485APOS 1 d485apos.htm 485APOS 485APOS
Table of Contents

As filed with the Securities and Exchange Commission on September 29, 2009

Registration Nos. 333-28339; 811-08239

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-1A

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933    x  
Pre-Effective Amendment No.    ¨  
Post-Effective Amendment No. 65    x  

and/or

 

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940    ¨  
Amendment No. 67    x  

 

 

ProFunds

(Exact Name of Registrant as Specified in Charter)

 

 

7501 Wisconsin Avenue, Suite 1000

Bethesda, Maryland 20814

(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, including Area Code: (240) 497-6400

 

 

With copy to:

 

Michael L. Sapir

Chairman

ProFund Advisors LLC

7501 Wisconsin Avenue

Suite 1000

Bethesda, Maryland 20814

 

John Loder, Esq.

Ropes & Gray LLP

One International Place

Boston, MA 02110-2624

(Name and Address of Agent for Service Process)

 

 

Approximate Date of Commencement of the Proposed Public Offering of the Securities:

It is proposed that this filing will become effective:

 

¨ immediately upon filing pursuant to paragraph (b)

 

¨ on (date) pursuant to paragraph (b)

 

¨ 60 days after filing pursuant to paragraph (a)(1)

 

x On November 28, 2009 pursuant to paragraph (a)(1)

 

¨ 75 days after filing pursuant to paragraph (a)(2)

 

¨ on (date) pursuant to paragraph (a)(2) of rule 485.

If appropriate, check the following:

 

¨ This post-effective amendment designates a new effective date for a previously filed post-effective amendment.

 

 

 


Table of Contents

LOGO

LOGO

 

 

Bull

Mid-Cap

Small-Cap

NASDAQ-100

Large-Cap Value

Large-Cap Growth

Mid-Cap Value

Mid-Cap Growth

Small-Cap Value

Small-Cap Growth

Europe 30

UltraBull

UltraMid-Cap

UltraSmall-Cap

UltraDow 30

UltraNASDAQ-100

UltraInternational

UltraEmerging Markets

UltraLatin America

UltraChina

UltraJapan

Bear

Short Small-Cap

Short NASDAQ-100

UltraBear

UltraShort Mid-Cap

UltraShort Small-Cap

UltraShort Dow 30

UltraShort NASDAQ-100

UltraShort International

UltraShort Emerging Markets

UltraShort Latin America

UltraShort China

UltraShort Japan

Banks

Basic Materials

Biotechnology

Consumer Goods

Consumer Services

Financials

Health Care

Industrials

Internet

Mobile Telecommunications

Oil & Gas

Oil Equipment, Services & Distribution

Pharmaceuticals

Precious Metals

Real Estate

Semiconductor

Technology

Telecommunications

Utilities

Short Oil & Gas

Short Precious Metals

Short Real Estate

U.S. Government Plus

Rising Rates Opportunity 10

Rising Rates Opportunity

Rising U.S. Dollar

Falling U.S. Dollar

 

Prospectus

 

Investor and Service Class Shares

   December 1, 2009

 

Like shares of all mutual funds, these securities have not been approved or disapproved by the Securities and Exchange Commission nor has the Securities and Exchange Commission passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense.


Table of Contents

 

This Page Intentionally Left Blank

 

2    


Table of Contents

 

Table of Contents

 

4    Summary Section
5   

Bull

9   

Mid-Cap

13   

Small-Cap

17   

NASDAQ-100

21   

Large-Cap Value

25   

Large-Cap Growth

29   

Mid-Cap Value

33   

Mid-Cap Growth

37   

Small-Cap Value

41   

Small-Cap Growth

45   

Europe 30

49   

UltraBull

54   

UltraMid-Cap

59   

UltraSmall-Cap

64   

UltraDow 30

69   

UltraNASDAQ-100

74   

UltraInternational

79   

UltraEmerging Markets

84   

UltraLatin America

89   

UltraChina

94   

UltraJapan

99   

Bear

104   

Short Small-Cap

109   

Short NASDAQ-100

114   

UltraBear

119   

UltraShort Mid-Cap

124   

UltraShort Small-Cap

129   

UltraShort Dow 30

134   

UltraShort NASDAQ-100

139   

UltraShort International

144   

UltraShort Emerging Markets

149   

UltraShort Latin America

155   

UltraShort China

160   

UltraShort Japan

165   

Banks

170   

Basic Materials

174   

Biotechnology

179   

Consumer Goods

184   

Consumer Services

189   

Financials

194   

Health Care

199   

Industrials

204   

Internet

209   

Mobile Telecommunications

214   

Oil & Gas

218   

Oil Equipment, Services & Distribution

222   

Pharmaceuticals

227   

Precious Metals

232   

Real Estate

237   

Semiconductor

242   

Technology

247   

Telecommunications

252   

Utilities

256   

Short Oil & Gas

261   

Short Precious Metals

266   

Short Real Estate

271   

U.S. Government Plus

275   

Rising Rates Opportunity 10

280   

Rising Rates Opportunity

285   

Rising U.S. Dollar

290   

Falling U.S. Dollar

295    ProFunds Investment Objectives, Principal Investment Strategies, Related Risks and Disclosure of Portfolio Holdings
309    ProFunds Management
315    General ProFunds Information
319    Shareholder Services Guide
329    Financial Highlights


Table of Contents

 

SUMMARY SECTION

 

 

 

 

 

 

 

4   < Summary Section


Table of Contents

Bull ProFund

 

 

Important Information About the Fund

Bull ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from the return of the S&P 500® Index (the “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to the daily performance of the S&P 500 Index. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

 

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

    

Investor Class

(BLPIX)

    

Service Class

(BLPSX)

Investment Advisory Fees

     0.75%      0.75%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

               %                %
      
    

Total Gross Annual Fund Operating Expenses

               %                %

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund Shares, which are not reflected in the example or the table above.

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [        ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as 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 REITs selected by the S&P U.S. Index Committee through a non-mechanical process that factors in criteria such as liquidity, price, market capitalization and financial viability. Reconstitution occurs both on a quarterly and ongoing basis. As of September 30, 2009, the S&P 500 Index included companies with capitalizations between $[            ] million and $[            ] billion. The average capitalization of the companies comprising the Index was approximately $[            ] billion. The Index is published under the Bloomberg ticker symbol “[            ].” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instrument.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

 

Bull ProFund >   5


Table of Contents
Class   Ticker

Investor

  BLPIX

Service

  BLPSX

 

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles.

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk — The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Counterparty Risk — The Fund will be subject to the credit risk (that is, where changes in an issuer’s financial strength or the credit rating of a financial instrument it issues may affect an instrument’s value) with respect to the amount it expects to receive from counterparties to derivatives and repurchase agreements entered into by the Fund or held by special purpose or structured vehicles. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the value of your investment in the Fund may decline.

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.

Equity and Market Risk — the equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Volatility in the markets and/or adverse market developments may cause the value of an investment in the Fund to decrease.

 

6   < Bull ProFund


Table of Contents

 

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProFund Advisors. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index.

Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if there is a small number of issuers in the underlying index or if the Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to a single economic, political and regulatory event than a diversified fund might be. This risk may be particularly acute when the Fund’s underlying index comprises a small number of stocks or other securities.

Portfolio Turnover Risk — Daily rebalancing of Fund holdings, which is required to keep leverage consistent with a one-day investment objective, will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of Shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

 

Investment Results

 

Annual Total Return:

The bar chart below shows how the Fund’s investment results for Investor Class Shares have varied from year to year, and the table shows how the Fund’s average annual total returns for various periods compare with different broad measures of market performance. This information provides some indication of the risks of investing in the Fund. Past results (before and after taxes) are not predictive of future results. Updated information on the Fund’s results can be obtained by visiting www.profunds.com.

 

Annual Returns of Investor Class Shares as of December 31 each year

 

LOGO

Best Quarter (ended     /    /    ):         %;

Worst Quarter (ended     /    /    ):         %.

The Fund’s total return for the nine months ended September 30, 2009, was         %.

 

Average Annual Total Returns

As of December 31, 2008

 

One

Year

 

Five

Years

 

Ten

Years

Investor Class Shares

           

- Before Taxes

           

- After Taxes on Distribution

           

- After Taxes on Distribution and Sale of Shares

           

Service Class Shares (1)

           

S&P 500 Index (2)

           
(1) Reflects no deduction for taxes.
(2) Reflects no deduction for fees, expense or taxes. Adjusted to reflect the reinvestment of dividends paid by companies in the Index.

 

 

Bull ProFund >   7


Table of Contents

Bull ProFund

 

Management

The Fund is advised by ProFund Advisors LLC and is managed by the following individuals.

 

 
Portfolio Manager   Experience with the Advisor   Title with the Advisor
Todd Johnson   Since December 2008   Chief Investment Officer
Elisa Petit   Since March 2000   Senior Portfolio Manager
Erik G. Benke, CFA   Since January 2005   Associate Portfolio Manager
Ashwin Joshi   Since November 2006   Associate Portfolio Manager

 

Purchase and Sale of Fund Shares

 

Minimum Initial Investment for all classes

 

All account types except Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $5,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $4,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 

You may purchase, redeem or exchange shares of the Fund on any day which the New York Stock Exchange is open for business. You may redeem shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).

 

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes.

 

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Service Class Shares of the Fund through a financial intermediary, such as a broker-dealer and investment adviser, the Fund and its distributor may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary to recommend the Fund over another investment. Ask your financial intermediary or visit your financial intermediary’s website for more information.

 

8   < Bull ProFund


Table of Contents

Mid-Cap ProFund

 

 

Important Information About the Fund

Mid-Cap ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from the return of the S&P MidCap 400TM Index (the “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to the daily performance of the S&P MidCap 400 Index. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

 

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

    

Investor Class

(MDPIX)

    

Service Class

(MDPSX)

Investment Advisory Fees

     0.75%      0.75%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

               %                %
      
    

Total Gross Annual Fund Operating Expenses

             %              %

Fee Waivers/Reimbursements*

               %                %
      
    

Total Net Annual Fund Operating Expenses

     [        ]%      [        ]%
* ProFund Advisors LLC (“ProFund Advisors”) has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Gross Annual Fund Operating Expenses, as a percentage of average daily net assets, exceed [        ]% for Investor Class Shares and [        ]% for Service Class Shares through November 30, 2010. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProFund Advisors within three years of the end of the contractual period to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors.

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund Shares, which are not reflected in the example or the table above.

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [        ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as the daily return of the Index. The Index is a measure of mid-cap company U.S. stock market performance. It is a float-adjusted market capitalization weighted index of 400 U.S. operating companies and REITs. Securities are selected for inclusion in the index by the S&P U.S. Index Committee through a non-mechanical process that factors in criteria such as liquidity, price, market capitalization and financial viability. Reconstitution occurs both on a quarterly and ongoing basis. As of September 30, 2009, the S&P MidCap 400 Index included companies with capitalizations between $[            ] million and $[            ] billion. The average capitalization of the companies comprising the

 

Mid-Cap ProFund >   9


Table of Contents
Class   Ticker

Investor

  MDPIX

Service

  MDPSX

 

Index was approximately $[            ] billion. The Index is published under the Bloomberg ticker symbol “[            ].” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instruments.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles.

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk — The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Counterparty Risk — The Fund will be subject to the credit risk (that is, where changes in an issuer’s financial strength or the credit rating of a financial instrument it issues may affect an instrument’s value) with respect to the amount it expects to receive from counterparties to derivatives and repurchase agreements entered into by the Fund or held by special purpose or structured vehicles. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the value of your investment in the Fund may decline.

 

10   < Mid-Cap ProFund


Table of Contents

 

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.

Equity and Market Risk — the equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Volatility in the markets and/or adverse market developments may cause the value of an investment in the Fund to decrease.

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProFund Advisors. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index.

Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if there is a small number of issuers in the underlying index or if the Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to a single economic, political and regulatory event than a diversified fund might be. This risk may be particularly acute when the Fund’s underlying index comprises a small number of stocks or other securities.

Portfolio Turnover Risk — Daily rebalancing of Fund holdings, which is required to keep leverage consistent with a one-day investment objective, will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of Shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

Small- and Mid-Cap Company Investment Risk — Small- and mid-cap companies may have limited product lines or resources, may be dependent upon a particular market niche and may have greater fluctuations in price than the stocks of larger companies. Further, stocks of small- and mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. In addition, small- and mid-cap companies may lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-cap security prices.

 

Investment Results

 

Annual Total Return:

The bar chart below shows how the Fund’s investment results for Investor Class Shares have varied from year to year, and the table shows how the Fund’s average annual total returns for various periods compare with different broad measures of market performance. This information provides some indication of the risks of investing in the Fund. Past results (before and after taxes) are not predictive of future results. Updated information on the Fund’s results can be obtained by visiting www.profunds.com.

 

Annual Returns of Investor Class Shares as of December 31 each year

 

LOGO

Best Quarter (ended     /    /    ):        %;

Worst Quarter (ended     /    /    ):         %.

The Fund’s total return for the nine months ended September 30, 2009, was         %.

 

Mid-Cap ProFund >   11


Table of Contents

Mid-Cap ProFund

 

Investment Results (continued)

 

Average Annual Total Returns

As of December 31, 2008

 

One

Year

 

Five

Years

 

Since

Inception (3)

 

Inception

Date

Investor Class Shares

               

- Before Taxes

              09/04/01

- After Taxes on Distribution

               

- After Taxes on Distribution and Sale of Shares

               

Service Class Shares (1)

              09/04/01

S&P MidCap 400 Index (2)

               
(1) Reflects no deduction for taxes.
(2) Reflects no deduction for fees, expense or taxes. Adjusted to reflect the reinvestment of dividends paid by companies in the Index.
(3) Since Inception returns are calculated from the date the Fund commenced operations.

 

Management

The Fund is advised by ProFund Advisors LLC and is managed by the following individuals.

 

Portfolio Manager   Experience with the Advisor   Title with the Advisor
Todd Johnson   Since December 2008   Chief Investment Officer
Elisa Petit   Since March 2000   Senior Portfolio Manager
Erik G. Benke, CFA   Since January 2005   Associate Portfolio Manager
Ashwin Joshi   Since November 2006   Associate Portfolio Manager

 

Purchase and Sale of Fund Shares

 

Minimum Initial Investment for all classes

 

All account types except Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $5,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $4,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 

You may purchase, redeem or exchange shares of the Fund on any day which the New York Stock Exchange is open for business. You may redeem shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).

 

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes.

 

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Service Class Shares of the Fund through a financial intermediary, such as a broker-dealer and investment adviser, the Fund and its distributor may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary to recommend the Fund over another investment. Ask your financial intermediary or visit your financial intermediary’s website for more information.

 

12   < Mid-Cap ProFund


Table of Contents

Small-Cap ProFund

 

Important Information About the Fund

Small-Cap ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from the return of the Russell 2000® Index (the “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to the daily performance of the Russell 2000 Index. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

 

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

    

Investor Class

(SLPIX)

    

Service Class

(SLPSX)

Investment Advisory Fees

     0.75%      0.75%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

               %                %
      
    

Total Gross Annual Fund Operating Expenses

             %              %

Fee Waivers/Reimbursements*

               %                %
      
    

Total Net Annual Fund Operating Expenses

     [        ]%      [        ]%
* ProFund Advisors LLC (“ProFund Advisors”) has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Gross Annual Fund Operating Expenses, as a percentage of average daily net assets, exceed [        ]% for Investor Class Shares and [        ]% for Service Class Shares through November 30, 2010. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProFund Advisors within three years of the end of the contractual period to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors.

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund Shares, which are not reflected in the example or the table above.

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [        ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as the daily return of the Index. The Index is a measure of small-cap U.S. stock market performance. It is an adjusted market capitalization weighted index containing approximately 2000 of the smallest companies in the Russell 3000® Index, or approximately 8% of the total market capitalization of the Russell 3000 Index, which in turn represents approximately 98% of the investable U.S. equity market. All U.S. companies listed on the NYSE, AMEX or NASDAQ meeting an initial minimum ($1) price are considered for inclusion. Reconstitution occurs annually. Securities are not replaced if they leave the index;

 

Small-Cap ProFund >   13


Table of Contents
Class   Ticker

Investor

  SLPIX

Service

  SLPSX

 

however, new issue securities meeting other membership requirements may be added on a quarterly basis. As of September 30, 2009, the Russell 2000 Index included companies with capitalizations between $[            ] million and $[            ] billion. The average capitalization of the companies comprising the Index was approximately $[            ] million. The Index is published under the Bloomberg ticker symbol “RTY.” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instruments.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles. They include:

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

 

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk — The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Counterparty Risk — The Fund will be subject to the credit risk (that is, where changes in an issuer’s financial strength or the credit rating of a financial instrument it issues may affect an instrument’s value) with respect to the amount it expects to receive from counterparties to derivatives and repurchase agreements entered into by the Fund or held by special purpose or structured vehicles. If a

 

14   < Small-Cap ProFund


Table of Contents

 

counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the value of your investment in the Fund may decline.

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.

Equity and Market Risk — the equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Volatility in the markets and/or adverse market developments may cause the value of an investment in the Fund to decrease.

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProFund Advisors. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index.

Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if there is a small number of issuers in the underlying index or if the Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to a single economic, political and regulatory event than a diversified fund might be. This risk may be particularly acute when the Fund’s underlying index comprises a small number of stocks or other securities.

Portfolio Turnover Risk — Daily rebalancing of Fund holdings, which is required to keep leverage consistent with a one-day investment objective, will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of Shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

Small- and Mid-Cap Company Investment Risk — Small- and mid-cap companies may have limited product lines or resources, may be dependent upon a particular market niche and may have greater fluctuations in price than the stocks of larger companies. Further, stocks of small- and mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. In addition, small- and mid-cap companies may lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-cap security prices.

 

Investment Results

 

Annual Total Return:

The bar chart below shows how the Fund’s investment results for Investor Class Shares have varied from year to year, and the table shows how the Fund’s average annual total returns for various periods compare with different broad measures of market performance. This information provides some indication of the risks of investing in the Fund. Past results (before and after taxes) are not predictive of future results. Updated information on the Fund’s results can be obtained by visiting www.profunds.com.

 

Annual Returns of Investor Class Shares as of December 31 each year

 

LOGO

Best Quarter (ended     /    /    ):        %;

Worst Quarter (ended     /    /    ):         %.

The Fund’s total return for the nine months ended September 30, 2009, was         %.

 

Small-Cap ProFund >   15


Table of Contents

Small-Cap ProFund

 

Investment Results (continued)

 

Average Annual Total Returns

As of December 31, 2008

 

One

Year

 

Five

Years

 

Since

Inception (3)

 

Inception

Date

Investor Class Shares

              09/04/01

- Before Taxes

               

- After Taxes on Distribution

               

- After Taxes on Distribution and Sale of Shares

               

Service Class Shares (1)

              09/04/01

Russell 2000 Index (2)

               
(1) Reflects no deduction for taxes.
(2) Reflects no deduction for fees, expense or taxes. Adjusted to reflect the reinvestment of dividends paid by companies in the Index.
(3) Since Inception returns are calculated from the date the Fund commenced operations.

 

Management

The Fund is advised by ProFund Advisors LLC and is managed by the following individuals.

 

 
Portfolio Manager   Experience with the Advisor   Title with the Advisor
Todd Johnson   Since December 2008   Chief Investment Officer
Elisa Petit   Since March 2000   Senior Portfolio Manager
Erik G. Benke, CFA   Since January 2005   Associate Portfolio Manager
Ashwin Joshi   Since November 2006   Associate Portfolio Manager

 

Purchase and Sale of Fund Shares

 

Minimum Initial Investment for all classes

 

   
All account types except Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $5,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $4,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 

You may purchase, redeem or exchange shares of the Fund on any day which the New York Stock Exchange is open for business. You may redeem shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).

 

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes.

 

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Service Class Shares of the Fund through a financial intermediary, such as a broker-dealer and investment adviser, the Fund and its distributor may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary to recommend the Fund over another investment. Ask your financial intermediary or visit your financial intermediary’s website for more information.

 

16   < Small-Cap ProFund


Table of Contents

NASDAQ-100 ProFund

 

 

Important Information About the Fund

NASDAQ-100 ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from the return of the NASDAQ-100® Index (the “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to the daily performance of the NASDAQ-100 Index. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

 

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

    

Investor Class

(OTPIX)

    

Service Class

(OTPSX)

Investment Advisory Fees

     0.70%      0.70%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

             %              %
      
    

Total Gross Annual Fund Operating Expenses

             %              %

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund Shares, which are not reflected in the example or the table above.

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [ ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as the daily return of the Index. The Index includes 100 of the largest non-financial domestic and international issues listed on the NASDAQ Stock Market. To be eligible for inclusion, companies cannot be in bankruptcy proceedings and must meet certain additional criteria, including minimum trading volume and “seasoning” requirements. The Index is calculated under a modified capitalization-weighted methodology. Reconstitution and rebalancing occurs on an annual, quarterly, and ongoing basis. As of September 30, 2009, the NASDAQ-100 Index included companies with capitalizations between $[            ] billion and $[            ] billion. The average capitalization of the companies comprising the Index was approximately $[            ] billion. The Index is published under the Bloomberg ticker symbol “[            ].” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instruments.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

 

NASDAQ-100 ProFund >   17


Table of Contents
Class   Ticker

Investor

  OTPIX

Service

  OTPSX

 

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles.

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

 

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk — The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Counterparty Risk — The Fund will be subject to the credit risk (that is, where changes in an issuer’s financial strength or the credit rating of a financial instrument it issues may affect an instrument’s value) with respect to the amount it expects to receive from counterparties to derivatives and repurchase agreements entered into by the Fund or held by special purpose or structured vehicles. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the value of your investment in the Fund may decline.

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.

Equity and Market Risk — the equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or

 

18   < NASDAQ-100 ProFund


Table of Contents

 

segments of the market. Volatility in the markets and/or adverse market developments may cause the value of an investment in the Fund to decrease.

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProFund Advisors. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index.

Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if there is a small number of issuers in the underlying index or if the Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to a single economic, political and regulatory event than a diversified fund might be. This risk may be particularly acute when the Fund’s underlying index comprises a small number of stocks or other securities.

Portfolio Turnover Risk — Daily rebalancing of Fund holdings, which is required to keep leverage consistent with a one-day investment objective, will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of Shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

Technology Investment Risk — Technology investment risk is the risk that securities of technology companies may be subject to greater volatility than stocks of companies in other market sectors.

 

Investment Results

 

Annual Total Return:

The bar chart below shows how the Fund’s investment results for Investor Class Shares have varied from year to year, and the table shows how the Fund’s average annual total returns for various periods compare with different broad measures of market performance. This information provides some indication of the risks of investing in the Fund. Past results (before and after taxes) are not predictive of future results. Updated information on the Fund’s results can be obtained by visiting www.profunds.com.

 

Annual Returns of Investor Class Shares as of December 31 each year

 

LOGO

Best Quarter (ended     /    /    ):        %;

Worst Quarter (ended     /    /    ):         %.

The Fund’s total return for the nine months ended September 30, 2009, was         %.

Average Annual Total Returns

As of December 31, 2008

 

One

Year

 

Five

Years

 

Since

Inception (3)

  Inception
Date

Investor Class Shares

               

- Before Taxes

              08/07/00

- After Taxes on Distribution

               

- After Taxes on Distribution and Sale of Shares

               

Service Class Shares (1)

              08/07/00

NASDAQ-100 Index (2)

               
(1) Reflects no deduction for taxes.
(2) Reflects no deduction for fees, expense or taxes. Adjusted to reflect the reinvestment of dividends paid by companies in the Index.
(3) Since Inception returns are calculated from the date the Fund commenced operations.

 

NASDAQ-100 ProFund >   19


Table of Contents

NASDAQ-100 ProFund

 

Management

The Fund is advised by ProFund Advisors LLC and is managed by the following individuals.

 

 
Portfolio Manager   Experience with the Advisor   Title with the Advisor
Todd Johnson   Since December 2008   Chief Investment Officer
Elisa Petit   Since March 2000   Senior Portfolio Manager
Erik G. Benke, CFA   Since January 2005   Associate Portfolio Manager
Ashwin Joshi   Since November 2006   Associate Portfolio Manager

 

Purchase and Sale of Fund Shares

 

Minimum Initial Investment for all classes

 

All account types except Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $5,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $4,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 

You may purchase, redeem or exchange shares of the Fund on any day which the New York Stock Exchange is open for business. You may redeem shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).

 

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes.

 

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Service Class Shares of the Fund through a financial intermediary, such as a broker-dealer and investment adviser, the Fund and its distributor may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary to recommend the Fund over another investment. Ask your financial intermediary or visit your financial intermediary’s website for more information.

 

20   < NASDAQ-100 ProFund


Table of Contents

Large-Cap Value ProFund

 

 

Important Information About the Fund

Large-Cap Value ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from the return of the S&P 500/Citigroup Value Index (the “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to the daily performance of the S&P 500/Citigroup Value Index. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

 

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

    

Investor Class

(LVPIX)

    

Service Class

(LVPSX)

Investment Advisory Fees

     0.75%      0.75%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

               %                %
      
    

Total Gross Fund Operating Expenses

             %              %

Fee Waivers/Reimbursements*

               %                %
      
    

Total Net Annual Fund Operating Expenses

     [        ]%      [        ]%
* ProFund Advisors LLC (“ProFund Advisors”) has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Gross Annual Fund Operating Expenses, as a percentage of average daily net assets, exceed [        ]% for Investor Class Shares and [        ]% for Service Class Shares through November 30, 2010. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProFund Advisors within three years of the end of the contractual period to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors.

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund shares, which are not reflected in the example or the table above.

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [        ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as the daily return of the Index. The Index is designed to provide a comprehensive measure of large-cap U.S. equity “value” performance. It is an unmanaged float-adjusted market capitalization weighted index comprising stocks representing approximately half the market capitalization of the S&P 500 Index that have been identified as being on the value end of the growth-value spectrum. As of September 30, 2009, the S&P 500/Citigroup Value Index included companies with capitalizations between $[            ] million and $[            ] billion. The average capitalization of the companies comprising the Index was approximately $[            ] billion. The

 

Large-Cap Value ProFund >   21


Table of Contents
Class   Ticker

Investor

  LVPIX

Service

  LVPSX

 

Index is published under the Bloomberg ticker symbol “[            ].” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instruments.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles.

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk — The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Counterparty Risk — The Fund will be subject to the credit risk (that is, where changes in an issuer’s financial strength or the credit rating of a financial instrument it issues may affect an instrument’s value) with respect to the amount it expects to receive from counterparties to derivatives and repurchase agreements entered into by the Fund or held by special purpose or structured vehicles. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the value of your investment in the Fund may decline.

 

22   < Large-Cap Value ProFund


Table of Contents

 

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.

Equity and Market Risk — the equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Volatility in the markets and/or adverse market developments may cause the value of an investment in the Fund to decrease.

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProFund Advisors. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index.

Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if there is a small number of issuers in the underlying index or if the Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to a single economic, political and regulatory event than a diversified fund might be. This risk may be particularly acute when the Fund’s underlying index comprises a small number of stocks or other securities.

Portfolio Turnover Risk — Daily rebalancing of Fund holdings, which is required to keep leverage consistent with a one-day investment objective, will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of Shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

Value Investing Risk — Value investing carries the risk that the market will not recognize a security’s intrinsic value for a long time, or that a stock deemed to be undervalued by ProFund Advisors may actually be appropriately priced or overvalued.

 

Investment Results

 

Annual Total Return:

The bar chart below shows how the Fund’s investment results for Investor Class Shares have varied from year to year, and the table shows how the Fund’s average annual total returns for various periods compare with different broad measures of market performance. This information provides some indication of the risks of investing in the Fund. Past results (before and after taxes) are not predictive of future results. Updated information on the Fund’s results can be obtained by visiting www.profunds.com.

 

Annual Return of Investor Class Shares as of December 31 each year

 

LOGO

Best Quarter (ended     /    /    ):         %;

Worst Quarter (ended     /    /    ):         %.

The Fund’s total return for the nine months ended September 30, 2009, was         %.

 

Large-Cap Value ProFund >   23


Table of Contents

Large-Cap Value ProFund

 

Investment Results (continued)

 

Average Annual Total Returns

As of December 31, 2008

 

One

Year

 

Five

Years

 

Since

Inception (3)

 

Inception

Date

Investor Class Shares

               

- Before Taxes

              10/01/02

- After Taxes on Distribution

               

- After Taxes on Distribution and Sale of Shares

               

Service Class Shares (1)

              10/01/02

S&P 500/Citigroup Value Index (2)

               
(1) Reflects no deduction for taxes.
(2) Reflects no deduction for fees, expense or taxes. Adjusted to reflect the reinvestment of dividends paid by companies in the Index.
(3) Since Inception returns are calculated from the date the Fund commenced operations.

 

Management

The Fund is advised by ProFund Advisors LLC and is managed by the following individuals.

 

Portfolio Manager   Experience with the Advisor   Title with the Advisor
Todd Johnson   Since December 2008   Chief Investment Officer
Hratch Najarian   Since April 2002   Portfolio Manager
Adam Croll   Since July 2005   Associate Portfolio Manager

 

Purchase and Sale of Fund Shares

 

Minimum Initial Investment for all classes

 

All account types except Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $5,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $4,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 

You may purchase, redeem or exchange shares of the Fund on any day which the New York Stock Exchange is open for business. You may redeem shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).

 

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes.

 

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Service Class Shares of the Fund through a financial intermediary, such as a broker-dealer and investment adviser, the Fund and its distributor may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary to recommend the Fund over another investment. Ask your financial intermediary or visit your financial intermediary’s website for more information.

 

24   < Large-Cap Value ProFund


Table of Contents

Large-Cap Growth ProFund

 

Important Information About the Fund

Large-Cap Growth ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from the return of the S&P 500/Citigroup Growth Index (the “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to the daily performance of the S&P 500/Citigroup Growth Index. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

 

 

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

     Investor Class
(LGPIX)
     Service Class
(LGPSX)

Investment Advisory Fees

     0.75%      0.75%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

             %              %
      
    

Total Gross Annual Fund Operating Expenses

     %      %

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund Shares, which are not reflected in the example or the table above.

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [        ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as the daily return of the Index. The Index is designed to provide a comprehensive measure of large-cap U.S. equity “growth” performance. It is an unmanaged float-adjusted market capitalization weighted index comprising stocks representing approximately half the market capitalization of the S&P 500 Index that have been identified as being on the growth end of the growth-value spectrum. As of September 30, 2009, the S&P 500/Citigroup Growth Index included companies with capitalizations between $[            ] million and $[            ] billion. The average capitalization of the companies comprising the Index was approximately $[            ] billion. The Index is published under the Bloomberg ticker symbol “[            ].” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instruments.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

 

Large-Cap Growth ProFund >   25


Table of Contents
Class   Ticker

Investor

  LGPIX

Service

  LGPSX

 

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles. They include:

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk — The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Counterparty Risk — The Fund will be subject to the credit risk (that is, where changes in an issuer’s financial strength or the credit rating of a financial instrument it issues may affect an instrument’s value) with respect to the amount it expects to receive from counterparties to derivatives and repurchase agreements entered into by the Fund or held by special purpose or structured vehicles. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the value of your investment in the Fund may decline.

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.

Equity and Market Risk — the equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Volatility in the markets and/or adverse market developments may cause the value of an investment in the Fund to decrease.

 

26   < Large-Cap Growth ProFund


Table of Contents

 

Growth Investing Risk — An investment in growth stocks may be susceptible to rapid price swings, especially during periods of economic uncertainty. Growth stocks typically have little or no dividend income to cushion the effect of adverse market conditions and may be particularly volatile in the event of earnings disappointments or other financial difficulties experienced by the issuer.

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProFund Advisors. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index.

Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if there is a small number of issuers in the underlying index or if the Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to a single economic, political and regulatory event than a diversified fund might be. This risk may be particularly acute when the Fund’s underlying index comprises a small number of stocks or other securities.

Portfolio Turnover Risk — Daily rebalancing of Fund holdings, which is required to keep leverage consistent with a one-day investment objective, will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of Shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

 

Investment Results

 

Annual Total Return:

The bar chart below shows how the Fund’s investment results for Investor Class Shares have varied from year to year, and the table shows how the Fund’s average annual total returns for various periods compare with different broad measures of market performance. This information provides some indication of the risks of investing in the Fund. Past results (before and after taxes) are not predictive of future results. Updated information on the Fund’s results can be obtained by visiting www.profunds.com.

 

Annual Return of Investor Class Shares as of December 31 each year

 

LOGO

Best Quarter (ended     /    /    ):         %;

Worst Quarter (ended     /    /    ):         %.

The Fund’s total return for the nine months ended September 30, 2009, was         %.

 

Average Annual Total Returns

As of December 31, 2008

  One
Year
  Five
Years
  Since
Inception (3)
  Inception
Date

Investor Class Shares

              10/01/02

- Before Taxes

               

- After Taxes on Distribution

               

- After Taxes on Distribution and Sale of Shares

               

Service Class Shares (1)

              10/01/02

S&P 500/Citigroup Growth Index (2)

               
(1) Reflects no deduction for taxes.
(2) Reflects no deduction for fees, expense or taxes. Adjusted to reflect the reinvestment of dividends paid by companies in the Index.
(3) Since Inception returns are calculated from the date the Fund commenced operations.

 

Management

The Fund is advised by ProFund Advisors LLC and is managed by the following individuals.

 

 
Portfolio Manager   Experience with the Advisor   Title with the Advisor
Todd Johnson   Since December 2008   Chief Investment Officer
Hratch Najarian   Since April 2002   Portfolio Manager
Adam Croll   Since July 2005   Associate Portfolio Manager

 

Large-Cap Growth ProFund >   27


Table of Contents

Large-Cap Growth ProFund

 

Purchase and Sale of Fund Shares

 

Minimum Initial Investment for all classes

 

All account types except Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $5,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $4,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 

You may purchase, redeem or exchange shares of the Fund on any day which the New York Stock Exchange is open for business. You may redeem shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).

 

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes.

 

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Service Class Shares of the Fund through a financial intermediary, such as a broker-dealer and investment adviser, the Fund and its distributor may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary to recommend the Fund over another investment. Ask your financial intermediary or visit your financial intermediary’s website for more information.

 

28   < Large-Cap Growth ProFund


Table of Contents

Mid-Cap Value ProFund

 

 

Important Information About the Fund

Mid-Cap Value ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from the return of the S&P MidCap 400/Citigroup Value Index (the “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to the daily performance of the S&P MidCap 400/Citigroup Value Index. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

    

Investor Class

(MLPIX)

    

Service Class

(MLPSX)

Investment Advisory Fees

     0.75%      0.75%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

             %              %
      
    

Total Gross Annual Fund Operating Expenses

     %      %

Fee Waivers/Reimbursements*

             %              %
      
    

Total Net Annual Fund Operating Expenses

     [        ]%      [        ]%
* ProFund Advisors LLC (“ProFund Advisors”) has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Gross Annual Fund Operating Expenses, as a percentage of average daily net assets, exceed [        ]% for Investor Class Shares and [        ]% for Service Class Shares through November 30, 2010. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProFund Advisors within three years of the end of the contractual period to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors.

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund Shares, which are not reflected in the example or the table above.

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [        ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as the daily return of the Index. The Index is designed to provide a comprehensive measure of mid-cap U.S. equity “value” performance. It is an unmanaged float-adjusted market capitalization weighted index comprising stocks representing approximately half the market capitalization of the S&P MidCap 400 Index that have been identified as being on the value end of the growth-value spectrum. As of September 30, 2009, the S&P MidCap 400/Citigroup Value Index included companies with capitalizations between $[            ] million and $[            ] billion. The average capitalization of the companies comprising the

 

Mid-Cap Value ProFund >   29


Table of Contents
Class   Ticker

Investor

  MLPIX

Service

  MLPSX

 

Index was approximately $[            ] billion. The Index is published under the Bloomberg ticker symbol “[            ].” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instruments.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles. They include:

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk — The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Counterparty Risk — The Fund will be subject to the credit risk (that is, where changes in an issuer’s financial strength or the credit rating of a financial instrument it issues may affect an instrument’s value) with respect to the amount it expects to receive from counterparties to derivatives and repurchase agreements entered into by the Fund or held by special purpose or structured vehicles. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the value of your investment in the Fund may decline.

 

30   < Mid-Cap Value ProFund


Table of Contents

 

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.

 

Equity and Market Risk — the equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Volatility in the markets and/or adverse market developments may cause the value of an investment in the Fund to decrease.

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProFund Advisors. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index.

Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if there is a small number of issuers in the underlying index or if the Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to a single economic, political and regulatory event than a diversified fund might be. This risk may be particularly acute when the Fund’s underlying index comprises a small number of stocks or other securities.

Portfolio Turnover Risk — Daily rebalancing of Fund holdings, which is required to keep leverage consistent with a one-day investment objective, will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of Shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

Small- and Mid-Cap Company Investment Risk — Small- and mid-cap companies may have limited product lines or resources, may be dependent upon a particular market niche and may have greater fluctuations in price than the stocks of larger companies. Further stocks of small- and mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. In addition, small- and mid-cap companies may lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-cap security prices.

Value Investing Risk — Value investing carries the risk that the market will not recognize a security’s intrinsic value for a long time, or that a stock deemed to be undervalued by ProFund Advisors may actually be appropriately priced or overvalued.

 

Investment Results

 

Annual Total Return:

The bar chart below shows how the Fund’s investment results for Investor Class Shares have varied from year to year, and the table shows how the Fund’s average annual total returns for various periods compare with different broad measures of market performance. This information provides some indication of the risks of investing in the Fund. Past results (before and after taxes) are not predictive of future results. Updated information on the Fund’s results can be obtained by visiting www.profunds.com.

 

Annual Returns of Investor Class Shares as of December 31 each year

 

LOGO

Best Quarter (ended     /    /    ):     %;

Worst Quarter (ended     /    /    ):     %.

The Fund’s total return for the nine months ended September 30, 2009, was         %.

 

Mid-Cap Value ProFund >   31


Table of Contents

Mid-Cap Value ProFund

 

Investment Results (continued)

 

Average Annual Total Returns

As of December 31, 2008

 

One

Year

 

Five

Years

 

Since

Inception (3)

 

Inception

Date

Investor Class Shares

              09/04/01

- Before Taxes

               

- After Taxes on Distribution

               

- After Taxes on Distribution and Sale of Shares

               

Service Class Shares (1)

              09/04/01

S&P MidCap 400/Citigroup Value Index (2)

               
(1) Reflects no deduction for taxes.
(2) Reflects no deduction for fees, expense or taxes. Adjusted to reflect the reinvestment of dividends paid by companies in the Index.
(3) Since Inception returns are calculated from the date the Fund commenced operations.

 

Management

The Fund is advised by ProFund Advisors LLC and is managed by the following individuals.

 

 
Portfolio Manager   Experience with the Advisor   Title with the Advisor
Todd Johnson   Since December 2008   Chief Investment Officer
Hratch Najarian   Since April 2002   Portfolio Manager
Adam Croll   Since July 2005   Associate Portfolio Manager

 

Purchase and Sale of Fund Shares

 

Minimum Initial Investment for all classes

 

     
All account types except Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $5,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

   
Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $4,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 

You may purchase, redeem or exchange shares of the Fund on any day which the New York Stock Exchange is open for business. You may redeem shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).

 

Tax Information

 

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes.

 

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Service Class Shares of the Fund through a financial intermediary, such as a broker-dealer and investment adviser, the Fund and its distributor may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary to recommend the Fund over another investment. Ask your financial intermediary or visit your financial intermediary’s website for more information.

 

32   < Mid-Cap Value ProFund


Table of Contents

Mid-Cap Growth ProFund

 

 

Important Information About the Fund

Mid-Cap Growth ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from the return of the S&P MidCap 400/Citigroup Growth Index (the “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to the daily performance of the S&P MidCap 400/Citigroup Growth Index. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

 

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

    

Investor Class

(MGPIX)

    

Service Class

(MGPSX)

Investment Advisory Fees

     0.75%      0.75%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

             %              %
      
    

Total Gross Annual Fund Operating Expenses

     %      %

Fee Waivers/Reimbursements*

             %              %
      
    

Total Net Annual Fund Operating Expenses

     [        ]%      [        ]%
* ProFund Advisors LLC (“ProFund Advisors”) has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Gross Annual Fund Operating Expenses, as a percentage of average daily net assets, exceed [        ]% for Investor Class Shares and [        ]% for Service Class Shares through November 30, 2010. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProFund Advisors within three years of the end of the contractual period to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors.

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund Shares, which are not reflected in the example or the table above.

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [        ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as the daily return of the Index. The Index is designed to provide a comprehensive measure of mid-cap U.S. equity “growth” performance. It is an unmanaged float-adjusted market capitalization weighted index comprising stocks representing approximately half the market capitalization of the S&P MidCap 400 Index that have been identified as being on the growth end of the growth-value spectrum. As of September 30, 2009, the S&P MidCap 400/Citigroup Growth Index included companies with capitalizations between $[            ] million and $[            ] billion. The average capitalization of the companies

 

Mid-Cap Growth ProFund >   33


Table of Contents
Class   Ticker

Investor

  MGPIX

Service

  MGPSX

 

comprising the Index was approximately $[            ] billion. The Index is published under the Bloomberg ticker symbol “[            ].” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instruments.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles.

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk — The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Counterparty Risk — The Fund will be subject to the credit risk (that is, where changes in an issuer’s financial strength or the credit rating of a financial instrument it issues may affect an instrument’s value) with respect to the amount it expects to receive from counterparties to derivatives and repurchase agreements entered into by the Fund or held by special purpose or structured vehicles. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the value of your investment in the Fund may decline.

 

34   < Mid-Cap Growth ProFund


Table of Contents

 

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.

Equity and Market Risk — the equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Volatility in the markets and/or adverse market developments may cause the value of an investment in the Fund to decrease.

Growth Investing Risk — An investment in growth stocks may be susceptible to rapid price swings, especially during periods of economic uncertainty. Growth stocks typically have little or no dividend income to cushion the effect of adverse market conditions and may be particularly volatile in the event of earnings disappointments or other financial difficulties experienced by the issuer.

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProFund Advisors. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index.

Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if there is a small number of issuers in the underlying index or if the Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to a single economic, political and regulatory event than a diversified fund might be. This risk may be particularly acute when the Fund’s underlying index comprises a small number of stocks or other securities.

Portfolio Turnover Risk — Daily rebalancing of Fund holdings, which is required to keep leverage consistent with a one-day investment objective, will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of Shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

Small- and Mid-Cap Company Investment Risk — Small- and mid-cap companies may have limited product lines or resources, may be dependent upon a particular market niche and may have greater fluctuations in price than the stocks of larger companies. Further stocks of small- and mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. In addition, small- and mid-cap companies may lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-cap security prices.

 

Investment Results

 

Annual Total Return:

The bar chart below shows how the Fund’s investment results for Investor Class Shares have varied from year to year, and the table shows how the Fund’s average annual total returns for various periods compare with different broad measures of market performance. This information provides some indication of the risks of investing in the Fund. Past results (before and after taxes) are not predictive of future results. Updated information on the Fund’s results can be obtained by visiting www.profunds.com.

 

Annual Returns of Investor Class Shares as of December 31 each year

 

LOGO

Best Quarter (ended     /    /    ):        %;

Worst Quarter (ended     /    /    ):         %.

The Fund’s total return for the nine months ended September 30, 2009, was         %.

 

Mid-Cap Growth ProFund >   35


Table of Contents

Mid-Cap Growth ProFund

 

Investment Results (continued)

 

Average Annual Total Returns

As of December 31, 2008

 

One

Year

 

Five

Years

 

Since

Inception (3)

 

Inception

Date

Investor Class Shares

              09/04/01

- Before Taxes

               

- After Taxes on Distribution

               

- After Taxes on Distribution and Sale of Shares

               

Service Class Shares (1)

              09/04/01

S&P MidCap 400/Citigroup Growth Index (2)

               
(1) Reflects no deduction for taxes.
(2) Reflects no deduction for fees, expense or taxes. Adjusted to reflect the reinvestment of dividends paid by companies in the Index.
(3) Since Inception returns are calculated from the date the Fund commenced operations.

 

Management

The Fund is advised by ProFund Advisors LLC and is managed by the following individuals.

 

 
Portfolio Manager   Experience with the Advisor   Title with the Advisor
Todd Johnson   Since December 2008   Chief Investment Officer
Hratch Najarian   Since April 2002   Portfolio Manager
Adam Croll   Since July 2005   Associate Portfolio Manager

 

Purchase and Sale of Fund Shares

 

Minimum Initial Investment for all classes

 

All account types except Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $5,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $4,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 

You may purchase, redeem or exchange shares of the Fund on any day which the New York Stock Exchange is open for business. You may redeem shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).

 

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes.

 

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Service Class Shares of the Fund through a financial intermediary, such as a broker-dealer and investment adviser, the Fund and its distributor may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary to recommend the Fund over another investment. Ask your financial intermediary or visit your financial intermediary’s website for more information.

 

36   < Mid-Cap Growth ProFund


Table of Contents

Small-Cap Value ProFund

 

Important Information About the Fund

Small-Cap Value ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from the return of the S&P SmallCap 600/Citigroup Value Index (the “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to the daily performance of the S&P SmallCap 600/Citigroup Value Index. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

 

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

    

Investor Class

(SVPIX)

    

Service Class

(SVPSX)

Investment Advisory Fees

     0.75%      0.75%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

             %              %
      
    

Total Gross Annual Fund Operating Expenses

     %      %

Fee Waivers/Reimbursements*

             %              %
      
    

Total Net Annual Fund Operating Expenses

     [        ]%      [        ]%
* ProFund Advisors LLC (“ProFund Advisors”) has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Gross Annual Fund Operating Expenses, as a percentage of average daily net assets, exceed [        ]% for Investor Class Shares and [        ]% for Service Class Shares through November 30, 2010. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProFund Advisors within three years of the end of the contractual period to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors.

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund Shares, which are not reflected in the example or the table above.

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [    ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as the daily return of the Index. The Index is designed to provide a comprehensive measure of small-cap U.S. equity “value” performance. It is an unmanaged float-adjusted market capitalization weighted index comprising stocks representing approximately half the market capitalization of the S&P SmallCap 600 Index that have been identified as being on the value end of the growth-value spectrum. (Note: The S&P SmallCap 600 Index is a measure of small-cap company U.S. stock market performance. It is a float adjusted market capitalization weighted index of 600 U.S. operating companies. Securities are selected for inclusion in the index by an S&P committee through a

 

Small-Cap Value ProFund >   37


Table of Contents
Class   Ticker

Investor

  SVPIX

Service

  SVPSX

 

non-mechanical process that factors in criteria such as liquidity, price, market capitalization, financial viability, and public float.) As of September 30, 2009, the S&P SmallCap 600/Citigroup Value Index included companies with capitalizations between $[            ] million and $[            ] billion. The average capitalization of the companies comprising the Index was approximately $[            ] million. The Index is published under the Bloomberg ticker symbol “[            ].” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instruments.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles. They include:

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk — The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Counterparty Risk — The Fund will be subject to the credit risk (that is, where changes in an issuer’s financial strength or the credit rating of a financial instrument it issues may affect an instrument’s value) with respect to the amount it expects to receive from

 

38   < Small-Cap Value ProFund


Table of Contents

 

counterparties to derivatives and repurchase agreements entered into by the Fund or held by special purpose or structured vehicles. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the value of your investment in the Fund may decline.

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.

Equity and Market Risk — the equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Volatility in the markets and/or adverse market developments may cause the value of an investment in the Fund to decrease.

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProFund Advisors. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index.

Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if there is a small number of issuers in the underlying index or if the Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to a single economic, political and regulatory event than a diversified fund might be. This risk may be particularly acute when the Fund’s underlying index comprises a small number of stocks or other securities.

Portfolio Turnover Risk — Daily rebalancing of Fund holdings, which is required to keep leverage consistent with a one-day investment objective, will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of Shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

Small- and Mid-Cap Company Investment Risk — Small- and mid-cap companies may have limited product lines or resources, may be dependent upon a particular market niche and may have greater fluctuations in price than the stocks of larger companies. Further stocks of small- and mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. In addition, small- and mid-cap companies may lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-cap security prices.

Value Investing Risk — Value investing carries the risk that the market will not recognize a security’s intrinsic value for a long time, or that a stock deemed to be undervalued by ProFund Advisors may actually be appropriately priced or overvalued.

 

Investment Results

 

Annual Total Return:

The bar chart below shows how the Fund’s investment results for Investor Class Shares have varied from year to year, and the table shows how the Fund’s average annual total returns for various periods compare with different broad measures of market performance. This information provides some indication of the risks of investing in the Fund. Past results (before and after taxes) are not predictive of future results. Updated information on the Fund’s results can be obtained by visiting www.profunds.com.

 

Annual Returns of Investor Class Shares as of December 31 each year

 

LOGO

Best Quarter (ended     /    /    ):    %;

Worst Quarter (ended     /    /    ):    %.

The Fund’s total return for the nine months ended September 30, 2009, was         %.

 

Small-Cap Value ProFund >   39


Table of Contents

Small-Cap Value ProFund

 

Investment Results (continued)

 

Average Annual Total Returns

As of December 31, 2008

 

One

Year

 

Five

Years

 

Since

Inception (3)

 

Inception

Date

Investor Class Shares

              09/04/01

- Before Taxes

               

- After Taxes on Distribution

               

- After Taxes on Distribution and Sale of Shares

               

Service Class Shares (1)

              09/04/01

S&P SmallCap 600/Citigroup Value Index (2)

               
(1) Reflects no deduction for taxes.
(2) Reflects no deduction for fees, expense or taxes. Adjusted to reflect the reinvestment of dividends paid by companies in the Index.
(3) Since Inception returns are calculated from the date the Fund commenced operations.

 

Management

The Fund is advised by ProFund Advisors LLC and is managed by the following individuals.

 

 
Portfolio Manager   Experience with the Advisor   Title with the Advisor
Todd Johnson   Since December 2008   Chief Investment Officer
Hratch Najarian   Since April 2002   Portfolio Manager
Adam Croll   Since July 2005   Associate Portfolio Manager

 

Purchase and Sale of Fund Shares

 

Minimum Initial Investment for all classes

 

     
All account types except Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $5,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 
Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $4,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 

You may purchase, redeem or exchange shares of the Fund on any day which the New York Stock Exchange is open for business. You may redeem shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).

 

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes.

 

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Service Class Shares of the Fund through a financial intermediary, such as a broker-dealer and investment adviser, the Fund and its distributor may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary to recommend the Fund over another investment. Ask your financial intermediary or visit your financial intermediary’s website for more information.

 

40   < Small-Cap Value ProFund


Table of Contents

Small-Cap Growth ProFund

 

 

Important Information About the Fund

Small-Cap Growth ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from the return of the S&P SmallCap 600/Citigroup Growth Index (the “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to the daily performance of the S&P SmallCap 600/Citigroup Growth Index. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

 

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

    

Investor Class

(SGPIX)

    

Service Class

(SGPSX)

Investment Advisory Fees

     0.75%      0.75%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

             %              %
      
    

Total Gross Annual Fund Operating Expenses

     %              %

Fee Waivers/Reimbursements*

             
      
    

Total Net Annual Fund Operating Expenses

     [        ]%      [        ]%
* ProFund Advisors LLC (“ProFund Advisors”) has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Gross Annual Fund Operating Expenses, as a percentage of average daily net assets, exceed [        ]% for Investor Class Shares and [        ]% for Service Class Shares through November 30, 2010. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProFund Advisors within three years of the end of the contractual period to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors.

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund Shares, which are not reflected in the example or the table above.

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [        ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as the daily return of the Index. The Index is designed to provide a comprehensive measure of small-cap U.S. equity “growth” performance. It is an unmanaged float-adjusted market capitalization weighted index comprising stocks representing approximately half the market capitalization of the S&P SmallCap 600 Index that have been identified as being on the growth end of the growth-value spectrum. (Note: The S&P SmallCap 600 Index is a measure of small-cap company U.S. stock market performance. It is a float-adjusted market capitalization weighted index of 600 U.S. operating companies. Securities are selected for

 

Small-Cap Growth ProFund >   41


Table of Contents
Class   Ticker

Investor

  MGPIX

Service

  MGPSX

 

inclusion in the index by an S&P committee through a non-mechanical process that factors in criteria such as liquidity, price, market capitalization, financial viability, and public float.) As of September 30, 2009, the S&P SmallCap 600/Citigroup Growth Index included companies with capitalizations between $[            ] million and $[            ] billion. The average capitalization of the companies comprising the Index was approximately $[            ] million. The Index is published under the Bloomberg ticker symbol “[            ].” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instruments.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles.

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Counterparty Risk — The Fund will be subject to the credit risk (that is, where changes in an issuer’s financial strength or the credit rating of a financial instrument it issues may affect an instrument’s value) with respect to the amount it expects to receive from counterparties to derivatives and repurchase agreements entered into by the Fund or held by special purpose or structured vehicles. If a counterparty becomes bankrupt or otherwise fails to perform its

 

42   < Small-Cap Growth ProFund


Table of Contents

 

obligations due to financial difficulties, the value of your investment in the Fund may decline.

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.

Equity and Market Risk — the equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Volatility in the markets and/or adverse market developments may cause the value of an investment in the Fund to decrease.

Growth Investing Risk — An investment in growth stocks may be susceptible to rapid price swings, especially during periods of economic uncertainty. Growth stocks typically have little or no dividend income to cushion the effect of adverse market conditions and may be particularly volatile in the event of earnings disappointments or other financial difficulties experienced by the issuer.

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProFund Advisors. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index.

Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if there is a small number of issuers in the underlying index or if the Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to a single economic, political and regulatory event than a diversified fund might be. This risk may be particularly acute when the Fund’s underlying index comprises a small number of stocks or other securities.

Portfolio Turnover Risk — Daily rebalancing of Fund holdings, which is required to keep leverage consistent with a one-day investment objective, will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of Shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

Small- and Mid-Cap Company Investment Risk — Small- and mid-cap companies may have limited product lines or resources, may be dependent upon a particular market niche and may have greater fluctuations in price than the stocks of larger companies. Further stocks of small- and mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. In addition, small- and mid-cap companies may lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-cap security prices.

 

Investment Results

 

Annual Total Return:

The bar chart below shows how the Fund’s investment results for Investor Class Shares have varied from year to year, and the table shows how the Fund’s average annual total returns for various periods compare with different broad measures of market performance. This information provides some indication of the risks of investing in the Fund. Past results (before and after taxes) are not predictive of future results. Updated information on the Fund’s results can be obtained by visiting www.profunds.com.

 

Annual Returns of Investor Class Shares as of December 31 each year

 

LOGO

Best Quarter (ended     /    /    ):    %;

Worst Quarter (ended     /    /    ):     %.

The Fund’s total return for the nine months ended September 30, 2009, was    %.

 

Small-Cap Growth ProFund >   43


Table of Contents

Small-Cap Growth ProFund

 

Investment Results (continued)

 

Average Annual Total Returns

As of December 31, 2008

 

One

Year

 

Five

Years

 

Since

Inception (3)

 

Inception

Date

Investor Class Shares

              09/04/01

- Before Taxes

               

- After Taxes on Distribution

               

- After Taxes on Distribution and Sale of Shares

               

Service Class Shares (1)

              09/04/01

S&P SmallCap 600/Citigroup Growth Index (2)

               
(1) Reflects no deduction for taxes.
(2) Reflects no deduction for fees, expense or taxes. Adjusted to reflect the reinvestment of dividends paid by companies in the Index.
(3) Since Inception returns are calculated from the date the Fund commenced operations.

 

Management

The Fund is advised by ProFund Advisors LLC and is managed by the following individuals.

 

 
Portfolio Manager   Experience with the Advisor   Title with the Advisor
Todd Johnson   Since December 2008   Chief Investment Officer
Hratch Najarian   Since April 2002   Portfolio Manager
Adam Croll   Since July 2005   Associate Portfolio Manager

 

Purchase and Sale of Fund Shares

 

Minimum Initial Investment for all classes

 

All account types except Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $5,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $4,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 

You may purchase, redeem or exchange shares of the Fund on any day which the New York Stock Exchange is open for business. You may redeem shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).

 

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes.

 

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Service Class Shares of the Fund through a financial intermediary, such as a broker-dealer and investment adviser, the Fund and its distributor may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary to recommend the Fund over another investment. Ask your financial intermediary or visit your financial intermediary’s website for more information.

 

44   < Small-Cap Growth ProFund


Table of Contents

Europe 30 ProFund

 

Important Information About the Fund

Europe 30 ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from the return of the ProFunds Europe 30 Index (the “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to the daily performance of the ProFunds Europe 30 Index. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

 

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

    

Investor Class

(UEPIX)

    

Service Class

(UEPSX)

Investment Advisory Fees

     0.75%      0.75%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

             %              %
      
    

Total Gross Annual Fund Operating Expenses

     %      %

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund Shares, which are not reflected in the example or the table above.

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [        ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as the daily 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 the NASDAQ as depositary receipts or ordinary shares. The component companies in the ProFunds Europe 30 Index are determined annually based upon their U.S. dollar-traded volume. Their relative weights are determined based on a modified market capitalization method. As of September 30, 2009, the ProFunds Europe 30 Index included companies with capitalizations between $[            ] billion and $[            ] billion. The average capitalization of the companies comprising the Index was approximately $[            ] billion. The component companies of the Index are listed in an appendix to the Statement of Additional Information. The Index is published under the Bloomberg ticker symbol “[            ].” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instruments.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

 

Europe 30 ProFund >   45


Table of Contents
Class   Ticker

Investor

  UEPIX

Service

  UEPSX

 

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles.

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Counterparty Risk — The Fund will be subject to the credit risk (that is, where changes in an issuer’s financial strength or the credit rating of a financial instrument it issues may affect an instrument’s value) with respect to the amount it expects to receive from counterparties to derivatives and repurchase agreements entered into by the Fund or held by special purpose or structured vehicles. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the value of your investment in the Fund may decline.

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.

Equity and Market Risk — the equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Volatility in the markets and/or adverse market developments may cause the value of an investment in the Fund to decrease.

 

46   < Europe 30 ProFund


Table of Contents

 

Exposure to Foreign Investments Risk — Exposure to securities of foreign issuers provide the Fund with increased risk. Various factors related to foreign investments may negatively impact the Index’s performance, such as: i) fluctuations in the value of local foreign currency; ii) differences in securities settlement practices; iii) uncertainty associated with evidence of ownership of investments in countries that lack centralized custodial services; iv) possible regulation of, or other limitations on, investments by U.S. investors in foreign investments; v) potentially higher brokerage commissions; vi) the possibility that a foreign government may withhold portions of interest and dividends at the source; vii) taxation of income earned in foreign countries or other foreign taxes imposed; viii) foreign exchange controls, which may include suspension of the ability to transfer currency from a foreign country; ix) less publicly available information about foreign issuers; and x) less certain legal systems in which the Fund might encounter difficulties or be unable to pursue legal remedies.

Foreign investments also may be more susceptible to political, social, economic and regional factors than might be the case with U.S. securities.

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProFund Advisors. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index.

Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if there is a small number of issuers in the underlying index or if the Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to a single economic, political and regulatory event than a diversified fund might be. This risk may be particularly acute when the Fund’s underlying index comprises a small number of stocks or other securities.

Portfolio Turnover Risk — Daily rebalancing of Fund holdings, which is required to keep leverage consistent with a one-day investment objective, will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of Shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

 

Investment Results

 

Annual Total Return:

The bar chart below shows how the Fund’s investment results for Investor Class Shares have varied from year to year, and the table shows how the Fund’s average annual total returns for various periods compare with different broad measures of market performance. This information provides some indication of the risks of investing in the Fund. Past results (before and after taxes) are not predictive of future results. Updated information on the Fund’s results can be obtained by visiting www.profunds.com.

 

Annual Returns of Investor Class Shares as of December 31 each year

 

LOGO

Best Quarter (ended     /    /    ):        %;

Worst Quarter (ended     /    /    ):         %.

The Fund’s total return for the nine months ended September 30, 2009, was         %.

 

 

Average Annual Total Returns

As of December 31, 2008

 

One

Year

 

Five

Years

 

Since

Inception (4)

 

Inception

Date

Investor Class Shares

              10/01/02

- Before Taxes

               

- After Taxes on Distribution

               

- After Taxes on Distribution and Sale of Shares

               

Service Class Shares (1)

              10/01/02

Dow Jones STOXX 50 Index (2)

               

S&P 500/Citigroup Growth Index (3)

               
(1) Reflects no deduction for taxes.
(2) The Dow Jones STOXX 50 Index is a capitalization-weighted index of 50 European blue-chip stocks. Reflects no deduction for fees, expense or taxes. Adjusted to reflect the reinvestment of dividends paid by companies in the Index.
(3) Reflects no deduction for fees, expense or taxes. Does not reflect the reinvestment of dividends paid by companies in the Index.
(4) Since Inception returns are calculated from the date the Fund commenced operations.

 

Europe 30 ProFund >   47


Table of Contents

Europe 30 ProFund

 

Management

The Fund is advised by ProFund Advisors LLC and is managed by the following individuals.

 

 
Portfolio Manager   Experience with the Advisor   Title with the Advisor
Todd Johnson   Since December 2008   Chief Investment Officer
Elisa Petit   Since March 2000   Senior Portfolio Manager
Erik G. Benke, CFA   Since January 2005   Associate Portfolio Manager
Ashwin Joshi   Since November 2006   Associate Portfolio Manager

 

Purchase and Sale of Fund Shares

 

Minimum Initial Investment for all classes

 

All account types except Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $5,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $4,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 

You may purchase, redeem or exchange shares of the Fund on any day which the New York Stock Exchange is open for business. You may redeem shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).

 

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes.

 

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Service Class Shares of the Fund through a financial intermediary, such as a broker-dealer and investment adviser, the Fund and its distributor may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary to recommend the Fund over another investment. Ask your financial intermediary or visit your financial intermediary’s website for more information.

 

48   < Europe 30 ProFund


Table of Contents

UltraBull ProFund

 

Important Information About the Fund

The UltraBull ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from twice the return of the S&P 500® Index (the “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark. The Fund is different from most funds in that it seeks leveraged returns and only on a daily basis. The Fund also is riskier than similarly benchmarked funds that do not use leverage. Accordingly, the Fund may not be suitable for all investors and should be used only by knowledgeable investors who understand the potential consequences of seeking daily leveraged investment results. Shareholders should actively monitor their investments.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the S&P 500 Index. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

 

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

    

Investor Class

(ULPIX)

    

Service Class

(ULPSX)

Investment Advisory Fees

     0.75%      0.75%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

             %              %
      
    

Total Gross Annual Fund Operating Expenses

             %              %

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund Shares, which are not reflected in the example or the table above.

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [        ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as twice (200%) 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 REITs selected by the S&P U.S. Index Committee through a non-mechanical process that factors in criteria such as liquidity, price, market capitalization and financial viability. Reconstitution occurs both on a quarterly and ongoing basis. As of September 30, 2009, the S&P 500 Index included companies with capitalizations between $[            ] million and $[            ] billion. The average capitalization of the companies comprising the Index was approximately $[            ] billion. The Index is published under the Bloomberg ticker symbol “[            ].” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instruments.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

 

UltraBull ProFund >   49


Table of Contents
Class   Ticker

Investor

  ULPIX

Service

  ULPSX

 

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles. They include:

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk — The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Compounding affects all investments, but has a more significant impact on a leveraged fund. In general, particularly during periods of higher index volatility, compounding will cause longer term results to be more or less than twice the return of the index. This effect becomes more pronounced as volatility increases.

Fund performance for periods greater than one day can be estimated given any set of assumptions for the following factors: a) index performance; b) index volatility; c) financing rates associated with leverage; d) other Fund expenses; e) dividends paid by companies in the index; and f) period of time. The chart below illustrates the impact of two principal factors — volatility and performance — on Fund performance. The chart shows estimated Fund returns for a number of combinations of performance and volatility over a one-year period. Assumptions used in the chart include: (a) no dividends paid by the companies included in the index; (b) no Fund expenses; and (c) borrowing/lending rates (to obtain leverage) of

 

50   < UltraBull ProFund


Table of Contents

 

zero percent. If Fund expenses were included, the Fund’s performance would be lower than shown.

Areas shaded lighter represent those scenarios where the Fund can be expected to return more than twice the performance of the Index; conversely, areas shaded darker represent those scenarios where the Fund can be expected to return less than twice the performance of the Index.

 

Volatility Rate  
Index
Perfor-
mance
  2X Index
Perfor-
mance
  10%     25%     50%     75%     100%  
             

-60%

  -120%   -84.2   -85.0   -87.5   -90.9   -94.1
             

-50%

  -100%   -75.2   -76.5   -80.5   -85.8   -90.8
             

-40%

  -80%   -64.4   -66.2   -72.0   -79.5   -86.8
             

-30%

  -60%   -51.5   -54.0   -61.8   -72.1   -82.0
             

-20%

  -40%   -36.6   -39.9   -50.2   -63.5   -76.5
             

-10%

  -20%   -19.8   -23.9   -36.9   -53.8   -70.2
             

0%

  0%   -1.0   -6.1   -22.1   -43.0   -63.2
             

10%

  20%   19.8   13.7   -5.8   -31.1   -55.5
             

20%

  40%   42.6   35.3   12.1   -18.0   -47.0
             

30%

  60%   67.3   58.8   31.6   -3.7   -37.8
             

40%

  80%   94.0   84.1   52.6   11.7   -27.9
             

50%

  100%   122.8   111.4   75.2   28.2   -17.2
             

60%

  120%   153.5   140.5   99.4   45.9   -5.8

 

The Index’s annualized historical volatility rate for the five year period ended September 30, 2009 is:     %. The Index’s annualized performance for the five year period ended September 30, 2009 is:             %.

Historical Index volatility and performance are not indications of what the Index volatility and performance will be in the future.

For additional graphs and charts demonstrating the effects of volatility and index performance on the long-term performance of the Fund, see “Principal Risks” in the Fund’s full prospectus and “Special Note Regarding the Correlation Risks of Leveraged Funds” in the Fund’s Statement of Additional Information.

Counterparty Risk — The Fund will be subject to the credit risk (that is, where changes in an issuer’s financial strength or the credit rating of a financial instrument it issues may affect an instrument’s value) with respect to the amount it expects to receive from counterparties to derivatives and repurchase agreements entered into by the Fund or held by special purpose or structured vehicles. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the value of your investment in the Fund may decline.

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.

Equity and Market Risk — The equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Volatility in the markets and/or adverse market developments may cause the value of an investment in the Fund to decrease.

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProFund Advisors. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index.

Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if there is a small number of issuers in the underlying index or if the Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to a single economic, political and regulatory event than a diversified fund might be. This risk may be particularly acute when the Fund’s underlying index comprises a small number of stocks or other securities.

Portfolio Turnover Risk — Daily rebalancing of Fund holdings, which is required to keep leverage consistent with a one-day investment objective, will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of Shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

 

UltraBull ProFund >   51


Table of Contents

UltraBull ProFund

 

Investment Results

 

Annual Total Return:

The bar chart below shows how the Fund’s investment results for Investor Class Shares have varied from year to year, and the table shows how the Fund’s average annual total returns for various periods compare with different broad measures of market performance. This information provides some indication of the risks of investing in the Fund. Past results (before and after taxes) are not predictive of future results. Updated information on the Fund’s results can be obtained by visiting www.profunds.com.

 

Annual Returns of Investor Class Shares as of December 31 each year

 

LOGO

Best Quarter (ended     /    /    ):        %;

Worst Quarter (ended     /    /    ):         %.

The Fund’s total return for the nine months ended September 30, 2009, was         %.

 

Average Annual Total Returns

As of December 31, 2008

 

One

Year

 

Five

Years

 

Ten

Years

Investor Class Shares

           

- Before Taxes

           

- After Taxes on Distribution

           

- After Taxes on Distribution and Sale of Shares

           

Service Class Shares (1)

           

S&P 500 Index (2)

           
(1) Reflects no deduction for taxes.
(2) Reflects no deduction for fees, expenses or taxes. Adjusted to reflect the reinvestment of dividends paid by companies in the Index.

 

Management

The Fund is advised by ProFund Advisors LLC and is managed by the following individuals.

 

 
Portfolio Manager   Experience with the Advisor   Title with the Advisor
Todd Johnson   Since December 2008   Chief Investment Officer
Elisa Petit   Since March 2000   Senior Portfolio Manager
Erik G. Benke, CFA   Since January 2005   Associate Portfolio Manager
Ashwin Joshi   Since November 2006   Associate Portfolio Manager

 

Purchase and Sale of Fund Shares

 

Minimum Initial Investment for all classes

 

All account types except Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $5,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

   
Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $4,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 

52   < UltraBull ProFund


Table of Contents

 

Purchase and Sale of Fund Shares (continued)

You may purchase, redeem or exchange shares of the Fund on any day which the New York Stock Exchange is open for business. You may redeem shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).

 

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes.

 

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Service Class Shares of the Fund through a financial intermediary, such as a broker-dealer and investment adviser, the Fund and its distributor may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary to recommend the Fund over another investment. Ask your financial intermediary or visit your financial intermediary’s website for more information.

 

UltraBull ProFund >   53


Table of Contents

UltraMid-Cap ProFund

 

Important Information About the Fund

The UltraMid-Cap ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from twice the return of the S&P MidCap 400TM Index (the “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark. The Fund is different from most funds in that it seeks leveraged returns and only on a daily basis. The Fund also is riskier than similarly benchmarked funds that do not use leverage. Accordingly, the Fund may not be suitable for all investors and should be used only by knowledgeable investors who understand the potential consequences of seeking daily leveraged investment results. Shareholders should actively monitor their investments.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the S&P MidCap 400 Index. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

 

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

    

Investor Class

(UMPIX)

    

Service Class

(UMPSX)

Investment Advisory Fees

     0.75%      0.75%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

             %              %
      
    

Total Gross Annual Fund Operating Expenses

             %              %

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund Shares, which are not reflected in the example or the table above.

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [        ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as twice (200%) the daily return of the Index. The Index is a measure of mid-cap company U.S. stock market performance. It is a float-adjusted market capitalization weighted index of 400 U.S. operating companies and REITs. Securities are selected for inclusion in the index by the S&P U.S. Index Committee through a non-mechanical process that factors in criteria such as liquidity, price, market capitalization and financial viability. Reconstitution occurs both on a quarterly and ongoing basis. As of September 30, 2009, the S&P MidCap 400 Index included companies with capitalizations between $[            ] million and $[            ] billion. The average capitalization of the companies comprising the Index was approximately $[            ] billion. The Index is published under the Bloomberg ticker symbol “[            ].” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instruments.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

 

54   < UltraMid-Cap ProFund


Table of Contents

 

Class   Ticker

Investor

  UMPIX

Service

  UMPSX

 

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles.

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk — The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Compounding affects all investments, but has a more significant impact on a leveraged fund. In general, particularly during periods of higher index volatility, compounding will cause longer term results to be more or less than twice the return of the index. This effect becomes more pronounced as volatility increases.

Fund performance for periods greater than one day can be estimated given any set of assumptions for the following factors: a) index performance; b) index volatility; c) financing rates associated with leverage; d) other Fund expenses; e) dividends paid by companies in the index; and f) period of time. The chart below illustrates the impact of two principal factors — volatility and performance — on Fund performance. The chart shows estimated Fund returns for a number of combinations of performance and volatility over a one-year period. Assumptions used in the chart include: (a) no dividends paid by the companies included in the index; (b) no Fund expenses; and (c) borrowing/lending rates (to obtain leverage) of zero percent. If Fund expenses were included, the Fund’s performance would be lower than shown.

 

UltraMid-Cap ProFund >   55


Table of Contents

UltraMid-Cap ProFund

 

Areas shaded lighter represent those scenarios where the Fund can be expected to return more than twice the performance of the Index; conversely, areas shaded darker represent those scenarios where the Fund can be expected to return less than twice the performance of the Index.

 

Volatility Rate  
Index
Perfor-
mance
  2X Index
Perfor-
mance
  10%     25%     50%     75%     100%  
             

-60%

  -120%   -84.2   -85.0   -87.5   -90.9   -94.1
             

-50%

  -100%   -75.2   -76.5   -80.5   -85.8   -90.8
             

-40%

  -80%   -64.4   -66.2   -72.0   -79.5   -86.8
             

-30%

  -60%   -51.5   -54.0   -61.8   -72.1   -82.0
             

-20%

  -40%   -36.6   -39.9   -50.2   -63.5   -76.5
             

-10%

  -20%   -19.8   -23.9   -36.9   -53.8   -70.2
             

0%

  0%   -1.0   -6.1   -22.1   -43.0   -63.2
             

10%

  20%   19.8   13.7   -5.8   -31.1   -55.5
             

20%

  40%   42.6   35.3   12.1   -18.0   -47.0
             

30%

  60%   67.3   58.8   31.6   -3.7   -37.8
             

40%

  80%   94.0   84.1   52.6   11.7   -27.9
             

50%

  100%   122.8   111.4   75.2   28.2   -17.2
             

60%

  120%   153.5   140.5   99.4   45.9   -5.8

 

The Index’s annualized historical volatility rate for the five year period ended September 30, 2009 is:     %. The Index’s annualized performance for the five year period ended September 30, 2009 is:             %.

Historical Index volatility and performance are not indications of what the Index volatility and performance will be in the future.

For additional graphs and charts demonstrating the effects of volatility and index performance on the long-term performance of the Fund, see “Principal Risks” in the Fund’s full prospectus and “Special Note Regarding the Correlation Risks of Leveraged Funds” in the Fund’s Statement of Additional Information.

Counterparty Risk — The Fund will be subject to the credit risk (that is, where changes in an issuer’s financial strength or the credit rating of a financial instrument it issues may affect an instrument’s value) with respect to the amount it expects to receive from counterparties to derivatives and repurchase agreements entered into by the Fund or held by special purpose or structured vehicles. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the value of your investment in the Fund may decline.

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.

Equity and Market Risk — The equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Volatility in the markets and/or adverse market developments may cause the value of an investment in the Fund to decrease.

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProFund Advisors. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index.

Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if there is a small number of issuers in the underlying index or if the Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to a single economic, political and regulatory event than a diversified fund might be. This risk may be particularly acute when the Fund’s underlying index comprises a small number of stocks or other securities.

Portfolio Turnover Risk — Daily rebalancing of Fund holdings, which is required to keep leverage consistent with a one-day investment objective, will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of Shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

Small- and Mid-Cap Company Investment Risk — Small- and mid-cap companies may have limited product lines or resources, may be dependent upon a particular market niche and may have greater fluctuations in price than the stocks of larger companies. Further stocks of small- and mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. In addition, small- and mid-cap companies may lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-cap security prices.

 

56   < UltraMid-Cap ProFund


Table of Contents

 

Investment Results

 

Annual Total Return:

The bar chart below shows how the Fund’s investment results for Investor Class Shares have varied from year to year, and the table shows how the Fund’s average annual total returns for various periods compare with different broad measures of market performance. This information provides some indication of the risks of investing in the Fund. Past results (before and after taxes) are not predictive of future results. Updated information on the Fund’s results can be obtained by visiting www.profunds.com.

 

Annual Returns of Investor Class Shares as of December 31 each year

 

LOGO

Best Quarter (ended     /    /    ):        %;

Worst Quarter (ended     /    /    ):         %.

The Fund’s total return for the nine months ended September 30, 2009, was         %.

 

Average Annual Total Returns

As of December 31, 2008

 

One

Year

 

Five

Years

 

Since

Inception (3)

 

Inception

Date

Investor Class Shares

              02/07/00

- Before Taxes

               

- After Taxes on Distribution

               

- After Taxes on Distribution and Sale of Shares

               

Service Class Shares (1)

              02/07/00

S&P Mid-Cap 400 Index (2)

               
(1) Reflects no deduction for taxes.
(2) Reflects no deduction for fees, expenses or taxes. Adjusted to reflect the reinvestment of dividends paid by companies in the Index.
(3) Since Inception returns are calculated from the date the Fund commenced operations.

 

Management

The Fund is advised by ProFund Advisors LLC and is managed by the following individuals.

 

 
Portfolio Manager   Experience with the Advisor   Title with the Advisor
Todd Johnson   Since December 2008   Chief Investment Officer
Elisa Petit   Since March 2000   Senior Portfolio Manager
Erik G. Benke, CFA   Since January 2005   Associate Portfolio Manager
Ashwin Joshi   Since November 2006   Associate Portfolio Manager

 

Purchase and Sale of Fund Shares

 

Minimum Initial Investment for all classes

 

   
All account types except Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $5,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

   
Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $4,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 

UltraMid-Cap ProFund >   57


Table of Contents

UltraMid-Cap ProFund

 

You may purchase, redeem or exchange shares of the Fund on any day which the New York Stock Exchange is open for business. You may redeem shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).

 

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes.

 

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Service Class Shares of the Fund through a financial intermediary, such as a broker-dealer and investment adviser, the Fund and its distributor may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary to recommend the Fund over another investment. Ask your financial intermediary or visit your financial intermediary’s website for more information.

 

58   < UltraMid-Cap ProFund


Table of Contents

UltraSmall-Cap ProFund

 

Important Information About the Fund

The UltraSmall-Cap ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from twice the return of the Russell 2000® Index (the “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark. The Fund is different from most funds in that it seeks leveraged returns and only on a daily basis. The Fund also is riskier than similarly benchmarked funds that do not use leverage. Accordingly, the Fund may not be suitable for all investors and should be used only by knowledgeable investors who understand the potential consequences of seeking daily leveraged investment results. Shareholders should actively monitor their investments.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Russell 2000 Index. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

 

 

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

     Investor Class
(UAPIX)
     Service Class
(UAPSX)

Investment Advisory Fees

     0.75%      0.75%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

             %              %
      
    

Total Gross Annual Fund Operating Expenses

             %              %

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund Shares, which are not reflected in the example or the table above.

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [        ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as twice (200%) the daily return of the Index. The Index is a measure of small-cap U.S. stock market performance. It is an adjusted market capitalization weighted index containing approximately 2000 of the smallest companies in the Russell 3000® Index, or approximately 8% of the total market capitalization of the Russell 3000 Index, which in turn represents approximately 98% of the investable U.S. equity market. All U.S. companies listed on the NYSE, AMEX or NASDAQ meeting an initial minimum ($1) price are considered for inclusion. Reconstitution occurs annually. Securities are not replaced if they leave the index; however, new issue securities meeting other membership requirements may be added on a quarterly basis. As of September 30, 2009, the Russell 2000 Index included companies with capitalizations between $[            ] million and $[            ] billion. The average capitalization of the companies comprising the Index was approximately $[            ] million. The Index is

 

UltraSmall-Cap ProFund >   59


Table of Contents
Class   Ticker

Investor

  UAPIX

Service

  UAPSX

 

published under the Bloomberg ticker symbol “[            ].” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instruments.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles.

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk — The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Compounding affects all investments, but has a more significant impact on a leveraged fund. In general, particularly during periods of higher index volatility, compounding will cause longer term results to be more or less than twice the return of the index. This effect becomes more pronounced as volatility increases.

Fund performance for periods greater than one day can be estimated given any set of assumptions for the following factors: a) index performance; b) index volatility; c) financing rates associated with

 

60   < UltraSmall-Cap ProFund


Table of Contents

 

leverage; d) other Fund expenses; e) dividends paid by companies in the index; and f) period of time. The chart below illustrates the impact of two principal factors — volatility and performance — on Fund performance. The chart shows estimated Fund returns for a number of combinations of performance and volatility over a one-year period. Assumptions used in the chart include: (a) no dividends paid by the companies included in the index; (b) no Fund expenses; and (c) borrowing/lending rates (to obtain leverage) of zero percent. If Fund expenses were included, the Fund’s performance would be lower than shown.

Areas shaded lighter represent those scenarios where the Fund can be expected to return more than twice the performance of the Index; conversely, areas shaded darker represent those scenarios where the Fund can be expected to return less than twice the performance of the Index.

 

Volatility Rate  
Index
Perfor-
mance
  2X Index
Perfor-
mance
  10%     25%     50%     75%     100%  
             

-60%

  -120%   -84.2   -85.0   -87.5   -90.9   -94.1
             

-50%

  -100%   -75.2   -76.5   -80.5   -85.8   -90.8
             

-40%

  -80%   -64.4   -66.2   -72.0   -79.5   -86.8
             

-30%

  -60%   -51.5   -54.0   -61.8   -72.1   -82.0
             

-20%

  -40%   -36.6   -39.9   -50.2   -63.5   -76.5
             

-10%

  -20%   -19.8   -23.9   -36.9   -53.8   -70.2
             

0%

  0%   -1.0   -6.1   -22.1   -43.0   -63.2
             

10%

  20%   19.8   13.7   -5.8   -31.1   -55.5
             

20%

  40%   42.6   35.3   12.1   -18.0   -47.0
             

30%

  60%   67.3   58.8   31.6   -3.7   -37.8
             

40%

  80%   94.0   84.1   52.6   11.7   -27.9
             

50%

  100%   122.8   111.4   75.2   28.2   -17.2
             

60%

  120%   153.5   140.5   99.4   45.9   -5.8

 

The Index’s annualized historical volatility rate for the five year period ended September 30, 2009 is:     %. The Index’s annualized performance for the five year period ended September 30, 2009 is:             %.

Historical Index volatility and performance are not indications of what the Index volatility and performance will be in the future.

For additional graphs and charts demonstrating the effects of volatility and index performance on the long-term performance of the Fund, see “Principal Risks” in the Fund’s full prospectus and “Special Note Regarding the Correlation Risks of Leveraged Funds” in the Fund’s Statement of Additional Information.

Counterparty Risk — The Fund will be subject to the credit risk (that is, where changes in an issuer’s financial strength or the credit rating of a financial instrument it issues may affect an instrument’s value) with respect to the amount it expects to receive from counterparties to derivatives and repurchase agreements entered into by the Fund or held by special purpose or structured vehicles. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the value of your investment in the Fund may decline.

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.

Equity and Market Risk — The equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Volatility in the markets and/or adverse market developments may cause the value of an investment in the Fund to decrease.

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProFund Advisors. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with its underlying index.

Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if there is a small number of issuers in the underlying index or if the Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to a single economic, political and regulatory event than a diversified fund might be. This risk may be particularly acute when the Fund’s underlying index comprises a small number of stocks or other securities.

Portfolio Turnover Risk — Daily rebalancing of Fund holdings, which is required to keep leverage consistent with a one-day investment objective, will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of Shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

Small- and Mid-Cap Company Investment Risk — Small- and mid-cap companies may have limited product lines or resources, may be dependent upon a particular market niche and may have greater fluctuations in price than the stocks of larger companies. Further stocks of small- and mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. In addition, small- and mid-cap companies may lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-cap security prices.

 

UltraSmall-Cap ProFund >   61


Table of Contents

UltraSmall-Cap ProFund

 

Investment Results

 

Annual Total Return:

The bar chart below shows how the Fund’s investment results for Investor Class Shares have varied from year to year, and the table shows how the Fund’s average annual total returns for various periods compare with different broad measures of market performance. This information provides some indication of the risks of investing in the Fund. Past results (before and after taxes) are not predictive of future results. Updated information on the Fund’s results can be obtained by visiting www.profunds.com.

 

Annual Returns of Investor Class Shares as of December 31 each year

 

LOGO

Best Quarter (ended     /    /    ):        %;

Worst Quarter (ended     /    /    ):         %.

The Fund’s total return for the nine months ended September 30, 2009, was         %.

 

Average Annual Total Returns

As of December 31, 2008

 

One

Year

 

Five

Years

 

Since

Inception (3)

 

Inception

Date

Investor Class Shares

              02/07/00

- Before Taxes

               

- After Taxes on Distribution

               

- After Taxes on Distribution and Sale of Shares

               

Service Class Shares (1)

              02/07/00

Russell 2000 Index (2)

               
(1) Reflects no deduction for taxes.
(2) Reflects no deduction for fees, expenses or taxes. Adjusted to reflect the reinvestment of dividends paid by companies in the Index.
(3) Since Inception returns are calculated from the date the Fund commenced operations.

 

Management

The Fund is advised by ProFund Advisors LLC and is managed by the following individuals.

 

 
Portfolio Manager   Experience with the Advisor   Title with the Advisor
Todd Johnson   Since December 2008   Chief Investment Officer
Elisa Petit   Since March 2000   Senior Portfolio Manager
Erik G. Benke, CFA   Since January 2005   Associate Portfolio Manager
Ashwin Joshi   Since November 2006   Associate Portfolio Manager

 

Purchase and Sale of Fund Shares

 

Minimum Initial Investment for all classes

 

All account types except Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $5,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

Roth, Regular and Spousal IRAs  

The minimum initial investment amounts are:

>    $4,000 for discretionary accounts controlled by a financial professional.

>    $15,000 for self-directed accounts controlled directly by investors

 

>    The minimum subsequent purchase amount is $100.

 

62   < UltraSmall-Cap ProFund


Table of Contents

 

You may purchase, redeem or exchange shares of the Fund on any day which the New York Stock Exchange is open for business. You may redeem shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).

 

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes.

 

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase Service Class Shares of the Fund through a financial intermediary, such as a broker-dealer and investment adviser, the Fund and its distributor may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary to recommend the Fund over another investment. Ask your financial intermediary or visit your financial intermediary’s website for more information.

 

UltraSmall-Cap ProFund >   63


Table of Contents

UltraDow 30 ProFund

 

 

Important Information About the Fund

The UltraDow 30 ProFund (the “Fund”) seeks investment results for a single day only, not for longer periods. This means that the return of the Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from twice the return of the Dow Jones Industrial AverageSM (the “DJIA” or “Index”) for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to the Fund’s return for the period as the return of the benchmark. The Fund is different from most funds in that it seeks leveraged returns and only on a daily basis. The Fund also is riskier than similarly benchmarked funds that do not use leverage. Accordingly, the Fund may not be suitable for all investors and should be used only by knowledgeable investors who understand the potential consequences of seeking daily leveraged investment results. Shareholders should actively monitor their investments.

 

Investment Objective

The Fund seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones Industrial Average. The Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

 

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund (“Shares”).

 

Shareholder Fees (fees paid directly from your investment)

Wire Fee $10 (This charge may be incurred for redemptions via wire under certain circumstances and may be waived at the discretion of ProFunds)

 

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

    

Investor Class

(UDPIX)

    

Service Class

(UDPSX)

Investment Advisory Fees

     0.75%      0.75%

Distribution and Service (12b-1) Fees

     0.00%      1.00%

Other Expenses

             %              %
      
    

Total Gross Annual Fund Operating Expenses

             %              %

 

Example: This example is intended to help you compare the cost of investing in Shares of the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

    1 Year   3 Years   5 Years   10 Years

Investor Class

  $[        ]   $[        ]   $[        ]   $[        ]

Service Class

  $[        ]   $[        ]   $[        ]   $[        ]

 

Investors may pay brokerage commissions on their purchases and sales of Fund Shares, which are not reflected in the example or the table above.

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s annual portfolio turnover rate was [        ]% of the average value of its entire portfolio. However, this portfolio turnover rate is calculated without regard to cash instruments or derivatives. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

 

Principal Investment Strategies

The Fund invests in equity securities and derivatives that ProFund Advisors LLC (“ProFund Advisors”) believes, in combination, should have similar daily return characteristics as twice (200%) the daily return of the DJIA. The DJIA is a price-weighted index maintained by editors of The Wall Street Journal. The Index includes 30 large-cap, “blue-chip” U.S. stocks, excluding utility and transportation companies. Components are selected through a discretionary process with no pre-determined criteria; however, components should be established U.S. companies that are leaders in their industries, have an excellent reputation, demonstrate sustained growth, be of interest to a large number of investors and accurately represent the sectors covered by the average. The DJIA is not limited to traditionally defined industrial stocks; instead, the Index serves as a measure of the entire U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods. Composition changes are rare, and generally occur only after corporate acquisitions or other dramatic shifts in a component’s core business. When such an event necessitates the replacement of one

 

64   < UltraDow 30 ProFund


Table of Contents
Class   Ticker

Investor

  UDPIX

Service

  UDPSX

 

component, the entire index is reviewed. As of September 30, 2009, the DJIA Index included companies with capitalizations between $[            ] billion and $[            ] billion. The average capitalization of the companies comprising the Index was approximately $[            ] billion. The Index is published under the Bloomberg ticker symbol “[            ].” Assets of the Fund not invested in equity securities or derivatives will typically be held in money market instruments.

>  

Equity Securities — The Fund invests in common stock issued by public companies.

>  

Derivatives — The Fund invests in financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain leveraged exposure to the Index. Derivatives include:

   

Futures Contracts — Contracts that pay a fixed price for an agreed-upon amount of securities, or the cash value of the securities, on an agreed-upon date.

   

Swap Agreements — Contracts entered into primarily with institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

>  

Money Market Instruments — The Fund invests in short-term cash instruments that have terms to maturity of less than 397 days and exhibit high quality credit profiles.

ProFund Advisors uses a mathematical approach to investing. Using this approach, ProFund Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of its benchmark. The Fund may gain exposure to only a representative sample of the securities in the underlying index, which is intended to have aggregate characteristics similar to those of the underlying index. ProFund Advisors does not invest the assets of the Fund in securities or derivatives based on ProFund Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis (other than in determining counterparty creditworthiness), or forecast stock market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that provide exposure to its underlying index without regard to market conditions, trends or direction.

At the close of the markets each trading day, the Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with the Fund’s investment objective. The impact of the Index’s movements during the day will affect whether the Fund’s portfolio needs to be re-positioned. For example, if the Index has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s exposure will need to be increased. Conversely, if the Index has fallen on a given day, net assets of the Fund should fall, meaning the Fund’s exposure will need to be reduced.

The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.

 

Principal Risks

You could lose money by investing in the Fund.

Active Investor Risk — A significant portion of assets invested in the Fund come from professional money managers and investors who use the Fund as part of active trading or tactical asset allocation strategies. These strategies often call for frequent trading to take advantage of anticipated changes in market conditions, which could increase portfolio turnover. In addition, large movements of assets into and out of the Fund may have a negative impact on the Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, the Fund’s expense ratio may vary from current estimates or the historical ratio disclosed in the Prospectus.

Risk Associated with the Use of Leverage — The Fund uses investment techniques and derivatives that may be considered aggressive because the Fund’s investment in derivatives may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested in those instruments. Particularly when used to create leverage, the use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the relevant security or index.

Concentration Risk — The Fund will typically concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact the Fund. Concentration risk results from maintaining exposure (long or short) to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in particular industry is that the Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

Correlation and Compounding Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The risk of the Fund not achieving its daily investment objective will be more acute when the Index has an extreme one-day move approaching 50%. In addition, as a result of compounding, because the Fund has a single day investment objective, the Fund’s performance for periods greater than one day is likely to be either greater than or less than the index performance times the stated multiple in the Fund objective, before accounting for fees and fund expenses.

Compounding affects all investments, but has a more significant impact on a leveraged fund. In general, particularly during periods of higher index volatility, compounding will cause longer term results to be less than twice the return of the index. This effect becomes more pronounced as volatility increases.

 

UltraDow 30 ProFund >   65


Table of Contents

UltraDow 30 ProFund

 

Fund performance for periods greater than one day can be estimated given any set of assumptions for the following factors: a) index performance; b) index volatility; c) financing rates associated with leverage; d) other Fund expenses; e) dividends paid by companies in the index; and f) period of time. The chart below illustrates the impact of two principal factors — volatility and performance — on Fund performance. The chart shows estimated Fund returns for a number of combinations of performance and volatility over a one-year period. Assumptions used in the chart include: (a) no dividends paid by the companies included in the index; (b) no Fund expenses; and (c) borrowing/lending rates (to obtain leverage) of zero percent. If Fund expenses were included, the Fund’s performance would be lower than shown.

Areas shaded lighter represent those scenarios where the Fund can be expected to return more than twice the performance of the Index; conversely, areas shaded darker represent those scenarios where the Fund can be expected to return less than twice the performance of the Index.

 

Volatility Rate  
Index
Perfor-
mance
  2X Index
Perfor-
mance
  10%     25%     50%     75%     100%  
             

-60%

  -120%   -84.2