory agencies of those jurisdictions, at which time ProFunds will self-distribute the ProFunds' shares in all fifty states and the District of Columbia. Concord Financial Group, Inc. receives no compensation from the ProFunds for serving as distributor. Concord Financial Group, Inc.'s address is 3435 Stelzer Road, Columbus, Ohio 43219. SHAREHOLDER SERVICE PLAN Each ProFund has adopted a Shareholder Services Plan (the "Plan") which provides that each ProFund will make payments equal to 1.00% (on an annual basis) of the average daily value of the net assets of such ProFund's Adviser shares attributable to or held in the name of investment advisers and other authorized institutions that sell Adviser 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 ("Service Agreements") with Authorized Firms that purchase Adviser shares on behalf of their clients. The Service 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 Adviser shares of the applicable ProFund attributable to or held in the name of the Authorized Firm for its clients. 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 Service Agreements, voted to adopt the Plan and Service Agreements at a meeting called for the purpose of voting on such Plan and Service Agreements on October ____, 1997. The Plan and Service 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 Adviser shares of the affected ProFund. The Service 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 Adviser shares of the affected ProFund on not more than 60 days' written notice to any other party to the Service Agreements. The Service Agreements shall terminate 22 58 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 Adviser shares of such ProFunds. In the Trustees' quarterly review of the Plan and Service Agreements, they will consider their continued appropriateness and the level of compensation provided therein. The intent of the Plan and Service Agreements is to procure quality shareholder services on behalf of ProFund shareholders; in adopting the Plan and Service Agreements, the Trustees considered the fact that such shareholder services may have the effect of enhancing distribution of ProFund Adviser shares and growth of the ProFunds. In light of this, the ProFunds intend to observe the procedural requirements of Rule 12b-1 under the 1940 Act on considering the continued appropriateness of the Plan and Service Agreements. COSTS AND EXPENSES Each ProFund bears all expenses of its operations other than those assumed by the Advisor or the Administrator. ProFund expenses include: the management fee; the servicing fee (including administrative, transfer agent, and shareholder servicing fees); custodian and accounting fees and expenses, legal and auditing fees; securities valuation expenses; fidelity bonds and other insurance premiums; expenses of preparing and printing prospectuses, confirmations, proxy statements, and shareholder reports and notices; registration Trustees and expenses; proxy and annual meeting expenses, if any; all Federal, state, and local taxes (including, without limitation, stamp, excise, income, and franchise taxes); organizational costs; and non-interested Trustees' fees and expenses. PRINCIPAL HOLDERS OF THE TRUST As of the date of this Statement of Additional Information, the sole shareholder of ProFunds is National Capital Group Inc., which would control the outcome of any matter submitted for consideration by the shareholders of any ProFund. TAXATION 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 Internal Revenue Code and generally to avoid federal income or excise tax. Under current law, each ProFund may on its tax return treat as a distribution of investment company taxable income and net capital gain the portion of redemption proceeds paid to redeeming shareholders that represents the redeeming shareholders' portion of the ProFund's undistributed investment company taxable income and net capital gain. This practice, which involves the use of equalization accounting, will have the effect of reducing the amount of income and gains that the ProFund is required to distribute as dividends to shareholders in order for the ProFund to avoid federal income tax and excise tax. This practice may also reduce the amount of distributions required to be made to nonredeeming shareholders and the amount of any undistributed income will be reflected in the value of the ProFund's shares; the total return on a shareholder's investment will not be reduced as a result of the ProFund's distribution policy. Investors who purchase shares shortly before the record date of a distribution will pay the full price for the shares and then receive some portion of the price back as a taxable distribution. PERFORMANCE INFORMATION TOTAL RETURN CALCULATIONS From time to time, each of the non-money market ProFunds may advertise the total return of the ProFund for prior periods. Any such advertisement would include at least average annual total return quotations for one, five, and ten-year periods, or for the life of the ProFund. Other total return quotations, aggregate or average, over other time periods for the ProFund also may be included. The total return of a ProFund for a particular period represents the increase (or decrease) in the value of a hypothetical investment in the ProFund from the beginning to the end of the period. Total return is calculated by subtracting the value of the initial investment from the ending value and showing the difference as a percentage of the initial investment; this calculation assumes that the initial investment is made at the current net asset value and that all income dividends or capital gains distributions during the period are reinvested in shares of the ProFund at net asset value. Total return is based on historical earnings and asset value fluctuations and is not intended to indicate future performance. No adjustments are made to reflect any income taxes payable by shareholders on dividends and distributions paid by the ProFund. Average annual total return quotations for periods of two or more years are computed by finding the average annual compounded rate of return over the period that would equal the initial amount invested to the ending redeemable value. 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 23 59 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 whichoften 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. 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. 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 usedby 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. Additional information concerning the comparison of the investment performances of the ProFunds is contained in the Statement of Additional Information under "Performance Information." Further information about the performance of the ProFunds will be contained in the ProFunds' annual reports to shareholders, which may be obtained without charge by writing to the ProFunds at the address or telephoning the ProFunds at telephone number set forth on the cover page of this Prospectus. 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 24 60 by the Board of Trustees. After purchase by the Portfolio, an obligation may cease to be rated or its rating may be reduced below the minimum required for purchase by the Portfolio. Neither event would require the Portfolio to eliminate the obligation from its portfolio, but Bankers Trust will consider such an event in its determination of whether the Portfolio should continue to hold the obligation. A description of the ratings used herein and in the Prospectus is set forth in the Appendix to this SAI. FINANCIAL STATEMENTS (see attached) NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS, OR IN THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PROFUNDS. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN OFFERING BY PROFUNDS IN ANY JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE. 25 61 REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of the ProFunds: We have audited the accompanying statement of assets and liabilities of the Money Market ProFund as of October 15, 1997. This financial statement is the responsibility of the Money Market ProFund's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of the Money Market ProFund as of October 15, 1997, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Columbus, Ohio October 17, 1997 62 PROFUNDS MONEY MARKET PROFUND STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 15, 1997 ASSETS: Cash $100,000 Deferred organization expenses 13,833 -------- Total Assets 113,833 ======== LIABILITIES: Accrued organization expenses 13,833 -------- NET ASSETS: $100,000 ======== NET ASSETS CONSIST OF: Capital - 100,000 shares of beneficial interest issued and outstanding; unlimited shares authorized (par value $0.001) - Investor Class $100,000 ======== NET ASSET VALUE: Investor Class ($100,000/100,000 shares issued and outstanding) - offering and redemption price per share $1.00
======== See notes to financial statements. 63 PROFUNDS MONEY MARKET PROFUND FINANCIAL STATEMENTS OCTOBER 15, 1997 1. ORGANIZATION ProFunds (the "Company"), an open-end management investment company established as a Delaware business trust, is registered under the Investment Company Act of 1940 (the "1940 Act"). The Company offers shares of the following funds: Bull ProFund, UltraBull ProFund, Bear ProFund, Ultra Bear ProFund, Ultra OTC ProFund and Money Market ProFund each of which offers Investor Shares and Advisor Shares. Both classes of shares have identical rights and privileges except with respect to Service Organization fees and voting rights on matters affecting a single class of shares. The accompanying financial statements relates to only the Money Market ProFund ("The Fund"). The Fund had no operations other than those actions relating to organizational matters. As of October 15, 1997, all outstanding shares of the Fund are owned by National Capital Group, Inc., which is affiliated with Louis Mayberg, an officer of the Company. The investment objective of the Fund is to seek to provide investors with a high level of current income consistent with liquidity and preservation of capital through investment in high quality money market instruments. 2. ORGANIZATION EXPENSES All costs incurred by the Company in connection with the organization of the Company and the initial public offering of shares of the Company, principally professional fees, have been deferred. Upon commencement of operations of the Fund, the deferred organization expenses will be amortized on a straight-line basis over a period of five years. In the event that any of the initial shares of the Fund are redeemed during the amortization period by any holder thereof, the redemption proceeds will be reduced by any unamortized organization expenses in the same proportion as the number of said shares being redeemed bears to the number of initial shares that are outstanding at the time of the redemption. 3. RELATED PARTY TRANSACTIONS ProFund Advisors LLC ("ProFund") serves as the Investment Advisor of the non money market Profunds. The Fund invests in the Cash Management Portfolio. The investment advisor of the Cash Management Portfolio is Bankers Trust Company ("Bankers Trust"), a wholly-owned subsidiary of Bankers Trust New York Corporation. Under an advisory agreement with Bankers Trust, the Cash Management Portfolio pays an advisory fee at an annualized rate of 0.15% of the Cash Management Portfolio's average daily net assets. The Fund bears its pro rata portion of this advisory fee. BISYS Fund Services ("BISYS") serves the Funds as Administrator, Fund Accountant, and Transfer Agent. For its services as Administrator, BISYS will receive fees in the amount of 0.15% of the Fund's average daily net assets of $0 to $300 million, 0.13% of the Fund's average daily net assets of $300 million to $500 million, 0.11% of the Fund's average daily net assets of $500 million to $700 million, .09% of the Fund's average daily net assets of $700 million to $900 million, .07% of the Fund's average daily net assets of $900 million to $1 billion and .05% of the Fund's average daily net assets of $1 billion and over. ProFund also performs certain administration and client support services. For its services, ProFund receives a fee at an amount of 0.35% of the Fund's average daily net assets, Concord Financial Group, Inc., a wholly owned subsidiary of Concord Holding Corporation, a wholly owned subsidiary of The BISYS Group also serves as Distributor for the Fund's shares. 64 Various registered investment advisors banks, trust companies, broker-dealers (other than the Sponsor) or other financial organizations (collectively, "Authorized Firms") may provide administrative services for the Fund, such as maintaining shareholder accounts and records. The Fund may pay fees to Authorized Firms in amounts up to an annual rate of 1.00% of the daily net asset value of the Fund's shares owned by shareholders with whom the Authorized Firms have a servicing relationship. The law firm of Michael L. Sapir, which is affiliated with an officer of the Fund has performed various legal services in connection with the initial registration and organization of the Trust. These costs, in the amount of $12,500, and the resultant payment liability are reflected in the Deferred organizational expenses and the Accrued organizational expenses, respectively. Certain officers of the Company are affiliated with BISYS. Such persons are not paid directly by the Company for serving in those capacities. 4. ESTIMATES The preparation of this financial statement requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statement. 65 APPENDIX DESCRIPTION OF SECURITIES RATINGS Description of S&P's corporate ratings: AAA-Bonds rated AAA have the highest rating assigned by S&P to a debt obligation. Capacity to pay interest and repay principal is extremely strong. AA-Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the highest rated issuers only in small degree. S&P's letter ratings may be modified by the addition of a plus or a minus sign, which is used to show relative standing within the major categories, except in the AAA rating category. Description of Moody's corporate bond ratings: Aaa-Bonds which are rated Aaa are judged to be the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edge". Interest payments are protected by a large or exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa-Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating classification from Aa through B. The modifier 1 indicates that the security ranks in the higher end of its generic category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Description of Fitch Investors Service's corporate bond ratings: AAA-Securities of this rating are regarded as strictly high-grade, broadly marketable, suitable for investment by trustees and fiduciary institutions, and liable to but slight market fluctuation other than through changes in the money rate. The factor last named is of importance varying with the length of maturity. Such securities are mainly senior issues of strong companies, and are most numerous in the railway and public utility fields, though some industrial obligations have this rating. The prime feature of an AAA rating is showing of earnings several times or many times interest requirements with such stability of applicable earnings that safety is beyond reasonable question whatever changes occur in conditions. Other features may enter in, such as a wide margin of protection through collateral security or direct lien on specific property as in the case of high class equipment certificates or bonds that are first mortgages on valuable real estate. Sinking funds or voluntary reduction of the debt by call or purchase are often factors, while guarantee or assumption by parties other than the original debtor may also influence the rating. AA-Securities in this group are of safety virtually beyond question, and as a class are readily salable while many are highly active. Their merits are not greatly unlike those of the AAA class, but a security so rated may be of junior though strong lien in many cases directly following an AAA security or the margin of safety is less strikingly broad. The issue may be the obligation of a small company, strongly secure but influenced as the ratings by the lesser financial power of the enterprise and more local type of market. Description of Duff & Phelps' corporate bond ratings: AAA-Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S. Treasury Funds. 1 66 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. Description of Moody's municipal note ratings: Moody's ratings for state and municipal notes and other short-term loans are designated Moody's Investment Grade (MIG) and for variable rate demand obligations are designated Variable Moody's Investment Grade (VMIG). This distinction recognizes the differences between short-term credit risk and long-term risk. Loans bearing the designation MIG-1/VMIG-1 are of the best quality, enjoying strong protection from established cash flows of funds for their servicing or from established and broad-based access to the market for refinancing, or both. Loans the designation MIG-2/VIMG-2 are of high quality, with ample margins of protection, although not as large as the preceding group. Description of S&P commercial paper ratings: 2 67 Commercial paper rated A-1 by S&P indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to posses overwhelming safety characteristics are denoted A-1+. Description of Moody's Commercial paper ratings: The rating Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers rated Prime-1 (or related supporting institutions) are considered to have a superior capacity for repayment of short-term promissory obligations. Description of Fitch Investors Service's commercial paper ratings: F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1-Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than the strongest issue. Description of Duff & Phelps' commercial paper ratings: Duff 1+-Highest certainly of timely payment. Short term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding, and safety is just below risk free U.S. Treasury short term obligations. Duff 1-Very high certainty of timely +. Description of Moody's Commercial paper ratings: The rating Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers rated Prime-1 (or relating supporting institutions) are considered to have a superior capacity for repayment of short-term promissory obligations. Description of Fitch Investors Service's commercial paper ratings: F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment risk. Capacity for timely repayment of principal and interest is substantial. Adverse changes in business economic or financial conditions may increase investment risk albeit not very significantly. A-Obligations for which there is a low expectation of investment risk. Capacity for timely repayment of principal and interest is strong, although adverse changes in business, economic or financial conditions may lead to increased investment risk. BBB-Capacity for timely repayment of principal and interest is adequate, although adverse changes in business, economic or financial conditions are more likely to lead to increased investment risk than for obligations in higher categories. 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 "-". 3 68 Description of Moody's commercial paper ratings: The rating Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers rated Prime-1 (or related supporting institutions) are considered to have a superior capacity for repayment of short-term promissory obligations. Description of Fitch Investors Service's commercial paper ratings: F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely business, economic or financial conditions. A3-Obligations supported by an adequate capacity for timely repayment. Such capacity is more susceptible to adverse changes in business, economic or financial conditions than for obligations in higher categories. B-Obligations for which the capacity for timely repayment is susceptible to adverse changes in business, economic or financial conditions. C-Obligations for which there is an inadequate capacity to ensure timely repayment. D-Obligations which have a high risk of default or which are currently in default. Description of Thomson Bank Watch Short-Term Ratings: TBW-1-The highest category; indicates a very high likelihood that principal and interest will be paid on a timely basis. TBW-2-The second-highest category; while the degree of safety regarding timely repayment of principal and interest is strong, the relative degree of safety is not as high as of issues rated `TBW-1 ` `. TWB-3-The lowest investment-grade category; indicates that while the obligation is more susceptible to adverse developments (both internal and external) than those with higher ratings, the capacity to service principal and interest in a timely fashion is considered adequate. TWB-4-The lowest rating category; this rating is regarded as non-investment grade and therefore speculative. 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.) 4 69 BB-While not investment grade, the "BB" rating suggests that the likelihood of default is considerably less than for lower-rated issues. However, there are significant uncertainties that could affect the ability to adequately service debt obligations. B-Issues rated "B" show a higher degree of uncertainty and therefore greater likelihood of default than higher-rated issues. Adverse development could well negatively affect the payment of interest and principal on a timely basis. CCC-Issues rate "CCC" clearly have a high likelihood of default, with little capacity to address further adverse changes in financial circumstances. CC-"CC" is applied to issues that are subordinate to other obligations rated "CCC" and are afforded less protection in the event of bankruptcy or reorganization. D-Default These long-term debt ratings can also be applied to local currency debt. In such cases the ratings defined above will be preceded by the designation "local currency". RATING IN THE LONG-TERM DEBT CATEGORIES MY INCLUDE A PLUS (+) OR MINUS (-) DESIGNATION, WHICH INDICATES WHERE WITHIN THE RESPECTIVE CATEGORY THE ISSUE IS PLACED. 5 70 PART C OTHER INFORMATION ITEM 24. Financial Statements and Exhibits List all financial statements and exhibits filed as part of the Registration Statement. (a) Financial Statements: In Part A: None. In Part B: Statement of Assets and Liabilities and Report of Independent Accountants. In Part C: None. (b) Exhibits (1) (a) Certificate of Trust of ProFunds (the "Registrant")(1) (1) (b) First Amended Declaration of Trust of the Registrant filed herewith (2) By-laws of Registrant filed herewith (3) Not Applicable (4) Not Applicable (5) (a) Investment Advisory Agreement. for each non-money market ProFund filed herewith (5) (b) Investment Advisory Agreement for Cash Management Portfolio incorporated by reference to Bankers Trust Company's Registration Statement on Form N-1A ('40 Act file no. 811-06073) filed with the Commission on April 24, 1996. (6) Form of Distribution Agreement and Dealer Agreement filed herewith (7) Not Applicable (8) (a) Form of Custody Agreement with UMB Bank, N.A. filed herewith (9) (a) Form of Transfer Agency Agreement filed herewith (9) (b) Form of Administration Agreement filed herewith (9) (c) Form of Administration and Services Agreement incorporated by reference to Bankers Trust Company's Registration Statement on Form N-1A ('40 Act file no. 811-06073) filed with the Commission on April 24, 1996. (9) (d) Form of Fund Accounting Agreement filed herewith (9) (e) Form of Management Services Agreement filed herewith (9) (f) Form of Shareholder Services Agreement related to Adviser Shares filed herewith (9) (g) Form of Omnibus Fee Agreement with BISYS Fund Services LP filed herewith (10) Opinion and Consent of Counsel to the Registrant filed herewith (11) Consent of Independent Auditors filed herewith (12) Not Applicable (13) Purchase Agreement dated October 10, 1997 between the Registrant and National Capital Group, Inc. filed herewith (14) Not Applicable (15) Not Applicable (16) Not Applicable (17) Not applicable (18) Multiple Class Plan filed herewith (19) Power of Attorney of Cash Management Portfolio incorporated by reference to Bankers Trust Company's Registration Statement on Form N-1A filed with the Commission on March 19, 1997. - ------------------------- (1) Filed with initial registration statement; ITEM 25. Persons Controlled By or Under Common Control With Registrant. None. 1 71 ITEM 26. Number of Holders of Securities The following information is given as of the date indicated: Title of Class: Shares of beneficial interest, no par value Number of Record Holders as of October 10, 1997: One ITEM 27. Indemnification The Registrant is organized as a Delaware business trust and is operated pursuant to a Declaration of Trust, dated as of April 17, 1997 (the "Declaration of Trust"), that permits the Registrant to indemnify its trustees and officers under certain circumstances. Such indemnification, however, is subject to the limitations imposed by the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended. The Declaration of Trust of the Registrant provides that officers and trustees of the Trust shall be indemnified by the Trust against liabilities and expenses of defense in proceedings against them by reason of the fact that they each serve as an officer or trustee of the Trust or as an officer or trustee of another entity at the request of the entity. This indemnification is subject to the following conditions: (a) no trustee or officer of the Trust is indemnified against any liability to the Trust or its security holders which was the result of any willful misconduct, bad faith, gross negligence, or reckless disregard of his duties; (b) officers and trustees of the Trust are indemnified only for actions taken in good faith which the officers and trustees believed were in or not opposed to the best interests of the Trust; and (c) expenses of any suit or proceeding will paid in advance only if the persons who will benefit by such advance undertake to repay the expenses unless it subsequently is determined that such persons are entitled to indemnification. The Declaration of Trust of the Registrant provides that if indemnification is not ordered by a court, indemnification may be authorized upon determination by shareholders, or by a majority vote of a quorum of the trustees who were not parties to the proceedings or, if this quorum is not obtainable, if directed by a quorum of disinterested trustees, or by independent legal counsel in a written opinion, that the persons to be indemnified have met the applicable standard. ITEM 28. Business and Other Connections of Investment Advisory ProFunds Advisors LLC (the "Advisor"), a limited liability company formed under the laws of the State of Maryland on May 8, 1997. Information relating to the business and other connections of Bankers Trust which serves as investment adviser to the Cash Management Portfolio and each director, officer or partner of Bankers Trust are hereby incorporated by reference to disclosures in Item 28 of BT Institutional funds (accession # 0000862157-97-00007) is filed on March 17, 1997 with the Securities and Exchange Commission. ITEM 29. Principal Underwriter Concord Financial Group, Inc., 3435 Stelzer Road, Columbus, Ohio 43219 acts soley as interim distributor for the Registrant. The officers of Concord Financial Group, Inc. are:
Name and Principal Position and Offices Position and Offices Business Address with CFG with Registrant - ------------------ -------------------- -------------------- Lynn J. Magnum Chairman none Robert J. McMullen Executive Vice President none Dennis Shechan Sr. Vice President none Michael D. Burns Vice President/ none Chief Compliance Officer Steven Mintos Executive Vice President/ none Chief Operating Officer Dale Smith Vice President/ none Chief Financial Officer Kevin Dell Vice President-General none Counsel/Secretary
ITEM 30. Location of Accounts and Records 2 72 All accounts, books, and records required to be maintained and preserved by Section 31(a) of the Investment Company Act of 1940, as amended, and Rules 31a-1 and 31a-2 thereunder, will be kept by the Registrant at: (1) ProFund Advisors LLC, 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland (records relating to its functions as investment adviser and manager to the non-money market portfolios); (2) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio (records relating to the administrator, fund accountant and transfer agent). (3) UMB Bank, N.A., 928 Grand Avenue, Kansas City, Missouri for each ProFund (records relating to its function as Custodian) ITEM 31. Management Services None. ITEM 32. Undertakings (a) The Registrant agrees to file a post-effective amendment, using financial statements which need not be certified, within four to six months from the effective date of the Registrant's Securities Act of 1933 Registration Statement. (b) Registrant undertakes to call a meeting of shareholders for the purpose of voting upon the question of removal of a Trustee or Trustees when requested to do so by the holders of at least 10% of the Registrant's outstanding shares and, in connection with such meeting, to comply with the shareholder communications provisions of Section 16(c) of the Investment Company Act of 1940. (c) Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest Annual Report to shareholders, upon request and without charge. 3 73 SIGNATURES PROFUNDS Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Pre-Effective Amendment No. 3 to its Registration Statement on Form N-1A to be signed on its behalf by the undersigned, there unto duly authorized, in Bethesda in the State of Maryland on the 29th day of October, 1997. PROFUNDS /s/ Michael L. Sapir --------------------------------------- Michael L. Sapir, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated. Signatures Title Date /s/ Michael L. Sapir Trustee, President October 29, 1997 - ----------------------------- Michael L. Sapir /s/ Louis Mayberg Trustee, Secretary October 29, 1997 - ----------------------------- Louis Mayberg /s/ Thresa Dewar Treasurer October 29, 1997 - ----------------------------- Thresa Dewar 4 74 SIGNATURES CASH MANAGEMENT PORTFOLIO Cash Management Portfolio has duly caused this Pre-Effective Amendment No. 3 to the Registration Statement on Form N-1A of ProFunds to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Pittsburgh and the Commonwealth of Pennsylvania on October 29, 1997. CASH MANAGEMENT PORTFOLIO By: /s/ Jay S. Neuman ---------------------------------- Jay S. Neuman Secretary This Pre-Effective Amendment No. 3 to the Registration Statement on Form N-1A of ProFunds has been signed below by the following persons in the capacities indicated with respect to Cash Management Portfolio on October 29, 1997.
SIGNATURE TITLE Charles P. Bigger* Trustee - -------------------------- Charles P. Bigger Philip Saunders, Jr.* Trustee - -------------------------- Philip Saunders, Jr. S. Leland Dill* Trustee - -------------------------- S. Leland Dill Ronald M. Petnuch* President and Treasurer (Chief Executive Officer, - -------------------------- Principal Financial and Accounting Officer) Ronald M. Petnuch *By: /s/ Jay S. Neuman --------------------- Jay S. Neuman, Secretary of Cash Management Portfolio, as Attorney-in-Fact
5 75 EXHIBIT INDEX Exhibit No. Description ----------- ----------- (1) (a) Certificate of Trust of ProFunds (the "Registrant")(1) (1) (b) First Amended Declaration of Trust of the Registrant filed herewith (2) By-laws of Registrant filed herewith (3) Not Applicable (4) Not Applicable (5) (a) Investment Advisory Agreement. for each non-money market ProFund filed herewith (5) (b) Investment Advisory Agreement for Cash Management Portfolio incorporated by reference to Bankers Trust Company's Registration Statement on Form N-1A ('40 Act file no. 811-06073) filed with the Commission on April 24, 1996. (6) Form of Distribution Agreement and Dealer Agreement filed herewith (7) Not Applicable (8) (a) Form of Custody Agreement with UMB Bank, N.A. filed herewith (9) (a) Form of Transfer Agency Agreement filed herewith (9) (b) Form of Administration Agreement filed herewith (9) (c) Form of Administration and Services Agreement incorporated by reference to Bankers Trust Company's Registration Statement on Form N-1A ('40 Act file no. 811-06073) filed with the Commission on April 24, 1996. (9) (d) Form of Fund Accounting Agreement filed herewith (9) (e) Form of Management Services Agreement filed herewith (9) (f) Form of Shareholder Services Agreement related to Adviser Shares filed herewith (9) (g) Form of Omnibus Fee Agreement with BISYS Fund Services LP filed herewith (10) Opinion and Consent of Counsel to the Registrant filed herewith (11) Consent of Independent Auditors filed herewith (12) Not Applicable (13) Purchase Agreement dated October 10, 1997 between the Registrant and National Capital Group, Inc. filed herewith (14) Not Applicable (15) Not Applicable (16) Not Applicable (17) Not applicable (18) Multiple Class Plan filed herewith (19) Power of Attorney of Cash Management Portfolio incorporated by reference to Bankers Trust Company's Registration Statement on Form N-1A filed with the Commission on March 19, 1997. ---------- (1) Filed with initial registration statement. EX-1.B 2 EXHIBIT 1(B) 1 Exhibit 1(b) DECLARATION OF TRUST OF PROFUNDS TABLE OF CONTENTS ARTICLE 1 Name and Definitions..............................................1 1.1. Name........................................................1 1.2. Definitions.................................................1 ARTICLE 2 Nature and Purpose of Trust.......................................2 2.1. Nature of Trust.............................................2 2.2. Purpose of Trust............................................2 2.3. Interpretation of Declaration of Trust......................3 2.3.1. Governing Instrument......................................3 2.3.2. No Waiver of Compliance with Applicable Law...............3 2.3.3. Power of the Trustees Generally...........................3 ARTICLE 3 Registered Agent; Principal Place of Business.....................3 3.1. Registered Agent............................................3 3.2. Principal Place of Business.................................3 ARTICLE 4 Beneficial Interest...............................................3 4.1. Shares of Beneficial Interest...............................3 4.2. Number of Authorized Shares.................................3 4.3. Ownership and Certification of Shares.......................4 4.4. Status of Shares............................................4 4.4.1. Fully Paid and Non-assessable.............................4 4.4.2. Personal Property.........................................4 4.4.3. Party to Declaration of Trust.............................4 4.4.4. Death of Shareholder......................................4 4.4.5. Title to Trust; Right to Accounting.......................4 4.5. Determination of Shareholders...............................4 4.6. Shares Held by Trust........................................4 4.7. Shares Held by Persons Related to Trust.....................4 4.8. Preemptive and Appraisal Rights.............................5 4.9. Series of Shares............................................5 4.9.1. Classification of Shares..................................5
2 4.9.2. Establishment and Designation.............................5 4.9.3. Separate and Distinct Nature..............................6 4.9.4. Conversion Rights.........................................6 4.9.5. Rights and Preferences....................................6 4.9.5.1. Assets and Liabilities "Belonging" to a Series..........6 4.9.5.2. Treatment of Particular Items...........................7 4.9.5.3. Limitation on Interseries Liabilities...................7 4.9.5.4. Dividends...............................................7 4.9.5.5. Redemption by Shareholder...............................7 4.9.5.6. Redemption by Trust.....................................8 4.9.5.7. Prevention of Personal Holding Company Status...... 8 4.9.5.8. Net Asset Value.........................................8 4.9.5.9. Maintenance of Stable Net Asset Value...................8 4.9.5.10. Transfer of Shares......................................9 4.9.5.11. Equality of Shares......................................9 4.9.5.12. Fractional Shares.......................................9 ARTICLE 5 Trustees..........................................................9 5.1. Management of the Trust.....................................9 5.2. Qualification...............................................9 5.3. Number......................................................9 5.4. Term and Election...........................................9 5.5. Composition of the Board of Trustees........................9 5.6. Resignation and Retirement..................................10 5.7. Removal.....................................................10 5.8. Vacancies...................................................10 5.9. Ownership of Assets of the Trust............................10 5.10. Powers.....................................................11 5.10.1. Bylaws...................................................11 5.10.2. Officers, Agents, and Employees..........................11 5.10.3. Committees...............................................11 5.10.4. Advisers, Administrators, Depositories, and Custodians...............................................11 5.10.5. Compensation.............................................11 5.10.6. Delegation of Authority..................................11 5.10.7. Suspension of Sales......................................12 5.11. Certain Additional Powers................................12 5.11.1. Investments..............................................12 5.11.2. Disposition of Assets....................................12 5.11.3. Ownership................................................12 5.11.4. Subscription.............................................12 5.11.5. Payment of Expenses......................................12 5.11.6. Form of Holding..........................................12 5.11.7. Reorganization, Consolidation, or Merger.................13 5.11.8. Compromise...............................................13 5.11.9. Partnerships.............................................13 5.11.10. Borrowing................................................13 5.11.11. Guarantees...............................................13 5.11.12. Insurance................................................13 5.11.13. Pensions.................................................13 5.12. Vote of Trustees.........................................14 5.12.1. Quorum...................................................14 5.12.2. Required Vote............................................14 5.12.3. Consent in Lieu of a Meeting.............................14
3 ARTICLE 6 Service Providers.................................................14 6.1. Investment Adviser.......................................14 6.2. Underwriter and Transfer Agent...........................14 6.3. Custodians...............................................14 6.4. Administrator............................................15 6.5. Parties to Contracts.....................................15 ARTICLE 7 Shareholders' Voting Powers and Meetings..........................15 7.1. Voting Powers............................................15 7.1.1. Matters Upon Which Shareholders May Vote.................15 7.1.2. Separate Voting by Series................................16 7.1.3. Number of Votes..........................................16 7.1.4. Cumulative Voting........................................16 7.1.5. Voting of Shares; Proxies................................16 7.1.6. Actions Prior to the Issuance of Shares..................16 7.2. Meetings of Shareholders.................................16 7.2.1. Annual or Regular Meetings...............................16 7.2.2. Special Meetings.........................................17 7.2.3. Notice of Meetings.......................................17 7.3. Record Dates.............................................17 7.4. Quorum and Required Vote.................................17 7.5. Adjournments.............................................18 7.6. Actions by Written Consent...............................18 7.7. Inspection of Records....................................18 7.8. Additional Provisions....................................18 ARTICLE 8 Limitation of Liability and Indemnification.......................18 8.1. General Provisions.......................................18 8.1.1. General Limitation of Liability..........................18 8.1.2. Notice of Limited Liability..............................18 8.1.3. Liability Limited to Assets of the Trust.................19 8.2. Liability of Trustees....................................19 8.2.1. Liability for Own Actions................................19 8.2.2. Liability for Actions of Others..........................19 8.2.3. Advice of Experts and Reports of Others..................19 8.2.4. Bond.....................................................19 8.2.5. Declaration of Trust Governs Issues of Liability.........20 8.3. Liability of Third Persons Dealing with Trustees.........20 8.4. Liability of Shareholders................................20 8.4.1. Limitation of Liability..................................20 8.4.2. Indemnification of Shareholders..........................20 8.5. Indemnification..........................................20 8.5.1. Indemnification of Covered Persons.......................20 8.5.2. Exceptions...............................................21 8.5.3. Rights of Indemnification................................21 8.5.4. Expenses of Indemnification..............................21 8.5.5. Certain Defined Terms Relating to Indemnification........22 ARTICLE 9 Termination or Reorganization.....................................22 9.1. Termination of Trust or Series...........................22 9.1.1. Termination..............................................22 9.1.2. Distribution of Assets...................................23 9.1.3. Certificate of Cancellation..............................23
4 9.2. Reorganization...........................................23 9.3. Merger or Consolidation..................................23 9.3.1. Authority to Merge or Consolidate........................23 9.3.2. No Shareholder Approval Required.........................23 9.3.3. Subsequent Amendments....................................24 9.3.4. Certificate of Merger or Consolidation...................24 ARTICLE 10 Miscellaneous Provisions..........................................24 10.1. Signatures...............................................24 10.2. Certified Copies.........................................24 10.3. Certain Internal References..............................24 10.4. Headings.................................................24 10.5. Resolution of Ambiguities................................24 10.6. Amendments...............................................25 10.6.1. Generally................................................25 10.6.2. Certificate of Amendment.................................25 10.7. Governing Law............................................25 10.8. Severability.............................................25
DECLARATION OF TRUST OF PROFUNDS This DECLARATION OF TRUST is made as of this day, April 13, 1997 by the Trustees hereunder. WHEREAS, the Trustees desire to establish a trust for the purpose of carrying on the business of an open-end management investment company; and WHEREAS, in furtherance of such purpose, the Trustees and any successor Trustees elected in accordance with Article 5 hereof are acquiring and may hereafter acquire assets which they will hold and manage as trustees of a Delaware business trust in accordance with the provisions hereinafter set forth; and WHEREAS, this Trust is authorized to issue its shares of beneficial interest in one or more separate series, all in accordance with the provisions set forth in this Declaration of Trust. NOW, THEREFORE, the Trustees hereby declare that they will hold in trust all cash, securities, and other assets which they may from time to time acquire in any manner as Trustees hereunder, and that they will manage and dispose of the same upon the following terms and conditions for the benefit of the holders of shares of beneficial interest in this Trust as hereinafter set forth. ARTICLE 1 Name and Definitions Section 1.1. Name. This Trust shall be known as the "ProFunds" and the Trustees shall conduct the business of the Trust under that name or any other name or names as they may from time to time determine. Section 1.2. Definitions. Whenever used herein, unless otherwise required by the context or specifically provided below: (a) The "Trust" shall mean the Delaware business trust established by this Declaration of Trust, as amended from time to time; 5 (b) "Trustee" or "Trustees" shall mean each signatory to this Declaration of Trust so long as such signatory shall continue in office in accordance with the terms hereof, and all other individuals who at the time in question have been duly elected or appointed and qualified in accordance with Article 5 hereof and are then in office; (c) "Shares" shall mean the shares of beneficial interest in the Trust described in Article 4 hereof and shall include fractional and whole Shares; (d) "Shareholder" shall mean a record owner of Shares; (e) The "1940 Act" refers to the Investment Company Act of 1940 (and any successor statute) and the rules and regulations thereunder, all as amended from time to time; (f) The terms "Person," "Interested Person," and "Principal Underwriter" shall have the meanings given them in the 1940 Act; (g) The term "Commission" shall mean the United States Securities and Exchange Commission (or any successor agency thereto); (h) "Declaration of Trust" or "Declaration" shall mean this Declaration of Trust as amended or restated from time to time; (i) "By-Laws" shall mean the By-Laws of the Trust as amended from time to time; (j) "Series" shall mean any of the separate series of Shares established and designated under or in accordance with the provisions of Article 4 hereof and to which the Trustees have allocated assets and liabilities of the Trust in accordance with Article 4; (k) The "DBTA" refers to the Delaware Business Trust Act, Chapter 38 of Title 12 of the Delaware Code (and any successor statute), as amended from time to time; (l) The "Code" refers to the Internal Revenue Code of 1986 (and any successor statute) and the rules and regulations thereunder, all as amended from time to time; and (m) "Class" shall mean any of the separate classes of Shares established and designated under or in accordance with the provisions of Article 4 hereof and to which the Trustees have allocated assets and liabilities of the Trust in accordance with Article 4. ARTICLE 2 Nature and Purpose of Trust Section 2.1. Nature of Trust. The Trust is a business trust of the type referred to in the DBTA. The Trustees shall file a certificate of trust in accordance with Section 3810 of the DBTA. The Trust is not intended to be, shall not be deemed to be, and shall not be treated as, a general or a limited partnership, joint venture, corporation or joint stock company, nor shall the Trustees or Shareholders or any of them for any purpose be deemed to be, or be treated in any way whatsoever as though they were, liable or responsible hereunder as partners or joint venturers. Section 2.2. Purpose of Trust. The purpose of the Trust is to engage in, operate and carry on the business of an open-end management investment company and to do any and all acts or things as are necessary, convenient, appropriate, incidental or customary in connection therewith. 6 Section 2.3. Interpretation of Declaration of Trust. Section 2.3.1. Governing Instrument. This Declaration of Trust shall be the governing instrument of the Trust and shall be governed by and construed according to the laws of the State of Delaware. Section 2.3.2. No Waiver of Compliance with Applicable Law. No provision of this Declaration shall be effective to require a waiver of compliance with any provision of the Securities Act of 1933, as amended, or the 1940 Act, or of any valid rule, regulation or order of the Commission thereunder. Section 2.3.3. Power of the Trustees Generally. Except as otherwise set forth herein, the Trustees may exercise all powers of trustees under the DBTA on behalf of the Trust. ARTICLE 3 Registered Agent; Principal Place of Business Section 3.1. Registered Agent. The name of the registered agent of the Trust is The Corporation Trust Company and the registered agent's business address in Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. Section 3.2. Principal Place of Business. The principal place of business of the Trust is 4600 N. Park Avenue, Suite 100, Chevy Chase, Maryland 20815. ARTICLE 4 Beneficial Interest Section 4.1. Shares of Beneficial Interest. The beneficial interests in the Trust shall be divided into Shares, all without par value, and the Trustees shall have the authority from time to time to divide the class of Shares into two (2) or more separate and distinct series of Shares ("Series") or classes of Shares ("Classes") as provided in Section 4.9 of this Article 4. Section 4.2. Number of Authorized Shares. The Trustees are authorized to issue an unlimited number of Shares. The Trustees may issue Shares for such consideration and on such terms as they may determine (or for no consideration if pursuant to a Share dividend or split), all without action or approval of the Shareholders. Section 4.3. Ownership and Certification of Shares. The Secretary of the Trust, or the Trust's transfer or similar agent, shall record the ownership and transfer of Shares of each Series and Class separately on the record books of the Trust. The record books of the Trust, as kept by the Secretary of the Trust or any transfer or similar agent, shall contain the name and address of and the number of Shares held by each Shareholder, and such record books shall be conclusive as to who are the holders of Shares and as to the number of Shares held from time to time by such Shareholders. No certificates certifying the ownership of Shares shall be issued except as the Trustees may otherwise determine from time to time. The Trustees may make such rules as they consider appropriate for the issuance of share certificates, transfer of Shares, and similar matters for the Trust or any Series or Class. Section 4.4. Status of Shares. Section 4.4.1. Fully Paid and Non-assessable. All Shares when issued on the terms determined by the Trustees shall be fully paid and non-assessable. 7 Section 4.4.2. Personal Property. Shares shall be deemed to be personal property giving only the rights provided in this Declaration of Trust. Section 4.4.3. Party to Declaration of Trust. Every Person by virtue of having become registered as a Shareholder shall be held to have expressly assented and agreed to the terms of this Declaration of Trust and to have become a party thereto. Section 4.4.4. Death of Shareholder. The death of a Shareholder during the continuance of the Trust shall not operate to terminate the Trust nor entitle the representative of any deceased Shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Trustees. The representative shall be entitled to the same rights as the decedent under this Trust. Section 4.4.5. Title to Trust; Right to Accounting. Ownership of Shares shall not entitle the Shareholder to any title in or to the whole or any part of the Trust property or right to call for a partition or division of the same or for an accounting. Section 4.5. Determination of Shareholders. The Trustees may from time to time close the transfer books or establish record dates and times for the purposes of determining the Shareholders entitled to be treated as such, to the extent provided or referred to in Section 7.3. Section 4.6. Shares Held by Trust. The Trustees may hold as treasury shares, reissue for such consideration and on such terms as they may determine, or cancel, at their discretion from time to time, any Shares of any Series or Class reacquired by the Trust. Section 4.7. Shares Held by Persons Related to Trust. Any Trustee, officer or other agent of the Trust, and any organization in which any such person is interested may acquire, own, hold and dispose of Shares of the Trust to the same extent as if such person were not a Trustee, officer or other agent of the Trust; and the Trust may issue and sell or cause to be issued and sold and may purchase Shares from any such person or any such organization subject only to the general limitations, restrictions or other provisions applicable to the sale or purchase of such Shares generally. Section 4.8. Preemptive and Appraisal Rights. Shareholders shall not, as Shareholders, have any right to acquire, purchase or subscribe for any Shares or other securities of the Trust which it may hereafter issue or sell, other than such right, if any, as the Trustees in their discretion may determine. Shareholders shall have no appraisal rights with respect to their Shares and, except as otherwise determined by resolution of the Trustees in their sole discretion, shall have no exchange or conversion rights with respect to their Shares. No action may be brought by a Shareholder on behalf of the Trust unless Shareholders owning no less than a majority of the then outstanding Shares, or Series or Class thereof, join in the bringing of such action. A Shareholder of Shares in a particular Series or Class of the Trust shall not be entitled to participate in a derivative or class action lawsuit on behalf of any other Series or Class, as appropriate, or on behalf of the Shareholders in any such other Series or Class of the Trust. Section 4.9. Series and Classes of Shares. Section 4.9.1. Classification of Shares. The Trustees may classify or reclassify any unissued Shares or any Shares previously issued and reacquired of any Series or Class into one or more Series or Class that may be established and designated from time to time. Section 4.9.2. Establishment and Designation. The Trustees shall have exclusive power without the requirement of Shareholder approval to establish and designate separate and distinct Series and Classes of Shares. The establishment and designation of any Series or Class (in addition to those established and designated in this Section below) shall be effective upon the execution by a majority of the Trustees of an instrument setting forth such establishment and designation and the relative rights and preferences of the Shares of such Series or Class, or as otherwise provided in such instrument. Each such instrument shall 8 have the status of an amendment to this Declaration of Trust. Without limiting the authority of the Trustees to establish and designate any further Series or Class, the Trustees hereby establish and designate the following six initial Series: Bull ProFund; UltraBull ProFund; Bear ProFund; UltraBear ProFund; UltraOTC ProFund; and Money Market ProFund and the following two initial Classes: Investor Class and Adviser Class. Section 4.9.3. Separate and Distinct Nature. Each Series and Class, including without limitation Series and Classes specifically established and designated in Section 4.9.2, shall be separate and distinct from any other Series and Class and shall maintain separate and distinct records on the books of the Trust, and the assets belonging to any such Series or Class shall be held and accounted for separately from the assets of the Trust or any other Series or Class. Section 4.9.4. Conversion Rights. Subject to compliance with the requirements of the 1940 Act, the Trustees shall have the authority to provide that holders of Shares of any Series or Class shall have the right to convert said Shares into Shares of one or more other Series or Class in accordance with such requirements and procedures as may be established by the Trustees. Section 4.9.5. Rights and Preferences. The Trustees shall have exclusive power without the requirement of Shareholder approval to fix and determine the relative rights and preferences as between the Shares of the separate Series and Classes. The initial Series and Classes and any further Series and Classes that may from time to time be established and designated by the Trustees shall (unless the Trustees otherwise determine with respect to some further Series at the time of establishing and designating the same) have relative rights and preferences as set forth in this Section 4.9.5. Section 4.9.5.1. Assets and Liabilities "Belonging" to a Series or Class. All consideration received by the Trust for the issue or sale of Shares of a particular Series or Class, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall be held and accounted for separately from the other assets of the Trust and of every other Series or Class and may be referred to herein as "assets belonging to" that Series or Class. The assets belonging to a particular Series or Class shall belong to that Series or Class for all purposes, and to no other Series or Class, subject only to the rights of creditors of that Series or Class. Such consideration, assets, income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments which are not readily identifiable as belonging to any particular Series or Class (collectively "General Items"), the Trustees shall allocate to and among any one or more of the Series and/or Classes in such manner and on such basis as they, in their sole discretion, deem fair and equitable. Any General Items so allocated to a particular Series or Class shall belong to that Series/Class. Each such allocation by the Trustees shall be conclusive and binding upon all Shareholders for all purposes. The assets belonging to each particular Series and Class shall be charged with the liabilities in respect of that Series/Class and all expenses, costs, charges and reserves attributable to that Series/Class, and any general liabilities, expenses, costs, charges or reserves of the Trust which are not readily identifiable as belonging to any particular Series or Class shall be allocated and charged by the Trustees to and among any one or more of the Series and Classes established and designated from time to time in such manner and on such basis as the Trustees in their sole discretion deem fair and equitable. Each allocation of liabilities, expenses, costs, charges and reserves by the Trustees shall be conclusive and binding upon all Shareholders for all purposes. 9 Section 4.9.5.2. Treatment of Particular Items. The Trustees shall have full discretion, to the extent consistent with the 1940 Act and consistent with generally accepted accounting principles, to determine which items shall be treated as income and which items as capital; and each such determination and allocation shall be conclusive and binding upon the Shareholders. Section 4.9.5.3. Limitation on Interseries and Interclass Liabilities. Subject to the right of the Trustees in their discretion to allocate general liabilities, expenses, costs, charges or reserves as provided in Section 4.9.5.1, the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular Series or Class shall be enforceable against the assets of such Series/Class only, and not against the assets of any other Series or Class. Notice of this limitation on liabilities between and among Series shall be set forth in the certificate of trust of the Trust (whether originally or by amendment) as filed or to be filed in the Office of the Secretary of State of the State of Delaware pursuant to the DBTA, and upon the giving of such notice in the certificate of trust, the statutory provisions of Section 3804 of the DBTA relating to limitations on liabilities between and among series (and the statutory effect under Section 3804 of setting forth such notice in the certificate of trust) shall become applicable to the Trust and each Series. Section 4.9.5.4. Dividends. Dividends and capital gains distributions on Shares of a particular Series may be paid with such frequency, in such form, and in such amount as the Trustees may determine by resolution adopted from time to time, or pursuant to a standing resolution or resolutions adopted only once or with such frequency as the Trustees may determine. All dividends and distributions on Shares of a particular Series or Class shall be distributed pro rata to the holders of Shares of that Series/Class in proportion to the number of Shares of that Series/Class held by such holders at the date and time of record established for the payment of such dividends or distributions. Such dividends and distributions may be paid in cash, property or additional Shares of that Series/Class, or a combination thereof, as determined by the Trustees or pursuant to any program that the Trustees may have in effect at the time for the election by each Shareholder of the form in which dividends or distributions are to be paid to that Shareholder. Any such dividend or distribution paid in Shares shall be paid at the net asset value thereof as determined in accordance with Section 4.9.5.8. Section 4.9.5.5. Redemption by Shareholder. Each Shareholder shall have the right at such times as may be permitted by the Trust and as otherwise required by the 1940 Act to require the Trust to redeem all or any part of such Shareholder's Shares of a Series or Class at a redemption price per Share equal to the net asset value per Share of such Series/Class next determined in accordance with Section 4.9.5.8 after the Shares are properly tendered for redemption, less any charge which may be imposed by the Trust in connection with such redemption and described in the Trust's then current prospectus. Payment of the redemption price shall be in cash; provided, however, that if the Trustees determine, which determination shall be conclusive, that conditions exist which make payment wholly in cash unwise or undesirable, the Trust may, subject to the requirements of the 1940 Act, make payment wholly or partly in securities or other assets belonging or attributable to the Series of which the Shares being redeemed are part at the value of such securities or assets used in such determination of net asset value. Notwithstanding the foregoing, the Trust may postpone payment of the redemption price and may suspend the right of the holders of Shares of any Series or Class to require the Trust to redeem Shares of that Series/Class during any period or at any time when and to the extent permissible under any applicable provision of the 1940 Act. Section 4.9.5.6. Redemption by Trust. The Trustees may cause the Trust to redeem at net asset value the Shares of any Series or Class held by a Shareholder upon such conditions as may from time to time be determined by the Trustees. Upon redemption of Shares pursuant to this Section 4.9.5.6, the Trust shall promptly cause payment of the full redemption price to be made to such Shareholder for Shares so redeemed. 10 Section 4.9.5.7. Prevention of Personal Holding Company Status. The Trust may reject any purchase order, refuse to transfer any Shares, and compel the redemption of Shares if, in its opinion, any such rejection, refusal, or redemption would prevent the Trust from becoming a personal holding company as defined by the Code. Section 4.9.5.8. Net Asset Value. The net asset value per Share of any Series or Class shall be determined in accordance with the methods and procedures established by the Trustees from time to time and, to the extent required by applicable law, as disclosed in the then current prospectus or statement of additional information for the Series/Class. Section 4.9.5.9. Maintenance of Stable Net Asset Value. The Trustees may determine to maintain the net asset value per Share of any Series at a designated constant dollar amount and in connection therewith may adopt procedures not inconsistent with the 1940 Act for the continuing declarations of income attributable to that Series, or any Class thereof, as dividends payable in additional Shares of that Series/Class at the designated constant dollar amount and for the handling of any losses attributable to that Series/Class. Such procedures may provide that in the event of any loss each Shareholder shall be deemed to have contributed to the capital of the Trust attributable to that Series/Class his or her pro rata portion of the total number of Shares required to be canceled in order to permit the net asset value per Share of that Series/Class to be maintained, after reflecting such loss, at the designated constant dollar amount. Each Shareholder of the Trust shall be deemed to have agreed, by his investment in any Series with respect to which the Trustees shall have adopted any such procedure, to make the contribution referred to in the preceding sentence in the event of any such loss. The Trustees may delegate any of their powers and duties under this Section 4.9.5.9 with respect to appraisal of assets and liabilities in the determination of net asset value or with respect to a suspension of the determination of net asset value to an officer or officers or agent or agents of the Trust designated from time to time by the Trustees. Section 4.9.5.10. Transfer of Shares. Except to the extent that transferability is limited by applicable law or such procedures as may be developed from time to time by the Trustees or the appropriate officers of the Trust, Shares shall be transferable on the records of the Trust only by the record holder thereof or by his agent thereunto duly authorized in writing, upon delivery to the Trustees or the Trust's transfer agent of a duly executed instrument of transfer, together with a Share certificate, if one is outstanding, and such evidence of the genuineness of each such execution and authorization and of such other matters as may be required by the Trustees. Upon such delivery the transfer shall be recorded on the register of the Trust. Section 4.9.5.11. Equality of Shares. All Shares of each particular Series or Class shall represent an equal proportionate interest in the assets belonging or attributable to that Series/Class (subject to the liabilities belonging to that Series/Class), and each Share of any particular Series or Class shall be equal in this respect to each other Share of that Series or Class, as applicable. Section 4.9.5.12. Fractional Shares. Any fractional Share of any Series or Class, if any such fractional Share is outstanding, shall carry proportionately all the rights and obligations of a whole Share of that Series/Class, including rights and obligations with respect to voting, receipt of dividends and distributions, redemption of Shares, and liquidation of the Trust or any Series or Class. ARTICLE 5 Trustees Section 5.1. Management of the Trust. The business and affairs of the Trust shall be managed by the Trustees, and they shall have all powers necessary and desirable to carry out that responsibility, including those specifically set forth in Sections 5.10 and 5.11 herein. Section 5.2. Qualification. Each Trustee shall be a natural person. A Trustee need not be a Shareholder, a citizen of the United States, or a resident of the State of Delaware. 11 Section 5.3. Number. By the vote or consent of a majority of the Trustees then in office, the Trustees may fix the number of Trustees at a number not less than two (2) nor more than twenty-five (25). No decrease in the number of Trustees shall have the effect of removing any Trustee from office prior to the expiration of his or her term, but the number of Trustees may be decreased in conjunction with the removal of a Trustee pursuant to Section 5.7. Section 5.4. Term and Election. Each Trustee shall hold office until the next meeting of Shareholders called for the purpose of considering the election or re-election of such Trustee or of a successor to such Trustee, and until his or her successor is elected and qualified, and any Trustee who is appointed by the Trustees in the interim to fill a vacancy as provided hereunder shall have the same remaining term as that of his or her predecessor, if any, or such term as the Trustees may determine. Section 5.5. Composition of the Board of Trustees. No election or appointment of any Trustee shall take effect if such election or appointment would cause the number of Trustees who are Interested Persons to exceed the number permitted by Section 10 of the 1940 Act. Section 5.6. Resignation and Retirement. Any Trustee may resign or retire as a Trustee (without need for prior or subsequent accounting) by an instrument in writing signed by such Trustee and delivered or mailed to the Chairman, if any, the President, or the Secretary of the Trust. Such resignation or retirement shall be effective upon such delivery, or at a later date according to the terms of the instrument. Section 5.7. Removal. Any Trustee may be removed with or without cause at any time: (1) by written instrument signed by two-thirds (2/3) of the number of Trustees in office prior to such removal, specifying the date upon which such removal shall become effective, or (2) by the affirmative vote of Shareholders holding not less than two-thirds (2/3) of Shares outstanding, cast in person or by proxy at any meeting called for that purpose. Section 5.8. Vacancies. Any vacancy or anticipated vacancy resulting for any reason, including without limitation the death, resignation, retirement, removal, or incapacity of any of the Trustees, or resulting from an increase in the number of Trustees may (but need not unless required by the 1940 Act) be filled by a majority of the Trustees then in office, subject to the provisions of Section 16 of the 1940 Act, through the appointment in writing of such other person as such remaining Trustees in their discretion shall determine. The appointment shall be effective upon the acceptance of the person named therein to serve as a trustee, except that any such appointment in anticipation of a vacancy occurring by reason of the resignation, retirement, or increase in number of Trustees to be effective at a later date shall become effective only at or after the effective date of such resignation, retirement, or increase in number of Trustees. Section 5.9. Ownership of Assets of the Trust. The assets of the Trust shall be held separate and apart from any assets now or hereafter held in any capacity other than as Trustee hereunder by the Trustees or any successor Trustees. Legal title to all the Trust property shall be vested in the Trust as a separate legal entity under the DBTA, except that the Trustees shall have the power to cause legal title to any Trust property to be held by or in the name of one or more of the Trustees or in the name of any other Person on behalf of the Trust on such terms as the Trustees may determine. In the event that title to any part of the Trust property is vested in one or more Trustees, the right, title and interest of the Trustees in the Trust property shall vest automatically in each person who may hereafter become a Trustee upon his or her due election and qualification. Upon the resignation, removal or death of a Trustee he or she shall automatically cease to have any right, title or interest in any of the Trust property, and the right, title and interest of such Trustee in the Trust property shall vest automatically in the remaining Trustees. To the extent permitted by law, such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered. No Shareholder shall be deemed to have a severable ownership in any individual asset of the Trust or any right of partition or possession thereof. 12 Section 5.10. Powers. Subject to the provisions of this Declaration of Trust, the business of the Trust shall be managed by the Trustees, and they shall have all powers necessary or convenient to carry out that responsibility and the purpose of the Trust including, but not limited to, those enumerated in this Section 5.10. Section 5.10.1. Bylaws. The Trustees may adopt By-Laws not inconsistent with this Declaration of Trust providing for the conduct of the business and affairs of the Trust and may amend and repeal them to the extent that such By-Laws do not reserve that right to the Shareholders. Section 5.10.2. Officers, Agents, and Employees. The Trustees may, as they consider appropriate, elect and remove officers and appoint and terminate agents and consultants and hire and terminate employees, any one or more of the foregoing of whom may be a Trustee, and may provide for the compensation of all of the foregoing. Section 5.10.3. Committees. The Trustees may appoint from their own number, and terminate, any one or more committees consisting of two or more Trustees, including without implied limitation an executive committee, which may, when the Trustees are not in session (but subject to the 1940 Act), exercise some or all of the power and authority of the Trustees as the Trustees may determine. Section 5.10.4. Advisers, Administrators, Depositories, and Custodians. The Trustees may, in accordance with Article 6, employ one or more advisers, administrators, depositories, custodians, and other persons and may authorize any depository or custodian to employ sub custodians or agents and to deposit all or any part of such assets in a system or systems for the central handling of securities and debt instruments, retain transfer, dividend, accounting or Shareholder servicing agents or any of the foregoing, provide for the distribution of Shares by the Trust through one or more distributors, principal underwriters or otherwise, and set record dates or times for the determination of Shareholders. Section 5.10.5. Compensation. The Trustees may compensate or provide for the compensation of the Trustees, officers, advisers, administrators, custodians, other agents, consultants and employees of the Trust or the Trustees on such terms as they deem appropriate. Section 5.10.6. Delegation of Authority. In general, the Trustees may delegate to any officer of the Trust, to any committee of the Trustees and to any employee, adviser, administrator, distributor, depository, custodian, transfer and dividend disbursing agent, or any other agent or consultant of the Trust such authority, powers, functions and duties as they consider desirable or appropriate for the conduct of the business and affairs of the Trust, including without implied limitation, the power and authority to act in the name of the Trust and of the Trustees, to sign documents and to act as attorney-in-fact for the Trustees. Section 5.10.7. Suspension of Sales. The Trustees shall have the authority to suspend or terminate the sales of Shares of any Series or Class at any time or for such periods as the Trustees may from time to time decide. Section 5.11. Certain Additional Powers. Without limiting the foregoing and to the extent not inconsistent with the 1940 Act, other applicable law, and the fundamental policies and limitations of the applicable Series or Class, the Trustees shall have power and authority for and on behalf of the Trust and each separate Series and Class as enumerated in this Section 5.11. Section 5.11.1. Investments. The Trustees shall have the power to invest and reinvest cash and other property, and to hold cash or other property uninvested without in any event being bound or limited by any present or future law or custom in regard to investments by trustees. Section 5.11.2. Disposition of Assets. The Trustees shall have the power to sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or all of the assets of the Trust. 13 Section 5.11.3. Ownership. The Trustees shall have the power to vote, give assent, or exercise any rights of ownership with respect to securities or other property; and to execute and deliver proxies or powers of attorney to such person or persons as the Trustees shall deem proper, granting to such person or persons such power and discretion with relation to securities or other property as the Trustees shall deem proper. Section 5.11.4. Subscription. The Trustees shall have the power to exercise powers and rights of subscription or otherwise which in any manner arise out of ownership of securities. Section 5.11.5. Payment of Expenses. The Trustees shall have the power to pay or cause to be paid all expenses, fees, charges, taxes and liabilities incurred or arising in connection with the Trust or any Series or Class, or in connection with the management thereof, including, but not limited to, the Trustees' compensation and such expenses and charges for the Trust's officers, employees, investment advisers, administrator, distributor, principal underwriter, auditor, counsel, depository, custodian, transfer agent, dividend disbursing agent, accounting agent, shareholder servicing agent, and such other agents, consultants, and independent contractors and such other expenses and charges as the Trustees may deem necessary or proper to incur. Section 5.11.6. Form of Holding. The Trustees shall have the power to hold any securities or other property in a form not indicating any trust, whether in bearer, unregistered or other negotiable form, or in the name of the Trustees or of the Trust or of any Series or Class or in the name of a custodian, subcustodian or other depository or a nominee or nominees or otherwise. Section 5.11.7. Reorganization, Consolidation, or Merger. The Trustees shall have the power to consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or issuer, any security of which is or was held in the Trust, and to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or issuer, and to pay calls or subscriptions with respect to any security held in the Trust. Section 5.11.8. Compromise. The Trustees shall have the power to arbitrate or otherwise adjust claims in favor of or against the Trust or any Series or Class on any matter in controversy, including but not limited to claims for taxes. Section 5.11.9. Partnerships. The Trustees shall have the power to enter into joint ventures, general or limited partnerships and any other combinations or associations. Section 5.11.10. Borrowing. The Trustees shall have the power to borrow funds and to mortgage and pledge the assets of the Trust or any Series or any part thereof to secure obligations arising in connection with such borrowing, consistent with the provisions of the 1940 Act. Section 5.11.11. Guarantees. The Trustees shall have the power to endorse or guarantee the payment of any notes or other obligations of any person; to make contracts of guaranty or suretyship, or otherwise assume liability for payment thereof; and to mortgage and pledge the Trust property (or Series property) or any part thereof to secure any of or all such obligations. Section 5.11.12. Insurance. The Trustees shall have the power to purchase and pay for entirely out of Trust property such insurance as they may deem necessary or appropriate for the conduct of the business, including, without limitation, insurance policies insuring the assets of the Trust and payment of distributions and principal on its portfolio investments, and insurance policies insuring the Shareholders, Trustees, officers, employees, agents, consultants, investment advisers, managers, administrators, distributors, principal underwriters, or independent contractors, or any thereof (or any person connected therewith), of the Trust individually against all claims and liabilities of every nature arising by reason of holding, being or having held any such office or position, or by reason of any action alleged to have been taken or omitted by any such person in any such capacity, including any action taken or omitted that may 14 be determined to constitute negligence, whether or not the Trust would have the power to indemnify such person against such liability. Section 5.11.13. Pensions. The Trustees shall have the power to pay pensions for faithful service, as deemed appropriate by the Trustees, and to adopt, establish and carry out pension, profit-sharing, share bonus, share purchase, savings, thrift and other retirement, incentive and benefit plans, including the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all of the Trustees, officers, employees and agents of the Trust. Section 5.12. Vote of Trustees. Section 5.12.1. Quorum. One third of the Trustees then in office being present in person or by proxy shall constitute a quorum. Section 5.12.2. Required Vote. Except as otherwise provided by the 1940 Act or other applicable law, this Declaration of Trust, or the By-Laws, any action to be taken by the Trustees on behalf of the Trust or any Series or Class may be taken by a majority of the Trustees present at a meeting of Trustees at which a quorum is present, including any meeting held by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Section 5.12.3. Consent in Lieu of a Meeting. Except as otherwise provided by the 1940 Act or other applicable law, the Trustees may, by written consent of a majority of the Trustees then in office, take any action which may have been taken at a meeting of the Trustees. ARTICLE 6 Service Providers Section 6.1. Investment Adviser. The Trust may enter into written contracts with one or more persons to act as investment adviser or investment subadviser to each of the Series, and as such, to perform such functions as the Trustees may deem reasonable and proper, including, without limitation, investment advisory, management, research, valuation of assets, clerical and administrative functions, under such terms and conditions, and for such compensation, as the Trustees may in their discretion deem advisable. Section 6.2. Underwriter and Transfer Agent. The Trust may enter into written contracts with one or more persons to act as underwriter or distributor whereby the Trust may either agree to sell Shares to the other party or parties to the contract or appoint such other party or parties its sales agent or agents for such Shares and with such other provisions as the Trustees may deem reasonable and proper, and the Trustees may in their discretion from time to time enter into transfer agency and/or shareholder service contract(s), in each case with such terms and conditions, and providing for such compensation, as the Trustees may in their discretion deem advisable. Section 6.3. Custodians. The Trust may enter into written contracts with one or more persons to act as custodian to perform such functions as the Trustees may deem reasonable and proper, under such terms and conditions, and for such compensation, as the Trustees may in their discretion deem advisable. Each such custodian shall be a bank or trust company having an aggregate capital, surplus, and undivided profits of at least one million dollars ($1,000,000). Section 6.4. Administrator. The Trust may enter into written contracts with one or more persons to act as an administrator to perform such functions as the Trustees may deem reasonable and proper, under such terms and conditions, and for such compensation, as the Trustees may in their discretion deem advisable. Section 6.5. Parties to Contracts. Any contract of the character described in Sections 6.1, 6.2, 6.3, and 6.4 or in Article 8 hereof may be entered into with any corporation, firm, partnership, trust or association, including, without limitation, the investment adviser, any investment subadviser, or any affiliated person of 15 the investment adviser or investment subadviser, although one or more of the Trustees or officers of the Trust may be an officer, director, trustee, shareholder, or member of such other party to the contract, or may otherwise be interested in such contract, and no such contract shall be invalidated or rendered voidable by reason of the existence of any such relationship, nor shall any person holding such relationship be liable merely by reason of such relationship for any loss or expense to the Trust under or by reason of said contract or be accountable for any profit realized directly or indirectly therefrom; provided, however, that the contract when entered into was not inconsistent with the provisions of this Article 6, Article 8, or the Bylaws. The same person (including a firm, corporation, partnership, trust or association) may provide more than one of the services identified in this Article 6. ARTICLE 7 Shareholders' Voting Powers and Meetings Section 7.1. Voting Powers. The Shareholders shall have power to vote only with respect to matters expressly enumerated in Section 7.1.1, 7.1.3 or with respect to such additional matters relating to the Trust as may be required by the 1940 Act, this Declaration of Trust, the By-Laws, any registration of the Trust with the Commission or any state, or as the Trustees may otherwise deem necessary or desirable. Section 7.1.1. Matters Upon Which Shareholders May Vote. The Shareholders shall have power to vote on the following matters: (a) For the election or removal of Trustees as provided in Sections 5.4 and 5.7; (b) With respect to a contract with a third party provider of services as to which Shareholder approval is required by the 1940 Act; (c) With respect to a termination or reorganization of the Trust to the extent and as provided in Sections 9.1 and 9.2; (d) With respect to an amendment of this Declaration of Trust to the extent and as may be provided by this Declaration of Trust or applicable law; and (e) With respect to any court action, proceeding or claim brought or maintained derivatively or as a class action on behalf of the Trust, any Series or Class thereof or the Shareholders of the Trust; provided, however, that a shareholder of a particular Series or Class shall not be entitled to vote upon a derivative or class action on behalf of any other Series or Class or shareholder of any other Series/Class. Section 7.1.2. Separate Voting by Series. On any matter submitted to a vote of the Shareholders, all Shares shall be voted separately by individual Series, except (i) when required by the 1940 Act, Shares shall be voted in the aggregate or by Class, and not by individual Series; and (ii) when the Trustees have determined that the matter affects the interests of more than one Series, then the Shareholders of all such Series shall be entitled to vote thereon. Section 7.1.3. Number of Votes. On any matter submitted to a vote of the Shareholders, each Shareholder shall be entitled to one vote for each dollar of net asset value standing in such Shareholder's name on the books of each Series or Class in which such Shareholder owns Shares which are entitled to vote on the matter. Section 7.1.4. Cumulative Voting. There shall be no cumulative voting in the election of Trustees. Section 7.1.5. Voting of Shares; Proxies. Votes may be cast in person or by proxy. A proxy with respect to Shares held in the name of two or more persons shall be valid if executed by any one of them unless at or 16 prior to exercise of the proxy the Trust receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving the invalidity of a proxy shall rest on the challenger. Section 7.1.6. Actions Prior to the Issuance of Shares. Until Shares are issued, the Trustees may exercise all rights of Shareholders and may take any action required by law, this Declaration of Trust or the Bylaws to be taken by Shareholders. Section 7.2. Meetings of Shareholders. Section 7.2.1. Annual or Regular Meetings. No annual or regular meetings of Shareholders are required to be held. Section 7.2.2. Special Meetings. Special meetings of Shareholders may be called by the President of the Trust or the Trustees from time to time for the purpose of taking action upon any matter requiring the vote or authority of the Shareholders as herein provided or upon any other matter upon which Shareholder approval is deemed by the Trustees to be necessary or desirable. Section 7.2.3. Notice of Meetings. Written notice of any meeting of Shareholders shall be given or caused to be given by the Trustees by mailing or transmitting such notice at least ten (10) days before such meeting, postage prepaid, stating the time, place and purpose of the meeting, to each Shareholder at the Shareholder's address as it appears on the records of the Trust. Section 7.3. Record Dates. For the purpose of determining the Shareholders who are entitled to vote or act at any meeting, or who are entitled to participate in any dividend or distribution, or for the purpose of any other action, the Trustees may from time to time close the transfer books for such period, not exceeding thirty (30) days (except at or in connection with the termination of the Trust), as the Trustees may determine; or without closing the transfer books the Trustees may fix a date and time not more than one hundred twenty (120) days prior to the date of any meeting of Shareholders or other action as the date and time of record for the determination of Shareholders entitled to vote at such meeting or to be treated as Shareholders of record for purposes of such other action. Any Shareholder who was a Shareholder at the date and time so fixed shall be entitled to vote at such meeting or to be treated as a Shareholder of record for purposes of such other action, even though such Shareholder has since that date and time disposed of its Shares, and no Shareholder becoming such after that date and time shall be so entitled to vote at such meeting or to be treated as a Shareholder of record for purposes of such other action. Section 7.4. Quorum and Required Vote. Except as otherwise required by the 1940 Act or other applicable law, this Declaration of Trust, or the By-Laws, one-tenth (1/10) of the Shares entitled to vote in person or by proxy shall be a quorum as to any particular matter; provided, however, that any lesser number shall be sufficient for matters upon which the Shareholders vote at any meeting called in accordance with Section 7.5. Any matter upon which the Shareholders vote shall be approved by a majority of the votes cast on such matter at a meeting of the Shareholders at which a quorum is present, except that Trustees shall be elected by a plurality of the votes cast at such a meeting. Section 7.5. Adjournments. If a meeting at which a quorum was present is adjourned, a meeting may be held within a reasonable time after the date set for the original meeting without the necessity of further notice for the purpose of taking action upon any matter that would have been acted upon at the original meeting but for its adjournment. Section 7.6. Actions by Written Consent. Except as otherwise required by the 1940 Act or other applicable law, this Declaration of Trust, or the By-Laws, any action taken by Shareholders may be taken without a meeting if Shareholders entitled to cast at least a majority of all of the votes entitled to be cast on the matter (or such larger proportion thereof as shall be required by the 1940 Act or by any express provision of this 17 Declaration of Trust or the By-Laws) consent to the action in writing and such written consents are filed with the records of the meetings of Shareholders. Such consent shall be treated for all purposes as a vote taken at a meeting of Shareholders. Section 7.7. Inspection of Records. The records of the Trust shall be open to inspection by Shareholders to the same extent as is required for stockholders of a Delaware business corporation under the Delaware General Corporation Law. Section 7.8. Additional Provisions. The By-Laws may include further provisions for Shareholders' votes and meetings and related matters not inconsistent with the provisions hereof. ARTICLE 8 Limitation of Liability and Indemnification Section 8.1. General Provisions. Section 8.1.1. General Limitation of Liability. No personal liability for any debt or obligation of the Trust shall attach to any Trustee of the Trust. Without limiting the foregoing, a Trustee shall not be responsible for or liable in any event for any neglect or wrongdoing of any officer, agent, employee, investment adviser, subadviser, principal underwriter or custodian of the Trust, nor shall any Trustee be responsible or liable for the act or omission of any other Trustee. Every note, bond, contract, instrument, certificate, Share or undertaking and every other act or thing whatsoever executed or done by or on behalf of the Trust or the Trustees or any Trustee in connection with the Trust shall be conclusively deemed to have been executed or done only in or with respect to their or his or her capacity as Trustees or Trustee and neither such Trustees or Trustee nor the Shareholders shall be personally liable thereon. Section 8.1.2. Notice of Limited Liability. Every note, bond, contract, instrument, certificate or undertaking made or issued by the Trustees or by any officers or officer shall recite that the same was executed or made by or on behalf of the Trust by them as Trustees or Trustee or as officers or officer and not individually and that the obligations of such instrument are not binding upon any of them or the Shareholders individually but are binding only upon the assets and property of the Trust or belonging or attributable to a Series or Class thereof, and may contain such further recitals as they or he may deem appropriate, but the omission thereof shall not operate to bind any Trustees or Trustee or officers or officer or Shareholders or Shareholder individually. Section 8.1.3. Liability Limited to Assets of the Trust. All persons extending credit to, contracting with or having any claim against the Trust shall look only to the assets of the Trust or belonging to a Series or Class thereof, as appropriate, for payment under such credit, contract or claim, and neither the Shareholders nor the Trustees nor any of the Trust's officers, employees or agents, whether past, present or future, shall be personally liable therefor. Section 8.2. Liability of Trustees. The exercise by the Trustees of their powers and discretion hereunder shall be binding upon the Trust, the Shareholders, and any other person dealing with the Trust. The liability of the Trustees, however, shall be limited by this Section 8.2. Section 8.2.1. Liability for Own Actions. A Trustee shall be liable to the Trust or the Shareholders only for his own willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of the office of Trustee, and for nothing else, and shall not be liable for errors of judgment or mistakes of fact or law. Section 8.2.2. Liability for Actions of Others. The Trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer, agent, employee, consultant, adviser, administrative distributor, principal underwriter, custodian, transfer agent, dividend disbursing agent, Shareholder 18 servicing agent, or accounting agent of the Trust, nor shall any Trustee be responsible for any act or omission of any other Trustee. Section 8.2.3. Advice of Experts and Reports of Others. The Trustees may take advice of counsel or other experts with respect to the meaning and operation of this Declaration of Trust and their duties as Trustees hereunder, and shall be under no liability for any act or omission in accordance with such advice or for failing to follow such advice. In discharging their duties, the Trustees, when acting in good faith, shall be entitled to rely upon the books of account of the Trust and upon written reports made to the Trustees by any officer appointed by them, any independent public accountant and (with respect to the subject matter of the contract involved) any officer, partner or responsible employee of any other party to any contract entered into hereunder. Section 8.2.4. Bond. The Trustees shall not be required to give any bond as such, nor any surety if a bond is required. Section 8.2.5. Declaration of Trust Governs Issues of Liability. The provisions of this Declaration of Trust, to the extent that they restrict the duties and liabilities of the Trustees otherwise existing at law or in equity, are agreed by the Shareholders and all other Persons bound by this Declaration of Trust to replace such other duties and liabilities of the Trustees. Section 8.3. Liability of Third Persons Dealing with Trustees. No person dealing with the Trustees shall be bound to make any inquiry concerning the validity of any transaction made or to be made by the Trustees or to see to the application of any payments made or property transferred to the Trust or upon its order. Section 8.4. Liability of Shareholders. Without limiting the provisions of this Section 8.4 or the DBTA, the Shareholders shall be entitled to the same limitation of personal liability extended to stockholders of private corporations organized for profit under the General Corporation Law of the State of Delaware. Section 8.4.1. Limitation of Liability. No personal liability for any debt or obligation of the Trust shall attach to any Shareholder or former Shareholder of the Trust, and neither the Trustees, nor any officer, employee or agent of the Trust shall have any power to bind any Shareholder personally or to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay by way of subscription for any Shares or otherwise. Section 8.4.2. Indemnification of Shareholders. In case any Shareholder or former Shareholder of the Trust shall be held to be personally liable solely by reason of being or having been a Shareholder and not because of such Shareholder's acts or omissions or for some other reason, the Shareholder or former Shareholder (or, in the case of a natural person, his or her heirs, executors, administrators or other legal representatives or, in the case of a corporation or other entity, its corporate or other general successor) shall be entitled out of the assets of the Trust to be held harmless from and indemnified against all loss and expense arising from such liability; provided, however, there shall be no liability or obligation of the Trust arising hereunder to reimburse any Shareholder for taxes paid by reason of such Shareholder's ownership of any Shares or for losses suffered by reason of any changes in value of any Trust assets. The Trust shall, upon request by the Shareholder or former Shareholder, assume the defense of any claim made against the Shareholder for any act or obligation of the Trust and satisfy any judgment thereon. Section 8.5. Indemnification. Section 8.5.1. Indemnification of Covered Persons. Subject to the exceptions and limitations contained in Section 8.5.2, every person who is, or has been, a Trustee, officer, employee or agent of the Trust, including persons who serve at the request of the Trust as directors, trustees, officers, employees or agents of another organization in which the Trust has an interest as a shareholder, creditor or otherwise (hereinafter referred to as a "Covered Person"), shall be indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection 19 with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been such a Trustee, director, officer, employee or agent and against amounts paid or incurred by him in settlement thereof. Section 8.5.2. Exceptions. No indemnification shall be provided hereunder to a Covered Person: (a) For any liability to the Trust or its Shareholders arising out of a final adjudication by the court or other body before which the proceeding was brought that the Covered Person engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office; (b) With respect to any matter as to which the Covered Person shall have been finally adjudicated not to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Trust; or (c) In the event of a settlement or other disposition not involving a final adjudication (as provided in paragraph (a) or (b) of this Section 8.5.2) and resulting in a payment by a Covered Person, unless there has been either a determination that such Covered Person did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office by the court or other body approving the settlement or other disposition, or a reasonable determination, based on a review of readily available facts (as opposed to a full trial-type inquiry), that he or she did not engage in such conduct, such determination being made by: (i) a vote of a majority of the Disinterested Trustees (as such term is defined in Section 8.5.5) acting on the matter (provided that a majority of Disinterested Trustees then in office act on the matter); or (ii) a written opinion of independent legal counsel. Section 8.5.3. Rights of Indemnification. The rights of indemnification herein provided may be insured against by policies maintained by the Trust, and shall be severable, shall not affect any other rights to which any Covered Person may now or hereafter be entitled, shall continue as to a person who has ceased to be a Covered Person, and shall inure to the benefit of the heirs, executors and administrators of such a person. Nothing contained herein shall affect any rights to indemnification to which Trust personnel other than Covered Persons may be entitled by contract or otherwise under law. Section 8.5.4. Expenses of Indemnification. Expenses of preparation and presentation of a defense to any claim, action, suit or proceeding subject to a claim for indemnification under this Section 8.5 shall be advanced by the Trust prior to final disposition thereof upon receipt of an undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that he or she is not entitled to indemnification under this Section 8.5, provided that either: (a) Such undertaking is secured by a surety bond or some other appropriate security or the Trust shall be insured against losses arising out of any such advances; or (b) A majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter) or independent legal counsel in a written opinion shall determine, based upon a review of the readily available facts (as opposed to the facts available upon a full trial), that there is reason to believe that the recipient ultimately will be found entitled to indemnification. Section 8.5.5. Certain Defined Terms Relating to Indemnification. As used in this Section 8.5, the following words shall have the meanings set forth below: (a) A "Disinterested Trustee" is one (i) who is not an Interested Person of the Trust (including anyone, as such Disinterested Trustee, who has been exempted from being an Interested Person by any rule, regulation or order of the Commission), and (ii) against whom none of such actions, suits or 20 other proceedings or another action, suit or other proceeding on the same or similar grounds is then or has been pending; (b) "Claim," "action," "suit" or "proceeding" shall apply to all claims, actions, suits, proceedings (civil, criminal, administrative or other, including appeals), actual or threatened; and (c) "Liability" and "expenses" shall include without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities. ARTICLE 9 Termination or Reorganization Section 9.1. Termination of Trust or Series. Unless terminated as provided herein, the Trust and each Series or Class designated and established pursuant to this Declaration of Trust shall continue without limitation of time. Section 9.1.1. Termination. Subject to approval by a majority of the affected Shareholders, the Trust or any Series or Class (and the establishment and designation thereof) may be terminated by an instrument executed by a majority of the Trustees then in office; provided, however, that no approval of affected Shareholders is necessary if a majority of the Trustees then in office determines that the continuation of the Trust or Series is not in the best interests of the Trust, such Series or Class, or the affected Shareholders as a result of factors or events adversely affecting the ability of the Trust, Series or Class to conduct its business and operations in an economically viable manner. Section 9.1.2. Distribution of Assets. Upon termination of the Trust or any Series or Class, after paying or otherwise providing for all charges, taxes, expenses and liabilities, whether due or accrued or anticipated, as may be determined by the Trustees, the Trust shall, in accordance with such procedures as the Trustees consider appropriate, reduce the remaining assets of the Trust to distributable form in cash or other securities, or any combination thereof, and distribute the proceeds to the affected Shareholders in the manner set forth by resolution of the Trustees. Section 9.1.3. Certificate of Cancellation. Upon termination of the Trust, the Trustees shall file a certificate of cancellation in accordance with Section 3810 of the DBTA. Section 9.2. Reorganization. The Trustees may sell, convey, merge and transfer the assets of the Trust, or the assets belonging to any one or more Series or Classes, to another trust, partnership, association or corporation organized under the laws of any state of the United States, or to the Trust to be held as assets belonging to another Series or Class of the Trust, in exchange for cash, shares or other securities (including, in the case of a transfer to another Series or Class of the Trust, Shares of such other Series or Classes) with such transfer either (i) being made subject to, or with the assumption by the transferee of, the liabilities belonging to each Series or Class the assets of which are so transferred, or (ii) not being made subject to, or not with the assumption of, such liabilities. Following such transfer, the Trustees shall distribute such cash, Shares or other securities (giving due effect to the assets and liabilities belonging to and any other differences among the various Series or Classes the assets belonging to which have so been transferred) among the Shareholders of the Series or Classes the assets belonging to which have been so transferred. If all of the assets of the Trust have been so transferred, the Trust shall be terminated. Section 9.3. Merger or Consolidation. Section 9.3.1. Authority to Merge or Consolidate. Pursuant to an agreement of merger or consolidation, the Trust, or any one or more Series or Classes, may merge or consolidate with or into one or more business trusts or other business entities formed or organized or existing under the laws of the State of Delaware or any other state or the United States or any foreign country or other foreign jurisdiction. 21 Section 9.3.2. No Shareholder Approval Required. Any merger or consolidation described in Section 9.3.1or any reoganization described in Section 9.2, shall not require the vote of the Shareholders affected thereby, unless such vote is required by the 1940 Act or other applicable laws, or unless such merger or consolidation would result in an amendment of this Declaration of Trust which would otherwise require the approval of such Shareholders. Section 9.3.3. Subsequent Amendments. In accordance with Section 3815(f) of DBTA, an agreement of merger or consolidation may effect any amendment to this Declaration of Trust or the By-Laws or effect the adoption of a new declaration of trust or By-Laws of the Trust if the Trust is the surviving or resulting business trust. Section 9.3.4. Certificate of Merger or Consolidation. Upon completion of the merger or consolidation, the Trustees shall file a certificate of merger or consolidation in accordance with Section 3810 of the DBTA. ARTICLE 10 Miscellaneous Provisions Section 10.1. Signatures. To the extent permitted by applicable law, any instrument signed pursuant to a validly executed power of attorney shall be deemed to have been signed by the Trustee or officer executing the power of attorney. To the extent permitted by law, any Trustee or officer may, in his or her discretion, accept a facsimile signature as evidence of a valid signature on any document. Section 10.2. Certified Copies. The original or a copy of this Declaration of Trust and of each amendment hereto shall be kept in the office of the Trust where it may be inspected by any Shareholder. Anyone dealing with the Trust may rely on a certificate by an officer or Trustee of the Trust as to whether or not any such amendments have been made and as to any matters in connection with the Trust hereunder, and with the same effect as if it were the original, may rely on a copy certified by an officer or Trustee of the Trust to be a copy of this Declaration of Trust or of any such amendments. Section 10.3. Certain Internal References. In this Declaration of Trust or in any such amendment, references to this Declaration of Trust, and all expressions like "herein," "hereof" and "hereunder," shall be deemed to refer to this Declaration of Trust as a whole and as amended or affected by any such amendment. Section 10.4. Headings. Headings are placed herein for convenience of reference only, and in case of any conflict, the text of this instrument, rather than the headings, shall control. This instrument may be executed in any number of counterparts, each of which shall be deemed an original. Section 10.5. Resolution of Ambiguities. The Trustees may construe any of the provisions of this Declaration insofar as the same may appear to be ambiguous or inconsistent with any other provisions hereof, and any such construction hereof by the Trustees in good faith shall be conclusive as to the meaning to be given to such provisions. In construing this Declaration, the presumption shall be in favor of a grant of power to the Trustees. Section 10.6. Amendments. Section 10.6.1. Generally. Except as otherwise specifically provided herein or as required by the 1940 Act or other applicable law, this Declaration of Trust may be amended at any time by an instrument in writing signed by a majority of the Trustees then in office. Section 10.6.2. Certificate of Amendment. In the event of any amendment to this Declaration of Trust which affects the Trust's certificate of trust, the Trustees shall file a certificate of amendment in accordance with Section 3810 of the DBTA. 22 Section 10.6.3. Prohibited Retrospective Amendments. No amendment of this Declaration of Trust or repeal of any of its provisions shall limit or eliminate the limitation of liability provided to Trustees and officers hereunder with respect to any act or omission occurring prior to such amendment or repeal. Section 10.7. Governing Law. This Declaration of Trust is executed and delivered with reference to DBTA and the laws of the State of Delaware by all of the Trustees whose signatures appear below, and the rights of all parties and the validity and construction of every provision hereof shall be subject to and construed according to DBTA and the laws of the State of Delaware (unless and to the extent otherwise provided for and/or preempted by the 1940 Act or other applicable federal securities laws); provided, however, that there shall not be applicable to the Trust, the Trustees, or this Declaration of Trust (a) the provisions of Section 3540 of Title 12 of the Delaware Code or (b) any provisions of the laws (statutory or common) of the State of Delaware (other than the DBTA) pertaining to trusts which are inconsistent with the rights, duties, powers, limitations or liabilities of the Trustees set forth or referenced in this Declaration of Trust. All references to sections of the DBTA or the 1940 Act, or any rules or regulations thereunder, refer to such sections, rules, or regulations in effect as of the date of this Declaration of Trust, or any successor sections, rules, or regulations thereto. Section 10.8. Severability. The provisions of this Declaration of Trust are severable, and if the Trustees shall determine, with the advice of counsel, that any of such provision is in conflict with the 1940 Act, the DBTA, or with other applicable laws and regulations, the conflicting provision shall be deemed never to have constituted a part of this Declaration of Trust; provided, however, that such determination shall not affect any of the remaining provisions of this Declaration of Trust or render invalid or improper any action taken or omitted prior to such determination. If any provision of this Declaration of Trust shall be held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall attach only to such provision in such jurisdiction and shall not in any manner affect such provision in any other jurisdiction or any other provision of this Declaration of Trust in any jurisdiction. IN WITNESS WHEREOF, the undersigned, being the Trustees of the Trust, have executed this Declaration of Trust as of the date first written above. /s/ Michael L. Sapir Michael L. Sapir /s/ Louis M. Mayberg Louis M. Mayberg EX-2 3 EXHIBIT 2 1 Exhibit 2 PROFUNDS (A Delaware Business Trust) BYLAWS October __, 1997 2 TABLE OF CONTENTS ----------------- ARTICLE I ................................................................. 1 NAME OF TRUST, PRINCIPAL OFFICE AND SEAL .............................. 1 ARTICLE II ................................................................ 1 MEETINGS OF TRUSTEES .................................................. 1 ARTICLE III ............................................................... 2 COMMITTEES ............................................................ 2 ARTICLE IV ................................................................ 3 OFFICERS .............................................................. 3 ARTICLE V .................................................................. 4 MEETINGS OF SHAREHOLDERS .............................................. 4 ARTICLE VI ................................................................ 6 SHARES IN THE TRUST ................................................... 6 ARTICLE VII ............................................................... 6 CUSTODY OF SECURITIES ................................................. 6 ARTICLE VIII .............................................................. 6 FISCAL YEAR AND ACCOUNT ............................................... 6 ARTICLE IX ................................................................ 7 AMENDMENTS ............................................................ 7 ARTICLE X ................................................................. 7 MISCELLANEOUS ......................................................... 7 -ii- 3 BYLAWS OF PROFUNDS (A Delaware Business Trust) These Bylaws of Profunds (the "Trust"), a Delaware business trust, are subject to the Declaration of Trust of the Trust dated April 13, 1997, as from time to time amended, supplemented or restated (the "Declaration of Trust"). Capitalized terms used herein have the same meaning as in the Declaration of Trust. ARTICLE I --------- NAME OF TRUST, PRINCIPAL OFFICE AND SEAL ---------------------------------------- SECTION 1. PRINCIPAL OFFICE. The principal office of the Trust shall be located in Bethesda, Maryland, or such other location as the Trustees may from time to time determine. The Trust may establish and maintain other offices and places of business as the Trustees may from time to time determine. SECTION 2. DELAWARE OFFICE. The Trustees shall establish a registered office in the State of Delaware and shall appoint as the Trust's registered agent for service of process in the State of Delaware an individual resident of the State of Delaware or a Delaware corporation or a corporation authorized to transact business in the State of Delaware and in any case the business office of such registered agent for service of process shall be identical with the registered Delaware office of the Trust. SECTION 3. SEAL. The Trustees may adopt a seal which shall be in such form and have such inscription as the Trustees may from time to time determine. Any Trustee or officer of the Trust shall have authority to affix the seal to any document, provided that the failure to affix the seal shall not affect the validity or effectiveness of any document. ARTICLE II ---------- MEETINGS OF TRUSTEES -------------------- SECTION 1. MEETINGS. Meetings of the Trustees may be held at such places and such times as the Trustees may from time to time determine. Such meetings may be called orally or in writing by the Chairman of the Trustees or by any other Trustee. Each Trustee shall be given at least twenty four hours' notice of any meeting unless such Trustee has waived the notice requirement by written instrument executed before, at or after such meeting or if such Trustee attends the meeting. SECTION 2. ACTION WITHOUT A MEETING. Actions may be taken by the Trustees without a meeting or by a telephone meeting, as provided in Article 5, Section 5.12.3, of the Declaration of Trust. SECTION 3. COMPENSATION OF TRUSTEES. As provided by Article 5, Section 5.10.5 of the Declaration of Trust, each Trustee may receive such compensation from the Trust for his or her services and reimbursement for his or her expenses as may be fixed from time to time by the Trustees. 4 ARTICLE III ----------- COMMITTEES ---------- SECTION 1. ORGANIZATION. As provided in Article 5, Section 5.10.3, the Trustees may designate one or more committees of the Trustees. The Chairmen of such committees shall be elected by the Trustees. The number composing such committees and the powers conferred upon the same shall be determined by the vote of a majority of the Trustees. All members of such committees shall hold office at the pleasure of the Trustees. The Trustees may abolish any such committee at any time in their sole discretion. Any committee to which the Trustees delegate any of their powers shall maintain records of its meetings and shall report its actions to the Trustees. The Trustees shall have the power to rescind any action of any committee, but no such rescission shall have retroactive effect. The Trustees shall have the power at any time to fill vacancies in the committees. The Trustees may delegate to these committees any of its powers, subject to the limitations of applicable law. SECTION 2. EXECUTIVE COMMITTEE. As provided by Article 5, Section 5.10.3, the Trustees may elect from their own number an Executive Committee which shall have any or all the powers of the Trustees when the Trustees are not in session. The Chairman of the Trustees shall be a member of the Executive Committee. SECTION 3. NOMINATING COMMITTEE. Pursuant to the powers granted in Article 5, Section 5.10.3, the Trustees may elect from their own number a Nominating Committee composed entirely of Trustees who are not Interest Persons which shall have the power to select and nominate Trustees who are not Interested Persons, and shall have such other powers and perform such other duties as may be assigned to it from time to time by the Trustees. SECTION 4. AUDIT COMMITTEE. Pursuant to the powers granted in Article 5, Section 5.10.3, the Trustees may elect from their own number an Audit Committee composed entirely of Trustees who are not Interested Persons which shall have the power to review and evaluate the audit function, including recommending independent certified public accountants, and shall have such other powers and perform such other duties as may be assigned to it from time to time by the Trustees. SECTION 5. OTHER COMMITTEES. The Trustees may appoint other committees in accordance with Article 5, Section 5.10.3 of the Declaration of Trust. Each such committee shall have such powers and perform such duties as may be assigned to it from time to time by the Trustees, but shall not exercise any power which may lawfully be exercised only by the Trustees or a committee thereof. SECTION 6. PROCEEDINGS AND QUORUM. In the absence of an appropriate resolution of the Trustees, each committee may adopt such rules and regulations governing its proceedings, quorum and manner of acting as it shall deem proper and desirable. In the event any member of any committee is absent from any meeting, the members present at the meeting, whether or not they constitute a quorum, may appoint a Trustee to act in the place of such absent member. SECTION 7. COMPENSATION OF COMMITTEE MEMBERS. Each committee member may receive such compensation from the Trust for his or her services and reimbursement for his or her expenses as may be fixed from time to time by the Trustees. -2- 5 ARTICLE IV ---------- OFFICERS -------- SECTION 1. GENERAL. The officers of the Trust shall be a President, a Treasurer, a Secretary, and may include one or more Vice Presidents, Assistant Treasurers or Assistant Secretaries, and such other officers as the Trustees may from time to time elect. It shall not be necessary for any Trustee or other officer to be a Shareholder of the Trust. SECTION 2. ELECTION, TENURE AND QUALIFICATIONS OF OFFICERS. The officers of the Trust, except those appointed as provided in Section 9 of this Article, shall be elected by the Trustees. Each officer elected by the Trustees shall hold office until his or her successor shall have been elected and qualified or until his or her earlier resignation. Any person may hold one or more offices of the Trust. A person who holds more than one office in the Trust may not act in more than one capacity to execute, acknowledge or verify an instrument required by law to be executed, acknowledged or verified by more than one officer. No officer need be a Trustee. SECTION 3. VACANCIES AND NEWLY CREATED OFFICES. Whenever a vacancy shall occur in any office, regardless of the reason for such vacancy, or if any new office shall be created, such vacancies or newly created offices may be filled by the Trustees or, in the case of any office created pursuant to Section 9 of this Article, by any officer upon whom such power shall have been conferred by the Trustees. SECTION 4. REMOVAL AND RESIGNATION. Any officer may be removed from office at any time, with or without cause, by the Trustees. In addition, any officer or agent appointed in accordance with the provisions of Section 9 of this Article may be removed, with or without cause, by any officer upon whom such power of removal shall have been conferred by the Trustees. Any officer may resign from office at any time by delivering a written resignation to the Trustees, the President, the Secretary, or any Assistant Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery. SECTION 5. PRESIDENT. Subject to the direction of the Trustees, the President shall have general charge of the business affairs, policies and property of the Trust and general supervision over its officers, employees and agents. In the absence of the Chairman of the Trustees or if no Chairman of the Trustees has been elected, the President shall preside at all Shareholders' meetings and at all meetings of the Trustees and shall in general exercise the powers and perform the duties of the Chairman of the Trustees. Except as the Trustees may otherwise order, the President shall have the power to grant, issue, execute or sign such powers of attorney, proxies, agreements or other documents as may be deemed advisable or necessary in the furtherance of the interests of the Trust or any Series or Class thereof. The President also shall have the power to employ attorneys, accountants and other advisers and agents for the Trust. The President shall exercise such other powers and perform such other duties as the Trustees may from time to time assign to the President. SECTION 6. VICE PRESIDENT. The Trustees may from time to time elect one or more Vice Presidents who shall have such powers and perform such duties as may from time to time be assigned to them by the Trustees or the President. At the request or in the absence or disability of the President, the Vice President (or, if there are two or more Vice Presidents, then the first appointed of the Vice Presidents present and able to act) may perform all the duties of the President and, when so doing, shall have all the powers of and be subject to all the restrictions upon the President. SECTION 7. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall be the principal financial and accounting officer of the Trust and shall have general charge of the finances and books of the Trust. The Treasurer shall deliver all funds and securities of the Trust to such company as the Trustees -3- 6 shall retain as custodian in accordance with the Declaration of Trust, these Bylaws, and applicable law. The Treasurer shall make annual reports regarding the business and financial condition of the Trust as soon as possible after the close of the Trust's fiscal year. The Treasurer also shall furnish such other reports concerning the business and financial condition of the Trust as the Trustees may from time to time require. The Treasurer shall perform all acts incidental to the office of Treasurer, subject to the supervision of the Trustees, and shall perform such additional duties as the Trustees may from time to time designate. Any Assistant Treasurer may perform such duties of the Treasurer as the Trustees or the Treasurer may assign, and, in the absence of the Treasurer, may perform all the duties of the Treasurer. SECTION 8. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall record all votes and proceedings of the meetings of Trustees and Shareholders in books to be kept for that purpose. The Secretary shall be responsible for giving and serving of all notices of the Trust. The Secretary shall have custody of any seal of the Trust. The Secretary shall be responsible for the records of the Trust, including the Share register and such other books and papers as the Trustees may direct and such books, reports, certificates and other documents required by law. All of such records and documents shall at all reasonable times be kept open by the Secretary for inspection by any Trustee for any proper Trust purpose. The Secretary shall perform all acts incidental to the office of Secretary, subject to the supervision of the Trustees, and shall perform such additional duties as the Trustees may from time to time designate. Any Assistant Secretary may perform such duties of the Secretary as the Trustees or the Secretary may assign, and, in the absence of the Secretary, may perform all the duties of the Secretary. SECTION 9. SUBORDINATE OFFICERS. The Trustees may appoint from time to time such other officers and agents as they may deem advisable, each of whom shall have such title, hold office for such period, have such authority and perform such duties as the Trustees may determine. The Trustees may delegate from time to time to one or more officers or committees of Trustees the power to appoint any such subordinate officers or agents and to prescribe their respective rights, terms of office, authorities and duties. Any officer or agent appointed in accordance with the provisions of this Section 9 may be removed, either with or without cause, by any officer upon whom such power of removal shall have been conferred by the Trustees. SECTION 10. COMPENSATION OF OFFICERS. Each officer may receive such compensation from the Trust for services and reimbursement for expenses as may be fixed from time to time by the Trustees. SECTION 11. SURETY BOND. The Trustees may require any officer or agent of the Trust to execute a bond (including, without limitation, any bond required by the Investment Company Act of 1940 and the rules and regulations of the Securities and Exchange Commission) to the Trust in such sum and with such surety or sureties as the Trustees may determine, conditioned upon the faithful performance of his or her duties to the Trust, including responsibility for the accounting of any of the Trust's property, funds or securities that may come into his or her hands. ARTICLE V --------- MEETINGS OF SHAREHOLDERS ------------------------ SECTION 1. ANNUAL AND REGULAR MEETINGS. As provided in Article 7, Section 7.2.1 of the Declaration of Trust, there shall be no annual or regular Shareholders' meetings except as required by law or as hereinafter provided. -4- 7 SECTION 2. SPECIAL MEETINGS. Special meetings of Shareholders of the Trust or of any Series or Class shall be called in accordance with Article 7, Section 7.2.2 of the Declaration of Trust. Special meetings of the Shareholders of the Trust or of any Series or Class shall be called by the Secretary upon the written request of Shareholders owning at least ten percent (10%) of the Outstanding Shares entitled to vote at such meeting, provided that (1) such request shall state the purposes of such meeting and the matters proposed to be acted on, and (2) the Shareholders requesting such meeting shall have paid to the Trust the reasonably estimated cost of preparing and mailing the notice thereof, which the Secretary shall determine and specify to such Shareholders. If the Secretary fails for more than thirty days to call a special meeting, The Trustees or the Shareholders requesting such a meeting may, in the name of the Secretary, call the meeting by giving the required notice. If the meeting is a meeting of Shareholders of any Series or Class, but not a meeting of all Shareholders of the Trust, then only a special meeting of Shareholders of such Series or Class need be called and, in such case, only Shareholders of such Series or Class shall be entitled to notice of and to vote at such meeting. SECTION 3. NOTICE OF MEETINGS. Notice shall be provided in accordance with Article VII, Section 7.2.3 of the Declaration of Trust. The written notice of any meeting may be delivered or mailed, postage prepaid, to each Shareholder entitled to vote at such meeting. If mailed, notice shall be deemed to be given when deposited in the United States mail directed to the Shareholder at his or her address as it appears on the records of the Trust. Notice of any Shareholders' meeting need not be given to any Shareholder if a written waiver of notice, executed before, at or after such a meeting, is filed with the record of such a meeting, or to any Shareholder who is present at such meeting in person or by proxy unless the Shareholder is present solely for the purpose of objecting to the call of the meeting. Notice of adjournment of a Shareholders' meeting to another time or place need not be given, if such time and place are announced at the meeting which the adjournment is taken and the adjourned meeting is held within a reasonable time after the date set for the original meeting. At the adjourned meeting the Trust may transact any business which might have been transacted at the original meeting. If after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to Shareholders of record entitled to vote at such meeting. Any irregularities in the notice of any meeting or the nonreceipt of any such notice by any of the Shareholders shall not invalidate any action otherwise properly taken at any such meeting. SECTION 4. VALIDITY OF PROXIES. Subject to the provision of Article 7, Section 7.1.5 of the Declaration of Trust, Shareholders entitled to vote may vote either in person or by proxy, provided that either (1) a written instrument authorizing such proxy to act has been signed and dated by the Shareholder or by his or her duly authorized attorney, or (2) the Trustees adopt by resolution an electronic, telephonic, computerized or other alternative to execution of a written instrument authorizing the proxy to act, but if a proposal by anyone other than the officers or Trustees is submitted to a vote of the Shareholders of the Trust or of any Series, or if there is a proxy contest or proxy solicitation or proposal in opposition to any proposal by the officers or Trustees, Shares may be voted only in person or by written proxy. Unless the proxy provides otherwise, it shall not be valid if executed more than eleven months before the date of the meeting. All proxies shall be delivered to the Secretary or other person responsible for recording the proceedings before being voted. Unless otherwise specifically limited by their terms, proxies shall entitle the Shareholder to vote at any adjournment of a Shareholders' meeting. At every meeting of the Shareholders, unless the voting is conducted by inspectors, all questions concerning the qualifications of voters, the validity of proxies, and the acceptance or rejection of votes, shall be decided by the chairman of the meeting. Subject to the provisions of the Declaration of Trust or these Bylaws, all matters concerning the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and Shareholders were shareholders of a Delaware corporation. -5- 8 SECTION 5. PLACE OF MEETING. All special meetings of Shareholders shall be held at the principal place of business of the Trust or at such other place as the Trustees may from time to time designate. SECTION 6. ACTION WITHOUT A MEETING. Any action to be taken by the Shareholders may be taken without a meeting in accordance with Article 7, Section 7.6 of the Declaration of Trust. ARTICLE VI ---------- SHARES IN THE TRUST ------------------- SECTION 1. CERTIFICATES. No certificates certifying the ownership of Shares shall be issued. In lieu of issuing certificates of Shares, the Trustees or the transfer agent or Shareholder servicing agent may either issue receipts or may keep accounts upon the books of the Trust for record holders of such Shares. In either case, the record holders shall be deemed, for all purposes, to be holders of certificates for such Shares as if they accepted such certificates and shall be held to have expressly consented to the terms thereof. SECTION 2. NON-TRANSFERABILITY OF SHARES. Shares in the Trust shall not be transferable unless the prospective transferor obtains the prior unanimous consent of the Shareholders to the transfer. The Trust shall be entitled to treat the holder of record of any Share or Shares as the absolute owner for all purposes, and shall not be bound to recognize any legal, equitable or other claim or interest in such Share of Shares on the part of any other person except as otherwise expressly provided by law. ARTICLE VII ----------- CUSTODY OF SECURITIES --------------------- SECTION 1. EMPLOYMENT OF A CUSTODIAN. The Trust may enter into written contracts for the placement and maintenance of all funds, securities and similar investments of the Trust in accordance with Article 6, Section 6.3 of the Declaration of Trust. SECTION 2. TERMINATION OF CUSTODIAN AGREEMENT. Upon termination of the Custodian Agreement or inability of the Custodian to continue to serve, the Trustees shall promptly appoint a successor Custodian. If so directed by resolution of the Trustees or by vote of a majority of Outstanding Shares of the Trust, the Custodian shall deliver and pay over all property of the Trust or any Series held by it as specified in such vote. SECTION 3. OTHER ARRANGEMENTS. The Trust may make such other arrangements for the custody of its assets (including deposit arrangements) as may be required by any applicable law, rule or regulation. ARTICLE VIII ------------ FISCAL YEAR AND ACCOUNTANT -------------------------- SECTION 1. FISCAL YEAR. The fiscal year of the Trust shall be as determined by the Trustees. SECTION 2. ACCOUNTANT. The Trust shall employ independent certified public accountants as its accountant ("Accountant") to examine the accounts of the Trust and to sign and certify financial statements filed by the Trust. The Accountant's certificates and reports shall be addressed both to the Trustees and to the Shareholders. -6- 9 ARTICLE IX ---------- AMENDMENTS ---------- SECTION 1. GENERAL. All Bylaws of the Trust shall be subject to amendment, alteration or repeal, and new Bylaws may be made by the affirmative vote of a majority of either: (1) the Outstanding Shares of the Trust entitled to vote at any meeting; or (2) the Trustees at any meeting. In no event will Bylaws be adopted that are in conflict with the Declaration of Trust, the Delaware Business Trust Act, the Investment Company Act of 1940, or applicable securities laws. ARTICLE X --------- MISCELLANEOUS ------------- SECTION 1. INSPECTION OF BOOKS. The Trustees shall from time to time determine whether and to what extent, and at what times and places, and under what conditions the accounts and books of the Trust or any Series shall be open to the inspection of Shareholders. No Shareholder shall have any right to inspect any account or book or document of the Trust except as conferred by law or otherwise by the Trustees. SECTION 2. SEVERABILITY. The provisions of these Bylaws are severable. If the Trustees determine, with the advice of counsel, that any provision hereof conflicts with the Investment Company Act of 1940, the regulated investment company or other provisions of the Internal Revenue Code or with other applicable laws and regulations the conflicting provision shall be deemed never to have constituted a part of these Bylaws; provided, however, that such determination shall not affect any of the remaining provisions of these Bylaws or render invalid or improper any action taken or omitted prior to such determination. If any provision hereof shall be held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall attach only to such provision only in such jurisdiction and shall not affect any other provision of these Bylaws. SECTION 3. HEADINGS. Headings are placed in these Bylaws for convenience of reference only and in case of any conflict, the text of these Bylaws rather than the headings shall control. -7- EX-5.A 4 EXHIBIT 5(A) 1 Exhibit 5(a) INVESTMENT ADVISORY AGREEMENT AGREEMENT made as of the ____________ day of _______, 1997, between ProFunds, a Delaware business trust (the "Trust"), and ProFunds Advisors LLC, a Maryland limited liability company (the "Advisor"). WHEREAS, the Advisor is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and is engaged principally in the business of rendering investment management services; and WHEREAS, the Trust is registered as an open-end management investment company under the Investment Company Act of 1940, as amended, (the"1940 Act"); and WHEREAS, the Trust is authorized to issue shares of beneficial interest ("shares") in separate series with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Trust currently offers six series of shares and may offer additional portfolios in the future; and WHEREAS, the Trust desires to retain the services of the Advisor to provide a continuous program of investment management for the following portfolios of the Trust: Bull ProFund, Ultra Bull ProFund, Bear ProFund, Ultra Bear ProFund and UltraOTC ProFund (each referred to hereinafter as a "Portfolio" and collectively as the "Portfolios"); and WHEREAS, the Advisor is willing, in accordance with the terms and conditions hereof to provide such services to the Trust on behalf of such Portfolios. NOW, THEREFORE, in consideration of the mutual agreements set forth herein and intending to be legally bound hereby, it is agreed between the parties as follows: 1. APPOINTMENT OF ADVISOR ---------------------- The Trust hereby appoints Advisor to provide the advisory services set forth herein to the Portfolios and Advisor agrees to accept such appointment and agrees to render the services set forth herein for the compensation herein provided. In carrying out its responsibilities under this Agreement, Advisor shall at all times act in accordance with the investment objectives, policies and restrictions applicable to the Portfolios as set forth in the then-current Registration Statement of the Trust, applicable provisions of the 1940 Act and the rules and regulations promulgated thereunder and other applicable federal securities laws and regulations. 2 2. DUTIES OF ADVISOR ----------------- Advisor shall provide a continuous program of investment management for each Portfolio. Subject to the general supervision of the Trust's Board of Trustees, Advisor shall have sole investment discretion with respect to the Portfolios, including investment research, selection of the securities to be purchased and sold and the portion of the assets of each Portfolio, if any, that shall be held uninvested, and the selection of broker-dealers through which securities transactions in the Portfolios will be executed. Advisor shall manage the Portfolios in accordance with the objectives, policies and limitations set forth in the Trust's current Prospectus and Statement of Additional Information. Specifically, and without limiting the generality of the foregoing, Advisor agrees that it will: (a) promptly advise each Portfolio's designated custodian bank and administrator or accounting agent of each purchase and sale, as the case may be, made on behalf of the Portfolio, specifying the name and quantity of the security purchased or sold, the unit and aggregate purchase or sale price, commission paid, the market on which the transaction was effected, the trade date, the settlement date, the identity of the effecting broker or dealer and/or such other information, and in such manner, as may from time to time be reasonably requested by the Trust; (b) maintain all applicable books and records with respect to the securities transactions of the Portfolio. Specifically, but without limitation, Advisor agrees to maintain with respect to each Portfolio those records required to be maintained under Rule 31a-1(b)(1), (b)(5) and (b)(6) under the 1940 Act with respect to transactions in each Portfolio including, without limitation, records which reflect securities purchased or sold in the Portfolio, showing for each such transaction, the market on which the transaction was effected, the trade date, the settlement date, and the identity of the executing broker or dealer. Advisor will preserve such records in the manner and for the periods prescribed by Rule 31a-2 under the 1940 Act. Advisor acknowledges and agrees that all such records it maintains for the Trust are the property of the Trust and Advisor will surrender promptly to the Trust any such records upon the Trust's request; (c) provide, in a timely manner, such information as may be reasonably requested by the Trust or its designated agents in connection with, among other things, the daily computation of each Portfolio's net asset value and net income, preparation of proxy statements or amendments to the Trust's registration statement and monitoring investments made in the Portfolio to ensure compliance with the various limitations on investments applicable to the Portfolio and to ensure that the Portfolio will continue to qualify for the tax treatment accorded to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended; 2 3 (d) render regular reports to the Trust concerning the performance by Advisor of its responsibilities under this Agreement. In particular, Advisor agrees that it will, at the reasonable request of the Board of Trustees, attend meetings of the Board or its validly constituted committees and will, in addition, make its officers and employees available to meet with the officers and employees of the Trust at least quarterly and at other times upon reasonable notice, to review the investments and investment programs of the Portfolio; (e) maintain its policy and practice of conducting its fiduciary functions independently. In making investment recommendations for the Portfolios, the Advisor's personnel will not inquire or take into consideration whether the issuers of securities proposed for purchase or sale for the Trust's account are customers of the Advisor or of its affiliates. In dealing with such customers, the Advisor and its affiliates will not inquire or take into consideration whether securities of those customers are held by the Trust; and (f) review periodically and take responsibility for the material accuracy and completeness of the information supplied by or at the request of the Advisor for inclusion in Trust's registration statement under the 1940 Act and the Securities Act of 1933. 3. PORTFOLIO TRANSACTIONS ---------------------- Advisor shall be responsible for selecting members of securities exchanges, brokers and dealers (herein after referred to as "brokers") for the execution of purchase and sale transactions for the Portfolios. In executing portfolio transactions and selecting brokers or dealers, if any, the Advisor will use its best efforts to seek on behalf of a Portfolio the best overall terms available. In assessing the best overall terms available for any transaction, the Advisor shall consider all factors it deems relevant, including brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934) provided to any Portfolio of the Trust and/or other accounts over which the Advisor or an affiliate of the Advisor exercises investment discretion. The Advisor may pay to a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if, but only if, the Advisor determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided. The Advisor will report to the Trustees from time to time regarding its portfolio execution and brokerage practices. 3 4 4. EXPENSES AND COMPENSATION ------------------------- a) Allocation of Expenses: The Advisor shall, at its expense, employ or associate with itself such persons as it believes appropriate to assist in performing its obligations under this Agreement and provide all advisory services, equipment, facilities and personnel necessary to perform its obligations under this Agreement. The Trust shall be responsible for all its expenses and liabilities, including, without limitation, compensation of its Trustees who are not affiliated with the Portfolios' Administrator or the Advisor or any of their affiliates; taxes and governmental fees; interest charges; fees and expenses of the Trust's independent accountants and legal counsel; trade association membership dues; fees and expenses of any custodian (including for keeping books and accounts and calculating the net asset value of shares of each Portfolio, transfer agent, registrar and dividend disbursing agent of the Trust; expenses of issuing, selling, redeeming, registering and qualifying for sale the Trust's shares of beneficial interest; expenses of preparing and printing share certificates (if any), prospectuses, shareholders' reports, notices, proxy statements and reports to regulatory agencies; the cost of office supplies; travel expenses of all officers, trustees and employees; insurance premiums; brokerage and other expenses of executing portfolio transactions; expenses of shareholders' meetings; organizational expenses; and extraordinary expenses. b) Compensation For its services under this Agreement, Advisor shall be entitled to receive a fee at the annual rate of .75% of the average daily net asset value of each Portfolio, payable monthly. For the purpose of accruing compensation, the net asset value of the Portfolios will be determined in the manner provided in the then-current Prospectus of the Trust. c) Expense Limitations Advisor may waive all or a portion of its fees provided for hereunder and such waiver will be treated as a reduction in the purchase price of its services. Advisor shall be contractually bound hereunder by the terms of any publicity announced waiver of its fee, or any limitation of the Portfolio's expenses, as if such waiver were fully set forth herein. 4 5 5. LIABILITY OF ADVISOR -------------------- Neither the Advisor nor its officers, directors, employees, agents or controlling person ("Associated Person") of the Advisor shall be liable for any error of judgement or mistake of law or for any loss suffered by the Trust in connection with the matters to which this Agreement relates including, without limitation, losses that may be sustained in connection with the purchase, holding, redemption or sale of any security or other investment by the Trust except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of Advisor or such Associated Persons in the performance of their duties or from reckless disregard by them of their duties under this Agreement. 6. LIABILITY OF THE TRUST AND PORTFOLIOS ------------------------------------- It is expressly agreed that the obligations of the Trust hereunder shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Trust personally, but shall bind only the trust property of the Trust as provided in the Declaration of Trust. The execution and delivery of this Agreement have been authorized by the Trustees, and it has been signed by an officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trust as provided in its Declaration of Trust. With respect to any obligation of the Trust on behalf of any Portfolio arising hereunder, the Advisor shall look for payment or satisfaction of such obligations solely to the assets and property of the Portfolio to which such obligation relates as though the Trust had separately contracted with the Advisor by separate written instrument with respect to each Portfolio. 7. DURATION AND TERMINATION OF THIS AGREEMENT ------------------------------------------ (a) Duration. This Agreement shall become effective on the date hereof. Unless terminated as herein provided, this Agreement shall remain in full force and effect for two years from the date hereof. Subsequent to such initial period of effectiveness, this Agreement shall continue in full force and effect for successive periods of one year thereafter with respect to each Portfolio so long as such continuance with respect to such Portfolio is approved at least annually (a) by either the Trustees of the Trust or by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of such Portfolio, and (b), in either event, by the vote of a majority of the Trustees of the Trust who are not parties to this Agreement or "interested persons" (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. 5 6 (b) Amendment. Any amendment to this Agreement shall become effective with respect to a Portfolio upon approval by the Advisor and the Trustees, and to the extent required by applicable law, a majority of the outstanding voting securities (as defined in the 1940 Act) of that Portfolio. (c) Termination. This Agreement may be terminated with respect to any Portfolio at any time, without payment of any penalty, by vote of the Trustees or by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of that Portfolio, or by the Advisor, in each case upon sixty (60) days' prior written notice to the other party. Any termination of this Agreement will be without prejudice to the completion of transactions already initiated by the Advisor on behalf of the Trust at the time of such termination. The Advisor shall take all steps reasonably necessary after such termination to complete any such transactions and is hereby authorization to take such steps. In addition, this Agreement may be terminated with respect to one or more Portfolios without affecting the rights, duties or obligations of any of the other Portfolios. (d) Automatic Termination. This Agreement shall automatically and immediately terminate in the event of its assignment (as defined in the 1940 Act). (e) Approval, Amendment or Termination by Individual Portfolio. Any approval, amendment or termination of this Agreement by the holders of a majority of the outstanding voting securities (as defined in the 1940 Act) of any Portfolio shall be effective to continue, amend or terminate this Agreement with respect to any such Portfolio notwithstanding (i) that such action has not been approved by the holders of a majority of the outstanding voting securities of any other Portfolio affected thereby, and (ii) that such action has not been approved by the vote of a majority of the outstanding voting securities of the Trust, unless such action shall be required by any applicable law or otherwise. (f) Use of Name. The parties acknowledge and agree that the names "ProFunds", "Bull ProFund", "Ultra Bull ProFund", "Bear ProFund", "Ultra OTC ProFund", and "Money Market ProFund", (collectively, the "ProFund Names") and any derivatives thereof, as well as any logos that are now or shall hereafter be associated with the ProFund Names are the valuable property of the Advisor. In the event that this Agreement is terminated and the Advisor no longer acts as Investment Advisor to the Trust, the Advisor reserves the right to withdraw from the Trust and the Portfolios the uses of the ProFund Names and logos or any name or logo misleadingly implying a continuing relationship between the Trust of the Portfolios and the Advisor or any of its affiliates. 6 7 8. SERVICES NOT EXCLUSIVE. ----------------------- The services of the Advisor to the Trust hereunder are not to be deemed exclusive, and the Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby. 9. MISCELLANEOUS ------------- (a) Notice. Any notice under this Agreement shall be in writing, addressed and delivered or mailed, postage prepaid, to the other party at such address as such other party may designate in writing for the receipt of such notices. (b) Severability. If any provision of this Agreement shall be held or made invalid by a court decision, statue, rule or otherwise, the remainder shall not be thereby affected. (c) Applicable Law. This Agreement shall be construed in accordance with and governed by the laws of Maryland. PROFUNDS ADVISORS LLC, A MARYLAND LIMITED LIABILITY COMPANY ATTEST: by: ----------------------------- --------------------------------- --------------------------------- PROFUNDS, A DELAWARE BUSINESS TRUST ATTEST: by: ----------------------------- --------------------------------- --------------------------------- 7 EX-6 5 EXHIBIT 6 1 Exhibit 6 DISTRIBUTION AGREEMENT ---------------------- AGREEMENT made this day of October, 1997, between PROFUNDS (the "Trust"), a Delaware business trust having its principal place of business at 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814, and CONCORD FINANCIAL GROUP, INC. ("Distributor"), a Delaware corporation having its principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219. WHEREAS, the Trust is an open-end management investment company, registered with the Securities and Exchange Commission (the "Commission") under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, it is intended that Distributor act as the distributor of the units of beneficial interest ("Shares") of each of the investment portfolios of the Trust (such portfolios being referred to individually as a "Fund" and collectively as the "Funds"). NOW, THEREFORE, in consideration of the mutual premises and covenants herein set forth, the parties agree as follows: 1. Services as Distributor. ----------------------- 1.1 Distributor will act as agent for the distribution of the Shares covered by the registration statement and prospectus of the Trust then in effect under the Securities Act of 1933, as amended (the "Securities Act"). As used in this Agreement, the term "registration statement" shall mean Parts A (the prospectus), B (the Statement of Additional Information) and C of each registration statement that is filed on Form N-1A, or any successor thereto, with the Commission, together with any amendments thereto. The term "prospectus" shall mean each form of prospectus and Statement of Additional Information used by the Funds for delivery to shareholders and prospective shareholders after the effective dates of the above referenced registration statements, together with any amendments and supplements thereto. 1.2 Distributor agrees to use appropriate efforts to solicit orders for the sale of the Shares and will undertake such advertising and promotion as it believes reasonable in connection with such solicitation. The Trust understands that Distributor is now and may in the future be the distributor of the shares of several investment companies or series (together, "Companies") including Companies having investment objectives similar to those of the Trust. The Trust further understands that investors and potential investors in the Trust may invest in shares of such other Companies. The Trust agrees that Distributor's duties to such Companies shall not be deemed in conflict with its duties to the Trust under this paragraph 1.2. Distributor shall, at its own expense, finance appropriate activities which it deems reasonable, which are primarily intended to result in the sale of the Shares, including, but not limited to, advertising, compensation of underwriters, dealers and sales personnel, the printing and 2 mailing of prospectuses to other than current Shareholders, and the printing and mailing of sales literature. 1.3 In its capacity as distributor of the Shares, all activities of Distributor and its partners, agents, and employees shall comply with all applicable laws, rules and regulations, including, without limitation, the 1940 Act, all rules and regulations promulgated by the Commission thereunder and all rules and regulations adopted by any securities association registered under the Securities Exchange Act of 1934. 1.4 Distributor will provide one or more persons, during normal business hours, to respond to telephone questions with respect to the Trust. 1.5 Distributor will transmit any orders received by it for purchase or redemption of the Shares to the transfer agent and custodian for the Funds. 1.6 Whenever in their judgment such action is warranted by unusual market, economic or political conditions, or by abnormal circumstances of any kind, the Trust's officers may decline to accept any orders for, or make any sales of, the Shares until such time as those officers deem it advisable to accept such orders and to make such sales. 1.7 Distributor will act only on its own behalf as principal if it chooses to enter into selling agreements with selected dealers or others. 1.8 The Trust agrees at its own expense to execute any and all documents and to furnish any and all information and otherwise to take all actions that may be reasonably necessary in connection with the qualification of the Shares for sale in such states as Distributor may designate. 1.9 The Trust shall furnish from time to time, for use in connection with the sale of the Shares, such information with respect to the Funds and the Shares as Distributor may reasonably request; and the Trust warrants that the statements contained in any such information shall fairly show or represent what they purport to show or represent. The Trust shall also furnish Distributor upon request with: (a) unaudited semiannual statements of the Funds' books and accounts prepared by the Trust, (b) a monthly itemized list of the securities in the Funds, (c) monthly balance sheets as soon as practicable after the end of each month, and (d) from time to time such additional information regarding the financial condition of the Funds as Distributor may reasonably request. 1.10 The Trust represents to Distributor that, with respect to the Shares, all registration statements and prospectuses filed by the Trust with the Commission under the Securities Act have been carefully prepared in conformity with requirements of said Act and rules and regulations of the Commission thereunder. The registration statement and prospectus contain all statements required to be stated therein in conformity with said Act and the rules and regulations of said Commission and all statements of fact contained in any such registration statement and prospectus are true and correct. Furthermore, neither any registration statement nor any prospectus includes an untrue statement of a material fact or omits to state a material fact required to be stated 2 3 therein or necessary to make the statements therein not misleading to a purchaser of the Shares. The Trust may, but shall not be obligated to, propose from time to time such amendment or amendments to any registration statement and such supplement or supplements to any prospectus as, in the light of future developments, may, in the opinion of the Trust's counsel, be necessary or advisable. If the Trust shall not propose such amendment or amendments and/or supplement or supplements within fifteen days after receipt by the Trust of a written request from Distributor to do so, Distributor may, at its option, terminate this Agreement. The Trust shall not file any amendment to any registration statement or supplement to any prospectus without giving Distributor reasonable notice thereof in advance; provided, however, that nothing contained in this Agreement shall in any way limit the Trust's right to file at any time such amendments to any registration statement and/or supplements to any prospectus, of whatever character, as the Trust may deem advisable, such right being in all respects absolute and unconditional. 1.11 The Trust authorizes Distributor and dealers to use any prospectus in the form furnished from time to time in connection with the sale of the Shares. The Trust agrees to indemnify, defend and hold Distributor, its several partners and employees, and any person who controls Distributor within the meaning of Section 15 of the Securities Act free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which Distributor, its partners and employees, or any such controlling person, may incur under the Securities Act or under common law or otherwise, arising out of or based upon any untrue statement, or alleged untrue statement, of a material fact contained in any registration statement or any prospectus or arising out of or based upon any omission, or alleged omission, to state a material fact required to be stated in either any registration statement or any prospectus or necessary to make the statements in either thereof not misleading; provided, however, that the Trust's agreement to indemnify Distributor, its partners or employees, and any such controlling person shall not be deemed to cover any claims, demands, liabilities or expenses arising out of any statements or representations as are contained in any prospectus and in such financial and other statements as are furnished in writing to the Trust by Distributor and used in the answers to the registration statement or in the corresponding statements made in the prospectus, or arising out of or based upon any omission or alleged omission to state a material fact in connection with the giving of such information required to be stated in such answers or necessary to make the answers not misleading; and further provided that the Trust's agreement to indemnify Distributor and the Trust's representations and warranties hereinbefore set forth in paragraph 1.10 shall not be deemed to cover any liability to the Trust or its Shareholders to which Distributor would otherwise be subject by reason of willful misfeasance, bad faith or negligence in the performance of its duties, or by reason of Distributor's reckless disregard of its obligations and duties under this Agreement. The Trust's agreement to indemnify Distributor, its partners and employees and any such controlling person, as aforesaid, is expressly conditioned upon the Trust being notified of any action brought against Distributor, its partners or employees, or any such controlling person, such notification to be given by letter or by telegram addressed to the Trust at its principal office in Columbus, Ohio and sent to the Trust by the person against whom such action is brought, within 10 days after the summons or other first legal process shall have been served. The failure to so notify the Trust of any such action shall not relieve the Trust from any liability which the Trust may have to the person against whom such action is brought by reason of any such untrue, or 3 4 allegedly untrue, statement or omission, or alleged omission, otherwise than on account of the Trust's indemnity agreement contained in this paragraph 1.11. The Trust will be entitled to assume the defense of any suit brought to enforce any such claim, demand or liability, but, in such case, such defense shall be conducted by counsel of good standing chosen by the Trust and approved by Distributor, which approval shall not be unreasonably withheld. In the event the Trust elects to assume the defense of any such suit and retain counsel of good standing approved by Distributor, the defendant or defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them; but in case the Trust does not elect to assume the defense of any such suit, or in case Distributor reasonably does not approve of counsel chosen by the Trust, the Trust will reimburse Distributor, its partners and employees, or the controlling person or persons named as defendant or defendants in such suit, for the fees and expenses of any counsel retained by Distributor or them. The Trust's indemnification agreement contained in this paragraph 1.11 and the Trust's representations and warranties in this Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of Distributor, its partners and employees, or any controlling person, and shall survive the delivery of any Shares. This Agreement of indemnity will inure exclusively to Distributor's benefit, to the benefit of its several partners and employees, and their respective estates, and to the benefit of the controlling persons and their successors. The Trust agrees promptly to notify Distributor of the commencement of any litigation or proceedings against the Trust or any of its officers or Trustees in connection with the issue and sale of any Shares. 1.12 Distributor agrees to indemnify, defend and hold the Trust, its several officers and Trustees and any person who controls the Trust within the meaning of Section 15 of the Securities Act free and harmless from and against any and all claims, demands, liabilities and expenses (including the costs of investigating or defending such claims, demands, or liabilities and any counsel fees incurred in connection therewith) which the Trust, its officers or Trustees or any such controlling person, may incur under the Securities Act or under common law or otherwise, but only to the extent that such liability or expense incurred by the Trust, its officers or Trustees or such controlling person resulting from such claims or demands, shall arise out of or be based upon any untrue, or alleged untrue, statement of a material fact contained in information furnished in writing by Distributor to the Trust and used in the answers to any of the items of the registration statement or in the corresponding statements made in the prospectus, or shall arise out of or be based upon any omission, or alleged omission, to state a material fact in connection with such information furnished in writing by Distributor to the Trust required to be stated in such answers or necessary to make such information not misleading. Distributor's agreement to indemnify the Trust, its officers and Trustees, and any such controlling person, as aforesaid, is expressly conditioned upon Distributor being notified of any action brought against the Trust, its officers or Trustees, or any such controlling person, such notification to be given by letter or telegram addressed to Distributor at its principal office in Columbus, Ohio, and sent to Distributor by the person against whom such action is brought, within 10 days after the summons or other first legal process shall have been served. Distributor shall have the right of first control of the defense of such action, with counsel of its own choosing, satisfactory to the Trust, if such action is based solely upon such alleged misstatement or omission on Distributor's part, and in any other event the Trust, its officers or Trustees or such controlling person 4 5 shall each have the right to participate in the defense or preparation of the defense of any such action. The failure to so notify Distributor of any such action shall not relieve Distributor from any liability which Distributor may have to the Trust, its officers or Trustees, or to such controlling person by reason of any such untrue or alleged untrue statement, or omission or alleged omission, otherwise than on account of Distributor's indemnity agreement contained in this paragraph 1.12. 1.13 No Shares shall be offered by either Distributor or the Trust under any of the provisions of this Agreement and no orders for the purchase or sale of Shares hereunder shall be accepted by the Trust if and so long as the effectiveness of the registration statement then in effect or any necessary amendments thereto shall be suspended under any of the provisions of the Securities Act or if and so long as a current prospectus as required by Section 10(b)(2) of said Act is not on file with the Commission; provided, however, that nothing contained in this paragraph 1.13 shall in any way restrict or have an application to or bearing upon the Trust's obligation to repurchase Shares from any Shareholder in accordance with the provisions of the Trust's prospectus, Agreement and Declaration of Trust, or Bylaws. 1.14 The Trust agrees to advise Distributor as soon as reasonably practical by a notice in writing delivered to Distributor or its counsel: (a) of any request by the Commission for amendments to the registration statement or prospectus then in effect or for additional information; (b) in the event of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or prospectus then in effect or the initiation by service of process on the Trust of any proceeding for that purpose; (c) of the happening of any event that makes untrue any statement of a material fact made in the registration statement or prospectus then in effect or which requires the making of a change in such registration statement or prospectus in order to make the statements therein not misleading; and 5 6 (d) of all action of the Commission with respect to any amendment to any registration statement or prospectus which may from time to time be filed with the Commission. For purposes of this section, informal requests by or acts of the Staff of the Commission shall not be deemed actions of or requests by the Commission. 1.15 Distributor agrees on behalf of itself and its partners and employees to treat confidentially and as proprietary information of the Trust all records and other information relative to the Trust and its prior, present or potential Shareholders, and not to use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except, after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld and may not be withheld where Distributor may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Trust. 1.16 This Agreement shall be governed by the laws of the State of Ohio. 2. Public Offering Price. ---------------------- The public offering price of the Trust's Shares shall be the net asset value of such Shares. The net asset value of Shares shall be determined in accordance with the provisions of the Agreement and Declaration of Trust and Bylaws of the Trust and the then-current prospectus(es) of the Trust's Funds. 3. Term, Duration and Termination. ------------------------------- This Agreement shall become effective as of the date first written above and, unless sooner terminated as provided herein, shall continue until October __, 1998. Thereafter, if not terminated, this Agreement shall continue automatically for successive one-year terms, provided that such continuance is specifically approved at least annually by (a) by the vote of a majority of those members of the Trust's Board of Trustees who are not parties to this Agreement or interested persons of any such party, cast in person at a meeting for the purpose of voting on such approval and (b) by the vote of the Trust's Board of Trustees or the vote of a majority of the outstanding voting securities of such Fund. This Agreement is terminable without penalty, on not less than ten (10) days' prior written notice, by the Trust's Board of Trustees, by vote of a majority of the outstanding voting securities of the Trust or by Distributor. This Agreement will also terminate automatically in the event of its assignment. (As used in this Agreement, the terms "majority of the outstanding voting securities," "interested persons" and "assignment" shall have the same meanings as ascribed to such terms in the 1940 Act.) 6 7 4. Limitation of Liability of the Trustees and Shareholders. -------------------------------------------------------- It is expressly agreed that the obligations of the Trust hereunder shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Trust personally, but shall bind only the trust property of the Trust. The execution and delivery of this Agreement have been authorized by the Trustees, and this Agreement has been signed and delivered by an authorized officer of the Trust, acting as such, and neither such authorization by the Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trust as provided in the Trust's Agreement and Declaration of Trust. 5. Notice. ------- Any notice required or permitted to be given by either party to the other shall be deemed sufficient if sent by Federal Express or similar delivery service, by facsimile or by registered or certified mail, postage prepaid, addressed by the party giving notice to the other party at the following address: if to Distributor, to it at 3435 Stelzer Road, Columbus, Ohio 43219; if to the Trust, to it at 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814, or at such other address as such party may from time to time specify in writing to the other party pursuant to this Section. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first written above. PROFUNDS CONCORD FINANCIAL GROUP, INC. By: By: ------------------------- ----------------------------- Title: Title: ---------------------- -------------------------- 7 8 A-1 EX-8.A 6 EXHIBIT 8(A) 1 CUSTODY AGREEMENT DATED ______________, 1997 BETWEEN UMB BANK, N.A. AND PROFUNDS 2 TABLE OF CONTENTS
SECTION PAGE - ------- ---- 1. Appointment of Custodian 1 2. Definitions 1 (a) Securities 1 (b) Assets 2 (c) Instructions and Special Instructions 2 3. Delivery of Corporate Documents 2 4. Powers and Duties of Custodian and Domestic Subcustodian 3 (a) Safekeeping 4 (b) Mariner of Holding Securities 4 (c) Free Delivery of Assets 5 (d) Exchange of Securities 6 (e) Purchases of Assets 6 (f) Sales of Assets 7 (g) Options 7 (h) Futures Contracts 8 (i) Segregated Accounts 9 (j) Depositary Receipts 9 (k) Corporate Actions, Put Bonds, Called Bonds, Etc. 9 (i) Interest Bearing Deposits 10 (m) Foreign Exchange Transactions 10 (n) Pledges or Loans of Securities 11 (o) Stock Dividends, Rights, Etc 12 (p) Routine Dealings 12 (q) Collections 12 (r) Bank Accounts 13 (s) Dividends, Distributions and Redemptions 13 (t) Proceeds from Shares Sold 13 (u) Proxies and Notices; Compliance with the Shareholders Communication Act of 1985 13 (v) Books and Records 14 (w) Opinion of Fund's Independent Certified Public Accountants 14 (x) Reports by Independent Certified Public Accountants 14 (y) Bills and Others Disbursements 14 5. Subcustodians 15 (a) Domestic Subcustodians 15 (b) Foreign Subcustodians 15 (c) Interim Subcustodians 16 (d) Special Subcustodians 16 (e) Termination of a Subcustodian 17 (f) Certification Regarding Foreign Subcustodians 17 6. Standard of Care 17 (a) General Standard of Care 17 (b) Actions Prohibited by Applicable Law, Events Beyond Custodian's Control, Armed 17 Conflict, Sovereign Risk, etc.
3
(c) Liability for Past Records 18 (d) Advice of Counsel 18 (e) Advice of the Fund and Others 18 (f) Instructions Appearing to be Genuine 18 (g) Exceptions from Liability 19 7. Liability of the Custodian for Actions of Others 19 (a) Domestic Subcustodians 19 (b) Liability for Acts and Omissions of Foreign Subcustodians 19 (c) Securities Systems, Interim Subcustodians, Special Subcustodians, Securities 20 Depositories and Clearing Agencies (d) Defaults or Insolvencies of Brokers, Banks, Etc 20 (e) Reimbursement of Expenses 20 8. Indemnification 20 (a) Indemnification by Fund 20 (b) Indemnification by Custodian 21 9. Advances 21 10. Liens 21 11. Compensation 22 12. Powers of Attorney 22 13. Termination and Assignment 22 14. Additional Funds 23 15. Notices 23 16. Miscellaneous 23
4 CUSTODY AGREEMENT This agreement made as of this ___ day of , 199_, between UMB Bank, n.a., a national banking association with its principal place of business located at Kansas City, Missouri (hereinafter "Custodian"), and each of the Funds which have executed the signature page hereof together with such additional Funds which shall be made parties to this Agreement by the execution of a separate signature page hereto (individually, a "Fund" and collectively, the "Funds"). WITNESSETH: WHEREAS, each Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended; and WHEREAS, each Fund desires to appoint Custodian as its custodian for the custody of Assets (as hereinafter defined) owned by such Fund which Assets are to be held in such accounts as such Fund may establish from time to time; and WHEREAS, Custodian is willing to accept such appointment on the terms and conditions hereof. NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto, intending to be legally bound, mutually covenant and agree as follows: 1. APPOINTMENT OF CUSTODIAN. ------------------------ Each Fund hereby constitutes and appoints the Custodian as custodian of Assets belonging to each such Fund which have been or may be from time to time deposited with the Custodian. Custodian accepts such appointment as a custodian and agrees to perform the duties and responsibilities of Custodian as set forth herein on the conditions set forth herein. 2. DEFINITIONS. ----------- For purposes of this Agreement, the following terms shall have the meanings so indicated: (a) "Security" or "Securities" shall mean stocks, bonds, bills, rights, script, warrants, interim certificates and all negotiable or nonnegotiable paper commonly known as Securities and other instruments or obligations. (b) "Assets" shall mean Securities, monies and other property held by the Custodian for the benefit of a Fund. (c)(1) "Instructions", as used herein, shall mean: (i) a tested telex, a written (including, without limitation, facsimile transmission) request, direction, instruction or certification signed or initialed by or on behalf of a Fund by an Authorized Person; (ii) a telephonic or other oral communication from a person the Custodian reasonably believes to be an Authorized Person; or (iii) a communication effected directly between an electro-mechanical or electronic device or system (including, without limitation, computers) on behalf of a Fund. instructions in the form of oral communications shall be confirmed by the appropriate Fund by tested telex or in writing in the manner set forth in clause (i) above, but the lack of such confirmation shall in no way affect any action taken by the Custodian in reliance upon such oral Instructions prior to the Custodian's receipt of such confirmation. Each Fund authorizes the Custodian to record any and all telephonic or other oral Instructions communicated to the Custodian. (c)(2) "Special Instructions", as used herein, shall mean Instructions countersigned or confirmed in writing by the Treasurer or any Assistant Treasurer of a Fund or any other person designated by the Treasurer of such Fund in writing, which countersignature or confirmation shall be included on the same instrument containing the Instructions or on a separate instrument relating thereto. 1 5 (c)(3) Instructions and Special Instructions shall be delivered to the Custodian at the address and/or telephone, facsimile transmission or telex number agreed upon from time to time by the Custodian and each Fund. (c)(4) Where appropriate, Instructions and Special Instructions shall be continuing instructions. 3. DELIVERY OF CORPORATE DOCUMENTS. ------------------------------- Each of the parties to this Agreement represents that its execution does not violate any of the provisions of its respective charter, articles of incorporation, articles of association or bylaws and all required corporate action to authorize the execution and delivery of this Agreement has been taken. Each Fund has furnished the Custodian with copies, properly certified or authenticated, with all amendments or supplements thereto, of the following documents: (a) Certificate of Incorporation (or equivalent document) of the Fund as in effect on the date hereof; (b) By-Laws of the Fund as in effect on the date hereof; (c) Resolutions of the Board of Directors of the Fund appointing the Custodian and approving the form of this Agreement; and (d) The Fund's current prospectus and statements of additional information. Each Fund shall promptly furnish the Custodian with copies of any updates, amendments or supplements to the foregoing documents. In addition, each Fund has delivered or will promptly deliver to the Custodian, copies of the Resolution(s) of its Board of Directors or Trustees and all amendments or supplements thereto, properly certified or authenticated, designating certain officers or employees of each such Fund who will have continuing authority to certify to the Custodian: (a) the names, titles, signatures and scope of authority of all persons authorized to give Instructions or any other notice, request, direction, instruction, certificate or instrument on behalf of each Fund, and (b) the names, titles and signatures of those persons authorized to countersign or confirm Special Instructions on behalf of each Fund (in both cases collectively, the "Authorized Persons" and individually, an "Authorized Person"). Such Resolutions and certificates may be accepted and relied upon by the Custodian as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until delivery to the Custodian of a similar Resolution or certificate to the contrary. Upon delivery of a certificate which deletes or does not include the name(s) of a person previously authorized to give Instructions or to countersign or confirm Special Instructions, such persons shall no longer be considered an Authorized Person authorized to give Instructions or to countersign or confirm Special Instructions. Unless the certificate specifically requires that the approval of anyone else will first have been obtained, the Custodian will be under no obligation to inquire into the right of the person giving such Instructions or Special Instructions to do so. Notwithstanding any of the foregoing, no Instructions or Special Instructions received by the Custodian from a Fund will be deemed to authorize or permit any director, trustee, officer, employee, or agent of such Fund to withdraw any of the Assets of such Fund upon the mere receipt of such authorization, Special Instructions or Instructions from such director, trustee, officer, employee or agent. 4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN. -------------------------------------------------------- Except for Assets held by any Subcustodian appointed pursuant to Sections 5(b), (c), or (d) of this Agreement, the Custodian shall have and perform the powers and duties hereinafter set forth in this Section 4. For purposes of this Section 4 all references to powers and duties of the "Custodian" shall also refer to any Domestic Subcustodian appointed pursuant to Section 5(a). 2 6 (a) Safekeeping. ----------- The Custodian will keep safely the Assets of each Fund which are delivered to it from time to time. The Custodian shall not be responsible for any property of a Fund held or received by such Fund and not delivered to the Custodian. (b) Manner of Holding Securities. ---------------------------- (1) The Custodian shall at all times hold Securities of each Fund either: (i) by physical possession of the share certificates or other instruments representing such Securities in registered or bearer form; or (ii) in book-entry form by a Securities System (as hereinafter defined) in accordance with the provisions of sub-paragraph (3) below. (2) The Custodian may hold registrable portfolio Securities which have been delivered to it in physical form, by registering the same in the name of the appropriate Fund or its nominee, or in the name of the Custodian or its nominee, for whose actions such Fund and Custodian, respectively, shall be fully responsible. Upon the receipt of Instructions, the Custodian shall hold such Securities in street certificate form, so called, with or without any indication of fiduciary capacity. However, unless it receives Instructions to the contrary, the Custodian will register all such portfolio Securities in the name of the Custodian's authorized nominee. All such Securities shall be held in an account of the Custodian containing only assets of the appropriate Fund or only assets held by the Custodian as a fiduciary, provided that the records of the Custodian shall indicate at all times the Fund or other customer for which such Securities are held in such accounts and the respective interests therein. (3) The Custodian may deposit and/or maintain domestic Securities owned by a Fund in, and each Fund hereby approves use of: (a) The Depository Trust Company; (b) The Participants Trust Company; and (c) any book-entry system as provided in (i) Subpart O of Treasury Circular No. 300, 31 CFR 306.115, (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76, 31 CFR 350.2, or (iii) the book-entry regulations of federal agencies substantially in the form of 31 CFR 306.115. Upon the receipt of Special Instructions, the Custodian may deposit and/or maintain domestic Securities owned by a Fund in any other domestic clearing agency registered with the Securities and Exchange Commission ("SEC") under Section 17A of the Securities Exchange Act of 1934 (or as may otherwise be authorized by the SEC to serve in the capacity of depository or clearing agent for the Securities or other assets of investment companies) which acts as a Securities depository. Each of the foregoing shall be referred to in this Agreement as a "Securities System", and all such Securities Systems shall be listed on the attached Appendix A. Use of a Securities System shall be in accordance with applicable Federal Reserve Board and SEC rules and regulations, if any, and subject to the following provisions: (i) The Custodian may deposit the Securities directly or through one or more agents or Subcustodians which are also qualified to act as custodians for investment companies. (ii) The Custodian shall deposit and/or maintain the Securities in a Securities System, provided that such Securities are represented in an account ("Account") of the Custodian in the Securities System that includes only assets held by the Custodian as a fiduciary, custodian or otherwise for customers. (iii) The books and records of the Custodian shall at all times identify those Securities belonging to any one or more Funds which are maintained in a Securities System. (iv) The Custodian shall pay for Securities purchased for the account of a Fund only upon (a) receipt of advice from the Securities System that such Securities have been transferred to the Account of the Custodian in accordance with the rules of the Securities System, and (b) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of such Fund. The Custodian shall transfer Securities sold for the account of a Fund only upon (a) receipt of advice from the Securities System that payment for such Securities has been transferred to the Account of the Custodian in accordance with the rules of the Securities System, and (b) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of such Fund. Copies of all advices from the Securities System relating to transfers of Securities for the 3 7 account of a Fund shall be maintained for such Fund by the Custodian. The Custodian shall deliver to a Fund on the next succeeding business day daily transaction reports which shall include each day's transactions in the Securities System for the account of such Fund. Such transaction reports shall be delivered to such Fund or any agent designated by such Fund pursuant to Instructions, by computer or in such other manner as such Fund and Custodian may agree. (v) The Custodian shall, if requested by a Fund pursuant to Instructions, provide such Fund with reports obtained by the Custodian or any Subcustodian with respect to a Securities System's accounting system, internal accounting control and procedures for safeguarding Securities deposited in the Securities System. (vi) Upon receipt of Special Instructions, the Custodian shall terminate the use of any Securities System on behalf of a Fund as promptly as practicable and shall take all actions reasonably practicable to safeguard the Securities of such Fund maintained with such Securities System. (c) Free Delivery of Assets. ----------------------- Notwithstanding any other provision of this Agreement and except as provided in Section 3 hereof, the Custodian, upon receipt of Special Instructions, will undertake to make free delivery of Assets, provided such Assets are on hand and available, in connection with a Fund's transactions and to transfer such Assets to such broker, dealer, Subcustodian, bank, agent, Securities System or otherwise as specified in such Special Instructions. (d) Exchange of Securities. ---------------------- Upon receipt of Instructions, the Custodian will exchange portfolio Securities held by it for a Fund for other Securities or cash paid in connection with any reorganization, recapitalization, merger, consolidation, or conversion of convertible Securities, and will deposit any such Securities in accordance with the terms of any reorganization or protective plan. Without Instructions, the Custodian is authorized to exchange Securities held by it in temporary form for Securities in definitive form, to surrender Securities for transfer into a name or nominee name as permitted in Section 4(b)(2), to effect an exchange of shares in a stock split or when the par value of the stock is changed, to sell any fractional shares, and, upon receiving payment therefor, to surrender bonds or other Securities held by it at maturity or call. (e) Purchases of Assets. ------------------- (1) SECURITIES PURCHASES. In accordance with Instructions, the Custodian shall, with respect to a purchase of Securities, pay for such Securities out of monies held for a Fund's account for which the purchase was made, but only insofar as monies are available therein for such purpose, and receive the portfolio Securities so purchased. Unless the Custodian has received Special Instructions to the contrary, such payment will be made only upon receipt of Securities by the Custodian, a clearing corporation of a national Securities exchange of which the Custodian is a member, or a Securities System in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the foregoing, upon receipt of Instructions: (i) in connection with a repurchase agreement, the Custodian may release funds to a Securities System prior to the receipt of advice from the Securities System that the Securities underlying such repurchase agreement have been transferred by book-entry into the Account maintained with such Securities System by the Custodian, provided that the Custodian's instructions to the Securities System require that the Securities System may make payment of such funds to the other party to the repurchase agreement only upon transfer by book-entry of the Securities underlying the repurchase agreement into such Account; (ii) in the case of Interest Bearing Deposits, currency deposits, and other deposits, foreign exchange transactions, futures contracts or options, pursuant to Sections 4(g), 4(h), 4(l), and 4(m) hereof, the Custodian may make payment there for before receipt of an advice of transaction; and (iii) in the case of Securities as to which payment for the Security and receipt of the instrument evidencing the Security are under generally accepted trade practice or the terms of the instrument representing the Security expected to take place in different locations or through separate parties, such as commercial paper which is indexed to foreign currency exchange rates, derivatives and similar Securities, the 4 8 Custodian may make payment for such Securities prior to delivery thereof in accordance with such generally accepted trade practice or the terms of the instrument representing such Security. (2) OTHER ASSETS PURCHASED. Upon receipt of Instructions and except as otherwise provided herein, the Custodian shall pay for and receive other Assets for the account of a Fund as provided in Instructions. (f) Sales of Assets. --------------- (1) SECURITIES SOLD. In accordance with Instructions, the Custodian will, with respect to a sale, deliver or cause to be delivered the Securities thus designated as sold to the broker or other person specified in the Instructions relating to such sale. Unless the Custodian has received Special Instructions to the contrary, such delivery shall be made only upon receipt of payment therefor in the form of: (a) cash, certified check, bank cashier's check, bank credit, or bank wire transfer; (b) credit to the account of the Custodian with a clearing corporation of a national Securities exchange of which the Custodian is a member; or (c) credit to the Account of the Custodian with a Securities System, in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the foregoing, Securities held in physical form may be delivered and paid for in accordance with "street delivery custom" to a broker or its clearing agent, against delivery to the Custodian of a receipt for such Securities, provided that the Custodian shall have taken reasonable steps to ensure prompt collection of the payment for, or return of, such Securities by the broker or its clearing agent, and provided further that the Custodian shall not be responsible for the selection of or the failure or inability to perform of such broker or its clearing agent or for any related loss arising from delivery or custody of such Securities prior to receiving payment therefor. (2) OTHER ASSETS SOLD. Upon receipt of Instructions and except as otherwise provided herein, the Custodian shall receive payment for and deliver other Assets for the account of a Fund as provided in Instructions. (g) Options. ------- (1) Upon receipt of Instructions relating to the purchase of an option or sale of a covered call option, the Custodian shall: (a) receive and retain confirmations or other documents, if any, evidencing the purchase or writing of the option by a Fund; (b) if the transaction involves the sale of a covered call option, deposit and maintain in a segregated account the Securities (either physically or by book-entry in a Securities System) subject to the covered call option written on behalf of such Fund; and (c) pay, release and/or transfer such Securities, cash or other Assets in accordance with any notices or other communications evidencing the expiration, termination or exercise of such options which are furnished to the Custodian by the Options Clearing Corporation (the "OCC"), the securities or options exchanges on which such options were traded, or such other organization as may be responsible for handling such option transactions. (2) Upon receipt of Instructions relating to the sale of a naked option (including stock index and commodity options), the Custodian, the appropriate Fund and the broker-dealer shall enter into an agreement to comply with the rules of the OCC or of any registered national securities exchange or similar organization(s). Pursuant to that agreement and such Fund's Instructions, the Custodian shall: (a) receive and retain confirmations or other documents, if any, evidencing the writing of the option; (b) deposit and maintain in a segregated account, Securities (either physically or by book-entry in a Securities System), cash and/or other Assets; and (c) pay, release and/or transfer such Securities, cash or other Assets in accordance with any such agreement and with any notices or other communications evidencing the expiration, termination or exercise of such option which are furnished to the Custodian by the OCC, the securities or options exchanges on which such options were traded, or such other organization as may be responsible for handling such option transactions. The appropriate Fund and the broker-dealer shall be responsible for determining the quality and quantity of assets held in any segregated account established in compliance with applicable margin maintenance requirements and the performance of other terms of any option contract. 5 9 (h) Futures Contracts. ----------------- Upon receipt of Instructions, the Custodian shall enter into a futures margin procedural agreement among the appropriate Fund, the Custodian and the designated futures commission merchant (a "Procedural Agreement"). Under the Procedural Agreement the Custodian shall: (a) receive and retain confirmations, if any, evidencing the purchase or sale of a futures contract or an option on a futures contract by such Fund; (b) deposit and maintain in a segregated account cash, Securities and/or other Assets designated as initial, maintenance or variation "margin" deposits intended to secure such Fund's performance of its obligations under any futures contracts purchased or sold, or any options on futures contracts written by such Fund, in accordance with the provisions of any Procedural Agreement designed to comply with the provisions of the Commodity Futures Trading Commission and/or any commodity exchange or contract market (such as the Chicago Board of Trade), or any similar organization(s), regarding such margin deposits; and (c) release Assets from and/or transfer Assets into such margin accounts only in accordance with any such Procedural Agreements. The appropriate Fund and such futures commission merchant shall be responsible for determining the type and amount of Assets held in the segregated account or paid to the broker-dealer in compliance with applicable margin maintenance requirements and the performance of any futures contract or option on a futures contract in accordance with its terms. (i) Segregated Accounts. ------------------- Upon receipt of Instructions, the Custodian shall establish and maintain on its books a segregated account or accounts for and on behalf of a Fund, into which account or accounts may be transferred Assets of such Fund, including Securities maintained by the Custodian in a Securities System pursuant to Paragraph (b)(3) of this Section 4, said account or accounts to be maintained (i) for the purposes set forth in Sections 4(g), 4(h) and 4(n) and (ii) for the purpose of compliance by such Fund with the procedures required by the SEC Investment Company Act Release Number 10666 or any subsequent release or releases relating to the maintenance of segregated accounts by registered investment companies, or (iii) for such other purposes as may be set forth, from time to time, in Special Instructions. The Custodian shall not be responsible for the determination of the type or amount of Assets to be held in any segregated account referred to in this paragraph, or for compliance by the Fund with required procedures noted in (ii) above. (j) Depositary Receipts. ------------------- Upon receipt of Instructions, the Custodian shall surrender or cause to be surrendered Securities to the depositary used for such Securities by an issuer of American Depositary Receipts or International Depositary Receipts (hereinafter referred to, collectively, as "ADRs"), against a written receipt there for adequately describing such Securities and written evidence satisfactory to the organization surrendering the same that the depositary has acknowledged receipt of instructions to issue ADRs with respect to such Securities in the name of the Custodian or a nominee of the Custodian, for delivery in accordance with such instructions. Upon receipt of Instructions, the Custodian shall surrender or cause to be surrendered ADRs to the issuer thereof, against a written receipt therefor adequately describing the ADRs surrendered and written evidence satisfactory to the organization surrendering the same that the issuer of the ADRs has acknowledged receipt of instructions to cause its depository to deliver the Securities underlying such ADRs in accordance with such instructions. (k) Corporate Actions, Put Bonds, Called Bonds, Etc. ----------------------------------------------- Upon receipt of Instructions, the Custodian shall: (a) deliver warrants, puts, calls, rights or similar Securities to the issuer or trustee thereof (or to the agent of such issuer or trustee) for the purpose of exercise or sale, provided that the new Securities, cash or other Assets, if any, acquired as a result of such actions are to be delivered to the Custodian; and (b) deposit Securities upon invitations for tenders thereof, provided that the consideration for such Securities is to be paid or delivered to the Custodian, or the tendered Securities are to be returned to the Custodian. 6 10 Notwithstanding any provision of this Agreement to the contrary, the Custodian shall take all necessary action, unless otherwise directed to the contrary in Instructions, to comply with the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions, or similar rights of security ownership, and shall notify the appropriate Fund of such action in writing by facsimile transmission or in such other manner as such Fund and Custodian may agree in writing. The Fund agrees that if it gives an Instruction for the performance of an act on the last permissible date of a period established by any optional offer or on the last permissible date for the performance of such act, the Fund shall hold the Bank harmless from any adverse consequences in connection with acting upon or failing to act upon such Instructions. (l) Interest Bearing Deposits. ------------------------- Upon receipt of Instructions directing the Custodian to purchase interest bearing fixed term and call deposits (hereinafter referred to, collectively, as "Interest Bearing Deposits") for the account of a Fund, the Custodian shall purchase such Interest Bearing Deposits in the name of such Fund with such banks or trust companies, including the Custodian, any Subcustodian or any subsidiary or affiliate of the Custodian (hereinafter referred to as "Banking Institutions"), and in such amounts as such Fund may direct pursuant to Instructions. Such Interest Bearing Deposits may be denominated in U.S. dollars or other currencies, as such Fund may determine and direct pursuant to Instructions. The responsibilities of the Custodian to a Fund for Interest Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a similar deposit. With respect to Interest Bearing Deposits other than those issued by the Custodian, (a) the Custodian shall be responsible for the collection of income and the transmission of cash to and from such accounts; and (b) the Custodian shall have no duty with respect to the selection of the Banking Institution or for the failure of such Banking Institution to pay upon demand. (m) Foreign Exchange Transactions. ----------------------------- (1) Each Fund hereby appoints the Custodian as its agent in the execution of all currency exchange transactions. The Custodian agrees to provide exchange rate and U.S. Dollar information, in writing, to the Funds. Such information shall be supplied by the Custodian at least by the business day prior to the value date of the foreign exchange transaction, provided that the Custodian receives the request for such information at least two business days prior to the value date of the transaction. (2) Upon receipt of Instructions, the Custodian shall settle foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf of and for the account of a Fund with such currency brokers or Banking Institutions as such Fund may determine and direct pursuant to Instructions. If, in its Instructions, a Fund does not direct the Custodian to utilize a particular currency broker or Banking Institution, the Custodian is authorized to select such currency broker or Banking Institution as it deems appropriate to execute the Fund's foreign currency transaction. (3) Each Fund accepts full responsibility for its use of third party foreign exchange brokers and for execution of said foreign exchange contracts and understands that the Fund shall be responsible for any and all costs and interest charges which may be incurred as a result of the failure or delay of its third party broker to deliver foreign exchange. The Custodian shall have no responsibility or liability with respect to the selection of the currency brokers or Banking Institutions with which a Fund deals or the performance of such brokers or Banking Institutions. (4) Notwithstanding anything to the contrary contained herein, upon receipt of Instructions the Custodian may, in connection with a foreign exchange contract, make free outgoing payments of cash in the form of U.S. Dollars or foreign currency prior to receipt of confirmation of such foreign exchange contract or confirmation that the countervalue currency completing such contract has been delivered or received. (5) The Custodian shall not be obligated to enter into foreign exchange transactions as principal. However, if the Custodian has made available to a Fund its services as a principal in foreign exchange transactions 7 11 and subject to any separate agreement between the parties relating to such transactions, the Custodian shall enter into foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf of and for the account of the Fund, with the Custodian as principal. (n) Pledges or Loans of Securities. ------------------------------ (1) Upon receipt of Instructions from a Fund, the Custodian will release or cause to be released Securities held in custody to the pledgees designated in such Instructions by way of pledge or hypothecation to secure loans incurred by such Fund with various lenders including but not limited to UMB Bank, N.A.; provided, however, that the Securities shall be released only upon payment to the Custodian of the monies borrowed, except that in cases where additional collateral is required to secure existing borrowings, further Securities may be released or delivered, or caused to be released or delivered for that purpose upon receipt of Instructions. Upon receipt of Instructions, the Custodian will pay, but only from funds available for such purpose, any such loan upon re-delivery to it of the Securities pledged or hypothecated therefor and upon surrender of the note or notes evidencing such loan. In lieu of delivering collateral to a pledgee, the Custodian, on the receipt of Instructions, shall transfer the pledged Securities to a segregated account for the benefit of the pledgee. (2) Upon receipt of Special Instructions, and execution of a separate Securities Lending Agreement, the Custodian will release Securities held in custody to the borrower designated in such Instructions and may, except as otherwise provided below, deliver such Securities prior to the receipt of collateral, if any, for such borrowing, provided that, in case of loans of Securities held by a Securities System that are secured by cash collateral, the Custodian's instructions to the Securities System shall require that the Securities System deliver the Securities of the appropriate Fund to the borrower thereof only upon receipt of the collateral for such borrowing. The Custodian shall have no responsibility or liability for any loss arising from the delivery of Securities prior to the receipt of collateral. Upon receipt of Instructions and the loaned Securities, the Custodian will release the collateral to the borrower. (o) Stock Dividends, Rights, Etc. ---------------------------- The Custodian shall receive and collect all stock dividends, rights, and other items of like nature and, upon receipt of Instructions, take action with respect to the same as directed in such Instructions. (p) Routine Dealings. ---------------- The Custodian will, in general, attend to all routine and mechanical matters in accordance with industry standards in connection with the sale, exchange, substitution, purchase, transfer, or other dealings with Securities or other property of each Fund except as may be otherwise provided in this Agreement or directed from time to time by Instructions from any particular Fund. The Custodian may also make payments to itself or others from the Assets for disbursements and out-of-pocket expenses incidental to handling Securities or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted for to the appropriate Fund. (q) Collections. ----------- The Custodian shall (a) collect amounts due and payable to each Fund with respect to portfolio Securities and other Assets; (b) promptly credit to the account of each Fund all income and other payments relating to portfolio Securities and other Assets held by the Custodian hereunder upon Custodian's receipt of such income or payments or as otherwise agreed in writing by the Custodian and any particular Fund; (c) promptly endorse and deliver any instruments required to effect such collection; and (d) promptly execute ownership and other certificates and affidavits for all federal, state, local and foreign tax purposes in connection with receipt of income or other payments with respect to portfolio Securities and other Assets, or in connection with the transfer of such Securities or other Assets; provided, however, that with respect to portfolio Securities registered in so-called street name, or physical Securities with variable interest rates, the Custodian shall use its best efforts to collect amounts due and payable to any such Fund. The Custodian shall notify a Fund in writing by facsimile transmission or in such other manner as such Fund and Custodian may agree in writing if any amount payable with respect to portfolio Securities 8 12 or other Assets is not received by the Custodian when due. The Custodian shall not be responsible for the collection of amounts due and payable with respect to portfolio Securities or other Assets that are in default. (r) Bank Accounts. ------------- Upon Instructions, the Custodian shall open and operate a bank account or accounts on the books of the Custodian; provided that such bank account(s) shall be in the name of the Custodian or a nominee thereof, for the account of one or more Funds, and shall be subject only to draft or order of the Custodian. The responsibilities of the Custodian to any one or more such Funds for deposits accepted on the Custodian's books shall be that of a U.S. bank for a similar deposit. (s) Dividends, Distributions and Redemptions. ---------------------------------------- To enable each Fund to pay dividends or other distributions to shareholders of each such Fund and to make payment to shareholders who have requested repurchase or redemption of their shares of each such Fund (collectively, the "Shares"), the Custodian shall release cash or Securities insofar as available. In the case of cash, the Custodian shall, upon the receipt of Instructions, transfer such hinds by check or wire transfer to any account at any bank or trust company designated by each such Fund in such Instructions. In the case of Securities, the Custodian shall, upon the receipt of Special Instructions, make such transfer to any entity or account designated by each such Fund in such Special Instructions. (t) Proceeds from Shares Sold. ------------------------- The Custodian shall receive funds representing cash payments received for shares issued or sold from time to time by each Fund, and shall credit such funds to the account of the appropriate Fund. The Custodian shall notify the appropriate Fund of Custodian's receipt of cash in payment for shares issued by such Fund by facsimile transmission or in such other mariner as such Fund and the Custodian shall agree. Upon receipt of Instructions, the Custodian shall: (a) deliver all federal funds received by the Custodian in payment for shares as may be set forth in such Instructions and at a time agreed upon between the Custodian and such Fund; and (b) make federal funds available to a Fund as of specified times agreed upon from time to time by such Fund and the Custodian, in the amount of checks received in payment for shares which are deposited to the accounts of such Fund. (u) Proxies and Notices: Compliance with the Shareholders Communication ------------------------------------------------------------------- Act of 1985. ----------- The Custodian shall deliver or cause to be delivered to the appropriate Fund all forms of proxies, all notices of meetings, and any other notices or announcements affecting or relating to Securities owned by such Fund that are received by the Custodian, any Subcustodian, or any nominee of either of them, and, upon receipt of Instructions, the Custodian shall execute and deliver, or cause such Subcustodian or nominee to execute and deliver, such proxies or other authorizations as may be required. Except as directed pursuant to Instructions, neither the Custodian nor any Subcustodian or nominee shall vote upon any such Securities, or execute any proxy to vote thereon, or give any consent or take any other action with respect thereto. The Custodian will not release the identity of any Fund to an issuer which requests such information pursuant to the Shareholder Communications Act of 1985 for the specific purpose of direct communications between such issuer and any such Fund unless a particular Fund directs the Custodian otherwise in writing. (v) Books and Records. ----------------- The Custodian shall maintain such records relating to its activities under this Agreement as are required to be maintained by Rule 31a-1 under the Investment Company Act of 1940 ("the 1940 Act") and to preserve them for the periods prescribed in Rule 31a-2 under the 1940 Act. These records shall be open for inspection by duly authorized officers, employees or agents (including independent public accountants) of the appropriate Fund during normal business hours of the Custodian. 9 13 The Custodian shall provide accountings relating to its activities under this Agreement as shall be agreed upon by each Fund and the Custodian. (w) Opinion of Fund's Independent Certified Public Accountants. ----------------------------------------------------------- The Custodian shall take all reasonable action as each Fund may request to obtain from year to year favorable opinions from each such Fund's independent certified public accountants with respect to the Custodian's activities hereunder and in connection with the preparation of each such Fund's periodic reports to the SEC and with respect to any other requirements of the SEC. (x) Reports by Independent Certified Public Accountants. ---------------------------------------------------- At the request of a Fund, the Custodian shall deliver to such Fund a written report prepared by the Custodian's independent certified public accountants with respect to the services provided by the Custodian under this Agreement, including, without limitation, the Custodian's accounting system, internal accounting control and procedures for safeguarding cash, Securities and other Assets, including cash, Securities and other Assets deposited and/or maintained in a Securities System or with a Subcustodian. Such report shall be of sufficient scope and in sufficient detail as may reasonably be required by such Fund and as may reasonably be obtained by the Custodian. (y) Bills and Other Disbursements. ------------------------------ Upon receipt of Instructions, the Custodian shall pay, or cause to be paid, all bills, statements, or other obligations of a Fund. 5. SUBCUSTODIANS. -------------- From time to time, in accordance with the relevant provisions of this Agreement, the Custodian may appoint one or more Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians, or Interim Subcustodians (as each are hereinafter defined) to act on behalf of any one or more Funds. A Domestic Subcustodian, in accordance with the provisions of this Agreement, may also appoint a Foreign Subcustodian, Special Subcustodian, or Interim Subcustodian to act on behalf of any one or more Funds. For purposes of this Agreement, all Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians and Interim Subcustodians shall be referred to collectively as "Subcustodians". (a) Domestic Subcustodians. ----------------------- The Custodian may, at any time and from time to time, appoint any bank as defined in Section 2(a)(5) of the 1940 Act or any trust company or other entity, any of which meet the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act for the Custodian on behalf of any one or more Funds as a subcustodian for purposes of holding Assets of such Fund(s) and performing other functions of the Custodian within the United States (a "Domestic Subcustodian"). Each Fund shall approve in writing the appointment of the proposed Domestic Subcustodian; and the Custodian's appointment of any such Domestic Subcustodian shall not be effective without such prior written approval of the Fund(s). Each such duly approved Domestic Subcustodian shall be listed on Appendix A attached hereto, as it may be amended, from time to time. (b) Foreign Subcustodians. ---------------------- The Custodian may at any time appoint, or cause a Domestic Subcustodian to appoint, any bank, trust company or other entity meeting the requirements of an "eligible foreign custodian" under Section 17(f) of the 1940 Act and the rules and regulations thereunder to act for the Custodian on behalf of any one or more Funds as a subcustodian or sub-subcustodian (if appointed by a Domestic Subcustodian) for purposes of holding Assets of the Fund(s) and performing other functions of the Custodian in countries other than the United States of America (hereinafter referred to as a "Foreign Subcustodian" in the context of either a subcustodian or a sub-subcustodian); provided that the Custodian shall have obtained written confirmation from each Fund of the approval of the Board 10 14 of Directors or other governing body of each such Fund (which approval may be withheld in the sole discretion of such Board of Directors or other governing body or entity) with respect to (i) the identity of any proposed Foreign Subcustodian (including branch designation), (ii) the country or countries in which, and the securities depositories or clearing agencies (hereinafter "Securities Depositories and Clearing Agencies"), if any, through which, the Custodian or any proposed Foreign Subcustodian is authorized to hold Securities and other Assets of each such Fund, and (iii) the form and terms of the subcustodian agreement to be entered into with such proposed Foreign Subcustodian. Each such duly approved Foreign Subcustodian and the countries where and the Securities Depositories and Clearing Agencies through which they may hold Securities and other Assets of the Fund(s) shall be listed on Appendix A attached hereto, as it may be amended, from time to time. Each Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed investment which is to be held in a country in which no Foreign Subcustodian is authorized to act, in order that there shall be sufficient time for the Custodian, or any Domestic Subcustodian, to effect the appropriate arrangements with a proposed Foreign Subcustodian, including obtaining approval as provided in this Section 5(b). In connection with the appointment of any Foreign Subcustodian, the Custodian shall, or shall cause the Domestic Subcustodian to, enter into a subcustodian agreement with the Foreign Subcustodian in form and substance approved by each such Fund. The Custodian shall not consent to the amendment of, and shall cause any Domestic Subcustodian not to consent to the amendment of, any agreement entered into with a Foreign Subcustodian, which materially affects any Fund's rights under such agreement, except upon prior written approval of such Fund pursuant to Special Instructions. (c) Interim Subcustodians. ---------------------- Notwithstanding the foregoing, in the event that a Fund shall invest in an Asset to be held in a country in which no Foreign Subcustodian is authorized to act, the Custodian shall notify such Fund in writing by facsimile transmission or in such other mariner as such Fund and the Custodian shall agree in writing of the unavailability of an approved Foreign Subcustodian in such country; and upon the receipt of Special Instructions from such Fund, the Custodian shall, or shall cause its Domestic Subcustodian to, appoint or approve an entity (referred to herein as an "Interim Subcustodian") designated in such Special Instructions to hold such Security or other Asset. (d) Special Subcustodians. ---------------------- Upon receipt of Special Instructions, the Custodian shall, on behalf of a Fund, appoint one or more banks, trust companies or other entities designated in such Special Instructions to act for the Custodian on behalf of such Fund as a subcustodian for purposes of: (i) effecting third-party repurchase transactions with banks, brokers, dealers or other entities through the use of a common custodian or subcustodian; (ii) providing depository and clearing agency services with respect to certain variable rate demand note Securities, (iii) providing depository and clearing agency services with respect to dollar denominated Securities, and (iv) effecting any other transactions designated by such Fund in such Special Instructions. Each such designated subcustodian (hereinafter referred to as a "Special Subcustodian") shall be listed on Appendix A attached hereto, as it may be amended from time to time. In connection with the appointment of any Special Subcustodian, the Custodian shall enter into a subcustodian agreement with the Special Subcustodian in form and substance approved by the appropriate Fund in Special Instructions. The Custodian shall not amend any subcustodian agreement entered into with a Special Subcustodian, or waive any rights under such agreement, except upon prior approval pursuant to Special Instructions. (e) Termination of a Subcustodian. ------------------------------ The Custodian may, at any time in its discretion upon notification to the appropriate Fund(s), terminate any Subcustodian of such Fund(s) in accordance with the termination provisions under the applicable subcustodian agreement, and upon the receipt of Special Instructions, the Custodian will terminate any Subcustodian in accordance with the termination provisions under the applicable subcustodian agreement. (f) Certification Regarding Foreign Subcustodians. ---------------------------------------------- Upon request of a Fund, the Custodian shall deliver to such Fund a certificate stating: (i) the identity of each Foreign Subcustodian then acting on behalf of the Custodian; (ii) the countries in which and the Securities 11 15 Depositories and Clearing Agencies through which each such Foreign Subcustodian is then holding cash, Securities and other Assets of such Fund; and (iii) such other information as may be requested by such Fund, and as the Custodian shall be reasonably able to obtain, to evidence compliance with rules and regulations under the 1940 Act. 6. STANDARD OF CARE. ----------------- (a) General Standard of Care. ------------------------- The Custodian shall be liable to a Fund for all losses, damages and reasonable costs and expenses suffered or incurred by such Fund resulting from the negligence or willful misfeasance of the Custodian; provided, however, in no event shall the Custodian be liable for special, indirect or consequential damages arising under or in connection with this Agreement. (b) Actions Prohibited by Applicable Law, Events Beyond Custodian's --------------------------------------------------------------- Control, Sovereign Risk, Etc. - ----------------------------- In no event shall the Custodian or any Domestic Subcustodian incur liability hereunder (i) if the Custodian or any Subcustodian or Securities System, or any subcustodian, Securities System, Securities Depository or Clearing Agency utilized by the Custodian or any such Subcustodian, or any nominee of the Custodian or any Subcustodian (individually, a "Person") is prevented, forbidden or delayed from performing, or omits to perform, any act or thing which this Agreement provides shall be performed or omitted to be performed, by reason of: (a) any provision of any present or future law or regulation or order of the United States of America, or any state thereof, or of any foreign country, or political subdivision thereof or of any court of competent jurisdiction (and neither the Custodian nor any other Person shall be obligated to take any action contrary thereto); or (b) any event beyond the control of the Custodian or other Person such as armed conflict, riots, strikes, lockouts, labor disputes, equipment or transmission failures, natural disasters, or failure of the mails, transportation, communications or power supply; or (ii) for any loss, damage, cost or expense resulting from "Sovereign Risk." A "Sovereign Risk" shall mean nationalization, expropriation, currency devaluation, revaluation or fluctuation, confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting a Fund's Assets; or acts of armed conflict, terrorism, insurrection or revolution; or any other act or event beyond the Custodian's or such other Person's control. (c) Liability for Past Records. --------------------------- Neither the Custodian nor any Domestic Subcustodian shall have any liability in respect of any loss, damage or expense suffered by a Fund, insofar as such loss, damage or expense arises from the performance of the Custodian or any Domestic Subcustodian in reliance upon records that were maintained for such Fund by entities other than the Custodian or any Domestic Subcustodian prior to the Custodian's employment hereunder. (d) Advice of Counsel. ------------------ The Custodian and all Domestic Subcustodians shall be entitled to receive and act upon advice of counsel of its own choosing on all matters. The Custodian and all Domestic Subcustodians shall be without liability for any actions taken or omitted in good faith pursuant to the advice of counsel. (e) Advice of the Fund and Others. ------------------------------ The Custodian and any Domestic Subcustodian may rely upon the advice of any Fund and upon statements of such Fund's accountants and other persons believed by it in good faith to be expert in matters upon which they ate consulted, and neither the Custodian nor any Domestic Subcustodian shall be liable for any actions taken or omitted, in good faith, pursuant to such advice or statements. 12 16 (f) Instructions Appearing to be Genuine. ------------------------------------- The Custodian and all Domestic Subcustodians shall be fully protected and indemnified in acting as a custodian hereunder upon any Resolutions of the Board of Directors or Trustees, Instructions, Special Instructions, advice, notice, request, consent, certificate, instrument or paper appearing to it to be genuine and to have been properly executed and shall, unless otherwise specifically provided herein, be entitled to receive as conclusive proof of any fact or matter required to be ascertained from any Fund hereunder a certificate signed by any officer of such Fund authorized to countersign or confirm Special Instructions. (g) Exceptions from Liability. -------------------------- Without limiting the generality of any other provisions hereof, neither the Custodian nor any Domestic Subcustodian shall be under any duty or obligation to inquire into, nor be liable for: (i) the validity of the issue of any Securities purchased by or for any Fund, the legality of the purchase thereof or evidence of ownership required to be received by any such Fund, or the propriety of the decision to purchase or amount paid therefor; (ii) the legality of the sale of any Securities by or for any Fund, or the propriety of the amount for which the same were sold; or (iii) any other expenditures, encumbrances of Securities, borrowings or similar actions with respect to any Fund's Assets; and may, until notified to the contrary, presume that all Instructions or Special Instructions received by it are not in conflict with or in any way contrary to any provisions of any such Fund's Declaration of Trust, Partnership Agreement, Articles of Incorporation or By-Laws or votes or proceedings of the shareholders, trustees, partners or directors of any such Fund, or any such Fund's currently effective Registration Statement on file with the SEC. 7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS. ---------------------------------------------------- (a) Domestic Subcustodians ---------------------- The Custodian shall be liable for the acts or omissions of any Domestic Subcustodian to the same extent as if such actions or omissions were performed by the Custodian itself. (b) Liability for Acts and Omissions of Foreign Subcustodians. ---------------------------------------------------------- The Custodian shall be liable to a Fund for any loss or damage to such Fund caused by or resulting from the acts or omissions of any Foreign Subcustodian to the extent that, under the terms set forth in the subcustodian agreement between the Custodian or a Domestic Subcustodian and such Foreign Subcustodian, the Foreign Subcustodian has failed to perform in accordance with the standard of conduct imposed under such subcustodian agreement and the Custodian or Domestic Subcustodian recovers from the Foreign Subcustodian under the applicable subcustodian agreement. (c) Securities Systems, Interim Subcustodians, Special Subcustodians, ----------------------------------------------------------------- Securities Depositories and Clearing Agencies. - ---------------------------------------------- The Custodian shall not be liable to any Fund for any loss, damage or expense suffered or incurred by such Fund resulting from or occasioned by the actions or omissions of a Securities System, Interim Subcustodian, Special Subcustodian, or Securities Depository and Clearing Agency unless such loss, damage or expense is caused by, or results from, the negligence or willful misfeasance of the Custodian. 13 17 (d) Defaults or Insolvencies of Brokers, Banks, Etc. ------------------------------------------------ The Custodian shall not be liable for any loss, damage or expense suffered or incurred by any Fund resulting from or occasioned by the actions, omissions, neglects, defaults or insolvency of any broker, bank, trust company or any other person with whom the Custodian may deal (other than any of such entities acting as a Subcustodian, Securities System or Securities Depository and Clearing Agency, for whose actions the liability of the Custodian is set out elsewhere in this Agreement) unless such loss, damage or expense is caused by, or results from, the negligence or willful misfeasance of the Custodian. (e) Reimbursement of Expenses. -------------------------- Each Fund agrees to reimburse the Custodian for all out-of-pocket expenses incurred by the Custodian in connection with this Agreement, but excluding salaries and usual overhead expenses. 8. INDEMNIFICATION. ---------------- (a) Indemnification by Fund. ------------------------ Subject to the limitations set forth in this Agreement, each Fund agrees to indemnify and hold harmless the Custodian and its nominees from all losses, damages and expenses (including attorneys' fees) suffered or incurred by the Custodian or its nominee caused by or arising from actions taken by the Custodian, its employees or agents in the performance of its duties and obligations under this Agreement, including, but not limited to, any indemnification obligations undertaken by the Custodian under any relevant subcustodian agreement; provided, however, that such indemnity shall not apply to the extent the Custodian is liable under Sections 6 or 7 hereof. If any Fund requires the Custodian to take any action with respect to Securities, which action involves the payment of money or which may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to such Fund being liable for the payment of money or incurring liability of some other form, such Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. (b) Indemnification by Custodian. ----------------------------- Subject to the limitations set forth in this Agreement and in addition to the obligations provided in Sections 6 and 7, the Custodian agrees to indemnify and hold harmless each Fund from all losses, damages and expenses suffered or incurred by each such Fund caused by the negligence or willful misfeasance of the Custodian. 9. ADVANCES. --------- In the event that, pursuant to Instructions, the Custodian or any Subcustodian, Securities System, or Securities Depository or Clearing Agency acting either directly or indirectly under agreement with the Custodian (each of which for purposes of this Section 9 shall be referred to as "Custodian"), makes any payment or transfer of funds on behalf of any Fund as to which there would be, at the close of business on the date of such payment or transfer, insufficient funds held by the Custodian on behalf of any such Fund, the Custodian may, in its discretion without further Instructions, provide an advance ("Advance") to any such Fund in an amount sufficient to allow the completion of the transaction by reason of which such payment or transfer of funds is to be made. In addition, in the event the Custodian is directed by Instructions to make any payment or transfer of funds on behalf of any Fund as to which it is subsequently determined that such Fund has overdrawn its cash account with the Custodian as of the close of business on the date of such payment or transfer, said overdraft shall constitute an Advance. Any Advance shall be payable by the Fund on behalf of which the Advance was made on demand by Custodian, unless otherwise agreed by such Fund and the Custodian, and shall accrue interest from the date of the Advance to the date of payment by such Fund to the Custodian at a rate agreed upon in writing from time to time by the Custodian and such Fund. It is understood that any transaction in respect of which the Custodian shall have made an Advance, including but not limited to a foreign exchange contract or transaction in respect of which the Custodian is not 14 18 acting as a principal, is for the account of and at the risk of the Fund on behalf of which the Advance was made, and not, by reason of such Advance, deemed to be a transaction undertaken by the Custodian for its own account and risk. The Custodian and each of the Funds which are parties to this Agreement acknowledge that the purpose of Advances is to finance temporarily the purchase or sale of Securities for prompt delivery in accordance with the settlement terms of such transactions or to meet emergency expenses not reasonably foreseeable by a Fund. The Custodian shall promptly notify the appropriate Fund of any Advance. Such notification shall be sent by facsimile transmission or in such other manner as such Fund and the Custodian may agree. 10. LIENS. ------ The Bank shall have a lien on the Property in the Custody Account to secure payment of fees and expenses for the services rendered under this Agreement. If the Bank advances cash or securities to the Fund for any purpose or in the event that the Bank or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of its duties hereunder, except such as may arise from its or its nominee's negligent action, negligent failure to act or willful misconduct, any Property at any time held for the Custody Account shall be security therefor and the Fund hereby grants a security interest therein to the Bank. The Fund shall promptly reimburse the Bank for any such advance of cash or securities or any such taxes, charges, expenses, assessments, claims or liabilities upon request for payment, but should the Fund fail to so reimburse the Bank, the Bank shall be entitled to dispose of such Property to the extent necessary to obtain reimbursement. The Bank shall be entitled to debit any account of the Fund with the Bank including, without limitation, the Custody Account, in connection with any such advance and any interest on such advance as the Bank deems reasonable. 11. COMPENSATION. ------------- Each Fund will pay to the Custodian such compensation as is agreed to in writing by the Custodian and each such Fund from time to time. Such compensation, together with all amounts for which the Custodian is to be reimbursed in accordance with Section 7(e), shall be billed to each such Fund and paid in cash to the Custodian. 12. POWERS OF ATTORNEY. ------------------- Upon request, each Fund shall deliver to the Custodian such proxies, powers of attorney or other instruments as may be reasonable and necessary or desirable in connection with the performance by the Custodian or any Subcustodian of their respective obligations under this Agreement or any applicable subcustodian agreement. 13. TERMINATION AND ASSIGNMENT. --------------------------- Any Fund or the Custodian may terminate this Agreement by notice in writing, delivered or mailed, postage prepaid (certified mail, return receipt requested) to the other not less than 90 days prior to the date upon which such termination shall take effect. Upon termination of this Agreement, the appropriate Fund shall pay to the Custodian such fees as may be due the Custodian hereunder as well as its reimbursable disbursements, costs and expenses paid or incurred. Upon termination of this Agreement, the Custodian shall deliver, at the terminating party's expense, all Assets held by it hereunder to the appropriate Fund or as otherwise designated by such Fund by Special Instructions. Upon such delivery, the Custodian shall have no further obligations or liabilities under this Agreement except as to the final resolution of matters relating to activity occurring prior to the effective date of termination. This Agreement may not be assigned by the Custodian or any Fund without the respective consent of the other, duly authorized by a resolution by its Board of Directors or Trustees. 14. ADDITIONAL FUNDS. ----------------- An additional Fund or Funds may become a party to this Agreement after the date hereof by an instrument in writing to such effect signed by such Fund or Funds and the Custodian. If this Agreement is terminated as to one or more of the Funds (but less than all of the Funds) or if an additional Fund or Funds shall become a party to this Agreement, there shall be delivered to each party an Appendix B or an amended Appendix B, signed by each of the 15 19 additional Funds (if any) and each of the remaining Funds as well as the Custodian, deleting or adding such Fund or Funds, as the case may be. The termination of this Agreement as to less than all of the Funds shall not affect the obligations of the Custodian and the remaining Funds hereunder as set forth on the signature page hereto and in Appendix B as revised from time to time. 15. NOTICES. -------- As to each Fund, notices, requests, instructions and other writings delivered to PROFUNDS, 4600 North Park Avenue, Suite 100, Chevy Chase, Maryland 20815, postage prepaid, or to such other address as any particular Fund may have designated to the Custodian in writing, shall be deemed to have been properly delivered or given to a Fund. Notices, requests, instructions and other writings delivered to the Securities Administration Department of the Custodian at its office at 928 Grand Avenue, Kansas City, Missouri, or mailed postage prepaid, to the Custodian's Securities Administration Department, Post Office Box 226, Kansas City, Missouri 64141, or to such other addresses as the Custodian may have designated to each Fund in writing, shall be deemed to have been properly delivered or given to the Custodian hereunder; provided, however, that procedures for the delivery of Instructions and Special Instructions shall be governed by Section 2(c) hereof. 16. MISCELLANEOUS. -------------- (a) This Agreement is executed and delivered in the State of Missouri and shall be governed by the laws of such state. (b) All of the terms and provisions of this Agreement shall be binding upon, and inure to the benefit of, and be enforceable by the respective successors and assigns of the parties hereto. (c) No provisions of this Agreement may be amended, modified or waived, in any manner except in writing, properly executed by both parties hereto; provided, however, Appendix A may be amended from time to time as Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians, and Securities Depositories and Clearing Agencies are approved or terminated according to the terms of this Agreement. (d) The captions in this Agreement are included for convenience of reference only, and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (e) This Agreement shall be effective as of the date of execution hereof. (f) This Agreement may be executed simultaneously in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. (g) The following terms are defined terms within the meaning of this Agreement, and the definitions thereof are found in the following sections of the Agreement: Term Section ---- ------- Account 4(b)(3)(ii) ADR'S 4(j) Advance 9 Assets 2(b) Authorized Person 3 Banking Institution 4(l) Domestic Subcustodian 5(a) Foreign Subcustodian 5(b) Instruction 2(c)(l) Interim Subcustodian 5(c) 16 20 Term Section ---- ------- Interest Bearing Deposit 4(1) Liability 10 OCC 4(g)(2) Person 6(b) Procedural Agreement 4(h) SEC 4(b)(3) Securities 2(a) Securities Depositories and Clearing Agencies 5(b) Securities System 4(b)(3) Shares 4(s) Sovereign Risk 6(b) Special Instruction 2(c)(2) Special Subcustodian 5(c) Subcustodian 5 1940 Act 4(v) (h) If any part, term or provision of this Agreement is held to be illegal, in conflict with any law or otherwise invalid by any court of competent jurisdiction, the remaining portion or portions shall be considered severable and shall not be affected, and the rights and obligations of the parties shall be construed and enforced as if this Agreement did not contain the particular part, term or provision held to be illegal or invalid. (i) This Agreement constitutes the entire understanding and agreement of the parties hereto with respect to the subject matter hereof, and accordingly supersedes, as of the effective date of this Agreement, any custodian agreement heretofore in effect between the Fund and the Custodian. IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement to be executed by their respective duly authorized officers. PROFUNDS Attest: By: - --------------------------------- ------------------------------------------- Name: ------------------------------------------ Title: ------------------------------------------ Date: ------------------------------------------ UMB BANK, N.A. Attest: By: - --------------------------------- ------------------------------------------- Name: Ralph R. Santoro ------------------------------------------ Title: Vice President ------------------------------------------ Date: ------------------------------------------ 17 21 APPENDIX A CUSTODY AGREEMENT DOMESTIC SUBCUSTODIANS: United Missouri Trust Company of New York Brown Brothers Harriman (Foreign Securities Only) Morgan Stanley Trust Company (Foreign Securities Only) SECURITIES SYSTEMS: Federal Book Entry Depository Trust Company Participant's Trust Company SPECIAL SUBCUSTODIANS: SECURITIES DEPOSITORIES COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES - --------- --------------------- ----------------- Euroclear PROFUNDS UMB BANK, N.A. By: By: - ----------------------------------- ----------------------------------- Name: Name: Ralph R. Santoro - ----------------------------------- ----------------------------------- Title: Title: Vice President - ----------------------------------- ----------------------------------- Date: Date: - ----------------------------------- ----------------------------------- 18 22 APPENDIX B CUSTODY AGREEMENT The following open-end management investment companies ("Funds") are hereby made parties to the Custody Agreement dated ___________, 199_, with UMB Bank, n.a. ("Custodian") and PROFUNDS, and agree to be bound by all the terms and conditions contained in said Agreement: Bull ProFund UltraBull ProFund Bear ProFund UltraBear ProFund UltraOTC ProFund Money Market ProFund [INSERT MUTUAL FUND COMPLEX] Attest: By: - ----------------------------------- ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- Date: ----------------------------------- UMB BANK, N.A. Attest: By: - ----------------------------------- ----------------------------------- Name: Ralph R. Santoro ----------------------------------- Title: Vice President ----------------------------------- Date: ----------------------------------- 19 EX-9.A 7 EXHIBIT 9(A) 1 Exhibit 9(a) TRANSFER AGENCY AGREEMENT AGREEMENT made this day of September, 1997, between PROFUNDS (the "Trust"), a Delaware business trust having its principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES, INC. ("BISYS"), a Delaware corporation having its principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219. WHEREAS, the Trust desires that BISYS perform certain services for each series of the Trust (individually referred to herein as a "Fund" and collectively as the "Funds"); and WHEREAS, BISYS is willing to perform such services on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual premises and covenants herein set forth, the parties agree as follows: 1. Services. -------- BISYS shall perform for the Trust the transfer agent services set forth in Schedule A hereto; provided, however, that the parties acknowledge and agree that the services to be provided hereunder on behalf of the Money Market ProFund shall be limited to those that are necessary and appropriate for a feeder fund that invests all of its assets in a separate, unaffiliated registered investment company ("Master Portfolio"). In that connection, the parties agree that BISYS shall bear no responsibility for the provision of any services to any Master Portfolio in which the Money Market ProFund may invest its assets. BISYS also agrees to perform for the Trust such special services incidental to the performance of the services enumerated herein as agreed to by the parties from time to time. BISYS shall perform such additional services as are provided on an amendment to Schedule A hereof, in consideration of such fees as the parties hereto may agree. BISYS may, in its discretion, appoint in writing other parties qualified to perform transfer agency services reasonably acceptable to the Trust (individually, a "Sub-transfer Agent") to carry out some or all of its responsibilities under this Agreement with respect to a Fund; provided, however, that the Sub-transfer Agent shall be the agent of BISYS and not the agent of the Trust or such Fund, and that BISYS shall be fully responsible for the acts of such Sub-transfer Agent and shall not be relieved of any of its responsibilities hereunder by the appointment of such Sub-transfer Agent. 2. Fees. ----- The Trust shall pay BISYS for the services to be provided by BISYS under this Agreement in accordance with, and in the manner set forth in, the Omnibus Fee Agreement among BISYS, BISYS Fund Services Limited Partnership and the Trust dated September , 1997. Fees for any additional services to be provided by BISYS pursuant to an amendment to the Omnibus Fee 2 Agreement shall be subject to mutual agreement at the time such amendment to the Omnibus Fee Agreement is proposed. 3. Reimbursement of Expenses. ------------------------- In addition to paying BISYS the fees described in Section 2 hereof, the Trust agrees to reimburse BISYS for BISYS' out-of-pocket expenses in providing services hereunder, including without limitation, the following: (a) All freight and other delivery and bonding charges incurred by BISYS in delivering materials to and from the Trust and in delivering all materials to shareholders; (b) All direct telephone, telephone transmission and telecopy or other electronic transmission expenses incurred by BISYS in communication with the Trust, the Trust's investment adviser or custodian, dealers, shareholders or others as required for BISYS to perform the services to be provided hereunder; (c) Costs of postage, couriers, stock computer paper, statements, labels, envelopes, checks, reports, letters, tax forms, proxies, notices or other form of printed material which shall be required by BISYS for the performance of the services to be provided hereunder; (d) The cost of microfilm or microfiche of records or other materials; and (e) Any expenses BISYS shall incur at the written direction of an officer of the Trust thereunto duly authorized. 4. Effective Date. --------------- This Agreement shall become effective as of the first day on which shares of the Trust are publicly sold (the "Effective Date"). 5. Term. ----- This Agreement shall continue in effect with respect to a Fund, unless earlier terminated by either party hereto as provided hereunder, for a period of thirty (30) months following the Effective Date (the "Initial Term"). Thereafter, unless otherwise terminated as provided herein, this Agreement shall be renewed automatically for successive one-year periods ("Rollover Periods"). This Agreement may be terminated without penalty (i) by provision of a notice of nonrenewal in the manner set forth below, (ii) by mutual agreement of the parties or (iii) for "cause," as defined below, upon the provision of 60 days advance written notice by the party alleging cause. Written notice of nonrenewal must be provided at least 60 days prior to the end of the Initial Term or any Rollover Period, as the case may be. 2 3 For purposes of this Agreement, "cause" shall mean (a) a material breach of this Agreement that has not been cured within thirty (30) days following written notice of such breach from the non-breaching party; (b) willful misfeasance, bad faith, gross negligence or reckless disregard on the part of the party to be terminated with respect to its obligations and duties set forth herein; (c) a final, unappealable judicial, regulatory or administrative ruling or order in which the party to be terminated has been found guilty of criminal or unethical behavior in the conduct of its business; or (d) financial difficulties on the part of the party to be terminated which are evidenced by the authorization or commencement of, or involvement by way of pleading, answer, consent or acquiescence in, a voluntary or involuntary case under Title 11 of the United States Code, as from time to time is in effect, or any applicable law, other than said Title 11, of any jurisdiction relating to the liquidation or reorganization of debtors or to the modification or alteration of the rights of creditors. After such termination, for so long as BISYS, with the written consent of the Trust, in fact continues to perform any one or more of the services contemplated by this Agreement or any Schedule or exhibit hereto, the provisions of this Agreement, including without limitation the provisions dealing with indemnification, shall continue in full force and effect. Fees and out-of-pocket expenses incurred by BISYS but unpaid by the Trust upon such termination shall be immediately due and payable upon and notwithstanding such termination. BISYS shall be entitled to collect from the Trust, in addition to the fees and disbursements provided by Sections 2 and 3 hereof, the amount of all of BISYS' cash disbursements in connection with BISYS' activities in effecting such termination, including without limitation, the delivery to the Trust and/or its distributor or investment adviser and/or other parties, of the Trust's property, records, instruments and documents, or any copies thereof. To the extent that BISYS may retain in its possession copies of any Trust documents or records subsequent to such termination which copies had not been requested by or on behalf of the Trust in connection with the termination process described above, BISYS, for a reasonable fee, will provide the Trust with reasonable access to such copies. If, for any reason, BISYS is replaced as transfer agent, or if a third party is added to perform all or a part of the services provided by BISYS under this Agreement (excluding any sub- transfer agent appointed by BISYS as provided in Section 1 hereof), then the Trust shall make a one-time cash payment, as liquidated damages to, BISYS equal to the balance due BISYS for the remainder of the term of this Agreement, assuming for purposes of calculation of the payment that the asset level of the Trust on the date BISYS is replaced, or a third party is added, will remain constant for the balance of the contract term. 6. Uncontrollable Events. ---------------------- BISYS assumes no responsibility hereunder, and shall not be liable for any damage, loss of data, delay or any other loss whatsoever caused by events beyond its reasonable control. 7. Legal Advice. ------------- 3 4 BISYS shall notify the Trust at any time BISYS believes that it is in need of the advice of counsel (other than counsel in the regular employ of BISYS or any affiliated companies) with regard to BISYS' responsibilities and duties pursuant to this Agreement; and after so notifying the Trust, BISYS, at its discretion, shall be entitled to seek, receive and act upon advice of legal counsel of its choosing, such advice to be at the expense of the Trust or Funds unless relating to a matter involving BISYS' willful misfeasance, bad faith, negligence or reckless disregard with respect to BISYS' responsibilities and duties hereunder and BISYS shall in no event be liable to the Trust or any Fund or any shareholder or beneficial owner of the Trust for any action reasonably taken pursuant to such advice. 8. Instructions. ------------- Whenever BISYS is requested or authorized to take action hereunder pursuant to instructions from a shareholder, or a properly authorized agent of a shareholder ("shareholder's agent"), concerning an account in a Fund, BISYS shall be entitled to rely upon any certificate, letter or other instrument or communication, believed by BISYS to be genuine and to have been properly made, signed or authorized by an officer or other authorized agent of the Trust or by the shareholder or shareholder's agent, as the case may be, and shall be entitled to receive as conclusive proof of any fact or matter required to be ascertained by it hereunder a certificate signed by an officer of the Trust or any other person authorized by the Trust's Board of Trustees or by the shareholder or shareholder's agent, as the case may be. As to the services to be provided hereunder, BISYS may rely conclusively upon the terms of the Prospectuses and Statement of Additional Information of the Trust relating to the Funds to the extent that such services are described therein unless BISYS receives written instructions to the contrary in a timely manner from the Trust. 9. Standard of Care; Reliance on Records and Instructions; ------------------------------------------------------- Indemnification. ---------------- BISYS shall use its best efforts to ensure the accuracy of all services performed under this Agreement, but shall not be liable to the Trust for any action taken or omitted by BISYS in the absence of bad faith, willful misfeasance, negligence or from reckless disregard by it of its obligations and duties. The Trust agrees to indemnify and hold harmless BISYS, its employees, agents, directors, officers and nominees from and against any and all claims, demands, actions and suits, whether groundless or otherwise, and from and against any and all judgments, liabilities, losses, damages, costs, charges, counsel fees and other expenses of every nature and character arising out of or in any way relating to BISYS' actions taken or nonactions with respect to the performance of services under this Agreement or based, if applicable, upon reasonable reliance on information, records, instructions or requests given or made to BISYS by the Trust, the investment adviser and on any records provided by any fund accountant or custodian thereof; provided that this indemnification shall not apply to actions or omissions of BISYS in cases of its own bad faith, willful misfeasance, negligence or from reckless disregard by it of its obligations and duties; and further provided that prior to confessing any claim against it which may be the subject of this indemnification, BISYS shall give the Trust written 4 5 notice of and reasonable opportunity to defend against said claim in its own name or in the name of BISYS. 10. Record Retention and Confidentiality. ------------------------------------- BISYS shall keep and maintain on behalf of the Trust all books and records which the Trust or BISYS is, or may be, required to keep and maintain pursuant to any applicable statutes, rules and regulations, including without limitation Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as amended (the "1940 Act"), relating to the maintenance of books and records in connection with the services to be provided hereunder. BISYS further agrees that all such books and records shall be the property of the Trust and to make such books and records available for inspection by the Trust or by the Securities and Exchange Commission (the "Commission") at reasonable times and otherwise to keep confidential all books and records and other information relative to the Trust and its shareholders, except when requested to divulge such information by duly-constituted authorities or court process, or requested by a shareholder or shareholder's agent with respect to information concerning an account as to which such shareholder has either a legal or beneficial interest or when requested by the Trust, the shareholder, or shareholder's agent, or the dealer of record as to such account. 11. Reports. -------- BISYS will furnish to the Trust and to its properly-authorized auditors, investment advisers, examiners, distributors, dealers, underwriters, salesmen, insurance companies and others designated by the Trust in writing, such reports at such times as are prescribed in Schedule B attached hereto, or as subsequently agreed upon by the parties pursuant to an amendment to Schedule B. The Trust agrees to examine each such report or copy promptly and will report or cause to be reported any errors or discrepancies therein not later than three business days from the receipt thereof. In the event that errors or discrepancies, except such errors and discrepancies as may not reasonably be expected to be discovered by the recipient within three days after conducting a diligent examination, are not so reported within the aforesaid period of time, a report will for all purposes be accepted by and be binding upon the Trust and any other recipient, and BISYS shall have no liability for errors or discrepancies therein and shall have no further responsibility with respect to such report except to perform reasonable corrections of such errors and discrepancies within a reasonable time after requested to do so by the Trust. 12. Rights of Ownership. -------------------- All computer programs and procedures developed to perform services required to be provided by BISYS under this Agreement are the property of BISYS. All records and other data except such computer programs and procedures are the exclusive property of the Trust and all such other records and data will be furnished to the Trust in appropriate form as soon as practicable after termination of this Agreement for any reason. 13. Return of Records. ------------------ 5 6 BISYS may at its option at any time, and shall promptly upon the Trust's demand, turn over to the Trust and cease to retain BISYS' files, records and documents created and maintained by BISYS pursuant to this Agreement which are no longer needed by BISYS in the performance of its services or for its legal protection. If not so turned over to the Trust, such documents and records will be retained by BISYS for six years from the year of creation. At the end of such six-year period, such records and documents will be turned over to the Trust unless the Trust authorizes in writing the destruction of such records and documents. 14. Bank Accounts. -------------- The Trust and the Funds shall establish and maintain such bank accounts with such bank or banks as are selected by the Trust, as are necessary in order that BISYS may perform the services required to be performed hereunder. To the extent that the performance of such services shall require BISYS directly to disburse amounts for payment of dividends, redemption proceeds or other purposes, the Trust and Funds shall provide such bank or banks with all instructions and authorizations necessary for BISYS to effect such disbursements. 15. Representations of the Trust. ----------------------------- The Trust certifies to BISYS that: (a) as of the close of business on the Effective Date, each Fund which is in existence as of the Effective Date has authorized unlimited shares, and (b) by virtue of its Declaration of Trust, shares of each Fund which are redeemed by the Trust may be sold by the Trust from its treasury, and (c) this Agreement has been duly authorized by the Trust and, when executed and delivered by the Trust, will constitute a legal, valid and binding obligation of the Trust, enforceable against the Trust in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties. 16. Representations of BISYS. ------------------------- BISYS represents and warrants that: (a) BISYS has been in, and shall continue to be in, substantial compliance with all provisions of law, including Section 17A(c) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), required in connection with the performance of its duties under this Agreement; and (b) the various procedures and systems which BISYS has implemented with regard to safekeeping from loss or damage attributable to fire, theft or any other cause of the blank checks, records, and other data of the Trust and BISYS' records, data, equipment, facilities and other property used in the performance of its obligations hereunder are adequate and that it will make such changes therein from time to time as are required for the secure performance of its obligations hereunder. 17. Insurance. ---------- 6 7 BISYS shall notify the Trust should its insurance coverage with respect to professional liability or errors and omissions coverage be canceled or reduced. Such notification shall include the date of change and the reasons therefor. BISYS shall notify the Trust of any material claims against it with respect to services performed under this Agreement, whether or not they may be covered by insurance, and shall notify the Trust from time to time as may be appropriate of the total outstanding claims made by BISYS under its insurance coverage. 18. Information to be Furnished by the Trust and Funds. --------------------------------------------------- The Trust has furnished to BISYS the following: (a) Copies of the Declaration of Trust of the Trust and of any amendments thereto, certified by the proper official of the state in which such Declaration has been filed. (b) Copies of the following documents: 1. The Trust's By-Laws and any amendments thereto; 2. Certified copies of resolutions of the Board of Trustees covering the following matters: A. Approval of this Agreement and authorization of a specified officer of the Trust to execute and deliver this Agreement and authorization for specified officers of the Trust to instruct BISYS hereunder; and B. Authorization of BISYS to act as Transfer Agent for the Trust on behalf of the Funds. (c) A list of all officers of the Trust, together with specimen signatures of those officers, who are authorized to instruct BISYS in all matters. (d) Two copies of the following (if such documents are employed by the Trust): 1. Prospectuses and Statement of Additional Information; 2. Distribution Agreement; and 3. All other forms commonly used by the Trust or its Distributor with regard to their relationships and transactions with shareholders of the Funds. (e) A certificate as to shares of beneficial interest of the Trust authorized, issued, and outstanding as of the Effective Date of BISYS' appointment as Transfer Agent (or as of the date on which BISYS' services are commenced, whichever is the 7 8 later date) and as to receipt of full consideration by the Trust for all shares outstanding, such statement to be certified by the Treasurer of the Trust. 19. Information Furnished by BISYS. ------------------------------- BISYS has furnished to the Trust the following: (a) BISYS' Articles of Incorporation. (b) BISYS' Bylaws and any amendments thereto. (c) Certified copies of actions of BISYS covering the following matters: 1. Approval of this Agreement, and authorization of a specified officer of BISYS to execute and deliver this Agreement; 2. Authorization of BISYS to act as Transfer Agent for the Trust. (d) A copy of the most recent independent accountants' report relating to internal accounting control systems as filed with the Commission pursuant to Rule 17Ad- 13 under the Exchange Act. 20. Amendments to Documents. ------------------------ The Trust shall furnish BISYS written copies of any amendments to, or changes in, any of the items referred to in Section 18 hereof forthwith upon such amendments or changes becoming effective. In addition, the Trust agrees that no amendments will be made to the Prospectuses or Statement of Additional Information of the Trust which might have the effect of changing the procedures employed by BISYS in providing the services agreed to hereunder or which amendment might affect the duties of BISYS hereunder unless the Trust first obtains BISYS' approval of such amendments or changes. 21. Reliance on Amendments. ----------------------- BISYS may rely on any amendments to or changes in any of the documents and other items to be provided by the Trust pursuant to Sections 18 and 20 of this Agreement and the Trust hereby indemnifies and holds harmless BISYS from and against any and all claims, demands, actions, suits, judgments, liabilities, losses, damages, costs, charges, counsel fees and other expenses of every nature and character which may result from actions or omissions on the part of BISYS in reasonable reliance upon such amendments and/or changes. Although BISYS is authorized to rely on the above-mentioned amendments to and changes in the documents and other items to be provided pursuant to Sections 18 and 20 hereof, BISYS shall be under no duty to comply with or take any action as a result of any of such amendments or changes unless the Trust first obtains BISYS' written consent to and approval of such amendments or changes. 8 9 22. Compliance with Law. -------------------- Under this Agreement, except for the obligations of BISYS set forth in Section 10 hereof, the Trust assumes full responsibility for the preparation, contents, and distribution of each prospectus of the Trust as to compliance with all applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act, and any other laws, rules and regulations of governmental authorities having jurisdiction. Under this Agreement, BISYS shall have no obligation to take cognizance of any laws relating to the sale of the Trust's shares. The Trust represents and warrants that no shares of the Trust will be sold to the public until the Trust's registration statement under the 1933 Act and the 1940 Act has been declared or becomes effective. 23. Notices. -------- Any notice required or permitted to be given by either party to the other shall be deemed sufficient if sent by registered or certified mail, postage prepaid, addressed by the party giving notice to the other party at the last address furnished by the other party to the party giving notice: if to the Trust, at 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814; and if to BISYS at 3435 Stelzer Road, Columbus, Ohio 43219. 24. Headings. --------- Paragraph headings in this Agreement are included for convenience only and are not to be used to construe or interpret this Agreement. 25. Assignment. ----------- This Agreement and the rights and duties hereunder shall not be assignable by either of the parties hereto except by the specific written consent of the other party. This Section 25 shall not limit or in any way affect BISYS' right to appoint a Sub-transfer Agent pursuant to Section 1 hereof. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns. 9 10 26. Governing Law and Matters Relating to the Trust as a ---------------------------------------------------- Delaware Business Trust. ------------------------ This Agreement shall be governed by and provisions shall be construed in accordance with the laws of the State of Ohio. It is expressly agreed that the obligations of the Trust hereunder shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Trust personally, but shall bind only the trust property of the Trust. The execution and delivery of this Agreement have been authorized by the Trustees, and this Agreement has been signed and delivered by an authorized officer of the Trust, acting as such, and neither such authorization by the Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trust as provided in the Trust's Agreement and Declaration of Trust. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed all as of the day and year first above written. PROFUNDS By: -------------------------------- BISYS FUND SERVICES, INC. By: -------------------------------- 10 11 Dated: September , 1997 SCHEDULE A TO THE TRANSFER AGENCY AGREEMENT BETWEEN PROFUNDS AND BISYS FUND SERVICES, INC. TRANSFER AGENCY SERVICES ------------------------ 1. Shareholder Transactions ------------------------ a. Process shareholder purchase and redemption orders. b. Set up account information, including address, dividend option, taxpayer identification numbers and wire instructions. c. Issue confirmations in compliance with Rule 10b-10 under the Securities Exchange Act of 1934, as amended. d. Issue duplicate confirmations to those broker-dealers and/or registered investment advisers that (i) are identified in shareholder account records and (ii) request receipt of such confirmations. e. Issue periodic statements for shareholders. f. Process transfers and exchanges. g. Process dividend payments, including the purchase of new shares, through dividend reimbursement. 2. Shareholder Information Services -------------------------------- a. Make information available to shareholder servicing unit and other remote access units regarding trade date, share price, current holdings, yields, and dividend information. b. Produce detailed history of transactions through duplicate or special order statements upon request. c. Provide mailing labels for distribution of financial reports, prospectuses, proxy statements or marketing material to current shareholders. A-1 12 d. Provide personnel acceptable to the Trust to respond to telephone inquiries from Trust shareholders and prospective shareholders. The extent and nature of the telephone services to be provided under this section shall be detailed in a separate written memorandum that is agreed upon by the parties. 3. Compliance Reporting -------------------- a. Provide reports to the Securities and Exchange Commission, the National Association of Securities Dealers and the States in which the Fund is registered. b. Prepare and distribute appropriate Internal Revenue Service forms for corresponding Fund and shareholder income and capital gains. c. Issue tax withholding reports to the Internal Revenue Service. 4. Dealer/Load Processing (if applicable) -------------------------------------- a. Provide reports for tracking rights of accumulation and purchases made under a Letter of Intent. b. Account for separation of shareholder investments from transaction sale charges for purchase of Fund shares. c. Calculate fees due under 12b-1 plans for distribution and marketing expenses. d. Provide for payment of 12b-1 fees and/or shareholder servicing fees to dealers, registered investment advisers and other service organizations. 5. Shareholder Account Maintenance ------------------------------- a. Maintain all shareholder records for each account in the Trust. b. Issue customer statements on scheduled cycle, providing duplicate second and third party copies if required. c. Record shareholder account information changes. d. Maintain account documentation files for each shareholder. A-2 13 SCHEDULE B TO THE TRANSFER AGENCY AGREEMENT BETWEEN PROFUNDS AND BISYS FUND SERVICES, INC. REPORTS ------- 1. Daily Shareholder Activity Journal 2. Daily Fund Activity Summary Report a. Beginning Balance b. Dealer Transactions c. Shareholder Transactions d. Reinvested Dividends e. Exchanges f. Adjustments g. Ending Balance 3. Daily Wire and Check Registers 4. Monthly Dealer Processing Reports 5. Monthly Dividend Reports 6. Sales Data Reports for Blue Sky Registration 7. Annual report by independent public accountants concerning BISYS' shareholder system and internal accounting control systems to be filed with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of the Securities Exchange Act of 1934, as amended. 8. Such other reports that are reasonably requested by the Trust, provided, however, that any out-of-pocket costs or other expenses associated with accessing such reports or producing such reports shall be borne by the Trust. B-1 EX-9.B 8 EXHIBIT 9(B) 1 Exhibit 9(b) ADMINISTRATION AGREEMENT THIS AGREEMENT is made as of this day of September, 1997, by and between PROFUNDS, a Delaware business trust (the "Company"), and BISYS FUND SERVICES LIMITED PARTNERSHIP, d/b/a BISYS FUND SERVICES (the "Administrator"), an Ohio limited partnership. WHEREAS, the Company is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), consisting of several series of shares of beneficial interest ("Shares"); and WHEREAS, the Company desires the Administrator to provide, and the Administrator is willing to provide, management and administrative services to such series of the Company as the Company and the Administrator may agree on ("Portfolios") and as listed on Schedule A attached hereto and made a part of this Agreement, on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, the Company and the Administrator hereby agree as follows: ARTICLE 1. RETENTION OF THE ADMINISTRATOR. The Company hereby retains the Administrator to act as the administrator of the Portfolios and to furnish the Portfolios with the management and administrative services as set forth in Article 2 below. The Administrator hereby accepts such employment to perform the duties set forth below. The Administrator shall, for all purposes herein, be deemed to be an independent contractor and, unless otherwise expressly provided or authorized, shall have no authority to act for or represent the Company in any way and shall not be deemed an agent of the Company. ARTICLE 2. ADMINISTRATIVE SERVICES. Under the supervision of the Company's Trustees and their designees, the Administrator shall manage, administer and conduct all of the general business activities of the Company and the Portfolios other than those which have been contracted to third parties by the Company. The Administrator shall provide the Company with all necessary and desirable regulatory reporting, office space, equipment, personnel, compensation and facilities (including facilities for Shareholders' and Trustees' meetings) for handling the affairs of the Company and carrying out the Administrator's duties hereunder. As part of its duties hereunder, the Administrator shall investigate, assist in the selection of and conduct relations with custodians, depositories, accountants, legal counsels, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and persons in any other capacity deemed to be necessary or desirable for the Portfolios' operations. The Administrator shall oversee, examine and review the performance by others of other services provided in connection with the operations of the Portfolios and shall provide the Trustees of the Company with such reports regarding investment performance as they may reasonably request; provided that the Administrator shall have 2 no responsibility for supervising the performance by any investment adviser or subadviser of its responsibilities. Without limiting the generality of the foregoing, the Administrator shall also provide the services that are set forth in Schedule B hereto; provided, however, that the parties acknowledge and agree that the services to be provided hereunder on behalf of the Money Market ProFund shall be limited to those that are necessary and appropriate for a feeder fund that invests all of its assets in a separate, unaffiliated registered investment company ("Master Portfolio"). In that connection, the parties agree that the Administrator shall bear no responsibility for the provision of any services to any Master Portfolio in which the Money Market ProFund may invest its assets. ARTICLE 3. ALLOCATION OF CHARGES AND EXPENSES. (A) THE ADMINISTRATOR. The Administrator shall furnish at its own expense the executive, supervisory and clerical personnel necessary to perform its obligations under this Agreement. The Administrator shall also provide the items which it is obligated to provide under this Agreement, and shall pay all compensation, if any, of officers of the Company as well as all Trustees of the Company who are affiliated persons of the Administrator or any affiliated corporation of the Administrator; provided, however, that unless otherwise specifically provided, the Administrator shall not be obligated to pay the compensation of any employee of the Company retained by the Trustees of the Company to perform services on behalf of the Company. (B) THE COMPANY. The Company assumes and shall pay or cause to be paid all other expenses of the Company not otherwise allocated herein, including, without limitation, organization costs, taxes, expenses for legal and auditing services, the expenses of preparing (including typesetting), printing and mailing reports, prospectuses, statements of additional information, proxy solicitation material and notices to existing Shareholders, all expenses incurred in connection with issuing and redeeming Shares, the costs of custodial services, the cost of initial and ongoing registration of the Shares under Federal and state securities laws, fees and out-of-pocket expenses of Trustees who are not affiliated persons of the Administrator or the Investment Adviser to the Company or any affiliated corporation of the Administrator or the Investment Adviser, insurance, interest, brokerage costs, litigation and other extraordinary or nonrecurring expenses, and all fees and charges of investment advisers to the Company. ARTICLE 4. COMPENSATION OF THE ADMINISTRATOR. (A) ADMINISTRATION FEE. For the services to be rendered, the facilities furnished and the expenses assumed by the Administrator pursuant to this Agreement, the Company shall pay to the Administrator compensation that is more particularly described in the Omnibus Fee Agreement among the Administrator, BISYS Fund Services, Inc. and the Company dated September , 1997. Such compensation shall be calculated and accrued daily, and paid to the Administrator quarterly. The Company shall also reimburse the Administrator for its reasonable out-of-pocket expenses, including the travel and lodging expenses incurred by officers and employees of the Administrator in connection with attendance at Board meetings. 2 3 If this Agreement becomes effective subsequent to the first day of a month or terminates before the last day of a month, the Administrator's compensation for that part of the month in which this Agreement is in effect shall be prorated in a manner consistent with the calculation of the fees as set forth above. Payment of the Administrator's compensation for the preceding month shall be made promptly. (B) SURVIVAL OF COMPENSATION RIGHTS. All rights of compensation under this Agreement for services performed as of the termination date shall survive the termination of this Agreement. ARTICLE 5. LIMITATION OF LIABILITY OF THE ADMINISTRATOR. The duties of the Administrator shall be confined to those expressly set forth herein, and no implied duties are assumed by or may be asserted against the Administrator hereunder. The Administrator shall not be liable for any error of judgment or mistake of law or for any loss arising out of any act or omission in carrying out its duties hereunder, except a loss resulting from willful misfeasance, bad faith or negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder, except as may otherwise be provided under provisions of applicable law which cannot be waived or modified hereby. (As used in this Article 5, the term "Administrator" shall include partners, officers, employees and other agents of the Administrator as well as the Administrator itself.) So long as the Administrator acts in good faith and with due diligence and without negligence, the Company assumes full responsibility and shall indemnify the Administrator and hold it harmless from and against any and all actions, suits and claims, whether groundless or otherwise, and from and against any and all losses, damages, costs, charges, reasonable counsel fees and disbursements, payments, expenses and liabilities (including reasonable investigation expenses) arising directly or indirectly out of the Administrator's actions taken or nonactions with respect to the performance of services hereunder. The indemnity and defense provisions set forth herein shall indefinitely survive the termination of this Agreement. The rights hereunder shall include the right to reasonable advances of defense expenses in the event of any pending or threatened litigation with respect to which indemnification hereunder may ultimately be merited. In order that the indemnification provision contained herein shall apply, however, it is understood that if in any case the Company may be asked to indemnify or hold the Administrator harmless, the Company shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the Administrator will use all reasonable care to identify and notify the Company promptly concerning any situation which presents or appears likely to present the probability of such a claim for indemnification against the Company, but failure to do so in good faith shall not affect the rights hereunder. The Company shall be entitled to participate at its own expense or, if it so elects, to assume the defense of any suit brought to enforce any claims subject to this indemnity provision. If the Company elects to assume the defense of any such claim, the defense shall be conducted by counsel chosen by the Company and satisfactory to the Administrator, whose approval shall not be unreasonably withheld. In the event that the Company elects to assume the defense of any suit and 3 4 retain counsel, the Administrator shall bear the fees and expenses of any additional counsel retained by it. If the Company does not elect to assume the defense of a suit, it will reimburse the Administrator for the reasonable fees and expenses of any counsel retained by the Administrator. The Administrator may apply to the Company at any time for instructions and may consult counsel for the Company or its own counsel and with accountants and other experts with respect to any matter arising in connection with the Administrator's duties, and the Administrator shall not be liable or accountable for any action taken or omitted by it in good faith in accordance with such instruction or with the opinion of such counsel, accountants or other experts. Also, the Administrator shall be protected in acting upon any document which it reasonably believes to be genuine and to have been signed or presented by the proper person or persons. The Administrator will not be held to have notice of any change of authority of any officers, employees or agents of the Company until receipt of written notice thereof from the Company. ARTICLE 6. ACTIVITIES OF THE ADMINISTRATOR. The services of the Administrator rendered to the Company are not to be deemed to be exclusive. The Administrator is free to render such services to others and to have other businesses and interests. It is understood that directors, officers, employees and Shareholders of the Company are or may be or become interested in the Administrator, as officers, employees or otherwise and that partners, officers and employees of the Administrator and its counsel are or may be or become similarly interested in the Company, and that the Administrator may be or become interested in the Company as a Shareholder or otherwise. ARTICLE 7. DURATION OF THIS AGREEMENT. The Term of this Agreement shall be as specified in Schedule A hereto. ARTICLE 8. ASSIGNMENT. This Agreement shall not be assignable by either party without the written consent of the other party; provided, however, that the Administrator may, at its expense, subcontract with any entity or person concerning the provision of the services contemplated hereunder. The Administrator shall not, however, be relieved of any of its obligations under this Agreement by the appointment of such subcontractor and provided further, that the Administrator shall be responsible, to the extent provided in Article 5 hereof, for all acts of such subcontractor as if such acts were its own. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns. ARTICLE 9. AMENDMENTS. This Agreement may be amended by the parties hereto only if such amendment is specifically approved (i) by the vote of a majority of the Trustees of the Company, and (ii) by the vote of a majority of the Trustees of the Company who are not parties to this Agreement or interested persons of any such party, cast in person at a Board of Trustees meeting called for the purpose of voting on such approval. For special cases, the parties hereto may amend such procedures set forth herein as may be appropriate or practical under the circumstances, and the Administrator may conclusively assume that any special procedure which has been approved by the Company does not conflict with or violate any 4 5 requirements of its Declaration of Trust or then current prospectuses, or any rule, regulation or requirement of any regulatory body. ARTICLE 10. CERTAIN RECORDS. The Administrator shall maintain customary records in connection with its duties as specified in this Agreement. Any records required to be maintained and preserved pursuant to Rules 31a-1 and 31a-2 under the 1940 Act which are prepared or maintained by the Administrator on behalf of the Company shall be prepared and maintained at the expense of the Administrator, but shall be the property of the Company and will be made available to or surrendered promptly to the Company on request. In case of any request or demand for the inspection of such records by another party, the Administrator shall notify the Company and follow the Company's instructions as to permitting or refusing such inspection; provided that the Administrator may exhibit such records to any person in any case where it is advised by its counsel that it may be held liable for failure to do so, unless (in cases involving potential exposure only to civil liability) the Company has agreed to indemnify the Administrator against such liability. ARTICLE 11. DEFINITIONS OF CERTAIN TERMS. The terms "interested person" and "affiliated person," when used in this Agreement, shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission. ARTICLE 12. NOTICE. Any notice required or permitted to be given by either party to the other shall be deemed sufficient if sent by registered or certified mail, postage prepaid, addressed by the party giving notice to the other party at the last address furnished by the other party to the party giving notice: if to the Company, at 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814; and if to the Administrator at 3435 Stelzer Road, Columbus, Ohio 43219. ARTICLE 13. GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Ohio and the applicable provisions of the 1940 Act. To the extent that the applicable laws of the State of Ohio, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control. ARTICLE 14. MULTIPLE ORIGINALS. This Agreement may be executed in two or more counterparts, each of which when so executed shall be deemed to be an original, but such counterparts shall together constitute but one and the same instrument. 5 6 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. PROFUNDS By: ---------------------------------- Title: ------------------------------ BISYS FUND SERVICES LIMITED PARTNERSHIP BY: BISYS FUND SERVICES, INC., GENERAL PARTNER By: ---------------------------------- Title: ------------------------------ 6 7 SCHEDULE A TO THE ADMINISTRATION AGREEMENT DATED AS OF SEPTEMBER ______, 1997 BETWEEN PROFUNDS AND BISYS FUND SERVICES LIMITED PARTNERSHIP Portfolios: This Agreement shall apply to all Portfolios of the Company, either now or hereafter created. The current portfolios of ___________, are set forth below: the Bull ProFund, the UltraBull ProFund, the Bear ProFund, the UltraBear ProFund, the OTC ProFund, and the U.S. Government Money Market ProFund. Term: Pursuant to Article 7, the term of this Agreement shall commence on the first day on which Shares of the Company are publicly sold (the "Effective Date") and shall remain in effect for a period of thirty (30) months following such Effective Date ("Initial Term"). Thereafter, unless otherwise terminated as provided herein, this Agreement shall be renewed automatically for successive one-year periods ("Rollover Periods"). This Agreement may be terminated without penalty (i) by provision of a notice of nonrenewal in the manner set forth below, (ii) by mutual agreement of the parties or (iii) for "cause," as defined below, upon the provision of 60 days advance written notice by the party alleging cause. Written notice of nonrenewal must be provided at least 60 days prior to the end of the Initial Term or any Rollover Period, as the case may be. For purposes of this Agreement, "cause" shall mean (a) a material breach of this Agreement that has not been cured within thirty (30) days following written notice of such breach from the non-breaching party; (b) willful misfeasance, bad faith, gross negligence or reckless disregard on the part of the party to be terminated with respect to its obligations and duties set forth herein; (c) a final, unappealable judicial, regulatory or administrative ruling or order in which the party to be terminated has been found guilty of criminal or unethical behavior in the conduct of its business; or (d) financial difficulties on the part of the party to be terminated which are evidenced by the authorization or commencement of, or involvement by way of pleading, answer, consent or acquiescence in, a voluntary or involuntary case under Title 11 of the United States Code, as from time to time is in effect, or any applicable law, other than said Title 11, of any jurisdiction relating to the liquidation or reorganization of debtors or to the modification or alteration of the rights of creditors. Notwithstanding the foregoing, after such termination for so long as the Administrator, with the written consent of the Company, in fact continues to perform any one or more of the services contemplated by this Agreement or any schedule or exhibit hereto, the provisions of this Agreement, including without limitation the provisions dealing with indemnification, shall continue in full force and effect. A-1 8 Compensation due the Administrator and unpaid by the Company upon such termination shall be immediately due and payable upon and notwithstanding such termination. The Administrator shall be entitled to collect from the Company, in addition to the compensation described in this Schedule A, the amount of all of the Administrator's cash disbursements for services in connection with the Administrator's activities in effecting such termination, including without limitation, the delivery to the Company and/or its designees of the Company's property, records, instruments and documents, or any copies thereof. Subsequent to such termination, for a reasonable fee, the Administrator will provide the Company with reasonable access to any Company documents or records remaining in its possession. If, for any reason, the Administrator is replaced as fund manager and administrator, or if a third party is added to perform all or a part of the services provided by the Administrator under this Agreement (excluding any sub- administrator appointed by the Administrator as provided in Article 7 hereof), then the Company shall make a one-time cash payment, as liquidated damages, to the Administrator equal to the balance due the Administrator for the remainder of the term of this Agreement, assuming for purposes of calculation of the payment that the asset level of the Company on the date the Administrator is replaced, or a third party is added, will remain constant for the balance of the contract term. A-2 9 SCHEDULE B TO THE ADMINISTRATION AGREEMENT DATED AS OF SEPTEMBER __, 1997 BETWEEN PROFUNDS AND BISYS FUND SERVICES LIMITED PARTNERSHIP DETAILED SERVICE LISTING ADMINISTRATION 1. Maintain calendar and files for all Board and shareholder meeting materials 2. Maintain and manage annual regulatory filing calendar and follow-up with responsible parties 3. Obtain appropriate insurance coverage on behalf of the Company, as approved by the Company's Board of Trustees, including a Fidelity Bond and a Directors and Officers Errors and Omissions policy, and renew such policies based upon terms and conditions that are recommended by the Administrator and approved by the Company's Board of Trustees 4. Maintain insurance files for the Company 5. Review Company registration statements and proxy materials prepared by Company counsel 6. Prepare operating manual for the Company 7. Review materials and reports prepared by Company auditors, and materials prepared by Company counsel which is submitted to the Administrator 8. Communicate all income breakdown data to client services and transfer agent and coordinate printing/mailing of state income letters 9. Prepare and file Annual and Semi-Annual Reports subject to review by Company counsel and the Company's Independent Accountants 10. Coordinate printing and distribution of prospectuses 11. Coordinate printing, distribution and tabulation of proxies 12. Prepare and file Form N-SAR 13. Prepare and file Rule 24f-2 and Rule 24e-2 filings subject to review by Company counsel 14. Coordinate 17f-2 audits with custodians 15. Apply for all portfolio tax i.d.#s 16. Coordinate all NRSRO rating meetings 17. Coordinate and facilitate NASDAQ registration 18. Coordinate and facilitate distribution of trustee/officer questionnaires and respond to trustees/officers questions relating thereto 19. Coordinate seed money and establish control accounts for new Portfolios 20. Maintain open file summary, authorized signers list, and fund compliance calendars 21. Review and file Forms 1120 RIC and 8613, as prepared by the Company's Independent Accountants 22. Prepare and file (i) Forms 1099 DIV and 1099 MISC and (ii) state tax returns, subject to review by the Company's Independent Accountants 23. Monitor and advise the Company and its Portfolios concerning their regulated investment company status under the Internal Revenue Code B-1 10 24. Calculate contractual Company expenses and control all disbursements for the Company, and as appropriate compute the Company's yields, total return, expense ratios, portfolio turnover rate and, if required, portfolio average dollar-weighted maturity 25. Calculate performance data of the Portfolios for dissemination to information services covering the investment company industry 26. Assist with the design, development, and operation of the Portfolios, including new classes, investment objectives, policies and structure 27. Advise the Company and its Board of Trustees on matters concerning the Company and its affairs COMPLIANCE 1. Review monthly compliance reports prepared by the investment adviser 2. Perform independent monthly portfolio compliance review of information contained in fund accounting source reports 3. Coordinate all IRS quarterly compliance letters to investment advisers 4. Notify appropriate officers of mark-to-market issues 5. Monitor compliance by the Company with conditions imposed by Rule 18f-3 relating to multiple classes of shares 6. Quarterly review of securities transactions by persons designated in the Company's Code of Ethics as access persons for purposes of determining compliance with such Code of Ethics 7. Quarterly reporting of compliance with Company's Code of Ethics 8. Respond to the SEC Fund audits and coordinate SEC inspections 9. Respond to Fund audit requests from independent fund accountants 10. Provide proactive compliance consulting/advice to portfolio managers 11. Prepare broker allocation reports for review by the Company's investment adviser 12. Monitor fidelity bond coverage for the Company 13. Perform initial on-site compliance training based on Fund-specific compliance manuals prepared by BISYS BOARD PROCESS AND MEETINGS 1. Prepare quarterly Board meeting responsibility chart 2. Provide at least one person to attend Board meetings 3. Prepare Board agendas and BISYS sections of Board materials 4. Prepare all Board minutes and agendas, subject to review by Company counsel 5. Prepare special Board meeting materials 6. Review, as requested, investment adviser's report to be submitted to the Board pursuant to applicable Company procedures 7. Coordinate Board book production and distribution B-2 11 LEGAL SERVICES 1. Provide support to Fund Administration and blue sky personnel 2. Prepare the following Company agreements, subject to review by Company counsel: (i) Investment Advisory Agreement, (ii) Administration Agreement, (iii) Fund Accounting Agreement, (iv) Transfer Agency Agreement, (v) Omnibus Fee Agreement for Administration, Fund Accounting and Transfer Agency services and (vi) shareholder service agreements for use with various service organizations. 3. Prepare post-effective amendments to the Company's registration statement representing the annual update of financial information for such registration statement, subject to review by Company counsel, and file such documents with the SEC 4. Except as provided in Item 3 above, review prospectuses, prospectus supplements, statements of additional information, other registration statement materials and proxy materials prepared by Company counsel and file such documents with the SEC 5. Maintain files of registration statements, fund contracts, Company proxies and other Company documents 6. Prepare for and conduct shareholder meetings 7. Prepare for and comply with any regulatory examinations of or involving the Company 8. Advise on product development issues 9. Respond to regulatory agency (i.e., NASD, SEC, IRS, bank regulatory) proposals COMPLIANCE - DISTRIBUTION ACTIVITIES 1. Review all fund advertising and sales material for compliance with applicable laws and regulations, subject to approval by Company counsel 2. File with appropriate regulatory authorities all advertising and sales material following approval by Company counsel 3. Maintain and update Ad/Sales Lit files 4. Obtain finalized Ad/Sales Lit for compliance files 5. Respond to SEC advertising and sales literature comments subject to approval by Company counsel REGISTRATION/QUALIFICATION ACTIVITIES (FOR BISYS REPRESENTATIVES DISTRIBUTING CLIENT'S FUNDS, IF APPLICABLE) 6. Review & ascertain that BISYS registered representatives are licensed in appropriate jurisdictions 7. Process all registration functions for BISYS registered representatives 8. Coordinate NASD continuing education requirements for all BISYS registered representatives BROKER/DEALER COMPLIANCE ACTIVITIES 9. Review and execute selected Service Agreements, subject to approval by Company counsel 10. Respond to industry proposals and communicate comments to Company officers FUND OFFICERS 1. Provide officers for the Company, upon request BLUE SKY B-3 12 1. Register the Company and its shares with appropriate state blue sky authorities 2. Respond to state comments during the registration process 3. Obtain all sales permits required by relevant state authorities 4. Amend and renew sales permits as required from time to time 5. Monitor the sales of Shares in individual states on a daily basis and report required sales to appropriate states 6. File all registration statements, Prospectuses, proxy statements, Rule 24f-2 Notices and other Fund reports and documents as required by state law 7. Maintain fund blue sky calendars 8. Respond to all blue sky audit and examination issues 9. File all renewal registrations for existing Portfolios 10. Conduct blue sky fee analysis, upon request 11. Implement SRD electronic filings B-4 EX-9.D 9 EXHIBIT 9(D) 1 Exhibit 9(d) FUND ACCOUNTING AGREEMENT AGREEMENT made this day of September, 1997, between PROFUNDS (the "Trust"), a Delaware business trust having its principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES, INC. ("Fund Accountant"), a corporation organized under the laws of the State of Delaware and having its principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219. WHEREAS, the Trust desires that Fund Accountant perform certain fund accounting services for each investment portfolio of the Trust, all as now or hereafter may be established from time to time (individually referred to herein as the "Fund" and collectively as the "Funds"); and WHEREAS, Fund Accountant is willing to perform such services on the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual premises and covenants herein set forth, the parties agree as follows: 1. Services as Fund Accountant. ---------------------------- The parties acknowledge and agree that the services to be provided hereunder on behalf of the Money Market ProFund shall be limited to those that are necessary and appropriate for a feeder fund that invests all of its assets in a separate, unaffiliated registered investment company ("Master Portfolio"). In that connection, the parties agree that Fund Accountant shall bear no responsibility for the provision of any services to any Master Portfolio in which the Money Market ProFund may invest its assets. (a) MAINTENANCE OF BOOKS AND RECORDS. Fund Accountant will keep and maintain the following books and records of each Fund pursuant to Rule 31a-1 under the Investment Company Act of 1940 (the "Rule"): (i) Journals containing an itemized daily record in detail of all purchases and sales of securities, all receipts and disbursements of cash and all other debits and credits, as required by subsection (b)(1) of the Rule; (ii) General and auxiliary ledgers reflecting all asset, liability, reserve, capital, income and expense accounts, including interest accrued and interest received, as required by subsection (b)(2)(I) of the Rule; (iii) Separate ledger accounts required by subsection (b)(2)(ii) and (iii) of the Rule; and 2 (iv) A monthly trial balance of all ledger accounts (except shareholder accounts) as required by subsection (b)(8) of the Rule. (b) PERFORMANCE OF DAILY ACCOUNTING SERVICES. In addition to the maintenance of the books and records specified above, Fund Accountant shall perform the following accounting services daily for each Fund: (i) Calculate the net asset value per share utilizing prices obtained from the sources described in subsection 1(b)(ii) below; (ii) Obtain security prices from independent pricing services, or if such quotes are unavailable, then obtain such prices from each Fund's investment adviser or its designee, as approved by the Trust's Board of Trustees; (iii) Verify and reconcile with the Funds' custodian all daily trade activity; (iv) Compute, as appropriate, each Fund's net income and capital gains, dividend payables, dividend factors, 7-day yields, 7-day effective yields, 30-day yields, and weighted average portfolio maturity; (v) Review daily the net asset value calculation and dividend factor (if any) for each Fund prior to release to shareholders, check and confirm the net asset values and dividend factors for reasonableness and deviations, and distribute net asset values and yields to NASDAQ; (vi) Report to the Trust the daily market pricing of securities in any money market Funds, with the comparison to the amortized cost basis; (vii) Determine unrealized appreciation and depreciation on securities held in variable net asset value Funds; (viii) Amortize premiums and accrete discounts on securities purchased at a price other than face value, if requested by the Trust; (ix) Update fund accounting system to reflect rate changes, as received from a Fund's investment adviser, on variable interest rate instruments; (x) Post Fund transactions to appropriate categories; (xi) Accrue expenses of each Fund according to instructions received from the Trust's Administrator; 2 3 (xii) Determine the outstanding receivables and payables for all (1) security trades, (2) Fund share transactions and (3) income and expense accounts; (xiii) Provide accounting reports in connection with the Trust's regular annual audit and other audits and examinations by regulatory agencies; and (xiv) Provide such periodic reports as the parties shall agree upon. (c) SPECIAL REPORTS AND SERVICES. (i) Fund Accountant may provide additional special reports upon the request of the Trust or a Fund's investment adviser, provided, however, that any out-of-pocket costs or other expenses associated with accessing such reports or producing such reports shall be borne by the Trust. (ii) Fund Accountant may provide such other similar services with respect to a Fund as may be reasonably requested by the Trust, which may result in an additional charge, the amount of which shall be agreed upon between the parties. (d) ADDITIONAL ACCOUNTING SERVICES. Fund Accountant shall also perform the following additional accounting services for each Fund: (i) Provide monthly a download (and hard copy thereof) of the financial statements described below, upon request of the Trust. The download will include the following items: Statement of Assets and Liabilities, Statement of Operations, Statement of Changes in Net Assets, and Condensed Financial Information; (ii) Provide accounting information for the following: (A) federal and state income tax returns and federal excise tax returns; (B) the Trust's semi-annual reports with the Securities and Exchange Commission ("SEC") on Form N-SAR; (C) the Trust's annual, semi-annual and quarterly (if any) shareholder reports; 3 4 (D) registration statements on Form N-1A and other filings relating to the registration of shares; 4 5 (E) the Administrator's monitoring of the Trust's status as a regulated investment company under Subchapter M of the Internal Revenue Code, as amended; (F) annual audit by the Trust's auditors; and (G) examinations performed by the SEC. 2. Subcontracting. --------------- Fund Accountant may, at its expense, subcontract with any entity or person concerning the provision of the services contemplated hereunder; provided, however, that Fund Accountant shall not be relieved of any of its obligations under this Agreement by the appointment of such subcontractor and provided further, that Fund Accountant shall be responsible, to the extent provided in Section 7 hereof, for all acts of such subcontractor as if such acts were its own. 3. Compensation. ------------- The Trust shall pay Fund Accountant for the services to be provided by Fund Accountant under this Agreement in accordance with, and in the manner set forth in, the Omnibus Fee Agreement among Fund Accountant, BISYS Fund Services Limited Partnership and the Trust dated September __, 1997, as such Omnibus Fee Agreement may be amended from time to time. 4. Reimbursement of Expenses. -------------------------- In addition to paying Fund Accountant the fees described in Section 3 hereof, the Trust agrees to reimburse Fund Accountant for its out-of-pocket expenses in providing services hereunder, including without limitation the following: (a) All freight and other delivery and bonding charges incurred by Fund Accountant in delivering materials to and from the Trust; (b) All direct telephone, telephone transmission and telecopy or other electronic transmission expenses incurred by Fund Accountant in communication with the Trust, the Trust's investment advisor or custodian, dealers or others as required for Fund Accountant to perform the services to be provided hereunder; (c) The cost of obtaining security market quotes pursuant to Section l(b)(ii) above; (d) The cost of microfilm or microfiche of records or other materials; (e) Any expenses Fund Accountant shall incur at the written direction of an officer of the Trust thereunto duly authorized; and (f) Any additional expenses reasonably incurred by Fund Accountant in the performance of its duties and obligations under this Agreement. 5 6 5. Effective Date. --------------- This Agreement shall become effective as of the first day on which shares of the Trust are publicly sold (or, if a particular Fund is not in existence on that date, on the date such Fund commences operation) (the "Effective Date"). 6. Term. ----- This Agreement shall continue in effect, unless earlier terminated by either party hereto as provided hereunder, for a period of thirty (30) months following the Effective Date (the "Initial Term"). Thereafter, unless otherwise terminated as provided herein, this Agreement shall be renewed automatically for successive one-year periods ("Rollover Periods"). This Agreement may be terminated without penalty (i) by provision of a notice of nonrenewal in the manner set forth below, (ii) by mutual agreement of the parties or (iii) for "cause," as defined below, upon the provision of 60 days advance written notice by the party alleging cause. Written notice of nonrenewal must be provided at least 60 days prior to the end of the Initial Term or any Rollover Period, as the case may be. For purposes of this Agreement, "cause" shall mean (a) a material breach of this Agreement that hasn't been cured within thirty (30) days following written notice of such breach from the non-breaching party; (b) willful misfeasance, bad faith, gross negligence or reckless disregard on the part of the party to be terminate with respect to its obligations and duties set forth herein; (c) a final, unappealable judicial, regulatory or administrative ruling or order in which the party to be terminated has been found guilty of criminal or unethical behavior in the conduct of its business; or (d) financial difficulties on the part of the party to be terminated which are evidenced by the authorization or commencement of, or involvement by way of pleading, answer, consent or acquiescence in, a voluntary or involuntary case under Title 11 of the United States Code, as from time to time is in effect, or any applicable law, other than said Title 11, of any jurisdiction relating to the liquidation or reorganization of debtors or to the modification or alteration of the rights of creditors. After such termination for so long as Fund Accountant, with the written consent of the Trust, in fact continues to perform any one or more of the services contemplated by this Agreement or any schedule or exhibit hereto, the provisions of this Agreement, including without limitation the provisions dealing with indemnification, shall continue in full force and effect. Compensation due Fund Accountant and unpaid by the Trust upon such termination shall be immediately due and payable upon and notwithstanding such termination. Fund Accountant shall be entitled to collect from the Trust, in addition to the compensation described under Section 3 hereof, the amount of all of Fund Accountant's cash disbursements for services in connection with Fund Accountant's activities in effecting such termination, including without limitation, the delivery to the Trust and/or its designees of the Trust's property, records, instruments and documents, or any copies thereof. Subsequent to such termination, for a reasonable fee, Fund Accountant will provide the Trust with reasonable access to any Trust documents or records remaining in its possession. 6 7 If, for any reason, Fund Accountant is replaced as Fund Accountant, or if a third party is added to perform all or a part of the services provided by Fund Accountant under this Agreement (excluding any sub-accountant appointed by Fund Accountant as provided in Section 2 hereof), then the Trust shall make a one-time cash payment, as liquidated damages, to Fund Accountant equal to the balance due Fund Accountant for the remainder of the term of this Agreement, assuming for purposes of calculation of the payment that the asset level of the Trust on the date Fund Accountant is replaced, or a third party is added, will remain constant for the balance of the contract term. 7. Standard of Care; Reliance on Records and Instructions; ------------------------------------------------------- Indemnification. ---------------- Fund Accountant shall use its best efforts to insure the accuracy of all services performed under this Agreement, but shall not be liable to the Trust for any action taken or omitted by Fund Accountant in the absence of bad faith, willful misfeasance, negligence or from reckless disregard by it of its obligations and duties. A Fund agrees to indemnify and hold harmless Fund Accountant, its employees, agents, directors, officers and nominees from and against any and all claims, demands, actions and suits, whether groundless or otherwise, and from and against any and all judgments, liabilities, losses, damages, costs, charges, counsel fees and other expenses of every nature and character arising out of or in any way relating to Fund Accountant's actions taken or nonactions with respect to the performance of services under this Agreement with respect to such Fund or based, if applicable, upon reasonable reliance on information, records, instructions or requests with respect to such Fund given or made to Fund Accountant by a duly authorized representative of the Trust; provided that this indemnification shall not apply to actions or omissions of Fund Accountant in cases of its own bad faith, willful misfeasance, negligence or from reckless disregard by it of its obligations and duties, and further provided that prior to confessing any claim against it which may be the subject of this indemnification, Fund Accountant shall give the Trust written notice of and reasonable opportunity to defend against said claim in its own name or in the name of Fund Accountant. 8. Record Retention and Confidentiality. ------------------------------------- Fund Accountant shall keep and maintain on behalf of the Trust all books and records which the Trust and Fund Accountant is, or may be, required to keep and maintain pursuant to any applicable statutes, rules and regulations, including without limitation Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as amended (the "1940 Act"), relating to the maintenance of books and records in connection with the services to be provided hereunder. Fund Accountant further agrees that all such books and records shall be the property of the Trust and to make such books and records available for inspection by the Trust or by the Securities and Exchange Commission at reasonable times and otherwise to keep confidential all books and records and other information relative to the Trust and its shareholders; except when requested to divulge such information by duly-constituted authorities or court process. 9. Uncontrollable Events. ---------------------- 7 8 Fund Accountant assumes no responsibility hereunder, and shall not be liable, for any damage, loss of data, delay or any other loss whatsoever caused by events beyond its reasonable control. 10. Reports. -------- Fund Accountant will furnish to the Trust and to its properly authorized auditors, investment advisers, examiners, distributors, dealers, underwriters, salesmen, insurance companies and others designated by the Trust in writing, such reports and at such times as are prescribed pursuant to the terms and the conditions of this Agreement to be provided or completed by Fund Accountant, or as subsequently agreed upon by the parties pursuant to an amendment hereto. The Trust agrees to examine each such report or copy promptly and will report or cause to be reported any errors or discrepancies therein no later than three business days from the receipt thereof. In the event that errors or discrepancies, except such errors and discrepancies as may not reasonably be expected to be discovered by the recipient within ten days after conducting a diligent examination, are not so reported within the aforesaid period of time, a report will for all purposes be accepted by and binding upon the Trust and any other recipient, and, except as provided in Section 7 hereof, Fund Accountant shall have no liability for errors or discrepancies therein and shall have no further responsibility with respect to such report except to perform reasonable corrections of such errors and discrepancies within a reasonable time after requested to do so by the Trust. 11. Rights of Ownership. -------------------- All computer programs and procedures developed to perform services required to be provided by Fund Accountant under this Agreement are the property of Fund Accountant. All records and other data except such computer programs and procedures are the exclusive property of the Trust and all such other records and data will be furnished to the Trust in appropriate form as soon as practicable after termination of this Agreement for any reason. 12. Return of Records. ------------------ Fund Accountant may at its option at any time, and shall promptly upon the Trust's demand, turn over to the Trust and cease to retain Fund Accountant's files, records and documents created and maintained by Fund Accountant pursuant to this Agreement which are no longer needed by Fund Accountant in the performance of its services or for its legal protection. If not so turned over to the Trust, such documents and records will be retained by Fund Accountant for six years from the year of creation. At the end of such six-year period, such records and documents will be turned over to the Trust unless the Trust authorizes in writing the destruction of such records and documents. 13. Representations of the Trust. ----------------------------- The Trust certifies to Fund Accountant that: (1) as of the close of business on the Effective Date, each Fund that is in existence as of the Effective Date has authorized unlimited shares, 8 9 and (2) this Agreement has been duly authorized by the Trust and, when executed and delivered by the Trust, will constitute a legal, valid and binding obligation of the Trust, enforceable against the Trust in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties. 14. Representations of Fund Accountant. ----------------------------------- Fund Accountant represents and warrants that: (1) the various procedures and systems which Fund Accountant has implemented with regard to safeguarding from loss or damage attributable to fire, theft, or any other cause the records, and other data of the Trust and Fund Accountant's records, data, equipment facilities and other property used in the performance of its obligations hereunder are adequate and that it will make such changes therein from time to time as are required for the secure performance of its obligations hereunder, and (2) this Agreement has been duly authorized by Fund Accountant and, when executed and delivered by Fund Accountant, will constitute a legal, valid and binding obligation of Fund Accountant, enforceable against Fund Accountant in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties. 15. Insurance. ---------- Fund Accountant shall notify the Trust should any of its insurance coverage be canceled or reduced. Such notification shall include the date of change and the reasons therefor. Fund Accountant shall notify the Trust of any material claims against it with respect to services performed under this Agreement, whether or not they may be covered by insurance, and shall notify the Trust from time to time as may be appropriate of the total outstanding claims made by Fund Accountant under its insurance coverage. 16. Information to be Furnished by the Trust and Funds. --------------------------------------------------- The Trust has furnished to Fund Accountant the following: (a) Copies of the Declaration of Trust of the Trust and of any amendments thereto, certified by the proper official of the state in which such document has been filed. (b) Copies of the following documents: (i) The Trust's Bylaws and any amendments thereto; and (ii) Certified copies of resolutions of the Board of Trustees covering the approval of this Agreement, authorization of a specified officer of the Trust to execute and deliver this Agreement and authorization for specified officers of the Trust to instruct Fund Accountant thereunder. 9 10 (c) A list of all the officers of the Trust, together with specimen signatures of those officers who are authorized to instruct Fund Accountant in all matters. (d) Two copies of the Prospectuses and Statements of Additional Information for each Fund. 17. Information Furnished by Fund Accountant. ----------------------------------------- (a) Fund Accountant has furnished to the Trust the following: (i) Fund Accountant's Articles of Incorporation; and (ii) Fund Accountant's Bylaws and any amendments thereto. (b) Fund Accountant shall, upon request, furnish certified copies of corporate actions covering the following matters: (i) Approval of this Agreement, and authorization of a specified officer of Fund Accountant to execute and deliver this Agreement; and (ii) Authorization of Fund Accountant to act as fund accountant for the Trust and to provide accounting services for the Trust. 18. Amendments to Documents. ------------------------ The Trust shall furnish Fund Accountant written copies of any amendments to, or changes in, any of the items referred to in Section 16 hereof forthwith upon such amendments or changes becoming effective. In addition, the Trust agrees that no amendments will be made to the Prospectuses or Statements of Additional Information of the Trust which might have the effect of changing the procedures employed by Fund Accountant in providing the services agreed to hereunder or which amendment might affect the duties of Fund Accountant hereunder unless the Trust first obtains Fund Accountant's approval of such amendments or changes. 10 11 19. Compliance with Law. -------------------- Except for the obligations of Fund Accountant set forth in Section 8 hereof, the Trust assumes full responsibility for the preparation, contents and distribution of each prospectus of the Trust as to compliance with all applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), the 1940 Act and any other laws, rules and regulations of governmental authorities having jurisdiction. Fund Accountant shall have no obligation to take cognizance of any laws relating to the sale of the Trust's shares. The Trust represents and warrants that no shares of the Trust will be sold to the public until the Trust's registration statement under the Securities Act and the 1940 Act has been declared or becomes effective. 20. Notices. -------- Any notice required or permitted to be given by either party to the other shall be deemed sufficient if sent by registered or certified mail, postage prepaid, addressed by the party giving notice to the other party at the last address furnished by the other party to the party giving notice: if to the Trust, at 7900 Wisconsin Avenue, Suite 300, Bethesda, Maryland 20814; and if to Fund Accountant at 3435 Stelzer Road, Columbus, Ohio 43219. 21. Headings. --------- Paragraph headings in this Agreement are included for convenience only and are not to be used to construe or interpret this Agreement. 22. Assignment. ----------- This Agreement and the rights and duties hereunder shall not be assignable with respect to a Fund by either of the parties hereto except by the specific written consent of the other party. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns. 23. Governing Law. -------------- This Agreement shall be governed by and provisions shall be construed in accordance with the laws of the State of Ohio. 11 12 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed all as of the day and year first above written. PROFUNDS By: ------------------------------- BISYS FUND SERVICES, INC. By: ------------------------------- 12 EX-9.E 10 EXHIBIT 9(E) 1 Exhibit 9(e) MANAGEMENT SERVICES AGREEMENT ----------------------------- AGREEMENT, made this _____ day of __________, between ProFunds, a Delaware business trust (the "Trust"), and ProFunds Advisors LLC, a Maryland limited liability company (the "Manager"). WHEREAS, the Trust is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Trust is authorized to issue shares of beneficial interest ("shares") in separate series with each series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Trust currently offers six series of shares designated as follows: Bull ProFund, Ultra Bull ProFund, Bear ProFund, Ultra Bear ProFund, ULTRA OTC ProFund and Money Market ProFund (each referred to hereinafter as a "Fund" and collectively as the "Funds"); and WHEREAS, the Trust desires to engage the Manager to provide certain services to the Trust on behalf of the Funds; and WHEREAS, the Manager is willing, in accordance with the terms and conditions hereof to provide such services to the Trust on behalf of the Portfolios; NOW THEREFORE, in consideration of the mutual agreements set forth herein and intending to be legally bound hereby, the parties agree as follows: 1. APPOINTMENT AND DUTIES OF MANAGER --------------------------------- (a) The Trust hereby employs the Manager to act as manager of the Funds and to perform the services set forth in this Agreement, subject to the supervision of the Board of Trustees of the Trust, for the period and on the terms set forth in this Agreement. The Manager hereby accepts such employment, and undertakes to pay the salaries and expense of all personnel of the Manager who perform services relating to the services it performs hereunder. The Manager shall for all purposes herein be deemed to be an independent contractor and shall, except as otherwise expressly provided or authorized, have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust. (b) Notwithstanding the foregoing, the Manager shall not be deemed to have assumed any duties hereunder with respect to, and shall not, by the execution of this Agreement be responsible for, the management of the Funds' assets or the rendering of investment advice and supervision with respect thereto, or the distribution of shares of the Funds, nor shall the Manager be deemed to have assumed any responsibility hereunder with respect to functions specifically assumed by any administrator, transfer agent, custodian or shareholder servicing agent of the Trust or the Funds. (c) Without limiting the generality of the foregoing, the Manager shall provide the following services to each of the Funds: 1 2 i) Provide information to and coordinate the Trust's relationship with registered investment advisors and other securities professionals who have discretionary authority over Trust shareholder accounts, assist in facilitating instructions received by such persons relating to Trust business and furnish facilities and personnel necessary to perform such activities. ii) Assist as appropriate and coordinate with the Trust's Administrator and other service providers in administering the affairs of the Trust and perform services on the Trust's behalf. iii) Pay the salaries and expenses of all officers and Trustees of the Trust who are employees of the Manger. iv) Perform such other services incident to the Trust's business as parties may from time to time agree. (d) It is intended that the assets of the Money Market ProFund will be invested in a portfolio (the "Portfolio") having substantially the same investment objective, policies and restrictions as the Money Market ProFund. In addition to its duties hereunder, set forth in paragraph 1(c), above, with respect to the Money Market ProFund, the Manager shall perform the following services: i) Monitor the performance of the Portfolio. ii) Coordinate the relationship of the Money Market ProFund with the Portfolio. iii) Communicate with the Board of Trustees of the Money Market ProFund regarding the performance of the Portfolio and the Money Market ProFund. iv) Furnish reports regarding the Portfolio as reasonably requested from time-to-time by the Trust's Board of Trustees. v) Perform such other necessary and desirable services regarding the "Master Feeder" structure of the Money Market ProFund as the Trustees may reasonably request from time to time. (e) In carrying out its responsibilities under this Agreement, the Manager shall at all times act in accordance with the investment objectives, policies and restrictions applicable to the Funds as set forth in the Trust's then-current registration statement, applicable provisions of the 1940 Act and the rules and regulations promulgated thereunder and other applicable federal securities laws. (f) The Manager shall render regular reports to the Trust as requested by the Board of Trustees, and will, at the reasonable request of the Board, 2 3 attend meetings of the Board or its validly constituted committees, and will make its officers and employees available to meet with the officers and employees of the Trust to discuss its duties hereunder. 2. EXPENSES AND COMPENSATION ------------------------- a) Allocation of Expenses: ----------------------- The Manager shall, at its expense, employ or associate with itself such persons as it believes appropriate to assist in performing its obligations under this Agreement and provide all services, equipment, facilities and personnel necessary to perform its obligations under this Agreement. The Trust shall be responsible for all its expenses and liabilities, including compensation of its Trustees who are not affiliated with the Administrator or the Manager or any of their affiliates; taxes and governmental fees; interest charges; fees and expenses of the Trust's independent accountants and legal counsel; trade association membership dues; fees and expenses of any custodian (including for keeping books and accounts and calculating the net asset value of shares of each Fund, transfer agent, registrar and dividend disbursing agent of the Trust; expenses of issuing, selling, redeeming, registering and qualifying for sale the Trust's shares of beneficial interest; expenses of preparing and printing share certificates (if any), prospectuses, shareholders' reports, notices, proxy statements and reports to regulatory agencies; the cost of office supplies; travel expenses of all officers, trustees and employees; insurance premiums; brokerage and other expenses of executing portfolio transactions; expenses of shareholders' meetings; organizational expenses; and extraordinary expenses. b) Compensation ------------ For its services under this Agreement, Manager shall be entitled to receive a fee at the annual rate of .15% of the average daily net asset value of each Fund except the Money Market ProFund and .35% of the average daily net asset value of the Money Market ProFund, payable monthly. For the purpose of accruing compensation, the net asset value of the Funds will be determined in the manner provided in the then-current Prospectus of the Trust. 3. LIABILITY OF MANAGER -------------------- Neither the Manager nor its officers, directors, employees, agents or controlling person ("Associated Person") of the Manager shall be liable for any error of judgment or mistake of law or for any loss suffered by 3 4 the Trust in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of Manager or such Associated Persons in the performance of their duties or from reckless disregard by them of their duties under this Agreement. 4. LIABILITY OF THE TRUST AND FUNDS -------------------------------- It is expressly agreed that the obligations of the Trust hereunder shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Trust personally, but shall bind only the trust property of the Trust as provided in the Declaration of Trust. The execution and delivery of this Agreement have been authorized by the Trustees, and it has been signed by an officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trust as provided in its Declaration of Trust. With respect to any obligation of the Trust on behalf of any Fund arising hereunder, the Manager shall look for payment or satisfaction of such obligations solely to the assets and property of the Fund to which such obligation relates as though the Trust had separately contracted with the Manager by separate written instrument with respect to each Fund. 5. DURATION AND TERMINATION OF THIS AGREEMENT ------------------------------------------ (a) DURATION. This Agreement shall become effective on the date hereof. Unless terminated as herein provided, this Agreement shall remain in full force and effect for two years from the date hereof. Subsequent to such initial period of effectiveness, this Agreement shall continue in full force and effect for successive periods of one year thereafter with respect to each Fund so long as such continuance with respect to such Fund is approved at least annually by the Trustees of the Trust, including the vote of a majority of the Trustees of the Trust who are not parties to this Agreement or "interested persons" (as defined in the 1940 Act) of any such party. (b) AMENDMENT. Any amendment to this Agreement shall become effective with respect to a Fund upon approval of the Manager and the Trust. (c) TERMINATION. This Agreement may be terminated with respect to any Fund at any time, without payment of any penalty, by vote of the Trustees or by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of that Fund, or by the Manager, in each case of 4 5 sixty (60) days' prior written notice to the other party. Any termination of this Agreement will be without prejudice to the completion of transactions already initiated by the Manager on behalf of the Trust at the time of such termination. The Manager shall take all steps reasonably necessary after such termination to complete any such transactions and is hereby authorization to take such steps. In addition, this Agreement may be terminated with respect to one or more Funds without affecting the rights, duties or obligations of any of the other Funds. (d) AUTOMATIC TERMINATION. This Agreement shall automatically and immediately terminate in the event of its assignment (as defined in the 1940 Act). (e) APPROVAL, AMENDMENT OR TERMINATION BY INDIVIDUAL FUND. Any approval, amendment or termination of this Agreement by any Fund shall be effective to continue, amend or terminate this Agreement with respect to any such Fund notwithstanding that such action has not been approved by any other Fund. 6. SERVICES NOT EXCLUSIVE. ----------------------- The services of the Manager to the Trust hereunder are not to be deemed exclusive, and the Manager shall be free to render similar services to others so long as its services hereunder are not impaired thereby. 7. MISCELLANEOUS ------------- (a) NOTICE. Any notice under this Agreement shall be in writing, addressed and delivered or mailed, postage prepaid, to the other party at such address as such other party may designate in writing for the receipt of such notices. (b) SEVERABILITY. If any provision of this Agreement shall be held or made invalid by a court decision, statue, rule or otherwise, the remainder shall not be thereby affected. (c) APPLICABLE LAW. This Agreement shall be construed in accordance with and governed by the laws of Maryland. PROFUNDS ADVISORS LLC, A MARYLAND LIMITED LIABILITY COMPANY 5 6 ATTEST: by: ------------------------------ ------------------------------ PROFUNDS, A DELAWARE BUSINESS TRUST ATTEST: by: ------------------------------ ------------------------------ 6 EX-9.F 11 EXHIBIT 9(F) 1 Exhibit 9(f) SHAREHOLDER SERVICES AGREEMENT [Name] [Address] [City, State, Zip] Ladies and Gentlemen: The Board of Trustees of ProFunds (the "Trust"), an open-end management investment company organized as a Delaware business trust and registered with the Securities and Exchange Commission (the "SEC") under the Investment Company Act of 1940 (the "1940 Act"), on behalf of the holders of Adviser Shares ("Shares") of each of the investment portfolios of the Trust (individually, a "Fund" and collectively, the "Funds"), have adopted a Shareholder Services Plan for the Shares (the "Plan") which, among other things, authorizes the Trust to enter into this Agreement with you (the "Authorized Firm"), concerning the provision of service activities to your clients, members, or customers ("Customers") who may from time to time beneficially own such Funds' Shares. The terms and conditions of this Agreement are as follows: 1. REFERENCE TO PROSPECTUS; DETERMINATION OF NET ASSET VALUE. 1.1 Reference is made to the prospectus for the Shares of each Fund (individually, a "Prospectus" and collectively, the "Prospectuses") as from time to time are effective under the Securities Act of 1933 (the "1933 Act"). Terms defined therein and not otherwise defined herein are used herein with the meaning so defined. 1.2 For purposes of determining the fees payable to you under Section 3, the average daily net asset value of a Fund's Shares will be computed in the manner specified in the Trust's registration statement (as the same is in effect from time to time) in connection with the computation of the net asset value of such Fund's Shares for purposes of purchases and redemptions. 2. SERVICES AS AUTHORIZED FIRM. 2.1 The Authorized Firm is hereby authorized and may from time to time undertake to perform support services to Customers in connection with investments in the Shares of a Fund, which services may include, but are not limited to: the provision of personal, continuing services to investors in each Fund; receiving, aggregating and processing purchase and redemption orders; providing and maintaining retirement plan records; communicating periodically with shareholders and answering questions and handling correspondence from shareholders about their accounts; acting as the sole shareholder of record and nominee for shareholders; maintaining account records and providing beneficial owners with account statements; processing dividend payments; issuing shareholder reports and transaction confirmations; providing subaccounting services for Fund shares held beneficially; forwarding shareholder communications to beneficial owners; receiving, tabulating and 2 transmitting proxies executed by beneficial owners; performing daily investment ("Sweep") functions for Shareholders; general account administration activities; and providing such other similar services as the Trust may reasonably request to the extent the Authorized Firm is permitted to do so under applicable statutes, rules, or regulations. Overhead and other expenses of the Authorized Firm related to its "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities. 2.2 The Authorized Firm will provide such office space and equipment, telephone facilities, and personnel (which may be any part of the space, equipment, and facilities currently used in the Authorized Firms's business, or any personnel employed by the Authorized Firm) as may be reasonably necessary or beneficial in order to provide such support services with respect to a Fund's Shares. 2.3 The minimum dollar purchase of a Fund's Shares (including Shares being acquired by Customers pursuant to any exchange privileges described in the Fund's Prospectus) shall be the applicable minimum amount set forth in the Prospectus of such Fund, and no order for less than such amount shall be accepted by the Authorized Firm. The procedures relating to the handling of orders shall be subject to instructions which the Trust shall forward from time to time to the Authorized Firm. All orders for a Fund's Shares are subject to acceptance or rejection by the Trust in its sole discretion, and the Trust may, in its discretion and without notice, suspend or withdraw the sale of a Fund's Shares, including the sale of such Shares to the Authorized Firm for the account of any Customer or Customers. 2.4 In no transaction shall the Authorized Firm act as dealer for its own account; the Authorized Firm shall act solely for, upon the specific or pre-authorized instructions of, and for the account of, its Customers. For all purposes of this Agreement, the Authorized Firm will be deemed to be an independent contractor, and will have no authority to act as agent for the Trust or any dealer of the Shares in any matter or in any respect. No person is authorized to make any representations concerning the Trust or a Fund's Shares except those representations contained in the Fund's then-current Prospectus and Statement of Additional Information and in such printed information as the Trust may subsequently prepare. 2.5 The Authorized Firm and its employees will, upon request, be available during normal business hours to consult with the Trust or its designees concerning the performance of the Authorized Firm's responsibilities under this Agreement. Any person authorized to direct the disposition of monies paid or payable pursuant to Section 3 of this Agreement will provide to the Trust's Board of Trustees, and the Trust's Trustees will review at least quarterly, a written report of the amounts so expended. In addition, the Authorized Firm will furnish to the Trust or its designees such information as the Trust or its designees may reasonably request (including, without limitation, periodic certifications confirming the rendering of support services with respect to Shares described herein), and will otherwise cooperate with the Trust and its designees (including, without limitation, any auditors designated by the Trust), in the preparation of reports to the Trust's 2 3 Board of Trustees concerning this Agreement and the monies paid or payable pursuant hereto, as well as any other reports or filings that may be required by law. 3 4 3. FEES. 3.1 In consideration of the costs and expenses of furnishing the services and facilities provided by the Authorized Firm hereunder, and subject to the limitations of applicable law and regulations, the Authorized Firm will be compensated quarterly at an annual rate of up to but not more than 1.00% of the average daily net assets of the Fund attributable to the Fund's Shares which are attributable to or held in the name of the Authorized Firm for its Customers. 3.2 The fee rate with respect to any Fund may be prospectively increased or decreased by the Trust, in its sole discretion, at any time upon notice to the Authorized Firm. 4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. 4.1 By written acceptance of this Agreement, the Authorized Firm represents, warrants, and agrees that: (i) the Authorized Firm will provide to Customers a schedule of the services it will perform pursuant to this Agreement and a schedule of any fees that the Authorized Firm may charge directly to Customers for services it performs in connection with investments in the Trust on the Customer's behalf; and (ii) any and all compensation payable to the Authorized Firm by Customers in connection with the investment of their assets in the Trust will be disclosed by the Authorized Firm to Customers and will be authorized by Customers and will not result in an excessive fee to the Authorized Firm. 4.2 The Authorized Firm agrees to comply with all requirements applicable to it by reason of all applicable laws, including federal and state securities laws, the Rules and Regulations of the SEC, including, without limitation, all applicable requirements of the 1933 Act, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, and the 1940 Act. The Trust has furnished the Authorized Firm with a list of the states or other jurisdictions in which the Trust believes the Shares of the Funds are qualified for sale, and the Authorized Firm agrees that it will not purchase a Fund's Shares on behalf of a Customer's account in any jurisdiction in which such Shares are not qualified for sale. The Authorized Firm further agrees that it will maintain all records required by applicable law or otherwise reasonably requested by the Trust relating to the services provided by it pursuant to the terms of this Agreement. 4.3 The Authorized Firm agrees that under no circumstances shall the Trust be liable to the Authorized Firm or any other person under this Agreement as a result of any action by the SEC affecting the operation or continuation of the Plan. 5. EXCULPATION; INDEMNIFICATION. 4 5 5.1 The Trust shall not be liable to the Authorized Firm and the Authorized Firm shall not be liable to the Trust except for acts or failures to act which constitute lack of good faith or gross negligence and for obligations expressly assumed by either party hereunder. Nothing contained in this Agreement is intended to operate as a waiver by the Trust or by the Authorized Firm of compliance with any applicable law, rule, or regulation. 5.2 The Authorized Firm will indemnify the Trust and hold it harmless from any claims or assertions relating to the lawfulness of the Authorized Firm's participation in this Agreement and the transactions contemplated hereby or relating to any activities of any persons or entities affiliated with the Authorized Firm performed in connection with the discharge of its responsibilities under this Agreement. If any such claims are asserted, the Trust shall have the right to manage its own defense, including the selection and engagement of legal counsel of its choosing, and all costs of such defense shall be borne by the Authorized Firm. 6. EFFECTIVE DATE; TERMINATION. 6.1 This Agreement will become effective with respect to each Fund on the date of its acceptance by the Authorized Firm. Unless sooner terminated with respect to any Fund, this Agreement will continue with respect to a Fund until terminated in accordance with its terms, provided that the continuance of the Plan is specifically approved at least annually in accordance with the terms of the Plan. 6.2 This Agreement will automatically terminate with respect to a Fund in the event of its assignment (as such term is defined in the 1940 Act). This Agreement may be terminated with respect to any Fund by the Trust or by the Authorized Firm, without penalty, upon sixty days' prior written notice to the other party. This Agreement may also be terminated with respect to any Fund at any time without penalty by the vote of a majority of the Plan Trustees or a majority of the outstanding Shares of a Fund on sixty days' written notice. 7. GENERAL. 7.1 All notices and other communications to either the Authorized Firm or the Trust will be duly given if mailed, telegraphed or telecopied to the appropriate address set forth on page 1 hereof, or at such other address as either party may provide in writing to the other party. 7.2 The Trust may enter into other similar agreements for the provision of Shareholder support services with any other person or persons without the Authorized Firm's consent. 7.3 Upon receiving the consent of the Trust, the Authorized Firm may, at its expense, subcontract with any entity or person concerning the provision of the services contemplated hereunder; provided, however, that the Authorized Firm shall not be relieved of any of its obligations under this Agreement by the appointment of such subcontractor and provided 5 6 further, that the Authorized Firm shall be responsible, to the extent provided in Article 5 hereof, for all acts of such subcontractor as if such acts were its own. 7.4 This Agreement supersedes any other agreement between the Trust and the Authorized Firm relating to support services in connection with a Fund's Shares and relating to any other matters discussed herein. All covenants, agreements, representations, and warranties made herein shall be deemed to have been material and relied on by each party, notwithstanding any investigation made by either party or on behalf of either party, and shall survive the execution and delivery of this Agreement. The invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of any other term or provision hereof. The headings in this Agreement are for convenience of reference only and shall not alter or otherwise affect the meaning hereof. This Agreement may be executed in any number of counterparts which together shall constitute one instrument and shall be governed by and construed in accordance with the laws (other than the conflict of laws rules) of the State of California and shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. 7.5 It is expressly agreed that the obligations of the Trust hereunder shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Trust personally, but shall bind only the trust property of the Trust. The execution and delivery of this Agreement have been authorized by the Trustees, and this Agreement has been signed and delivered by an authorized officer of the Trust, acting as such, and neither such authorization by the Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trust as provided in the Trust's Declaration of Trust. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below. ProFunds By: ______________ Title:____________ The foregoing Agreement is hereby accepted: [Authorized Firm] By: _______________________________ Title: ____________________________ Date: _____________________________ 6 EX-9.G 12 EXHIBIT 9(G) 1 Exhibit 9(g) OMNIBUS FEE AGREEMENT THIS AGREEMENT is made as of this day of September, 1997, by and among PROFUNDS (the "Company"), a Delaware business trust, BISYS FUND SERVICES LIMITED PARTNERSHIP, d/b/a BISYS FUND SERVICES ("BISYS LP"), an Ohio limited partnership, and BISYS FUND SERVICES, INC. ("BISYS"), a Delaware corporation. WHEREAS, the Company is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act") consisting of several series of shares of beneficial interest ("Shares"); WHEREAS, the Company and BISYS LP have entered into an Administration Agreement, dated September , 1997, concerning the provision of management and administrative services for the investment portfolios of the Company (individually referred to herein as a "Fund" and collectively as the "Funds"); WHEREAS, the Company and BISYS have entered into a Fund Accounting Agreement and a Transfer Agency Agreement, each of which is dated September , 1997, concerning the provision of fund accounting and transfer agency services, respectively, for the Funds; and WHEREAS, the parties desire to set forth the compensation payable by the Company under the foregoing agreements in a separate written document. NOW, THEREFORE, in consideration of the mutual premises and covenants herein set forth, the parties agree as follows: 1. The Administration Agreement, Fund Accounting Agreement, and Transfer Agency Agreement referred to herein shall be referred to collectively as the "Service Agreements." 2. The Company shall pay to BISYS LP all of the compensation set forth herein on the dates set forth herein. 3. The amount of the compensation due and payable to BISYS LP shall be the greater of: (i) the aggregate fee amount due and payable for Administration, Fund Accounting and Transfer Agency services pursuant to the contractual fee schedule set forth in Schedule A hereto during the term of the Service Agreements or (ii) the minimum relationship fee pursuant to the minimum relationship fee schedule set forth in Schedule B hereto. 4. This Agreement shall be governed by, and its provisions shall be construed in accordance with, the laws of the State of Ohio. 2 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be fully executed as of the day and year first written above. PROFUNDS By: ------------------------------------- BISYS FUND SERVICES LIMITED PARTNERSHIP By: BISYS FUND SERVICES, INC., General Partner By: ------------------------------------- BISYS FUND SERVICES, INC. By: ------------------------------------- 2 3 SCHEDULE A CONTRACTUAL FEE SCHEDULE Fund Administration Services - ---------------------------- The Company will pay to BISYS LP on the first business day of each month, or at such time(s) as BISYS LP shall request and the parties hereto shall agree, a fee computed daily at the annual rate set forth below: Fifteen one-hundredths of one percent (.15%) of the Company's average daily net assets up to $300 million. Thirteen one-hundredths of one percent (.13%) of the Company's average daily net assets in excess of $300 million up to $500 million. Eleven one-hundredths of one percent (.11%) of the Company's average daily net assets in excess of $500 million up to $700 million. Nine one-hundredths of one percent (.09%) of the Company's average daily net assets in excess of $700 million up to $900 million. Seven one-hundredths of one percent (.07%) of the Company's average daily net assets in excess of $900 million up to $1 billion. Five one-hundredths of one percent (.05%) of the Company's average daily net assets in excess of $1 billion. Fund Accounting Services - ------------------------ The Company will pay BISYS LP on the first business day of each month, or at such time(s) as BISYS LP shall request and the parties hereto shall agree, a fee computed daily at the annual rate set forth below: Three one-hundredths of one percent (.03%) of each Fund's average daily net assets up to $300 million. Two one-hundredths of one percent (.02%) of each Fund's average daily net assets in excess of $300 million up to $500 million. One one-hundredth of one percent (.01%) of each Fund's average daily net assets in excess of $500 million. The fee payable by the Company hereunder shall be allocated to each Fund based upon its pro A-1 4 rata share of the total fee payable hereunder. Such fee as is attributable to each Fund shall be a separate (and not joint or joint and several) obligation of each such Fund. The fees set forth above shall be in addition to the payment of out-of-pocket expenses, as provided for in the Fund Accounting Agreement. In addition, a flat annual fee of $10,000 per class shall be payable for each class of shares per Fund that is created after September , 1997. Transfer Agency Services - ------------------------ The Company shall pay BISYS LP on the first business day of each month, or at such time(s) as BISYS LP shall request and the parties hereto shall agree, the fees set forth below. Annual Fee per Shareholder Account: $15.00 The fees set forth above shall be in addition to the payment of out-of-pocket expenses, as provided for in the Transfer Agency Agreement. A-2 5 SCHEDULE B MINIMUM RELATIONSHIP FEE SCHEDULE Subject to Section 3 of this Omnibus Fee Agreement, the total minimum relationship fee payable hereunder shall be $1,100,000. Such fee, if applicable, shall be paid in the increments set forth below; provided, however, that the Company, at its option, may accelerate the timing of the payment of such fee. In such instance, payments made in any calendar quarter in excess of the amount indicated below for that quarter can be credited against any future quarterly amount due. During the first calendar quarter of operations of the funds -0- During the second calendar quarter of operations of the funds -0- During the third calendar quarter of operations of the funds $ 34,375 During the fourth calendar quarter of operations of the funds $ 68,750 During the fifth calendar quarter of operations of the funds $ 103,125 During the sixth calendar quarter of operations of the funds $ 137,500 During the seventh calendar quarter of operations of the funds $ 137,500 During the eighth calendar quarter of operations of the funds $ 171,875 During the ninth calendar quarter of operations of the funds $ 206,250 During the tenth calendar quarter of operations of the funds $ 240,625 ----------- Total minimum relationship fee $ 1,100,000
B-1 EX-10 13 EXHIBIT 10 1 Exhibit 10 DECHERT PRICE & RHOADS 1500 K Street, NW Washington, D.C. 20005-1208 Telephone: (202) 626-3300 Fax: (202) 626-3334 October 27, 1997 ProFunds 7900 Wisconsin Avenue, Suite 300 Bethesda, Maryland 20814 Re: Registration under the Securities Act of 1933, as amended and the investment Company Act of 1940, as amended -------------------------------------------------- Dear Ladies and Gentlemen: We have acted as counsel for ProFunds (the "Fund") in connection with the registration of an indefinite number of its shares under the Securities Act of 1933, as amended. The Fund is a series fund, comprising six series, organized as a business trust under the laws of the State of Delaware. We have examined the Fund's Certificate of Trust, Declaration of Trust, Bylaws, Notification of Registration on Form N-8A filed under the Investment Company Act of 1940, amended Registration Statement filed on Form N-1A under the Securities Act of 1933 and the Investment Company Act of 1940 (Registration Nos. 333-28339 and 811-08239), and such other documents and matters as we have deemed necessary to enable us to give this opinion. Based upon the foregoing, we are of the opinion that the shares proposed to be sold pursuant to the Fund's Registration Statement, when it is made effective by the Securities and Exchange Commission, will have been validly authorized and, when sold in accordance with the terms of the Registration Statement and the requirements of applicable federal and state law and delivered by the Fund against receipt of cash equal to the initial amount to be invested per share (in the case of initial shares sold) or the net asset value of shares sold thereafter, as described in the Registration Statement, will have been legally and validly issued and will be fully paid and non-assessable by the Trust. We hereby consent to the filing of this opinion as an exhibit to the Fund's Pre-Effective Amendment No. 3 on Form N-1A to be filed with the Securities and Exchange Commission in connection with the registration of the shares of the Fund's shares, as indicated above, and to the use of our name in the Fund's prospectus and/or Statement of Additional Information to be dated on or about the effective date of the Fund's Registration Statement and in any revised or amended versions thereof. Very truly yours, /s/ DECHERT PRICE & RHOADS EX-11 14 EXHIBIT 11 1 Exhibit 11 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Pre-Effective Amendment No. 3 to the Registration Statement on Form N-1A (File No. 333-28339) of the ProFunds of our report dated October 17, 1997 on our audit of the financial statement of the Money Market ProFund. We also consent to the reference to our Firm under the caption "Auditors" in the Prospectus and "Independent Accountants" in the Statement of Additional Information relating to the ProFunds in this Pre-Effective Amendment No. 3 to the Registration Statement on Form N-1A (File No. 333-28339). COOPERS & LYBRAND L.L.P. Columbus, Ohio October 27, 1997 EX-13 15 EXHIBIT 13 1 Exhibit 13 PURCHASE AGREEMENT ProFunds, an open-end management investment company (the "Trust"), and National Capital Group, Inc. ("National Capital"), intending to be legally bound, hereby agree as follows: 1. In order to provide the Trust with its initial capital, the Trust hereby sells to National Capital and National Capital hereby purchases units of the Trust's beneficial interest (the "Shares") in the amounts and at the prices per share set forth below, such purchases to be allocated evenly between classes of each existing class of each series:
No. of Price Per Series Shares Share ------ ------ ----- Bull ProFund ....... 1 $10.00 UltraBull ProFund .. 1 $10.00 Bear ProFund ....... 1 $10.00 UltraBear ProFund .. 1 $10.00 UltraOTC ProFund ... 1 $10.00 Money Market ProFund 99,950 $ 1.00
2. The Trust hereby acknowledges receipt from National Capital of $100,000 in full payment for the Shares. 3. National Capital represents and warrants to the Trust that: (a) The Shares are being acquired for investment and not with a view to distribution thereof and that National Capital has no present intention to redeem or dispose of any of the Shares; and (b) National Capital's purchase of the shares qualifies under Section 4 (2) of the Securities Act of 1993, as amended. 2 4. National Capital hereby agrees that in the event that it redeems any of the Shares prior to the time that the Trust has completed the amortization of its organizational expenses, the redemption proceeds may be reduced by a pro rata portion of the remaining amount of such unamortized organizational expenses. If such reduction is not, in fact, made, National Capital agrees to reimburse the Trust upon request for such pro rata portion of unamortized organizational expenses. In addition, in the event that the Trust liquidates before the deferred organizational expenses are fully amortized, then the Shares shall bear their proportionate share of such unamortized organizational expense. 5. It is expressly agreed that the obligations of the Trust hereunder shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Trust personally, but shall bind only the trust property of the Trust as provided in the Trust's Declaration of Trust. IN WITNESS WHEREOF, the parties have executed this Agreement as of the _____ day of October, 1997. THE PROFUNDS By: ______________________________________ NATIONAL CAPITAL GROUP, INC. By: ______________________________________ EX-18 16 EXHIBIT 18 1 Exhibit 18 COMPOSITE MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3 FOR PROFUNDS WHEREAS, ProFunds (the "Trust") engages in business as an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act"); WHEREAS, shares of beneficial interest of the Trust are currently divided into a number of separate series (the "Funds"), including the Bull ProFund, the UltraBull ProFund, the Bear ProFund, the UltraBear ProFund, the UltraOTC ProFund, and the Money Market ProFund (collectively, the "Funds"); and WHEREAS, the Trust desires to adopt, on behalf of each of the Funds, a Multiple Class Plan pursuant to Rule 18f-3 under the Act (the "Plan") with respect to each of the Funds. NOW, THEREFORE, the Trust hereby adopts, on behalf of the Funds, the Plan, in accordance with Rule 18f-3 under the Act on the following terms and conditions: 1. FEATURES OF THE CLASSES. Each of the funds issues its shares of beneficial interest in two classes: "Investor Shares" and "Adviser Shares." Shares of each class of a Fund shall represent an equal pro rata interest in such Fund and, generally, shall have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications and terms and conditions, except that: (a) each class shall have a different designation; (b) each class of shares shall bear any Class Expenses, as defined in Section 4 below, and (c) each class shall have separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class. In addition, Investor Shares and Adviser Shares shall have the features described in Sections 3, 4 and 5 below. 2. SALES CHARGE STRUCTURE. Shares of each class shall be offered at the then-current net asset value without the imposition of a front-end or contingent deferred sales charge. 3. SERVICE PLAN. (a) Adviser Shares have adopted a shareholder servicing plan pursuant to which it may pay registered investment advisers, banks, trust companies and other financial organizations a fee at an annual rate of up to 1.00% of the average daily net assets of a Fund's Adviser Shares attributable to or held in the name of an Authorized Firm for providing service activities for its clients who are beneficial owners of Adviser Shares. (b) As used herein, the term "service activities" shall mean activities in connection with the provision of personal, continuing services to investors in each Fund; receiving, aggregating and processing purchase and redemption orders; providing and maintaining retirement plan records; 2 communicating periodically with shareholders and answering questions and handling correspondence from shareholders about their accounts; acting as the sole shareholder of record and nominee for shareholders; maintaining account records and providing beneficial owners with account statements; processing dividend payments; issuing shareholder reports and transaction confirmations; providing subaccounting services for Fund shares held beneficially; forwarding shareholder communications to beneficial owners; receiving, tabulating and transmitting proxies executed by beneficial owners; performing daily investment ("Sweep") functions for shareholders; and general account administration activities. Overhead and other expenses, may be included in the information regarding amounts expended for such activities. 4. ALLOCATION OF INCOME AND EXPENSES. (a) The gross income of each Fund generally shall be allocated to each class on the basis of net assets. To the extent practicable, certain expenses (other than Class Expenses as defined below, which shall be allocated more specifically) shall be subtracted from the gross income on the basis of the net assets of each class of the Fund. These expenses include: (1) Expenses incurred by the Trust (including, but not limited to, fees of Trustees, insurance and legal counsel) not attributable to a particular Fund or to a particular class of shares of a Fund ("Corporate Level Expenses"); and (2) Expenses incurred by a Fund not attributable to any particular class of the Fund's shares (for example, advisory fees, custodial fees, or other expenses relating to the management of the Fund's assets) ("Fund Expenses"). (b) Expenses attributable to a particular class ("Class Expenses") shall be limited to: (i) payments made pursuant to a shareholder services plan, (ii) transfer agent fees attributable to a specific class; (iii) printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses and proxies to current shareholders of a specific class; (iv) Blue Sky registration fees incurred by a class; (v) Securities and Exchange Commission registration fees incurred by a class; (vi) the expense of administrative personnel and services to support the shareholders of a specific class; (vii) litigation or other legal expenses relating solely to one class; and (viii) Trustees' fees incurred as a result of issues relating to one class. Expenses in category (i) above must be allocated to the class for which such expenses are incurred. All other "Class Expenses" listed in categories (ii)-(viii) above may be allocated to a class, but only if the President and Chief Financial Officer have determined, subject to Board approval or ratification, which of such categories of expenses will be treated as Class Expenses, consistent with applicable legal principles under the Act and the Internal Revenue Code of 1986, as amended (the "Code"). Therefore, expenses of a Fund shall be apportioned to each class of shares depending on the nature of the expense item. Corporate Level Expenses and Fund Expenses will be allocated among the classes of shares based on their relative net asset values in relation to the net asset value of the Trust. Approved Class Expenses shall be allocated to the particular class to which they are attributable. In -2- 3 addition, certain expenses may be allocated differently if their method of imposition changes. Thus, if a Class Expense can no longer be attributed to a class, it shall be charged to a Fund for allocation among classes, as determined by the Board of Trustees. Any additional Class Expenses not specifically identified above which are subsequently identified and determined to be properly allocated to one class of shares shall not be so allocated until approved by the Board of Trustees of the Trust in light of the requirements of the Act and the Code. 5. EXCHANGE PRIVILEGES. Shareholders may exchange shares of one class of a Fund at net asset value without any sales charge for shares of the same class offered by another Fund, provided that the amount to be exchanged meets the applicable minimum investment requirements and the exchange is made in states where it is legally authorized. Exchanges from one class of shares into another class of shares presently are not permitted. 6. CONVERSION FEATURES. The Funds currently do not offer a conversion feature. 7. QUARTERLY AND ANNUAL REPORTS. The Trustees shall receive quarterly and annual statements concerning all allocated Class Expenses and servicing expenditures. In the statements, only expenditures properly attributable to the servicing of a particular class of shares will be used to justify any servicing fee or other expenses charged to that class. Expenditures not related to the servicing of a particular class shall not be presented to the Trustees to justify any fee attributable to that class. 8. ACCOUNTING METHODOLOGY. The following procedures shall be implemented in order to meet the objective of properly allocating income and expenses among the Funds; (1) On a daily basis, a fund accountant shall calculate the shareholder services fee to be charged to the Adviser Shares by calculating the average daily net asset value of such shares outstanding and applying the applicable fee rate of the class to the result of that calculation. (2) The fund accountant will allocate all other designated Class Expenses, if any, to the respective classes. (3) The fund accountant shall allocate income and Corporate Level and Fund Expenses among the respective classes of shares based on the net asset value of each class in relation to the net asset value of the Fund for Fund Expenses, and in relation to the net asset value of the Trust for Corporate Level Expenses. These calculations shall be based on net asset values for all Funds except the Money Market ProFund, for which it will be based on the relative value of settled shares. (4) The fund accountant shall then complete a worksheet developed for purposes of complying with Section 8 of this Plan, using the allocated income and expense calculations from paragraph (3) above, and the additional fees calculated from paragraphs (1) and (2) above. -3- 4 (5) The fund accountant shall develop and use appropriate internal control procedures to assure the accuracy of its calculations and appropriate allocation of income and expenses in accordance with this Plan. 9. WAIVER OR REIMBURSEMENT OF EXPENSES. Expenses may be waived or reimbursed by the adviser to the Trust or any other provider of services to the Trust without the prior approval of the Trust's Board of Trustees. 10. EFFECTIVENESS OF PLAN. This Plan shall not take effect until it has been approved by votes of a majority of both (a) the Trustees of the trust and (b) the independent Trustees. 11. MATERIAL MODIFICATIONS. This Plan may not be amended to modify materially its terms unless such amendment is approved in the manner provided for initial approval in paragraph 10 hereof. 12. LIMITATION OF LIABILITY. The Trustees of the Trust and the shareholders of each Fund shall not be liable for any obligation of the Trust or any Fund under this Plan, and any person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Trust or such Funds in settlement of such right or claim, and not to such Trustees or shareholders. IN WITNESS WHEREOF, the Trust, on behalf of the Funds, has adopted this Multiple Class Plan as of ________, 1997. PROFUNDS By:__________________ Title: Secretary -4- -----END PRIVACY-ENHANCED MESSAGE-----