N-CSR 1 tm234034d1_ncsr.htm N-CSR

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number 811-08239  

 

ProFunds

(Exact name of registrant as specified in charter)

 

7272 Wisconsin Avenue, 21st Floor                 Bethesda, MD  20814
(Address of principal executive offices)  (Zip code)

 

Citi Fund Services Ohio, Inc., 4400 Easton Commons, Suite 200, Columbus, OH 43219

(Name and address of agent for service)

 

Registrant’s telephone number, including area code: (240) 497-6400  

 

Date of fiscal year end: July 31, 2023  

 

Date of reporting period: July  31, 2023  

 

 

 

 

 

 

Item 1. Reports to Stockholders. 

 

 

 

 

 

Annual Report

JULY 31, 2023

 

  Investor  
Bitcoin Strategy ProFund BTCFX  
Short Bitcoin Strategy ProFund BITIX  

 

 

 

 

Table of Contents

 

1   Message from the Chairman
3   Management Discussion of Fund Performance
9   Expense Examples
     
  Consolidated Schedules of Portfolio Investments
12   Bitcoin Strategy ProFund
13   Short Bitcoin Strategy ProFund
15   Consolidated Statements of Assets and Liabilities
17   Consolidated Statements of Operations
19   Consolidated Statements of Changes in Net Assets
21   Consolidated Statements of Cash Flows
23   Consolidated Financial Highlights
25   Notes to Consolidated Financial Statements
38   Report of Independent Registered Public Accounting Firm
40   Trustees and Executive Officers
     

Receive investor materials electronically:

 

Shareholders may sign up for electronic delivery of investor materials. By doing so, you will receive the information faster and help us reduce the impact on the environment of providing these materials. To enroll in electronic delivery,

 

1.Go to www.icsdelivery.com

 

2.Select the first letter of your brokerage firm's name.

 

3.From the list that follows, select your brokerage firm. If your brokerage firm is not listed, electronic delivery may not be available. Please contact your brokerage firm.

 

4.Complete the information requested, including the e-mail address where you would like to receive notifications for electronic documents.

 

Your information will be kept confidential and will not be used for any purpose other than electronic delivery. If you change your mind, you can cancel electronic delivery at any time and revert to physical delivery of your materials. Just go to www.icsdelivery.com, perform the first three steps above, and follow the instructions for cancelling electronic delivery. If you have any questions, please contact your brokerage firm.

 

 

 

 

 

 

Message from the Chairman

 

Dear Shareholder:

 

Given the promise and potential of innovations like bitcoin, ProFunds is committed to providing you, our investors, with an array of products and services designed to help you meet your investment objectives. The following is the ProFunds Bitcoin Strategies Annual Report for the 12 months ended July 31, 2023.

 

A Tale of Two Market Cycles

 

Over the 12-month period covered in this report, the price of bitcoin rose 22.1%, as measured by the Bloomberg Galaxy Bitcoin Index, and by 20%, according to the S&P CME Bitcoin Futures Index. Performance was essentially bifurcated, however. There was a sharp downturn in the price of bitcoin through the end of 2022 followed by a significant rebound in 2023. These price swings were mirrored by the broader cryptocurrency market over the same yearlong period.

 

The wide-ranging effects of inflation and the Federal Reserve's campaign of interest rate hikes weighed on most sectors and asset classes in 2022, including bitcoin. By the end of 2022, the price of bitcoin had declined 30.5% from the beginning of the reporting period, according to the Bloomberg Galaxy Bitcoin Index, and by 28.9%, according to the S&P CME Bitcoin Futures Index.

 

As 2023 began, however, the picture changed, and even with lingering inflation, bitcoin rallied. From the beginning of 2023 to the end of the reporting period, bitcoin rose 75.7%, according to the Bloomberg Galaxy Bitcoin Index, and by 68.7%, according to the S&P CME Bitcoin Futures Index. Strikingly, this rally persisted despite further turmoil in the category, including the regulatory scrutiny on certain exchanges and heightened concerns over the financial health of regional U.S. banks.

 

Signs of Crypto Market Maturity Despite Significant Challenges

 

Underscoring the bifurcated performance of bitcoin during the reporting period have been at least two competing forces. On the one hand, cryptocurrencies are increasingly becoming integrated into the financial services industry and our day-to-day lives. They are part of a broader transformation of the infrastructure supporting our financial system that includes the growing use of the blockchain and other emerging technologies.

 

The use of digital assets as investments appears to be growing, too. Recent research suggests that the share of people owning any cryptocurrency has increased dramatically since 2018, and that share continued to increase to 12% of the U.S. population even as bitcoin prices fell sharply in late 2022.

 

On the other hand, the challenges of spot cryptocurrency markets over the past year must not be overlooked. In particular, there has been heightened concern over the practices of several largely unregulated cryptocurrency exchanges and other third-party service providers. Lingering questions over whether cryptocurrency brokerage accounts are segregated in the event of bankruptcy, among other issues, suggest that the financial

 

1 

 

 

infrastructure supporting the spot cryptocurrency market is still maturing.

 

ProFunds Provides Regulated Solutions to Investors Looking to Capture Bitcoin-Linked Returns

 

No matter whether bitcoin prices go up or down, ProFunds' Bitcoin Strategy mutual funds enable investors to express their views about the price of bitcoin through a regulated investment product. The Bitcoin Strategy ProFund (BTCFX) provides a convenient way for investors to gain exposure to bitcoin-linked returns, and the fund has very closely tracked spot bitcoin since the fund's inception in July 2021. In addition, the Short Bitcoin Strategy ProFund (BITIX), which launched just prior to the beginning of the reporting period, gives investors a way to hedge their bitcoin exposure and potentially profit on days when the price of bitcoin falls. BITIX seeks daily investment results that correspond to the inverse (-1x) of the return of the S&P CME Bitcoin Futures Index.

 

BTCFX and BITIX provide investors access to a bitcoin strategy with the inherent advantages arising from a mutual fund structure. Both funds invest in regulated futures that trade on regulated exchanges, and the underlying futures contracts are backed by a centralized clearinghouse.

 

ProFunds has a long and successful history of pioneering some of the industry's most innovative mutual funds. BTCFX and BITIX build on this tradition, and we look forward to continuing to provide our investors with a breadth of choices, across diverse market segments, that allow them to adapt their investments to their latest market views. We thank you for the trust and confidence you have placed in us by choosing ProFunds, and we appreciate the opportunity to continue serving your investment needs.

 

Sincerely,

 

 

 

Michael L. Sapir

Chairman of the Board of Trustees

 

2 

 

 

Management Discussion of Fund Performance

 

 

 

4 :: Management Discussion of Fund Performance (unaudited)

 

Investment Strategies and Techniques – Bitcoin Strategies Funds (the "Funds")

 

The Bitcoin Strategy ProFund (BTCFX) seeks to provide capital appreciation primarily through managed exposure to bitcoin futures contracts. BTCFX does not invest directly in bitcoin and is actively managed. Its performance reflects the investment decisions that ProFund Advisors LLC ("PFA"), the investment adviser to the Funds, makes for the Fund. PFAs' judgments about the Fund's investments may prove to be incorrect. If the investments selected and strategies employed by the Fund fail to produce the intended results, the Fund could underperform other market segments and funds with a similar investment objective and/or strategies.

 

The Short Bitcoin Strategy ProFund (BITIX) seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of the S&P CME Bitcoin Futures Index (the "Index"). If the Fund is successful in meeting its investment objective, it should gain approximately as much as the Index loses when the Index falls on a given day. Conversely, it should lose approximately as much as the Index gains when the Index rises on a given day. The Fund does not seek to achieve the inverse (-1x) of the daily performance of the Index (the "Daily Target") for any period other than a day.

 

While BITIX has a daily investment objective, you may hold BITIX shares for longer than one day if you believe doing so is consistent with your goals and risk tolerance. If you hold shares of BITIX for any period other than a day, it is important for you to understand that over your holding period your return may be higher or lower than the Fund's Daily Target, and this difference may be significant.

 

PFA uses a passive approach in seeking to achieve BITIX's investment objective. Using this approach, PFA determines the type, quantity and mix of investment positions that BITIX should hold to approximate the daily performance of its index. PFA does not invest the assets of BITIX in securities or financial instruments based on its view of investment merit nor does PFA conduct conventional investment research or analysis; forecast market movements, trends or market conditions; or take defensive positions in managing assets of BITIX. BITIX does not invest directly in bitcoin.

 

The Funds seek to invest primarily in bitcoin futures contracts and do not invest directly in bitcoin. Bitcoin and bitcoin futures are relatively new investments. They are subject to unique and substantial risks, and historically have been subject to significant price volatility. The value of an investment in BTCFX or BITIX could decline significantly and without warning, including to zero. You may lose the full value of your investment within a single day. The Funds make significant use of investment techniques that may be considered aggressive, including the use of futures contracts ( "derivatives"). Funds using derivatives are exposed to risks different from, or possibly greater than, the risks associated with investing directly in securities, including one or more of the following: counterparty risk (i.e., the risk that a counterparty is unable or unwilling to make timely payments to meet its contractual obligations) on the amount a Fund expects to receive from a derivatives counterparty, liquidity risk (i.e., the risk that a Fund might not be able to acquire or dispose of certain holdings quickly or at prices that represent true market value in the judgment of PFA), and increased correlation risk (i.e., the risk that a Fund may not be able to achieve a high degree of correlation with its index or the inverse thereof). If a counterparty becomes bankrupt, or fails to perform its obligations, the value of an investment in a Fund may decline. The counterparty to a listed futures contract is the clearing organization for the listed future, which is held through a futures commission merchant ("FCM") acting on behalf of the Fund. Consequently, the counterparty risk on a listed futures contract is the creditworthiness of the FCM and the exchange's clearing corporation.

 

Factors that Materially Affected the Performance of BTCFX during the Year Ended July 31, 2023:

 

The primary factors affecting BTCFX's performance were the return of spot bitcoin, which is the reference asset for the bitcoin futures held by the Fund, the return of bitcoin futures, and in turn, the factors and market conditions affecting bitcoin and bitcoin futures. Other significant factors affecting performance included the cost associated with holding and replacement of futures contracts as they approach maturity (often referred to as the cost of "rolling," which includes the impact of the futures implied financing costs), as well as fund fees, expenses and transaction costs (which are not reflected in the Fund's expense ratio and may be higher than for more traditional funds), and the offsetting impact of interest earned on cash investments.

 

Factors that Materially Affected the Performance of BITIX during the Year Ended July 31, 2023:

 

The primary factors affecting BITIX's performance were the daily return of spot bitcoin, which is the reference asset for the bitcoin futures held by the Fund and referenced by BITIX's index, the return of bitcoin futures, and in turn, the factors and market conditions affecting bitcoin and bitcoin futures. The volatility of bitcoin and bitcoin futures, the daily rebalancing of the Fund's portfolio and the impact of compounding on returns also had a significant impact on BITIX's performance over the period. Other significant factors affecting performance included the cost associated with the replacement of futures contracts as they approach maturity (often referred to as "rolling", and generally guided by BITIX's index construction), as well as fund fees, expenses and transaction costs, and the beneficial impact of interest earned on cash investments.

 

·Index Performance: The performance of BITIX's Index and, in turn, the factors and market conditions affecting that Index, are a principal factor driving Fund performance.1

 

·Holding Period Risk — The performance of BITIX for periods longer than a single day will likely differ from the Daily Target. This difference may be significant.

 

 

1Indexes do not actually hold a portfolio of securities and/or financial instruments. Indexes do not incur fees, expenses and transaction costs. Fees, expenses and transaction costs incurred by the Funds negatively impact the performance of those Funds relative to their respective indexes. Performance of the Funds will generally differ from the performance of the Fund's index.

 

 

 

Management Discussion of Fund Performance (unaudited) :: 5

 

Daily rebalancing of BITIX's portfolio and the compounding of each day's return over time means that the return of a BITIX over periods longer than a single day will be the result of each day's returns compounded over the period.

 

Factors that contribute to returns that are worse than the Daily Target include smaller benchmark gains or losses and higher benchmark volatility, as well as longer holding periods when these factors apply. Factors that contribute to returns that are better than the Daily Target include larger benchmark gains or losses and lower benchmark volatility, as well as longer holding periods when these factors apply. The more extreme these factors are, the more Fund's return over the period will tend to deviate from the Daily Target. During periods of higher Index volatility, the volatility of the Index may affect BITIX's return over that period as much as or more than the return of the Index. Actual results for a particular period, before fees and expenses, are also dependent on the following factors: a) period of time; b) financing rates associated with the use of derivatives; c) other Fund expenses; and d) interest paid in connection with collateral or repurchase agreements, e) Index volatility; and f) the benchmark's performance.

 

·Financing Rates Associated with Derivatives and Interest earned on Cash Positions: The performance of each of BTCFX and BITIX was impacted by the financing costs implied in the price of bitcoin futures contracts. Because BITIX holds short positions in futures contracts, it benefits from these implied financing costs and also earns interest on its cash investments.

 

·Fees, Expenses, and Transaction Costs: Fees and expenses are listed in each of BTCFX's and BITIX's financial statements and may generally be higher and thus have a more negative impact on Fund performance compared to many traditional index-based funds. Transaction costs are not reflected in the Funds' expense ratio and are generally higher for BTCFX and BITIX than many more traditional funds. Daily repositioning of BITIX's portfolio to maintain consistent -100% investment exposure may lead to commensurate increases in portfolio transaction costs, which negatively impact BITIX's daily NAV.

 

·Miscellaneous factors: BTCFX and BITIX each hold a mix of futures contracts, money market instruments and positions in repurchase agreements designed to provide returns that seek to achieve its investment objective. BITIX may hold futures contracts or other investments not represented in its Index or may have weightings that are different from that of its Index.

 

 

 

6 :: Bitcoin Strategy ProFund :: Management Discussion of Fund Performance (unaudited)

 

Bitcoin Strategy ProFund (the "Fund") seeks to provide capital appreciation by investing all or substantially all of its assets through managed exposure to bitcoin futures contracts. The Fund does not invest directly in bitcoin. The Fund does not seek to match the daily returns of any specific benchmark. For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of 18.23%. For the same period, the Bloomberg Galaxy Bitcoin Index1 had a total return of 22.12%.2

 

The Fund will not invest directly in Bitcoin Futures Contracts. The Fund expects to gain exposure to these instruments by investing a portion of its assets in the ProFunds Bitcoin Strategy Portfolio, a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands (the "Subsidiary"). The Subsidiary is advised by the Fund's Advisor. Unlike the Fund, the Subsidiary is not an investment company registered under the Investment Company Act of 1940. The Fund's investment in the Subsidiary is intended to provide the Fund with exposure to commodity markets in accordance with applicable rules and regulations. The Subsidiary has the same investment objective as the Fund.

 

During the year ended July 31, 2023, the Fund, through its investment in Subsidiary, invested in CME Bitcoin futures contracts.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Bitcoin Strategy ProFund from July 28, 2021 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 7/31/23

 

Fund  One Year   Since Inception 
Investor   18.23%   -18.59%
Bloomberg Galaxy Bitcoin Index   22.12%   -14.75%

 

Expense Ratios**

 

Fund  Gross   Net 
Investor   1.57%   1.15%

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. Contractual fee waivers are in effect through November 30, 2023. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings

 

Market Exposure

 

Investment Type  % of Net Assets 
Futures Contracts   100%
Total Exposure   100%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management.

 

Holdings

 

The Bitcoin Strategy ProFund primarily invests in non-equity securities, which may include: futures contracts, Canadian Exchange Traded Funds, repurchase agreements and reverse repurchase agreements, and U.S. Government securities.

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and net asset value ("NAV") will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1The Bloomberg Galaxy Bitcoin Index (the "Index") is designed to measure the performance of a single Bitcoin traded in US Dollar (USD) terms. The Index seeks to provide a proxy for the bitcoin market. Pricing sources are selected for liquidity and reliability, and approved for use following risk and suitability assessments. Cryptocurrencies must meet minimum thresholds for daily traded USD-value. The Index is intended to be responsive to the changing nature of the market in a manner that does not completely reshape the character of the Index from year to year.

2The impact of transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees, are not reflected in calculation of the index. The Fund's performance reflects the reinvestment of dividends as well as the impact of transaction costs and the deduction of fees and expenses. It is not possible to invest directly in an index.

 

The above information is not covered by the Report of the Independent Registered Public Accounting Firm.

 

 

 

Management Discussion of Fund Performance (unaudited) :: Short Bitcoin Strategy ProFund :: 7

 

Short Bitcoin Strategy ProFund (the "Fund") seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of the S&P CME Bitcoin Futures Index1 the ("Index") for a single day, not for any other period. A "single day" is measured from the time the Fund calculates its net asset value ("NAV") to the time of the Fund's next NAV calculation. The return of the Fund for periods longer than a single day will be the result of its return for each day compounded over the period. The Fund's return for periods longer than a single day will very likely differ in amount, and possibly even direction, from the Fund's stated multiple (-1x) times the return of the Index for the same period. For periods longer than a single day, the Fund will lose money if the Index's performance is flat, and it is possible that the Fund will lose money even if the level of the Index falls. For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of -41.69%. For the same period, the Index had a total return of 19.99%.2

 

The Fund does not invest directly in bitcoin nor does it directly short bitcoin. Instead, the Fund seeks to benefit from decreases in the price of bitcoin futures contracts for a single day. The Fund expects to gain exposure to these instruments by investing a portion of its assets in the ProFunds Short Bitcoin Strategy Portfolio, a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands (the "Subsidiary"). The Subsidiary is advised by the Fund's Advisor. Unlike the Fund, the Subsidiary is not an investment company registered under the Investment Company Act of 1940. The Fund's investment in the Subsidiary is intended to provide the Fund with exposure to commodity markets in accordance with applicable rules and regulations. The Subsidiary has the same investment objective as the Fund.

 

During the year ended July 31, 2023, the Fund, through its investment in Subsidiary, invested in CME Bitcoin futures and CME Micro Bitcoin futures contracts.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Short Bitcoin Strategy ProFund from June 21, 2022 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 7/31/23

 

Fund  One Year   Since Inception 
Investor   -41.69%   -48.24%
S&P CME Bitcoin Futures Index   19.99%   33.39%

Expense Ratios**

 

Fund  Gross   Net 
Investor   1.35%   1.35%

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings

 

Market Exposure

 

Investment Type  % of Net Assets 
Futures Contracts   (100)%
Total Exposure   (100)%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management.

 

Holdings

 

The Short Bitcoin Strategy ProFund primarily invests in non-equity securities, which may include: futures contracts, Canadian Exchange Traded Funds, repurchase agreements and reverse repurchase agreements, and U.S. Government securities.

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and NAV will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1The S&P CME Bitcoin Futures Index (the "Index") measures the performance of the front-month bitcoin futures contract trading on the Chicago Mercantile Exchange ("CME"). The Index is constructed from futures contracts and includes a provision for replacement of the Index futures contracts as the contracts approach maturity. This is often referred to as "rolling" a futures contract. The Index rolls monthly and distributes the weights 20% each day over a five-day roll period.

2The impact of transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees, are not reflected in calculation of the index. The Fund's performance reflects the reinvestment of dividends as well as the impact of transaction costs and the deduction of fees and expenses. It is not possible to invest directly in an index.

 

The above information is not covered by the Report of the Independent Registered Public Accounting Firm.

 

 

 

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Expense Examples

 

 

 

10 :: Expense Examples (unaudited)

 

As a ProFund shareholder, you may incur two types of costs: (1) transaction costs, including wire redemption fees; and (2) ongoing costs, including management fees; distribution and services (12b-1) fees; and other ProFund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in a ProFund and to compare these costs with the ongoing cost of investing in other mutual funds. Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transaction costs. If these transaction costs were included, your costs would have been higher. Therefore, the examples are useful in comparing ongoing costs only and will not help you determine the relative total cost of owning different funds.

 

Actual Expenses

 

The actual examples are based on an investment of $1,000 invested at the beginning of a six-month period and held throughout the period ended July 31, 2023.

 

The columns below under the heading entitled "Actual" provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period.

 

Hypothetical Expenses for Comparison Purpose

 

The hypothetical expense examples are based on an investment of $1,000 invested at the beginning of a six-month period and held throughout the period ended July 31, 2023.

 

The columns below under the heading entitled "Hypothetical" provide information about hypothetical account values and hypothetical expenses based on each ProFund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each ProFund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your ProFund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

 

           Actual   Hypothetical
(5% return before expenses)
 
   Annualized
Expense Ratio
   Beginning
Account Value
2/1/23
   Ending
Account Value
07/31/23
   Expenses
Paid During
the Period*
   Ending
Account Value
07/31/23
   Expenses
Paid During
the Period*
 
Bitcoin Strategy ProFund – Investor   1.42%  $1,000.00   $1,200.70   $7.75   $1,017.75   $7.10 
Short Bitcoin Strategy ProFund – Investor   1.35%   1,000.00    698.40    5.68    1,018.10    6.76 

 

 

*Expenses are equal to the average account value over the period multiplied by the Fund's annualized expense ratio, multiplied by 181/365 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year.

 

 

 

Consolidated Schedules of Portfolio Investments

 

 

 

12 :: Bitcoin Strategy ProFund :: Consolidated Schedule of Portfolio Investments :: July 31, 2023

 

U.S. Treasury Obligation (61.5%)

 

   Principal
Amount
   Value 
U.S. Treasury Bills, 5.16%+, 8/17/23^  $34,000,000   $33,920,665 
TOTAL U.S. TREASURY OBLIGATION
(Cost $33,923,303)
        33,920,665 
TOTAL INVESTMENT SECURITIES
(Cost $33,923,303)—61.5%
        33,920,665 
Reverse Repurchase Agreements including accrued interest—(61.5)%        (33,925,188)
Net other assets (liabilities)—100.0%        55,172,824 
NET ASSETS—100.0%       $55,168,301 

 

 

+Reflects the effective yield or interest rate in effect at July 31, 2023.
^$33,920,665 of this security has been pledged as collateral for reverse repurchase agreements.

 

Futures Contracts Purchased

 

   Number
of
Contracts
   Expiration
Date
  Notional
Amount
   Value and
Unrealized
Appreciation/
(Depreciation)
 
CME Bitcoin Futures Contracts  213   8/28/23  $31,188,466   $(1,213,865)
CME Bitcoin Futures Contracts  162   10/2/23   23,959,800    (225,231)
          $55,148,266   $(1,439,096)

 

See accompanying notes to the financial statements.

 

 

 

July 31, 2023 :: Consolidated Schedule of Portfolio Investments :: Short Bitcoin Strategy ProFund :: 13

 

U.S. Treasury Obligation (40.5%)

 

   Principal
Amount
   Value 
U.S. Treasury Bills, 5.16%+, 8/17/23^  $350,000   $349,183 
TOTAL U.S. TREASURY OBLIGATION
(Cost $349,204)
        349,183 
TOTAL INVESTMENT SECURITIES
(Cost $349,204)—40.5%
        349,183 
Reverse Repurchase Agreements including accrued interest—(40.5)%        (349,229)
Net other assets (liabilities)—100.0%        862,240 
NET ASSETS—100.0%       $862,194 

 

 

+Reflects the effective yield or interest rate in effect at July 31, 2023.
^$349,183 of this security has been pledged as collateral for reverse repurchase agreements.

 

Futures Contracts Sold

 

   Number
of
Contracts
   Expiration
Date
  Notional
Amount
   Value and
Unrealized
Appreciation/
(Depreciation)
 
CME Bitcoin Futures Contracts  5   8/28/23  $(732,125)  $1,420 
CME Micro Bitcoin Futures Contracts  44   8/28/23   (128,839)   209 
          $(860,964)  $1,629 

 

See accompanying notes to the financial statements.

 

 

 

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Consolidated Statements of Assets and Liabilities

 

 

 

16 :: Consolidated Statements of Assets and Liabilities :: July 31, 2023

 

   Bitcoin
Strategy
ProFund
   Short Bitcoin
Strategy
ProFund
 
ASSETS:          
Total Investment Securities, at cost  $33,923,303   $349,204 
Securities, at value   33,920,665    349,183 
Total Investment Securities, at value   33,920,665    349,183 
Cash   39,911,399    614,098 
Segregated cash balances for futures contracts with brokers   15,633,200    239,096 
Receivable for capital shares issued   184,411    6,902 
Variation margin on futures contracts       7,150 
Prepaid expenses   19,373    11,612 
TOTAL ASSETS   89,669,048    1,228,041 
LIABILITIES:          
Reverse repurchase agreements, including accrued interest   33,925,188    349,229 
Futures commission merchant (FCM) fees payable   5,979    52 
Payable for capital shares redeemed   29,399     
Variation margin on futures contracts   463,450     
Advisory fees payable   17,846    2,036 
Management services fees payable   5,948    679 
Administration fees payable   4,152    35 
Transfer agency fees payable   3,609    120 
Fund accounting fees payable   3,600    1,270 
Compliance services fees payable   213    4 
Service fees payable   343    3 
Other accrued expenses   41,020    12,419 
TOTAL LIABILITIES   34,500,747    365,847 
NET ASSETS  $55,168,301   $862,194 
NET ASSETS CONSIST OF:          
Capital  $50,902,329   $1,180,676 
Total distributable earnings (loss)   4,265,972    (318,482)
NET ASSETS  $55,168,301   $862,194 
NET ASSETS:          
Investor Class  $55,168,301   $862,194 
SHARES OF BENEFICIAL INTEREST OUTSTANDING
(unlimited number of shares authorized, no par value):
          
Investor Class   3,757,756    71,610 
NET ASSET VALUE
(offering and redemption price per share):
          
Investor Class  $14.68   $12.04 

 

Amounts designated as " – " are $0 or have been rounded to $0.

 

See accompanying notes to the financial statements.

 

 

 

Consolidated Statements of Operations

 

 

 

18 :: Consolidated Statements of Operations :: For the Periods Indicated

 

   Bitcoin
Strategy
ProFund
   Short Bitcoin
Strategy
ProFund
 
   Year Ended
July 31, 2023
   Year Ended
July 31, 2023
 
INVESTMENT INCOME:          
Interest  $579,557   $6,307 
EXPENSES:          
Advisory fees   143,612    2,272 
Management services fees   47,871    757 
Administration fees   32,111    632 
Transfer agency fees   16,389    1,094 
Administrative services fees   67,952     
Registration and filing fees   30,294    33,932 
Custody fees   4,960    76 
Fund accounting fees   32,534    15,469 
Trustee fees   492    11 
Compliance services fees   210    5 
Service fees   2,639    49 
Legal fees   6,828    5,541 
Interest expense   25,115    257 
Futures commission merchant (FCM) fees   73,885    1,198 
Other fees   29,543    6,078 
Total Gross Expenses before reductions   514,435    67,371 
Expenses reduced and reimbursed by the Advisor   (77,868)   (60,480)
Fees paid indirectly   (4,960)   (76)
TOTAL NET EXPENSES   431,607    6,815 
NET INVESTMENT INCOME (LOSS)   147,950    (508)
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:          
Net realized gains (losses) on investment securities   (5,279)   (63)
Net realized gains (losses) on futures contracts   9,398,192    (280,566)
Change in net unrealized appreciation/depreciation on investment securities   488    62 
Change in net unrealized appreciation/depreciation on futures contracts   (3,174,668)   2,683 
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS   6,218,733    (277,884)
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS  $6,366,683   $(278,392)

 

Amounts designated as " – " are $0 or have been rounded to $0.

 

See accompanying notes to the financial statements.

 

 

 

Consolidated Statements of Changes in Net Assets

 

 

 

 

20 :: Consolidated Statements of Changes in Net Assets :: For the Periods Indicated

 

   Bitcoin Strategy ProFund   Short Bitcoin Strategy ProFund 
   Year Ended
July 31, 2023
   Year Ended
July 31, 2022
   Year Ended
July 31, 2023
   Period from
June 21, 2022
(commencement
of operations)
to July 31, 2022
 
FROM INVESTMENT ACTIVITIES:                    
OPERATIONS:                    
Net investment income (loss)  $147,950   $(294,838)  $(508)  $(727)
Net realized gains (losses) on investments   9,392,913    (25,491,123)   (280,629)   (100,369)
Change in net unrealized appreciation/depreciation on investments   (3,174,180)   1,737,433    2,745    (1,137)
Change in net assets resulting from operations   6,366,683    (24,048,528)   (278,392)   (102,233)
DISTRIBUTIONS TO SHAREHOLDERS:                    
Total distributions                    
Investor Class   (5,177,130)            
Change in net assets resulting from distributions   (5,177,130)            
Change in net assets resulting from capital transactions   30,431,043    47,072,708    735,177    507,642 
Change in net assets   31,620,596    23,024,180    456,785    405,409 
NET ASSETS:                    
Beginning of period   23,547,705    523,525    405,409     
End of period  $55,168,301   $23,547,705   $862,194   $405,409 
CAPITAL TRANSACTIONS:                    
Investor Class                    
Proceeds from shares issued  $85,049,343   $93,634,525   $13,846,028   $912,843 
Distributions reinvested   5,134,918             
Value of shares redeemed   (59,753,218)   (46,561,817)   (13,110,851)   (405,201)
Change in net assets resulting from capital transactions  $30,431,043   $47,072,708   $735,177   $507,642 
SHARE TRANSACTIONS:                    
Investor Class                    
Issued   6,201,731    3,537,896    798,103    37,444 
Reinvested   337,455             
Redeemed   (4,464,986)   (1,875,538)   (746,122)   (17,815)
Change in shares   2,074,200    1,662,358    51,981    19,629 

 

Amounts designated as " – " are $0 or have been rounded to $0.

 

See accompanying notes to the financial statements.

 

 

 

 

Consolidated Statements of Cash Flows

 

 

 

 

22 :: Consolidated Statements of Cash Flows

 

   Bitcoin
Strategy
ProFund
   Short Bitcoin
Strategy
ProFund
 
   Year Ended
July 31, 2023
   Year Ended
July 31, 2023
 
Cash flows from operating activities:          
Change in net assets resulting from operations  $6,366,683   $(278,392)
Less: Net realized gains (losses) on investment securities   5,279    63 
Less: Change in net unrealized appreciation/depreciation of investment securities   (488)   (62)
Adjustments to reconcile the net increase (decrease) in net assets from operations to net cash provided by (used in) operating activities          
Proceeds from (Purchase of) short-term investments, net   (17,361,691)   56,684 
Amortization (Accretion) of premiums and discounts, net   (579,557)   (6,263)
(Increase) decrease in:          
Receivable from Advisor   1,582    20,679 
Receivable for variation margin on futures contracts   49,738    (7,150)
Prepaid expenses   (2,428)   13,329 
Other assets          
Increase (decrease) in:          
Interest payable (on reverse repurchase agreements)   1,984    (26)
Futures commission merchant (FCM) fees payable   2,469    (29)
Variation margin payable on futures contracts   463,450    (1,440)
Advisor fees payable   17,846    2,036 
Management fees payable   5,948    679 
Administration fees payable   2,332    (6)
Transfer agency fees payable   1,823    29 
Fund accounting fees payable   1,323    (3)
Compliance services fees payable   134    4 
Service fees payable   225     
Other accrued expenses   14,052    (2,756)
Net cash provided by (used in) operating activities  $(11,009,296)  $(202,624)
Cash flows from financing activities:          
Proceeds from reverse repurchase agreements   134,724,990    1,596,963 
(Repayments of) reverse repurchase agreements   (116,789,850)   (1,647,410)
Proceeds from capital shares issued   85,173,947    13,840,178 
Cash paid for capital shares redeemed   (59,856,670)   (13,173,563)
Cash distributions paid to shareholders   (42,212)    
Net cash provided by (used in) financing activities  $43,210,205   $616,168 
Net increase (decrease) in cash and segregated cash balances for futures contracts
with brokers
   32,200,909    413,544 
Cash and segregated cash balances for futures contracts with brokers at the beginning of period   23,343,690    439,650 
Cash and segregated cash balances for futures contracts with brokers at the end of period  $55,544,599   $853,194 
The following table provides a reconciliation of cash and segregated cash balances for futures contracts
with brokers to the consolidated statements of assets and liabilities:
          
Cash   39,911,399    614,098 
Segregated cash balances for futures contracts with brokers   15,633,200    239,096 
Total cash and segregated cash balances for futures contracts with brokers  $55,544,599   $853,194 
Supplemental disclosure of cash flow information          
Cash paid for interest (excluding costs)  $23,131   $283 
Non-cash financing activities not included herein consists of reinvestments of distributions   5,134,918     

 

Amounts designated as " – " are $0 or have been rounded to $0.

 

See accompanying notes to the financial statements.

 

 

 

 

Consolidated Financial Highlights

 

 

 

 

24 :: Consolidated Financial Highlights

 

ProFunds Consolidated Financial Highlights FOR THE PERIODS INDICATED

 

Selected data for a share of beneficial interest outstanding throughout the periods indicated.

 

       Investment Activities   Distributions to
Shareholders From
     
   Net Asset
Value,
Beginning
of Period
   Net
Investment
Income
(Loss)(a)
   Net
Realized
and
Unrealized
Gains
(Losses) on
Investments
   Total from
Investment
Activities
   Net
Investment
Income
   Total
Distributions
   Net
Asset
Value,
End of
Period
 
Bitcoin Strategy ProFund                                   
Investor Class                                   
Year Ended July 31, 2023  $13.99    0.06    2.46    2.52    (1.83)   (1.83)  $14.68 
Year Ended July 31, 2022  $24.70    (0.27)   (10.44)   (10.71)          $13.99 
July 28, 2021 through July 31, 2021(g)   $25.00    (h)    (0.30)   (0.30)          $24.70 
Short Bitcoin Strategy ProFund                                   
Investor Class                                   
Year Ended July 31, 2023  $20.65    (0.02)   (8.59)   (8.61)          $12.04 
June 21, 2022 through July 31, 2022(g)   $25.00    (0.04)   (4.31)   (4.35)          $20.65 

 

    Ratios to
Average Net Assets
   Supplemental
Data
 
Total
Return(b)
   Gross
Expenses(c)(d)
   Net
Expenses(c)(d)
   Net
Investment
Income
(Loss)(c)
   Net
Assets,
End of
Period
(000's)
   Portfolio
Turnover
Rate(e)
 
                            
                            
 18.23%   1.61%   1.35%(f)    0.46%  $55,168     
 (43.36)%   1.93%   1.25%(f)    (1.17)%  $23,548     
 (1.20)%   24.80%   1.30%(f)    (1.28)%  $524     
                            
                            
 (41.69)%   13.36%   1.35%(i)(j)    (0.10)%  $862     
 (17.40)%   17.68%   1.88%(i)(k)    (1.39)%  $405     

 

 

(a)Per share net investment income (loss) has been calculated using the average daily shares method.
(b)Not annualized for periods less than one year.
(c)Annualized for periods less than one year.
(d)The expense ratios reflect all interest expense and other costs related to reverse repurchase agreements and trading of Bitcoin futures contracts.
(e)Portfolio turnover rate is calculated without regard to instruments having a maturity of less than one year from acquisition or derivative instruments (including futures contracts).
(f)Excluding interest expense and other costs related to reverse repurchase agreements and trading of Bitcoin futures contracts, the net expense ratio would have been 1.04%, 0.84% and 0.84% for the years ended July 31, 2023 and July 31, 2022, and the period ended July 31, 2021, respectively.
(g)Period from commencement of operations.
(h)Amount is less than $0.005.
(i)Excluding interest expense and other costs related to reverse repurchase agreements and trading of Bitcoin futures contracts, the net expense ratio would have been 1.06% and 1.26% for the year ended July 31, 2023 and the period ended July 31, 2022, respectively.
(j)For the year ended July 31, 2023, the Advisor voluntarily waived fees and expenses to limit the expense ratio, including interest expense and other costs related to reverse repurchase agreements and trading of Bitcoin futures contracts, to 1.35%.
(k)For the period June 21, 2022 through July 31, 2022, the Advisor voluntarily waived fees and expenses to limit the expense ratio (excluding interest expense and certain other costs) to 1.26%.

 

See accompanying notes to the financial statements.

 

 

 

 

Notes to Consolidated Financial Statements

 

 

 

 

26 :: Notes to Consolidated Financial Statements :: July 31, 2023

 

1. Organization

 

ProFunds (the "Trust") consists of 116 separate investment portfolios and is registered as an open-end management investment company under the Investment Company Act of 1940 (the "1940 Act") and thus follows accounting and reporting guidance for investment companies. The Trust is organized as a Delaware statutory trust and is authorized to issue an unlimited number of shares of beneficial interest of no par value which may be issued in more than one class or series.

 

These accompanying consolidated financial statements ("financial statements") relate to the following portfolios of the Trust included in this report (collectively, the "ProFunds" and individually, a "ProFund"):

 

Digital Assets ProFunds:

 

Bitcoin Strategy ProFund  

Short Bitcoin Strategy ProFund  

 

Each ProFund is classified as non-diversified under the 1940 Act and has one class of shares: an Investor Class.

 

Under the Trust's organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts with its vendors and others that provide for general indemnifications. The Trust and ProFunds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the ProFunds.

 

2. Significant Accounting Policies

 

The following is a summary of significant accounting policies followed by each ProFund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. The actual results could differ from those estimates.

 

Basis of Consolidation

 

The accompanying Consolidated Schedules of Portfolio Investments, Consolidated Statements of Assets and Liabilities, Consolidated Statements of Operations, Consolidated Statements of Changes in Net Assets, Consolidated Statements of Cash Flows, and Consolidated Financial Highlights of Bitcoin Strategy ProFund and Short Bitcoin Strategy ProFund include the accounts of the ProFunds Bitcoin Strategy Portfolio and ProFunds Short Bitcoin Strategy Portfolio, respectively (each a "Subsidiary") Each Subsidiary is a wholly-owned subsidiary of the Bitcoin Strategy ProFund and Short Bitcoin Strategy ProFund, respectively, organized under the laws of the Cayman Islands, and primarily invests in Bitcoin related instruments. Each Subsidiary enables the respective ProFund to hold these Bitcoin-related instruments and satisfy "regulated investment company" ("RIC") tax requirements.

 

Each of the Digital Assets ProFunds will invest a significant portion of its' total assets in its respective Subsidiary. As of July 31, 2023, the net assets of ProFund Bitcoin Strategy Portfolio were 17.2% of the adjusted net assets of Bitcoin Strategy ProFund and the net assets of ProFunds Short Bitcoin Strategy Portfolio were 21.4% of the adjusted net assets of Short Bitcoin Strategy ProFund (as adjusted for reverse repurchase agreements). Intercompany accounts and transactions, if any, have been eliminated. Each Subsidiary is subject to the same investment policies and restrictions that apply to Bitcoin Strategy ProFund and Short Bitcoin Strategy ProFund, respectively, except that each Subsidiary may invest without limitation in Bitcoin-related instruments.

 

Investment in a Subsidiary

 

The Bitcoin Strategy ProFund and Short Bitcoin Strategy ProFund intend to achieve commodity exposure through investment in their respective Subsidiary. The Bitcoin Strategy ProFund and Short Bitcoin Strategy ProFund's investment in its Subsidiary is intended to provide each ProFund with exposure to commodity and financial markets in accordance with applicable rules and regulations. The Subsidiaries may invest in derivatives, including futures, forwards, options and other investments intended to serve as margin or collateral or otherwise support the Subsidiary's derivatives positions. The Subsidiaries are not registered under the 1940 Act, and will not have all of the protections offered to investors in RICs. The Board, however, has oversight responsibility for the investment activities of the ProFunds, including its investment in its respective Subsidiary, and each ProFund's role as the sole shareholder of its respective Subsidiary. Changes in the laws of the United States and/or the Cayman Islands, under which the ProFunds and the Subsidiaries are organized, respectively, could result in the inability of the ProFunds and/or its Subsidiary to operate as described in the ProFunds Statement of Additional Information and could negatively affect the ProFunds and its' shareholders. For example, the Cayman Islands does not currently impose any income, corporate or capital gains tax, estate duty, inheritance tax, gift tax or withholding tax on a Subsidiary. If Cayman Islands law changes such that a Subsidiary must pay Cayman Islands taxes, ProFunds shareholders would likely suffer decreased investment returns. In this report, the financial statements of each Subsidiary have been consolidated with the financial statements of the respective ProFund by which it is wholly-owned.

 

Investment Valuation

 

The ProFunds record their investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 3.

 

Cash

 

Cash is held at major financial institutions and is subject to credit risk to the extent those balances exceed applicable Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC) limitations.

 

 

 

 

July 31, 2023 :: Notes to Consolidated Financial Statements :: 27

 

Reverse Repurchase Agreements

 

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

 

As of July 31, 2023, the ProFunds' outstanding balances on reverse repurchase agreements were as follows:

 

   Counterparty  Interest Rate   Principal
Amount
   Maturity   Value   Value &
Accrued
Interest
 
Bitcoin Strategy ProFund  UMB Bank N.A.   5.40%  $(33,920,100)   8/1/2023   $(33,920,100)  $(33,925,188)
Short Bitcoin Strategy ProFund  UMB Bank N.A.   5.40%   (349,177)   8/1/2023    (349,177)   (349,229)

 

For the year ended July 31, 2023, the average daily balance outstanding and average interest rate on the ProFunds' reverse repurchase agreements were as follows:

 

Bitcoin Strategy ProFund     
Weighted average daily balance  $(21,178,848)
Average interest rate   4.99%
Short Bitcoin Strategy ProFund     
Weighted average daily balance  $(227,337)
Average interest rate   4.99%

 

The following table presents the reverse repurchase agreements subject to netting agreements and the collateral delivered related to those reverse repurchase agreements.

 

   Counterparty  Reverse
Repurchase
Agreements(1)
   Collateral
Pledged to
Counterparty
 
Bitcoin Strategy ProFund  UMB Bank N.A.  $(33,925,188)  $33,920,665 
Short Bitcoin Strategy ProFund  UMB Bank N.A.   (349,229)   349,183 

 

 

(1)Represents gross value and accrued interest for the counterparty as reported in the preceding table.

 

Derivative Instruments

 

In seeking to achieve Short Bitcoin Strategy ProFund's investment objective, the Advisor uses a mathematical approach to investing. Using this approach, the Advisor determines the type, quantity and mix of investment positions. The Short Bitcoin Strategy ProFund may obtain investment exposure through derivative instruments, such as futures contracts, that the ProFund should hold to approximate the inverse (-1x) of the daily performance of its benchmark. All derivative instruments held during the year ended July 31, 2023, were utilized to gain inverse exposure to the ProFund's benchmark (e.g., index, etc.) to meet its investment objective. The Short Bitcoin Strategy ProFund does not seek to achieve its investment objective over a period of time greater than a single day.

 

Bitcoin Strategy ProFund is actively managed, in that the Advisor selects investments and makes investment decisions that it believes are suited to achieving the Bitcoin Strategy ProFund's investment objective. Accordingly, the Bitcoin Strategy ProFund may also obtain investment exposure through derivative instruments, such as futures contracts.

 

All open derivative positions at year end are reflected on each respective ProFund's Schedule of Portfolio Investments. The volume associated with derivative positions varies on a daily basis as each ProFund transacts in derivative contracts in order to achieve the appropriate exposure, as expressed in notional amount (contract value for forward currency contracts), in comparison to net assets consistent with each ProFund's investment objective.

 

The ProFunds utilized a varying level of derivative instruments in conjunction with the investment securities to meet their investment objective during the year ended July 31, 2023. The notional amount of open derivative positions relative to each ProFund's net assets at year end is generally representative of the notional amount of open positions to net assets throughout the year.

 

In connection with its management of both series of the Trust included in this report (Bitcoin Strategy ProFund and Short Bitcoin Strategy ProFund (the "Commodity Pools")), the Advisor is registered as a commodity pool operator (a "CPO") and the Commodity Pools are commodity pools under the Commodity Exchange Act (the "CEA"). The Advisor also registered as a

 

 

 

 

28 :: Notes to Consolidated Financial Statements :: July 31, 2023

 

commodity trading advisor (a "CTA") under the CEA as a result of its role as subadvisor to funds outside the Trust. Accordingly, the Advisor is subject to registration and regulation as a CPO and CTA under the CEA, and must comply with various regulatory requirements under the CEA and the rules and regulations of the Commodity Futures Trading Commission ("CFTC") and the National Futures Association ("NFA"), including investor protection requirements, antifraud provisions, disclosure requirements and reporting and recordkeeping requirements. The Advisor is also subject to periodic inspections and audits by the CFTC and NFA. Compliance with these regulatory requirements could adversely affect the Commodity Pools' total return. In this regard, any further amendment to the CEA or its related regulations that subject the Advisor or the Commodity Pools to additional regulation may have adverse impacts on the Commodity Pools' operations and expenses.

 

The following is a description of the derivative instruments utilized by the ProFunds, including certain risks related to each instrument type.

 

Futures Contracts

 

Each ProFund may purchase or sell futures contracts as a substitute for a comparable market position in the underlying securities or to satisfy regulatory requirements. A cash-settled futures contract obligates the seller to deliver (and the purchaser to accept) an amount of cash equal to a specific dollar amount (the contract multiplier) multiplied by the difference between the final settlement price of a specific futures contract and the price at which the agreement is made. No physical delivery of the underlying asset is made.

 

Each ProFund generally engages in closing or offsetting transactions before final settlement of a futures contract, wherein a second identical futures contract is sold to offset a long position (or bought to offset a short position). In such cases, the obligation is to deliver (or take delivery of) cash equal to a specific dollar amount (the contract multiplier) multiplied by the difference between the price of the offsetting transaction and the price at which the original contract was entered into. If the original position entered into is a long position (futures contract purchased), there will be a gain (loss) if the offsetting sell transaction is carried out at a higher (lower) price, inclusive of commissions. If the original position entered into is a short position (futures contract sold), there will be a gain (loss) if the offsetting buy transaction is carried out at a lower (higher) price, inclusive of commissions.

 

Whether a ProFund realizes a gain or loss from futures activities depends generally upon movements in the underlying currency, commodity, security or index. The extent of a ProFund's loss from an unhedged short position in futures contracts is potentially unlimited and investors may lose the amount that they invest plus any profits recognized on that investment. Each ProFund will engage in transactions in futures contracts that are traded on a U.S. exchange or board of trade or that have been approved for sale in the U.S. by the CFTC.

 

Upon entering into a futures contract, each ProFund will be required to deposit with the broker an amount of cash or cash equivalents in the range of approximately 5% to 10% of the contract amount (this amount is subject to change by the exchange on which the contract is traded). This amount, known as "initial margin," is in the nature of a performance bond or good faith deposit on the contract and is returned to the ProFund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Subsequent payments, known as "variation margin," to and from the broker will be made daily as the price of the asset underlying the futures contract fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking-to-market." At any time prior to expiration of a futures contract, a ProFund may elect to close its position by taking an opposite position, which will operate to terminate the ProFund's existing position in the contract.

 

The primary risks associated with the use of futures contracts are imperfect correlation between movements in the price of futures and the market value of the underlying assets, and the possibility of an illiquid market for a futures contract. Although each ProFund intends to sell futures contracts only if there is an active market for such contracts, no assurance can be given that a liquid market will exist for any particular contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the day. Futures contract prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting a ProFund to substantial losses. If trading is not possible, or if a ProFund determines not to close a futures position in anticipation of adverse price movements, the ProFund will be required to make daily cash payments of variation margin. The risk that the ProFund will be unable to close out a futures position will be minimized by entering into such transactions on a national exchange with an active and liquid secondary market. In addition, although the counterparty to a futures contract is often a clearing organization, backed by a group of financial institutions, there may be instances in which the counterparty could fail to perform its obligations, causing significant losses to a ProFund.

 

 

 

 

July 31, 2023 :: Notes to Consolidated Financial Statements :: 29

 

Summary of Derivative Instruments

 

The following table summarizes the fair values of derivative instruments on the ProFund's Consolidated Statement of Assets and Liabilities, categorized by risk exposure, as of July 31, 2023.

 

   Assets   Liabilities 
Fund  Variation Margin on
Futures Contracts*
   Variation Margin on
Futures Contracts*
 
Commodity Risk Exposure:          
Bitcoin Strategy ProFund  $   $1,439,096 
Short Bitcoin Strategy ProFund   1,629     

 

 

*Includes cumulative appreciation/depreciation of futures contracts as reported in the Consolidated Schedules of Portfolio Investments. Only current day's variation margin is reported within the Consolidated Statements of Assets and Liabilities.

 

The following table presents the effect of derivative instruments on the ProFund's Consolidated Statement of Operations, categorized by risk exposure, for the year ended July 31, 2023.

 

Fund  Net Realized Gains (Losses)
on Futures Contracts Recognized
as a Result from Operations
   Change in Net Unrealized Appreciation/
Depreciation on Futures Contracts
Recognized as a Result from Operations
 
Commodity Risk Exposure:          
Bitcoin Strategy ProFund  $9,398,192   $(3,174,668)
Short Bitcoin Strategy ProFund   (280,566)   2,683 

 

Investment Transactions and Related Income

 

Throughout the reporting period, investment transactions are accounted for no later than one business day following the trade date. For financial reporting purposes, investment transactions are accounted for on trade date on the last business day of the reporting period. Interest income is recognized on an accrual basis and includes, where applicable, the amortization of premium or accretion of discount. Dividend income is recorded on the ex-dividend date except in the case of depositary receipts, in which case dividends are recorded as soon as such information becomes available. Pay-in-kind interest income and non-cash dividend income received in the form of securities in-lieu of cash, if any, are recorded at the fair value of the securities received. Gains or losses realized on sales of securities are determined using the specific identification method by comparing the identified cost of the security lot sold with the net sales proceeds. Gains or losses from class action settlements are recorded when such information becomes known or can be reasonably estimated; for non-recurring class action settlements, this generally occurs with the receipt or payment of cash consistent with the terms of such settlement.

 

Allocations

 

Expenses directly attributable to a ProFund are charged to that ProFund, while expenses which are attributable to more than one fund in the Trust, or jointly with an affiliate, are allocated among the respective funds in the Trust and/or affiliate based upon relative net assets or another reasonable basis.

 

Distributions to Shareholders

 

Bitcoin Strategy ProFund and Short Bitcoin Strategy ProFund intend to declare and distribute net investment income at least monthly, if any. Net realized capital gains, if any, will be distributed annually.

 

The amount of distributions from net investment income and net realized gains are determined in accordance with federal income tax regulations which may differ from GAAP. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, distribution reclassification, and equalization), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and mark-to-market on derivative instruments) do not require a reclassification. The ProFunds may utilize equalization accounting for tax purposes and designate earnings and profits, including net realized gains distributed to shareholders on redemption of shares, as a part of the dividends paid deduction for income tax purposes. Distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as distributions in excess of net investment income or net realized gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distribution of capital.

 

Federal Income Taxes

 

Each of the ProFunds intends to continue to qualify each year as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended. A RIC generally is not subject to federal income tax on income and gains distributed in a timely manner to its shareholders. The ProFunds intend to make timely distributions in order to avoid tax liability. Accordingly, no provision for federal income taxes is required in the financial statements. Bitcoin Strategy ProFund and Short Bitcoin Strategy ProFund have an October 31st tax year end.

 

Management of the ProFunds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken and the ProFunds are not aware of any tax positions for which it is

 

 

 

 

30 :: Notes to Consolidated Financial Statements :: July 31, 2023

 

reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

 

Other

 

Expense offsets to custody fees that arise from credits on cash balances maintained on deposit are reflected on the Consolidated Statement of Operations, as applicable, as "Fees paid indirectly."

 

3. Investment Valuation Summary

 

The valuation techniques employed by the ProFunds, described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. These valuation techniques distinguish between market participant assumptions developed based on market data obtained from sources independent of the ProFunds (observable inputs) and the ProFunds' own assumptions about market participant assumptions developed based on the best information available under the circumstances (unobservable inputs). The inputs used for valuing the ProFunds' investments are summarized in the three broad levels listed below:

 

Level 1–quoted prices in active markets for identical assets

Level 2–other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.)

Level 3–significant unobservable inputs (including the ProFunds' own assumptions in determining the fair value of investments)

 

The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. For example, repurchase agreements are generally valued at amortized cost. Generally, amortized cost approximates the current fair value of a security, but since the valuation is not obtained from a quoted price in an active market, such securities are reflected as Level 2. Fair value measurements may also require additional disclosure when the volume and level of activity for the asset or liability have significantly decreased, as well as when circumstances indicate that a transaction is not orderly. Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy.

 

Security prices are generally valued at their market value using information provided by a third party pricing service or market quotations or other procedures approved by the Trust's Board of Trustees. The securities in the portfolio of a non-money market ProFund, except as otherwise noted, that are listed or traded on a stock exchange or the Nasdaq National Market System ("Nasdaq/NMS"), are valued at the official closing price, if available, or the last sale price, on the exchange or system where the security is principally traded. If there have been no sales for that day on the exchange or system where the security is principally traded, then the value may be determined with reference to the last sale price, or the official closing price, if applicable, on any other exchange or system. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. If there have been no sales for that day on any exchange or system, the security will be valued using fair value procedures in accordance with procedures approved by the Trust's Board of Trustees as described below.

 

Securities regularly traded in the OTC markets, including securities listed on an exchange, but that are primarily traded OTC other than those traded on the Nasdaq/NMS, are generally valued on the basis of the mean between the bid and asked quotes furnished by dealers actively trading those instruments. Fixed-income securities are generally valued according to prices as furnished by an independent pricing service, generally at the mean of the bid and asked quotes for those instruments. Short-term fixed-income securities maturing in sixty days or less, and of sufficient credit quality, may be valued at amortized cost, which approximates market value. Under the amortized cost method, premium or discount, if any, is amortized or accreted, respectively, on a constant basis to the maturity of the security. In each of these situations, valuations are typically categorized as Level 2 in the fair value hierarchy.

 

Derivatives are generally valued using independent pricing services and/or agreements with counterparties or other procedures approved by the Trust's Board of Trustees. Futures contracts are generally valued at their last sale price prior to the time at which the net asset value per share of a ProFund is determined and are typically categorized as Level 1 in the fair value hierarchy. If there was no sale on that day, fair valuation procedures as described below may be applied.

 

When the Advisor determines that the market price of a security is not readily available or deemed unreliable (e.g., an approved pricing service does not provide a price, a furnished price is in error, certain stale prices, or an event occurs that materially affects the furnished price), it may in good faith establish a fair value for that security in accordance with procedures established by and under the general supervision and responsibility of the Trust's Board of Trustees. Fair value pricing may require subjective determinations about the value of a security. While the Trust's policy is intended to result in a calculation of a ProFund's NAV that fairly reflects security values as of the time of pricing, the Trust cannot ensure that fair values determined by the Advisor or persons acting at their direction would accurately reflect the price that a ProFund could obtain for a security if it were to dispose of that security as of the time of pricing (for instance, in a forced or distressed sale). The prices used by a ProFund may differ from the value that would be realized if the securities were sold and the differences could be material to the financial statements. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy.

 

For the year ended July 31, 2023, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value, nor were there any transfers in or out of Level 3 investments for the year.

 

 

 

 

July 31, 2023 :: Notes to Consolidated Financial Statements :: 31

 

A summary of the valuations as of July 31, 2023, based upon the three levels defined above, is included in the table below while the breakdown, by category, of equity securities is disclosed on the Consolidated Schedule of Portfolio Investments for each ProFund:

 

   LEVEL 1 - Quoted Prices   LEVEL 2 - Other Significant
Observable Inputs
   Total 
   Investment
Securities
   Other Financial
Instruments^
   Investment
Securities
   Other Financial
Instruments^
   Investment
Securities
   Other Financial
Instruments^
 
Bitcoin Strategy ProFund                              
U.S. Treasury Obligation  $   $   $33,920,665   $   $33,920,665   $ 
Futures Contracts       (1,439,096)               (1,439,096)
Total  $   $(1,439,096)  $33,920,665   $   $33,920,665   $(1,439,096)
Short Bitcoin Strategy ProFund                              
U.S. Treasury Obligation  $   $   $349,183   $   $349,183   $ 
Futures Contracts       1,629                1,629 
Total  $   $1,629   $349,183   $   $349,183   $1,629 

 

 

^Other financial instruments include any derivative instruments not reflected in the Schedule of Portfolio Investments as Investment Securities, such as futures contracts. These instruments are generally recorded in the financial statements at the unrealized appreciation/(depreciation) on the investment.

 

4. Fees and Transactions with Affiliates and Other Parties

 

The ProFunds have entered into an Investment Advisory Agreement with the Advisor. Under this agreement, the Bitcoin Strategy ProFund and Short Bitcoin Strategy ProFund each pay the advisor a fee at an annualized rate of 0.45% of their average daily net assets.

 

In addition, subject to the condition that the aggregate daily net assets of the Trust be equal to or greater than $10 billion, the Advisor has agreed to the following fee reductions with respect to each individual ProFund: 0.025% of the ProFund's daily net assets in excess of $500 million to $1 billion, 0.05% of the ProFund's daily net assets in excess of $1 billion to $2 billion, and 0.075% of the ProFund's net assets in excess of $2 billion. During the year ended July 31, 2023, no ProFund's annual investment advisory fee was subject to such reductions.

 

Citi Fund Services Ohio, Inc. ("Citi") acts as the Trust's administrator (the "Administrator"). For its services as Administrator, the Trust paid Citi an annual fee based on the Trust's aggregate average net assets at a tier rate ranging from 0.00375% to 0.05%, and a base fee for certain filings. Administration fees also include additional fees paid to Citi by the Trust for additional services provided, including support of the Trust's compliance program.

 

Citi also acts as fund accounting agent for the Trust. For these services, the Trust pays Citi an annual fee based on the Trust's aggregate average net assets at a tier rate ranging from 0.00375% to 0.03%, a base fee, and reimbursement of certain expenses.

 

FIS Investor Services LLC ("FIS") acts as transfer agent for the Trust. For these services, the Trust pays FIS a base fee, account and service charges, and reimbursement of certain expenses.

 

ProFunds Distributors, Inc. (the "Distributor"), a wholly owned subsidiary of the Advisor, serves as the Trust's distributor. Under a Distribution Plan, adopted by the Board of Trustees pursuant to Rule 12b-1 under the 1940 Act, the Bitcoin Strategy ProFund and Short Bitcoin Strategy ProFund may pay financial intermediaries such as broker-dealers, investment advisors, and the Distributor up to 0.25%, on an annualized basis, of the average daily net assets attributable to Investor Class shares as compensation for service and distribution-related activities and/or shareholder services with respect to Investor Class shares. For the year ended July 31, 2023, no payments were made under this plan by either ProFund.

 

The Advisor, pursuant to a separate Management Services Agreement, performs certain client support services and other administrative services on behalf of the ProFunds. For these services, each ProFund pays the Advisor a fee at the annual rate of 0.15% of its average daily net assets.

 

The Advisor, pursuant to a separate Services Agreement, performs certain services related to the operation and maintenance of a shareholder trading platform. For these services, the Trust pays the Advisor a monthly base fee as reflected on the Consolidated Statements of Operations as "Service fees."

 

The ProFunds pay fees to certain intermediaries or financial institutions for record keeping, sub-accounting services, transfer agency and other administrative services as reflected on the Consolidated Statements of Operations as "Administrative services fees."

 

Certain Officers and a Trustee of the Trust are affiliated with the Advisor or the Administrator. Except as noted below with respect to the Trust's Chief Compliance Officer, such Officers and Trustee receive no compensation from the ProFunds for serving in their respective roles. The Trust, together with affiliated Trusts, pays each Independent Trustee compensation for their services at an annual rate of $325,000, inclusive of all meetings. During the year ended July 31, 2023, actual Trustee compensation was $975,000 in aggregate from the Trust and affiliated trusts. There are certain employees of the Advisor, such as the Trust's Chief Compliance Officer and staff who administer the Trust's compliance program, in which the ProFunds reimburse the Advisor for their related compensation and certain other expenses incurred as reflected on the Consolidated Statement of Operations as "Compliance services fees."

 

 

 

 

32 :: Notes to Consolidated Financial Statements :: July 31, 2023

 

The Advisor has contractually agreed to waive advisory and management services fees, and if necessary, reimburse certain other expenses of the Bitcoin Strategy ProFund for the periods listed below in order to limit the annual operating expenses (exclusive of brokerage costs, interest, Futures Commission Merchant fees, taxes, dividends (including dividend expenses on securities sold short), litigation, indemnification, and extraordinary expenses) as follows:

 

   For the Period December 1, 2022
through November 30, 2023
   For the Period July 28, 2021*
through November 30, 2022
 
Bitcoin Strategy ProFund   1.10%   0.84%

 

 

*commencement of operations

 

As of July 31, 2023, the Short Bitcoin Strategy ProFund does not have a contractual expense limitation.

 

The Advisor may recoup the advisory and management services fees contractually waived or limited and other expenses reimbursed by it within three years from the contractual period; however, such recoupment will be limited to the lesser of any expense limitation in place at the time of recoupment or the expense limitation in place at the time of waiver or reimbursement. Any amounts recouped by the Advisor during the year are reflected on the Consolidated Statement of Operations as "Recoupment of prior expenses reduced by the Advisor." As of July 31, 2023, the recoupments that may potentially be made by the ProFunds are as follows:

 

   Expires
11/30/24
   Expires
11/30/25
   Expires
11/30/26
   Total 
Bitcoin Strategy ProFund  $37,042   $187,791   $37,589   $262,422 

 

In addition, effective August 1, 2022, the Advisor has voluntarily agreed to waive advisory and management services fees, and reimburse certain other expenses of the Short Bitcoin Strategy ProFund, as consolidated with its Subsidiary, inclusive of interest expense on reverse repurchase agreements and Futures Commission Merchant fees, (but exclusive of brokerage costs, taxes, dividends (including dividend expenses on securities sold short), litigation, indemnification, and extraordinary expenses), in order to limit the annualized operating expenses of the consolidated ProFund to 1.35%. Voluntary waivers may be discontinued at any time. Amounts waived voluntarily are not subject to recoupment at a future date.

 

5. Securities Transactions

 

The Bitcoin Strategy ProFund and Short Bitcoin Strategy ProFund generally invest in U.S. Government securities maturing less than one year from acquisition.

 

6. Investment Risks

 

Some risks apply to all ProFunds, while others are specific to the investment strategy of certain ProFunds. Each ProFund may be subject to other risks in addition to these identified risks. This section discusses certain common principal risks encountered by the ProFunds. The risks are presented in an order intended to facilitate readability, and their order does not imply that the realization of one risk is likely to occur more frequently than another risk, nor does it imply that the realization of one risk is likely to have a greater adverse impact than another risk.

 

Risks Associated with the Use of Derivatives

 

The ProFunds will obtain exposure to bitcoin through derivatives (i.e., bitcoin futures contracts). Investing in derivatives may be considered aggressive and may expose the ProFunds to risks different from, or possibly greater than, the risks associated with investing directly in the reference asset(s) underlying the derivative. The use of derivatives may result in larger losses or smaller gains than directly investing in securities. The risks of using derivatives include: 1) the risk that there may be imperfect correlation between the price of the financial instruments and movements in the prices of the reference asset(s); 2) the risk that an instrument is mispriced; 3) credit or counterparty risk on the amount a ProFund expects to receive from a counterparty; 4) the risk that securities prices, interest rates and currency markets will move adversely and the ProFund will incur significant losses; 5) the risk that the cost of holding a financial instrument might exceed its total return; and 6) the possible absence of a liquid secondary market for a particular instrument and possible exchange imposed price fluctuation limits, either of which may make it difficult or impossible to adjust each ProFund's position in a particular instrument when desired. Each of these factors may prevent the ProFunds from achieving their respective investment objectives and may increase the volatility (i.e., fluctuations) of each ProFund's returns. Because derivatives often require limited initial investment, the use of derivatives also may expose the ProFunds to losses in excess of those amounts initially invested.

 

Bitcoin Risk

 

The Bitcoin Strategy ProFund and Short Bitcoin Strategy ProFund do not invest directly in Bitcoin. The ProFunds invest primarily in Bitcoin futures.

 

Bitcoin is a relatively new innovation and the market for Bitcoin is subject to rapid price swings, changes and uncertainty. The further development of the Bitcoin Network and the acceptance and use of Bitcoin are subject to a variety of factors that are difficult to evaluate. The slowing, stopping or reversing of the development of the Bitcoin Network or the acceptance of Bitcoin may adversely affect the price of Bitcoin. Bitcoin is subject to the risk of fraud, theft, manipulation or security failures, operational or other problems that impact Bitcoin trading venues. Additionally, if one or a coordinated group of miners were to gain control of 51% of the Bitcoin Network, they would have the ability to manipulate transactions, halt payments and fraudulently obtain Bitcoin. A significant portion of Bitcoin is held by a small number of holders

 

 

 

 

July 31, 2023 :: Notes to Consolidated Financial Statements :: 33

 

sometimes referred to as "whales". These holders have the ability to manipulate the price of Bitcoin. Unlike the exchanges for more traditional assets, such as equity securities and futures contracts, Bitcoin and Bitcoin trading venues are largely unregulated. As a result of the lack of regulation, individuals or groups may engage in fraud or market manipulation and investors may be more exposed to the risk of theft, fraud and market manipulation than when investing in more traditional asset classes. Over the past several years, a number of Bitcoin trading venues have been closed due to fraud, failure or security breaches. Investors in Bitcoin may have little or no recourse should such theft, fraud or manipulation occur and could suffer significant losses. Legal or regulatory changes may negatively impact the operation of the Bitcoin Network or restrict the use of Bitcoin. The realization of any of these risks could result in a decline in the acceptance of Bitcoin and consequently a reduction in the value of Bitcoin, Bitcoin futures, and the ProFund. The Bitcoin Network is collectively maintained by (1) a decentralized group of participants who run computer software that results in the recording and validation of transactions (commonly referred to as "miners"), (2) developers who propose improvements to the Bitcoin Protocol and the software that enforces the protocol and (3) users who choose which version of the bitcoin software to run. From time to time, the developers suggest changes to the bitcoin software. If a sufficient number of users and miners elect not to adopt the changes, a new digital asset, operating on the earlier version of the bitcoin software, may be created. This is often referred to as a "fork." The creation of a "fork" or a substantial giveaway of Bitcoin (sometimes referred to as an "air drop") may result in a significant and unexpected declines in the value of Bitcoin, Bitcoin futures, and the ProFunds.

 

Bitcoin Futures Risk

 

The market for Bitcoin futures may be less developed, and potentially less liquid and more volatile, than more established futures markets. While the Bitcoin futures market has grown substantially since Bitcoin futures commenced trading, there can be no assurance that this growth will continue. Bitcoin futures are subject to collateral requirements and daily limits that may limit a ProFund's ability to achieve the desired exposure. If a ProFund is unable to meet its investment objective, a ProFund's returns may be lower than expected. Additionally, these collateral requirements may require a ProFund to liquidate its position when it otherwise would not do so.

 

When a Bitcoin futures contract is nearing expiration, a ProFund will generally sell it and use the proceeds to buy a Bitcoin futures contract with a later expiration date. This is commonly referred to as "rolling". The costs associated with rolling Bitcoin futures typically are substantially higher than the costs associated with other futures contracts and may have a significant adverse impact on the performance of a ProFund.

 

Borrowing Risk

 

The ProFunds may borrow for investment purposes using reverse repurchase agreements. Borrowing may cause the ProFunds to liquidate positions to under adverse market conditions to satisfy its repayment obligations. Borrowing increases the risk of loss and may increase the volatility of the ProFunds.

 

Correlation Risk

 

The Short Bitcoin Strategy ProFund is subject to correlation risk. A number of factors may affect the ProFund's ability to achieve a high degree of inverse correlation with the Index, and there is no guarantee that the ProFund will achieve a high degree of inverse correlation. Failure to achieve a high degree of correlation may prevent a ProFund from achieving its investment objective, and the percentage change of the ProFund's NAV each day may differ, perhaps significantly, from the inverse (-1x) of the percentage change of the Index on such day. In order to achieve a high degree of correlation with the Index, the ProFund seeks to rebalance its portfolio daily to keep exposure consistent with its investment objective. Being materially under- or overexposed to the Index may prevent the ProFund from achieving a high degree of inverse correlation with the Index. Market disruptions or closures, regulatory restrictions, market volatility, illiquidity in the markets for the financial instruments in which the ProFunds invests, and other factors will adversely affect the ProFund's ability to adjust exposure to requisite levels. The target amount of portfolio exposure is impacted dynamically by the Index's movements. Because of this, it is unlikely that the ProFund will have perfect inverse (-1x) exposure during the day or at the end of each day and the likelihood of being materially under- or overexposed is higher on days when the Index level is volatile, particularly when the Index is volatile at or near the close of the trading day.

 

A number of other factors may adversely affect a ProFund's correlation with its benchmark, including fees, expenses, transaction costs, financing costs associated with the use of derivatives, income items, valuation methodology, accounting standards and disruptions or illiquidity in the markets for the securities or financial instruments in which a ProFund invests. The ProFund may not have investment exposure to all of the financial instruments in the Index, or its weighting of investment exposure to financial instruments may be different from that of the Index.In addition, the ProFund may invest in financial instruments not included in the Index. The ProFund may take or refrain from taking positions in order to improve tax efficiency, comply with regulatory restrictions, or for other reasons, each of which may negatively affect the ProFund's correlation with the Index. The ProFund may also be subject to large movements of assets into and out of the ProFund, potentially resulting in the ProFund being under- or overexposed to the Index and may be impacted by Index reconstitutions and Index rebalancing events. Additionally, Bitcoin and Bitcoin futures contracts may trade on markets that may not be open at the same time or on the same day as the ProFund. In particular, Bitcoin trades 24 hours per day, seven days per week. These differences in trading hours may cause differences between the performance of the ProFund and the performance of the Index. Any of these factors could decrease correlation between the performance of the ProFund and the Index and may hinder the ProFund's ability to meet its daily investment objective.

 

Counterparty Risk

 

The ProFunds will be subject to credit risk (i.e., the risk that a counterparty is unwilling or unable to make timely payments or otherwise meet its contractual obligations) with respect to the amount a ProFund expects to receive from counterparties to financial instruments (including derivatives) entered into by the ProFund. The ProFunds generally structure the agreements such

 

 

 

 

34 :: Notes to Consolidated Financial Statements :: July 31, 2023

 

that either party can terminate the contract without penalty prior to the termination date. If a counterparty terminates a contract, a ProFund may not be able to invest in other derivatives to achieve the desired exposure, or achieving such exposure may be more expensive. A ProFund may be negatively impacted if a counterparty becomes bankrupt or otherwise fails to perform its obligations under such an agreement.

 

Liquidity Risk

 

In certain circumstances, such as the disruption of the orderly markets for the securities or financial instruments in which a ProFund invests, the ProFund might not be able to acquire or dispose of certain holdings quickly or at prices that represent true fair value in the judgment of the Advisor. Markets for the securities or financial instruments in which a ProFund invests may be disrupted by a number of events, including but not limited to economic crises, natural disasters, new legislation, or regulatory changes inside or outside of the U.S. For example, regulation limiting the ability of certain financial institutions to invest in certain securities would likely reduce the liquidity of those securities. These situations may prevent a ProFund from limiting losses, realizing gains, or from achieving a high correlation (or inverse correlation) with its underlying benchmark.

 

The market for the Bitcoin futures contracts is still developing and may be subject to periods of illiquidity. During such times it may be difficult or impossible to buy or sell a position at the desired price. Market disruptions or volatility can also make it difficult to find a counterparty willing to transact at a reasonable price and sufficient size. Illiquid markets may cause losses, which could be significant. The large size of the positions which the ProFund may acquire increases the risk of illiquidity, may make its positions more difficult to liquidate, and increase the losses incurred while trying to do so.

 

Inflation Risk

 

Inflation risk is the risk that the value of assets or income from a ProFund's investments will be worth less in the future as inflation decreases the value of payments at future dates. As inflation increases, the real value of a ProFund's portfolio could decline. Inflation rates may change frequently and drastically as a result of various factors and the ProFund's investments may not keep pace with inflation, which may result in losses to ProFund investors or adversely affect the real value of shareholders' investments in a ProFund. Inflation has recently increased and it cannot be predicted whether it may decline.

 

Subsidiary Investment Risk

 

Changes in the laws of the United States and/or the Cayman Islands, under which each ProFund and each Subsidiary are organized, respectively, could result in the inability of the ProFunds to operate as intended and could negatively affect the ProFunds and their shareholders. Each ProFund complies with the provisions of the 1940 Act governing investment policies, capital structure, and leverage on an aggregate basis with its respective Subsidiary.

 

Active Management Risk

 

Bitcoin Strategy ProFund is actively managed. The performance of an actively managed fund reflects, in part, the ability of the Advisor to select investments and make investment decisions that are suited to achieving the ProFund's investment objective. The Advisor's judgements about the ProFund's investments may prove to be incorrect. If the investments selected and strategies employed by the Bitcoin Strategy ProFund fails to produce the intended results, the ProFund could underperform or have negative returns as compared to other funds with similar investment objectives and/or strategies.

 

Short Sale Exposure Risk

 

The Short Bitcoin Strategy ProFund seeks to obtain inverse or "short" exposure to bitcoin futures contracts. The risks of short exposure include, under certain market conditions, an increase in the volatility and decrease in the liquidity of Bitcoin futures contracts. To the extent that, at any particular point in time, Bitcoin futures contracts may be thinly traded or have a limited market, the ProFund may be unable to meet its investment objective due to a lack of available financial instruments or counterparties. During such periods, the Short Bitcoin Strategy ProFund's ability to achieve its investment objective may be adversely affected. Obtaining inverse exposure through Bitcoin futures contracts may be considered an aggressive investment technique.

 

Bitcoin Futures Capacity Risk

 

If the ProFunds' ability to obtain exposure to Bitcoin futures contracts consistent with its investment objective is disrupted for any reason including, limited liquidity in the Bitcoin futures market, a disruption to the Bitcoin futures market, or as a result of margin requirements or position limits imposed by the ProFunds' futures commission merchants ("FCMs"), the listing exchanges, or the CFTC, the ProFunds would not be able to achieve their investment objective and may experience significant losses. In such circumstances, the Adviser intends to take such action as it believes appropriate and in the best interest of each ProFund. Any disruption in a ProFund's ability to obtain exposure to Bitcoin futures contracts will cause the ProFund's performance to deviate from the performance of Bitcoin and Bitcoin futures. Additionally, the ability of the ProFund to obtain exposure to Bitcoin futures contracts is limited by certain tax rules that limit the amount the ProFund can invest in its wholly-owned subsidiary as of the end of each tax quarter.

 

Market and Volatility Risk

 

The prices of Bitcoin and Bitcoin futures have historically been highly volatile. The value of the Short Bitcoin Strategy ProFund's inverse exposure to bitcoin futures – and therefore the value of an investment in the ProFund – could decline significantly and without warning, including to zero.

 

Rolling Futures Contract Risk

 

Bitcoin Strategy ProFund and Short Bitcoin Strategy ProFund (through through their investments in their respective Subsidiaries) have exposure to futures contracts and are subject to risks related to "rolling" of such contracts. Each ProFund does not intend to hold futures contracts through their expiration date, but instead intends to "roll" its futures positions. Rolling occurs when a ProFund closes out of futures contracts as they near their expiration date and is replaced with contracts that have a later

 

 

 

 

July 31, 2023 :: Notes to Consolidated Financial Statements :: 35

 

expiration date. When the market for these futures contracts is such that the prices are higher in the more distant delivery months than in the nearer delivery months, the sale during the course of the rolling process of the more nearby contract would take place at a price that is lower than the price of the more distant contract. This pattern of higher futures contract prices for longer expiration contracts is often referred to as "contango." Alternatively, when the market for futures contracts is such that the prices are higher in the nearer months than in the more distant months, the sale during the course of the rolling process of the more nearby contract would take place at a price that is higher than the price of the more distant contract. This pattern of higher futures prices for shorter expiration futures contracts is referred to as "backwardation." Extended periods of contango or backwardation have occurred in the past and can in the future cause significant losses for a ProFund. The Advisor will utilize active management techniques to seek to mitigate the negative impact or, in certain cases, benefit from the contango or backwardation present in the various futures contract markets, but there can be no guarantee that it will be successful in doing so.

 

Cybersecurity Risk

 

With the increased use of technologies such as the Internet and the dependence on computer systems to perform necessary business functions, each ProFund, financial intermediaries, service providers and the relevant listing exchange are susceptible to operational, information security and related "cyber" risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber attacks include, but are not limited to gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing among other behaviors, stealing or corrupting data maintained online or digitally, and denial of service attacks on websites. Cybersecurity failures or breaches of a ProFund's third party service provider (including, but not limited to, index providers, the administrator and transfer agent) or the issuers of securities and/or financial instruments in which the ProFund invests, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, the inability of ProFund shareholders to transact business, violations of applicable privacy and other laws. For instance, cyber attacks may interfere with the processing of shareholder transactions, impact the ProFund's ability to calculate its NAV, cause the release of private shareholder information or confidential ProFund information, impede trading, cause reputational damage, and subject the ProFund to regulatory fines, reputational damage, penalties or financial losses, reimbursement or other compensation costs, and/or additional compliance costs. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. A ProFund and its shareholders could be negatively impacted as a result. While a ProFund or its service providers may have established business continuity plans and systems designed to guard against such cyber attacks or adverse effects of such attacks, there are inherent limitations in such plans and systems including the possibility that certain risks have not been identified, in large part because different unknown threats may emerge in the future. Similar types of cybersecurity risks also are present for issuers of securities in which a ProFund invests, which could result in material adverse consequences for such issuers, and may cause the ProFund's investments in such securities to lose value. In addition, cyber attacks involving a counterparty to a ProFund could affect such a counterparty's ability to meets it obligations to the ProFund, which may result in losses to the ProFund and its shareholders. The Advisor and the Trust do not control the cybersecurity plans and systems put in place by third party service providers, and such third party service providers may have no or limited indemnification obligations to the Advisor or to a ProFund.

 

Natural Disaster/Epidemic Risk

 

Natural or environmental disasters, such as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including pandemics and epidemics (for example, the novel coronavirus (COVID-19)), have been and can be highly disruptive to economies and markets and have recently led, and may continue to lead, to increased market volatility and significant market losses. Such as natural disaster and health crises could exacerbate political, social, and economic risks previously mentioned, and result in significant breakdowns, delays, shutdowns, social isolation, and other disruptions to important global, local and regional supply chains affected, with potential corresponding results on the operating performance of the ProFund and its investments. A climate of uncertainty and panic, including the contagion of infectious viruses or diseases, may adversely affect global, regional, and local economies and reduce the availability of potential investment opportunities, and increases the difficulty of performing due diligence and modeling market conditions, potentially reducing the accuracy of financial projections. Under these circumstances, the ProFund may have difficulty achieving its investment objective which may adversely impact performance. Further, such events can be highly disruptive to economies and markets, significantly disrupt the operations of individual companies (including, but not limited to, the ProFund's investment advisor and third party service providers), sectors, industries, markets, securities and commodity exchanges, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value of the ProFund's investments. These factors can cause substantial market volatility, exchange trading suspensions and closures and can impact the ability of the ProFund to complete redemptions and otherwise affect ProFund performance and ProFund trading in the secondary market. A widespread crisis may also affect the global economy in ways that cannot necessarily be foreseen at the current time. How long such events will last and whether they will continue or recur cannot be predicted. Impacts from these events could have significant impact on the ProFund's performance, resulting in losses to your investment.

 

Risk that Current Assumptions and Expectations Could Become Outdated As a Result of Global Economic Shocks

 

The onset of the novel coronavirus (COVID-19) has caused significant shocks to global financial markets and economies, with many governments taking extreme actions to slow and contain the spread of COVID-19 (including any variants). These actions have had, and likely will continue to have, a severe economic impact on global economies as economic activity in some instances has

 

 

 

 

36 :: Notes to Consolidated Financial Statements :: July 31, 2023

 

essentially ceased. The global economic shocks being experienced as of the date hereof may cause the underlying assumptions and expectations of the ProFund to quickly become outdated or inaccurate, resulting in significant losses. Additionally, other public health issues, war, military conflicts, sanctions, acts of terrorism, sustained elevated inflation, supply chain issues or other events could have a significant negative impact on global financial markets and economies. Russia's recent military incursions in Ukraine have led to, and may lead to additional sanctions being levied by the United States, European Union and other countries against Russia. Russia's military incursion and the resulting sanctions could adversely affect global energy and financial markets and thus could affect the value of the ProFund's investments, even beyond any direct exposure the ProFund may have to the region or to adjoining geographic regions. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could have a severe adverse effect on the region, including significant negative impacts on the economy and the markets for certain securities and commodities, such as oil and natural gas. How long such tensions and related events will last cannot be predicted. These tensions and any related events could have significant impact on the ProFund performance and the value of an investment in the ProFund.

 

Risks of Government Regulation

 

The Financial Industry Regulatory Authority ("FINRA") issued a notice on March 8, 2022 seeking comment on measures that could prevent or restrict investors from buying a broad range of public securities designated as "complex products" – which could include the cryptocurrency (such as Bitcoin) funds offered by ProFund Advisors. The ultimate impact, if any, of these measures remains unclear. However, if regulations are adopted, they could, among other things, prevent or restrict investors' ability to buy the ProFunds.

 

7. Federal Income Tax Information

 

The tax character of distributions paid to shareholders will be determined at the ProFunds' next tax fiscal year end.

 

As of the latest tax year ended, as noted below, the components of accumulated earnings (deficit) on a tax basis were as follows:

 

   Undistributed
Ordinary
Income
   Undistributed
Long-Term
Capital Gains
   Accumulated
Capital and
Other Losses
   Unrealized
Appreciation
(Depreciation)
   Total
Accumulated
Earnings
(Deficit)
 
Bitcoin Strategy ProFund  $   $   $(148,034)  $(27,601,142)  $(27,749,176)
Short Bitcoin Strategy ProFund           (46)   (50,290)   (50,336)

 

Under current tax law, capital and specific ordinary losses realized after October 31 may be deferred and treated as occurring on the first business day of the following tax fiscal year. As of the latest tax year ended October 31, 2022, the following ProFunds had deferred losses, which will be treated as arising on the first day of the tax fiscal year ending in October 31, 2023:

 

   Qualified Late
Year Ordinary
Losses
 
Bitcoin Strategy ProFund  $141,706 

 

As of the latest tax year ended October 31, 2022, the following ProFunds have capital loss carry forwards ("CLCFs") as summarized in the table below. CLCFs subject to expiration are applied as short-term capital loss regardless of whether the originating capital loss was short-term or long-term.

 

Fund  No Expiration
Date
 
Bitcoin Strategy ProFund  $6,328 
Short Bitcoin Strategy ProFund   46 

 

Unused limitations accumulate and increase limited CLCFs available for use in offsetting net capital gains. The tax character of current year distributions paid and the tax basis of the current components of accumulated earnings (deficit) and any CLCFs will be determined at the end of the current tax years. The Trust's Board of Trustees does not intend to authorize a distribution of any realized gain for a ProFund until any applicable CLCF has been offset or expires.

 

As of October 31, 2022, the cost of securities, including derivatives, gross unrealized appreciation and gross unrealized depreciation on investment securities, for federal income tax purposes, were as follows:

 

   Tax Cost   Tax
Unrealized
Appreciation
   Tax
Unrealized
Depreciation
   Net Unrealized
Appreciation
(Depreciation)
 
Bitcoin Strategy ProFund  $34,182,029   $   $(27,601,142)  $(27,601,142)
Short Bitcoin Strategy ProFund   216,800    10,846    (61,136)   (50,290)

 

 

 

 

July 31, 2023 :: Notes to Consolidated Financial Statements :: 37

 

8. Subsequent Events

 

At a meeting held September 11-12, 2023, the Board of Trustees approved the Advisor's proposal of a contractual expense cap for the Short Bitcoin Strategy ProFund, as well as approved the renewal of the contractual expense cap of the Bitcoin Strategy ProFund for an additional year.

 

Therefore, effective December 1, 2023 and through the period ending November 30, 2024, the Advisor has contractually agreed to waive advisory and management services fees, and if necessary, reimburse certain other expenses of each of the Bitcoin Strategy ProFund and the Short Bitcoin Strategy ProFund in order to limit the annual operating expenses (exclusive of brokerage costs, interest, Futures Commission Merchant fees, taxes, dividends (including dividend expenses on securities sold short), litigation, indemnification, and extraordinary expenses) to an annualized rate of 1.10% of that ProFund's average daily net assets. The Short Bitcoin Strategy ProFund's voluntary expense cap, unless discontinued previously, will be discontinued upon the effective date of the ProFund's contractual expense cap.

 

The ProFunds have evaluated the need for additional disclosures or adjustments resulting from subsequent events through the date these financial statements were issued. Based on this evaluation, there were no additional subsequent events to report that would have a material impact on the ProFunds' financial statements.

 

 

 

 

38 :: Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Trustees ProFunds:

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated statement of assets and liabilities of the ProFunds listed in the Appendix ( each a Fund and collectively, the Funds), including the consolidated schedule of portfolio investments, as of July 31, 2023, the related consolidated statements of operations and cash flows for the year then ended, the consolidated statements of changes in net assets for each of the years or periods listed in the Appendix, and the related notes (collectively, the consolidated financial statements) and the financial highlights for each of the years or periods in the five-year period then ended. In our opinion, the consolidated financial statements and financial highlights present fairly, in all material respects, the financial position of the Funds as of July 31, 2023, the results of their operations and their cash flows for the year then ended, the changes in their net assets for each of the years or periods listed in the appendix, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

 

Basis for Opinion

 

These consolidated financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these consolidated financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements and financial highlights. Such procedures also included confirmation of securities owned as of July 31, 2023, by correspondence with custodians and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.

 

 

We have served as the auditor of one or more ProFunds investment companies since 2010.

 

Columbus, Ohio
September 28, 2023

 

 

 

 

Report of Independent Registered Public Accounting Firm :: 39

 

Appendix

 

Consolidated statement of assets and liabilities, including the consolidated schedule of portfolio investments, as of July 31, 2023, the related consolidated statements of operations and cash flows for the year then ended, and changes in net assets for each of the years in the two-year period then ended.

 

Bitcoin Strategy ProFund

 

Consolidated statement of assets and liabilities, including the consolidated schedule of portfolio investments, as of July 31, 2023, the related consolidated statements of operations and cash flows for the year then ended, and changes in net assets for the year ended July 31, 2023 and the period June 21, 2022 (commencement of operations) through July 31, 2022.

 

Short Bitcoin Strategy ProFund

 

 

 

 

40 :: Trustees and Executive Officers (unaudited)

 

Name, Address,
and Birth Date
  Position(s)
Held with
the Trust
  Term of Office
and Length of
Time Served
  Principal Occupation(s) During Past 5 Years   Number of
Operational
Portfolios in Fund
Complex Overseen
by Trustee*
  Other
Directorships
Held by
Trustee
During
Past 5 Years
                     
Independent Trustees                    
                     
William D. Fertig
c/o ProFunds Trust
7272 Wisconsin Avenue,
21st Floor
Bethesda, MD 20814
Birth Date: 9/56
  Trustee   Indefinite;
June 2011 to present
  Context Capital Management (Alternative Asset Management): Chief Investment Officer (September 2002 to present).   ProFunds (116);
ProShares (121)
  Context Capital
                     
Russell S. Reynolds, III
c/o ProFunds Trust
7272 Wisconsin Avenue,
21st Floor
Bethesda, MD 20814
Birth Date: 7/57
  Trustee   Indefinite;
October 1997 to present
  RSR Partners, Inc. (Retained Executive Recruitment and Corporate Governance Consulting): Managing Director (February 1993 to present).   ProFunds (116);
ProShares (121)
  RSR Partners, Inc.
                     
Michael C. Wachs
c/o ProFunds Trust
7272 Wisconsin Avenue,
21st Floor
Bethesda, MD 20814
Birth Date: 10/61
  Trustee   Indefinite;
October 1997 to present
  Linden Lane Capital Partners LLC (Real Estate Investment and Development): Managing Principal (2010 to present).   ProFunds (116);
ProShares (121)
  NAIOP (the Commercial Real Estate Development Association)
                     
Interested Trustee                    
                     
Michael L. Sapir**
7272 Wisconsin Avenue,
21st Floor
Bethesda, MD 20814
Birth Date: 5/58
  Trustee and Chairman
of the Board
  Indefinite;
April 1997 to present
  Chairman and Chief Executive Officer of the Advisor (April 1997 to present); ProShare Advisors LLC (November 2005 to present); ProShare Capital Management LLC (June 2008 to present).   ProFunds (116);
ProShares (121)
   

 

 

*The "Fund Complex" consists of all operational registered investment companies under the 1940 Act that are advised by ProFund Advisors LLC and any operational registered investment companies that have an investment adviser that is an affiliated person of ProFund Advisors LLC. Investment companies that are non-operational (and therefore, not publicly offered) as of the date of this report are excluded from these figures.
**Mr. Sapir is an "interested person," as defined by the 1940 Act, because of his ownership interest in the Advisor.

 

Name, Address,
and Birth Date
  Position(s) Held
with the Trust
  Term of Office and
Length of Time Served
  Principal Occupation(s)
During the Past 5 Years
             
Executive Officers            
             
Todd B. Johnson
7272 Wisconsin Avenue,
21st Floor
Bethesda, MD 20814
Birth Date: 1/64
  President   Indefinite;
January 2014 to present
  Chief Investment Officer of the Advisor and ProShare Advisors LLC (December 2008 to present); and ProShare Capital Management LLC (February 2009 to present).
             
Victor M. Frye, Esq.
7272 Wisconsin Avenue,
21st Floor
Bethesda, MD 20814
Birth Date: 10/58
  Chief Compliance Officer and Anti-Money Laundering Officer   Indefinite;
September 2004 to present
  Counsel and Chief Compliance Officer of the Advisor (October 2002 to present) and ProShare Advisors LLC (December 2004 to present); Secretary of ProFunds Distributors, Inc. (April 2008 to present); Chief Compliance Officer of ProFunds Distributors, Inc. (July 2015 to present).
             
Richard F. Morris
7272 Wisconsin Avenue,
21st Floor
Bethesda, MD 20814
Birth Date: 8/67
  Chief Legal Officer and Secretary   Indefinite;
December 2015 to present
  General Counsel of the Advisor, ProShare Advisors, and ProShare Capital Management LLC (December 2015 to present); Chief Legal Officer of ProFunds Distributors, Inc. (December 2015 to present); Partner at Morgan Lewis & Bockius, LLP (October 2012 to November 2015).
             
Denise Lewis
4400 Easton Commons,
Suite 200
Columbus, OH 43219
Birth Date: 10/63
  Treasurer   Indefinite;
June 2022 to present
  Senior Vice President, Fund Administration, Citi Fund Services Ohio, Inc. (August 2020 to present);
Director, Bank of New York Mellon (September 2015-October 2019).

 

The Funds' Statement of Additional Information includes additional information about the Funds' Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll-free 888-776-3637.

 

 

 

 

 

 

P.O. Box 182800

Columbus, OH 43218-2800

 

ProFunds®

 

Post Office Mailing Address for Investments

P.O. Box 182800
Columbus, OH 43218-2800

 

Phone Numbers

For Individual Investors Only: 888-776-3637 Or: 614-470-8122
Institutions and Financial Professionals Only: 888-776-5717 Or: 240-497-6552
Fax Number: (800) 782-4797
Website Address: ProFunds.com

 

This report is submitted for the general information of the shareholders of the ProFunds. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. To receive the most recent month end performance information for each Fund, please call toll-free 888-776-5717.

 

A description of the policies and procedures that the ProFunds uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling toll-free 888-776-3637; and on the Securities and Exchange Commission's website at sec.gov. Information regarding how the ProFund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available. (i) without change by calling toll-free 888-776-3637; (ii) on the ProFunds' website at ProFunds.com; and (iii) on the Commission's website at sec.gov.

 

ProFunds files complete lists of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-PORT (and successor Forms). Schedules of Portfolio Holding for the Funds in this report are available without charge on the Commission's website at sec.gov, or may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.

 

07/23

 

 

 

 

 

 

Annual Report

 

JULY 31, 2023

 

   Investor  Service
Access Flex Bear High Yield ProFund  AFBIX  AFBSX
Access Flex High Yield ProFund  FYAIX  FYASX
Banks UltraSector ProFund  BKPIX  BKPSX
Bear ProFund  BRPIX  BRPSX
Biotechnology UltraSector ProFund  BIPIX  BIPSX
Bull ProFund  BLPIX  BLPSX
Communication Services UltraSector ProFund  WCPIX  WCPSX
Consumer Discretionary UltraSector ProFund  CYPIX  CYPSX
Consumer Staples UltraSector ProFund  CNPIX  CNPSX
Energy UltraSector ProFund  ENPIX  ENPSX
Europe 30 ProFund  UEPIX  UEPSX
Falling U.S. Dollar ProFund  FDPIX  FDPSX
Financials UltraSector ProFund  FNPIX  FNPSX
Health Care UltraSector ProFund  HCPIX  HCPSX
Industrials UltraSector ProFund  IDPIX  IDPSX
Internet UltraSector ProFund  INPIX  INPSX
Large-Cap Growth ProFund  LGPIX  LGPSX
Large-Cap Value ProFund  LVPIX  LVPSX
Materials UltraSector ProFund  BMPIX  BMPSX
Mid-Cap Growth ProFund  MGPIX  MGPSX
Mid-Cap ProFund  MDPIX  MDPSX
Mid-Cap Value ProFund  MLPIX  MLPSX
Nasdaq-100 ProFund  OTPIX  OTPSX
Oil & Gas Equipment & Services UltraSector ProFund  OEPIX  OEPSX
Pharmaceuticals UltraSector ProFund  PHPIX  PHPSX
Precious Metals UltraSector ProFund  PMPIX  PMPSX
Real Estate UltraSector ProFund  REPIX  REPSX
Rising Rates Opportunity ProFund  RRPIX  RRPSX
Rising Rates Opportunity 10 ProFund  RTPIX  RTPSX
Rising U.S. Dollar ProFund  RDPIX  RDPSX
Semiconductor UltraSector ProFund  SMPIX  SMPSX
Short Energy ProFund  SNPIX  SNPSX
Short Nasdaq-100 ProFund  SOPIX  SOPSX
Short Precious Metals ProFund  SPPIX  SPPSX
Short Real Estate ProFund  SRPIX  SRPSX
Short Small-Cap ProFund  SHPIX  SHPSX
Small-Cap Growth ProFund  SGPIX  SGPSX
Small-Cap ProFund  SLPIX  SLPSX
Small-Cap Value ProFund  SVPIX  SVPSX
Technology UltraSector ProFund  TEPIX  TEPSX
UltraBear ProFund  URPIX  URPSX
UltraBull ProFund  ULPIX  ULPSX
UltraChina ProFund  UGPIX  UGPSX
UltraDow 30 ProFund  UDPIX  UDPSX
UltraEmerging Markets ProFund  UUPIX  UUPSX
UltraInternational ProFund  UNPIX  UNPSX
UltraJapan ProFund  UJPIX  UJPSX
UltraLatin America ProFund  UBPIX  UBPSX
UltraMid-Cap ProFund  UMPIX  UMPSX
UltraNasdaq-100 ProFund  UOPIX  UOPSX
UltraShort China ProFund  UHPIX  UHPSX
UltraShort Dow 30 ProFund  UWPIX  UWPSX
UltraShort Emerging Markets ProFund  UVPIX  UVPSX
UltraShort International ProFund  UXPIX  UXPSX
UltraShort Japan ProFund  UKPIX  UKPSX
UltraShort Latin America ProFund  UFPIX  UFPSX
UltraShort Mid-Cap ProFund  UIPIX  UIPSX
UltraShort Nasdaq-100 ProFund  USPIX  USPSX
UltraShort Small-Cap ProFund  UCPIX  UCPSX
UltraSmall-Cap ProFund  UAPIX  UAPSX
U.S. Government Plus ProFund  GVPIX  GVPSX
Utilities UltraSector ProFund  UTPIX  UTPSX

 

 

 

 

Table of Contents

 

1  Message from the Chairman
3  Management Discussion of Fund Performance
69  Expense Examples
    
   Schedules of Portfolio Investments
76  Access Flex Bear High Yield ProFund
77  Access Flex High Yield ProFund
78  Banks UltraSector ProFund
80  Bear ProFund
81  Biotechnology UltraSector ProFund
84  Bull ProFund
87  Communication Services UltraSector ProFund
89  Consumer Discretionary UltraSector ProFund
91  Consumer Staples UltraSector ProFund
93  Energy UltraSector ProFund
95  Europe 30 ProFund
96  Falling U.S. Dollar ProFund
97  Financials UltraSector ProFund
99  Health Care UltraSector ProFund
101  Industrials UltraSector ProFund
103  Internet UltraSector ProFund
105  Large-Cap Growth ProFund
109  Large-Cap Value ProFund
115  Materials UltraSector ProFund
117  Mid-Cap Growth ProFund
121  Mid-Cap ProFund
127  Mid-Cap Value ProFund
132  Nasdaq-100 ProFund
135  Oil & Gas Equipment & Services UltraSector ProFund
137  Pharmaceuticals UltraSector ProFund
139  Precious Metals UltraSector ProFund
141  Real Estate UltraSector ProFund
143  Rising Rates Opportunity ProFund
144  Rising Rates Opportunity 10 ProFund
145  Rising U.S. Dollar ProFund
146  Semiconductor UltraSector ProFund
148  Short Energy ProFund
149  Short Nasdaq-100 ProFund
150  Short Precious Metals ProFund
151  Short Real Estate ProFund
152  Short Small-Cap ProFund
153  Small-Cap Growth ProFund
158  Small-Cap ProFund
161  Small-Cap Value ProFund
168  Technology UltraSector ProFund
170  UltraBear ProFund
171  UltraBull ProFund
174  UltraChina ProFund
176  UltraDow 30 ProFund
178  UltraEmerging Markets ProFund
180  UltraInternational ProFund
181  UltraJapan ProFund
182  UltraLatin America ProFund
184  UltraMid-Cap ProFund
191  UltraNasdaq-100 ProFund
194  UltraShort China ProFund
195  UltraShort Dow 30 ProFund
196  UltraShort Emerging Markets ProFund
197  UltraShort International ProFund
198  UltraShort Japan ProFund
199  UltraShort Latin America ProFund
200  UltraShort Mid-Cap ProFund
201  UltraShort Nasdaq-100 ProFund
202  UltraShort Small-Cap ProFund
203  UltraSmall-Cap ProFund
206  U.S. Government Plus ProFund
207  Utilities UltraSector ProFund
209  Statements of Assets and Liabilities
223  Statements of Operations
237  Statements of Changes in Net Assets
263  Financial Highlights
295  Notes to Financial Statements
333  Report of Independent Registered Public Accounting Firm
335  Trustees and Executive Officers

 

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Message from the Chairman

 

Dear Shareholder:

 

Although investor sentiment has become more positive over the past 12 months, lingering concerns about inflation and broader economic uncertainty continue to pose headwinds for global markets. ProFunds is committed to helping you, our investors, during these challenging times by providing an innovative array of products and services designed to help you meet your objectives under a range of market conditions. Following is the ProFunds Annual Report to Shareholders for the 12 months ending July 31, 2023.

 

Global Interest Rates Increase as Policymakers Continue to Fight Inflation

 

Concerns about persistently high inflation and the possibility of recession continued to dominate economic policymaking over the past 12 months. In the United States, the Federal Reserve continued to tighten monetary policy at the fastest pace since the 1980s, raising its short-term rate to a target range of between 5% and 5.25% through May. With inflation showing signs of moderation in the spring, the Fed paused rate increases entirely in June following 15 months of increases. Rate hikes resumed with a 0.25% increase in July, and Fed Chair Jerome Powell has signaled that another hike is likely before the end of the year.

 

Outside of the United States, interest rates continued to increase. The European Central Bank (ECB), the Bank of England, and other developed world central banks all raised interest rates over the period, with one ECB policymaker saying in June that hikes are likely to continue even as the economy slows. The Bank of Japan, which continued to hold its short-term rate at -0.1%, remained a notable exception in the developed world.

 

Global Markets Post Strong Performance

 

Though concerns about the Fed's tightening campaign weighed on markets during the beginning of the period, U.S. markets posted significant gains through the end of 2022 and into 2023. Those gains were concentrated among larger companies and technology firms: the large-cap S&P 500® rose 13.0% over the period, and the tech-heavy Nasdaq-100 Index® gained 22.8%. The broader market, including mid- and small-cap firms, saw more modest gains over the 12 months. The Dow Jones Industrial Average® rose 10.6%, the S&P MidCap 400® increased 10.5%, and the small-cap Russell 2000 Index® gained 7.9%. Nine of the Dow Jones U.S. Industrial Index sectors rose. Technology was the best performer by far, rising 28.4% over the period. Precious metals posted strong results as well, rising 17.7%. Telecoms posted the weakest results, falling 16.6% over the period. The real estate and utilities sectors also fell, declining 9.0% and 6.5%, respectively.

 

Though U.S. markets have outpaced the rest of the world in recent months, international equity markets posted the strongest results over the full 12-month reporting period. The MSCI Europe Index® gained 19.6%, and the MSCI EAFE

 

1

 

 

Index® , which tracks developed markets outside of North America, rose 16.8%. The Nikkei was up 14.2% over the 12 months. Emerging markets demonstrated strength as well, with the S&P Emerging 50 ADR Index (USD) increasing by 15.8% and the S&P Latin America 35 ADR Index (USD) gaining 28.7%.

 

Economy Shows Signs of Resilience

 

Despite concerns that the Federal Reserve's rate hikes would trigger a recession, the U.S. economy showed strong signs of resilience during the 12 months. U.S. real GDP growth remained positive throughout the period and increased by 2.4% in the second quarter of 2023. Labor markets also remained tight. While unemployment ticked up slightly in May, it has since held steady at around 3.5%. The U.S. dollar declined 3.9%, based on the Bloomberg Dollar Spot Index.

 

Fixed Income Struggles Amid Rising Rates

 

The Fed's effort to tame inflation generally led to higher U.S. Treasury yields and lower prices during the period. The Bloomberg Barclays Aggregate Bond Index fell 3.4% over the period. Long-dated U.S. Treasurys, as represented by the Ryan Labs 10-Year and 30-Year Indexes, dropped by 7.0% and 13.8%, respectively. Investment-grade corporate bonds dropped 1.9%, according to the Markit iBoxx $ Liquid Investment Grade index, but the Markit iBoxx $ Liquid High Yield index gained 3.2%.

 

ProFunds Results Mirror the Markets

 

ProFunds' index-based mutual funds offer many advantages, such as diversified market exposures, efficient fund management, and high daily correlation to their benchmark indexes. Reflecting the pressures in the market over the past six months, ProFunds investors primarily saw opportunities to gain across a range of equity strategies, particularly those focused on large-cap U.S. companies, the tech sector, Latin America, Japan, and Europe.

 

No matter what direction the market is headed going forward, ProFunds mutual funds offer an extensive lineup of strategies designed to meet your investment goals, help manage risk, and potentially enhance returns. We appreciate the trust and confidence you have placed in ProFunds, and we look forward to continuing to serve your investment needs.

 

Sincerely,

 

 

Michael L. Sapir

Chairman of the Board of Trustees

 

2

 

 

Management Discussion of Fund Performance

 

 

 

 

4 :: Management Discussion of Fund Performance (unaudited)

 

Investment Strategies and Techniques:

 

Each of the Classic ProFunds and the Falling U.S. Dollar ProFund are designed to match, before fees and expenses, the performance of an underlying benchmark (each, a "Matching Fund" and, collectively, the "Matching Funds").

 

All other ProFunds are "geared" funds (each, a "Geared Fund" and, collectively, the "Geared Funds"). Each Geared Fund seeks daily investment results, before fees and expenses, that correspond to a multiple (i.e., 1.25x, 1.5x or 2x), the inverse (i.e., -1x), or an inverse multiple (i.e., -1.25x or -2x) of the daily performance of an underlying benchmark. A Geared Fund does not seek to achieve its stated multiple, inverse, or an inverse multiple of the daily performance of its underlying benchmark (the "Daily Target") for any period other than a day. While the Fund has a daily investment objective, you may hold Fund shares for longer than one day if you believe doing so is consistent with your goals and risk tolerance. If you hold a Geared Fund shares for any period other than a day, it is important for you to understand that over your holding period your return may be higher or lower than the Geared Fund's Daily Target, and this difference may be significant.

 

Each Matching Fund and Geared Fund may be referred to herein as a "Fund" or collectively as the "Funds."

 

ProFund Advisors LLC ("PFA"), the Funds' investment advisor, uses a passive approach in seeking to achieve the investment objective of each Fund. Using this approach, PFA determines the type, quantity and mix of investment positions that it believes, in combination, a Fund should hold to produce daily returns consistent with such Fund's investment objective.

 

In managing the assets of the Funds, PFA does not invest the assets of the Funds in securities or financial instruments based on its view of the investment merit of a particular security, instrument, or company nor does PFA conduct conventional research or analysis, forecast market movements, trends or market conditions; or take defensive positions.

 

The Funds (other than Europe 30 ProFund, Large-Cap Growth ProFund, Large-Cap Value ProFund, Mid-Cap Growth ProFund, Mid-Cap Value ProFund, Small-Cap Growth ProFund, and Small-Cap Value ProFund) make significant use of investment techniques that may be considered aggressive, including the use of swap agreements, futures contracts, forward contracts, and similar instruments (collectively, "derivatives"). Funds using derivatives are exposed to risks different from, or possibly greater than, the risks associated with investing directly in securities, including one or more of the following: counterparty risk (i.e., the risk that a counterparty is unable or unwilling to make timely payments) on the amount the Fund expects to receive from a derivatives counterparty, liquidity risk (i.e., the ability of a Fund to acquire or dispose of certain holdings quickly or at prices that represent true market value in the judgment of PFA) and increased correlation risk (i.e., the Fund's ability to achieve a high degree of correlation with its benchmark). If a counterparty becomes bankrupt, or fails to perform its obligations, the value of an investment in the Fund may decline. With respect to swaps and forward contracts, the Funds have sought to mitigate these risks by generally requiring derivatives counterparties to post collateral for the benefit of each Fund, marked to market daily, in an amount approximately equal to the amount the counterparty owes the Fund, subject to certain minimum thresholds. The Funds typically enter into derivatives with counterparties that are major, global financial institutions. Any costs associated with using derivatives may also have the effect of lowering the Fund's return.

 

Factors that Materially Affected the Performance of Each Fund during the Fiscal Year Ended July 31, 20231:

 

Primary factors affecting Fund performance, before fees and expenses, include the following: the total return of the securities and derivatives (if any) held by a Fund, including the performance of the reference assets to which any derivatives are linked; financing rates paid or earned by a Fund associated with cash and, in certain cases, derivative positions; stock dividends, premiums and bond yields paid or earned by a Fund (including those included in the total return of derivatives contracts); the types of derivative contracts used by a Fund and their correlation to the relevant benchmark or asset fees, expenses, and transaction costs; other miscellaneous factors. The performance of each Geared Fund over periods other than is single day is impacted by the volatility of the Fund's benchmark (i.e., how much the value of the Index moves up and down from day-to-day), the daily rebalancing of the Fund's portfolio and the impact of compounding on Fund returns over the period.

 

·Benchmark Performance: The performance of each Fund's benchmark and, in turn, the factors and market conditions affecting that benchmark, are principal factors driving Fund performance.2 

 

·Holding Period Risk: The performance of a Geared Fund over periods longer than a single day will likely differ from the Daily Target.

 

This difference may be significant. Daily rebalancing of a Geared Fund's portfolio and the compounding of each day's return over time means that the return of a Geared Fund over periods longer than a single day will be the result of each day's returns compounded over the period.

 

Factors that contribute to returns that are worse than the Daily Target include smaller benchmark gains or losses and higher benchmark volatility, as well as longer holding periods when these factors apply. Factors that contribute to returns that are better than the Daily Target include larger benchmark gains or losses and lower benchmark volatility, as well as longer holding periods when these factors apply. The more extreme these factors are, the more your return will tend to deviate from the Daily

 

 

1 Past performance is not a guarantee of future results.
2 Unlike the Funds, indexes that may serve as benchmarks for the Funds do not actually hold a portfolio of securities and/or financial instruments. Indexes do not incur fees, expenses, and transaction costs. Fees, expenses, and transaction costs incurred by the Funds negatively impact the performance of the Funds relative to their benchmark. Performance for each Fund will generally differ from the performance of the Fund's benchmark index.

 

 

 

 

Management Discussion of Fund Performance (unaudited) :: 5

 

Target. During periods of higher benchmark volatility, the volatility of a benchmark may affect a Geared Fund's return as much as or more than the return of its benchmark. Actual results for a particular period, before fees and expenses, are also dependent on the following factors: a) period of time; b) financing rates associated with the use of derivatives; c) other Fund expenses; and d) dividends and interest paid with respect to the securities in the benchmark, e) the benchmark's volatility; and f) the benchmark's performance.

 

Daily volatility for the U.S. equity markets, as measured by the S&P 500®, decreased from a year ago. The volatility for the S&P 500® for the year ended July 31, 2023 was 18.7%, which was lower than the prior year's volatility of 20.4%. The volatility of each Geared Fund benchmark is shown below:

 

Index  1 yr Vol. 
S&P China Select ADR Index (USD)   45.41%
S&P Oil & Gas Equipment and Services Select Industry Index   42.72%
Dow Jones U.S. SemiconductorsSM Index   37.33%
Dow Jones Precious MetalsSM Index   34.13%
S&P Biotechnology Select Industry Index   33.76%
S&P Banks Select Inustry Index   32.29%
Dow Jones Internet CompositeSM Index   31.30%
S&P Energy Select Sector Index   29.06%
S&P Latin America 35 ADR Index (USD)   26.40%
S&P Technology Select Sector Index   25.99%
S&P Consumer Discretionary Select Sector Index   25.31%
Nasdaq-100® Index   24.68%
S&P Emerging 50 ADR Index (USD)   24.62%
S&P Real Estate Select Sector Index   23.24%
Russell 2000® Index   23.23%
S&P Materials Select Sector Index   21.96%
S&P 500® Growth Index   21.69%
S&P SmallCap 600® Growth Index   21.69%
S&P MidCap 400® Growth Index   21.64%
S&P MidCap 400® Value Index   21.26%
S&P MidCap 400®    21.17%
S&P Financial Select Sector Index   20.87%
Ryan LabsReturns Treasury Yield Curve 30 Year Index   20.45%
S&P Utilities Select Sector Index   20.10%
S&P Pharmaceuticals Select Industry Index   19.91%
S&P Communication Services Select Sector Index   19.84%
S&P Industrials Select Sector Index   18.94%
S&P 500®    18.68%
ProFunds Europe 30® Index   17.13%
S&P 500® Value Index   16.94%
S&P SmallCap 600® Value Index   16.94%
MSCI EAFE® Index   16.36%
Nikkei 225 Stock Average   16.22%
Dow Jones Industrial Average®    16.03%
S&P Health Care Select Sector Index   14.98%
S&P Consumer Staples Select Sector Index   13.72%
Ryan Labs Returns Treasury Yield Curve 10 Year Index   10.88%
U.S. Dollar Index   8.96%

 

·Financing Rates Associated with Derivatives: The performance of Funds that use derivatives was impacted by related financing costs. Financial instruments such as futures contracts carry implied financing costs. Swap financing rates are negotiated between the Funds and their counterparties, and are typically set at the Fed Funds rate ("FEDL01") plus or minus a negotiated spread. The Fed Funds rate appreciated from 2.32% to 5.33% during the fiscal year. Each Fund with long exposure to its benchmark was generally negatively affected by financing rates. Conversely, each Fund with short/inverse exposure generally benefited from financing rates. In certain market environments, FEDL01 adjusted by the spread may result in a Fund with short/inverse exposure also being negatively affected by financing rates.

 

·Stock Dividends and Bond Yields: The performance of Funds that provide long or leveraged long exposure was positively impacted by capturing the dividend, premium, or income yield of the underlying assets to which they have exposure. The performance of Funds that provide an inverse or leveraged inverse exposure was negatively impacted by virtue of effectively having to pay out the dividend, premium, or income yield (or a multiple thereof, as applicable) associated with the assets to which they have short exposure.

 

·Fees, Expenses, and Transaction Costs: Fees and expenses are listed in the financial statements of each Fund and may generally be higher and thus have a more negative impact on performance than compared to many traditional index-based funds. For Geared Funds, daily repositioning of each Fund's

 

 

 

 

6 :: Management Discussion of Fund Performance (unaudited)

 

portfolio so that its exposure to its benchmark is consistent with the Fund's daily investment objective, high levels of shareholder purchase and redemption activity, and use of leverage may lead to commensurate increases in portfolio transactions and transaction costs which negatively impact the daily NAV of each Fund. Transaction costs are not reflected in the Funds' expense ratio. Transaction costs are generally higher for Funds whose benchmarks are more volatile, have a larger daily multiple of its benchmark's return, that seek to return an inverse or inverse multiple of its benchmark's return, that invest in foreign securities, and for Funds that hold or have exposure to assets that are comparatively less liquid than other Funds.

 

·Miscellaneous Factors: Each Fund holds a mix of securities and/or derivatives that is designed to provide returns that correspond to the performance of its investment objective. Certain Funds may obtain exposure to only a representative sample of the securities of their benchmark and may not have investment exposure to all securities of the benchmark or may have weightings that are different from that of its benchmark. Certain Funds may also obtain exposure to securities not contained in the relevant benchmark or in financial instruments, with the intent of obtaining exposure with aggregate characteristics similar to those of a multiple of the benchmark.

 

In addition, certain Funds invested in swap agreements based on exchange-traded funds ("ETFs") that are designed to track the performance of the Fund's benchmark. Because the closing price of an ETF may not perfectly track the performance of its benchmark, there are deviations between the return of a swap whose reference asset is an ETF and the return of a swap based directly on the Fund's benchmark. Thus, the performance of a Fund investing significantly in swap agreements based on an ETF correlated less with its benchmark than a Fund investing in swap agreements based directly on the Fund's benchmark.

 

 

 

 

Management Discussion of Fund Performance (unaudited) :: Access Flex Bear High Yield ProFund :: 7

 

The Access Flex Bear High Yield ProFund (the "Fund") seeks to provide investment results that correspond generally to the inverse (-1x) of the total return of the high yield market, consistent with maintaining reasonable liquidity. However, the Fund does not seek to match the daily returns of a specific benchmark. For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of -1.92%. For the same period, the Markit iBoxx $ Liquid High Yield Index, a widely used measure of high yield market performance had a total return of 3.16%1. The total return for the 5-year U.S. Treasury Note was -3.11%2.

 

The Fund is designed to maintain inverse exposure to the high yield market, regardless of market conditions. This means the Fund does not adopt defensive positions in anticipation of an adverse market climate. The Fund seeks to achieve its high yield exposure primarily through credit default swaps (CDS) and 5-year treasury exposure but may also invest in high yield debt instruments (commonly referred to as junk bonds), other debt, money market instruments, total return swap agreements and futures contracts.

 

During the year ended July 31, 2023, the Fund invested in credit default swap agreements and futures contracts as a substitute for shorting high yield bonds. These derivatives generally tracked the performance of their underlying benchmark and benefited from financing costs associated with their use. The Fund entered into credit default swap agreements that were centrally cleared. In a centrally cleared swap agreement, the clearing organization takes on the credit risk of all parties involved in the trade, and in effect, guarantees each party's obligations under the contract. As a result, each party involved in a centrally cleared contract only faces the clearing organization. There can be no assurance that the clearing organization, or its members, will satisfy its obligations to the Fund.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Access Flex Bear High Yield ProFund from July 31, 2013 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 07/31/23

 

Fund  One Year   Five Year   Ten Year 
Investor   -1.92%   -3.83%   -5.73%
Service   -2.78%   -4.77%   -6.62%
Markit iBoxx $ Liquid High Yield Index   3.16%   2.92%   3.74%

 

Expense Ratios**

 

Fund  Gross   Net         
Investor   3.15%   1.78%        
Service   4.15%   2.78%        

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. Contractual fee waivers are in effect through November 30, 2023. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings & Index Composition

 

Investment Type  % of Net Assets 
Credit Default Swap Agreements   (96)%
Futures Contracts   (86)%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management.

 

Holdings

 

The Access Flex Bear High Yield ProFund primarily invests in non-equity securities, which may include: credit default swap agreements, futures contracts, repurchase agreements, U.S. Government and money market securities.

 

Industry Exposure

 

   % of Market
Exposure (CDS)
 
Consumer Cyclical   (28)%
Consumer Non-Cyclical   (15)%
Communications   (13)%
Financial   (11)%
Energy   (9)%
Industrials   (9)%
Basic Materials   (7)%
Technology   (4)%
Utilities   (4)%

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and net asset value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1 The graph and table reflect the theoretical reinvestment of dividends on securities in the Index. The impact of transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees, are not reflected in the Index calculations. The Fund's performance reflects the reinvestment of dividends as well as the impact of transaction costs and the deduction of fees and expenses. It is not possible to invest directly in an index.
2 The 5-year U.S. Treasury Note reflects both price return and yield components. It does not reflect the impact of transaction and financing costs, nor the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees.

 

Investments in high yield bonds or in investments linked to the high yield market are subject to greater volatility and greater credit risks than investing in U.S. Treasuries. U.S. Treasury instruments are guaranteed by the U.S. government as to the timely payment of principal and interest, if held to maturity. Both the principal and yield of a mutual fund will fluctuate with changes in market conditions.

 

The above information is not covered by the Report of the Independent Registered Public Accounting Firm.

 

 

 

 

8 :: Access Flex High Yield ProFund :: Management Discussion of Fund Performance (unaudited)

 

The Access Flex High Yield ProFund (the "Fund") seeks to provide investment results that correspond generally to the total return of the high yield market, consistent with maintaining reasonable liquidity. However, the Fund does not seek to match the daily returns of a specific benchmark. For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of 4.86%. For the same period, the Markit iBoxx $ Liquid High Yield Index, a widely used measure of high yield market performance, had a total return of 3.16%1. The total return for the 5-year U.S. Treasury Note was -3.11%2.

 

The Fund is designed to maintain exposure to the high yield market, regardless of market conditions. This means the Fund does not adopt defensive positions in anticipation of an adverse market climate. The Fund seeks to achieve its high yield exposure primarily through credit default swaps (CDS) and 5-year treasury exposure but may also invest in high yield debt instruments (commonly referred to as junk bonds), other debt, money market instruments, total return swap agreements and futures contracts.

 

During the year ended July 31, 2023, the Fund invested in credit default swap agreements and futures contracts as a substitute for investing directly in high yield bonds. These derivatives generally tracked the performance of their underlying benchmark and were negatively impacted by financing costs associated with their use. The Fund entered into credit default swap agreements that were centrally cleared. In a centrally cleared swap agreement, the clearing organization takes on the credit risk of all parties involved in the trade, and in effect, guarantees each party's obligations under the contract. As a result, each party involved in a centrally cleared contract only faces the clearing organization. There can be no assurance that the clearing organization, or its members, will satisfy its obligations to the Fund.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Access Flex High Yield ProFund from July 31, 2013 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 07/31/23

 

Fund  One Year   Five Year   Ten Year 
Investor   4.86%   1.48%   2.70%
Service   3.85%   0.47%   1.69%
Markit iBoxx $ Liquid High Yield Index   3.16%   2.92%   3.74%

 

Expense Ratios**

 

Fund  Gross   Net         
Investor   1.78%   1.78%        
Service   2.78%   2.78%        

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. Contractual fee waivers are in effect through November 30, 2023. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings & Index Composition

 

Investment Type  % of Net Assets 
Credit Default Swap Agreements   88%
Futures Contracts   4%
U.S. Treasury Obligation   64%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management.

 

Holdings

 

The Access Flex High Yield ProFund primarily invests in non-equity securities, which may include: credit default swap agreements, futures contracts, repurchase agreements, U.S. Government and money market securities.

 

Industry Exposure

 

   % of Market
Exposure (CDS)
 
Consumer Cyclical   28%
Consumer Non-Cyclical   15%
Communications   13%
Financial   11%
Energy   9%
Industrials   9%
Basic Materials   7%
Technology   4%
Utilities   4%

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and net asset value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1 The graph and table reflect the theoretical reinvestment of dividends on securities in the Index. The impact of transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees, are not reflected in the Index calculations. The Fund's performance reflects the reinvestment of dividends as well as the impact of transaction costs and the deduction of fees and expenses. It is not possible to invest directly in an index.
2 The 5-year U.S. Treasury Note reflects both price return and yield components. It does not reflect the impact of transaction and financing costs, nor the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees.

 

Investments in high yield bonds or in investments linked to the high yield market are subject to greater volatility and greater credit risks than investing in U.S. Treasuries. U.S. Treasury instruments are guaranteed by the U.S. government as to the timely payment of principal and interest, if held to maturity. Both the principal and yield of a mutual fund will fluctuate with changes in market conditions.

 

The above information is not covered by the Report of the Independent Registered Public Accounting Firm.

 

 

 

 

Management Discussion of Fund Performance (unaudited) :: Banks UltraSector ProFund :: 9

 

Banks UltraSector ProFund (the "Fund") seeks daily investment results, before fees and expenses, that correspond to one and one-half times (1.5x) the return of the S&P Banks Select Industry Index1 (the "Index") for a single day, not for any other period. A "single day" is measured from the time the Fund calculates its net asset value ("NAV") to the time of the Fund's next NAV calculation. The return of the Fund for periods longer than a single day will be the result of its return for each day compounded over the period. The Fund's returns for periods longer than a single day will very likely differ in amount, and possibly even direction, from the Fund's stated multiple (1.5x) times the return of the Fund's Index for the same period. For periods longer than a single day, the Fund will lose money if the Index's performance is flat, and it is possible that the Fund will lose money even if the level of the Index rises. For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of -7.34%. For the same period, the Index had a total return of -10.61%2 and a volatility of 32.29%. For the year, the Fund achieved an average daily statistical correlation of over 0.99 to one and one-half times the daily performance of the Index.3

 

The Fund takes positions in financial instruments that, in combination, should have similar daily return characteristics as one and one-half times the daily return of the Index. The Index represents the banks segment of the S&P Total Market Index, which comprises the following sub-industries: asset management & custody banks, diversified banks, regional banks, diversified financial services and commercial & residential mortgage finance.

 

During the year ended July 31, 2023, the Fund invested in swap agreements as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. These derivatives generally tracked the performance of their underlying benchmark and were negatively impacted by financing costs associated with their use. The Fund entered into swap agreements with counterparties that the Fund's advisor determined to be major, global financial institutions. If a counterparty becomes insolvent or otherwise fails to perform on its obligations, the value of investments in the Fund may decline. The Fund has sought to mitigate this risk by generally requiring counterparties to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to the amount the counterparty owed to the Fund, subject to certain minimum thresholds.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Banks UltraSector ProFund from July 31, 2013 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 7/31/23

 

Fund  One Year   Five Year   Ten Year 
Investor   -7.34%   -4.82%   5.07%
Service   -8.24%   -5.78%   4.02%
S&P Banks Select Industry Index   -10.61%   0.19%   5.55%
S&P 500®    13.02%   12.20%   12.66%
Dow Jones U.S. BanksSM Index   0.94%   1.89%   7.44%

 

Expense Ratios**

 

Fund  Gross   Net         
Investor   1.71%   1.71%        
Service   2.71%   2.71%        

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. Contractual fee waivers are in effect through November 30, 2023. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings & Index Composition

 

Market Exposure

 

Investment Type  % of Net Assets 
Equity Securities   74%
Swap Agreements   77%
Total Exposure   151%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management or collateral for securities loaned.

 

Largest Equity Holdings

 

Company  % of Net Assets 
Pinnacle Financial Partners, Inc.   1.3%
Western Alliance Bancorp   1.3%
Comerica, Inc.   1.2%
New York Community Bancorp, Inc.   1.2%
Bank of Hawaii Corp.   1.2%

 

S&P Banks Select Industry Index – Composition

 

   % of Index 
Regional Banks   69%
Diversified Banks   15%
Commercial & Residential Mortgage Finance   7%
Other Diversified Financial Services   6%
Asset Management & Custody Banks   3%

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and NAV will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1 As of the close of business on March 17, 2023, the Fund's underlying benchmark index changed from the Dow Jones U.S. BanksSM Index to the S&P Banks Select Industry Index. The Advisor believes that the benchmark change will align the Fund with a leading S&P industry index that utilizes the Global Industry Classification Standard (GICS), enabling investors to more effectively integrate the Fund into their portfolios.
2 The graph and table reflect the theoretical reinvestment of dividends on securities in the Indexes. The impact of transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees, are not reflected in calculations of the indexes. The Fund's performance reflects the reinvestment of dividends as well as the impact of transaction costs and the deduction of fees and expenses. It is not possible to invest directly in an index.
3 1.00 equals perfect correlation. This calculation is based on the daily total return of the Index and the performance of the daily total return of the NAV per share of the Fund.
4 The S&P 500® is an unmanaged index that consists of the common stocks of 500 major U.S. corporations selected for their size and the frequency and ease with which their stocks trade.

 

The above information is not covered by the Report of the Independent Registered Public Accounting Firm.

 

 

 

 

10 :: Bear ProFund :: Management Discussion of Fund Performance (unaudited)

 

Bear ProFund (the "Fund") seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the return of the S&P 500® (the "Index") for a single day, not more than a not for any other period. A "single day" is measured from the time the Fund calculates its net asset value ("NAV") to the time of the Fund's next NAV calculation. The return of the Fund for periods longer than a single day will be the result of its return for each day compounded over the period. The Fund's returns for periods longer than a single day will very likely differ in amount, and possibly even direction from the Fund's stated multiple (-1x) times the return of the Fund's Index for the same period. For periods longer than a single day, the Fund will lose money if the Index's performance is flat, and it is possible that the Fund will lose money even if the level of the index falls. For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of -8.74%. For the same period, the Index had a total return of 13.02%1 and a volatility of 18.68%. For the year, the Fund achieved an average daily statistical correlation of over 0.99 to the inverse of the daily performance of the Index.2

 

The Fund takes positions in financial instruments that, in combination, should have similar daily return characteristics as the inverse of the daily return of the Index. The Index is a measure of large-cap U.S. stock market performance. It is a float-adjusted, market capitalization-weighted index of 500 U.S. operating companies and real estate investment trusts selected through a process that factors in criteria such as liquidity, price, market capitalization, and financial viability. Reconstitution occurs both on a quarterly and an ongoing basis.

 

During the year ended July 31, 2023, the Fund invested in swap agreements and futures contracts as a substitute for shorting stocks in order to gain inverse exposure to the Index. These derivatives generally tracked the performance of their underlying benchmark and benefitted from financing costs associated with their use. The Fund entered into swap agreements with counterparties that the Fund's advisor determined to be major, global financial institutions. If a counterparty becomes insolvent or otherwise fails to perform on its obligations, the value of investments in the Fund may decline. The Fund has sought to mitigate this risk by generally requiring counterparties to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to the amount the counterparty owed to the Fund, subject to certain minimum thresholds.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Bear ProFund from July 31, 2013 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 7/31/23

 

Fund  One Year   Five Year   Ten Year 
Investor   -8.74%   -13.60%   -13.55%
Service   -9.43%   -14.41%   -14.39%
S&P 500®    13.02%   12.20%   12.66%

 

Expense Ratios**

 

Fund  Gross   Net         
Investor   1.64%   1.64%        
Service   2.64%   2.64%        

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. Contractual fee waivers are in effect through November 30, 2023. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings & Index Composition

 

Market Exposure

 

Investment Type  % of Net Assets 
Futures Contracts   (7)%
Swap Agreements   (93)%
Total Exposure   (100)%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management.

 

Holdings

 

The Bear ProFund primarily invests in non-equity securities, which may include: swap agreements, futures contracts, options, forward contracts, repurchase agreements and U.S. Government securities.

 

S&P 500® – Composition

 

   % of Index 
Information Technology   27%
Health Care   13%
Financials   13%
Consumer Discretionary   11%
Communication Services   9%
Industrials   8%
Consumer Staples   7%
Energy   4%
Utilities   3%
Materials   3%
Real Estate   2%

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and NAV will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1 The graph and table reflect the theoretical reinvestment of dividends on securities in the Index. The impact of transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees, are not reflected in the index calculations. The Fund's performance reflects the reinvestment of dividends as well as the impact of transaction costs and the deduction of fees and expenses. It is not possible to invest directly in an index.

2 1.00 equals perfect correlation. This calculation is based on the daily total return of the Index and the performance of the daily total return of the NAV per share of the Fund.

 

The above information is not covered by the Report of the Independent Registered Public Accounting Firm.

 

 

 

 

Management Discussion of Fund Performance (unaudited) :: Biotechnology UltraSector ProFund :: 11

 

Biotechnology UltraSector ProFund (the "Fund") seeks daily investment results, before fees and expenses, that correspond to one and one-half times (1.5x) the return of the S&P Biotechnology Select Industry Index1 (the "Index") for a single day, not for any other period. A "single day" is measured from the time the Fund calculates its net asset value ("NAV") to the time of the Fund's next NAV calculation. The return of the Fund for periods longer than a single day will be the result of its return for each day compounded over the period. The Fund's return for periods longer than a single day will very likely differ in amount, and possibly even direction, from the Fund's stated multiple (1.5x) times the return of the Fund's Index for the same period. For periods longer than a single day, the Fund will lose money if the Index's performance is flat, and it is possible that the Fund will lose money even if the level of the Index rises. For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of 10.43%. For the same period, the Index had a total return of 3.93%2 and a volatility of 33.76%. For the year, the Fund achieved an average daily statistical correlation of over 0.99 to one and one-half times the daily performance of the Index.3

 

The Fund takes positions in financial instruments that, in combination, should have similar daily return characteristics as one and one-half times the daily return of the Index. The Index represents the biotechnology segment of the S&P Total Market Index, which comprises the following sub-industry: biotechnology.

 

During the year ended July 31, 2023, the Fund invested in swap agreements as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. These derivatives generally tracked the performance of their underlying benchmark and were negatively impacted by financing costs associated with their use. The Fund entered into swap agreements with counterparties that the Fund's advisor determined to be major, global financial institutions. If a counterparty becomes insolvent or otherwise fails to perform on its obligations, the value of investments in the Fund may decline. The Fund has sought to mitigate this risk by generally requiring counterparties to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to the amount the counterparty owed to the Fund, subject to certain minimum thresholds.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Biotechnology UltraSector ProFund from July 31, 2013 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 7/31/23

 

Fund  One Year   Five Year   Ten Year 
Investor   10.43%   6.53%   10.51%
Service   9.30%   5.47%   9.41%
S&P Biotechnology Select Industry Index   3.93%   -2.28%   7.67%
S&P 500®    13.02%   12.20%   12.66%
Dow Jones U.S. BiotechnologySM Index   2.07%   5.86%   9.18%

 

Expense Ratios**

 

Fund  Gross   Net         
Investor   1.49%   1.49%        
Service   2.49%   2.49%        

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. Contractual fee waivers are in effect through November 30, 2023. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings & Index Composition

 
Market Exposure

 

Investment Type  % of Net Assets 
Equity Securities   75%
Swap Agreements   74%
Total Exposure   149%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management or collateral for securities loaned.

 
Largest Equity Holdings

 

Company  % of Net Assets 
Bridgebio Pharma, Inc.   1.8%
Halozyme Therapeutics, Inc.   1.1%
Novavax, Inc.   1.0%
Twist Bioscience Corp.   1.0%
Catalyst Pharmaceuticals, Inc.   1.0%

 

S&P Biotechnology Select Industry Index – Composition

 

   % of Index 
Biotechnology   100%

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and NAV will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1 As of the close of business on March 17, 2023, the Fund's underlying benchmark index changed from the Dow Jones U.S. BiotechnologySM Index to the S&P Biotechnology Select Industry Index. The Advisor believes that the benchmark change will align the Fund with a leading S&P industry index that utilizes the Global Industry Classification Standard (GICS), enabling investors to more effectively integrate the Fund into their portfolios.

2 The graph and table reflect the theoretical reinvestment of dividends on securities in the Indexes. The impact of transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees, are not reflected in calculations of the indexes. The Fund's performance reflects the reinvestment of dividends as well as the impact of transaction costs and the deduction of fees and expenses. It is not possible to invest directly in an index.

3 1.00 equals perfect correlation. This calculation is based on the daily total return of the Index and the performance of the daily total return of the NAV per share of the Fund.

4 The S&P 500® is an unmanaged index that consists of the common stocks of 500 major U.S. corporations selected for their size and the frequency and ease with which their stocks trade.

 

The above information is not covered by the Report of the Independent Registered Public Accounting Firm.

 

 

 

 

12 :: Bull ProFund :: Management Discussion of Fund Performance (unaudited)

 

Bull ProFund (the "Fund") seeks investment results, before fees and expenses, that correspond to the return of the S&P 500® (the "Index"). For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of 10.86%. For the same period, the Index had a total return of 13.02%1 and a volatility of 18.68%. For the year, the Fund achieved an average daily statistical correlation of over 0.99 to the daily performance of the Index.2

 

The Fund takes positions in financial instruments that, in combination, should have similar return characteristics as the return of the Index. The Index is a measure of large-cap U.S. stock market performance. It is a float-adjusted, market capitalization-weighted index of 500 U.S. operating companies and real estate investment trusts selected through a process that factors in criteria such as liquidity, price, market capitalization, and financial viability. Reconstitution occurs both on a quarterly and an ongoing basis.

 

During the year ended July 31, 2023, the Fund invested in swap agreements and futures contracts as a substitute for investing directly in stocks in order to gain exposure to the Index. These derivatives generally tracked the performance of their underlying benchmark and were negatively impacted by financing costs associated with their use. The Fund entered into swap agreements with counterparties that the Fund's advisor determined to be major, global financial institutions. If a counterparty becomes insolvent or otherwise fails to perform on its obligations, the value of investments in the Fund may decline. The Fund has sought to mitigate this risk by generally requiring counterparties to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to the amount the counterparty owed to the Fund, subject to certain minimum thresholds.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Bull ProFund from July 31, 2013 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 7/31/23

 

Fund  One Year   Five Year   Ten Year 
Investor   10.86%   10.09%   10.54%
Service   9.81%   9.01%   9.45%
S&P 500®    13.02%   12.20%   12.66%

 

Expense Ratios**

 

Fund  Gross   Net         
Investor   1.50%   1.50%        
Service   2.50%   2.50%        

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. Contractual fee waivers are in effect through November 30, 2023. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings & Index Composition

 

Market Exposure

 

Investment Type  % of Net Assets 
Equity Securities   68%
Futures Contracts   3%
Swap Agreements   29%
Total Exposure   100%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management or collateral for securities loaned.

 

Largest Equity Holdings

 

Company  % of Net Assets 
Apple, Inc.   5.1%
Microsoft Corp.   4.4%
Alphabet, Inc.   2.6%
Amazon.com, Inc.   2.1%
NVIDIA Corp.   2.0%

 

S&P 500® – Composition

 

   % of Index 
Information Technology   27%
Health Care   13%
Financials   13%
Consumer Discretionary   11%
Communication Services   9%
Industrials   8%
Consumer Staples   7%
Energy   4%
Utilities   3%
Materials   3%
Real Estate   2%

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and net asset value ("NAV") will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1 The graph and table reflect the theoretical reinvestment of dividends on securities in the Index. The impact of transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees, are not reflected in the index calculations. The Fund's performance reflects the reinvestment of dividends as well as the impact of transaction costs and the deduction of fees and expenses. It is not possible to invest directly in an index.

2 1.00 equals perfect correlation. This calculation is based on the daily total return of the Index and the performance of the daily total return of the NAV per share of the Fund.

 

The above information is not covered by the Report of the Independent Registered Public Accounting Firm.

 

 

 

 

Management Discussion of Fund Performance (unaudited) :: Communication Services UltraSector ProFund :: 13

 

Communication Services UltraSector ProFund (the "Fund") seeks daily investment results, before fees and expenses, that correspond to one and one-half times (1.5x) the return of the S&P Communication Services Select Sector® Index (the "Index") for a single day, not for any other period. A "single day" is measured from the time the Fund calculates its net asset value ("NAV") to the time of the Fund's next NAV calculation. The return of the Fund for periods longer than a single day will be the result of its return for each day compounded over the period. The Fund's return for periods longer than a single day will very likely differ in amount, and possibly even direction, from the Fund's stated multiple (1.5x) times the return of the Fund's Index for the same period. For periods longer than a single day, the Fund will lose money if the Index's performance is flat, and it is possible that the Fund will lose money even if the level of the Index rises. For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of 27.80%. For the same period, the Index had a total return of 23.20%1 and a volatility of 19.84%. For the year, the Fund achieved an average daily statistical correlation of over 0.99 to one and one-half times the daily performance of the Index.2

 

The Fund takes positions in financial instruments that, in combination, should have similar daily return characteristics as one and one-half times the daily return of the Index. The Index measures the performance of the communication services sector of the S&P 500®. The Index includes equity securities of companies from the following industries: diversified telecommunications services; wireless telecommunications services; media; entertainment; and interactive media & services.

 

During the year ended July 31, 2023, the Fund invested in swap agreements as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. These derivatives generally tracked the performance of their underlying benchmark and were negatively impacted by financing costs associated with their use. The Fund entered into swap agreements with counterparties that the Fund's advisor determined to be major, global financial institutions. If a counterparty becomes insolvent or otherwise fails to perform on its obligations, the value of investments in the Fund may decline. The Fund has sought to mitigate this risk by generally requiring counterparties to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to the amount the counterparty owed to the Fund, subject to certain minimum thresholds.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Communication Services UltraSector ProFund from July 31, 2013 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 7/31/23

 

Fund  One Year   Five Year   Ten Year 
Investor   27.80%   11.22%   11.08%
Service   26.58%   10.12%   9.98%
S&P Communication Services Select Sector® Index   23.20%   8.32%   11.79%
S&P 500®    13.02%   12.20%   12.66%

 

Expense Ratios**

 

Fund  Gross   Net         
Investor   1.94%   1.78%        
Service   2.94%   2.78%        

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. Contractual fee waivers are in effect through November 30, 2023. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings & Index Composition

 

Market Exposure

 

Investment Type  % of Net Assets 
Equity Securities   72%
Swap Agreements   76%
Total Exposure   148%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management or collateral for securities loaned.

 
Largest Equity Holdings

 

Company  % of Net Assets 
Meta Platforms, Inc.   18.3%
Alphabet, Inc.   16.5%
Activision Blizzard, Inc.   3.4%
Comcast Corp.   3.3%
T-Mobile U.S., Inc.   3.1%

 

S&P Communication Services Select Sector Index – Composition

 

   % of Index 
Interactive Media & Services   50%
Entertainment   23%
Media   15%
Diversified Telecommunication Services   8%
Wireless Telecommunication Services   4%

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and NAV will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1 The graph and table reflect the theoretical reinvestment of dividends on securities in the Indexes. The impact of transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees, are not reflected in calculations of the indexes. The Fund's performance reflects the reinvestment of dividends as well as the impact of transaction costs and the deduction of fees and expenses. It is not possible to invest directly in an index.

2 1.00 equals perfect correlation. This calculation is based on the daily total return of the Index and the performance of the daily total return of the NAV per share of the Fund.

3 The S&P 500® is an unmanaged index that consists of the common stocks of 500 major U.S. corporations selected for their size and the frequency and ease with which their stocks trade.

 

The above information is not covered by the Report of the Independent Registered Public Accounting Firm.

 

 

 

 

14 :: Consumer Discretionary UltraSector ProFund  :: Management Discussion of Fund Performance (unaudited)

 

Consumer Discretionary UltraSector ProFund (the "Fund") (formerly known as Consumer Services UltraSector ProFund) seeks daily investment results, before fees and expenses, that correspond to one and one-half times (1.5x) the return of the S&P Consumer Discretionary Select Sector Index1 (the "Index") for a single day, not for any other period. A "single day" is measured from the time the Fund calculates its net asset value ("NAV") to the time of the Fund's next NAV calculation. The return of the Fund for periods longer than a single day will be the result of its return for each day compounded over the period. The Fund's return for periods longer than a single day will very likely differ in amount, and possibly even direction, from the Fund's stated multiple (1.5x) times the return of the Fund's Index for the same period. For periods longer than a single day, the Fund will lose money if the Index's performance is flat, and it is possible that the Fund will lose money even if the level of the Index rises. For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of 18.23%. For the same period, the Index had a total return of 7.84%2 and a volatility of 25.31%. For the year, the Fund achieved an average daily statistical correlation of over 0.99 to one and one-half times the daily performance of the Index.3

 

The Fund takes positions in financial instruments that, in combination, should have similar daily return characteristics as one and one-half times the daily return of the Index. The Index represents the consumer discretionary sector of the S&P 500®. The Index includes equity securities of companies from the following industries: automobile components; automobiles; household durables; leisure products; textiles, apparel & luxury goods; hotels, restaurants, & leisure; diversified consumer services; distributors; broadline retail; and specialty retail.

 

During the year ended July 31, 2023, the Fund invested in swap agreements as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. These derivatives generally tracked the performance of their underlying benchmark and were negatively impacted by financing costs associated with their use. The Fund entered into swap agreements with counterparties that the Fund's advisor determined to be major, global financial institutions. If a counterparty becomes insolvent or otherwise fails to perform on its obligations, the value of investments in the Fund may decline. The Fund has sought to mitigate this risk by generally requiring counterparties to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to the amount the counterparty owed to the Fund, subject to certain minimum thresholds.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Consumer Discretionary UltraSector ProFund from July 31, 2013 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 7/31/23

 

Fund  One Year   Five Year   Ten Year 
Investor   18.23%   8.31%   13.48%
Service   17.07%   7.24%   12.35%
S&P Consumer Discretionary Select Sector Index   7.84%   10.56%   12.86%
S&P 500®    13.02%   12.20%   12.66%
Dow Jones U.S. Consumer ServicesSM Index   13.11%   8.26%   11.32%

 

Expense Ratios**

 

Fund  Gross   Net         
Investor   1.54%   1.54%        
Service   2.54%   2.54%        

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. Contractual fee waivers are in effect through November 30, 2023. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings & Index Composition

 
Market Exposure

 

Investment Type  % of Net Assets 
Equity Securities   73%
Swap Agreements   76%
Total Exposure   149%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management.

 
Largest Equity Holdings

 

Company  % of Net Assets 
Amazon.com, Inc.   16.9%
Tesla, Inc.   14.2%
The Home Depot, Inc.   3.4%
Lowe's Cos., Inc.   3.1%
McDonald's Corp.   3.1%

 

S&P Consumer Discretionary Select Sector Index – Composition

 

   % of Index 
Retailing   45%
Automobiles & Components   24%
Consumer Services   22%
Consumer Durables & Apparel   9%

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and NAV will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1 As of the close of business on March 17, 2023, the Fund's underlying benchmark index changed from the Dow Jones U.S. Consumer ServicesSM Index to the S&P Consumer Discretionary Select Sector Index. The Fund's change in benchmark also resulted in the renaming of the Fund from Consumer Services UltraSector ProFund to Consumer Discretionary UltraSector ProFund. The Advisor believes that the benchmark change will align the Fund with a leading S&P sector index that utilizes the Global Industry Classification Standard (GICS), enabling investors to more effectively integrate the Fund into their portfolios.

2 The graph and table reflect the theoretical reinvestment of dividends on securities in the Indexes. The impact of transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees, are not reflected in calculations of the indexes. The Fund's performance reflects the reinvestment of dividends as well as the impact of transaction costs and the deduction of fees and expenses. It is not possible to invest directly in an index.

3 1.00 equals perfect correlation. This calculation is based on the daily total return of the Index and the performance of the daily total return of the NAV per share of the Fund.

4 The S&P 500® is an unmanaged index that consists of the common stocks of 500 major U.S. corporations selected for their size and the frequency and ease with which their stocks trade.

 

The above information is not covered by the Report of the Independent Registered Public Accounting Firm.

 

 

 

 

Management Discussion of Fund Performance (unaudited) :: Consumer Staples UltraSector ProFund :: 15

 

Consumer Staples UltraSector ProFund (the "Fund") (formerly known as Consumer Goods UltraSector ProFund) seeks daily investment results, before fees and expenses, that correspond to one and one-half times (1.5x) the return of the S&P Consumer Staples Select Sector Index1 (the "Index") for a single day, not for any other period. A "single day" is measured from the time the Fund calculates its net asset value ("NAV") to the time of the Fund's next NAV calculation. The return of the Fund for periods longer than a single day will be the result of its return for each day compounded over the period. The Fund's return for periods longer than a single day will very likely differ in amount, and possibly even direction, from the Fund's stated multiple (1.5x) times the return of the Fund's Index for the same period. For periods longer than a single day, the Fund will lose money if the Index's performance is flat, and it is possible that the Fund will lose money even if the level of the Index rises. For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of -12.25%. For the same period, the Index had a total return of 4.40%2 and a volatility of 13.72%. For the year, the Fund achieved an average daily statistical correlation of over 0.99 to one and one-half times the daily performance of the Index.3

 

The Fund takes positions in financial instruments that, in combination, should have similar daily return characteristics as one and one-half times the daily return of the Index. The Index represents the consumer staples sector of the S&P 500®. The Index includes equity securities of companies from the following industries: consumer staples distribution & retail; beverages; food products; tobacco; household products; and personal care products.

 

During the year ended July 31, 2023, the Fund invested in swap agreements as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. These derivatives generally tracked the performance of their underlying benchmark and were negatively impacted by financing costs associated with their use. The Fund entered into swap agreements with counterparties that the Fund's advisor determined to be major, global financial institutions. If a counterparty becomes insolvent or otherwise fails to perform on its obligations, the value of investments in the Fund may decline. The Fund has sought to mitigate this risk by generally requiring counterparties to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to the amount the counterparty owed to the Fund, subject to certain minimum thresholds.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Consumer Staples UltraSector ProFund from July 31, 2013 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 7/31/23

 

Fund  One Year   Five Year   Ten Year 
Investor   -12.25%   9.26%   9.50%
Service   -13.12%   8.18%   8.43%
S&P Consumer Staples Select Sector Index   4.40%   10.21%   9.24%
S&P 500®    13.02%   12.20%   12.66%
Dow Jones U.S. Consumer GoodsSM Index   3.17%   11.29%   9.95%

 

Expense Ratios**

 

Fund  Gross   Net 
Investor   1.88%   1.78%
Service   2.88%   2.78%

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. Contractual fee waivers are in effect through November 30, 2023. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings & Index Composition

 
Market Exposure

 

Investment Type  % of Net Assets 
Equity Securities   77%
Swap Agreements   72%
Total Exposure   149%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management.

 
Largest Equity Holdings

 

Company  % of Net Assets 
The Procter & Gamble Co.   11.3%
PepsiCo, Inc.   7.9%
Costco Wholesale Corp.   7.6%
The Coca-Cola Co.   7.4%
Philip Morris International, Inc.   3.6%

 

S&P Consumer Staples Select Sector Index – Composition

 

   % of Index 
Food, Beverage & Tobacco   52%
Food & Staples Retailing   25%
Household & Personal Products   23%

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and NAV will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1 As of the close of business on March 17, 2023, the Fund's underlying benchmark index changed from the Dow Jones U.S. Consumer GoodsSM Index to the S&P Consumer Staples Select Sector Index. The Fund's change in benchmark also resulted in the renaming of the Fund from Consumer Goods UltraSector ProFund to Consumer Staples UltraSector ProFund. The Advisor believes that the benchmark change will align the Fund with a leading S&P sector index that utilizes the Global Industry Classification Standard (GICS), enabling investors to more effectively integrate the Fund into their portfolios.

2 The graph and table reflect the theoretical reinvestment of dividends on securities in the Indexes. The impact of transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees, are not reflected in calculations of the indexes. The Fund's performance reflects the reinvestment of dividends as well as the impact of transaction costs and the deduction of fees and expenses. It is not possible to invest directly in an index.

3 1.00 equals perfect correlation. This calculation is based on the daily total return of the Index and the performance of the daily total return of the NAV per share of the Fund.

4 The S&P 500® is an unmanaged index that consists of the common stocks of 500 major U.S. corporations selected for their size and the frequency and ease with which their stocks trade.

 

The above information is not covered by the Report of the Independent Registered Public Accounting Firm.

 

 

 

 

16 :: Energy UltraSector ProFund  :: Management Discussion of Fund Performance (unaudited)

 

Energy UltraSector ProFund (the "Fund") (formerly known as Oil & Gas UltraSector ProFund) seeks daily investment results, before fees and expenses, that correspond to one and one-half times (1.5x) the return of the S&P Energy Select Sector Index1 (the "Index") for a single day, not for any other period. A "single day" is measured from the time the Fund calculates its net asset value ("NAV") to the time of the Fund's next NAV calculation. The return of the Fund for periods longer than a single day will be the result of its return for each day compounded over the period. The Fund's return for periods longer than a single day will very likely differ in amount, and possibly even direction, from the Fund's stated multiple (1.5x) times the return of the Fund's Index for the same period. For periods longer than a single day, the Fund will lose money if the Index's performance is flat, and it is possible that the Fund will lose money even if the level of the Index rises. For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of 14.73%. For the same period, the Index had a total return of 16.25%2 and a volatility of 29.06%. For the year, the Fund achieved an average daily statistical correlation of over 0.99 to one and one-half times the daily performance of the Index.3

 

The Fund takes positions in financial instruments that, in combination, should have similar daily return characteristics as one and one-half times the daily return of the Index. The Index represents the energy sector of the S&P 500®. The Index includes equity securities of companies from the following industries: energy equipment & services and oil & gas consumable fuels.

 

During the year ended July 31, 2023, the Fund invested in swap agreements as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. These derivatives generally tracked the performance of their underlying benchmark and were negatively impacted by financing costs associated with their use. The Fund entered into swap agreements with counterparties that the Fund's advisor determined to be major, global financial institutions. If a counterparty becomes insolvent or otherwise fails to perform on its obligations, the value of investments in the Fund may decline. The Fund has sought to mitigate this risk by generally requiring counterparties to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to the amount the counterparty owed to the Fund, subject to certain minimum thresholds.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Energy UltraSector ProFund from July 31, 2013 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 7/31/23

 

Fund  One Year   Five Year   Ten Year 
Investor   14.73%   2.07%   -0.34%
Service   13.56%   1.06%   -1.32%
S&P Energy Select Sector Index   16.25%   7.93%   4.62%
S&P 500®    13.02%   12.20%   12.66%
Dow Jones U.S. Oil & GasSM Index   15.12%   6.98%   3.83%

 

Expense Ratios**

 

Fund  Gross   Net         
Investor   1.51%   1.51%        
Service   2.51%   2.51%        

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. Contractual fee waivers are in effect through November 30, 2023. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings & Index Composition

 
Market Exposure

 

Investment Type  % of Net Assets 
Equity Securities   76%
Swap Agreements   74%
Total Exposure   150%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management.

 
Largest Equity Holdings

 

Company  % of Net Assets 
Exxon Mobil Corp.   16.2%
Chevron Corp.   14.2%
Schlumberger N.V.   4.2%
EOG Resources, Inc.   3.6%
ConocoPhillips   3.6%

 

S&P Energy Select Sector Index – Composition

 

   % of Index 
Oil, Gas & Consumable Fuels   89%
Energy Equipment & Services   11%

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and NAV will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1 As of the close of business on March 17, 2023, the Fund's underlying benchmark index changed from the Dow Jones U.S. Oil & GasSM Index to the S&P Energy Select Sector Index. The Fund's change in benchmark also resulted in the renaming of the Fund from Oil & Gas UltraSector ProFund to Energy UltraSector ProFund. The Advisor believes that the benchmark change will align the Fund with a leading S&P sector index that utilizes the Global Industry Classification Standard (GICS), enabling investors to more effectively integrate the Fund into their portfolios.

2 The graph and table reflect the theoretical reinvestment of dividends on securities in the Indexes. The impact of transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees, are not reflected in calculations of the indexes. The Fund's performance reflects the reinvestment of dividends as well as the impact of transaction costs and the deduction of fees and expenses. It is not possible to invest directly in an index.

3 1.00 equals perfect correlation. This calculation is based on the daily total return of the Index and the performance of the daily total return of the NAV per share of the Fund.

4 The S&P 500® is an unmanaged index that consists of the common stocks of 500 major U.S. corporations selected for their size and the frequency and ease with which their stocks trade.

 

The above information is not covered by the Report of the Independent Registered Public Accounting Firm.

 

 

 

 

Management Discussion of Fund Performance (unaudited)  :: Europe 30 ProFund :: 17

 

Europe 30 ProFund (the "Fund") seeks investment results, before fees and expenses, that correspond to the return of the ProFunds Europe 30 Index® (the "Index"). For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of 10.95%. For the same period, the Index had a price return of 9.01%1 and a volatility of 17.13%. For the year, the Fund achieved an average daily statistical correlation of over 0.99 to the daily performance of the Index.2

 

The Fund takes positions in financial instruments that, in combination, should have similar return characteristics as the return of the Index. The Index, created by ProFund Advisors, is composed of companies whose principal offices are located in Europe and whose securities are traded on U.S. exchanges or on Nasdaq as depositary receipts or ordinary shares and meet certain liquidity requirements. The component companies included in the Index are the 30 most liquid companies based upon their U.S. dollar-traded volume. Their relative weights are determined using a modified market capitalization method. The Index is reconstituted annually. The Index is expressed in U.S. dollar terms and as such should generally reflect the relative movement of the U.S. dollar against the basket of foreign currencies represented by the constituent companies in the Index.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Europe 30 ProFund from July 31, 2013 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 7/31/23

 

Fund  One Year   Five Year   Ten Year 
Investor   10.95%   2.83%   3.58%
Service   9.82%   1.79%   2.54%
ProFunds Europe 30® Index   9.01%   1.39%   1.92%
STOXX Europe 50® Index   22.93%   6.78%   5.39%

 

Expense Ratios**

 

Fund  Gross   Net         
Investor   2.32%   1.78%        
Service   3.32%   2.78%        

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. Contractual fee waivers are in effect through November 30, 2023. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings & Index Composition

 
Market Exposure

 

Investment Type  % of Net Assets 
Equity Securities   100%
Total Exposure   100%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management or collateral for securities loaned.

 
Largest Equity Holdings

 

Company  % of Net Assets 
Novo Nordisk A/S   7.0%
ASML Holding N.V.   6.8%
SAP SE   4.8%
Shell PLC   4.7%
HSBC Holdings PLC   4.7%

 

ProFunds Europe 30® Index – Composition

 

Industry Breakdown  % of Index 
Health Care   25%
Energy   19%
Information Technology   15%
Financials   10%
Consumer Staples   10%
Materials   10%
Industrials   6%
Utilities   3%
Communication Services   2%

 

Country Composition    
United Kingdom   41%
Netherlands   16%
Denmark   9%
France   7%
Other   27%

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and net asset value ("NAV") will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1 The graph and table DO NOT reflect the theoretical reinvestment of dividends on securities in the Index nor the impact of transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees. The Fund's performance reflects the reinvestment of dividends as well as the impact of transaction costs and the deduction of fees and expenses. It is not possible to invest directly in an index.

2 1.00 equals perfect correlation. This calculation is based on the daily total return of the Index and the performance of the daily total return of the NAV per share of the Fund.

3 The STOXX Europe 50® Index is a capitalization-weighted index of 50 European blue-chip stocks. The graph and table reflect the theoretical reinvestment of dividends in the Index. The impact of the transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees, are not reflected in the Index calculations. It is not possible to invest directly in an index.

 

The above information is not covered by the Report of the Independent Registered Public Accounting Firm.

 

 

 

 

18 :: Falling U.S. Dollar ProFund :: Management Discussion of Fund Performance (unaudited)

 

Falling U.S. Dollar ProFund (the "Fund") seeks daily investment results, before fees and expenses, that correspond to the return of the basket of non-U.S. currencies included in the U.S. Dollar Index (the "Index"). The Index measures the performance of the U.S. dollar against a basket of six major world currencies (the "Benchmark"). For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of 3.91%. For the same period, the Index had a price return of -3.81%1 and a volatility of 8.96%. For the year, the Fund achieved an average daily statistical correlation of over 0.99 to the inverse of the daily performance of the Index.2

 

The Fund takes positions in financial instruments that, in combination, should have similar daily return characteristics as the daily return of the Benchmark. The currencies and their weightings as of July 31, 2023 are: Euro 57%; Japanese yen 14%; British pound 12%; Canadian dollar 9%; Swedish krona 4% and Swiss franc 4%. The Fund is designed to benefit from a decline in the value of the U.S. Dollar against the value of the currencies included in the Benchmark. Accordingly, as the value of the U.S. Dollar depreciates (i.e., "falls") versus the Benchmark, the performance of the Fund generally should be expected to increase. As the value of the U.S. Dollar appreciates versus the Benchmark, the performance of the Fund generally should be expected to decline. The Fund does not normally provide investment returns that match the inverse of the Index.

 

During the year ended July 31, 2023, the Fund invested in forward currency contracts to gain exposure to the Benchmark. These derivatives generally tracked the performance of their underlying benchmark. The Fund entered into forward currency contracts with counterparties that the Fund's advisor determined to be major, global financial institutions. If a counterparty becomes insolvent or otherwise fails to perform on its obligations, the value of investments in the Fund may decline. The Fund has sought to mitigate this risk by generally requiring counterparties to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to the amount the counterparty owed to the Fund, subject to certain minimum thresholds.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Falling U.S. Dollar ProFund from July 31, 2013 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 7/31/23

 

Fund  One Year   Five Year   Ten Year 
Investor   3.91%   -3.35%   -4.19%
Service   2.82%   -4.33%   -5.14%
U.S. Dollar Index   -3.81%   1.51%   2.26%
S&P 500®    13.02%   12.20%   12.66%

 

Expense Ratios**

 

Fund  Gross   Net         
Investor   4.94%   1.78%        
Service   5.94%   2.78%        

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. Contractual fee waivers are in effect through November 30, 2023. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings & Index Composition

 

Market Exposure

 

Investment Type  % of Net Assets 
Forward Currency Contracts   (100)%
Total Exposure   (100)%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management.

 

Holdings

 

The Falling U.S. Dollar ProFund primarily invests in non-equity securities, which may include: swap agreements, futures contracts, options, forward contracts, repurchase agreements and U.S. Government securities.

 

U.S. Dollar Index – Composition

 

   % of Index 
Euro   57%
Japanese yen   14%
British pound   12%
Canadian dollar   9%
Swedish krona   4%
Swiss franc   4%

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and net asset value ("NAV") will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1 The graph and table DO NOT reflect the theoretical reinvestment of dividends nor the impact of transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees. The Fund's performance reflects the reinvestment of dividends as well as the impact of transaction costs and the deduction of fees and expenses. It is not possible to invest directly in an index.

2 1.00 equals perfect correlation. This calculation is based on the daily total return of the Index and the performance of the daily total return of the NAV per share of the Fund.

3 The S&P 500® is an unmanaged index that consists of the common stocks of 500 major U.S. corporations selected for their size and the frequency and ease with which their stocks trade. The graph and table reflect the theoretical reinvestment of dividends on securities in the Index. The impact of the transaction costs and the deduction of fees and expenses associated with a mutual fund, such as investment management and accounting fees, are not reflected in the Index calculations. It is not possible to invest directly in an index.

 

The above information is not covered by the Report of the Independent Registered Public Accounting Firm.

 

 

 

 

Management Discussion of Fund Performance (unaudited) :: Financials UltraSector ProFund :: 19

 

Financials UltraSector ProFund (the "Fund") seeks daily investment results, before fees and expenses, that correspond to one and one-half times (1.5x) the return of the S&P Financial Select Sector Index1 (the "Index") for a single day, not for any other period. A "single day" is measured from the time the Fund calculates its net asset value ("NAV") to the time of the Fund's next NAV calculation. The return of the Fund for periods longer than a single day will be the result of its return for each day compounded over the period. The Fund's return for periods longer than a single day will very likely differ in amount, and possibly even direction, from the Fund's stated multiple (1.5x) times the return of the Fund's Index for the same period. For periods longer than a single day, the Fund will lose money if the Index's performance is flat, and it is possible that the Fund will lose money even if the level of the Index rises. For the year ended July 31, 2023, the Fund (Investor Class shares) had a total return of 2.89%. For the same period, the Index had a total return of 7.09%2 and a volatility of 20.87%. For the year, the Fund achieved an average daily statistical correlation of over 0.99 to one and one-half times the daily performance of the Index.3

 

The Fund takes positions in financial instruments that, in combination, should have similar daily return characteristics as one and one-half times the daily return of the Index. The Index represents the financials sector of the S&P 500®. The Index includes equity securities of companies from the following industries: banks; financial services; consumer finance; capital markets; mortgage real estate investment trusts (REITs); and insurance.

 

During the year ended July 31, 2023, the Fund invested in swap agreements as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. These derivatives generally tracked the performance of their underlying benchmark and were negatively impacted by financing costs associated with their use. The Fund entered into swap agreements with counterparties that the Fund's advisor determined to be major, global financial institutions. If a counterparty becomes insolvent or otherwise fails to perform on its obligations, the value of investments in the Fund may decline. The Fund has sought to mitigate this risk by generally requiring counterparties to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to the amount the counterparty owed to the Fund, subject to certain minimum thresholds.

 

Value of a $10,000 Investment at Net Asset Value*

 

 

 

 

*The line graph represents the historical performance of a hypothetical investment of $10,000 in the Financials UltraSector ProFund from July 31, 2013 to July 31, 2023, assuming the reinvestment of distributions.

 

Average Annual Total Return as of 7/31/23

 

Fund  One Year   Five Year   Ten Year 
Investor   2.89%   5.50%   10.35%
Service   1.90%   4.44%   9.25%
S&P Financial Select Sector Index   7.09%   7.11%   10.06%
S&P 500®    13.02%   12.20%   12.66%
Dow Jones U.S. FinancialsSM Index   5.21%   7.38%   9.89%

 

Expense Ratios**

 

Fund  Gross   Net         
Investor   1.73%   1.73%        
Service   2.73%   2.73%        

 

 

**Reflects the expense ratio as reported in the Prospectus dated November 30, 2022. Contractual fee waivers are in effect through November 30, 2023. See Financial Highlights for effective expense ratios.

 

Allocation of Portfolio Holdings & Index Composition

 
Market Exposure

 

Investment Type  % of Net Assets 
Equity Securities   80%
Swap Agreements   70%
Total Exposure   150%

 

"Market Exposure" includes the value of total investments (including the contract value of any derivatives) and excludes any instruments used for cash management.

 

Largest Equity Holdings

 

Company  % of Net Assets 
Berkshire Hathaway, Inc.   10.3%
JPMorgan Chase & Co.   7.6%
Visa, Inc.   6.3%
Mastercard, Inc.   5.4%
Bank of America Corp.   3.7%

 

S&P Financial Select Sector Index – Composition

 

   % of Index 
Diversified Financials   59%
Banks   25%
Insurance   16%

 

Past performance does not guarantee future results. Return calculations assume the reinvestment of distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and NAV will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The performance above reflects any fee reductions during the applicable periods. If such fee reductions had not occurred, the quoted performance would be lower. To obtain performance current to the most recent month-end, please visit www.ProFunds.com.

 

 

1 As of the close of business on March 17, 2023, the Fund's underlying benchmark index changed from the Dow Jones U.S. FinancialsSM Index to the S&P Financial Select Sector Index. The Advisor believes that the benchmark change will align the Fund with a leading S&P sector index that utilizes the Global Industry Classification Standard (GICS), enabling investors to more effectively integrate the Fund into their portfolios.