Form 485BPOS ProFunds
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E-mailAs filed with the Securities and Exchange Commission on December 23, 2024
Registration Nos. 333-28339; 811-08239
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
☒
Pre-Effective Amendment No.
☐
Post-Effective Amendment No. 152
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and/or
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
☒
Amendment No. 154
☒
(Exact name of Registrant as Specified in Trust Instrument)
7272 Wisconsin Avenue, 21st Floor
Bethesda, MD 20814
(Address of Principal Executive Office) (Zip Code)
Bethesda, MD 20814
(Address of Principal Executive Office) (Zip Code)
(240) 497-6400
(Area Code and Telephone Number)
(Area Code and Telephone Number)
Michael L. Sapir, CEO
ProFund Advisors LLC
7272 Wisconsin Avenue, 21st Floor
Bethesda, MD 20814
(Name and Address of Agent for Service)
ProFund Advisors LLC
7272 Wisconsin Avenue, 21st Floor
Bethesda, MD 20814
(Name and Address of Agent for Service)
with copies to:
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Allison M. Fumai, Esq.
Mark D. Perlow, Esq.
Dechert LLP
1095 Avenue of the Americas
New York, NY 10036 |
Richard F. Morris
ProFund Advisors LLC
7272 Wisconsin Avenue, 21st Floor
Bethesda, MD 20814 |
Approximate date of Proposed Public Offering:
It is proposed that this filing will become effective:
☒ immediately upon filing pursuant to paragraph (b)
☐ On December 23, 2024 pursuant to paragraph (b)
☐ 60 days after filing pursuant to paragraph (a)(1)
☐ On pursuant to paragraph (a)(1)
☐ 75 days after filing pursuant to paragraph (a)(2)
☐ On 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.
EXPLANATORY NOTE
This Post-Effective Amendment No. 152 to the Registration Statement on Form N-1A (File No. 333-28339) of ProFunds (the “Registrant”) is being filed pursuant to Rule 485(b) under the Securities Act of 1933, as amended, for the purpose of finalizing the registration of Ether ProFund. The effective date of the Prospectus included in this Registration Statement is Decemeber 23, 2024.
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PROSPECTUS
Investor Class
December 23, 2024
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Ether ProFund |
ETHFX |
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Neither the Securities and Exchange Commission, the Commodity Futures Trading Commission, nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
FUND NUMBER :: Investor Class 122 :: Ether Strategy ProFund :: 3
Wire Fee $10
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Waivers and Expense Reimbursements |
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Total Annual Fund Operating Expenses After Fee
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4 :: Ether Strategy ProFund :: :: TICKER :: Investor Class ETHFX
FUND NUMBER :: Investor Class 122 :: Ether Strategy ProFund :: 5
6 :: Ether Strategy ProFund :: :: TICKER :: Investor Class ETHFX
FUND NUMBER :: Investor Class 122 :: Ether Strategy ProFund :: 7
Management
The Fund is advised by ProFund Advisors. Alexander Ilyasov, Senior Portfolio Manager, and George Banian, Portfolio Manager, have jointly and primarily managed the Fund since inception.
Purchase and Sale of Fund Shares
The minimum initial investment amounts, which may be waived at the discretion of the Fund, are:
●$1,000 for accounts that list a financial professional.
●$1,000 for self-directed accounts.
You may purchase, redeem or exchange Fund shares on any day which the New York Stock Exchange is open for business. Depending on where your account is held, you may redeem your shares by contacting your financial professional or the Fund by mail, telephone, wire transfer or on-line (www.profunds.com).
Tax Information
The Fund’s distributions generally are taxable, and will be taxed as ordinary income, qualified dividend income or capital gains, unless you are investing through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account. You may be taxed later upon withdrawal of monies from such tax-advantaged arrangements. The Fund intends to distribute income, if any, monthly, and capital gains, if any, at least annually.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase Fund shares through a financial intermediary, such as a broker-dealer or investment adviser, the Fund and its distributor may pay the intermediary for the sale of 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.
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This section contains additional details about the Fund’s investment objective, principal investment strategies and related risks.
Investment Objective
The Fund seeks investment results, before fees and expenses, that correspond to the performance of ether. The Fund currently seeks to achieve this objective primarily through investments in ether futures contracts. The Fund does not invest directly in ether.
The Fund’s investment objective is non-fundamental, meaning it may be changed by the Board of Trustees (“Board”), without the approval of Fund shareholders.
Principal Investment Strategies
The Fund seeks to achieve its investment objective primarily through managed exposure to ether futures contracts. In this manner, the Fund seeks to provide investment results that correspond to the performance of ether, although the Fund does not invest directly in ether.
In seeking to achieve the Fund’s investment objective, ProFund Advisors LLC (“ProFund Advisors” or the “Advisor”) takes into consideration, among other things, the relative liquidity of and costs associated with ether futures contracts as well as regulatory requirements imposed by the Securities and Exchange Commission and the Internal Revenue Service. The Fund generally seeks to remain fully invested at all times in investments that, in combination, provide exposure to ether futures without regard to market conditions, trends, or direction.
The Fund does not take temporary defensive positions. The Fund will generally hold its ether-related investments during periods in which the value ether is flat or declining as well as during periods in which the value of ether is rising. For example, if the Fund’s ether-related investments are declining in value, the Fund generally will not exit its positions except as needed to meet redemption requests.
Ether
Ether is a digital asset which serves as the unit of account on an open-source, decentralized, peer-to-peer computer network. Ether may be used to pay for goods and services, stored for future use, or converted to a government-issued currency. As of the date of this Prospectus, the adoption of ether for these purposes has been limited. The value of ether is not backed by any government, corporation, or other identified body.
The value of ether is determined in part by the supply of and demand for, ether in the markets for exchange that have been organized to facilitate the trading of ether. Ether is the second largest digital asset by market capitalization behind bitcoin.
Ether is maintained on the decentralized, open source, peer-to-peer computer network (“Ethereum Network”). No single entity owns or operates the Ethereum Network. The Ethereum Network is accessed through software and governs the creation and movement of ether. The source code for the Ethereum Network is open-source, and anyone can contribute to its development.
Ethereum Network
The infrastructure of the Ethereum Network is collectively maintained by participants in the Ethereum Network, which include validators, developers, and users. Validators validate transactions and are currently compensated for that service in ether, as determined by the Ethereum Protocol. Developers maintain and contribute updates to the Ethereum Network’s source code. Users access the Ethereum Network using open-source software. Anyone can be a user, developer, or validator.
Ether is maintained on a digital transaction ledger commonly known as a “blockchain.” A blockchain is a type of shared and continually reconciled database, stored in a decentralized manner on the computers of certain users of the digital asset and is protected by cryptography. The Ethereum blockchain contains a record and history for each ether transaction.
The Ethereum blockchain allows for the creation of decentralized applications that are supported by a transaction protocol referred to as “smart contracts,” which includes the cryptographic operations that verify and secure ether transactions. A smart contract operates by a pre-defined set of rules (i.e., “if/then statements”) that allows it to automatically execute code on the Ethereum Network. Such actions taken by the pre-defined set of rules are not necessarily contractual in nature but are intended to eliminate the need for a third party to carry out code execution on behalf of users, making the system decentralized, allowing decentralized application developers to create a wide range of applications. Requiring payment in Ether on the Ethereum Network incentivizes developers to write quality applications and increases the efficiency of the Ethereum Network because wasteful code costs more. It also ensures that the Ethereum Network remains economically viable by compensating people for their contributed computational resources.
Ethereum Protocol
The Ethereum Protocol is an open source project with no official company or group in control. Anyone can review the underlying code and suggest changes. Because there is no central authority, the release of updates to the Ethereum Protocol source code by developers does not guarantee that the updates will be automatically adopted by the other participants. Users and validators must accept any changes made to the source code by downloading the proposed modification and that modification is effective only with respect to those ether users and validators who choose to download it. As a practical matter, a modification to the source code becomes part of the Ethereum Network only if it is accepted by validators that collectively represent a supermajority (two-thirds) of the cumulative validations on the Ethereum blockchain.
If a modification is accepted by only a portion of users and validators, a division will occur such that one network will run the pre-modification source code and the other network will run the modified source code. Such a division is known as a “fork.”
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New ether is created through “staking” of ether by validators. Validators are required to stake ether in order to perform validation activities and then, as a reward, earn newly created ether. Validation activities include verifying transactions, storing data, and adding to the Ethereum blockchain. Further, with its collective computing power on the distributed network, the Ethereum network provides the ability to execute peer-to-peer transactions to realize, via smart contracts, automatic, conditional transfer of value and information, including money, voting rights, and property.
An Ethereum private key controls the transfer or “spending” of ether from its associated public Ethereum address. An Ethereum “wallet” is a collection of public Ethereum addresses and their associated private key(s). It is designed such that only the owner of ether can send ether, only the intended recipient of ether can unlock what the sender sent and both transactions and ownership can be verified by any third party anywhere in the world.
Fees need to be paid in ether in order to facilitate transactions and execute smart contracts. The fee that is charged is called “gas.” Gas price is often a small fraction of ether, which is denoted in the unit of Gwei (10^9 Gwei = 1 ether). Gas is essential in sustaining the Ethereum network. It incentivizes validators to process and verify transactions and incentivizes new validators to stake ether. Gas fees are a product of Ethereum network demand relative to the Ethereum network’s capacity.
The Ethereum Foundation (“EF”) is a non-profit organization that is dedicated to supporting Ethereum and related technologies. The EF, alongside other organizations, supports Ethereum Protocol development through funding and advocacy. The EF finances its activities through its initial allocation of ether at the launch of the Ether Network in 2015. Although the EF does not control Ethereum, and is one of many organizations within the Ethereum ecosystem, it is the most significant driving force for Ethereum Protocol development and support of Ethereum generally.
Ether Futures
A futures contract is a standardized contract traded on, or subject to the rules of, an exchange to buy or sell a specified type and quantity of a particular underlying asset at a designated price. The Fund invests in standardized, cash-settled ether futures contracts traded on commodity exchanges registered with the Commodity Futures Trading Commission (“CFTC”). Futures contracts are traded on a wide variety of underlying assets, including ether, bonds, interest rates, agricultural products, stock indexes, currencies, digital assets, energy, metals, economic indicators and statistical measures. The contract unit (i.e., the total amount of the underlying asset referenced in each futures contract) and calendar term of futures contracts on a particular underlying asset are identical and are not subject to any negotiation, other than with respect to price and the number of contracts traded between the buyer and seller. Futures
contracts expire on a designated date, referred to as the “expiration date.”
The Fund’s ability to invest in ether futures contracts is subject to regulatory limitations, limitations imposed by listing exchanges and in some instances, limitations imposed by FCMs (e.g., margin requirements, position limits, and accountability levels). Position limits are predetermined maximum levels of futures that can be owned or controlled by a market participant. An accountability level is a threshold of futures holdings established by an exchange that, once met, subjects a market participant to greater scrutiny, such as providing information to the exchange about the Fund and its futures positions and the possibility that the exchange would prevent the Fund from increasing the size of its ether futures position or require it to decrease its position in ether futures contracts. The Fund’s futures positions may be aggregated with those held by certain of its affiliates for purposes of applying position limits and accountability levels, meaning that the amount of ether futures held by certain affiliates of the Fund could affect the Fund’s ability to enter into additional ether futures contracts or subject the Fund to a requirement to decrease its position in ether futures contracts. Margin requirements specify the minimum amount of cash required to be deposited with an FCM for open futures contracts.
The Fund generally deposits cash (also known as “margin”) with an FCM for its open positions in futures contracts. The margin requirements or position limits may be based on the notional exposure (i.e., the total dollar value of exposure the Fund has to the asset that underlies the futures contract) of the futures contracts or the number of futures contracts purchased. The FCM, in turn, generally transfers such deposits to the clearing house to protect the clearing house against non-payment by the Fund. “Variation Margin” is the amount of cash that each party agrees to pay to or receive from the other to reflect the daily fluctuation in the value of the futures contract. The clearing house becomes substituted for each counterparty to a futures contract and, in effect, guarantees performance. In addition, the FCM may require the Fund to deposit additional collateral in excess of the clearing house’s requirements for the FCM’s own protection. Margin requirements for ether futures are substantially higher than margin requirements for many other types of futures contracts.
CME Ether Futures commenced trading on the CME, a CFTC registered futures exchange, on February 8, 2021, under the ticker symbol “ETH”. CME ether futures are cash-settled in U.S. dollars, based on the CME CF Ether Reference Rate. The CME CF Ether Reference Rate is a volume-weighted composite of U.S. dollar-ether trading activity on spot ether trading venues selected by an oversight committee established by the CME and CF Benchmarks, the administrator of the CME CF Ether Reference Rate, based on predefined criteria established by CF Benchmarks and approved by the oversight committee. The criteria require, among other things, each selected trading venue to have
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implemented policies and procedures designed to ensure fair and transparent market conditions and to identify and impede illegal, unfair or manipulative trading practices. The selected trading venues are not registered exchanges and are not subject to the regulation and supervision of a federal financial markets regulator. Each selected trading venue is reviewed annually by an oversight committee established by CF Benchmarks to confirm that the selected trading venue continues to meet all criteria. CF Benchmarks and the CME CF Ether Reference Rate are subject to United Kingdom Financial Conduct Authority Regulation.
Rolling of the Ether Futures
Futures contracts expire on a designated date, referred to as the “expiration date.” The Fund generally seeks to invest in “front-month” ether futures contracts but may invest in back-month, cash-settled ether futures contracts. “Front-month” contracts are the monthly contracts with the nearest expiration date. Back-month ether futures contracts are those with longer times to maturity. Ether futures are cash-settled on their expiration date unless they are “rolled” prior to expiration. The Fund intends to “roll” its ether futures prior to expiration. Typically, the Fund will roll to the next “nearby” ether futures. The “nearby” contracts are those contracts with the next closest expiration date.
Investment in the Cayman Subsidiary
Each Fund expects to gain exposure to crypto futures contracts by investing a portion of its assets in a wholly-owned subsidiary organized under the laws of the Cayman Islands that is managed and advised by ProFund Advisors and overseen by each Fund’s board of directors.
Additional Ether-Related Investments
If a Fund is unable to obtain the desired exposure to ether futures contracts because it is approaching or has exceeded position limits or accountability levels or because of liquidity or other constraints, the Advisor intends to take such action as it believes appropriate and in the best interest of the Fund.
This may include among other things, investing in equity securities of “ether-related companies” or investing in other U.S. investment companies that provide investment exposure to ether futures contracts or ether-related companies. For these purposes, ether-related companies are companies listed on a U.S. stock exchange that the Advisor believes provide returns that generally correspond, or are closely related, to the performance of ether or ether futures. For example, a Fund may invest in U.S. listed companies engaged in digital asset mining or offering digital asset trading platforms.
Please see “Principal Investment Strategies” in the Fund’s Summary Prospectus for more detail about the financial instruments in which the Fund invests.
Additional Information Regarding Principal Risks
Like all investments, investing in the Fund entails risks. The factors most likely to have a significant impact on the Fund’s
portfolio are called “principal risks.” The principal risks for the Fund are described in the Fund’s Summary Prospectus and additional information regarding certain of these risks, as well as information related to other potential risks to which the Fund may be subjected, is provided below and under the section titled “Other Risks.” The principal risks are intended to provide information about the factors likely to have a significant adverse impact on the Fund’s returns and consequently the value of an investment in the Fund. The risks are presented in an order intended to facilitate readability and their order does not imply that the realization of one risk is more likely to occur than another risk or likely to have a greater adverse impact than another risk. The Statement of Additional Information (“SAI”) contains additional information about the Fund, investment strategies and related risks. The Fund may be subject to other risks in addition to those identified as principal risks.
●Ether and Ether Futures Risk – Investments linked to ether present unique and substantial risks. Such investments can be highly volatile compared to investments in traditional securities and the Fund may experience sudden and large losses. The markets for ether and ether futures may become illiquid. These markets may fluctuate widely based on a variety of factors including changes in overall market movements, political and economic events, wars, acts of terrorism, natural disasters (including disease, epidemics and pandemics) and changes in interest rates or inflation rates. An investor should be prepared to lose the full principal value of their investment suddenly and without warning. Trading and investing in assets linked to ether are generally not based on fundamental investment analysis.
A number of factors impact the price and market for ether and ether futures.
○Supply and demand for ether – It is believed that speculators and investors who seek to profit from trading and holding ether currently account for a significant portion of ether demand. Such speculation regarding the potential future appreciation in the price of ether may artificially inflate or deflate the price of ether. Market fraud and/or manipulation and other fraudulent trading practices such as the intentional dissemination of false or misleading information (e.g., false rumors) can, among other things, lead to a disruption of the orderly functioning of markets, significant market volatility, and cause the value of ether futures to fluctuate quickly and without warning.
○Supply and demand for ether futures contracts – The price of ether futures contracts is based on a number of factors, including the supply of and the demand for ether futures contracts. Market conditions and expectations, position limits, collateral requirements, and other factors each can impact the supply of and demand for ether futures contracts. Typically, demand paired with supply constraints and other factors have caused ether futures to trade at a premium to a “spot” price of ether. Additional
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demand, including demand resulting from the purchase, or anticipated purchase, of futures contracts by the Fund or other entities may increase that premium, perhaps significantly. It is not possible to predict whether or how long such conditions will continue. To the extent the Fund purchases futures contracts at a premium and the premium declines, the value of an investment in the Fund also should be expected to decline.
○Adoption and use of ether – The continued adoption of ether will require growth in its usage as a means of payment. Even if growth in ether adoption continues in the near or medium-term, there is no assurance that ether usage will continue to grow over the long-term. A contraction in the use of ether may result in a lack of liquidity and increased volatility in the price of ether. It may also result in a reduction infare processed by validators for ether.
○The regulatory environment relating to ether and ether futures – The regulation of ether, digital assets, digital asset trading venues, and related products and services continues to evolve. The inconsistent and sometimes conflicting regulatory landscape may make it more difficult for ether businesses to provide services, which may impede the growth of the ether economy and have an adverse effect on adoption of ether. In addition, certain ether businesses may be operating out of compliance with regulations. Future regulatory changes or enforcement actions by regulatory authorities may alter, perhaps to a material extent, the ability to buy and sell ether and ether futures. Similarly, future regulatory changes or enforcement actions could impact the ability of the Fund to achieve its investment objective or alter the nature of an investment in the Fund or the ability of the Fund to continue to operate, as planned. For example, if ether were determined or were expected to be determined to be a security under the federal securities laws or state securities laws, it is possible certain ether trading venues would no longer facilitate trading in ether. As a result, trading in ether futures may be completely halted or otherwise disrupted, or become significantly more volatile, ether futures may become illiquid and/or lose significant value, and the Fund may have difficulty unwinding or closing out its ether futures contracts. In that event, the value of an investment in the Fund could decline significantly and without warning, including to zero. There is no guarantee that security futures on ether would begin trading on any particular timeframe or at all or that the Fund would be able to invest in such instruments. The determination that ether is a security and the related impacts on ether futures contracts may result in extraordinary expenses for the Fund.
○Margin requirements and position limits applicable to ether futures contracts – Margin levels for ether
futures contracts are substantially higher than the margin requirements for more established futures contracts. Additionally, the FCMs utilized by the Fund may impose margin requirements in addition to those imposed by the exchanges. Margin requirements are subject to change and may be raised in the future by the exchanges and the FCMs. High margin requirements could prevent the Fund from obtaining sufficient exposure to ether futures and may adversely affect its ability to achieve its investment objective. Further, FCMs utilized by the Fund may impose limits on the amount of exposure to futures contracts the Fund can obtain through such FCMs. If the Fund cannot obtain sufficient exposure through its FCMs, the Fund may not be able to achieve its investment objective.
○Largely unregulated marketplace – Ether, the Ethereum Network and digital asset trading venues are relatively new and, in most cases, largely unregulated. As a result of this lack of regulation and lack of compliance with applicable regulation, individuals, or groups may engage in insider trading, fraud or market manipulation with respect to ether. Such manipulation could cause investors in ether to lose money, possibly the entire value of their investments. Over the past several years, a number of digital asset trading venues have been closed due to fraud, failure or security breaches. The nature of the assets held at digital asset trading venues make them appealing targets for hackers and a number of digital asset trading venues have been victims of cybercrimes and other fraudulent activity. These activities have caused significant, in some cases total, losses for ether investors. Investors in ether may have little or no recourse should such theft, fraud or manipulation occur. There is no central registry showing which individuals or entities own ether or the quantity of ether that is owned by any particular person or entity. There are no regulations in place that would prevent a large holder of ether or a group of holders from selling their ether (which could depress the price of ether) or otherwise attempting to manipulate the price of ether the Ethereum Network. Events that reduce user confidence in ether, the Ethereum Network and the fairness of digital asset trading venues could have a negative impact on the Fund.
○Cybersecurity – As a digital asset ether is subject to the risk that malicious actors will exploit flaws in its code or structure, or that of digital asset trading venues, that will allow them to, among other things, steal ether held by others, control the blockchain, steal personally identifying information, or issue significant amounts of ether in contravention of the relevant protocol. The occurrence of any of these events is likely to have a significant adverse impact on the price and liquidity of ether and ether futures contracts. Additionally, the Ether Network’s functionality relies on the Internet. A significant disruption of Internet connectivity affecting
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large numbers of users or geographic areas could impede the functionality of the Ether Network. Any technical disruptions or regulatory limitations that affect Internet access may have an adverse effect on the Ether Network, the price and liquidity of ether, and the value of an investment in the Fund. The Ethereum blockchain’s protocol, including the code of smart contracts running on the Ethereum blockchain, may contain flaws that can be, and have been, exploited by attackers (e.g., the exploit of The DAO’s smart contract in June 2016 that result in a permanent hard fork).
○Declining staking compensation – Transactions in ether are processed by validators who are primarily compensated in ether based on the amount of ether staked, as determined by the Ethereum Protocol. If this compensation is not sufficient to incentivize validators to stake, the confirmation process for transactions may slow and the Ethereum Network may become more vulnerable to malicious actors. These and similar events may have a significant adverse effect on the price and liquidity of ether and the value of an investment in the Fund.
○Forks – The open-source nature of the Ethereum Protocol permits any developer to review the underlying code and suggest changes. If some users, validators or miners adopt a change while others do not and that change is not compatible with the existing software, a fork occurs. Several forks have already occurred in the Ethereum Network resulting in the creation of new, separate digital assets. The determination of will be considered ether for purposes of the CME CF Ether Reference Rate is determined by CF Benchmarks’ Hard Fork Policy. Forks and similar events could adversely affect the price and liquidity of ether and the value of an investment in the Fund. A fork may be intentional such as the Ethereum ’Merge.’ The ’Merge’ represents the Ethereum Network’s shift from proof-of-work to proof-of-stake. This means that instead of being required to solve complex mathematical problems validators are required to stake ether. Prior to September 2022, Ethereum operated using a proof-of-work consensus mechanism. Following the Merge, approximately 1,700 Ether are issued per day, though the issuance rate varies based on the number of validators on the network. In addition, the issuance of new Ether could be partially or completely offset by the burn mechanism introduced by the EIP-1559 modification, under which Ether are removed from supply at a rate that varies with network usage.
○Costs of rolling futures contracts – Futures contracts with a longer term to expiration may be priced higher than futures contracts with a shorter term to expiration, a relationship called “contango.” Conversely, futures contracts with a longer term to expiration may be priced lower than futures contracts with a shorter term to
expiration, a relationship called “backwardation.” When rolling futures contracts that are in contango, the Fund may sell the expiring ether futures at a lower price and buy a longer-dated ether futures at a higher price. When rolling futures contracts that are in backwardation, the Fund may sell the expiring ether futures at a higher price and buy the longer-dated ether futures at a lower price. The price difference between the expiring contract and longer dated contract associated with rolling ether futures is typically substantially higher than the price difference associated with rolling other futures contracts. Ether futures have historically experienced extended periods of contango. Contango in the ether futures market may have a significant adverse impact on the performance of the Fund and may cause ether futures to underperform spot ether. Both contango and backwardation may limit or prevent the Fund from achieving its investment objective. Additionally, because of the frequency with which the Fund may roll futures contracts, the impact of contango or backwardation on Fund performance may be greater than it would have been if the Fund rolled futures contracts less frequently.
○Liquidity risk – The market for ether futures contracts is still developing and may be subject to periods of illiquidity. In addition, even when ether futures contracts are not generally illiquid, the size of a Fund’s position in ether futures may be illiquid. During such times it may be difficult or impossible to enter into or exit a position at the desired price. Market disruptions or volatility can also make it difficult to find a counterparty willing to transact at a reasonable price and sufficient size. Illiquid markets may cause losses, which could be significant. The large size of the positions which the Fund may acquire increases the risk of illiquidity, may make its positions more difficult to liquidate, and may increase the losses incurred while trying to do so. It is also possible that, if the Fund’s assets become significant relative to the overall market, the large size of its positions potentially could impact futures contracts prices and contribute to illiquidity. Limits imposed by counterparties, exchanges or other regulatory organizations, such as accountability levels, position limits and daily price fluctuation limits, may contribute to a lack of liquidity and have a negative impact on Fund performance. During periods of market illiquidity, including periods of market disruption and volatility, it may be difficult or impossible for the Fund to enter into or exit futures at desired prices or at all.
○Ether tax risk – Current U.S. Internal Revenue Service (“IRS”) guidance indicates that convertible virtual currency, defined as a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value that has an equivalent value in real currency, or that acts as a substitute for real currency, should be treated and taxed as property, and that
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transactions involving the payment of convertible virtual currency for goods and services should be treated as barter transactions. While this treatment allows for the possibility of capital gains treatment, it creates a potential tax reporting requirement in any circumstance where the ownership of convertible virtual currency passes from one person to another, usually by means of convertible virtual currency transactions (including off-blockchain transactions), which could discourage the use of ether as a medium of exchange, especially for a holder of ether that has appreciated in value.
●Derivatives Risk — A Fund may obtain exposure to ether through derivatives (i.e., ether futures contracts). Investing in derivatives may be considered aggressive and may expose the Fund to risks different from, or possibly greater than, the risks associated with investing directly in the reference asset(s) underlying the derivative. The use of derivatives may result in larger losses or smaller gains than directly investing in securities. The risks of using derivatives include: 1) the risk that there may be imperfect correlation between the price of the financial instruments and movements in the prices of the reference asset(s); 2) the risk that an instrument is mispriced; 3) credit or counterparty risk on the amount the Fund expects to receive from a counterparty; 4) the risk that securities prices, interest rates and currency markets will move adversely and the Fund will incur significant losses; and 5) the possible absence of a liquid secondary market for a particular instrument and possible exchange imposed price fluctuation limits, either of which may make it difficult or impossible to adjust each Fund’s position in a particular instrument when desired. Each of these factors may prevent the Fund from achieving its investment objective and may increase the volatility (i.e., fluctuations) of the Fund’s returns. Because derivatives often require limited initial investment, the use of derivatives also may expose the Fund to losses in excess of those amounts initially invested.
●Borrowing Risk – A Fund may borrow for tax management or investment purposes using reverse repurchase agreements. Reverse repurchase agreements are financing arrangements that involve sales by the Fund of portfolio financial instruments concurrently with an agreement by the Fund to repurchase the same financial instruments at a later date at a fixed price. Reverse repurchase agreements do not mitigate the Fund’s risk that the market value of the financial instruments the Fund is obligated to repurchase under the agreement may decline below the repurchase price. A Fund may enter into both exchange-traded and over-the-counter reverse repurchase agreements. The cost of borrowing may reduce the Fund’s return. Borrowing may cause a Fund to liquidate positions under adverse market conditions to satisfy its repayment obligations. Borrowing increases the risk of loss and may increase the volatility of the Fund.
●Subsidiary Investment Risk — Changes in the laws of the United States and/or the Cayman Islands, under which the
Fund and its subsidiary are organized, respectively, could result in the inability of the Fund to operate as intended and could negatively affect the Fund and its shareholders. The Fund complies with the provisions of the 1940 Act governing investment policies, capital structure, and leverage on an aggregate basis with its subsidiary. In addition, the Subsidiary complies with the provision of the 1940 Act relating to investment advisory contracts, affiliated transactions, and custody.
●Ether-Related Company Risk – If a Fund is unable to obtain its desired exposure to ether futures contracts because it is approaching or has exceeded position limits or because of liquidity or other constraints, the Fund may obtain exposure by investing in “ether-related companies.” There can be no assurance that the returns of ether-related companies will correspond, or be closely-related, to the performance of ether or ether futures. Ether-related companies face rapid changes in technology, intense competition including the development and acceptance of competing platforms or technologies, loss or impairment of intellectual property rights, cyclical economic patterns, shifting consumer preferences, evolving industry standards, adverse effects of changes to a network’s or software’s protocols, a rapidly changing regulatory environment, and dependency on certain key personnel (including highly skilled financial services professionals and software engineers). Ether-related companies may be susceptible to operational and information security risks including those associated with hardware or software failures, interruptions, or delays in service by third party vendors, and security breaches. Certain ether-related companies may be subject to the risks associated with investing directly in digital assets, including ether tokens.
●Money Market Instruments Risk — Money market instruments may be adversely affected by market and economic events. Adverse economic, political or other developments affecting issuers of money market instruments or defaults by transaction counterparties may also have a negative impact on the performance of such instruments. Each of these could have a negative impact on the performance of the Fund. Money market instruments may include money market funds. To the extent the Fund invests in a money market fund, the Fund will indirectly bear a proportionate share of the money market fund’s fees and expenses.
●Counterparty Risk — A Fund will be subject to credit risk (i.e., the risk that a counterparty is unwilling or unable to make timely payments or otherwise meet its contractual obligations) with respect to the amount the Fund expects to receive from counterparties to financial instruments (including derivatives and repurchase agreements) entered into by the Fund. A Fund generally structures the agreements such that either party can terminate the contract without penalty prior to the termination date. If a counterparty terminates a contract, the Fund may not be able to invest in other derivatives to achieve the desired exposure, or achieving
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such exposure may be more expensive. A Fund may be negatively impacted if a counterparty becomes bankrupt or otherwise fails to perform its obligations under such an agreement. A Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding and the Fund may obtain only limited recovery or may obtain no recovery in such circumstances. In order to attempt to mitigate potential counterparty credit risk, the Fund typically enters into transactions with major financial institutions.
A Fund also seeks to mitigate risks by generally requiring that the counterparties agree to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to what the counterparty owes the Fund, subject to certain minimum thresholds. To the extent any such collateral is insufficient or there are delays in accessing the collateral, the Fund will be exposed to the risks described above, including possible delays in recovering amounts as a result of bankruptcy proceedings.
The counterparty to an exchange-traded futures contract is subject to the credit risk of the clearing house and the futures commission merchant (“FCM”) through which it holds its position. Specifically, the FCM or the clearing house could fail to perform its obligations, causing significant losses to the Fund. For example, the Fund could lose margin payments it has deposited with an FCM as well as any gains owed but not paid to the Fund, if the FCM or clearing house becomes insolvent or otherwise fails to perform its obligations. Credit risk of market participants with respect to derivatives that are centrally cleared is concentrated in a few clearing houses and it is not clear how an insolvency proceeding of a clearing house would be conducted and what impact an insolvency of a clearing house would have on the financial system. Under current Commodity Futures Trading Commission (“CFTC”) regulations, a FCM maintains customers’ assets in a bulk segregated account. If a FCM fails to do so, or is unable to satisfy a substantial deficit in a customer account, its other customers may be subject to risk of loss of their funds in the event of that FCM’s bankruptcy. In that event, in the case of futures, the FCM’s customers are entitled to recover, even in respect of property specifically traceable to them, only a proportional share of all property available for distribution to all of that FCM’s customers. In addition, if the FCM does not comply with the applicable regulations, or in the event of a fraud or misappropriation of customer assets by the FCM, the Fund could have only an unsecured creditor claim in an insolvency of the FCM with respect to the margin held by the FCM. FCMs are also required to transfer to the clearing house the amount of margin required by the clearing house, which amount is generally held in an omnibus account at the clearing house for all customers of the FCM.
In addition, the Fund may enter into agreements with a limited number of counterparties, which may increase the Fund’s exposure to counterparty credit risk. A Fund does not
specifically limit its counterparty risk with respect to any single counterparty. Further, there is a risk that no suitable counterparties are willing to enter into, or continue to enter into, transactions with the Fund and, as a result, the Fund may not be able to achieve its investment objective. Contractual provisions and applicable law may prevent or delay the Fund from exercising its rights to terminate an investment or transaction with a financial institution experiencing financial difficulties, or to realize on collateral, and another institution may be substituted for that financial institution without the consent of the Fund. If the credit rating of a counterparty to a futures contract and/or repurchase agreement declines, the Fund may nonetheless choose or be required to keep existing transactions in place with the counterparty, in which event the Fund would be subject to any increased credit risk associated with those transactions. Also, in the event of a counterparty’s (or its affiliate’s) insolvency, the possibility exists that the Fund’s ability to exercise remedies, such as the termination of transactions, netting of obligations and realization on collateral, could be stayed or eliminated under special resolution regimes adopted in the United States, the European Union and various other jurisdictions. Such regimes provide government authorities with broad authority to intervene when a financial institution is experiencing financial difficulty. In particular, the regulatory authorities could reduce, eliminate, or convert to equity the liabilities to the Fund of a counterparty who is subject to such proceedings in the European Union or the United Kingdom (sometimes referred to as a “bail in”).
●Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on ether futures contracts. In these 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.
Other Risks
In addition to the risks noted above, many other factors may also affect the value of an investment in the Fund, such as market conditions, interest rates and other economic, political or financial developments. The impact of these developments on the Fund will depend upon the types of investments in which the Fund invests, the Fund’s level of investment in particular issuers and other factors, including the financial condition, industry, economic sector and location of such issuers. The SAI contains additional information about the Fund, its investment strategies and related risks. The Fund may be subject to other risks in addition to those identified as principal risks.
●Natural Disaster/Epidemic Risk — Natural or environmental disasters, such as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including pandemics and epidemics (for example, COVID-19), have been and can be highly disruptive to economies and markets
16 ::
and have recently led, and may continue to lead, to increased market volatility and significant market losses. Such natural disaster and health crises could exacerbate political, social, and economic risks, and result in significant breakdowns, delays, shutdowns, social isolation, and other disruptions to important global, local and regional supply chains affected, with potential corresponding results on the operating performance of the Fund and its investments. A climate of uncertainty and panic, including the contagion of infectious viruses or diseases, may adversely affect global, regional, and local economies and reduce the availability of potential investment opportunities, and increases the difficulty of performing due diligence and modeling market conditions, potentially reducing the accuracy of financial projections. Under these circumstances, the Fund may have difficulty achieving its investment objectives which may adversely impact Fund performance. Further, such events can be highly disruptive to economies and markets, significantly disrupt the operations of individual companies (including, but not limited to, the Fund’s investment advisor, third party service providers, and counterparties), sectors, industries, markets, securities and commodity exchanges, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value of the Fund’s investments. These factors can cause substantial market volatility, exchange trading suspensions and closures, changes in the availability of and the margin requirements for certain instruments, and can impact the ability of the Fund to complete redemptions and otherwise affect Fund performance and Fund trading in the secondary market. A widespread crisis would also affect the global economy in ways that cannot necessarily be foreseen. How long such events will last and whether they will continue or recur cannot be predicted. Impacts from these events could have a significant impact on the Fund’s performance, resulting in losses to your investment.
●Risk of Global Economic Shock — Widespread disease, including public health disruptions, pandemics and epidemics (for example, COVID-19 including its variants), have been and may continue to be highly disruptive to economies and markets. Health crises could exacerbate political, social, and economic risks, and result in breakdowns, delays, shutdowns, social isolation, civil unrest, periods of high unemployment, shortages in and disruptions to the medical care and consumer goods and services industries, and other disruptions to important global, local and regional supply chains, with potential corresponding results on the performance of the Fund and its investments.
Additionally, wars, military conflicts, sanctions, acts of terrorism, sustained elevated inflation, supply chain issues or other events could have a significant negative impact on global financial markets and economies. Russia’s military incursions in Ukraine have led to, and may lead to additional sanctions being levied by the United States, European Union and other countries against Russia. The ongoing hostilities between the two countries could result in additional widespread conflict
and could have a severe adverse effect on the region and certain markets. Sanctions on Russian exports could have a significant adverse impact on the Russian economy and related markets and could affect the value of the Fund’s investments, even beyond any direct exposure the Fund may have to the region or to adjoining geographic regions. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could have a severe adverse effect on the region, including significant negative impacts on the economy and the markets for certain securities and commodities, such as oil and natural gas. Furthermore, the possibility of a prolonged conflict between Hamas and Israel, and the potential expansion of the conflict in the surrounding areas and the involvement of other nations in such conflict, such as the Houthi movement’s attacks on marine vessels in the Red Sea, could further destabilize the Middle East region and introduce new uncertainties in global markets, including the oil and natural gas markets. How long such tensions and related events will last cannot be predicted. These tensions and any related events could have significant impact on the Fund performance and the value of an investment in the Fund.
●Risks of Government Regulation —The Financial Industry Regulatory Authority (“FINRA”) issued a notice on March 8, 2022 seeking comment on measures that could prevent or restrict investors from buying a broad range of public securities designated as “complex products”—which could include the digital asset (such as ether) funds offered by ProFund Advisors. The ultimate impact, if any, of these measures remains unclear. However, if regulations are adopted, they could, among other things, prevent or restrict investors’ ability to buy the funds.
●Cybersecurity Risk — With the increased use of technologies such as the Internet and the dependence on computer systems to perform necessary business functions, the Fund, financial intermediaries, service providers and the relevant listing exchange are susceptible to operational, information security and related “cyber” risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber attacks include, but are not limited to gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing among other behaviors, stealing or corrupting data maintained online or digitally, and denial of service attacks on websites. Cybersecurity failures or breaches of the Fund’s third party service provider (including, but not limited to, index providers, the administrator and transfer agent) or the issuers of securities and/or financial instruments in which the Fund invests, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws. For instance, cyber attacks may interfere with the processing of shareholder
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transactions, impact the Fund’s ability to calculate its NAV, cause the release of private shareholder information or confidential Fund information, impede trading, cause reputational damage, and subject the Fund to regulatory fines, penalties or financial losses, reimbursement or other compensation costs, and/or additional compliance costs. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. The Fund and its shareholders could be negatively impacted as a result. While the Fund or its service providers may have established business continuity plans and systems designed to guard against such cyber attacks or adverse effects of such attacks, there are inherent limitations in such plans and systems including the possibility that certain risks have not been identified, in large part because different unknown threats may emerge in the future. Similar types of cybersecurity risks also are present for issuers of securities in which the Fund invests, which could result in material adverse consequences for such issuers, and may cause the Fund’s investments in such securities to lose value. In addition, cyber attacks involving a counterparty to the Fund could affect such a counterparty’s ability to meets it obligations to the Fund, which may result in losses to the Fund and its shareholders. ProFund Advisors and the Trust do not control the cybersecurity plans and systems put in place by third party service providers, and such third party service providers may have no or limited indemnification obligations to ProFund Advisors or the Fund.
●Operational Risk — A Fund, its service providers and financial intermediaries are subject to operational risks arising from, among other things, human error, systems and technology errors and disruptions, failed or inadequate controls, and fraud. These errors may adversely affect the Fund’s operations, including its ability to execute its investment process, calculate or disseminate its NAV or intraday indicative value in a timely manner, and process purchases or redemptions. While the Fund seeks to minimize such events through controls and oversight, there may still be failures and the Fund may be unable to recover any damages associated with such failures. These failures may have a material adverse effect on the Fund’s returns. The Fund relies on order information provided by financial intermediaries to determine the net inflows and outflows. As a result, the Fund is subject to operational risks associated with reliance on those financial intermediaries and their data sources. In particular, errors in the order information may result in the purchase or sale of the instruments in which the Fund invests in a manner that may be disadvantageous to the Fund.
●Portfolio Turnover Risk — The Fund may incur high portfolio turnover in connection with managing the Fund’s investment exposure. Additionally, active trading of the Fund’s shares is expected to cause more frequent purchase and sales activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of portfolio transactions increase transaction costs and may result in
increased taxable gains. Each of these factors could have a negative impact on the performance of the Fund.
●Valuation Risk — In certain circumstances (e.g., if ProFund Advisors believes market quotations are not reliable, or a trading halt closes an exchange or market early), ProFund Advisors may, pursuant to procedures approved by the Board of Trustees of the Fund, choose to determine a fair value price as the basis for determining the value of such investment for such day. The fair value of an investment determined by ProFund Advisors may be different from other value determinations of the same investment. Portfolio investments that are valued using techniques other than market quotations, including “fair valued” investments, may be subject to greater fluctuation in their value from one day to the next than would be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio investment for the value established for it at any time, and it is possible that the Fund would incur a loss because a portfolio investment is sold at a discount to its established value. The fair value of the Fund’s ether futures may be determined by reference, in whole or in part, to the cash market in ether. These circumstances may be more likely to occur with respect to ether futures than with respect to futures on more traditional assets. In addition, the ether futures held by the Fund and ether may be traded in markets on days and at times when the Fund is not open for business. As a result, the value of the Fund’s holdings may vary, perhaps significantly, on days and at times when investors are unable to purchase or sell Fund shares.
●Tax Risk — In order to qualify for the special tax treatment accorded a RIC and its shareholders, the Fund must derive at least 90% of its gross income for each taxable year from “qualifying income,” meet certain asset diversification tests at the end of each taxable quarter, and meet annual distribution requirements. A Fund’s pursuit of its investment strategies will potentially be limited by the Fund’s intention to qualify for such treatment and could adversely affect the Fund’s ability to so qualify. A Fund may make certain investments, the treatment of which for these purposes is unclear. In particular, direct investments by the Fund in ether or in derivatives that provide direct exposure to ether are not expected to produce qualifying income for purposes of the Fund’s qualification as a RIC. A Fund, however, may gain exposure to ether and generate qualifying income by investing a portion of its assets in a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands. To comply with the asset diversification test applicable to a RIC, the Fund intends to limit its investments in such subsidiary to 25% of the Fund’s total assets at the end of each tax quarter. A Fund may, however, exceed this amount from time to time if ProShare Advisors believes doing so is in the best interests of the Fund, provided, however, that the Fund intends to continue to comply with the asset diversification test applicable to RICs. To that end, a Fund may need to take steps intended to cause the value of its investment in the subsidiary not to exceed 25% of
18 ::
the value of its total assets at the close of each quarter of the Fund’s taxable year, but there can be no assurances that the Fund will be able to do so or that the Fund’s steps will achieve the intended outcome. A Fund’s intention to qualify as a RIC is expected to limit its ability to pursue its investment strategy and a Fund’s pursuit of its investment strategy could bear adversely on the Fund’s ability to so qualify.
If the Fund’s investments in the subsidiary were to exceed 25% of the Fund’s total assets at the end of a tax quarter, the Fund may no longer be eligible to be treated as a RIC. ProShare Advisors will carefully monitor the Fund’s investments in the subsidiary with the intent of ensuring that no more than 25% of the Fund’s assets are invested in the subsidiary at the end of each tax quarter.
In addition, the Fund intends to invest in complex derivatives for which there is not clear guidance from the Internal Revenue Service (“IRS”) as to the calculation of such investments under the asset diversification test or the qualifying income requirement applicable to RICs. There are no assurances that the IRS will agree with the Fund’s calculation under the asset diversification test and/or its treatment of income for purposes of the qualifying income requirement, which could cause the Fund to fail to qualify as a RIC.
If, in any year, the Fund were to fail to qualify for the special tax treatment accorded a RIC and its shareholders, and were ineligible to or were not to cure such failure, the Fund would be taxed in the same manner as an ordinary corporation subject to U.S. federal income tax on all its income at the fund level. The resulting taxes could substantially reduce the Fund’s net assets and the amount of income available for distribution.
In addition, in order to requalify for taxation as a RIC, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest, and make certain distributions. Please see the section entitled “Taxation” in the Statement of Additional Information for more information.
Precautionary Notes
A Precautionary Note to Investment Companies — For purposes of the 1940 Act, the Fund is a registered investment company, and the acquisition of the Fund’s shares by other investment companies is subject to the restrictions of Section 12(d)(1) thereof. Any investment company considering purchasing shares of the Fund in amounts that would cause it to exceed the restrictions of Section 12(d)(1) should contact the Trust. Rule 12d1-4 under the 1940 Act permits investments in acquired funds in excess of the limits of Section 12(d)(1) subject to certain conditions. Among these conditions, prior to a fund acquiring securities of another fund exceeding the limits of Section 12(d)(1), the acquiring fund must enter into a “Fund of Funds Investment Agreement” with the acquired fund setting forth the material terms of the arrangement.
A Precautionary Note Regarding Regulation of Derivatives — Current global regulation of and future regulatory changes with respect to derivatives regulations may alter, perhaps to a material extent, the nature of an investment in the Fund or the ability of the Fund to continue to implement its investment strategies.
Portfolio Holdings Information
A description of the Trust’s policies and procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the SAI.
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Board of Trustees and Officers
The Board is responsible for the general supervision of the Fund. The officers of the Trust are responsible for the day-to-day operations of the Fund.
Investment Advisor
ProFund Advisors, located at 7272 Wisconsin Avenue, 21st Floor, Bethesda, Maryland 20814, serves as the investment adviser to the Fund and provides investment advice and management services to the Fund. ProFund Advisors oversees the investment and reinvestment of the assets in the Fund. For its investment advisory and management services, the Fund pays ProFund Advisors a fee at an annualized rate of 0.75% of its average daily net assets.
A discussion regarding the basis for the Board approving the investment advisory agreement for the Fund is expected to be included in the Trust’s first Form N-CSR filing that includes the Fund.
Portfolio Management
The following individuals have responsibility for the day-to-day management of the Fund as set forth in the Summary Prospectus relating to the Fund. The Portfolio Managers’ business experience for the past five years is listed below. Additional information about the Portfolio Managers’ compensation, other accounts managed by the Portfolio Managers and their ownership of other investment companies can be found in the SAI.
Alexander Ilyasov, ProShare Advisors: Senior Portfolio Manager since October 2013 and Portfolio Manager from November 2009 through September 2013. ProFund Advisors LLC: Senior Portfolio Manager since October 2013 and Portfolio Manager
from November 2009 through September 2013. ProShare Capital Management LLC: Senior Portfolio Manager since August 2016.
George Banian, ProShare Advisors: Portfolio Manager since February 2022, Associate Portfolio Manager from August 2016 to February 2022, Senior Portfolio Analyst from December 2010 to August 2016, Portfolio Analyst from December 2007 to December 2010. ProFund Advisors: Portfolio Manager since February 2022, Associate Portfolio Manager from July 2021 to February 2022.
Other Service Providers
ProFunds Distributors, Inc. (the “Distributor”), located at 7272 Wisconsin Avenue, 21st Floor, Bethesda, Maryland 20814, acts as the distributor of Fund shares and is a wholly-owned subsidiary of ProFund Advisors. Ultimus Fund Solutions, LLC (“Ultimus”), located at 225 Pictoria Drive, Suite 450, Cincinnati, Ohio 45246, acts as the administrator to the Fund, providing operations, compliance and administrative services. FIS Investor Services LLC (“FIS”), located at 4249 Easton Way, Suite 400, Columbus, Ohio 43219, acts as transfer agent for the Fund, maintaining shareholder account records for the Fund, distributing distributions payable by the Fund, and producing statements with respect to account activity for the Fund and their shareholders.
ProFund Advisors also performs certain management services, including client support and other administrative services, for the Fund under a Management Services Agreement. ProFund Advisors is entitled to receive annual fees equal to 0.15% of the average daily net assets of the Fund for such services.
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Determination of NAV
The price at which you purchase, redeem and exchange shares is the NAV per share next determined after your transaction request is received by the transfer agent in good order (i.e., required forms are complete and, in the case of a purchase, correct payment is received). The Fund calculates its NAV by taking the value of its assets, subtracting any liabilities, and dividing that amount by the number of outstanding shares.
The Fund’s assets are valued primarily on the basis of information furnished by a pricing service or market quotations. Securities that are listed or traded on a stock exchange or the Nasdaq or National Market System are generally valued at the closing price, if available, on the exchange or market where the security is principally traded (including the Nasdaq Official Closing Price). Short-term securities are valued on the basis of amortized cost or based on market prices. Securities traded regularly in the over-the-counter market are generally valued on the basis of the mean between the bid and asked quotes furnished by dealers actively trading those securities. Futures contracts purchased and held by the Fund are generally valued at the last sale price prior to the time the Fund determines its NAV or at the official futures settlement price on the relevant exchange. Routine valuation of certain derivatives is performed using procedures approved by the Board. In addition, certain derivatives linked to a benchmark may be valued based on the performance of one or more U.S. ETFs or instruments that reflect the values of the securities in such benchmark, when the level of the benchmark is not computed as of the close of the U.S. securities markets.
If market quotations are not readily available, an investment may be valued by a method that the Board of Trustees believes accurately reflects fair value. The use of such a fair valuation method may be appropriate if, for example: (i) ProFund Advisors believes market quotations do not accurately reflect fair value of an investment; (ii) ProFund Advisors believes an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (for example, a foreign exchange or market); (iii) a trading halt closes an exchange or market early; or (iv) other events result in an exchange or market delaying its normal close. Any such fair valuations will be conducted pursuant to Board approved fair valuation procedures. At times, the Fund may, pursuant to Board-approved procedures, write down the value of an investment or other asset to reflect, among other things, decreases in the value of the asset or decreases in the likelihood that the Fund will be able to collect on the asset. These write downs will reduce the value of the asset and, ultimately, the value of the Fund. Fair valuation procedures involve the risk that the Fund’s valuation of an investment may be higher or lower than the price the investment might actually command if the Fund sold it.
The Fund normally calculates its daily share price as of the close of trading on the New York Stock Exchange (“NYSE”) (normally 4:00 p.m. Eastern Time) every day the NYSE is open.
To the extent the Fund’s portfolio investments trade in markets on days when the Fund is not open for business, the value of the Fund’s assets may vary on those days. In addition, trading in certain portfolio investments may not occur on days the Fund is open for business. If the NYSE closes early, the NAV may be calculated at the close of regular trading or its normal calculation time. If the exchange or market on which the Fund’s underlying investments are primarily traded closes early, the NAV may be calculated prior to its normal calculation time.
NYSE Holiday Schedule:The NYSE is open every week, Monday through Friday, except when the following holidays are celebrated: New Year’s Day, Martin Luther King, Jr. Day (the third Monday in January), Washington’s Birthday (observed), Good Friday, Memorial Day (the last Monday in May), Juneteenth National Independence Day, Independence Day, Labor Day (the first Monday in September), Thanksgiving Day (the fourth Thursday in November) and Christmas Day. Exchange holiday schedules are subject to change without notice.
The NYSE will close early (1:00 p.m. Eastern Time) on the day before Independence Day and on the day after Thanksgiving Day.
Securities Industry and Financial Markets Association’s (“SIFMA”) Proposed Close and Early Close Schedule: On the following days in 2024 and 2025 SIFMA has recommended that the U.S. bond markets close: December 25, 2024, January 1, 2025, January 20, 2025, February 17, 2025, April 18, 2025, May 26, 2025, June 19, 2025, July 4, 2025, September 1, 2025, October 13, 2025, November 11, 2025, November 27, 2025 and December 25, 2025. SIFMA has recommended that the U.S. bond markets close early at 2:00 p.m. (Eastern Time) May 24, 2024, July 3, 2024, November 29, 2024, December 24, 2024, December 31, 2024, April 17, 2025, May 23, 2025, July 3, 2025, November 28, 2025, December 24, 2025 and December 31, 2025.
A Fund may cease taking transaction requests, including requests to exchange to or from other funds managed by ProFund Advisors or affiliates of ProFund Advisors on such days, at times other than the normal cut-off time. See “Transaction Cut-Off Times” in the Shareholder Services Guide in this Prospectus for more details.
Form of Redemption Proceeds
You may receive redemption proceeds of your sale of shares of the Fund in a check, Automated Clearing House (“ACH”), or federal wire transfer. The Funds typically expect that it will take one to three days following the receipt of your redemption request made in “good order” to pay out redemption proceeds; however, while not expected, payment of redemption proceeds may take up to seven days. The Fund maintains a cash balance that serves as a primary source of liquidity for meeting redemption requests. The Funds may also use the proceeds from the sale of portfolio securities to meet redemption requests if consistent with the management of the Fund. The Funds reserve the right to redeem in-kind. Each of these redemption methods
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may be used regularly and in stressed market conditions in conformity with applicable rules of the SEC.
Cost Basis Reporting: Upon the redemption or exchange of your shares in the Fund, the Fund or, if you purchase your shares through a financial intermediary, your financial intermediary generally will be required to provide you and the Internal Revenue Service (“IRS”) with cost basis and certain other related tax information about Fund shares you redeemed or exchanged. This cost basis reporting requirement is effective for shares purchased, including through dividend reinvestment, on or after January 1, 2012. Please see the Funds’ website (www.profunds.com) or consult your financial intermediary, as appropriate, for more information regarding available methods for cost basis reporting and how to select or change a particular method. Please consult your tax advisor to determine which available cost basis method is best for you.
Dividends and Distributions
The Fund intends to distribute its net investment income and capital gains, if any, to shareholders at least annually to qualify for treatment as a RIC for U.S. federal income tax purposes, as follows:
|
Fund |
Dividends |
Capital
Gains | |
|
Accrued |
Paid |
Paid | |
|
Ether Strategy ProFund |
Monthly |
Monthly |
Annually |
The Funds do not announce dividend distribution dates in advance. Certain investment strategies employed by certain Funds may produce income or net short-term capital gains which the Funds may seek to distribute more frequently. The Fund may declare additional capital gains distributions during a year. The Fund will reinvest distributions in additional shares of the Fund making the distribution, unless a shareholder has written to request distributions in cash (by check, wire or ACH).
By selecting the distribution by check or wire option, a shareholder agrees to the following conditions:
●If a shareholder elects to receive distributions by check or wire, the Fund will, nonetheless, automatically reinvest such distributions in additional shares of the Fund if they are $10 or less (and payable by check) or $25 or less (and payable by wire). A shareholder may elect to receive distributions via ACH or reinvest such distribution in shares of another Fund regardless of amount.
●Any dividend or distribution check, which has been returned to the Fund or has remained uncashed for a period of six months from the issuance date, will be cancelled, and the funds will be reinvested (net of any bank charges) on the date of cancellation into the Fund or, if the account is closed or only the Government Money Market ProFund is open, the funds will be reinvested into the Government Money Market
ProFund (information about the Government Money Market ProFund is contained in a separate prospectus, which may be obtained by calling (888) 776-5717 or (240) 497-6552); and
●Any account on which a dividend or distribution check was returned or remained uncashed for a period of six months will automatically have the dividend and distribution payment election adjusted so that all future dividends or distributions are reinvested into the Fund, unless subsequent distribution checks have been cashed.
Earning Dividends
●Shares purchased in an exchange transaction begin earning dividends the day after the exchange is processed. Shares continue to earn dividends through the business day on which the Funds’ transfer agent has processed a redemption of those shares.
Taxes
The following information is a general summary of the U.S. federal income tax consequences of an investment in the Fund and does not address any foreign, state, or local tax consequences. Please see the Statement of Additional Information for more information.
The Fund intends to qualify for treatment as a “regulated investment company” (“RIC”) for federal income tax purposes. As such, the Fund does not ordinarily pay federal income tax on its net investment income and net realized capital gains that it timely distributes to shareholders. In order for each Fund to so qualify, each Fund must meet certain tests with respect to the sources and types of its income, the nature and diversification of its assets, and the timing and amount of its distributions.
●The Fund intends to distribute all or substantially all of its net investment income and capital gains to shareholders every year.
●Distributions from investment income by the Fund are generally taxable to shareholders as ordinary income for federal income tax purposes.
●Whether a distribution from capital gains by the Fund is taxable to shareholders as ordinary income or at the rates applicable to net capital gains depends on how long the Fund owned (or is treated as having owned) the investments generating the distribution, not on how long an investor has owned shares of the Fund.
●Distributions from capital gains on investments that the Fund has owned (or is treated as having owned) for more than 12 months and that are properly reported by the Fund as capital gain dividends will be treated as long-term capital gains includible in a shareholder’s net capital gain and taxed to individuals at reduced rates. Distributions from capital gains
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on investments that the Fund has owned (or is treated as having owned) for 12 months or less will be taxable to shareholders as ordinary income.
●Distributions from investment income reported by the Fund as derived from “qualified dividend income” will be taxed in the hands of individuals at the rates applicable to net capital gains, provided that holding period and other requirements are met at both the shareholder and the Fund level. It is unclear whether the Fund will be able to report a significant portion of its distributions to shareholders as qualified dividend income.
●Shareholders will generally be subject to tax on Fund distributions regardless of whether they receive cash or choose to have the distributions reinvested.
●Distributions are taxable even if they are paid from income or gains earned by the Fund prior to the shareholder’s purchase of Fund shares (which income or gains were thus included in the price paid for the Fund shares).
●Dividends declared by the Fund in October, November or December of one year and paid in January of the next year are generally taxable to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received.
●If shareholders redeem their Fund shares, they may have a capital gain or loss, which will be long-term or short-term depending upon how long they have held the shares. Net gains resulting from redemptions or sales of shares held for more than one year generally are taxed at net capital gain rates, while those resulting from redemptions or sales of shares held for one year or less generally are taxed at ordinary income rates.
●If shareholders exchange shares of one Fund for shares of a different Fund, this will be treated as a sale of the Fund’s shares and any gain on the transaction may be subject to federal income tax.
●The Code generally imposes a 3.8% Medicare contribution tax on the “net investment income” of individuals, estates and trusts to the extent their income exceeds certain threshold amounts. Net investment income generally includes for this purpose, among other things, dividends paid by the Fund, including any capital gain dividends, and net capital gains recognized on the sale, redemption or exchange of Fund shares. Shareholders are advised to consult their tax advisors regarding the possible implications of this additional tax on their investment in the Fund.
●Distributions by the Fund to retirement plans that qualify for tax-exempt treatment under federal income tax laws and net gains on the redemption or sale of Fund shares by such plans will generally not be taxable. Special tax rules apply to investments through such plans. Shareholders should consult
their tax advisors to determine the suitability of the Fund as an investment through such a plan and the tax treatment of distributions (including distributions of amounts attributable to an investment in the Fund) from such a plan.
●Income and gains from the Fund’s investments in securities of foreign issuers, if any, may be subject to foreign withholding or other taxes. In such a case, the Fund’s yield on those securities would decrease. It is not anticipated that Fund shareholders will be able to claim a credit or deduction with respect to such foreign taxes. In addition, the Fund’s investments in foreign securities or foreign currencies may increase or accelerate the Fund’s recognition of ordinary income and may affect the timing or amount of the Fund’s distributions.
●A Fund’s investment in certain debt instruments and the Fund’s use of derivatives may cause the Fund to recognize taxable income in excess of the cash generated by such instruments. As a result, the Fund could be required at times to liquidate other investments (including when otherwise disadvantageous to do so) in order to satisfy its distribution requirements under the Code. A Fund’s use of derivatives will also affect the amount, timing, and character of the Fund’s distributions.
●As discussed above, in order to qualify for the special tax treatment accorded a RIC and its shareholders, the Fund must derive at least 90% of its gross income for each taxable year from “qualifying income,” meet certain asset diversification tests at the end of each taxable quarter, and meet annual distribution requirements. A Fund’s pursuit of its investment strategies will potentially be limited by the Fund’s intention to qualify for such treatment and could adversely affect the Fund’s ability to so qualify. A Fund can make certain investments, the treatment of which for these purposes is unclear. If, in any year, the Fund were to fail to qualify for the special tax treatment accorded a RIC and its shareholders, and were ineligible to or otherwise did not cure such failure, the Fund would be taxed in the same manner as an ordinary corporation subject to U.S. federal income tax on all its income at the fund level. The resulting taxes could substantially reduce the Fund’s net assets and the amount of income available for distribution. In addition, in order to requalify for taxation as a RIC, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest, and make certain distributions.
●The Fund is required to withhold U.S. federal income tax from all taxable distributions and redemption proceeds to shareholders who fail to provide the Fund with correct taxpayer identification numbers or to make required certifications, or who have been notified by the IRS that they are subject to backup withholding. Backup withholding is not an additional tax; rather, it is a way in which the IRS ensures it
:: 25
will collect taxes otherwise due. Any amounts withheld may be credited against the shareholder’s U.S. federal income tax liability.
●In general, dividends paid to a shareholder that is not a “United States person” within the meaning of the Code (such a shareholder, a “foreign person”) that the Fund properly reports as capital gain dividends, short-term capital gain dividends, or interest-related dividends, each as further defined in the SAI, are not subject to withholding of U.S. federal income tax, provided that certain other requirements are met. A Fund (or intermediary, as applicable) is permitted, but is not required, to report any part of its dividends as are eligible for such treatment. A Fund’s dividends other than those the Fund so reports as capital gain dividends, short-term capital gain dividends, or interest-related dividends generally will be subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate).
●Special tax considerations may apply to foreign persons investing in the Fund. Please see the SAI for further information. Because each shareholder’s tax circumstances are unique and because the tax laws are subject to change, it is recommended that shareholders consult their own tax advisors about the federal, state, local and foreign tax consequences of investing in the Funds.
Contractual Arrangement
The Trust enters into contractual arrangements with various parties, including, among others, the Advisor, administrator, custodian, transfer agent, and Distributor, who provide services to the Fund. Shareholders are not parties to, or intended (or “third party”) beneficiaries of, any of these contractual arrangements, and those contractual arrangements are not intended to create in any individual shareholder or group of shareholders and right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the Trust.
This Prospectus provides information concerning the Trust and the Fund that you should consider in determining whether to purchase shares of the Fund. None of this Prospectus, the SAI or any contract that is an exhibit to the Trust’s registration statements, is intended to, nor does it, give rise to an agreement or contract between the Trust or the Fund and any investor, or give rise to any contract or other rights in any individual shareholder, group of shareholders or other person than any rights conferred explicitly by federal or state securities laws that may not be waived.
:: 27
Opening a New Account
ProFunds offers two classes of shares: Investor Class Shares and Service Class Shares, except that Bitcoin ProFund, Ether ProFund, and Short Bitcoin ProFund, (the “Crypto ProFunds”) only offer Investor Class Shares. Investor Class Shares may be purchased directly through ProFunds Distributors, Inc. or through authorized financial professionals. Service Class Shares may only be purchased through authorized financial professionals and have service and distribution expenses not applicable to Investor Class Shares. There is a separate New Account Form for each class of shares available. Please ensure you have the correct New Account Form before completing it.
|
You may purchase
shares using any of the
following methods. |
HOW TO MAKE AN
INITIAL PURCHASE |
HOW TO PURCHASE
ADDITIONAL SHARES |
|
Please note: Purchases must be made according to the transaction cut-off times stated within the Shareholder Services Guide. | ||
|
Account Minimums
(all account types) |
All ProFunds (except Crypto ProFunds) – The
minimum initial investment* amounts are: ˃ $5,000 for accounts that list a financial professional. ˃ $15,000 for self-directed accounts.
Crypto ProFunds – The minimum initial investment*
amounts are: ˃ $1,000 for all accounts |
Not Applicable. |
|
By Mail |
Step 1:
Complete a New Account Form (see “Completing
your New Account Form”). |
Step 1:
Complete a ProFunds’ investment slip, which is
attached to your transaction confirmation statement.
If an investment slip is not readily available, you may
send written instructions which include your name,
account number, name and share class of the
ProFund you wish to purchase and the purchase
amount. |
|
Step 2:
Make your check payable to ProFunds. Write the name of the ProFund in which you wish to invest and your
account number, if known, on the check. | ||
|
Step 3:
Send the signed New Account Form and check to:
ProFunds • P.O. Box 182800 • Columbus, OH
43218-2800 |
Step 3:
Send the investment slip and check to:
ProFunds • P.O. Box 182800 • Columbus, OH
43218-2800 | |
28 ::
|
You may purchase
shares using any of the
following methods. |
HOW TO MAKE AN
INITIAL PURCHASE |
HOW TO PURCHASE
ADDITIONAL SHARES |
|
By Phone via Wire |
Step 1:
Complete a New Account Form (see “Completing
your New Account Form”). |
Step 1:
Call ProFunds to inform us of: ˃ your account number, ˃ the amount to be wired, ˃ the ProFund(s) in which you wish to invest
You will be provided: ˃ a confirmation number for your purchase order
(your trade is not effective until you have received a
confirmation number from ProFunds and the
funding is received in good order by the transfer
agent), ˃ bank wire instructions |
|
Step 2:
Fax the New Account Form to (800) 782-4797
(toll-free). |
Step 2:
Contact your bank to initiate your wire transfer. | |
|
Step 3:
Call ProFunds at 888-776-3637 to: ˃ confirm receipt of the faxed New Account Form, ˃ request your new account number.
You will be provided: ˃ a confirmation number for your purchase order
(your trade is not effective until you have received a
confirmation number from ProFunds), and ˃ bank wire instructions.
Instructions given to ProFunds for wire transfer
requests do not constitute a transaction request
received in “good order” until the wire transfer has
been received by ProFunds. |
| |
|
Step 4:
Call your bank to initiate your wire transfer. |
| |
|
Step 5:
Send the original, signed New Account Form to:
ProFunds • P.O. Box 182800 • Columbus, OH
43218-2800 |
|
* Under certain circumstances, ProFunds may waive minimum initial investment amounts.
|
You may purchase
shares using any of the
following methods. |
HOW TO MAKE AN
INITIAL PURCHASE |
HOW TO PURCHASE
ADDITIONAL SHARES |
|
By Phone via ACH
Please note: the
maximum ACH purchase
amount is $50,000 |
Initial purchase via ACH not available. |
Step 1:
Establish bank instructions on your account by
completing an Account Options Form (if not already
established). |
|
Step 2:
Call ProFunds to inform us of: ˃ the fact that you want to make an ACH purchase, ˃ your account number, ˃ the purchase amount, ˃ the ProFund(s) in which you wish to invest,
You will be provided a confirmation number for your
purchase order (your trade is not effective until you
have received a confirmation number from
ProFunds). |
:: 29
|
You may purchase
shares using any of the
following methods. |
HOW TO MAKE AN
INITIAL PURCHASE |
HOW TO PURCHASE
ADDITIONAL SHARES |
|
By Internet via
check or wire |
Step 1:
Go to ProFunds.com. |
Step 1:
Go to ProFunds.com. |
|
Step 2:
Click on “Open Account.” |
Step 2:
Click on the “Access Account” button. | |
|
Step 3:
Complete an on-line New Account Form. |
Step 3:
Enter User Name and Password. | |
|
Step 4:
If funding with check:
Mail check payable to ProFunds to: P.O. Box 182800
Columbus, OH 43218-2800
Call ProFunds at 888-776-3637 to: ˃ confirm receipt of the faxed New Account Form, ˃ request your new account number.
You will be provided: ˃ a confirmation number for your purchase order
(your trade is not effective until you have received a
confirmation number from ProFunds), and ˃ bank wire instructions.
Instructions given to ProFunds for wire transfer
requests do not constitute a transaction request
received in “good order” until the wire transfer has
been received by ProFunds. |
Step 4:
Follow transaction instructions for making a
purchase. | |
|
Through a Financial
Professional |
Contact your financial professional with your
instructions. |
Contact your financial professional with your
instructions. |
30 ::
|
You may
purchase
shares using any
of the
following
methods. |
HOW TO EXCHANGE
OR REDEEM SHARES |
|
By Mail |
To redeem shares using ProFund form:
Complete and mail the appropriate
Withdrawal Request or IRA Distribution
Request Form
located at profunds.com
To exchange or redeem shares by letter:
Send a signed letter to:
ProFunds
P.O. Box 182800
Columbus, OH 43218-2800
The letter should include information
necessary to process your request (see
“Exchanging Shares”). ProFunds may
require a signature guarantee in certain
circumstances. See “Signature Guarantees”
under “Additional Shareholder Information”
or call ProFunds for additional information. |
|
By Telephone |
Individual Investors:
(888) 776-3637 or (614) 470-8122
Financial Professionals and Institutions:
(888) 776-5717 or (240) 497-6552
Interactive Voice Response System (“IVR”):
Call (888) 776-3637 (toll-free) or (614)
470-8122 and follow the step-by-step
instructions. |
|
By Internet |
ProFunds.com
Select the “Access Account” navigation bar,
enter your User Name and Password and
follow the step-by-step instructions. Please
make sure you receive and record your
confirmation number for later reference.
(Your transaction is not effective until you
have received a confirmation number from
ProFunds.) |
|
Through a
Financial
Professional |
Contact your financial professional with
your instructions. |
|
Contact Information | |
|
By Telephone |
Individual Investors:
(888) 776-3637 or (614) 470-8122
Financial Professionals and Institutions:
(888) 776-5717 or (240) 497-6552 |
|
Fax |
(800) 782-4797 (toll-free) |
|
Internet |
ProFunds.com |
|
Regular mail |
ProFunds
P.O. Box 182800
Columbus, OH 43218-2800 |
|
Overnight mail |
ProFunds
c/o Transfer Agency
4249 Easton Way, Suite 400
Columbus, OH 43219 |
ProFunds Accounts
To open a mutual fund account, you will need to complete a New Account Form. You should also read the relevant prospectus carefully prior to opening your account. Contact ProFunds to request a New Account Form or download a New Account Form from ProFunds’ website. For guidelines to help you complete the Form, see the instructions below. You may also open certain new accounts online. Go to (www.profunds.com), select “Open Account” and follow the instructions. Please note that new accounts opened online must be funded by check or wire purchase.
Retirement Plan Accounts
Several types of Individual Retirement Accounts (“IRAs”) are available. Please visit (www.profunds.com) or contact ProFunds for a retirement plan account application. The IRA custodian charges an annual fee of $15 per social security number for all types of IRAs. The annual fee may be waived in certain circumstances. Other types of retirement accounts, such as profit sharing, money purchase and 401(k) accounts may be established; however, ProFunds does not sponsor these plans nor does ProFunds provide retirement reporting for these types of plans.
Accounts through Financial Professionals
Contact your financial professional for information on opening an account to invest in ProFunds.
Completing Your New Account Form
˃You must provide each account holder’s social security number or tax identification number and date of birth on the New Account Form.
˃Attach the trust documents when establishing a trust account. Contact ProFunds for specific requirements.
˃When establishing an account for your corporation, partnership or self-directed retirement plan, please check the appropriate box to indicate the correct account type to ensure proper tax reporting, and provide a certified corporate resolution or other documentation evidencing your authority to open the account and engage in transactions.
˃You must provide a street address (ProFunds does not accept P.O. Box-only addresses, but APO and FPO Armed Forces mailing addresses are acceptable). If account holders have different addresses, each address must be provided.
˃You must designate the ProFund(s) to which your initial investment will be directed or the investment will be made in Government Money Market ProFund.
˃Be sure all parties named on the account sign the New Account Form.
Federal law requires all financial institutions to obtain, verify and record information that identifies each person or entity who opens an account. Some or all of the information provided will
:: 31
be used by ProFunds and/or its agents to verify the identity of the persons opening an account. If this information is not provided, ProFunds may not be able to open your account. Accounts may be restricted or closed, and monies withheld, pending verification of this information or as otherwise required under federal regulations. You may be asked to provide additional information to verify your identity consistent with the requirements under anti-money laundering regulations. In addition, transaction orders, including orders for purchases, exchanges and redemptions may be suspended, restricted, canceled or processed and the proceeds may be withheld.
Purchasing Shares
You have the option to send purchase orders by mail or Internet and to send purchase proceeds by check, ACH or wire. Initial purchases via ACH are not accepted. All purchases must be made in U.S. dollars drawn on a U.S. bank. Cash, starter checks, Internet-based checks, credit cards, travelers’ checks, money orders and credit card checks are not accepted. Third-party checks are generally not accepted to open an account.
Each ProFund prices shares you purchase at the price per share next computed after it (or an authorized financial intermediary) receives your purchase request in good order. To be in good order, a purchase request must include a wire or check or the processing of an ACH initiated (as applicable) by stated cut-off times, and for new accounts, a properly completed New Account Form. ProFunds cannot accept wire or ACH purchases on bank holidays. ProFunds and ProFunds Distributors, Inc. may reject any purchase request for any reason.
Important Information You Should Know When You Purchase Shares:
˃Instructions, written or by telephone, given to ProFunds for wire transfer requests do not constitute a transaction request received in “good order” until the wire transfer has been received by ProFunds. A wire purchase will be considered in good order if (i) you have completed and faxed a New Account Form; (ii) you have contacted ProFunds and received a confirmation number, and (iii) ProFunds receives and accepts your wire during ProFunds wire processing times noted in the chart under “Transaction Cut-Off Times.”
˃Although ProFunds does not charge for wire receipt, your bank may charge a fee to send wires. Please be sure that the wire is sufficient to cover your purchase and any such bank fees.
˃Any New Account Form, check or wire order received that does not designate a specific ProFund will be used to purchase shares (i) in the ProFund in your existing account if you have an investment in only one ProFund, or (ii) in Investor Class or Service Class Shares, as applicable, of the Government Money Market ProFund, if you are initially opening an account or have more than one ProFund investment. Neither ProFunds nor ProFunds Distributors, Inc. will be responsible for investment opportunities lost as a result of investments being directed to Government Money
Market ProFund, to an existing active ProFund account. ProFunds is not responsible for transfer errors by sending or receiving bank and will not be liable for any loss incurred due to a wire transfer or ACH not having been received. If the check, ACH or wire cannot be identified, it may be returned or rejected. Checks submitted to ProFunds will be automatically deposited upon receipt at our administrative office in Columbus, Ohio.
˃If it is determined that account information is not in good order, any amount deposited will be refunded by check no earlier than ten business days from receipt of such payment to allow adequate time for the original check to clear through the banking system.
˃ProFunds will ordinarily cancel your purchase order if your bank does not honor your check or ACH for any reason, or your wire transfer is not received by the designated cut-off time. If your purchase transaction is cancelled, you will be responsible for any losses that may result from any decline in the value of the cancelled purchase. ProFunds (or its agents) have the authority to redeem shares in your account(s) to cover any losses. Any profit on a cancelled transaction will accrue to the applicable ProFund.
˃ProFunds may reject or cancel any purchase orders for any reason.
˃The minimum for initial purchases may be waived in certain circumstances.
Exchanging Shares
Shareholders can, free of charge and without a limit on frequency or maximum amount, exchange Investor or Service Class Shares of any publicly available ProFund for Investor or Service Class Shares, respectively, of another publicly available series of ProFunds that offers such shares as long as the shareholder’s account meets the minimum initial investment requirements of the ProFund into which the shareholder is exchanging. Exchange requests, like any other share transaction, are subject to ProFunds transaction cut-off times described under “Transaction Cut-Off Times.”
ProFunds will need the following information to process your exchange:
˃the account number applicable to the exchange transaction request;
˃the number of shares, percentage, or dollar value of the shares you wish to exchange; and
˃the share class and name of the ProFund you are exchanging from and the share class and name of the ProFund you are exchanging into.
Please note that the transaction cut-off times of one Fund may differ from those of another Fund. In an exchange between funds with different cut-off times, you will receive the price next computed after the exchange request is made for both the redemption and the purchase transactions involved in the
32 ::
exchange. You will be responsible for any losses if sufficient redemption proceeds are not available to pay the purchase price of shares purchased. Please consult the prospectus of the Fund into which you are exchanging for the applicable cut-off times. Contact an Authorized Financial Professional to initiate an exchange. You can perform exchanges by mail, phone and online at (www.profunds.com).
Important Information You Should Know When You Exchange Shares:
˃An exchange involves redeeming shares of one fund and purchasing shares of another fund. Exchanges are taxable transactions. Exchanges within a retirement account may not be taxable. Please contact your tax advisor for more information.
˃If your account does not meet the minimum initial investment requirements of the ProFund you are exchanging into, your exchange will be treated as a redemption from the ProFund you are exchanging from and a purchase that was not in good order of the ProFund you wish to exchange into. Consequently, the proceeds from the redemption will be used to purchase Investor Class or Service Class Shares, as applicable, of the Government Money Market ProFund. Neither ProFunds nor ProFunds Distributors, Inc. will be responsible for investment opportunities lost as a result of investments being directed to Government Money Market ProFund.
˃ProFunds can only honor exchanges between accounts registered in the same name and having the same address and taxpayer identification number.
˃None of ProFunds, ProFunds Distributors, Inc. or the ProFunds’ transfer agent is required to verify that there is a sufficient balance in the account to cover the exchange. You will be responsible for any loss if there are insufficient funds available to cover the exchange due to insufficient shares or due to a decline in the value of the ProFund from which you are exchanging.
˃The redemption and purchase will be processed at the next calculated NAVs of the respective ProFund after the Fund has received your exchange request in good order.
˃The exchange privilege may be modified or discontinued at any time.
˃Before exchanging into a ProFund, please read such fund’s prospectus.
˃Financial intermediaries may have their own rules about exchanges or transfers and may impose limits on the number of such transactions you are permitted to make during a given time period.
Redeeming Shares
You may redeem all or part of your shares at the NAV next determined after your redemption request is received in good order. Only the registered owner(s) of the account or persons
authorized in writing by the registered owner(s) may redeem shares.
ProFunds will need the following information to process your redemption request:
˃name(s) of account owners;
˃account number(s);
˃the name of the ProFund(s);
˃your daytime telephone number;
˃the dollar amount, percentage or number of shares being redeemed; and
˃how you would like to receive your redemption proceeds (see options below). Unless otherwise requested, your redemption proceeds will be sent by check to the registered account owner’s address of record by U.S. mail.
You may receive your redemption proceeds:
By Check: Normally, redemption proceeds will be sent by check to the address listed on the account. ProFunds may charge a fee associated with overnight mailings or Saturday delivery of redemption proceeds.
By Wire: You may have your redemption proceeds wired directly into a designated bank account by establishing a wire redemption option on your account. ProFunds may charge a $10 service fee for a wire transfer of redemption proceeds under certain circumstances, and your bank may charge an additional fee to receive the wire. If you would like to establish this option on an existing account, please call ProFunds.
By ACH: You may have your redemption proceeds sent to your bank account via ACH by establishing this option on your account. Funds sent through ACH should reach your bank in approximately two business days. While there is no fee charged by ProFunds for this service, your bank may charge a fee. If you would like to establish this option on an existing account, please call ProFunds.
Important Information You Should Know When You Sell Shares:
˃ProFund shareholders automatically have telephone redemption privileges unless they elect not to have these privileges on the New Account Form. Redemptions requested via telephone must be made payable to the name on the account and sent to the address or bank account listed on the account.
˃To redeem shares from a retirement account, you may make this request in writing by completing an IRA Distribution Request Form. In certain cases, distributions may be requested via telephone with proceeds sent to the address or bank on record on the account. Financial professionals may not request a redemption from an IRA on your behalf. You should consult a tax advisor before redeeming shares and making distributions from your tax qualified account because doing
:: 33
so may have adverse tax consequences for you. Call ProFunds to request an IRA Distribution Request Form or download the form from the ProFunds’ website, (www.profunds.com).
˃If you request that redemption proceeds be sent to a bank account or an address other than the bank account or address you have previously established on your ProFunds account, you must make the request in writing. The signatures of all registered owners must be guaranteed (see “Signature Guarantees”).
˃If you are selling some, but not all, of your shares, your remaining account balance should be above the minimum investment amount to keep your ProFund position open.
˃ProFunds normally remits redemption proceeds within seven days of redemption. For redemption of shares purchased by check, ACH or through ProFunds’ automatic investment plan, ProFunds may wait up to 10 business days before sending redemption proceeds to ensure that its transfer agent has collected the original purchase payment.
˃Your right of redemption may be suspended, or the date of payment postponed for any period during which: (i) the NYSE or the Federal Reserve Bank of New York is closed (other than customary weekend or holiday closings); (ii) trading on the NYSE, or other securities exchanges or markets as appropriate, is restricted, as determined by the SEC; (iii) an emergency exists, as determined by the SEC; or (iv) for such other periods as the SEC, by order, may permit for protection of ProFunds’ investors. Proceeds cannot be sent by wire or ACH on bank holidays.
Additional Shareholder Information
Account Minimums
Account minimums apply to all initial investments with ProFunds, including retirement plans, and apply to the total initial value of an account. These minimums may be different for investments made through certain financial intermediaries. In addition, ProFunds reserves the right to modify its minimum account requirements at any time with or without prior notice.
ProFunds reserves the right to involuntarily redeem an investor’s account, including a retirement account, if the account holder’s aggregate account balance falls below the applicable minimum initial investment amount due to transaction activity. You will be given at least 30 days’ notice to reestablish the minimum balance if your ProFund balance falls below the applicable account minimum. If you do not increase your balance during the notice period, the ProFund may sell all of your shares and send the proceeds to you. Your shares will be sold at the NAV on the day your ProFund position is closed.
Transaction Cut-Off Times
All shareholder transaction orders are processed at the NAV next determined after your transaction order is received in good order by ProFunds’ transfer agent, distributor, or financial intermediary designated by the ProFunds as an authorized agent.
Transaction orders in ProFund accounts must be received in good order by the ProFunds’ transfer agent or distributor before the cut-off times detailed in the table below to be processed at that business day’s NAV. A completed New Account Form does not constitute a purchase order until the transfer agent deems it to be in good order, processes the New Account Form and receives correct payment by check or wire transfer on any business day prior to the designated cut-off time. Trades placed via telephone must be initiated (i.e., the call must be received and in queue) by the cut-off time and communicated in good order by the close of the NYSE (normally 4:00 p.m. Eastern Time). When the NYSE closes early, all cut-off times are adjusted for the early close. When the bond markets close early, the cut-off times for the U.S. Government Plus ProFund, Rising Rates Opportunity 10 ProFund and Rising Rates Opportunity ProFund, Access Flex Bear High Yield ProFund, and Access Flex High Yield ProFund are adjusted for the early close. Certain financial intermediaries may impose cut-off times different from those described below.
|
Method |
Fund/Trust |
Normal
Cut-Off Time
(Eastern Time) |
Additional
Transaction
Information
(Eastern Time) |
|
By Mail |
All (except
Government
Money
Market
ProFund) |
4:00 p.m. |
|
|
Government
Money
Market
ProFund |
5:00 p.m. |
| |
|
By Telephone
and Wire |
All (except
Crypto
ProFunds) |
3:30 p.m. (wire
purchases)
3:50 p.m.
(exchanges
and
redemptions) |
ProFunds
accepts all
Transactions
starting at
8:00 a.m.
through the
Transaction
cut-off time
and from
5:00 p.m.
through
6:00 p.m. |
|
Crypto
ProFunds |
3:00 p.m. (wire
purchases)
3:00 p.m.
(exchanges
and
redemptions) | ||
|
By Internet,
Fund/SERV and
Interactive Voice
Response
System (“IVR”) |
All (except
Crypto
ProFunds) |
3:55 p.m. |
ProFunds
accepts
transactions at
any time
except
between
3:55 p.m. and
5:00 p.m. |
|
Crypto
ProFunds |
3:00 p.m. |
About Telephone and Internet Transactions
Telephone and Internet transactions, whether initiated by a shareholder or a shareholder’s agent, are extremely convenient but are not free from risk. None of ProFunds, ProFunds
34 ::
Distributors, Inc. nor ProFunds’ agents will be responsible for any losses resulting from unauthorized telephone or Internet transactions if reasonable security procedures are followed. Telephone conversations may be recorded or monitored for verification, recordkeeping and quality-assurance purposes. For transactions over the Internet, we recommend the use of a secure internet browser. In addition, you should verify the accuracy of your confirmation statements immediately upon receipt. If you do not want the ability to initiate transactions by telephone or Internet, call ProFunds for instructions.
During periods of heavy market activity or other times, it may be difficult to reach ProFunds by telephone or to transact business over the Internet. Technological irregularities may also make the use of the Internet slow or unavailable at times. If you are unable to reach us by telephone or unable to transact business over the Internet, consider sending written instructions.
The ProFunds may terminate the receipt of redemption or exchange orders by telephone or the Internet at any time, in which case you may redeem or exchange shares in writing.
Exchanges or Redemptions in Excess of Share Balances
If you initiate exchange or redemption transactions that, in total, exceed the balance of your shares in a ProFund, some transactions may be processed while others may not. This may result in ProFund positions that you did not anticipate. None of ProFunds, ProFunds’ transfer agent nor ProFunds Distributors, Inc. will be responsible for transactions that did not process in this circumstance. You may be liable for losses resulting from exchanges canceled due to insufficient balances.
Signature Verification for Certain Transactions
Signature Guarantee Program — Financial Transactions
Certain redemption requests must include a signature guarantee if any of the following apply:
●Your account address has changed within the last 10 business days;
●A check is being mailed to an address different than the one on your account;
●A check or wire is being made payable to someone other than the account owner;
●Redemption proceeds are being transferred to an account with a different registration;
●A wire or ACH transfer is being sent to a financial institution other than the one that has been established on your ProFunds account; or
●Other unusual situations as determined by ProFunds’ transfer agent.
ProFunds reserves the right to waive signature guarantee requirements, require a signature guarantee under other circumstances or reject or delay a redemption if the signature guarantee is not in good form. Faxed signature guarantees are generally not accepted.
Signature guarantees may be provided by an eligible financial institution such as a commercial bank, a Financial Industry Regulatory Authority, Inc. (“FINRA”) member firm such as a stock broker, a savings association or a national securities exchange. A notary public cannot provide a signature guarantee. ProFunds reserves the right to reject a signature guarantee if it is not provided by a STAMP 2000 Medallion guarantor.
Signature Validation Program — Non-Financial Transactions
The Fund may require a Signature Validation Program (“SVP”) stamp or a Signature Guarantee stamp for certain non-financial transactions. The SVP is intended to provide validation of authorized signatures for those transactions considered non-financial (i.e., do not involve the sale, redemption or transfer of securities). The purpose of the SVP stamp on a document is to authenticate your signature and to confirm that you have the authority to provide the instructions in the document. This stamp may be obtained from eligible members of a Medallion Signature Guarantee Program (see above) or other eligible guarantor institutions in accordance with SVP.
Eligible guarantor institutions generally include banks, broker/dealers, credit unions, members of national securities exchanges, registered securities associations, clearing agencies and savings associations. You should verify with the institution that they are an eligible guarantor institution prior to signing. A notary public cannot provide an SVP stamp.
Uncashed Redemption Check
Generally, redemption checks which have been returned to ProFunds, or have remained uncashed for a period of six months from the issuance date, will be deposited into the shareholder’s account in the Government Money Market ProFund.
Frequent Purchases and Redemptions of ProFund Shares
It is the general policy of ProFunds to permit frequent purchases and redemptions of ProFund shares. The ProFunds impose no restrictions and charge no redemption fees to prevent or minimize frequent purchases and redemptions of ProFund shares other than a $10 wire fee under certain circumstances. Notwithstanding the provisions of this Policy, ProFunds may reject any purchase request for any reason.
As noted under “Investment Objectives, Principal Investment Strategies and Related Risks — Other Principal Risks — Active Investor Risk,” frequent purchases and redemptions of Fund shares could increase the rate of portfolio turnover. A high level of portfolio turnover may negatively affect performance by
:: 35
increasing transaction costs and generating greater tax liabilities for shareholders. In addition, large movements of assets into and out of a ProFund may negatively affect a ProFund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, a ProFund’s expense ratio may vary from current estimates or the historical ratio disclosed in this Prospectus.
Additional Shareholder Services
Automatic Investment Plans (AIP) and Systematic Withdrawal Plans (SWP)
Shareholders may purchase and/or redeem shares automatically on a monthly, bimonthly, quarterly or annual basis. You may sign up for these services on the New Account Form, or you may download or request an Account Options Form to add these services to an existing account. Requests to add an Automatic Investment Plan (AIP) to an account should be received in good order at least three business days prior to the first date in which the AIP is to run.
Account Statements and Confirmations
Shareholders with ProFund accounts will receive quarterly ProFund statements showing the market value of their ProFund account at the close of the statement period in addition to any transaction information for the period. Shareholders will also receive transaction confirmations for most Fund transactions. Shareholders should review their account statements and confirmations as soon as they are received. You may also receive statements and confirmations electronically. See “Electronic Document Delivery Program — PaperFree™.”
Tax Statements
Each year, ProFunds will send tax information to assist you in preparing your income tax returns. These statements will report the previous year’s dividend and capital gains distributions, proceeds from the sales of shares, and distributions from, and contributions to, IRAs and other retirement plans.
Cost Basis
Shares purchased on or after January 1, 2012: The Emergency Economic Stabilization Act of 2008 included tax reporting rules that change the information ProFunds reports on Form 1099-B for mutual fund shares purchased on or after January 1, 2012, and subsequently sold. The law expands the information reported to the IRS and to shareholders to include the adjusted cost basis, whether any gain or loss is short- or long-term, and whether any loss is disallowed by the wash sale rules.
Generally, the rules apply to those accounts that currently receive Form 1099-B tax reporting, such as individual, joint, partnership and Uniform Gifts to Minors Act/Uniform Transfers to Minors Act registrations. S Corporations are also covered by the new rules. Accounts held by retirement accounts and C Corporations are not subject to the new reporting requirements.
For shares purchased on or after January 1, 2012, investors who purchase shares directly from ProFunds have the opportunity to choose which method ProFunds uses to calculate cost basis or to use the ProFunds default method — Average Cost. ProFunds will use the Average Cost method if a shareholder does not instruct it to use an alternate method. Investors should consult a qualified tax advisor to determine the method most suitable for their situation. For shares purchased through a financial intermediary, the intermediary’s default method will apply in the absence of an election by the investor to use a different method. Investors that purchase shares through a financial intermediary should consult their intermediary for information regarding available methods and how to select or change a particular method.
Electronic Document Delivery Program — PaperFree™
You may elect to receive your account statements and confirmations electronically through PaperFree™, ProFunds’ electronic document delivery service. You may also choose to receive your ProFunds Prospectus, shareholder reports, and other documents electronically. To enroll for this service, please register on ProFunds’ website. You may elect the PaperFree™ service by completing the appropriate section on the New Account Form. ProFunds will then send you a link to the enrollment site.
Financial Intermediaries
Certain financial intermediaries may accept purchase and redemption orders on ProFunds’ behalf. Such purchase and redemption orders will be deemed to have been received by ProFunds at the time an authorized financial intermediary accepts the orders. Your financial intermediary has the responsibility to transmit your orders and payment promptly and may specify transaction order cut-off times and different share transaction policies and limitations, including limitations on the number of exchanges, than those described in this Prospectus. In addition, the financial intermediary may impose additional restrictions or charge fees not described in this Prospectus. Furthermore, such financial intermediaries are authorized to designate other intermediaries to receive purchase and redemption orders on a ProFund’s behalf. If your order and payment is not received from your financial intermediary timely, your order may be cancelled and the financial intermediary could be liable for resulting fees or losses. Although the ProFunds may effect portfolio transactions through broker dealers who sell Fund shares, ProFunds does not consider the sale of ProFund shares as a factor when selecting broker dealers to effect portfolio transactions.
Investor Class Shares and Service Class Shares bear fees payable to certain intermediaries or financial institutions for provision of recordkeeping, sub-accounting services, transfer agency and other administrative services. The expenses paid by each ProFund are included in “Other Expenses” under “Annual Fund Operating Expenses” in this Prospectus.
36 ::
Distribution and Service (12b-1) Fees
Under Rule 12b-1 Distribution and Shareholder Services Plans (the “Plans”) adopted by the Trustees and administered by ProFunds Distributors, Inc. (the “Distributor”), each ProFund may pay the Distributor, financial intermediaries, such as broker-dealers and investment advisers, up to 1.00% on an annualized basis of the average daily net assets attributable to Service Class Shares and with respect to the Crypto ProFunds only, up to 0.25% on an annualized basis of the average daily net asset attributable to Investor Class Shares as reimbursement or compensation for service and distribution related activities with respect to the Fund and/or shareholder services. Over time, fees paid under the Plans will increase the cost of a shareholder’s investment and may cost more than other types of sales charges. With respect to the Crypto ProFunds, no payments have yet been authorized by the Board, nor are any such expected to be made by the Fund under the Plan during the current fiscal year.
Payments to Financial Firms
ProFund Advisors or other service providers may utilize their own resources to finance distribution or service activities on behalf of the ProFunds, including compensating the Distributor and other third parties, including financial firms, for distribution-related activities or the provision of shareholder services. These payments are not reflected in the fees and expenses section of the fee table for the ProFunds contained in this Prospectus.
A financial firm is one that, in exchange for compensation, sells, among other products, mutual fund shares (including the shares offered in this Prospectus) or provides services for mutual fund shareholders. Financial firms include registered investment advisers, brokers, dealers, insurance companies and banks. In addition to the payments described above, the Distributor and ProFund Advisors from time to time provide other incentives to selected financial firms as compensation for services (including preferential services) such as, without limitation, paying for active asset allocation services provided to investors in the ProFunds, providing the ProFunds with “shelf space” or a higher profile for the financial firms’ financial consultants and their customers, placing the ProFunds on the financial firms’ preferred or recommended fund list, granting the Distributor or ProFund Advisors access to the financial firms’ financial consultants, providing assistance in training and educating the financial firms’ personnel, and furnishing marketing support and other specified services. These payments may be significant to the financial firms and may also take the form of sponsorship of seminars or informational meetings or payment for
attendance by persons associated with the financial firms at seminars or informational meetings.
A number of factors will be considered in determining the amount of these additional payments to financial firms. On some occasions, such payments may be conditioned upon levels of sales, including the sale of a specified minimum dollar amount of the shares of a ProFund, all other ProFunds, other funds sponsored by ProFund Advisors and/or a particular class of shares, during a specified period of time. The Distributor and ProFund Advisors may also make payments to one or more participating financial firms based upon factors such as the amount of assets a financial firm’s clients have invested in the ProFunds and the quality of the financial firm’s relationship with the Distributor or ProFund Advisors. The additional payments described above are made at the Distributor’s or ProFund Advisors’ expense, as applicable. These payments may be made at the discretion of the Distributor or ProFund Advisors to some of the financial firms that have sold the greatest amounts of shares of the ProFunds. In certain cases, the payments described in the preceding sentence may be subject to certain minimum payment levels.
Representatives of the Distributor and ProFund Advisors visit financial firms on a regular basis to educate financial advisors about the ProFunds and to encourage the sale of ProFund shares to their clients. The costs and expenses associated with these efforts may include travel, lodging, sponsorship at educational seminars and conferences, entertainment and meals to the extent permitted by law and Rules of FINRA.
If investment advisers, distributors or affiliates of mutual funds other than ProFunds make payments (including, without limitation, sub-transfer agency fees, platform fees, bonuses and incentives) in differing amounts, financial firms and their financial consultants may have financial incentives for recommending a particular mutual fund (including ProFunds) over other mutual funds. In addition, depending on the arrangements in place at any particular time, a financial firm and its financial consultants may also have a financial incentive for recommending a particular share class over other share classes. You should consult your financial advisor and review carefully any disclosure by the financial firm as to compensation received by that firm and/or your financial advisor.
For further details about payments made by the Distributor or ProFund Advisors to financial firms, please see the SAI.
Additional information about ProFunds is available in the annual and semi-annual reports to shareholders of ProFunds.
You can find additional information about the Fund in its current SAI, dated December 23, 2024, as may be amended from time to time, which has been filed electronically with the SEC and which is incorporated by reference into, and are legally a part of, this Prospectus. Copies of the SAI are available, free of charge, online at the Fund’s website (www.profunds.com). You may also request a free copy of the SAI or make inquiries to ProFunds by writing us at the address set forth above or calling us toll-free at the telephone number set forth above.
You can find other information about ProFunds on the SEC’s website (www.sec.gov) or you can get copies of this information after payment of a duplicating fee via email to [email protected].
ProFunds
Post Office Mailing Address for Investments
P.O. Box 182800
Columbus, OH 43218-2800
P.O. Box 182800
Columbus, OH 43218-2800
Phone Numbers
For Financial Professionals: (888) PRO-5717 (888) 776-5717 or (240) 497-6552
For All Others: (888) PRO-FNDS (888) 776-3637 or (614) 470-8122
Fax Number: (800) 782-4797
For Financial Professionals: (888) PRO-5717 (888) 776-5717 or (240) 497-6552
For All Others: (888) PRO-FNDS (888) 776-3637 or (614) 470-8122
Fax Number: (800) 782-4797
Website Address: www.profunds.com
ProFunds and the Bull & Bear design, Rising Rates Opportunity ProFund and Not just funds, ProFunds are trademarks of ProFund Advisors LLC.
ProFunds Executive Offices
Bethesda, MD
Bethesda, MD
Investment Company Act File No. 811-08239
PRO-1224
ProFunds
STATEMENT OF ADDITIONAL INFORMATION—December 23, 2024
7272 Wisconsin Avenue, 21st Floor, Bethesda, Maryland 20814
(888) 776-3637 RETAIL SHAREHOLDERS ONLY
(888) 776-5717 INSTITUTIONS AND FINANCIAL PROFESSIONALS ONLY
(888) 776-5717 INSTITUTIONS AND FINANCIAL PROFESSIONALS ONLY
This Statement of Additional Information (“SAI”) describes the Investor Class of the following funds:
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Ether ProFund
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ETHFX
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The Fund listed above is referred to as the “Fund.”
The Fund may be used by professional money managers and investors as part of an asset-allocation
or market-timing investment strategy, to create specified investment exposure to a
particular segment of the financial market or to attempt to hedge an existing investment portfolio. The Fund may be used independently or in combination with each other as part of an overall investment strategy. Because
of the risks inherent in any investment, there can be no assurance that the Fund’s investment objectives will be achieved. No Fund alone constitutes a balanced investment plan.
This SAI is not a prospectus. It should be read in conjunction with the Prospectus
of the series of ProFunds (the “Trust”) listed above dated December 23, 2024. A copy of the Prospectus is available, without charge, upon request to the address above, by telephone at the number above, or on the Trust’s website at profunds.com.
1
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
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A-1
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B-1
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C-1
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GLOSSARY OF TERMS
For ease of use, certain terms or names that are used in this SAI have been shortened
or abbreviated. A list of many of these terms and their corresponding full names or definitions can
be found below. An investor may find it helpful to review the terms and names before reading the SAI.
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Term
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Definition
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1933 Act
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Securities Act of 1933, as amended
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1934 Act
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Securities and Exchange Act of 1934, as amended
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1940 Act
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Investment Company Act of 1940, as amended
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Advisor or ProFund Advisors
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ProFund Advisors LLC
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Board of Trustees or Board
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Board of Trustees of ProFunds
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CCO
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Chief Compliance Officer
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CFTC
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U.S. Commodity Futures Trading Commission
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Code or Internal Revenue Code
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Internal Revenue Code of 1986, as amended
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Distributor
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ProFunds Distributors, Inc.
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Fund Complex
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All operational registered investment companies that are
advised by the Advisor or its affiliates
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Independent Trustee(s)
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Trustees who are not “Interested Persons” of ProFund
Advisors or the Trust as defined under Section 2(a)(19) of
the 1940 Act
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NAV
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Net asset value
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New Fund
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Ether ProFund
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Rule 35d-1 Fund
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Ether ProFund
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SAI
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This Statement of Additional Information dated
December 23, 2024, as may be amended or supplemented
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SEC
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U.S. Securities and Exchange Commission
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Shares
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The shares of the Fund
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Trust
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ProFunds
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Trustee(s)
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One or more of the trustees of the Trust
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GENERAL INFORMATION ABOUT THE TRUST
The Trust is an open-end management investment company organized as a Delaware statutory
trust on April 17, 1997. The Trust is composed of multiple separate series. The series discussed herein and other series may be added in the future. Investor or Service Class shares of any publicly
available ProFund may be exchanged, without any charge, for Investor or Service Class shares, respectively,
of another publicly available ProFund that offers such shares, on the basis of the respective net asset values (“NAVs”) of such shares, provided, however, that certain minimum investment levels are maintained, as described
in the Prospectus (see “Shareholders Services Guide — Account Minimums” in the Prospectus).
The Fund is classified as non-diversified. Portfolio management is provided to the Fund by the Advisor. The investments made by the Fund and the results achieved by the Fund at any given time are not expected to be the same as those of other mutual funds for which the Advisor acts
as investment adviser, including mutual funds with names, investment objectives and policies similar to those
of the Fund. Reference is made to the Prospectus for a discussion of the investment objective and policies
of the Fund. Set forth below is further information relating to the Fund, which supplements and should be read in conjunction with the Prospectus. The investment restrictions of the Fund specifically identified as fundamental policies may not be changed without the affirmative vote of at least a majority of the outstanding
voting securities of that Fund, as defined in the 1940 Act. The investment objective and all other investment
policies of the Fund not specified as fundamental (including the benchmarks of the Fund) may be changed by the Board without the approval of shareholders.
It is the policy of the Fund to pursue its investment objective regardless of market conditions, to attempt to remain nearly fully invested and not to take defensive positions.
The investment techniques and strategies of the Fund discussed below may be used by the Fund if, in the opinion of the Advisor, the techniques or strategies may be advantageous to
the Fund. The Fund may reduce or eliminate its use of any of these techniques or strategies without changing the Fund’s fundamental policies. There is no assurance that any of the techniques or strategies listed below,
or any of the other methods of investment available to the Fund, will result in the achievement of the Fund’s objective. Also, there can be no assurance that the Fund will grow to, or maintain, an economically viable size, and management may determine to liquidate the Fund at any time, which time may not be
an opportune one for shareholders.
The terms “favorable market conditions” and “adverse market conditions,” as used in this SAI, are Fund-specific. Market conditions should be considered favorable to the Fund when such conditions make it more likely that the value of an investment in that Fund will increase. Market conditions
should be considered adverse to the Fund when such conditions make it more likely that the value of an investment in
that Fund will decrease.
4
INVESTMENT POLICIES, TECHNIQUES AND RELATED RISKS
GENERAL
There can be no assurance that the Fund will achieve its investment objective.
For purposes of this SAI, the word “invest” refers to the Fund directly and indirectly investing in securities or other instruments. Similarly, when used in this SAI, the word “investment” refers to the Fund’s direct and indirect investments in securities and other instruments. For example,
the Fund may often invest indirectly in securities or instruments by using financial instruments with economic
exposure similar to those securities or instruments.
Additional information concerning the Fund, its investment policies and techniques, and the securities and financial instruments in which it may invest is set forth below.
NAME POLICIES
The Rule 35d-1 Fund is subject to the SEC “names rule” (Rule 35d-1 under the 1940 Act) and commits to invests at least 80% of its assets (i.e., net assets plus borrowings for investment purposes), under normal circumstances, in the types of securities suggested by its name and/or investments with similar economic characteristics. Such exposure may be obtained through direct investments and/or through investments with similar economic characteristics. For purposes of such an investment policy, “assets” includes not only the amount of the Fund’s net assets attributable to investments providing direct investment exposure to the type of investments suggested by its name (e.g., the value of stocks, or the value of derivative instruments such as futures, options or options on futures), but also cash and cash
equivalents that are segregated on the Fund’s books and records or being used as collateral, as required by applicable regulatory guidance, or otherwise available to cover such investment exposure. The Board has adopted a non-fundamental policy to provide investors with at least 60 days’ notice prior to changes in the Fund’s name policy.
ETHER RELATED INVESTMENTS
Ether
Ether is a digital asset which serves as the unit of account on an open-source, decentralized,
peer-to-peer computer network. Ether may be used to pay for goods and services, stored
for future use, or converted to a fiat currency. As of the date of this SAI, the adoption of ether for
these purposes has been limited. The value of ether is not backed by any government, corporation, or other
identified body.
The value of ether is determined in part by the supply of and demand for, ether in
the markets for exchange that have been organized to facilitate the trading of ether. Ether is the
second largest digital asset by market capitalization behind bitcoin.
Ether is maintained on the decentralized, open source, peer-to-peer computer network (“Ethereum Network”). No single entity owns or operates the Ethereum Network.
Ether is the native token on the Ethereum Network, but users may create additional tokens, the ownership of which is recorded on the Ethereum Network. As with other digital assets, ether and the Ethereum blockchain have been designed to support a number of applications and use
cases. For ether, these include: serving as a medium or exchange and a durable store of value, facilitating
the use of smart contracts and decentralized products and platforms, permitting the issuance and exchange of
non-native tokens (including non-fungible tokens and asset-backed tokens), and supporting various “layer 2” projects. Compared to the Bitcoin Network, which is solely intended to record the ownership of bitcoin, the intended uses of
the Ethereum Network are far more broad.
The Ethereum Foundation (“EF”) is a non-profit organization that is dedicated to supporting Ethereum and related technologies. The EF, alongside other organizations, supports
Ethereum Protocol
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development through funding and advocacy. The EF finances its activities through its
initial allocation of ether at the launch of the Ether Network in 2015. Although the EF does not control Ethereum,
and is one of many organizations within the Ethereum ecosystem, it is the most significant driving force
for Ethereum Protocol development and support of Ethereum generally.
Ethereum Network
The infrastructure of the Ethereum Network is collectively maintained by participants
in the Ethereum Network, which include validators, developers, and users. Validators validate
transactions and are currently compensated for that service in ether, as determined by the Ethereum Protocol.
Developers maintain and contribute updates to the Ethereum Network’s source code. Users access the Ethereum Network using open-source software. Anyone can be a user, developer, or validator.
Ether is maintained on a digital transaction ledger commonly known as a “blockchain.” A blockchain is a type of shared and continually reconciled database, stored in a decentralized
manner on the computers of certain users of the digital asset and is protected by cryptography. The Ethereum
blockchain contains a record and history for each ether transaction.
The Ethereum blockchain allows for the creation of decentralized applications that
are supported by a transaction protocol referred to as “smart contracts,” which includes the cryptographic operations that verify and secure ether transactions. A smart contract operates by a pre-defined set of rules (i.e., “if/then statements”) that allows it to automatically execute code on the Ethereum Network. Such actions
taken by the pre-defined set of rules are not necessarily contractual in nature but are intended to eliminate
the need for a third party to carry out code execution on behalf of users, making the system decentralized, allowing
decentralized application developers to create a wide range of applications.
Ethereum Protocol
The Ether Protocol is an open source project with no official company or group in
control. Anyone can review the underlying code and suggest changes. Because there is no central authority,
the release of updates to the Ethereum Protocol source code by developers does not guarantee that
the updates will be automatically adopted by the other participants. Users and validators must accept
any changes made to the source code by downloading the proposed modification and that modification is effective
only with respect to those ether users and validators who choose to download it. As a practical matter,
a modification to the source code becomes part of the Ethereum Network only if it is accepted by validators that
collectively represent a supermajority (two-thirds) of the cumulative validations on the Ethereum blockchain.
If a modification is accepted by only a portion of users and validators, a division
will occur such that one network will run the pre-modification source code and the other network will
run the modified source code. Such a division is known as a “fork.”
New ether is created through “staking” of ether by validators. Validators are required to stake ether in order to perform validation activities and then, as a reward, earn newly created
ether. Validation activities include verifying transactions, storing data, and adding to the Ethereum blockchain.
Further, with its collective computing power on the distributed network, the Ethereum Network provides the ability to execute peer-to-peer transactions to realize, via smart contracts, automatic, conditional
transfer of value and information, including money, voting rights, and property.
An Ethereum private key controls the transfer or “spending” of ether from its associated public Ethereum address. An Ethereum “wallet” is a collection of public Ethereum addresses and their associated private key(s). It is designed such that only the owner of ether can send ether, only
the intended recipient of ether can unlock what the sender sent and both transactions and ownership can be verified
by any third party anywhere in the world.’
Fees need to be paid in ether in order to facilitate transactions and execute smart
contracts. The fee that is charged is called “gas.” Gas price is often a small fraction of ether, which is denoted in the unit of
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Gwei (10^9 Gwei = 1 ether). Gas is essential in sustaining the Ethereum Network. It incentivizes validators to process and verify transactions and incentivizes new validators to stake ether. Gas
fees are a product of Ethereum Network demand relative to the Ethereum Network’s capacity.
Ether Futures
A futures contract is a standardized contract traded on, or subject to the rules of,
an exchange to buy or sell a specified type and quantity of a particular underlying asset at a designated
price. Futures contracts are traded on a wide variety of underlying assets, including ether, bonds, interest
rates, agricultural products, stock indexes, currencies, digital assets, energy, metals, economic indicators and
statistical measures. The notional size and calendar term of futures contracts on a particular underlying asset
are identical and are not subject to any negotiation, other than with respect to price and the number of contracts
traded between the buyer and seller. Futures contracts expire on a designated date, referred to as the “expiration date.”
The Fund generally deposits cash (also known as “margin”) with an FCM for its open positions in futures contracts. The margin requirements or position limits may be based on the
notional exposure of the futures contracts or the number of futures contracts purchased. The FCM, in turn,
generally transfers such deposits to the clearing house to protect the clearing house against non-payment by
the Fund. “Variation Margin” is the amount of cash that each party agrees to pay to or receive from the other to reflect the daily fluctuation in the value of the futures contract. The clearing house becomes substituted
for each counterparty to a futures contract and, in effect, guarantees performance. In addition, the FCM
may require the Fund to deposit additional margin collateral in excess of the clearing house’s requirements for the FCM’s own protection. Margin requirements for CME Ether Futures are substantially higher than
margin requirements for many other types of futures contracts.
CME Ether Futures commenced trading on the CME Globex electronic trading platform
on February 8, 2021 under the ticker symbol “ETH”. CME Ether Futures are cash-settled in U.S. dollars, based on the CME CF Ether Reference Rate. The CME CF Ether Reference Rate is a volume-weighted
composite of U.S. dollar-ether trading activity on the Constituent Exchanges. The Constituent
Exchanges are selected by CF Benchmarks based on the Constituent Exchange Criteria. The Constituent Exchange
Criteria requires each Constituent Exchange to implement policies and procedures to ensure fair and transparent
market conditions and to identify and impede illegal, unfair or manipulative trading practices. Additionally,
each Constituent Exchange must comply with, among other things, capital market regulations, money transmission
regulations, client money custody regulations, know-you-client regulations and anti-money laundering
regulations.
Each Constituent Exchange is reviewed annually by an oversight committee established
by CF Benchmarks to confirm that the Constituent Exchange continues to meet all criteria.
CF Benchmarks and the CME CF Ether Reference Rate are subject to United Kingdom Financial Conduct Authority
Regulation
Although the Fund does not invest in ether, events impacting the price of ether across all ether
trading venues could impact the price and market for ether futures, and therefore
the performance of the Fund. Such trading venues may serve as a pricing source for the calculation of the CME CF
Ether Reference Rate which provides reference prices for final settlement of CME ether futures. These trading
venues are or may become subject to regulatory actions that may have a material adverse impact on the Fund, its investments, and its ability to implement its investment strategy.
The liquidity of the market for ether futures depends on, among other things: the
supply and demand for ether futures; the supply and demand for ether; the adoption of ether for commercial
uses; the anticipated increase of investments in ether-related investment products by retail and institutional
investors; speculative interest in ether, ether futures, and ether-related investment products; regulatory
or other restrictions on investors’ ability to invest in ether futures; and the potential ability to hedge against the price of ether with ether futures (and vice versa).
The market for ether futures may be illiquid. This means that the Fund may not be able to buy and sell ether futures quickly or at the desired price. For example, it is difficult to
execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market.
A materially adverse
7
development in one or more of the factors on which the liquidity of the market for
ether futures depends may cause the market to become illiquid, for short or long periods. In such markets, the Fund may not be able to buy and sell ether futures quickly (or at all) or at the desired price. Market illiquidity
may cause losses for the Fund. Additionally, the large size of the futures positions which the Fund may acquire increases the risk of illiquidity, as larger positions may be more difficult to fully liquidate, may take
longer to liquidate, and, as a result of their size, may expose the Fund to potentially more significant losses while
trying to do so. Limits imposed by counterparties, exchanges or other regulatory organizations, such as accountability
levels, position limits and daily price fluctuation limits, may contribute to a lack of liquidity with
respect to some financial instruments and have a negative impact on Fund performance. During periods of market
illiquidity, including periods of market disruption and volatility, it may be difficult or impossible for
the Fund to buy or sell futures contracts or other financial instruments.
The contractual obligations of a buyer or seller holding a futures contract to expiration
may be satisfied by settling in cash as provided by the terms of such contract. However,
the Fund does not intend to hold ether futures through expiration. Instead, the Fund intends to “roll” futures positions. “Rolling” refers to a process whereby futures contracts nearing expiration are closed out and replaced
with identical futures contracts with a later expiration date. Accordingly, the Fund is subject to risks related to rolling.
When the market for certain futures contracts is such that the prices are higher in
the more distant delivery months than in the nearer delivery months, the sale during the course of the “rolling process” of the more nearby ether futures would take place at a price that is lower than the price
of the more distant ether futures. This pattern of higher futures prices for longer expiration ether futures
is often referred to as “contango.” Alternatively, when the market for certain ether futures is such that the prices are higher in the nearer months than in the more distant months, the sale during the course of the rolling
process of the more nearby ether futures would take place at a price that is higher than the price of
the more distant ether futures. This pattern of higher future prices for shorter expiration ether futures is referred to as “backwardation.”
There have been extended periods in which contango or backwardation has existed in
certain futures markets in general. Such periods could occur in the future for ether futures and may
cause significant and sustained losses. Additionally because of the frequency with which the Fund may roll futures contracts, the impact of contango or backwardation on Fund performance may be greater than it would
have been if the Fund rolled futures contracts less frequently.
The CME has established margin requirements for ether futures at levels that may be
substantially higher than the margin requirements for more established futures contracts. The Futures
Commission Merchants (“FCMs”) utilized by the Fund may impose margin requirements in addition to those imposed by the exchanges. Margin requirements are subject to change, and may be raised in the
future by the exchanges and the FCMs. Margin Requirements may be more likely to change during periods of high
volatility. High margin requirements could prevent the Fund from obtaining sufficient exposure to ether futures and may adversely affect its ability to achieve its investment objective. An FCM’s failure to return required margin to the Fund on a timely basis may cause such Fund to delay redemption settlement dates and/or
restrict, postpone or limit the right of redemption.
The term “margin” refers to the minimum amount the Fund must deposit and maintain with its FCM in order to establish an open position in futures contracts. The minimum amount of
margin required in connection with a particular futures contract is set by the exchange on which such
contract is traded and is subject to change at any time during the term of the contract. FCMs may require customers
to post additional amounts above the required minimums. Futures contracts are customarily bought and
sold on margins that represent a percentage of the aggregate purchase or sales price of the contract.
In addition, FCMs utilized by the Fund may impose limits on the amount of exposure to futures contracts the Fund can obtain through such FCMs. As a result, the Fund may need to transact through a number of FCMs to achieve its investment objective. If enough FCMs are not willing
to transact with the Fund, or if exposure limits imposed by such FCMs do not provide sufficient exposure,
the Fund may not be able to achieve its investment objective.
8
There may be circumstances that could prevent or make it impractical for the Fund to operate in a manner consistent with its investment objective and investment strategies.
The price of ether has experienced periods of extreme volatility. The price of ether
may change dramatically and without warning. This volatility is due to a number of factors, including
the supply and demand for ether, concerns about potential manipulation of the price of ether and
the safety of ether, market perceptions of the value of ether as an investment, continuing development of the
regulations applicable to ether, and the changes exhibited by an early-stage technological innovation.
It is believed that speculators and investors who seek to profit from trading and
holding ether currently account for a significant portion of ether demand. Such speculation regarding
the potential future appreciation in the price of ether may artificially inflate or deflate the price of
ether. Conversely, evolving government regulation, the perception of onerous regulatory actions, concerns over
the potential for fraud and manipulation of the price of ether and other factors may cause a drop in the price
of ether. Developments related to the Ethereum Network’s operations, also contribute to the volatility in the price of ether. These factors may continue to cause the price of ether to be volatile, which may have a
negative impact on the performance of the ether futures and on the performance of the Fund.
The trading of ether is fragmented across numerous trading venues. The fragmentation
of the volume of ether transactions across multiple trading venues can lead to a higher volatility
than would be expected if volume was concentrated in a single trading venue. Market fragmentation and volatility
increases the likelihood of price differences across different trading venues.
Market participants trading ether futures may seek to “hedge” or otherwise manage their exposure to such contracts by taking offsetting positions in ether. Fragmentation may require
market participants to analyze multiple prices, which may be inconsistent and quickly changing. Fragmentation
also may require market participants to potentially fill their positions through a number of transactions
on different crypto asset trading platforms. These factors potentially increase the cost and uncertainty of
trading ether and may decrease the effectiveness of using transactions in ether to help manage or offset positions
in ether futures. Market participants who are unable to fully or effectively manage or hedge their positions
in ether futures typically would be expected to widen the bid-ask spreads on such contracts, which could potentially
decrease the trading volume and liquidity of such contracts and have a negative impact on the price
of such contracts.
Ether, the Ethereum Network and ether trading venues are relatively new. Unlike the exchanges for more traditional assets, such as equity securities and futures contracts, ether trading venues are largely unregulated and may be operating out of compliance with applicable regulation. Ether crypto asset trading platforms that are regulated typically must comply with minimum net worth, cybersecurity,
and anti-money laundering requirements, but are not typically required to protect customers or their
markets to the same extent that regulated securities exchanges or futures exchanges are required to do
so. As a result, markets for ether may be subject to manipulation or fraud and may be subject to larger and/or
more frequent sudden declines than assets traded on more traditional exchanges. Investors in ether may
lose money, possibly the entire value of their investments.
There is no central registry showing which individuals or entities own ether or the
quantity of ether that is owned by any particular person or entity. It is possible that a small group
of early ether adopters hold a significant proportion of the ether that has been thus far created. There are no regulations
in place that would prevent a large holder of ether or a group of holders from selling their ether, which
could depress the price of ether, or otherwise attempting to manipulate the price of ether or the Ethereum Network.
Events could adversely affect the price of ether, reduce user confidence in ether,
the Ethereum Network and the fairness of the venues for trading ether and slow (or even reverse)
the further adoption of ether.
Malicious actors could theoretically structure an attack whereby they gain control
of more than half of the network’s staked ether, or “aggregate stake.” If a malicious actor or group of actors acquired a stake exceeding the rest of the Ethereum Network, they would be able to exert unilateral control over the addition
9
of blocks to the Ethereum blockchain. This would allow them to engage in “double spending,” prevent other transactions from being confirmed on the Ethereum blockchain or prevent other validators
from validating any new blocks. Each of these events, among other things, could adversely affect the price
of ether, reduce user confidence in the Ethereum Network and the fairness of ether trading venues, and slow
(or even reverse) the further adoption of ether.
The Ethereum Protocol was built using open source software by a small group of developers
who help develop and maintain the original version of ether, the underlying asset upon
which ether futures are based. The open source nature of the Ethereum Protocol permits any developer to review
the underlying code and suggest changes to it. If accepted by a sufficient number of validators, these
changes may result in substantial changes to the Ethereum Network, including changes that result in “forks” (as described herein). It is possible that the price of ether futures subsequent to a “fork” may be linked to the price of ether on only one of the resulting Ethereum Networks, rather than the aggregate price of ether on
all resulting Ethereum Networks.
In April 2016, a decentralized autonomous organization, known as “The DAO” launched on the Ethereum Network. Decentralized autonomous organizations operate on smart contracts
which form a foundational framework that dictates how the organization will operate. In exchange
for ether, The DAO created DAO Tokens (proportional to the amount of ether paid) that were then assigned
to the Ethereum blockchain address of the person or entity remitting the ether. A DAO Token granted
the DAO Token holder certain voting and ownership rights in The DAO. In June 2016, The DAO smart contract
code was hacked, resulting in approximately one-third of the total ether raised in The DAO’s offering being diverted to an Ethereum blockchain address controlled by the attacker, an unknown individual or group.
In response to the attack, and upon a vote of Ethereum community members, a “hard fork” was implemented which had the effect of transferring all of the funds raised (including those held by the attacker)
from The DAO to a recovery address, where DAO Token holders could exchange their DAO Tokens for ether.
Any DAO Token holders who adopted the hard fork could exchange their DAO Tokens for ether and avoid
any loss. The permanent hard fork resulted in two different versions of the Ethereum blockchain:
Ethereum and Ethereum Classic.
The CME considers a hard fork of the Ethereum blockchain where both forks continue
to be actively validated and traded but may not be fungible with each other, as an unusual and extreme
circumstance. The CME has determined, in the event of a hard fork or other circumstance in which the
split of ether is expected, CME shall decide what action to take to align ether futures exposure with cash market
exposures, as the CME deems appropriate. It is possible that, notwithstanding the protocols implemented
to attempt to address the impact of forks on ether futures, forks and similar events could have an adverse effect
on the price of ether and the ether futures in which the Fund invests and may adversely affect an investment in the Fund. The price of ether is highly volatile, which could have a negative impact on the price and trading
of ether futures, and the performance of the Fund.
It is believed that speculators and investors who seek to profit from trading and
holding ether currently account for a significant portion of ether demand. Such speculation regarding
the potential future appreciation in the price of ether may artificially inflate or deflate the price of
ether. Conversely, evolving government regulation, the perception of onerous regulatory actions, concerns over
the potential for fraud and manipulation of the price of ether and other factors may cause a drop in the price
of ether. Developments related to the Ethereum Network’s operations, also contribute to the volatility in the price of ether. These factors may continue to cause the price of ether to be volatile, which may have a
negative impact on the performance of the ether futures and on the performance of the Fund.
Since the price and trading of ether futures is influenced by the price of ether and
events impacting the price of ether, the Ethereum Network or the ether trading venues, each of the
events described above could have a negative impact on the price and market for ether futures. For example,
such events could lead to a lack of liquidity in the market for ether futures or have a negative impact on
the price of ether futures.
10
Changes in the Ethereum Network could have an adverse effect on the operation and
price of ether, which could have an adverse effect on the price of ether futures and the value of
an investment in the Fund.
New ether is created when ether “validators” use their stake on the Ethereum Network to participate in the consensus mechanism, which records and verifies every ether transaction on
the Ethereum Blockchain. In return for their services, validators are rewarded through receipt of a set amount
of ether. If transaction fees are not sufficiently high or if transaction fees increase to the point of being prohibitively
expensive for users, validators may not have an adequate incentive to continue validating and may cease
their operations.
If the price of ether or the reward for validating new blocks is not sufficiently
high to incentivize validators, validators may cease participating in the consensus mechanism and, as
a result, confirmations of transactions on the Ethereum Blockchain could be slowed temporarily and inhibit the
function of the Ethereum Network. This could have a negative impact on the value of an investment
in the Fund.
Additionally, if the price of ether falls below that which is required for validators
to turn a profit, some validators may temporarily discontinue their operations. If validators reduce
or cease their operations, it would reduce the aggregate stake on the Ethereum Network, which would adversely affect
the confirmation process for transactions (i.e., temporarily decreasing the speed at which blocks are
added to the blockchain and make the Ethereum Network more vulnerable to a malicious actor or actors. If one
or more validators obtain control of greater than thirty-three (33) percent of the aggregate stake on
the Ethereum Network, those validators may attempt to reshuffle or reorder blocks in the Ethereum blockchain,
potentially excluding valid transactions or permitted “double spending” of ether. Malicious actors controlling greater than thirty-three (33) percent of the aggregate stake could also potentially resolve two forks of the Ethereum
blockchain simultaneous, which would cause confusion and likely result in reduced confidence
in the Ethereum blockchain, both of which would have a material adverse impact on the value of ether
and ether futures, and as a result, an investment in the Fund. However, any such attack would likely result
in the malicious validators forfeiting their staked ether. Any reduction in confidence in the confirmation
process or aggregate stake of the Ethereum Network may adversely affect the utility and price of ether,
which may negatively impact ether futures and an investment in the Fund.
A decline in the adoption of ether could have a negative impact on the price of ether
and the ether trading venues and, in turn, a negative impact on the price and market for ether futures
and the value of an investment in the Fund.
Ether is used as a form of payment both directly and, more commonly, through an intermediary
service which converts ether payments into local currency. However, the adoption of
ether has been limited when compared with the increase in the price of ether as determined by the ether trading
venues. This may indicate that the majority of ether’s use continues to be for investment and speculative purposes. The continued adoption of ether will require growth in its usage as a means of payment
and in the Ethereum Blockchain for various applications.
A lack of expansion or a reduction in usage of ether and the Ethereum Blockchain could
adversely affect the ether trading venues. This, in turn, may have a negative impact on the
market for ether futures and the performance of the Fund. Even if growth in ether adoption continues in the near
or medium-term, there is no assurance that ether usage, or the market for ether futures, will continue to grow
over the long-term. A contraction in the use of ether may result in a lack of liquidity in the ether trading
venues, increased volatility in or a reduction in the price of ether, and other negative consequences. This, in
turn, could exacerbate any lack of liquidity in the market for ether futures, cause increased volatility in,
or a reduction to the price, of ether futures and other negative consequences. Each of these events could adversely
impact the value of an investment in the Fund.
A new competing digital asset may pose a challenge to ether’s current market dominance, resulting in a reduction in demand for ether, which could have a negative impact on the price
and market for ether and, in turn, a negative impact on the price and market for ether futures and the value
of an investment in the Fund.
11
It is possible that other blockchains will emerge that are similarly designed to support
the development, deployment, and operation of smart contracts. These alternative blockchains
have in the past and may in the future seek to compete with the Ethereum Network by offering faster transaction
processing and/or lower fees. The market demand for these alternative blockchains may reduce the market
demand for ether which would adversely impact an investment in the Fund.
The Ethereum blockchain has at times experienced material network congestion, high
transaction fees and other scalability challenges. Although the Ethereum Foundation has proposed
various updates to the Ethereum blockchains protocol to address these challenges, to date they have been
primarily addressed by sol-called “layer 2” solutions. Layer 2 networks generally require users to “lock” ether into the layer 2 network in order to benefit from their efficiencies, thereby making the locked ether
unavailable to transfer on the underlying blockchain or within other layer 2 networks. While these solutions
have, in the past, reduced fees and increased transaction times, they result in the actions of development teams
whose interests may not be aligned with that of the greater Ethereum community. Further, there is no guarantee
that these layer 2 solutions will continue to be effective or that users or and investors in public blockchains
will not determine that blockchains without scalability issues or a reliance on layer 2 solutions are
preferable. There is a risk that multiple layer 2 solutions will not be compatible with each other or the underlying
blockchain network or that a layer 2 solution, if not implemented correctly, would compromise the security or decentralization
of the underlying blockchain network.
Regulatory initiatives by governments and uniform law proposals by academics and participants
in the ether economy may impact the use of ether or the operation of the Ethereum Network
in a manner that adversely affects ether futures and the value of an investment in the Fund.
As ether and other digital assets have grown in popularity and market size, certain
U.S. federal and state governments, foreign governments and self-regulatory agencies have begun to
examine the operations of ether, digital assets and other digital assets, the Ethereum Network, ether users,
and the ether trading venues. Regulation of digital assets, like ether, and initial coin offerings (“ICOs”) in the U.S. and foreign jurisdictions could restrict the use of ether or impose other requirements that may adversely impact
the liquidity and price of ether, the demand for ether, the operations of the ether trading venues and the
performance of the ether futures. If the ether trading venues become subject to onerous regulations or are required to comply with existing applicable regulations, among other things, trading in ether may be concentrated in a smaller number of crypto asset trading platforms, which may materially impact the price, volatility
and trading volumes of ether. Additionally, the ether trading venues may be required to comply with tax,
anti-money laundering (“AML”), know-your-customer (“KYC”) and other regulatory requirements, compliance and reporting obligations that may make it more costly to transact in or trade ether (which may
materially impact price, volatility or trading of ether more generally). Each of these events could have a
negative impact on ether futures and the value of an investment in the Fund.
The regulation of ether, digital assets and related products and services continues
to evolve. The inconsistent and sometimes conflicting regulatory landscape may make it more difficult
for ether businesses to provide services, which may impede the growth of the ether economy and have an adverse
effect on consumer adoption and the market value of ether. There is a possibility of future regulatory
change altering, perhaps to a material extent, the nature of an investment in the Fund or the ability of the Fund to continue to operate.
Additionally, to the extent that ether itself is determined to be a security, commodity
future or other regulated asset, or to the extent that a United States or foreign government or quasi-governmental
agency exerts regulatory authority over the Ethereum Network, ether trading or ownership
in ether, the ether futures may be adversely affected, which may have an adverse effect on the value of your investment
in the Fund. In sum, ether regulation takes many different forms and will, therefore, impact ether
and its usage in a variety of manners.
No single entity owns the Ethereum Network. However, with the growing adoption of
ether and the significant increase in speculative activity surrounding ether and digital assets,
third parties may be increasingly motivated to assert intellectual property rights claims relating to the
operation of the Ethereum
12
Network or applications built upon the Ethereum Blockchain. Regardless of the merit
of any intellectual property or other legal action, any threatened action that reduces confidence in the Ethereum Network’s or the Ethereum Blockchain’s long-term viability or the ability of end-users to hold and transfer ether may adversely affect the price of ether and adversely affect the ether futures. Additionally, a
meritorious intellectual property rights claim could prevent end-users from accessing the Ethereum Network or holding
or transferring their ether, which could adversely affect the value of the ether futures. As a result, an
intellectual property rights claim against Ethereum Network participants could have a material adverse impact on
the Fund.
An interruption in Internet service or a limitation of Internet access could impact
the functionality of the Ethereum Network.
The Ethereum Network’s functionality relies on the Internet. A broadly accepted and widely adopted decentralized network is necessary for a fully-functional blockchain network, such
as the Ethereum Network. Features of the Ethereum Network, such as decentralization, open source protocol,
and reliance on peer-to-peer connectivity, are essential to preserve the stability of the network
and decrease the risk of fraud or cyber-attacks. A significant disruption of Internet connectivity affecting large
numbers of users or geographic areas could impede the functionality of the Ethereum Network. Any technical
disruptions or regulatory limitations that affect Internet access may have an adverse effect on the
Ethereum Network, the price of ether and ether futures and therefore adversely affect the value of an investment
in the Fund.
If ether is determined or is expected to be determined to be a security under the
federal securities laws, that could materially and adversely affect the trading of ether futures contracts
held by the Fund and the Fund’s ability to pursue its investment objective. For example, in general a futures contract on a security is regulated as a security futures product, which is an instrument that may only be listed
in accordance with CFTC and SEC requirements and traded on a facility (and through intermediaries) that
is registered with both the SEC and CFTC. At present, ether futures contracts held by the Fund are not listed in accordance with such requirements. If ether is determined or alleged to be a security, it is possible that
trading in ether futures contracts held by the Fund could be halted or otherwise disrupted, become illiquid and/or lose significant
value and the Fund may have difficulty unwinding or closing out its ether futures contracts. In
that event, value of an investment in the Fund - could decline significantly and without warning, including to zero. There
is no guarantee that security futures contracts on ether would be begin trading on
any particular timeframe or at all or that the Fund would be able to invest in such instruments. The determination that ether is
a security and the related impacts on ether futures contracts may result in extraordinary expenses
for the Fund.
FUTURES CONTRACTS
Futures in General
A cash-settled futures contract obligates the seller to deliver (and the purchaser
to accept) an amount of cash equal to a specific dollar amount multiplied by the difference between the
final settlement price of a specific futures contract and the price at which the agreement is made. No physical
delivery of the underlying asset is made.
The Fund generally engages in closing or offsetting transactions before final settlement
of a futures contract wherein a second identical futures contract is sold to offset a long position.
In such cases, the obligation is to deliver (or take delivery of) cash equal to a specific dollar amount
multiplied by the difference between the price of the offsetting transaction and the price at which the original
contract was entered into. If the original position entered into is a long position (futures contract purchased)
there will be a gain (loss) if the offsetting sell transaction is carried out at a higher (lower) price, inclusive
of commissions.
Whether the Fund realizes a gain or loss from futures activities depends generally
upon movements in the underlying asset. The Fund will engage in transactions in futures contracts
that are traded on a U.S. exchange or board of trade or that have been approved for sale in the U.S. by the
Commodity Futures Trading Commission (“CFTC”).
13
All of the Fund’s transactions in futures will be entered into through a futures commission merchant (or “FCM”) regulated by the CFTC or under a foreign regulatory regime that has been recognized as equivalent by the CFTC. Under U.S. law, an FCM is the sole type of entity that may
hold collateral in respect of cleared futures. All futures entered into by the Fund will be cleared by a clearing
house that is regulated by the CFTC. A Fund’s FCM may limit the Fund’s ability to invest in certain futures contracts. Such restrictions may adversely affect the Fund’s performance and its ability to achieve its investment objective.
In addition, the CFTC and the exchanges are authorized to take extraordinary actions
in the event of a market emergency, including, for example, the implementation of higher margin requirements,
the establishment of daily price limits and the suspension of trading.
Futures Margin Requirements
Upon entering into a futures contract, the Fund will be required to deposit with its FCM an amount of cash or cash equivalents equal to a small percentage of the contract’s value (these amounts are subject to change by the FCM or clearing house through which the trade is cleared). This amount, known as “initial margin,” is in the nature of a performance bond or good faith deposit on the contract and is returned to the Fund upon termination of the futures contract, assuming all contractual obligations
have been satisfied. Subsequent payments, known as “variation margin,” to and from the broker will be made daily as the price of the index underlying the futures contract fluctuates, making the positions in the
futures contract more or less valuable, a process known as “marking-to-market.” At any time prior to expiration of a futures contract, the Fund may elect to close its position by taking an opposite position, which will operate to terminate the Fund’s existing position in the contract. A party to a futures contract is subject to the
credit risk of the clearing house and the FCM through which it holds its position. Credit risk of market participants
with respect to futures is concentrated in a few clearing houses, and it is not clear how an insolvency proceeding
of a clearing house would be conducted and what impact an insolvency of a clearing house would have on
the financial system. An FCM is generally obligated to segregate all funds received from customers with
respect to customer futures positions from the FCM’s proprietary assets. However, all funds and other property received by an FCM from its customers are generally held by the FCM on a commingled basis in an omnibus
account, and the FCM may invest those funds in certain instruments permitted under the applicable
regulations. The assets of the Fund might not be fully protected in the event of the bankruptcy of the Fund’s FCM, because the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the FCM’s customers for a relevant account class. Also, the FCM is required to transfer to the
clearing house the amount of margin required by the clearing house for futures positions, which amounts are
generally held in an omnibus account at the clearing house for all customers of the FCM. If an FCM does
not comply with the applicable regulations or its agreement with the Fund, or in the event of fraud or misappropriation of customer assets by a FCM, the Fund could have only an unsecured creditor claim in an insolvency
of the FCM with respect to the margin held by the FCM.
Correlation Risk
The primary risks associated with the use of futures contracts are imperfect correlation
between movements in the price of the futures and the market value of the underlying assets,
and the possibility of an illiquid market for a futures contract. Although the Fund intends to buy or sell futures contracts only if there is an active market for such contracts, no assurance can be given that a liquid market
will exist for any particular contract at any particular time. Many futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once
the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond
that limit or trading may be suspended for specified periods during the day. Futures contract prices could move
to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation
of futures positions and potentially subjecting the Fund to substantial losses. If trading is not possible, or if the Fund determines not to close a futures position in anticipation of adverse price movements, the Fund will be required to make daily cash payments of variation margin. The risk that the Fund will be unable to close out a futures position
14
will be minimized by entering into such transactions on a national exchange with an
active and liquid secondary market.
Speculative Position Limits and Accountability Levels
The CFTC and domestic exchanges have established speculative position limits (“position limits”) on the maximum speculative position which any person, or group of persons acting in concert,
may hold or control in particular futures and options on futures contracts. All positions owned
or controlled by the same person or entity, even if in different accounts, must be aggregated for purposes of
determining whether the applicable position limits have been exceeded. Thus, even if the Fund does not intend
to exceed applicable position limits, it is possible that different clients managed by the Advisor may
be aggregated for this purpose. Although it is possible that the trading decisions of the Advisor may have to be modified
and that positions held by the Fund may have to be liquidated in order to avoid exceeding such limits,
the Advisor believes that this is unlikely. The modification of investment decisions or the elimination of open
positions, if it occurs, may adversely affect the profitability of the Fund. A violation of position limits
could also lead to regulatory action materially adverse to the Fund’s investment strategy.
In addition the domestic exchanges have established accountability levels (“accountability levels”) on futures contracts traded on U.S.-based Futures exchanges. The accountability levels
establish a threshold above which the exchange may exercise greater scrutiny and control over the Fund’s positions.
If the Fund were to reach its position limits and position accountability levels on
ether futures contracts, or if the Advisor believes it is reasonably likely to do so, the Advisor
intends to take such action as it believes appropriate and in the best interest of the Fund in light of the totality
of the circumstances at such time. In such instances, the Fund reserves the right to invest in U.S. listed equity
securities whose performance the Advisor believes may correspond, or be closely related, to the performance
of ether futures contracts, such as equity securities of companies involved in the digital asset industry. Each Fund may also consider investing any cash on hand due to position limits or accountability levels
in money market instruments. Each Fund also may, after consultation with the Staff of the SEC, consider investing in
U.S. listed futures contracts on digital assets other than ether or in other crypto-related instruments whose performance the Advisor believes may correspond to the performance of ether or ether futures contracts, such as exchange traded notes and funds, privately offered funds, or swaps on an ether
reference rate. Each Fund would not invest in these other instruments if doing so would be inconsistent with
applicable law or regulation or the then-stated position of the SEC or its staff. In addition, the Advisor might
recommend to the Board that the Fund convert to an open-end or closed-end fund structure or other pooled investment
vehicle that invests directly in spot ether.
DEBT INSTRUMENTS
Below is a description of various types of money market instruments and other debt
instruments that the Fund may utilize for investment purposes or for liquidity purposes. Other types of
money market instruments and debt instruments may become available that are similar to those described
below and in which the Fund also may invest consistent with their investment goals and policies. The Fund may also invest in pooled investment vehicles that invest in, and themselves qualify as, money market
instruments.
Money Market Instruments
To seek its investment objective, as a cash reserve, for liquidity purposes the Fund may invest all or part of its assets in cash or cash equivalents, which include, but are not limited
to, short-term money market instruments, U.S. government securities, floating and variable rate notes, commercial
paper, certificates of deposit, time deposits, bankers’ acceptances or repurchase agreements and other short-term liquid instruments secured by U.S. government securities. The Fund may invest in money market instruments issued by foreign and domestic governments, financial institutions, corporations and other entities
in the U.S. or in any foreign country. The Fund may also invest in pooled investment vehicles that invest in, and themselves
qualify as, money market instruments.
15
U.S. Government Securities
The Fund may invest in U.S. government securities in pursuit of its investment objectives or for liquidity purposes.
U.S. government securities include U.S. Treasury securities, which are backed by the
full faith and credit of the U.S. Treasury and which differ only in their interest rates, maturities,
and times of issuance: U.S. Treasury bills, which have initial maturities of one year or less; U.S. Treasury
notes, which have initial maturities of one to ten years; and U.S. Treasury bonds, which generally have initial
maturities of greater than ten years. In addition, U.S. government securities include Treasury Inflation-Protected Securities (“TIPS”). TIPS are inflation-protected public obligations of the U.S. Treasury. These securities
are designed to provide inflation protection to investors. TIPS are income generating instruments whose interest
and principal payments are adjusted for inflation—a sustained increase in prices that erodes the purchasing power of money. The inflation adjustment, which is typically applied monthly to the principal of the
bond, follows a designated inflation index such as the Consumer Price Index. A fixed-coupon rate is applied to
the inflation-adjusted principal so that as inflation rises, both the principal value and the interest payments
increase. This can provide investors with a hedge against inflation, as it helps preserve the purchasing
power of an investment. Because of the inflation-adjustment feature, inflation-protected bonds typically have
lower yields than conventional fixed-rate bonds. In addition, TIPS decline in value when real interest
rates rise. However, in certain interest rate environments, such as when real interest rates are rising faster
than nominal interest rates, TIPS may experience greater losses than other fixed income securities with similar
duration.
Certain U.S. government securities are issued or guaranteed by agencies or instrumentalities
of the U.S. government including, but not limited to, obligations of U.S. government agencies
or instrumentalities, such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”), the Government National Mortgage Association (“Ginnie Mae” or “GNMA”), the Small Business Administration, the Federal Farm Credit Administration, Federal Home Loan Banks, Banks for Cooperatives (including
the Central Bank for Cooperatives), Federal Land Banks, Federal Intermediate Credit Banks, the Tennessee
Valley Authority, the Export-Import Bank of the United States, the Commodity Credit Corporation, the Federal
Financing Bank, the Student Loan Marketing Association, the National Credit Union Administration and the
Federal Agricultural Mortgage Corporation. Some obligations issued or guaranteed by U.S. government agencies
and instrumentalities, including, for example, GNMA pass-through certificates, are supported by the full
faith and credit of the U.S. Treasury. Other obligations issued by or guaranteed by federal agencies,
such as those securities issued by FNMA, are supported by the discretionary authority of the U.S. government
to purchase certain obligations of the federal agency but are not backed by the full faith and credit
of the U.S. government, while other obligations issued by or guaranteed by federal agencies, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from the U.S. Treasury. While the
U.S. government provides financial support to such U.S. government-sponsored federal agencies and instrumentalities
described above, no assurance can be given that the U.S. government will always do so, since the U.S.
government is not so obligated by law. U.S. Treasury notes and bonds typically pay coupon interest semi-annually
and repay the principal at maturity. All U.S. government securities are subject to credit risk.
Yields on U.S. government securities depend on a variety of factors, including the
general conditions of the money and bond markets, the size of a particular offering, and the maturity
of the obligation. Debt securities with longer maturities tend to produce higher yields and are generally
subject to potentially greater capital appreciation and depreciation than obligations with shorter maturities and
lower yields. The market value of U.S. government securities generally varies inversely with changes in market
interest rates. An increase in interest rates, therefore, would generally reduce the market value of
the Fund’s portfolio investments in U.S. government securities, while a decline in interest rates would
generally increase the market value of the Fund’s portfolio investments in these securities.
From time to time, uncertainty regarding the status of negotiations in the U.S. government
to increase the statutory debt ceiling or periodic legislation to fund the U.S. government could increase the risk that the U.S. government may default on payments on certain U.S. government securities,
cause the credit rating of the U.S. government to be downgraded, increase volatility in the stock and
bond markets, result in
16
higher interest rates, reduce prices of U.S. Treasury securities, and/or increase
the costs of various kinds of debt. If a U.S. government-sponsored entity is negatively impacted by legislative
or regulatory action, is unable to meet its obligations, or its creditworthiness declines, the performance
of a Fund that holds securities of the entity may be adversely impacted.
INVESTMENT IN A SUBSIDIARY
The Fund (the “Parent Fund”) may achieve commodity exposure through investment in ProFunds Cayman Ether Strategy Portfolio, a wholly-owned subsidiary of the Fund (the “Subsidiary”) organized under the laws of the Cayman Islands. The Parent Fund’s investment in its Subsidiary is intended to provide such Parent Fund with exposure to commodity and financial markets in accordance with applicable
rules and regulations. The Subsidiary may invest in derivatives, including futures, forwards,
options and other investments intended to serve as margin or collateral or otherwise support the Subsidiary’s derivatives positions.
The Fund does not intend to create or acquire primary control of any entity that primarily
engages in investment activities in securities or other assets, except for the entity that is
wholly-owned by the Fund.
The Subsidiary is not registered under the 1940 Act, and will not have all of the
protections offered to investors in RICs. The Board, however, has oversight responsibility for the investment
activities of the Fund, including its investment in its Subsidiary, and the Fund’s role as the sole shareholder of the Subsidiary.
Changes in the laws of the United States and/or the Cayman Islands, under which the
Fund and the Subsidiary is organized, respectively, could result in the inability of the Fund and/or
its Subsidiary to operate as described in this SAI and could negatively affect the Fund and its shareholders.
For example, the Cayman Islands does not currently impose any income, corporate or capital gains tax, estate
duty, inheritance tax, gift tax or withholding tax on the Subsidiary. If Cayman Islands law changes such that
the Subsidiary must pay Cayman Islands taxes, Fund shareholders would likely suffer decreased investment returns. See “Taxation” below for more information.
The financial statements of the Subsidiary will be consolidated with the Fund’s financial statements in the Fund’s Annual and Semi-Annual Reports.
BORROWING
The Fund may borrow money for cash management purposes or investment purposes. Borrowing
for investment is a form of leverage. Leveraging investments, by purchasing securities
with borrowed money, is a speculative technique which increases investment risk, but also increases investment
opportunity. Because substantially all of the Fund’s assets will fluctuate in value, whereas the interest obligations on borrowings may be fixed, the NAV per share of the Fund will fluctuate more when the Fund is leveraging
its investments than would otherwise be the case. Moreover, interest costs on borrowings may fluctuate
with changing market rates of interest and may partially offset or exceed the returns on the borrowed funds.
Under adverse conditions, the Fund might have to sell portfolio securities to meet interest or principal payments
at a time when investment considerations would not favor such sales. Consistent with the requirements
of the 1940 Act, the Fund must maintain continuous asset coverage (total assets, including assets acquired
with borrowed funds, less liabilities exclusive of borrowings) of 300% of all amounts borrowed.
If at any time the value of the Fund’s assets should fail to meet this 300% coverage test, the Fund, within three days (not including weekends and holidays), will reduce the amount of the Fund’s borrowings to the extent necessary to meet this 300% coverage requirement. Maintenance of this percentage limitation may result in
the sale of portfolio securities at a time when investment considerations would not favor such sale. In
addition to the foregoing, the Fund is authorized to borrow money as a temporary measure for extraordinary or emergency
purposes in amounts not in excess of 5% of the value of the Fund’s total assets. This borrowing is not subject to the foregoing 300% asset coverage requirement. The Fund is authorized to pledge portfolio securities as ProFund Advisors deems appropriate in connection with any borrowings.
17
In addition, the Fund may engage in certain derivatives transactions that have economic
characteristics similar to leverage. Subject to compliance with the conditions of
Rule 18f-4 under the 1940 Act, the Fund’s obligations under such transactions will not be considered indebtedness for purposes of computing asset coverage.
Under Rule 18f-4, a Fund’s trading of derivatives and other transactions that create future payment or delivery obligations is subject to value-at-risk (“VaR”) leverage limits and derivatives risk management program and reporting requirements. Generally, these requirements apply unless a Fund satisfies a “limited derivatives users” exception that is included in the final rule. Under the rule, when a Fund trades reverse repurchase agreements or similar financing transactions, including certain tender option bonds, it needs to aggregate the amount of indebtedness associated with the reverse repurchase agreements
or similar financing transactions with the aggregate amount of any other senior securities representing
indebtedness when calculating a Fund’s asset coverage ratio or treat all such transactions as derivatives transactions. Reverse repurchase agreements or similar financing transactions aggregated with other indebtedness
do not need to be included in the calculation of whether a Fund satisfies the limited derivatives users
exception, but for funds subject to the VaR testing requirement, reverse repurchase agreements and similar
financing transactions must be included for purposes of such testing whether treated as derivatives transactions
or not. The SEC also provided guidance in connection with the rule regarding the use of securities lending
collateral that may limit a Fund’s securities lending activities. In addition, under the rule, a Fund is permitted to invest in a security on a when-issued or forward-settling basis, or with a non-standard settlement cycle,
and the transaction will be deemed not to involve a senior security (as defined under Section 18(g) of the 1940 Act), provided that, (i) the Fund intends to physically settle the transaction and (ii) the transaction will
settle within 35 days of its trade date (the “Delayed-Settlement Securities Provision”). A Fund may otherwise engage in when-issued, forward-settling and non-standard settlement cycle securities transactions that do
not meet the conditions of the Delayed-Settlement Securities Provision so long as the Fund treats any such transaction as
a “derivatives transaction” for purposes of compliance with the rule. Furthermore, under the rule, the Fund is permitted to enter into an unfunded commitment agreement, and such unfunded commitment agreement
will not be subject to the asset coverage requirements under the 1940 Act, if the Fund reasonably believes, at the time it enters
into such agreement, that it will have sufficient cash and cash equivalents to meet its obligations with
respect to all such agreements as they come due.
CASH RESERVES
In seeking to achieve its investment objective, as a cash reserve, for liquidity purposes,
or as cover for positions it has taken, the Fund may invest all or part of its assets in cash or cash equivalents, which include, but are not limited to, short-term money market instruments, U.S. government
securities, certificates of deposit, bankers acceptances, or repurchase agreements secured by U.S. government
securities.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with financial institutions in pursuit
of its investment objective, or for liquidity purposes. Under a repurchase agreement, the Fund purchases a debt security and simultaneously agrees to sell the security back to the seller at a mutually
agreed-upon future price and date, normally one day or a few days later. The resale price is greater than the
purchase price, reflecting an agreed-upon market interest rate during the purchaser’s holding period. While the maturities of the underlying securities in repurchase transactions may be more than one year, the term
of each repurchase agreement will always be less than one year. The Fund follows certain procedures designed to minimize the risks inherent in such agreements. These procedures include effecting repurchase transactions
generally with major global financial institutions. The creditworthiness of each of the firms that
is a party to a repurchase agreement with the Fund will be monitored by ProFund Advisors. In addition, the value of the collateral
underlying the repurchase agreement will always be at least equal to the repurchase
price, including any accrued interest earned on the repurchase agreement. In the event of a default or
bankruptcy by a selling financial institution, the Fund will seek to liquidate such collateral which could involve certain costs or
delays and, to the extent that proceeds from any sale upon a default of the obligation to
repurchase were less than
18
the repurchase price, the Fund could suffer a loss. The Fund also may experience difficulties and incur certain costs in exercising its rights to the collateral and may lose the interest the Fund
expected to receive under the repurchase agreement. Repurchase agreements usually are for short periods, such as
one week or less, but may be longer. It is the current policy of the Fund not to invest in repurchase agreements that do not mature within seven days if any such investment, together with any other illiquid assets held by
the Fund, amounts to more than 15% of the Fund’s total net assets. The investments of the Fund in repurchase agreements at times may be substantial when, in the view of ProFund Advisors, liquidity, investment, regulatory,
or other considerations so warrant.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements as part of its investment strategy,
which may be viewed as a form of borrowing. Reverse repurchase agreements involve sales
by the Fund of portfolio assets for cash concurrently with an agreement by the Fund to repurchase those same
assets at a later date at a fixed price. Generally, the effect of such a transaction is that the Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase
agreement, while the Fund will be able to keep the interest income associated with those portfolio securities.
Such transactions are advantageous only if the interest cost to the Fund of the reverse repurchase transaction is less than the cost of obtaining the cash otherwise. Opportunities to achieve this advantage may not always
be available, and the Fund intends to use the reverse repurchase technique only when it will be to the Fund’s advantage to do so.
The SEC has finalized new rules requiring the central clearing of certain repurchase
transactions involving U.S. Treasuries. Historically, such transactions have not been required
to be cleared and voluntary clearing of such transactions has generally been limited. The new clearing requirements
could make it more difficult for the Fund to execute certain investment strategies.
In addition, as discussed above, the SEC has adopted Rule 18f-4 under the 1940 Act
providing for the regulation of registered investment companies’ use of derivatives and certain related instruments (e.g., reverse repurchase agreements). Pursuant to the rule, whenever the Fund enters into
a reverse repurchase agreement, it will either: (i) be consistent with Section 18 of the Act and maintain
asset coverage of at least 300% of the value of the repurchase agreement; or (ii) treat the reverse repurchase
agreement as a derivatives transaction for purposes of Rule 18f-4, including, as applicable, the value-at-risk-based
limit on leverage risk.
CYBERSECURITY
With the increased use of technologies such as the Internet and the dependence on
computer systems to perform necessary business functions, the Fund is susceptible to operational and information security risks. In general, cyber incidents can result from deliberate attacks or unintentional events and may arise from external or internal sources. Cyber attacks include, but are not limited to gaining unauthorized access to digital
systems for purposes of misappropriating assets or sensitive information, corrupting
data, or causing operational disruption. Cyber attacks may also be carried out in a manner that does
not require gaining unauthorized access, such as causing denial-of-service attacks on websites. Cyber
security failures or breaches of the Advisor or the Fund’s third-party service provider (including, but not limited to, index providers, the custodian and any sub-custodian, the distributor, the administrator and transfer agent), counterparty or the issuers of securities in which the Fund invests, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, the inability of Fund shareholders
to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs, and/or additional compliance costs. In
addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. The Fund and its shareholders could be negatively impacted as a result. While the Fund has established business continuity plans and systems to prevent such cyber attacks, there are inherent limitations in such plans and systems
including the possibility that certain risks have not been identified and new risks may emerge in the future. The use of cloud-based service providers could heighten or change these risks. In addition, work-from-home
arrangements by the Advisor or the Fund’s service providers could increase all of the above risks, create additional data and
19
information accessibility concerns, and make the Advisor, the Fund or its service
providers susceptible to operational disruptions, any of which could adversely impact their operations. Recently,
geopolitical tensions may have increased the scale and sophistication of deliberate cybersecurity attacks,
particularly those from nation-states or from entities with nation-state backing. Furthermore, the Fund cannot control the cyber security plans and systems put in place by issuers in which the Fund invests.
MANAGEMENT
There may be circumstances outside the control of ProFund Advisors, the Trust, the
Administrator (as defined below), the transfer agent, the Custodian (as defined below), any sub-custodian,
the Distributor (as defined below), and/or the Fund that make it, for all practical purposes, impossible to re-position such Fund
and/or to process a purchase or redemption order. Examples of such circumstances include:
natural disasters; public service disruptions or utility problems such as those caused by fires, floods,
extreme weather conditions, and power outages resulting in telephone, telecopy, and computer failures;
market conditions or activities causing trading halts; systems failures involving computer or other information
systems affecting the aforementioned parties, as well as the DTC, the NSCC, or any other participant in
the purchase process; and similar extraordinary events. Accordingly, while ProFund Advisors has implemented
and tested a business continuity plan that transfers functions of any disrupted facility to another location
and has effected a disaster recovery plan, circumstances, such as those above, may prevent the Fund from being operated in a manner consistent with its investment objective and/or principal investment strategies.
NON-DIVERSIFIED STATUS
The Fund is a “non-diversified” series of the Trust. The Fund’s classification as a “non-diversified” investment company means that the proportion of the Fund’s assets that may be invested in the securities of a single issuer is not limited by the 1940 Act. Notwithstanding the Fund’s status as a “non-diversified” investment company under the 1940 Act, the Fund intends to qualify as a RIC accorded special tax treatment under the Code, which imposes its own diversification requirements that are less restrictive
than the requirements applicable to the “diversified” investment companies under the 1940 Act. The Fund’s ability to pursue its investment strategy may be limited by that Fund’s intention to qualify as a RIC and its strategy may bear adversely on its ability to so qualify. For more details, see “Taxation” below. With respect to a “non-diversified” Fund, a relatively high percentage of such the Fund’s assets may be invested in the securities of a limited number of issuers, primarily within the same economic sector. That Fund’s portfolio securities, therefore, may be more susceptible to any single economic, political,
or regulatory occurrence than the portfolio securities of a more diversified investment company.
MARKET DISRUPTION AND GEOPOLITICAL RISK
War, terrorism, public health emergencies (such as the spread of infectious diseases, pandemics and
epidemics) , natural/environmental disasters, bank failures, market manipulations, economic uncertainty, and related geopolitical events, such as sanctions, tariffs, the imposition of exchange
controls or other cross-border trade barriers, have led, and in the future may lead, to increased short-term market
volatility and may have adverse long-term effects on U.S. and world economies and markets generally. For example,
the U.S. has imposed economic sanctions, which consist of asset freezes, restrictions on dealings
in debt and equity, and certain industry-specific restrictions. These sanctions, any additional sanctions
or intergovernmental actions, or even the threat of further sanctions, may result in a decline of the value and liquidity
of securities in affected countries, a weakening of the affected countries’ currencies or other adverse consequences to their respective economies. Sanctions impair the ability of the Fund to buy, sell, receive or deliver those securities and/or assets that are within the scope of the sanctions.
20
TRADE DISPUTES
Global economies are interdependent and may be adversely affected by trade disputes with key trading partners and escalating tariffs imposed on goods and services produced by
such countries. To the extent a country engages in retaliatory tariffs, a company that relies on imported
parts to produce its own goods may experience increased costs of production or reduced profitability, which
may affect consumers, investors and the domestic economy. Trade disputes and retaliatory actions may include
embargoes and other trade limitations, which may trigger a significant reduction in international trade
and impact the global economy. Trade disputes may also lead to increased currency exchange rate volatility,
which can adversely affect the prices of the Fund securities valued in U.S. dollars. The potential threat
of trade disputes may also negatively affect investor confidence in the markets generally and investment growth.
PORTFOLIO TURNOVER
The Fund may pay transaction costs, such as commissions, when it buys and sells securities
(or “turns over” its portfolio). Purchases and sales of U.S. government securities are normally transacted through issuers, underwriters or major dealers in U.S. government securities acting as principals.
Such transactions, along with other fixed income securities transactions, are made on a net basis and
do not typically involve payment of brokerage commissions. However, the Fund may trade through broker-dealers
that charge a commission. The overall reasonableness of brokerage commissions is evaluated by ProFund
Advisors based upon its knowledge of available information as to the general level of commissions
paid by other institutional investors for comparable services.
The Fund’s portfolio turnover rate may vary from year to year, as well as within a year. It is difficult to estimate what the Fund’s actual portfolio turnover rate will be in the future. A higher portfolio turnover rate would likely involve correspondingly greater brokerage commissions and transaction
and other expenses that would be borne by the Fund. In addition, the Fund’s portfolio turnover level may adversely affect the ability of the Fund to achieve its investment objective. “Portfolio Turnover Rate” is defined under the rules of the SEC as the value of the securities purchased or securities sold, excluding all securities
whose maturities at time of acquisition were one year or less, divided by the average monthly value of
such securities owned during the year. Based on this definition, instruments with remaining maturities of
less than one year, including the futures contracts in which the Fund invests, are excluded from the calculation of Portfolio Turnover Rate for the Fund. If such transactions were included, the Fund’s portfolio turnover rate would be significantly higher.
21
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions as fundamental policies that cannot
be changed without a “vote of a majority of the outstanding voting securities” of the Fund. The phrase “majority of outstanding voting securities” is defined in the 1940 Act as the lesser of: (i) 67% or more of the shares of the Fund present at a duly-called meeting of shareholders, if the holders of more than
50% of the outstanding shares of the Fund are present or represented by proxy; or (ii) more than 50% of the
outstanding shares of the Fund. (All policies of the Fund not specifically identified in this SAI or its Prospectus as fundamental may
be changed without a vote of the shareholders of the Fund.) For purposes of the following
limitations (except for the restriction on concentration), all percentage limitations apply immediately after
a purchase or initial investment.
The Fund may not:
1.
Make investments for the purpose of exercising control or management.
2.
Purchase or sell real estate, except that, to the extent permitted by applicable law,
the Fund may invest in securities directly or indirectly secured by real estate or interests therein
or issued by companies that invest in real estate or interests therein.
3.
Make loans to other persons, except that the acquisition of bonds, debentures or other
corporate debt securities and investment in government obligations, commercial paper, pass-through
instruments, certificates of deposit, bankers’ acceptances and repurchase agreements and purchase and sale contracts and any similar instruments shall not be deemed to be
the making of a loan, and except, further, that the Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law
and the guidelines set forth in the Prospectus and this SAI, as they may be amended from time
to time.
4.
Issue senior securities to the extent such issuance would violate applicable law.
5.
Borrow money, except that the Fund (i) may borrow from banks (as defined in the 1940
Act) in amounts up to 33 1∕3% of its total assets (including the amount borrowed), (ii) may, to the extent permitted by applicable law, borrow up to an additional 5% of its total assets for
temporary purposes, (iii) may obtain such short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities, (iv) may purchase securities on margin
to the extent permitted by applicable law and (v) may enter into reverse repurchase agreements.
The Fund may not pledge its assets other than to secure such borrowings or, to the extent permitted
by the Fund’s investment policies as set forth in the Prospectus and SAI, as they may be amended from time to time.
6.
Underwrite securities of other issuers, except insofar as the Fund technically may
be deemed an underwriter under the 1933 Act, as amended, in selling portfolio securities.
7.
Purchase or sell commodities or contracts on commodities, except to the extent the
Fund may do so in accordance with applicable law and the Fund’s Prospectus and SAI, as they may be amended from time to time.
8.
Concentrate (i.e., hold more than 25% of its assets in the stocks of a single industry or group of
industries) its investments in issuers of one or more particular industries, except
that the Fund may invest more than 25% of its total assets in investments that provide exposure
to ether and/or ether futures contracts.
22
MANAGEMENT OF THE TRUST
THE BOARD OF TRUSTEES AND ITS LEADERSHIP STRUCTURE
The Board has general oversight responsibility with respect to the operation of the
Trust and the Fund. The Board has engaged ProFund Advisors to manage the Fund and is responsible for overseeing ProFund Advisors and other service providers to the Trust and the Fund in accordance with the provisions of the federal securities laws.
The Board is currently composed of four Trustees, including three Independent Trustees
who are not “interested persons” of the Fund, as that term is defined in the 1940 Act (each an “Independent Trustee”). In addition to four regularly scheduled meetings per year, the Board periodically meets
in executive session (with and without employees of ProFund Advisors), and holds special meetings, and/or informal
conference calls relating to specific matters that may require discussion or action prior to its next
regular meeting. The Independent Trustees have retained “independent legal counsel” as the term is defined in the 1940 Act.
The Board has appointed Michael L. Sapir to serve as Chairman of the Board. Mr. Sapir
is also the Co-Founder and Chief Executive Officer of ProFund Advisors and, as such, is not an
Independent Trustee. The Chairman’s primary role is to participate in the preparation of the agenda for Board meetings, determine (with the advice of counsel) which matters need to be acted upon by the Board, and
to ensure that the Board obtains all the information necessary to perform its functions and take action. The
Chairman also presides at all meetings of the Board and acts, with the assistance of staff, as a liaison with
service providers, officers, attorneys and the Independent Trustees between meetings. The Chairman performs such
other functions as requested by the Board from time to time. The Board does not have a lead Independent
Trustee.
The Board has determined that its leadership structure is appropriate in light of
the characteristics of the Trust and the Fund. These characteristics include, among other things, the fact that multiple series
are organized under one Trust; all series of the Trust are registered investment companies;
all series of the Trust have common service providers; and that the majority of the series of the Trust are
geared funds, with similar principal investment strategies. As a result, the Board addresses governance and management
issues that are often common to each series of the Trust. In light of these characteristics, the Board
has determined that a four-member Board, including three Independent Trustees, is of an adequate size to
oversee the operations of the Trust, and that, in light of the small size of the Board, a complex Board leadership
structure is not necessary or desirable. The relatively small size of the Board facilitates ready communication
among the Board members, and between the Board and management, both at Board meetings and between
meetings, further leading to the determination that a complex board structure is unnecessary.
In view of the small size of the Board, the Board has concluded that designating one of the three Independent Trustees as the “lead Independent Trustee” would not be likely to meaningfully enhance the effectiveness of the Board. The Board reviews its leadership structure at least annually and believes that its structure
is appropriate to enable the Board to exercise its oversight of the Fund.
The Board oversight of the Trust and the Fund extends to the Trust’s risk management processes. The Board and its Audit Committee consider risk management issues as part of their
responsibilities throughout the year at regular and special meetings. ProFund Advisors and other service
providers prepare regular reports for Board and Audit Committee meetings that address a variety of risk-related
matters, and the Board as a whole or the Audit Committee may also receive special written reports or
presentations on a variety of risk issues at the request of the Board or the Audit Committee. For example,
the portfolio managers of the Fund meet regularly with the Board to discuss portfolio performance, including investment
risk, counterparty risk and the impact on the Fund of investments in particular securities or derivatives. As noted above, given the relatively small size of the Board, the Board determined it is not
necessary to adopt a complex leadership structure in order for the Board to effectively exercise its risk
oversight function.
The Board has appointed a Chief Compliance Officer (“CCO”) for the Trust (who is also the CCO for ProShare Advisors LLC). The CCO reports directly to the Board and participates in the Board’s meetings. The Independent Trustees meet at least annually in executive session with the CCO,
and the Fund’s CCO prepares and presents an annual written compliance report to the Board. The CCO also
provides updates to
23
the Board on the operation of the Trust’s compliance policies and procedures and on how these procedures are designed to mitigate risk. Finally, the CCO and/or other officers or employees of
ProFund Advisors report to the Board in the event that any material risk issues arise.
In addition, the Audit Committee of the Board meets regularly with the Trust’s independent public accounting firm to review reports on, among other things, the Fund’s controls over financial reporting. The Trustees, their birth date, term of office and length of time served, principal business
occupations during the past five years and the number of portfolios in the Fund Complex overseen and other
directorships, if any, held by each Trustee, are shown below. Unless noted otherwise, the address of each
Trustee is: c/o ProFunds, 7272 Wisconsin Avenue, 21st Floor, Bethesda, MD 20814.
|
Name and Birth Date
|
Term of Office
and Length of
Time Served
|
Principal Occupation(s)
During
the Past 5 Years
|
Number of
Operational
Portfolios in
Fund Complex*
Overseen by Trustee
|
Other Directorships
Held by Trustee
During
Past 5 Years
|
|
Independent Trustees
|
|
|
|
|
|
William D. Fertig
Birth Date: 9/56
|
Indefinite; June
2011 to present
|
Context Capital
Management
(Alternative Asset
Management): Chief
Investment Officer
(September 2002 to
present).
|
ProShares (131)
ProFunds (116)
|
Context Capital
|
|
Russell S. Reynolds III
Birth Date: 7/57
|
Indefinite; October
1997 to present
|
RSR Partners, Inc.
(Retained Executive
Recruitment and
Corporate
Governance
Consulting):
Managing Director
(February 1993 to
present).
|
ProShares (131)
ProFunds (116)
|
RSR Partners, Inc.
|
|
Michael C. Wachs
Birth Date: 10/61
|
Indefinite; October
1997 to present
|
Linden Lane Capital
Partners LLC (Real
Estate Investment
and Development):
Managing Principal
(2010 to present).
|
ProShares (131)
ProFunds (116)
|
NAIOP (the
Commercial Real
Estate Development
Association)
|
|
Interested Trustee and Chairman of the Board
|
|
|
||
24
|
Name and Birth Date
|
Term of Office
and Length of
Time Served
|
Principal Occupation(s)
During
the Past 5 Years
|
Number of
Operational
Portfolios in
Fund Complex*
Overseen by Trustee
|
Other Directorships
Held by Trustee
During
Past 5 Years
|
|
Michael L. Sapir**
Birth Date: 5/58
|
Indefinite; April
1997 to present
|
Chairman and Chief
Executive Officer of
ProFund
Advisors LLC
(April 1997 to
present); ProShare
Advisors LLC
(November 2005 to
present); and
ProShare Capital
Management LLC
(July 2008 to
present).
|
ProShares (131)
ProFunds (116)
|
None
|
*
The “Fund Complex” consists of all operational registered investment companies under the 1940 Act that are advised by ProFund Advisors and any registered investment companies that have
an investment adviser that is an affiliated person of ProFund Advisors. Investment companies that are non-operational
(and therefore, not publicly offered) as of the date of this SAI are excluded from these
figures.
**
Mr. Sapir is an “interested person,” as defined by the 1940 Act, because of his ownership interest in ProFund Advisors.
The Board was formed in 1997 prior to the inception of the Trust’s operations. Messrs. Reynolds, Wachs and Sapir were appointed to serve as the Board’s initial trustees prior to the Trust’s operations. Mr. Fertig was added in June 2011. Each Trustee was and is currently believed to possess
the specific experience, qualifications, attributes, and skills necessary to serve as a Trustee of the Trust.
In addition to their years of service as Trustees to Trust, and gathering experience with funds with investment
objectives and principal investment strategies similar to certain series of the Trust, each individual brings
experience and qualifications from other areas. In particular, Mr. Reynolds has significant senior executive experience
in the areas of human resources and recruitment and executive organization; Mr. Wachs has significant experience
in the areas of investment and real estate development; Mr. Sapir has significant experience in the
field of investment management, both as an executive and as an attorney; and Mr. Fertig has significant
experience in the areas of investment and asset management.
COMMITTEES
The Board has established an Audit Committee to assist the Board in performing oversight
responsibilities. The Audit Committee is composed exclusively of Independent Trustees.
Currently, the Audit Committee is composed of Messrs. Reynolds, Wachs and Fertig. Among other things, the
Audit Committee makes recommendations to the full Board of Trustees with respect to the engagement
of an independent registered public accounting firm and reviews with the independent registered public
accounting firm the plan and results of the internal controls, audit engagement and matters having a material effect on the Trust’s financial operations. During the past fiscal year, the Audit Committee met five times,
and the Board of Trustees met four times.
25
TRUSTEE OWNERSHIP
Listed below for each Trustee is a dollar range of securities beneficially owned in
the Trust, together with the aggregate dollar range of equity securities in all registered investment
companies overseen by each Trustee that are in the same family of investment companies as the Trust, as of December 31, 2023.
|
Name of Trustee
|
Dollar Range
of Equity
Securities in
the Trust
|
Aggregate Dollar
Range of Equity
Securities in All
Registered Investment
Companies Overseen
by Trustee in Family of
Investment Companies
|
|
Independent Trustees
|
|
|
|
William D. Fertig, Trustee
|
None
|
Over $100,000
|
|
Russell S. Reynolds, III, Trustee
|
None
|
$10,001-$50,000
|
|
Michael C. Wachs, Trustee
|
$10,001-$50,000
|
$10,001-$50,000
|
|
Interested Trustee
|
|
|
|
Michael L. Sapir, Trustee and Chairman
|
None
|
Over $100,000
|
No Independent Trustee (or an immediate family member thereof) has any share ownership
in securities of the Advisor, the principal underwriter of the Trust, or any entity controlling,
controlled by or under common control with the Advisor or principal underwriter of the Trust (not including
registered investment companies) as of December 31, 2023.
COMPENSATION OF TRUSTEES
Each Independent Trustee is paid a $325,000 annual retainer for service as a Trustee
on the Board and for service as a trustee on the board of other funds in the Fund Complex. Trustees
who are also Officers or affiliated persons receive no remuneration from the Trust for their services as
Trustees. The Officers, other than the CCO, receive no compensation directly from the Trust for performing the duties
of their offices.
The Trust does not accrue pension or retirement benefits as part of the Fund’s expenses, and Trustees are not entitled to benefits upon retirement from the Board of Trustees.
The following table shows aggregate compensation paid to the Trustees for their service
on the Board for the fiscal year ended July 31, 2024.
|
Name
|
Aggregate
Compensation
From the Fund
|
Pension or
Retirement
Benefits
Accrued as
Part of
Trust
Expenses
|
Estimated
Annual
Benefits
Upon
Retirement
|
Total
Compensation
From Trust and
Fund Complex
Paid to Trustees
|
|
Independent Trustees
|
|
|
|
|
|
William D. Fertig, Trustee
|
$0
|
$0
|
$0
|
$325,000
|
|
Russell S. Reynolds, III, Trustee
|
$0
|
$0
|
$0
|
$325,000
|
|
Michael C. Wachs, Trustee
|
$0
|
$0
|
$0
|
$325,000
|
|
Interested Trustee
|
|
|
|
|
|
Michael L. Sapir, Trustee and Chairman
|
$0
|
$0
|
$0
|
$0
|
26
OFFICERS
The Trust’s executive officers (the “Officers”), their date of birth, term of office and length of time served and their principal business occupations during the past five years, are shown
below. Unless noted otherwise, the address of each Trustee and Officer is: c/o ProFunds, 7272 Wisconsin Avenue, 21st Floor, Bethesda, MD 20814.
|
Name and Birth Date
|
Position(s)
Held with
Trust
|
Term of Office
and Length of
Time Served
|
Principal Occupation(s)
During the Past
5 Years
|
|
Todd B. Johnson
Birth Date: 1/64
|
President
|
Indefinite;
January 2014 to
present
|
Chief Investment Officer of the Advisor
(December 2008 to present); ProShare
Advisors LLC (December 2008 to present);
and ProShare Capital Management LLC
(February 2009 to present).
|
|
Rebecca Colvin.
Birth Date: 11/78
|
Treasurer
|
Indefinite;
November 2024
to present
|
Vice President, Fund Administration, Ultimus
Fund Solutions, LLC (July 2024 to present);
and Vice President, Citi Fund Services Ohio,
Inc. (December 2001 to June 2024).
|
|
Victor M. Frye, Esq.
Birth Date: 10/58
|
Chief
Compliance
Officer and
Anti-Money
Laundering
Officer
|
Indefinite;
September 2004
to present
|
Counsel and Chief Compliance Officer of the
Advisor (October 2002 to present) and
ProShare Advisors LLC (December 2004 to
present); Secretary of ProFunds Distributors,
Inc. (April 2008 to present); Chief
Compliance Officer of ProFunds Distributors,
Inc. (July 2015 to present).
|
|
Richard F. Morris
Birth Date: 8/67
|
Chief Legal
Officer and
Secretary
|
Indefinite;
December 2015
to present
|
General Counsel of ProShare Advisors LLC,
ProFund Advisors LLC, and ProShare Capital
Management LLC (December 2015 to
present); Chief Legal Officer of ProFunds
Distributors, Inc. (December 2015 to present);
Partner at Morgan Lewis & Bockius, LLP
(October 2012 to November 2015).
|
The Officers, under the supervision of the Board, manage the day-to-day operations
of the Trust. One Trustee and all of the Officers of the Trust are directors, officers or employees
of the Advisor or Ultimus Fund Solutions, LLC. The other Trustees are Independent Trustees. The Trustees and some Officers are
also directors and officers of some or all of the other funds in the Fund Complex. The
Fund Complex includes all funds advised by the Advisor and any funds that have an investment adviser that is
an affiliate of the Advisor.
COMPENSATION OF OFFICERS
The Officers, other than the CCO, receive no compensation directly from the Trust
for performing the duties of their offices.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
See Appendix B to this SAI for a list of the principal holders of the Fund.
27
INVESTMENT ADVISOR
ProFund Advisors, located at 7272 Wisconsin Avenue, 21st Floor, Bethesda, MD 20814, serves as the investment adviser to the Fund and provides investment advice and management services to the Fund. ProFund Advisors is owned by Michael L. Sapir, Louis M. Mayberg and Radcliff PS I LLC.
INVESTMENT ADVISORY AGREEMENT
Under an investment advisory agreement between the Advisor and the Trust dated October
28, 1997, as amended March 10, 2005 (the “Advisory Agreement”), the Advisor manages the investment and reinvestment of the Fund’s assets in accordance with its investment objective(s), policies, and restrictions, subject to the general supervision and control of the Board and the Trust’s Officers. The Advisor bears all costs associated with providing these services. The Advisory Agreement may be terminated
with respect to a series of the Trust at any time, by a vote of the Trustees, by a vote of a majority
of the outstanding voting securities (as defined in the 1940 Act) of that series, or by the Advisor in each case upon sixty days’ prior written notice.
Pursuant to the Advisory Agreement, each Fund pays the Advisor a fee at an annualized
rate, based on its average daily net assets of 0.75%. In addition, subject to the condition that
the aggregate daily net assets of the Trust be equal to or greater than $10 billion, the Advisor has agreed
to the following fee reductions with respect to each individual Fund: 0.025% of the Fund’s daily net assets in excess of $500 million to $1 billion, 0.05% of the Fund’s daily net assets in excess of $1 billion to $2 billion, and 0.075% of the Fund’s net assets in excess of $2 billion.
Fees Paid under the Advisory Agreement
Because none of the New Funds were operational at the end of the Trust’s last fiscal year, certain information on the New Funds is not included in this SAI.
MANAGEMENT SERVICES AGREEMENT
Under a separate Amended and Restated Management Services Agreement dated October
28, 1997 (the “Management Agreement”), the Advisor performs certain client support and other administrative services on behalf of the Trust. These services include, in general, assisting the Board in
all aspects of the administration and operation of the Trust. Other duties and services performed by
the Advisor under the Management Agreement include, but are not limited to, negotiating contractual agreements,
recommending and monitoring service providers, preparing reports for the Board regarding service
providers and other matters requested by the Board, providing information to financial intermediaries,
and making available employees of the Advisor to serve as officers and Trustees. The Advisor bears all
costs associated with providing these services. The Management Agreement may be terminated with respect
to any series of the Trust at any time, by a vote of the Trustees, by a vote of a majority of the outstanding
voting securities (as defined by the 1940 Act) of that series, or by the Advisor in each case upon sixty days’ prior written notice.
Management Services Fees Paid
Because none of the New Funds were operational at the end of the Trust’s last fiscal year, certain information on the New Funds is not included in this SAI.
EXPENSE LIMITATION AGREEMENT
With respect to each Fund, ProFund Advisors has contractually agreed to waive investment
advisory and management services fees and/or to reimburse certain other Fund expenses through
at least December 31, 2024 (unless the Board consents to an earlier revision or termination of this arrangement).
After such date, the expense limitation may be terminated or revised by ProFund Advisors. This expense
limitation excludes brokerage costs, interest, taxes, dividends (including dividend expenses on securities
sold short), litigation, indemnification, and extraordinary expenses. Additionally, the expense limitation
does not include any
28
expenses incurred by those underlying investment companies. Amounts waived or reimbursed
in a particular contractual period may be recouped by the Advisor within three years of the end of
that contract period, however, such recoupment will be limited to the lesser of any expense limitation in
place at the time of recoupment or the expense limitation in place at the time of the waiver or reimbursement.
Expense Limits
The annual operating expenses are limited as follows:
|
|
EXPENSE
LIMIT
|
|
|
Investor
Class
|
|
Ether Strategy ProFund
|
1.40%
|
SERVICES AGREEMENT
Under a separate Services Agreement dated January 1, 2005 (the “Services Agreement”), the Advisor provides an online shareholder trading platform. Pursuant to the Services Agreement,
the Advisor receives a monthly fee from the Trust based on the actual costs incurred. For 2024, the estimated cost is $11,400 per month.
PORTFOLIO MANAGEMENT
PORTFOLIO MANAGER COMPENSATION
ProFund Advisors believes that its compensation program is competitively positioned
to attract and retain high-caliber investment professionals. The compensation package for portfolio
managers consists of a fixed base salary, an annual incentive bonus opportunity and a competitive benefits
package. A portfolio manager’s salary compensation is designed to be competitive with the marketplace and reflect a portfolio manager’s relative experience and contribution to the firm. Fixed base salary compensation is reviewed and adjusted annually to reflect increases in the cost of living and market rates.
The annual incentive bonus opportunity provides cash bonuses based upon the overall firm’s performance and individual contributions. Principal consideration for each portfolio
manager is given to appropriate risk management, teamwork and investment support activities in determining
the annual bonus amount.
Portfolio managers are eligible to participate in the firm’s standard employee benefits programs, which include a competitive 401(k) retirement savings program with employer match,
life insurance coverage, and health and welfare programs.
Portfolio Manager Ownership
Listed below for each portfolio manager is a dollar range of securities beneficially
owned in the Fund managed by the portfolio manager, together with the aggregate dollar range of
equity securities in all registered investment companies in the Fund Complex as of July 31, 2024.
|
Name of Portfolio Manager
|
Dollar Range of
Equity Securities
in the Fund
Managed by the
Portfolio Manager
|
Aggregate Dollar Range
of Equity Securities in
All Registered
Investment Companies in
the Fund Complex
|
|
Alexander Ilyasov
|
None
|
$50,001-$100,000
|
|
George Banian
|
None
|
None
|
29
Other Accounts Managed by Portfolio Managers
Portfolio managers are generally responsible for multiple investment company accounts.
As described below, certain inherent conflicts of interest arise from the fact that a
portfolio manager has responsibility for multiple accounts, including conflicts relating to the allocation
of investment opportunities. Listed below for each portfolio manager are the number and type of accounts managed
or overseen by such portfolio manager as of July 31, 2024.
|
Name of Portfolio
Manager
|
Number of All Registered
Investment Companies
Managed/Total Assets
|
Number of All Other
Pooled Investment
Vehicles
Managed/Total Assets
|
Number of All Other
Accounts
Managed/Total Assets
|
|
Alexander Ilyasov
|
83/$4,620,700,259
|
16/$3,064,392,324
|
0/$0
|
|
George Banian
|
13/$2,871,888,354
|
12/$2,931,017,281
|
0/$0
|
Conflicts of Interest
In the course of providing advisory services, ProFund Advisors may simultaneously
recommend the sale of a particular security for one account while recommending the purchase of the
same security for another account if such recommendations are consistent with each client’s investment strategies. ProFund Advisors also may recommend the purchase or sale of securities that may also be recommended
by ProShare Advisors LLC, an affiliate of ProFund Advisors.
ProFund Advisors, its principals, officers and employees (and members of their families)
and affiliates may participate directly or indirectly as investors in ProFund Advisors’ clients, such as the Fund. Thus ProFund Advisors may recommend to clients the purchase or sale of securities
in which it, or its officers, employees or related persons have a financial interest. ProFund Advisors
may give advice and take actions in the performance of its duties to its clients that differ from the advice
given or the timing and nature of actions taken, with respect to other clients’ accounts and/or employees’ accounts that may invest in some of the same securities recommended to clients.
In addition, ProFund Advisors, its affiliates and principals may trade for their own
accounts. Consequently, non-customer and proprietary trades may be executed and cleared through
any prime broker or other broker utilized by clients. It is possible that officers or employees of ProFund
Advisors may buy or sell securities or other instruments that ProFund Advisors has recommended to, or purchased
for, its clients and may engage in transactions for their own accounts in a manner that is inconsistent with ProFund Advisors’ recommendations to a client. Personal securities transactions by employees may raise
potential conflicts of interest when such persons trade in a security that is owned by, or considered for
purchase or sale for, a client. ProFund Advisors has adopted policies and procedures designed to detect and
prevent such conflicts of interest and, when they do arise, to ensure that it effects transactions for clients
in a manner that is consistent with its fiduciary duty to its clients and in accordance with applicable law.
Any “access person” of ProFund Advisors, (as defined under the 1940 Act and the Investment Advisers Act of 1940 (the “Advisers Act”)), may make security purchases subject to the terms of the ProFund Advisors Code of Ethics that are consistent with the requirements of Rule 17j-1 under
the 1940 Act and Rule 204A-1 under the Advisers Act.
ProFund Advisors and its affiliated persons may come into possession from time to
time of material nonpublic and other confidential information about companies which, if disclosed, might affect an investor’s decision to buy, sell, or hold a security. Under applicable law, ProFund Advisors
and its affiliated persons would be prohibited from improperly disclosing or using this information for their
personal benefit or for the benefit of any person, regardless of whether the person is a client of ProFund Advisors.
Accordingly, should ProFund Advisors or any affiliated person come into possession of material nonpublic
or other confidential information with respect to any company, ProFund Advisors and its affiliated persons
will have no responsibility or liability for failing to disclose the information to clients as
a result of following its policies and procedures designed to comply with applicable law.
30
REGISTRATION AS A COMMODITY POOL OPERATOR
In connection with its management of the Fund, ProFund Advisors has registered as a commodity pool operator (a “CPO”) under the Commodity Exchange Act (the “CEA”). Accordingly, with respect to the Fund, ProFund Advisors is subject to registration and regulation as a CPO under the
CEA, and must comply with various regulatory requirements under the CEA and the rules and regulations of
the CFTC and the National Futures Association (“NFA”), including disclosure requirements and reporting and recordkeeping requirements. ProFund Advisors is also subject to periodic inspections and audits
by the NFA. Compliance with these regulatory requirements could adversely affect the Fund’s total return. In this regard, any further amendment to the CEA or its related regulations that subject ProFund Advisors or the Fund to additional regulation may have adverse impacts on the Fund’s operations and expenses.
31
OTHER SERVICE PROVIDERS
ADMINISTRATOR, TRANSFER AGENT AND FUND ACCOUNTING AGENT
On November 4, 2024, Ultimus Fund Solutions, LLC (“Ultimus” or the “Administrator”), located at 225 Pictoria Drive, Suite 450, Cincinnati, Ohio 45246, began serving as the administrator to each Fund. As the Administrator, Ultimus provides services to each Fund including, among other things, operations, compliance, and administrative services. The Administrator provides each Fund with all required general administrative services, including, without limitation, office space, equipment, and personnel; clerical and general back office services; bookkeeping and internal accounting; the determination of NAVs; and, the preparation and filing of all financial reports, and all other materials, except registration statements and proxy statements, required to be filed or furnished by each Fund under federal and state securities laws.
Prior to November 4, 2024, Citi Fund Services Ohio, Inc. (“Citi” or the “Prior Administrator”), located at 4400 Easton Commons, Suite 200, Columbus, Ohio 43219, an indirect wholly
owned subsidiary of Citibank, N.A., acted as the administrator to the Trust. The Prior Administrator provided the Trust with all required general administrative services, including the preparation of registration
statements and proxy statements required to be filed or furnished by each Fund under federal and state
securities laws. The Prior Administrator also maintained the shareholder account records for each Fund, distributed dividends and distributions payable by each series of the Trust, and produced statements with respect to account activity for each series of the Trust and their shareholders.
For the period beginning November 4, 2024 through December 31, 2024, Citi will provide
regulatory administration services to the Trust pursuant to a separate agreement.
For these services, Citi is paid a set fee allocated among each Fund. Effective January 1, 2025, these services
will be provided by Ultimus pursuant to a separate agreement.
As of November 4, 2024, the Trust pays Ultimus an annual fee for its services as the
Administrator based on the aggregate average net assets of all series of the Trust. This fee ranges from 0.08% of the Trust’s average monthly net assets up to $2 billion to 0.0075% of the Trust’s average monthly net assets in excess of $3.5 billion on an annual basis and a base fee for certain filings. Administration
fees include additional fees paid to Ultimus by the Trust for support of the Compliance Service Program.
Prior to November 4, 2024, the Trust paid the Prior Administrator an annual fee for its services based on the aggregate average net assets of all series of the Trust. This fee ranged from 0.05% of the Trust’s average monthly net assets up to $2 billion to 0.00375% of the Trust’s average monthly net assets in excess of $10 billion on an annual basis and a base fee for certain filings. Administration
fees included additional fees paid to Citi by the Trust for support of the Compliance Service Program.
Fees Paid under the Administration Agreement and Regulatory Administration Agreement
Because none of the New Funds were operational at the end of the Trust’s last fiscal year, certain information on the New Funds is not included in this SAI.
Pursuant to a Transfer Agreement between affiliates of FIS Investment Systems LLC
and Citi, dated December 19, 2014, FIS Investor Services LLC (“FIS”) acts as transfer agent for each series of the Trust in exchange for fees. The principal business address of FIS is 4249 Easton Way, Suite
400, Columbus, OH 43219. Since April 1, 2015, FIS has acted as transfer agent for each series of the
Trust in exchange for fees. As transfer agent, FIS maintains the shareholder account records, distributes distributions
payable by each series, and produces statements with respect to account activity for each series and
their shareholders. As of November 4, 2024, Ultimus also acts as the fund accounting agent for each series of the Trust. Prior to November 4, 2024, Citi acted as fund accounting agent for each series of the Trust. The Trust paid Citi an annual base fee, plus asset based fees and reimbursement of certain expenses, for
its services as fund accounting agent. The asset based fees ranged from 0.03% of the Trust’s average monthly net assets up to $1 billion to 0.00375% of the Trust’s average monthly net assets in excess of $10 billion, on an annual basis.
32
CUSTODIAN
UMB Bank, N.A. acts as Custodian to the Trust. UMB Bank, N.A.’s address is 928 Grand Avenue, Kansas City, Missouri, 64106.
For each series of the Trust, the Custodian, among other things, maintains a custody
account or accounts in the name of each series; receives and delivers all assets for each series
upon purchase and upon sale or maturity; collects and receives all income and other payments and distributions
on account of the assets of each series and pays all expenses of each series. For its services, the
Custodian receives an asset-based fee and reimbursement of certain expenses.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP serves as the Fund’s independent registered public accounting firm and provides audit services, tax return preparation and assistance, and audit-related services in connection
with certain SEC filings. KPMG LLP’s address is 191 West Nationwide Boulevard, Suite 500, Columbus, Ohio 43215.
LEGAL COUNSEL
Dechert LLP serves as counsel to the Fund. The firm’s address is 1095 Avenue of the Americas, New York, NY 10036.
ADMINISTRATIVE SERVICES
The Fund may participate in programs in which a third-party (a “Financial Intermediary”) maintains records of indirect beneficial ownership interests in the Fund and provides administrative, sub-accounting, sub-transfer agency and other non-distribution services for the Fund and Fund shareholders. These programs include any type of arrangement through which investors have an indirect beneficial
ownership interest in the Fund via omnibus accounts, insurance company separate accounts, bank common or collective
trust funds, employee benefit plans or similar arrangements (each a “financial intermediary account”). Under these programs, the Trust, on behalf of the Fund, may enter into the administrative services agreements with Financial Intermediaries pursuant to which Financial Intermediaries will provide transfer
agency, administrative services and other services with respect to the Fund. These services may include, but are not limited to: shareholder record set-up and maintenance, account statement preparation
and mailing, transaction processing and settlement and account level tax reporting. Because of the relatively
higher volume of transactions in the Fund, generally, the Fund are authorized to pay higher administrative service fees than might be the case for more traditional mutual funds. To the extent any of these fees
are paid by the Fund, they are included in the amount appearing opposite the caption “Other Expenses” under “Annual Fund Operating Expenses” in the expense tables contained in the Prospectus. In addition, the Advisor or Distributor may compensate such Financial Intermediaries or their agents directly or indirectly
for such services. Compensation paid by the Advisor or the Distributor out of their own resources for
such services is not reflected in the fees and expenses outlined in the fee table for the Fund.
For these services, the Trust may pay each Financial Intermediary (i) a fee based
on average daily net assets of the Fund that are invested in such Fund through the financial intermediary account, and/or
(ii) an annual fee that may vary depending upon the assets in the financial intermediary account,
and/or (iii) minimum account fees. The Financial Intermediary may impose other account or service
charges to the Fund or directly to account holders. Please refer to information provided by the Financial
Intermediary for additional information regarding such charges.
Because none of the New Funds were operational at the end of the Trust’s last fiscal year, certain information on the New Funds is not included in this SAI.
33
DISTRIBUTION OF FUND SHARES
DISTRIBUTOR
The Distributor, a wholly-owned subsidiary of the Advisor serves as the distributor
and principal underwriter in all fifty states, the District of Columbia and Puerto Rico and offers
shares of the Fund on a continuous basis. Its address is 7272 Wisconsin Avenue, 21st Floor, Bethesda, Maryland 20814. The Distributor has no role in determining the investment policies of the Trust or which
securities are to be purchased or sold by the Trust.
DISTRIBUTION AND SERVICE (12b-1) PLAN
The Board has approved a Distribution and Service Plan under which the Fund may pay financial intermediaries such as broker-dealers (“Authorized Firms”) up to 0.25%, on an annualized basis, of average daily net assets attributable to Investor Class Shares as reimbursement or compensation
for distribution-related activities with respect to Investor Class Shares and shareholder services (the “Investor Class Plan”). Under the Investor Class Plan, the Trust or the Distributor may enter into agreements (“Distribution and Service Agreements”) with Authorized Firms that purchase Investor Class Shares on behalf of their clients. The Distribution and Service Agreements will provide for compensation to the Authorized
Firms in an amount up to 0.25% (on an annual basis) of the average daily net assets of the Investor Class
Shares of the Fund attributable to, or held in the name of the Authorized Firm for, its clients. The Fund may pay different distribution and/or service fee amounts to Authorized Firms, which may provide different
levels of services to their clients or customers.
The Advisor, the Distributor and other service providers or their affiliates, may
utilize their own resources to finance distribution or service activities on behalf of the Fund for distribution related activities or the provision of shareholder services not otherwise covered by the Investor Class
Plan.
The Investor Class Plan is operated as a “compensation” plan, as payments may be made for services rendered to the Fund regardless of the level of expenditures by the Authorized Firms. The Trustees
will, however, take into account such expenditures for purposes of reviewing operations
under the Investor Class Plan in connection with their annual consideration of the Investor Class Plan’s renewal for each Fund. The Investor Class Plan authorizes payments as compensation or reimbursement for activities
such as, without limitation: (1) advertising; (2) compensation of the Distributor, securities broker-dealers
and sales personnel; (3) production and dissemination of Investor Class prospectuses to prospective investors;
(4) printing and mailing sales and marketing materials; (5) capital or other expenses of associated
equipment, rent, salaries, bonuses, interest, and other overhead or financing charges; (6) receiving and processing
shareholder orders; (7) performing the accounting for Investor Class shareholder accounts; (8) maintaining
retirement plan accounts; (9) answering questions and handling correspondence for individual accounts;
(10) acting as the sole shareholder of record for individual shareholders; (11) issuing shareholder reports
and transaction confirmations; (12) executing daily investment “sweep” functions; and (13) furnishing investment advisory services.
The Investor Class Plan and Distribution and Service Agreements continue in effect
from year-to-year only if such continuance is specifically approved annually by a vote
of the Trustees of the Trust, including a majority of the Trustees who are not interested persons of the Trust and
who have no direct or indirect financial interest in the operation of the Investor Class Plan or the related
Distribution and Service Agreements. All material amendments of the Investor Class Plan must also be approved
by the Trustees in the manner described above. The Investor Class Plan may be terminated at any time by a
majority of the Trustees as described above or by vote of a majority of the outstanding Investor Class Shares
of a Fund. The Distribution and Service Agreements may be terminated at any time, without payment
of any penalty, by vote of a majority of the Trustees as described above or by a vote of a majority of the
outstanding Investor Class Shares of a Fund on not more than 60 days’ written notice to any other party to the Distribution and Service Agreements. The Distribution and Service Agreements shall terminate automatically
if assigned. The Trustees have determined that, in their judgment, there is a reasonable likelihood
that the Investor Class Plan
34
will benefit each Fund and holders of Investor Class Shares of each Fund. In the Trustees’ quarterly review of the Investor Class Plan and Distribution and Service Agreements, they will consider
their continued appropriateness and the level of compensation and/or reimbursement provided therein.
The Investor Class Plan is intended to permit the financing of a broad array of distribution-related
activities and services, as well as shareholder services, for the benefit of Investor
Class investors. These activities and services are intended to make Investor Class Shares an attractive investment
alternative, which may lead to increased assets, increased investment opportunities and diversification,
and reduced per share operating expenses. Authorized Firms may pay broker-dealers (including, for avoidance
of doubt, the Distributor), investment advisers, banks, trust companies, accountants, estate planning
firms, or other financial institutions or securities industry professionals a fee as compensation for service
and distribution-related activities and/or shareholder services. There are currently no plans to impose distribution
fees.
DISTRIBUTION OF FUND SHARES TO GOVERNMENT RETIREMENT PLANS
The Fund will not accept purchases from any government plan or program as defined under
Rule 206(4)-5(f)(8) under the Advisers Act. Specifically, the Fund will not accept, and any broker-dealer should not accept, any order for the purchase of Fund shares on behalf of any participant-directed
investment program or plan sponsored or established by a State or political subdivision or any
agency, authority or instrumentality thereof, including, but not limited to, a “qualified tuition plan” authorized by Section 529 of the Code, a retirement plan authorized by Section 403(b) or 457 of the Code, or any
similar program or plan.
OTHER MATTERS
COSTS AND EXPENSES
The Fund bears all expenses of its operations other than those assumed by the Advisor
or the Administrator. Fund expenses include, but are not limited to: the investment advisory
fee; the management services fee; administrative fees, transfer agency fees and shareholder servicing
fees; compliance service fees; anti-money laundering administration fees; custodian and accounting fees and expenses;
principal financial officer/treasurer services fees; brokerage and transaction fees; legal and auditing
fees; securities valuation expenses; fidelity bonds and other insurance premiums; expenses of preparing and printing
prospectuses, proxy statements, and shareholder reports and notices; registration fees and expenses;
proxy and annual meeting expenses, if any; licensing fees; all federal, state, and local taxes (including,
without limitation, stamp, excise, income, and franchise taxes); organizational costs; and Independent Trustees’ fees and expenses.
PAYMENTS TO THIRD PARTIES FROM THE ADVISOR AND/OR DISTRIBUTOR
As disclosed in the Prospectus, the Advisor and the Distributor may from time to time
pay significant amounts to financial firms in connection with the sale or servicing of
the Fund and for other services such as those described in the Prospectus. This information is provided in
order to assist broker-dealers in satisfying certain requirements of Rule 10b-10 under the Securities
Exchange Act of 1934, as amended, which provides that broker-dealers must provide information to customers
regarding any remuneration they receive in connection with a sales transaction. You should consult
your financial advisor and review carefully any disclosure by the financial firm as to compensation received
by your financial advisor.
In addition, the Advisor, the Distributor and their affiliates may from time to time
make additional payments such as cash bonuses or provide other incentives to selected financial firms
as compensation for services (including preferential services) such as, without limitation, paying for
active asset allocation services provided to investors in the Fund, providing the Fund with “shelf space” or a higher profile with the financial firms’ financial consultants and their customers, placing the Fund on the financial firms’ preferred or recommended fund list or otherwise identifying the Fund as being part of a complex to be accorded a higher degree of marketing support than complexes not making such payments, granting the
Advisor or Distributor access to the financial firms’ financial consultants (including through the firms’ intranet websites) in order to
35
promote the Fund, promotions in communications with financial firms’ customers such as in the firms’ internet websites or in customer newsletters, providing assistance in training and educating the financial firms’ personnel, and furnishing marketing support and other specified services. These payments
may be significant to the financial firms and may also take the form of sponsorship of seminars or informational
meetings or payment for attendance by persons associated with the financial firms at seminars
or informational meetings.
A number of factors will be considered in determining the amount of these additional
payments to financial firms. On some occasions, such payments may be conditioned upon levels of
sales, including the sale of a specified minimum dollar amount of the shares of the Fund, all other Funds, other funds sponsored by the Advisor and its affiliates together and/or a particular class of shares, during
a specified period of time. The Distributor and the Advisor may also make payments to one or more participating
financial firms based upon factors such as the amount of assets a financial firm’s clients have invested in the Fund and the quality of the financial firm’s relationship with the Distributor or the Advisor and its affiliates.
The additional payments described above are made out of the Distributor’s or the Advisor’s (or their affiliates’) own assets, as applicable, pursuant to agreements with brokers and do not change the price paid by investors for the purchase of the Fund’s shares or the amount the Fund will receive as proceeds from such sales. These payments may be made to financial firms selected by the Distributor or
the Advisor or their affiliates to the financial firms that have sold significant amounts of shares of
the Fund. Dealers may not use sales of the Fund’s shares to qualify for this compensation to the extent prohibited by the laws or rules of any state or any self-regulatory agency, such as FINRA. The level of payment made to financial
firm(s) in any future year will vary, may be subject to certain minimum payment levels, and is typically
calculated as a percentage of sales made to and/or assets held by customers of the financial firm.
In some cases, in addition to the payments described above, the Distributor, the Advisor and/or their affiliates
will make payments for special events such as a conferences or seminars sponsored by one of such financial
firms.
If investment advisers, distributors or affiliates of mutual funds pay bonuses and
incentives in differing amounts, financial firms and their financial consultants may have financial
incentives for recommending a particular mutual fund (including the Fund) over other mutual funds. In addition, depending on the arrangements in place at any particular time, a financial firm and its financial
consultants may also have a financial incentive for recommending a particular share class over other share
classes. You should consult with your financial advisor and review carefully any disclosure by the financial
firm as to compensation received by that firm and/or your financial advisor.
At the date of this SAI, the Distributor and the Advisor anticipate that Jefferson
National, LPL Financial Corporation, Morgan Stanley & Co. Incorporated, and Wells Fargo may receive
additional payments for the distribution services and/or educational support described above ranging from
0.03% to 0.20% of the total value of Fund shares held in their respective accounts. The Distributor and
the Advisor expects that additional firms may be added from time to time. Any additions, modifications, or
deletions to the firms identified in this paragraph or the terms of the arrangements with those firms that
have occurred since the date of this Statement of Additional Information are not reflected.
Representatives of the Distributor, the Advisor and their affiliates visit brokerage
firms on a regular basis to educate financial advisors about the Fund and to encourage the sale of Fund shares to their clients. The costs and expenses associated with these efforts may include, but are not limited
to, travel, lodging, sponsorship at educational seminars and conferences, entertainment and meals to the
extent permitted by law.
Although the Fund may use financial firms that sell Fund shares to effect transactions for the Fund’s portfolio, the Fund and the Advisor will not consider the sale of Fund shares as a
factor when choosing financial firms to make those transactions.
CODE OF ETHICS
The Trust, ProFund Advisors and the Distributor each have adopted a consolidated code
of ethics (the “COE”), under Rule 17j-1 of the 1940 Act, which is reasonably designed to ensure that all acts, practices and courses of business engaged in by personnel of the Trust, ProFund Advisors and
the Distributor reflect
36
high standards of conduct and comply with the requirements of the federal securities
laws. There can be no assurance that the COE will be effective in preventing deceptive, manipulative or
fraudulent activities. The COE permits personnel subject to it to invest in securities, including securities
that may be held or purchased by the Fund; however, such transactions are reported on a regular basis by ProFund Advisors’ personnel that are Access Persons. Access Persons, as the term is defined in the COE,
subject to the COE are also required to report transactions in registered open-end investment companies advised
or sub-advised by ProFund Advisors. The COE is on file with the SEC and is available to the public.
PROXY VOTING POLICY AND PROCEDURES
Background
The Board of Trustees has adopted policies and procedures with respect to voting proxies
relating to portfolio securities of the Fund, pursuant to which the Board of Trustees has delegated responsibility for voting such proxies to ProFund Advisors subject to the Board’s continuing oversight.
Policies and Procedures
The Advisor’s proxy voting policies and procedures (the “Guidelines”) are reasonably designed to maximize shareholder value and protect shareholder interests when voting proxies. The Advisor’s Brokerage Allocation and Proxy Voting Committee (the “Proxy Committee”) exercises and documents the Advisor’s responsibilities with regard to voting of client proxies. The Proxy Committee is composed
of employees of the Advisor. The Proxy Committee reviews and monitors the effectiveness of the Guidelines.
To assist the Advisor in its responsibility for voting proxies and the overall proxy voting process, the
Advisor has retained Institutional Shareholder Services (“ISS”) as an expert in the proxy voting and corporate governance area. The Proxy Committee reviews and, as necessary, may amend periodically the Guidelines to
address new or revised proxy voting policies or procedures.
Information on how proxies were voted for portfolio securities for the 12-month (or
shorter) period ended June 30 is available without charge, upon request, by calling the Advisor at
888-776-3637 or on the Trust’s website at profunds.com, or on the SEC’s website at http://www.sec.gov. See Appendix C for a copy of the proxy voting policy and procedures.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Trust has adopted a policy regarding the disclosure of information about the Fund’s portfolio holdings, which is reviewed on an annual basis. The Board must approve all material
amendments to this policy. Disclosure of the complete holdings of each Fund is required to be made quarterly
within 60 days of the end of the Fund’s second and fourth fiscal quarter in the reports filed on Form N-CSR and in the monthly holdings report on Form N-PORT, with every third month made available to the public
by the SEC 60 days after the end of the Funds’ fiscal quarter. You can find SEC filings on the SEC’s website, www.sec.gov. Portfolio holdings information may be made available prior to its public availability (“Non-Standard Disclosure”) as frequently as daily to the Advisor, Ultimus Fund Solutions, LLC, UMB Bank, N.A., and ProFunds Distributors, Inc. (collectively, the “Service Providers”), and as frequently as weekly to certain non-service providers (including rating agencies, consultants and other qualified
financial professionals for such purposes as analyzing and ranking the Fund or performing due diligence and asset allocation). A recipient of Non-Standard Disclosure must sign a confidentiality agreement, as required
by applicable law, in which the recipient agrees that the information will be kept confidential, be used
only for a legitimate business purpose and will not be used for trading. Recipients are required to have
systems and procedures in place to ensure that the confidentiality agreement will be honored. Neither the Fund nor the Advisor may receive compensation or other consideration in connection with the disclosure of information
about portfolio securities.
Non-Standard Disclosure may be authorized by the CCO or, in his absence, any other
authorized officer of the Trust, if he determines that such disclosure is in the best interests
of shareholders, no conflict
37
exists between the interests of shareholders and those of the Advisor or Distributor,
such disclosure serves a legitimate business purpose, and measures discussed in the previous paragraph regarding
confidentiality are satisfied. The lag time between the date of the information and the date on which
the information is disclosed shall be determined by the officer authorizing the disclosure. The CCO is responsible
for ensuring that portfolio holdings disclosures are made in accordance with this Policy. As of the
date of this SAI, no parties other than the Trust’s Service Providers and any other persons identified above receive Non-Standard Disclosure.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Board, ProFund Advisors is responsible for
decisions to buy and sell securities and derivatives for the Fund and the selection of brokers and dealers to effect transactions. Purchases from dealers serving as market makers may include a dealer’s mark-up or reflect a dealer’s mark-down. Purchases and sales of U.S. government securities are normally transacted through issuers, underwriters or major dealers in U.S. government securities acting as principals.
Such transactions, along with other fixed income securities transactions, are made on a net basis and
do not typically involve payment of brokerage commissions. The cost of securities purchased from an underwriter
usually includes a commission paid by the issuer to the underwriters; transactions with dealers normally
reflect the spread between bid and asked prices; and transactions involving baskets of equity securities
typically include brokerage commissions. ProFund Advisors may choose to cross-trade securities between
clients to save costs where allowed under applicable law.
The policy for the Fund regarding purchases and sales of securities is that primary consideration will
be given to obtaining the most favorable prices and efficient executions of transactions.
Consistent with this policy, when securities transactions are effected on a stock exchange, the policy
is to pay commissions that are considered fair and reasonable without necessarily determining that the lowest
possible commissions are paid in all circumstances. ProFund Advisors believes that a requirement always to
seek the lowest possible commission cost could impede effective portfolio management and preclude the Fund
and ProFund Advisors from obtaining a high quality of brokerage and execution services. In seeking to determine
the reasonableness of brokerage commissions paid in any transaction, ProFund Advisors relies upon its
experience and knowledge regarding commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and execution services received from the broker. Such determinations are necessarily
subjective and imprecise, as in most cases an exact dollar value for those services is not ascertainable. In
addition to commission rates, when selecting a broker for a particular transaction, ProFund Advisors considers but
is not limited to the following efficiency factors: the broker’s availability, willingness to commit capital, reputation and integrity, facilities reliability, access to research, execution capacity and responsiveness.
ProFund Advisors may give consideration to placing portfolio transactions with those
brokers and dealers that also furnish research and other execution related services to the Fund
or ProFund Advisors. Such services may include, but are not limited to, any one or more of the following: information
as to the availability of securities for purchase or sale; statistical or factual information
or opinions pertaining to investment; information about market conditions generally; equipment that facilitates
and improves trade execution; and appraisals or evaluations of portfolio securities.
For purchases and sales of derivatives (i.e., financial instruments whose value is derived from the value of an underlying asset, interest rate or index) ProFund Advisors evaluates counterparties
on the following factors: reputation and financial strength; execution prices; commission
costs; ability to handle complex orders; ability to give prompt and full execution, including the ability to
handle difficult trades; accuracy of reports and confirmations provided; reliability, type and quality of research
provided; financing costs and other associated costs related to the transaction; and whether the total
cost or proceeds in each transaction is the most favorable under the circumstances.
Consistent with the Fund’s investment objective, ProFund Advisors may enter into guarantee close agreements with certain brokers. In all such cases, the agreement calls for the execution
price at least to match the closing price of the security. In some cases, depending upon the circumstances,
the broker may obtain a
38
price that is better than the closing price and which under the agreement provides
additional benefits to clients. ProFund Advisors will generally distribute such benefits pro rata to applicable
client trades. In addition, ProFund Advisors, any of its affiliates or employees and the Fund have a policy not to enter into any agreement or other understanding—whether written or oral—under which brokerage transactions or remuneration are directed to a broker to pay for distribution of the Fund’s shares.
BROKERAGE COMMISSIONS
The Fund may experience substantial differences in brokerage commissions from year to
year. High portfolio turnover and correspondingly greater brokerage commissions, to a great extent,
depend on the purchase, redemption, and exchange activity of the Fund’s investors, as well as the Fund’s investment objective and strategies.
The brokerage commissions paid for the fiscal years ended July 31, 2021, July 31,
2022, and July 31, 2024 for the Fund that was operational as of each date are set forth below.
Because none of the New Funds were operational at the end of the Trust’s last fiscal year, certain information on the New Funds is not included in this SAI.
SECURITIES OF REGULAR BROKER-DEALERS
The Fund is required to identify any securities of its “regular brokers and dealers” (as such term is defined in the 1940 Act) which they may hold at the close of their most recent fiscal year. “Regular brokers or dealers” of the Trust are the ten brokers or dealers that, during the most recent fiscal year: (i) received the greatest dollar amounts of brokerage commissions from the Trust’s portfolio transactions; (ii) engaged as principal in the largest dollar amounts of portfolio transactions of the Trust; or
(iii) sold the largest dollar amounts of the Trust’s Shares.
Because the New Funds were not operational at the end of the Trust’s last fiscal year, information on the New Funds is not included in this SAI.
ORGANIZATION
The Trust is a Delaware statutory trust and registered open-end investment company
under the 1940 Act. The Trust was organized on April 17, 1997 and has authorized capital of unlimited
shares of beneficial interest of no par value which may be issued in more than one class or series. Currently,
the Trust consists of multiple separately managed series. The Board may designate additional series of beneficial
interest and classify shares of a particular series into one or more classes of that series.
All shares of the Trust are freely transferable. The shares do not have preemptive
rights or cumulative voting rights, and none of the shares have any preference to conversion,
exchange, dividends, retirements, liquidation, redemption, or any other feature. The shares have equal
voting rights, except that, in a matter affecting a particular series or class of shares, only shares of that series
or class may be entitled to vote on the matter.
Under Delaware law, the Trust is not required to hold an annual shareholders meeting
if the 1940 Act does not require such a meeting. Generally, there will not be annual meetings
of Trust shareholders. Trust shareholders may remove Trustees from office by votes cast at a meeting of Trust shareholders
or by written consent. If requested by shareholders of at least 10% of the outstanding shares of
the Trust, the Trust will call a meeting of ProFunds’ shareholders for the purpose of voting upon the question of removal of a Trustee of the Trust and will assist in communications with other Trust shareholders.
The Declaration of Trust of the Trust disclaims liability of the shareholders or the
officers of the Trust for acts or obligations of the Trust which are binding only on the assets and
property of the Trust. The Declaration of Trust provides for indemnification of the Trust’s property for all loss and expense of any shareholder held personally liable for the obligations of the Trust. The risk of a
Trust shareholder incurring
39
financial loss on account of shareholder liability is limited to circumstances where
a series would not be able to meet the Trust’s obligations and this risk, thus, should be considered remote.
If the Fund does not grow to a size to permit it to be economically viable, the Fund may
cease operations. In such an event, investors may be required to liquidate or transfer their
investments at an inopportune time.
DETERMINATION OF NET ASSET VALUE
The NAVs of the shares of the Fund are determined as of the close of trading on the New York Stock Exchange (“NYSE”) (normally 4:00 p.m. Eastern time) on each day the NYSE is open for business with the exception of Columbus Day and Veterans’ Day. The NAVs of the shares of the Fund are available on the Trust’s website at ProFunds.com.
To the extent that portfolio securities of the Fund are traded in other markets on days when the Fund’s principal trading market(s) is closed, the value of the Fund’s shares may be affected on days when investors do not have access to the Fund to purchase or redeem shares. This may also
be the case when foreign securities trade while ADRs are not trading due to markets being closed in
the United States.
The NAV per share of the Fund serves as the basis for the purchase and redemption price of the shares. The NAV per share of the Fund is calculated by dividing the value of the Fund’s assets, less all liabilities, by the number of outstanding shares. When the Fund experiences net shareholder inflows, , it generally records investment transactions on the business day after the transaction
order is placed. When the Fund experiences net shareholder outflows, it generally records investment transactions
on the business day the transaction order is placed. This is intended to deal equitably with related transaction
costs by having them borne in part by the investor generating those costs for the Fund.
The securities in the portfolio of the Fund, except as otherwise noted, that are listed or traded on a stock exchange or the Nasdaq or National Market System (“NMS”), are generally valued at the closing price, if available, on the exchange or market where the security is principally traded (including
the Nasdaq Official Closing Price). If there have been no sales for that day on the exchange or system
where the security is principally traded, then the value may be determined with reference to the last sale
price, or the closing price, if applicable, on any other exchange or system. If there have been no sales for that
day on any exchange or system, a security may be valued using fair value procedures. Securities regularly
traded in the OTC markets (for example, certain equity securities, fixed income securities, non-exchange-listed
foreign securities and certain derivative instruments), including securities listed on an exchange but that
are primarily traded OTC (other than those traded on the Nasdaq) are generally valued on the basis of the mean
between the bid and asked quotes based upon quotes furnished by dealers actively trading those instruments.
Futures contracts and options on securities, indexes and futures contracts are generally valued at their
last sale price prior to the time at which the NAV per share of the Fund is determined. If there is no sale on that day, futures contracts and exchange-traded options will be valued using fair value procedures. Routine valuation
of certain derivatives is performed using procedures approved by the Board of Trustees. The Fund may value its financial instruments based upon foreign securities by using market prices of domestically
traded financial instruments with comparable foreign securities market exposure. Short-term debt securities
maturing in sixty days or less are generally valued at amortized cost, which approximates market value.
Investments initially valued in currencies other than the U.S. dollar are converted
to U.S. dollars using exchange rates obtained from pricing services. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The
value of securities traded in markets outside the United States or denominated in currencies other than the U.S.
dollar (and, therefore, the NAV of Funds that hold these securities) may be affected significantly on a day that
the New York Stock Exchange is closed and an investor is not able to purchase, redeem or exchange shares.
In particular, calculation of the NAV of the Fund may not take place contemporaneously with the determination of the prices of foreign securities used in NAV calculations.
40
When the Advisor determines that the market price of a security is not readily available
or deems the price unreliable, it may, in good faith, establish a fair value for that security
in accordance with procedures established by and under the general supervision and responsibility of the Trust’s Board of Trustees. The use of a fair valuation method may be appropriate if, for example, market quotations do
not accurately reflect fair value for an investment, an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (for example,
a foreign exchange or market), a trading halt closes an exchange or market early, or other events result
in an exchange or market delaying its normal close.
The Trust has elected to pay redemptions by a shareholder of record in cash, limited
in amount with respect to each shareholder during any 90-day period to the lesser of $250,000 or
one percent of the net asset value of the Fund at the beginning of such period.
41
TAXATION
OVERVIEW
Set forth below is a general discussion of certain U.S. federal income tax issues
concerning the Fund and the purchase, ownership, and disposition of the Fund’s Shares. This discussion does not purport to be complete or to deal with all aspects of federal income taxation that may be relevant
to shareholders in light of their particular circumstances, nor to certain types of shareholders subject to special
treatment under the federal income tax laws (for example, life insurance companies, banks and other financial
institutions, and IRAs and other retirement plans). This discussion is based upon present provisions
of the Code, the regulations promulgated thereunder, and judicial and administrative ruling authorities,
all of which are subject to change, which change may be retroactive. Prospective investors should consult their
own tax advisors with regard to the federal tax consequences of the purchase, ownership, or disposition
of the Fund’s Shares, as well as the tax consequences arising under the laws of any state, foreign country, or other
taxing jurisdiction.
TAXATION OF THE FUND
The Fund has elected, or intends to elect, and intends to qualify and to be eligible each year to be treated as a RIC under Subchapter M of the Code. A RIC generally is not subject to
federal income tax on income and gains distributed in a timely manner to its shareholders. To qualify for
treatment as a RIC, the Fund generally must, among other things:
(a) derive in each taxable year at least 90% of its gross income from (i) dividends,
interest, payments with respect to certain securities loans and gains from the sale or other
disposition of stock, securities or foreign currencies, or other income (including but not limited to gains
from futures contracts) derived with respect to its business of investing in such stock, securities or currencies;
and (ii) net income derived from interests in “qualified publicly traded partnerships” as described below (the income described in this subparagraph (a), “Qualifying Income”);
(b) diversify its holdings so that, at the end of each quarter of the Fund’s taxable year (or by the end of the 30-day period following the close of such quarter), (i) at least 50% of the
fair market value of the Fund’s assets is represented by cash and cash items (including receivables), U.S. government securities, the securities of other RICs and other securities, with such other securities limited,
in respect of any one issuer, to a value not greater than 5% of the value of the Fund’s total assets and to an amount not greater than 10% of the outstanding voting securities of such issuer, and (ii) not greater than 25% of
the value of its total assets is invested, including through corporations in which the Fund owns a 20% or more voting
stock interest, in (x) the securities (other than U.S. government securities and the securities of other
RICs) of any one issuer or of two or more issuers that the Fund controls and that are engaged in the same, similar
or related trades or businesses, or (y) the securities of one or more qualified publicly traded partnerships
(as defined below); and
(c) distribute with respect to each taxable year at least 90% of the sum of its investment
company taxable income (as that term is defined in the Code without regard to the deduction
for dividends paid—generally, taxable ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses) and net tax-exempt interest income, for such year.
In general, for purposes of the 90% gross income requirement described in subparagraph
(a) above, income derived from a partnership will be treated as Qualifying Income only to the
extent such income is attributable to items of income of the partnership which would be Qualifying Income
if realized directly by the RIC. However, 100% of the net income of a RIC derived from an interest in a “qualified publicly traded partnership” (a partnership (x) the interests in which are traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof, and (y) that
derives less than 90% of its income from the Qualifying Income described in clause (i) of subparagraph (a) above)
will be treated as Qualifying Income. In general, such entities will be treated as partnerships for federal
income tax purposes because they meet the passive income requirement under Code Section 7704(c)(2). In
addition, although in general the passive loss rules of the Code do not apply to RICs, such rules do apply
to a RIC with respect to
42
items attributable to an interest in a qualified publicly traded partnership. Moreover,
the amounts derived from investments in foreign currency will be treated as Qualifying Income for purposes
of subparagraph (a) above. There is a remote possibility that the Internal Revenue Service (“IRS”) could issue guidance contrary to such treatment with respect to foreign currency gains that are not directly related to a RIC’s principal business of investing in stocks or securities (or futures with respect to stocks or securities), which could affect the Fund’s ability to meet the 90% gross income test and adversely affect the manner in which
that Fund is managed.
For purposes of the diversification test described in subparagraph (b) above, the term “outstanding voting securities of such issuer” will include the equity securities of a qualified publicly traded partnership. Also, for purposes of the diversification test in (b) above, the identification of
the issuer (or, in some cases, issuers) of a particular Fund investment can depend on the terms and conditions of
that investment. In some cases, identification of the issuer (or issuers) is uncertain under current law, and
an adverse determination or future guidance by the IRS with respect to issuer identification for a particular
type of investment may adversely affect the Fund’s ability to meet the diversification test in (b) above.
If, in any taxable year, the Fund were to fail to meet the 90% gross income, diversification or distribution test described above, the Fund could in some cases cure such failure,
including by paying the Fund-level tax, paying interest, making additional distributions, or disposing of
certain assets. If the Fund were ineligible to or did not cure such a failure for any taxable year, or otherwise
failed to qualify as a RIC accorded special tax treatment under the Code, the Fund would be subject to tax on
its taxable income at corporate rates, and all distributions from earnings and profits, including distributions
of net tax-exempt income and net long-term capital gain (if any), may be taxable to shareholders as dividend income. In such a case, distributions from the Fund would not be deductible by the Fund in computing
its taxable income. In addition, in order to requalify for taxation as a RIC, the Fund may be required to
recognize unrealized gains, pay substantial taxes and interest, and make certain distributions.
As noted above, if the Fund qualifies as a RIC that is accorded special tax treatment, the Fund will not be subject to federal income tax on income that is distributed in a timely manner
to its shareholders in the form of dividends (including Capital Gain Dividends, as defined below).
The Fund expects to distribute at least annually to its shareholders all or substantially
all of its investment company taxable income (computed without regard to the dividends-paid deduction),
its net tax-exempt income (if any) and its net capital gain (that is, the excess of its net
long-term capital gains over its net short-term capital losses, in each case determined with reference to any loss
carryforwards). Investment company taxable income that is retained by the Fund will be subject to tax at the regular corporate rate. If the Fund retains any net capital gain, it will be subject to tax at the regular corporate
rate on the amount retained, but it may designate the retained amount as undistributed capital gains in a notice
mailed within 60 days of the close of the Fund’s taxable year to its shareholders who, in turn, (i) will be required to include in income for federal income tax purposes, as long-term capital gain, their shares of such undistributed
amount, and (ii) will be entitled to credit their proportionate shares of the tax paid by the Fund
on such undistributed amount against their federal income tax liabilities, if any, and to claim refunds on a properly
filed U.S. tax return to the extent the credit exceeds such liabilities. If the Fund makes this designation, for federal income tax purposes, the tax basis of shares owned by a shareholder of the Fund will be increased by an amount equal to the difference between the amount of undistributed capital gains included in the shareholder’s gross income under clause (i) of the preceding sentence and the tax deemed paid by the shareholder
under clause (ii) of the preceding sentence. The Fund is not required to, and there can be no assurance that the Fund will, make this designation if it retains all or a portion of its net capital gain in a taxable year.
In determining its net capital gain, including in connection with determining the
amount available to support a Capital Gain Dividend (as defined below), its taxable income and its earnings
and profits, a RIC generally may elect to treat part or all of any post-October capital loss (defined
as any net capital loss attributable to the portion of the taxable year after October 31 or, if there is no
such loss, the net long-term capital loss or net short-term capital loss attributable to such portion of the taxable
year) or late-year ordinary loss (generally, the sum of (i) net ordinary loss, if any, from the sale, exchange
or other taxable disposition of property, attributable to the portion, if any, of the taxable year after October 31,
and its (ii) other net ordinary
43
loss, if any, attributable to the portion, if any, of the taxable year after December
31) as if incurred in the succeeding taxable year.
Amounts not distributed on a timely basis in accordance with a prescribed formula
are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, the Fund must distribute during each calendar year an amount generally equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar year, (2) at least 98.2% of
its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for a one-year period generally
ending on October 31 of the calendar year (or November 30 or December 31 of that year if the Fund is permitted
to elect and so elects), and (3) all such ordinary income and capital gains that were not distributed
in previous years. For purposes of the required excise tax distribution, ordinary gains and losses from the
sale, exchange, or other taxable disposition of property that would be properly taken into account after October
31 (or November 30 or December 31 of that year if the Fund is permitted to elect and so elects) are generally
treated as arising on January 1 of the following calendar year. Also, for these purposes, the Fund will
be treated as having distributed any amount on which it is subject to corporate income tax for the taxable
year ending within the calendar year. The Fund intends generally to make distributions sufficient to avoid imposition of the
excise tax, although the Fund reserves the right to pay an excise tax rather than make an additional distribution
when circumstances warrant (for example, the payment of the excise tax amount is deemed
to be de minimis).
A distribution will be treated as paid on December 31 of a calendar year if it is
declared by the Fund in October, November or December of that year with a record date in such a month
and is paid by the Fund during January of the following year. Such distributions will be taxable to shareholders
in the calendar year in which the distributions are declared, rather than the calendar year in which
the distributions are received.
Capital losses in excess of capital gains (“net capital losses”) are not permitted to be deducted against the Fund’s net investment income. Instead, potentially subject to certain limitations, the Fund may carry net capital losses forward from any taxable year to subsequent taxable years
to offset capital gains, if any, realized during such subsequent taxable years. Distributions from capital gains
are generally made after applying any available capital loss carryforwards. Capital loss carryforwards are
reduced to the extent they offset current-year net realized capital gains, whether the Fund retains or distributes such gains. Any such capital loss carryforwards will generally retain their character as short-term or
long-term and will be applied first against gains of the same character before offsetting gains of a different character
(e.g., net capital losses resulting from previously realized net long-term losses will first offset any long-term
capital gain, with any remaining amounts available to offset any net short-term capital gain).
See the most recent annual shareholder report, as amended, for the Fund’s available capital loss carryovers as of the end of its most recently ended fiscal year.
TAXATION OF FUND DISTRIBUTIONS
Distributions of investment income are generally taxable to shareholders as ordinary
income. Taxes on distributions of capital gains are determined by how long the Fund owned the investments that generated them, rather than how long a shareholder has owned his or her shares. In general,
the Fund will recognize long-term capital gain or loss on investments it has owned for more than one year,
and short-term capital gain or loss on investments it has owned for one year or less. Tax rules can alter the Fund’s holding period in investments and thereby affect the tax treatment of gain or loss on such investments.
Distributions of net capital gain—the excess of net long-term capital gain over net short-term capital losses, in each case determined with reference to any loss carryforwards—that are properly reported by the Fund as capital gain dividends (“Capital Gain Dividends”) will be taxable to shareholders as long-term capital gains includible in net capital gain and taxable to individuals at reduced rates. Distributions of net
short-term capital gain (as reduced by any net long-term capital loss for the taxable year) will be taxable to
shareholders as ordinary income. The IRS and U.S. Treasury have issued regulations that impose special rules
in respect of Capital Gain Dividends received through partnership interests constituting “applicable partnership interests” under Section 1061 of the Code.
44
The Code generally imposes a 3.8% Medicare contribution tax on the net investment
income of certain individuals, trusts, and estates to the extent their income exceeds certain
threshold amounts. For these purposes, “net investment income” generally includes, among other things, (i) distributions paid by the Fund of ordinary dividends and Capital Gain Dividends as described above, and (ii) any
net gain from the sale, redemption or exchange of Fund shares. Shareholders are advised to consult their tax
advisors regarding the possible implications of this additional tax on their investment in the Fund.
Distributions are taxable whether shareholders receive them in cash or reinvest them
in additional shares. Distributions are also taxable to shareholders even if they are paid from
income or gains earned by the Fund before a shareholder’s investment (and thus were included in the price the shareholder paid for the Fund shares). Investors should be careful to consider the tax implications of buying shares
of the Fund just prior to a distribution. The price of shares purchased at this time will include the amount
of the forthcoming distribution, but the distribution will generally be taxable.
A dividend or Capital Gain Dividend with respect to shares of the Fund held by a tax-deferred or qualified plan, such as an IRA, retirement plan, or corporate pension or profit sharing
plan, generally will not be taxable to the plan. Distributions from such plans will be taxable to individual
participants under applicable tax rules without regard to the character of the income earned by the qualified plan.
Shareholders should consult their tax advisors to determine the suitability of shares of the Fund as an investment through such plans and the precise effect of an investment on their particular situation.
Shareholders will be notified annually as to the U.S. federal tax status of Fund distributions,
and shareholders receiving distributions in the form of newly issued shares will receive
a report as to the value of the shares received.
QUALIFIED DIVIDEND INCOME
“Qualified dividend income” received by an individual is taxed at the rates applicable to net capital gain. In order for some portion of the dividends received by the Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some
portion of the dividend-paying stocks in its portfolio and the shareholder must meet holding period
and other requirements with respect to the Fund’s Shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share
of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before
the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain
preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that
the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments
with respect to positions in substantially similar or related property, (3) if the recipient elects to have
the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest,
or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of
a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such
a foreign corporation that is readily tradable on an established securities market in the United States) or (b)
treated as a passive foreign investment company. In general, distributions of investment income reported by the Fund as derived from qualified dividend income will be treated as qualified dividend income in the hands
of a shareholder taxed as an individual, provided the shareholder meets the holding period and other requirements
described above with respect to the Fund’s Shares.
Dividends-Received Deduction
In general, dividends of net investment income received by corporate shareholders
of the Fund may qualify for the dividends-received deduction generally available to corporations to
the extent of the amount of eligible dividends received by the Fund from domestic corporations for the taxable
year. A dividend received by the Fund will not be treated as a dividend eligible for the dividends-received deduction
(1) if it has been received with respect to any share of stock that the Fund has held for less than 46
days (91 days in the case of certain preferred stock) during the 91-day period beginning on the date which is
45 days before the date on
45
which such share becomes ex-dividend with respect to such dividend (during the 181-day
period beginning 90 days before such date in the case of certain preferred stock) or (2) to the extent
that the Fund is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect
to positions in substantially similar or related property. Moreover, the dividends-received deduction
may otherwise be disallowed or reduced (1) if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of the Fund or (2) by application of various provisions of the Code
(for instance, the dividends-received deduction is reduced in the case of a dividend received on debt-financed
portfolio stock (generally, stock acquired with borrowed funds)).
Repurchase Agreements
Any distribution of income that is attributable to (i) income received by the Fund in lieu of dividends with respect to securities on loan pursuant to a securities lending transaction
or (ii) dividend income received by the Fund on securities it temporarily purchased from a counterparty pursuant to a repurchase
agreement that is treated for U.S. federal income tax purposes as a loan by the Fund,
will not constitute qualified dividend income to individual shareholders and will not be eligible for
the dividends-received deduction for corporate shareholders.
DISPOSITION OF SHARES
Upon a sale, exchange or other disposition of shares of the Fund, a shareholder will generally realize a taxable gain or loss depending upon his or her basis in the shares. A gain or loss
will be treated as capital gain or loss if the shares are capital assets in the shareholder’s hands, and generally will be long-term or short-term capital gain or loss depending upon the shareholder’s holding period for the shares. Any loss realized on a sale, exchange or other disposition will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of dividends) within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of. In such a case, the basis of
the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on the
disposition of the Fund’s Shares held by the shareholder for six months or less will be treated for tax purposes
as a long-term capital loss to the extent of any distributions of Capital Gain Dividends received or treated
as having been received by the shareholder with respect to such shares.
MARKET DISCOUNT
If the Fund purchases in the secondary market a debt security that has a fixed maturity
date of more than one year from its date of issuance at a price lower than the stated redemption
price of such debt security (or, in the case of a debt security issued with “original issue discount” (described below), a price below the debt security’s “revised issue price”), the excess of the stated redemption price over the purchase price is “market discount.” If the amount of market discount is more than a de minimis amount, a portion of such market discount must be included as ordinary income (not capital gain) by the Fund in each taxable year in which the Fund owns an interest in such debt security and receives a principal payment
on it. In particular, the Fund will be required to allocate that principal payment first to the portion
of the market discount on the debt security that has accrued but has not previously been includable in income. In
general, the amount of market discount that must be included for each period is equal to the lesser of (i)
the amount of market discount accruing during such period (plus any accrued market discount for prior periods
not previously taken into account) or (ii) the amount of the principal payment with respect to such period.
Generally, market discount accrues on a daily basis for each day the debt security is held by the Fund at a constant rate over the time remaining to the debt security’s maturity or, at the election of the Fund, at a constant yield to maturity which takes into account the semi-annual compounding of interest. Gain realized on
the disposition of a market discount obligation must be recognized as ordinary interest income (not capital
gain) to the extent of the accrued market discount.
46
ORIGINAL ISSUE DISCOUNT
Certain debt securities may be treated as debt securities that were originally issued
at a discount. Original issue discount can generally be defined as the difference between the price
at which a security was issued and its stated redemption price at maturity. Original issue discount that accrues
on a debt security in a given year generally is treated for federal income tax purposes as interest income
that is included in the Fund’s income and, therefore, subject to the distribution requirements applicable to RICs, even though the Fund may not receive a corresponding amount of cash until a partial or full repayment
or disposition of the debt security.
Some debt securities may be purchased by the Fund at a discount that exceeds the original issue discount on such debt securities, if any. This additional discount represents market
discount for federal income tax purposes (see above).
If the Fund holds the foregoing kinds of securities, it may be required to pay out
as an income distribution each year an amount which is greater than the total amount of cash interest
the Fund actually received. Such distributions may be made from the cash assets of the Fund or, if necessary,
by disposition of portfolio securities including at a time when it may not be advantageous to do so.
These dispositions may cause the Fund to realize higher amounts of short-term capital gains (generally taxed
to shareholders at ordinary income tax rates) and, in the event the Fund realizes net capital gains from
such transactions, its shareholders may receive a larger Capital Gain Dividend than if the Fund had not held
such securities.
FUTURES CONTRACTS
The tax treatment of certain contracts (including regulated futures contracts) entered
into by the Fund will be governed by Section 1256 of the Code (“Section 1256 contracts”). Gains (or losses) on these contracts generally are considered to be 60% long-term and 40% short-term capital gains or losses (“60/40”). Also, Section 1256 contracts held by the Fund at the end of each taxable year (and for purposes of the 4% excise tax, on certain other dates prescribed in the Code) are “marked-to-market” with the result that unrealized gains or losses are treated as though they were realized and the resulting
gains or losses are treated as ordinary or 60/40 gains or losses, as appropriate.
Transactions in futures undertaken by the Fund may result in “straddles” for federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized
by the Fund, and losses realized by the Fund on positions that are part of a straddle may be deferred under
the straddle rules, rather than being taken into account in calculating taxable income for the taxable year in
which the losses are realized. In addition, certain carrying charges (including interest expense) associated
with positions in a straddle may be required to be capitalized rather than deducted currently. Certain
elections that the Fund may make with respect to its straddle positions may also affect the amount, character
and timing of the recognition of gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have been promulgated,
the consequences of such transactions to the Fund is not entirely clear. The straddle rules may increase the amount of short-term capital gain realized by the Fund, which is taxed as ordinary income when distributed to shareholders. Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions,
the amount which must be distributed to shareholders as ordinary income or long-term capital gain may
be increased or decreased substantially as compared to the Fund that did not engage in such transactions.
More generally, investments by the Fund in futures contracts are subject to numerous special and complex tax rules. These rules could affect whether gains and losses recognized by
the Fund are treated as ordinary or capital, accelerate the recognition of income or gains to the Fund and defer or possibly prevent the recognition or use of certain losses by the Fund. The rules could, in turn, affect the amount, timing or character of the income distributed to shareholders by the Fund. In addition, because the tax rules applicable to such instruments may be uncertain under current law, an adverse determination or
future IRS guidance with respect to these rules (which determination or guidance could be retroactive) may
affect whether the Fund has
47
made sufficient distributions and otherwise satisfied the relevant requirements to
maintain its qualification as a RIC and avoid the Fund-level tax.
COMMODITY-LINKED INSTRUMENTS AND INVESTMENT IN A CAYMAN ISLANDS SUBSIDIARY
As discussed above in “Investment in a Subsidiary”, the Fund intends to achieve commodity exposure through investment in a wholly-owned foreign subsidiary (the “Subsidiary”). The Subsidiary is classified as a corporation and is treated as a “controlled foreign corporation” (“CFC”) for U.S. federal income tax purposes. The Fund will limit its investments in its Subsidiary in the
aggregate to 25% of the Fund’s total assets at the end of each quarter. The Fund does not expect that income from its investment in its Subsidiary will be eligible to be treated as qualified dividend income or that distributions
from its Subsidiary will be eligible for the corporate dividends-received deduction. If the Fund’s investments in its Subsidiary were to exceed 25% of the Fund’s total assets at the end of a quarter, the Fund may no longer be eligible to be treated as a RIC under Subchapter M of the code. The Advisor will carefully monitor the Fund’s investments in the Subsidiary to ensure that no more than 25% of the Fund’s assets are invested in the subsidiary at the end of each tax quarter. The Fund intends to invest in complex derivatives
for which there is not clear guidance from the IRS as to the calculation of such investments under the
asset diversification test applicable to RICs. There are no assurances that the IRS will agree with the Fund’s calculation under the asset diversification test which could cause the Fund to fail to qualify as a RIC.
If, in any year, the Fund were to fail to qualify for the special tax treatment accorded
a RIC and its shareholders, and were ineligible to or were not to cure such failure, the Fund would
be taxed in the same manner as an ordinary corporation subject to U.S. federal income tax on all its income
at the fund level. The resulting taxes could substantially reduce the Fund’s net assets and the amount of income available for distribution. In addition, in order to requalify for taxation as a RIC, the Fund could
be required to recognize unrealized gains, pay substantial taxes and interest, and make certain distributions
It is expected that the Subsidiary will neither be subject to taxation on its net
income in the same manner as a corporation formed in the United States nor subject to branch profits
tax on the income and gain derived from its activities in the United States. A foreign corporation will generally
not be subject to such taxation unless it is engaged in or is treated as engaged in a U.S. trade or business.
The rules regarding whether the Subsidiary will be treated as engaged in a U.S. trade or business as a
result of its investments in ether or ether-linked derivatives are not certain. The Subsidiary expects to operate in a manner
such that it is not so treated; if it were, the Subsidiary would be subject to U.S. federal income
tax on a net basis at the corporate rate and would be subject to an additional branch profits tax, thus reducing the yield of the Fund’s investment in the Subsidiary.
In general, a foreign corporation that is not engaged in and is not treated as engaged
in a U.S. trade or business is nonetheless subject to tax at a flat rate of 30% (or lower tax treaty
rate), generally payable through withholding, on the gross amount of certain U.S.-source income that is not
effectively connected with a U.S. trade or business. There is presently no tax treaty in force between the United
States and the jurisdiction in which the Subsidiary is (or would be) resident that would reduce this
rate of withholding tax. Income subject to such a flat tax is of a fixed or determinable annual or periodic
nature and includes dividends and interest income. Certain types of income are specifically exempted from
the 30% tax and thus withholding is not required on payments of such income to a foreign corporation. The
30% tax generally does not apply to capital gains (whether long-term or short-term) or to interest paid to
a foreign corporation on its deposits with U.S. banks. The 30% tax also does not apply to interest which qualifies as “portfolio interest.” Very generally, the term portfolio interest includes U.S.-source interest (including
OID) on an obligation in registered form, and with respect to which the person, who would otherwise be required
to deduct and withhold the 30% tax, received the required statement that the beneficial owner of
the obligation is not a U.S. person within the meaning of the Code.
As discussed in more detail below, FATCA (as defined below) generally imposes a reporting
and 30% withholding tax regime with respect to certain U.S.-source income (“withholdable payments”) paid to
48
“foreign financial institutions” and certain other non-U.S. entities when those entities fail to satisfy the applicable account documentation, information reporting, withholding, registration,
certification and/or other requirements applicable to their status under FATCA. A Subsidiary will be subject
to the 30% withholding tax in respect of any withholdable payment it receives if it fails to satisfy these requirements,
as may be applicable to the Subsidiary. The Subsidiary expects to satisfy these requirements,
as may be applicable to it, so as to avoid this additional 30% withholding. See “Certain Additional Reporting and Withholding Requirements” below for more discussion of these rules.
A U.S. person, including the Fund, who owns (directly or indirectly) 10% or more of the total combined voting power of all classes of stock of 10% or more of the total value of
shares of all classes of stock of a foreign corporation is a “U.S. Shareholder” for purposes of the CFC provisions of the Code. A CFC is a foreign corporation that, on any day of its taxable year, is owned (directly,
indirectly, or constructively) more than 50% (measured by voting power or value) by U.S. Shareholders. Because of
its investment in its Subsidiary, the Fund is a U.S. Shareholder in a CFC. As a U.S. Shareholder, the Fund
is required to include in gross income for U.S. federal income tax purposes for each taxable year of the Fund
its pro rata share of its CFC’s “subpart F income” and any “global intangible low-taxed income” (“GILTI”) for the CFC’s taxable year ending within the Fund’s taxable year whether or not such income is actually distributed by the CFC. Subpart F income generally includes interest, OID, dividends, net gains from the disposition
of stocks or securities, net gains from transactions (including futures) in commodities, and receipts
with respect to securities loans. GILTI generally includes the active operating profits of the CFC,
reduced by a deemed return on the tax basis of the CFC’s depreciable tangible assets. Subpart F income and GILTI are treated as ordinary income, regardless of the character of the CFC’s underlying income. Net losses incurred by a CFC during a tax year do not flow through to an investing Fund and thus will not be available to
offset income or capital gain generated from that Fund’s other investments. In addition, net losses incurred by a CFC during a tax year generally cannot be carried forward by the CFC to offset gains realized by it in subsequent
taxable years. To the extent the Fund invests in its Subsidiary and recognizes subpart F income or GILTI
in excess of actual cash distributions from such the Subsidiary, if any, it may be required to sell assets
(including when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to
its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level. Subpart
F income also includes the excess of gains over losses from transactions (including futures) in commodities.
The Fund’s recognition of any subpart F income or GILTI from an investment in its Subsidiary will increase the Fund’s tax basis in the Subsidiary. Distributions by a Subsidiary to the Fund, including in redemption of its Subsidiary’s shares, will be tax free, to the extent of its Subsidiary’s previously undistributed subpart F income or GILTI, and will correspondingly reduce the Fund’s tax basis in its Subsidiary, and any distributions in excess of the Fund’s tax basis in its Subsidiary will be treated as realized gain. Any losses with respect to the Fund’s shares of its Subsidiary will not be currently recognized. The Fund’s investment in its Subsidiary will potentially have the effect of accelerating the Fund’s recognition of income and causing its income to be treated as ordinary income, regardless of the character of the Subsidiary’s income. If a net loss is realized by the Subsidiary, such loss is generally not available to offset the
income earned by the Fund. In addition, the net losses incurred during a taxable year by the Subsidiary cannot be
carried forward by the Subsidiary to offset gains realized by it in subsequent taxable years. The Fund will
not receive any credit in respect of any non-U.S. tax borne by the Subsidiary.
Under Treasury regulations, subpart F inclusions included in the Fund’s annual income for U.S. federal income purposes will constitute qualifying income to the extent it is either
(i) timely and currently repatriated or (ii) derived with respect to the Fund’s business of investing in stock, securities of currencies.
UNRELATED BUSINESS TAXABLE INCOME
Under current law, income of a RIC that would be treated as UBTI if earned directly
by a tax-exempt entity generally will not be attributed as UBTI to a tax-exempt entity
that is a shareholder in the RIC. Notwithstanding this “blocking” effect, a tax-exempt shareholder could realize UBTI by virtue of its
49
investment in the Fund if Shares in the Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of Code Section 514(b).
A tax-exempt shareholder may also recognize UBTI if the Fund recognizes “excess inclusion income” (as described above) derived from direct or indirect investments in residual interests in REMICs or equity interests in TMPs if the amount of such income recognized by the Fund exceeds the Fund’s investment company taxable income (after taking into account deductions for dividends paid by
the Fund). In addition, special tax consequences apply to charitable remainder trusts (“CRTs”) that invest in RICs that invest directly or indirectly in residual interests in REMICs or equity interests in TMPs. Under legislation
enacted in December 2006, a CRT (as defined in Section 664 of the Code) that realizes any UBTI
for a taxable year must pay an excise tax annually of an amount equal to such UBTI. Under IRS guidance
issued in October 2006, a CRT will not recognize UBTI as a result of investing in the Fund that recognizes “excess inclusion income.” Rather, if at any time during any taxable year a CRT (or one of certain other tax-exempt shareholders, such as the United States, a state or political subdivision, or an agency
or instrumentality thereof, and certain energy cooperatives) is a record holder of a Share in the Fund that recognizes “excess inclusion income,” then the Fund will be subject to a tax on that portion of its “excess inclusion income” for the taxable year that is allocable to such shareholders at the highest federal corporate
income tax rate. The extent to which this IRS guidance remains applicable in light of the December 2006
legislation is unclear. To the extent permitted under the 1940 Act, the Fund may elect to specially allocate any such tax to the applicable CRT, or other shareholder, and thus reduce such shareholder’s distributions for the year by the amount of the tax that relates to such shareholder’s interest in the Fund. The Fund has not yet determined whether such an election will be made.
CRTs and other tax-exempt investors are urged to consult their tax advisors concerning
the consequences of investing in the Fund.
BACKUP WITHHOLDING
The Fund may be required to withhold federal income tax (“backup withholding”) from dividends and capital gains distributions paid to shareholders. Federal tax will be withheld
if (1) the shareholder fails to furnish the Fund with the shareholder’s correct taxpayer identification number or social security number, (2) the IRS notifies the shareholder or the Fund that the shareholder has failed to report
properly certain interest and dividend income to the IRS and to respond to notices to that effect, or (3) when
required to do so, the shareholder fails to certify to the Fund that he or she is not subject to backup withholding.
Any amounts withheld under the backup withholding rules may be credited against the shareholder’s federal income tax liability.
In order for a foreign investor to qualify for exemption from the backup withholding
tax rates and for reduced withholding tax rates under income tax treaties, the foreign investor
must comply with special certification and filing requirements. Foreign investors in the Fund should consult their tax advisors in this regard.
NON-U.S. SHAREHOLDERS
Distributions by the Fund to a shareholder that is not a “United States person” within the meaning of the Code (such a shareholder, a “foreign shareholder”) properly reported by the Fund as (1) Capital Gain Dividends, (2) short-term capital gain dividends, and (3) interest-related dividends,
each as defined and subject to certain conditions described below, generally are not subject to withholding of
U.S. federal income tax.
In general, the Code defines (1) “short-term capital gain dividends” as distributions of net short-term capital gains in excess of net long-term capital losses and (2) “interest-related dividends” as distributions from U.S. source interest income of types similar to those not subject to U.S. federal
income tax if earned directly by an individual foreign shareholder, in each case to the extent such distributions
are properly reported as such by the Fund in a written notice to shareholders.
50
The exceptions to withholding for Capital Gain Dividends and short-term capital gain
dividends do not apply to (A) distributions to an individual foreign shareholder who is present
in the United States for a period or periods aggregating 183 days or more during the year of the distribution
and (B) distributions attributable to gain that is treated as effectively connected with the conduct by
the foreign shareholder of a trade or business within the United States under special rules regarding the disposition
of U.S. real property interests as described below. The exception to withholding for interest-related dividends
does not apply to distributions to a foreign shareholder (A) that has not provided a satisfactory statement
that the beneficial owner is not a U.S. person, (B) to the extent that the dividend is attributable to
certain interest on an obligation if the foreign shareholder is the issuer or is a 10% shareholder of the
issuer, (C) that is within certain foreign countries that have inadequate information exchange with the United
States, or (D) to the extent the dividend is attributable to interest paid by a person that is a related
person of the foreign shareholder and the foreign shareholder is a controlled foreign corporation. If the Fund invests in a RIC that pays Capital Gain Dividends, short-term capital gain dividends or interest-related
dividends to the Fund, such distributions retain their character as not subject to withholding if properly reported
when paid by the Fund to foreign shareholders. The Fund is permitted to report such part of its dividends as interest-related and/or
short-term capital gain dividends as are eligible, but is not required to do so.
In order to qualify for the withholding exemptions for Capital Gain Dividends interest-related
and short-term capital gain dividends, a foreign shareholder is required to comply with
applicable certification requirements relating to its non-U.S. status (including, in general, furnishing the
applicable W-8 form or substitute form). In the case of shares held through an intermediary, the intermediary
may withhold even if the Fund reports all or a portion of a payment as an interest-related or short-term capital
gain dividend to shareholders. Foreign shareholders should consult their tax advisors or intermediaries,
as applicable, regarding the application of these rules to their accounts.
Distributions by the Fund to foreign shareholders other than Capital Gain Dividends,
short-term capital gain dividends and interest-related dividends (e.g., dividends attributable to foreign-source dividend and interest income or to short-term capital gains or U.S. source interest income
to which the exception from withholding described above does not apply) are generally subject to withholding of
U.S. federal income tax at a rate of 30% (or lower applicable treaty rate).
If a beneficial owner of Fund shares who or which is a foreign shareholder has a trade
or business in the United States, and income from the Fund is effectively connected with the conduct
by the beneficial owner of that trade or business, such income will be subject to U.S. federal net income
taxation at regular income tax rates and, in the case of a foreign corporation, may also be subject to
a branch profits tax.
In general, a beneficial owner of Fund shares who or which is a foreign shareholder
is not subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized
on a sale of shares of the Fund unless (i) such gain is effectively connected with the conduct of a trade or
business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder
is present in the United States for a period or periods aggregating 183 days or more during the year
of the sale and certain other conditions are met, or (iii) the special rules relating to gain attributable to the sale or exchange of “U.S. real property interests” (“USRPIs”) apply to the foreign shareholder’s sale of shares of the Fund (as described below).
If a shareholder is eligible for the benefits of a tax treaty, any effectively connected
income or gain will generally be subject to U.S. federal income tax on a net basis only if it is
also attributable to a permanent establishment maintained by the shareholder in the United States. More generally,
foreign shareholders who are residents in a country with an income tax treaty with the United States may obtain
different tax results than those described herein, and are urged to consult their tax advisors.
Special rules would apply if the Fund were a qualified investment entity (“QIE”) because it is either a “U.S. real property holding corporation” (“USRPHC”) or would be a USRPHC but for the operation of certain exceptions to the definition of USRPIs described below. Very generally, a
USRPHC is a domestic corporation that holds USRPIs the fair market value of which equals or exceeds 50%
of the sum of the fair
51
market values of the corporation’s USRPIs, interests in real property located outside the United States, and other trade or business assets. USRPIs generally are defined as any interest in U.S.
real property and any interest (other than solely as a creditor) in a USRPHC or, very generally, an entity
that has been a USRPHC in the last five years. Interests in domestically controlled QIEs, including RICs that are QIEs, not-greater-than-5% interests in publicly traded classes of stock in RICs generally are not USRPIs,
but these exceptions do not apply for purposes of determining whether the Fund is a QIE.
If an interest in the Fund were a USRPI, the Fund would be required to withhold U.S. tax on the proceeds of a share redemption by a greater-than-5% foreign shareholder, in which
case such foreign shareholder generally would also be required to file U.S. tax returns and pay any
additional taxes due in connection with the redemption.
If the Fund were a QIE, under a special “look-through” rule, any distributions by the Fund to a foreign shareholder (including, in certain cases, distributions made by the Fund in
redemption of its shares) attributable directly or indirectly to (i) distributions received by the Fund from
a lower-tier RIC that the Fund is required to treat as USRPI gain in its hands and (ii) gains realized on the disposition
of USRPIs by the Fund would retain their character as gains realized from USRPIs in the hands of the Fund’s foreign shareholders and would be subject to U.S. tax withholding. In addition, such distributions
could result in the foreign shareholder being required to file a U.S. tax return and pay tax on the distributions
at regular U.S. federal income tax rates. The consequences to a foreign shareholder, including the
rate of such withholding and character of such distributions (e.g., as ordinary income or USRPI gain), would vary depending upon the extent of the foreign shareholder’s current and past ownership of the Fund.
Foreign shareholders of the Fund also may be subject to “wash sale” rules to prevent the avoidance of the tax-filing and -payment obligations discussed above through the sale and repurchase
of Fund Shares.
Foreign shareholders should consult their tax advisors and, if holding Shares through
intermediaries, their intermediaries, concerning the application of these rules to an investment in
the Fund.
CERTAIN ADDITIONAL REPORTING AND WITHHOLDING REQUIREMENTS
Sections 1471-1474 of the Code and the U.S. Treasury and IRS guidance issued thereunder
(collectively, “FATCA”) generally require the Fund to obtain information sufficient to identify the status of each of its shareholders under FATCA or under an applicable intergovernmental agreement (an “IGA”). If a shareholder fails to provide this information or otherwise fails to comply with FATCA
or an IGA, the Fund or its agent may be required to withhold under FATCA at a rate of 30% with respect to
that shareholder on ordinary dividends it pays to such shareholder. The IRS and the U.S. Treasury have
issued proposed regulations providing that these withholding rules will not be applicable to the gross
proceeds of share redemptions or Capital Gain Dividends the Fund pays. If a payment by the Fund is subject to FATCA withholding, the Fund or its agent is required to withhold even if such payment would
otherwise be exempt from withholding under the rules applicable to foreign shareholders described above
(e.g., short-term capital gain dividends and interest-related dividends).
Each prospective investor is urged to consult its tax advisor regarding the applicability
of FATCA and any other reporting requirements with respect to the prospective investor’s own situation, including investments through an intermediary.
REPORTING REQUIREMENTS REGARDING FOREIGN BANK AND FINANCIAL ACCOUNTS
Shareholders that are U.S. persons and own, directly or indirectly, more than 50%
of the Fund could be required to report annually their “financial interest” in the Fund’s “foreign financial accounts,” if any, on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”). Shareholders should consult a tax advisor, and persons investing in the Fund through an intermediary should contact their intermediary, regarding the applicability to them of this reporting requirement.
52
TAX EQUALIZATION
The Fund intends to distribute its net investment income and capital gains to shareholders
at least annually to qualify for treatment as a RIC under the Code. Under current law, provided
the Fund is not treated as a “personal holding company” for U.S. federal income tax purposes, the Fund is permitted to treat on its tax return as dividends paid the portion of redemption proceeds paid to redeeming
shareholders that represents the redeeming shareholders’ portion of the Fund’s accumulated earnings and profits. This practice, called tax “equalization,” reduces the amount of income and/or gains that the Fund is required to distribute as dividends to non-redeeming shareholders. Tax equalization is not available to the Fund treated as a personal holding company. The amount of any undistributed income and/or gains is reflected in the value
of the Fund’s Shares. The total return on a shareholder’s investment will generally not be reduced as a result of the Fund’s use of this practice.
PERSONAL HOLDING COMPANY STATUS
The Fund will be a personal holding company for federal income tax purposes if 50% or
more of the Fund’s shares are owned, at any time during the last half of the Fund’s taxable year, directly or indirectly by five or fewer individuals. For this purpose, the term “individual” includes pension trusts, private foundations and certain other tax-exempt trusts. If the Fund becomes a personal holding company, it may be subject to a tax of 20% on all its investment income and on any net short-term gains
not distributed to shareholders on or before the fifteenth day of the third month following the close of the Fund’s taxable year. In addition, the Fund’s status as a personal holding company may limit the ability of the Fund to distribute dividends with respect to a taxable year in a manner qualifying for the dividends-paid
deduction subsequent to the end of the taxable year and will prevent the Fund from using tax equalization,
which may result in the Fund paying a fund-level income tax. The Fund intends to distribute all of its income and gain in timely manner such that it will not be subject to an income tax or an otherwise applicable
personal holding company tax, but there can be no assurance that the Fund will be successful in doing so each year.
There can be no assurance that the Fund is not nor will not become a personal holding company.
TAX SHELTER DISCLOSURE
Under U.S. Treasury regulations, if a shareholder recognizes a loss with respect to the Fund’s Shares of at least $2 million in any single taxable year or $4 million in any combination of taxable years, or at least $10 million in any taxable year or $20 million in any combination of taxable years for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct
shareholders of portfolio securities are in many cases excepted from this reporting requirement,
but, under current guidance, shareholders of a RIC are not excepted. This filing requirement applies
even though, as a practical matter, any such loss would not, for example, reduce the taxable income of an insurance
company. Future guidance may extend the current exception from this reporting requirement to shareholders
of most or all RICs. The fact that a loss is reportable under these regulations does not affect the
legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
OTHER TAX INFORMATION
The foregoing discussion is primarily a summary of certain U.S. federal income tax
consequences of investing in the Fund based on the law in effect as of the date of this SAI. The discussion does not
address in detail special tax rules applicable to certain classes of investors, such as, among
others, IRAs and other retirement plans, tax-exempt entities, foreign investors, insurance companies, banks
and other financial institutions, and investors making in-kind contributions to the Fund. Such shareholders may be subject to U.S. tax rules that differ significantly from those summarized above. You should consult
your tax advisor for more information about your own tax situation, including possible other federal, state,
local and, where applicable, foreign tax consequences of investing in the Fund.
53
OTHER INFORMATION
TOTAL RETURN CALCULATIONS
From time to time, the Fund may advertise its historical performance. An investor should keep in mind that any return or yield quoted represents past performance and is not a guarantee
of future results. The investment return and principal value of investments will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Before-Tax Performance. Pre-tax performance advertisements typically includes average
annual total return quotations for the most recent one, five, and ten-year periods (or the life
of the Fund if it has been in operation less than one of the prescribed periods). Average annual total return represents
redeemable value at the end of the quoted period. It is calculated in a uniform manner by dividing the
ending redeemable value of a hypothetical initial payment of $1,000 minus the maximum sales charge (if any),
for a specified period of time, by the amount of the initial payment, assuming reinvestment of all dividends
and distributions. The one, five, and ten-year periods are calculated based on periods that end on the last day
of the calendar quarter preceding the date on which an advertisement is submitted for publication.
After-Tax Performance. After-tax performance is typically calculated as described
in the paragraph above and in addition, takes into account the effect of taxes. After-tax performance
is presented using two methodologies. The first deducts taxes paid on distributions. The second deducts taxes
paid on distributions and taxes paid upon redemption of Fund shares. The calculation of after-tax performance
assumes the highest individual marginal federal income tax rates currently in effect at the time of the
distribution or liquidation. The impact of taxes on the Fund’s distributions corresponds to the tax characteristics of the distributions (e.g., ordinary income rate for ordinary income, short-term capital gains distribution rate
for short-term capital gains distributions, and long-term capital gains distribution rate for long-term capital
gains distributions). State, local or federal alternative minimum taxes are not taken into account, the effect of phase
outs of certain exemptions, deductions and credits at various income levels are also not taken into
account. Tax rates may vary over the performance measurement period. After-tax returns are not relevant to
investors who hold fund shares through tax-deferred arrangements such as qualified retirement plans.
Actual after-tax returns depend on an investor’s tax situation and may differ from those shown.
Information about the performance of the Fund will be contained in the Fund’s annual report, as amended, and semiannual report to shareholders which may be obtained without charge by writing to the Fund at the address or telephoning the Fund at the telephone number set forth on the
cover page of this SAI.
RATING SERVICES
The ratings of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Group, Fitch Investor Services, and DBRS, Inc. represent their opinions as to the quality of the securities
that they undertake to rate. It should be emphasized, however, that ratings are relative and subjective and are
not absolute standards of quality. A description of the ratings used herein and in the Prospectus is set forth
in Appendix A to this SAI.
FINANCIAL STATEMENTS
The Fund’s fiscal year end is July 31st. Because the Fund had not commenced operations prior to July 31, 2024, no financial statements are available.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF ADDITIONAL INFORMATION, WHICH THE PROSPECTUS INCORPORATES BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PROFUNDS. THIS STATEMENT OF ADDITIONAL
54
INFORMATION DOES NOT CONSTITUTE AN OFFERING BY PROFUNDS IN ANY JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.
55
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
S&P GLOBAL RATINGS (“S&P”)
Long-Term Issue Credit Ratings
AAA – An obligation rated ‘AAA’ has the highest rating assigned by S&P Global Ratings. The obligor’s capacity to meet its financial commitments on the obligation is extremely strong.
AA – An obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitments on the obligation is very strong.
A – An obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitments on the obligation is still strong.
BBB – An obligation rated ’BBB’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial commitments on the obligation.
BB; B; CCC; CC; and C – Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant speculative characteristics. ‘BB’ indicates the least degree of speculation and ‘C’ the highest. While such obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposure to adverse conditions.
BB – An obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial,
or economic conditions that could lead to the obligor’s inadequate capacity to meet its financial commitments on the obligation.
B – An obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently has the capacity to meet its financial commitments on the obligation.
Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitments on the obligation.
CCC – An obligation rated ‘CCC’ is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its
financial commitments on the obligation. In the event of adverse business, financial, or economic conditions,
the obligor is not likely to have the capacity to meet its financial commitments on the obligation.
CC – An obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a default has not yet occurred but S&P Global Ratings expects default to be a
virtual certainty, regardless of the anticipated time to default.
C – An obligation rated ‘C’ is currently highly vulnerable to nonpayment, and the obligation is expected to have lower relative seniority or lower ultimate recovery compared with
obligations that are rated higher.
D – An obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when payments on an obligation are not made on the date due, unless S&P Global Ratings believes that such payments will be made within the next
five business days in the absence of a stated grace period or within the earlier of the stated grace period
or the next 30 calendar days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic
stay provisions. A rating on an obligation is lowered to ‘D’ if it is subject to a distressed debt restructuring.
A-1
The ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
NR – This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that S&P Global Ratings does not rate a particular obligation
as a matter of policy.
Municipal Short-Term Note Ratings
SP-1 – Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.
SP-2 – Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
SP-3 – Speculative capacity to pay principal and interest.
Short-Term Issue Credit Ratings
A-1 – A short-term obligation rated ‘A-1’ is rated in the highest category by S&P Global Ratings. The obligor’s capacity to meet its financial commitments on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitments on these obligations is extremely strong.
A-2 – A short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor’s capacity to meet its financial commitments on the obligation is satisfactory.
A-3 – A short-term obligation rated ‘A-3’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken an obligor’s capacity to meet its financial commitments on the obligation.
B – A short-term obligation rated ‘B’ is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments;
however, it faces major ongoing uncertainties that could lead to the obligor’s inadequate capacity to meet its financial commitments.
C – A short-term obligation rated ‘C’ is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its
financial commitments on the obligation.
D – A short-term obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when payments on an obligation are not made on the date due, unless S&P Global Ratings believes that such payments will be made
within any stated grace period. However, any stated grace period longer than five business days will be treated
as five business days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action and where default on an obligation is a virtual certainty, for example due to automatic
stay provisions. A rating on an obligation is lowered to ‘D’ if it is subject to a distressed debt restructuring.
MOODY’S INVESTORS SERVICE (“MOODY’S”)
Long-Term Rating Scale
Aaa – Obligations rated Aaa are judged to be of the highest quality, with minimal risk.
Aa – Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A – Obligations rated A are considered upper medium-grade and are subject to low credit risk.
A-2
Baa – Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess speculative characteristics.
Ba – Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.
B – Obligations rated B are considered speculative and are subject to high credit risk.
Caa – Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
Ca – Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery in principal and interest.
C – Obligations rated C are the lowest-rated class of bonds and are typically in default, with little prospect for recovery of principal and interest.
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
Short-Term Rating Scale
P-1 – Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2 – Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3 – Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP – Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
Municipal Investment Grade Rating Scale
MIG 1 – This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support, or demonstrated broad-based
access to the market for refinancing.
MIG 2 – This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group.
MIG 3 – This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for refinancing is likely to be less well-established.
SG – This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
Variable Municipal Investment Grade Rating Scale
VMIG 1 – This designation denotes superior credit quality. Excellent protection is afforded by the superior short-term credit strength of the liquidity provider and structural and legal
protections.
VMIG 2 – This designation denotes strong credit quality. Good protection is afforded by the strong short-term credit strength of the liquidity provider and structural and legal protections.
VMIG 3 – This designation denotes acceptable credit quality. Adequate protection is afforded by the satisfactory short-term credit strength of the liquidity provider and structural and
legal protections.
A-3
SG – This designation denotes speculative-grade credit quality. Demand features rated in this category may be supported by a liquidity provider that does not have a sufficiently
strong short-term rating or may lack the structural or legal protections.
FITCH INVESTOR SERVICES (“FITCH’S)
Issuer Default Ratings
AAA – Highest credit quality. ‘AAA’ ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments.
This capacity is highly unlikely to be adversely affected by foreseeable events.
AA – Very high credit quality. ‘AA’ ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
A – High credit quality. ‘A’ ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be
more vulnerable to adverse business or economic conditions than is the case for higher ratings.
BBB – Good credit quality. ‘BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse
business or economic conditions are more likely to impair this capacity.
BB – Speculative. ‘BB’ ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business
or financial flexibility exists that supports the servicing of financial commitments.
B – Highly speculative. ‘B’ ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity
for continued payment is vulnerable to deterioration in the business and economic environment.
CCC – Substantial credit risk. Very low margin for safety. Default is a real possibility.
CC – Very high levels of credit risk. Default of some kind appears probable.
C – Near Default. A default or default-like process has begun, or for a closed funding vehicle, payment capacity is irrevocably impaired.
RD – Restricted default. ‘RD’ ratings indicate an issuer that in Fitch’s opinion has experienced an uncured payment default or distressed debt exchange on a bond, loan or other material
financial obligation, but has not entered into bankruptcy filings, administration, receivership, liquidation,
or other formal winding-up procedure, and has not otherwise ceased operating.
D – Default. ‘D’ ratings indicate an issuer that in Fitch’s opinion has entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure or
that has otherwise ceased business and debt is still outstanding.
DBRS, Inc.
Long Term Obligations Scale
AAA – Highest credit quality. The capacity for the payment of financial obligations is exceptionally high and unlikely to be adversely affected by future events.
AA – Superior credit quality. The capacity for the payment of financial obligations is considered high. Credit quality differs from AAA only to a small degree. Unlikely to be significantly
vulnerable to future events.
A-4
A – Good credit quality. The capacity for the payment of financial obligations is substantial, but of lesser credit quality than AA. May be vulnerable to future events, but qualifying
negative factors are considered manageable.
BBB – Adequate credit quality. The capacity for the payment of financial obligations is considered acceptable. May be vulnerable to future events.
BB – Speculative, non-investment grade credit quality. The capacity for the payment of financial obligations is uncertain. Vulnerable to future events.
B – Highly speculative credit quality. There is a high level of uncertainty as to the capacity to meet financial obligations.
CCC/CC/C – Very highly speculative credit quality. In danger of defaulting on financial obligations. There is little difference between these three categories, although CC and C rating
categories are normally applied to obligations that are seen as highly likely to default, or subordinated
to obligations rated in the CCC to B range. Obligations in respect of which default has not technically taken place
but is considered inevitable may be rated in the C category.
D – When the issuer has filed under any applicable bankruptcy, insolvency or winding up statute or there is a failure to satisfy an obligation after the exhaustion of grace periods,
a downgrade to D may occur. DBRS Morningstar may also use SD (Selective Default) in cases where only some securities
are impacted, such as the case of a “distressed exchange”.
Commercial Paper and Short-Term Debt Rating Scale
R-1 (high) – Highest credit quality. The capacity for the payment of short-term financial obligations as they fall due is exceptionally high. Unlikely to be adversely affected by future
events.
R-1 (middle) – Superior credit quality. The capacity for the payment of short-term financial obligations as they fall due is very high. Differs from R-1 (high) by a relatively
modest degree. Unlikely to be significantly vulnerable to future events.
R-1 (low) – Good credit quality. The capacity for the payment of short-term financial obligations as they fall due is substantial. Overall strength is not as favorable as higher rating
categories. May be vulnerable to future events, but qualifying negative factors are considered manageable.
R-2 (high) – Upper end of adequate credit quality. The capacity for the payment of short-term financial obligations as they fall due is acceptable. May be vulnerable to future
events.
R-2 (middle) – Adequate credit quality. The capacity for the payment of short-term financial obligations as they fall due is acceptable. May be vulnerable to future events or
may be exposed to other factors that could reduce credit quality.
R-2 (low) – Lower end of adequate credit quality. The capacity for the payment of short-term financial obligations as they fall due is acceptable. May be vulnerable to future
events. A number of challenges are present that could affect the issuer’s ability to meet such obligations.
R-3 – Lowest end of adequate credit quality. There is capacity for the payment of short-term financial obligations as they fall due. May be vulnerable to future events and the
certainty of meeting such obligations could be impacted by a variety of developments.
R-4 – Speculative credit quality. The capacity for the payment of short-term financial obligations as they fall due is uncertain.
R-5 – Highly speculative credit quality. There is a high level of uncertainty as to the capacity to meet short-term financial obligations as they fall due.
D – When the issuer has filed under any applicable bankruptcy, insolvency, or winding-up statute, or there is a failure to satisfy an obligation after the exhaustion of grace periods,
a downgrade to D may occur.
A-5
DBRS Morningstar may also use SD (Selective Default) in cases where only some 16 DBRS
Morningstar Product Guide securities are impacted, such as the case of a “distressed exchange.”
A-6
APPENDIX B
PRINCIPAL HOLDERS AND CONTROL PERSONS
From time to time, certain shareholders may own, of record or beneficially, a large
percentage of the shares of the Fund. Accordingly, those shareholders may be able to greatly affect (if not determine)
the outcome of a shareholder vote.
CONTROLLING PERSON INFORMATION
As of the date of this SAI, beneficial ownership information is not available as the Fund has not commenced operations.
B-1
APPENDIX C
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TITLE:
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Proxy Voting Policies and Procedures
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FOR:
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ProShare Advisors LLC and ProFund Advisors LLC
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DATED:
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March 1, 2008
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AS REVISED:
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May 1, 2015
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C-1
Proxy Voting Policies and Procedures to Maximize Shareholder Value and Protect Shareowner
Interests
It is the policy of ProFund Advisors LLC and ProShare Advisors LLC (collectively, the “Advisor”) to seek to maximize shareholder value and protect shareholder interests when voting proxies on
behalf of clients. The Advisor seeks to achieve this goal by utilizing a set of proxy voting guidelines (the “Guidelines”) maintained and implemented by an independent service provider, Institutional Shareholder Services (“ISS”). The Advisor believes that these Policies and Procedures, including the Guidelines, are reasonably
designed to ensure that proxy matters are conducted in the best interests of clients and in accordance with the Advisor’s fiduciary duties, applicable rules under the Investment Advisers Act of 1940, and, in the case
of its registered fund clients, applicable rules under the Investment Company Act of 1940.
Proxy Voting Guidelines
Proxies generally will be voted in accordance with the ISS Guidelines, an extensive
list of common proxy voting issues and recommended voting actions for such issues based on the overall
goal of achieving maximum shareholder value and protection of shareholder interests. Common issues in
the Guidelines, and factors taken into consideration in voting proxies with respect to these issues, include,
but are not limited to:
•Election of Directors—considering factors such as director qualifications, term of office, age limits.
•Proxy Contests—considering factors such as voting for nominees in contested elections and reimbursement of expenses.
•Election of Auditors—considering factors such as independence and reputation of the auditing firm.
•Proxy Contest Defenses—considering factors such as board structure and cumulative voting.
•Tender Offer Defenses—considering factors such as poison pills (stock purchase rights plans) and fair price provisions.
•Miscellaneous Governance Issues—considering factors such as confidential voting and equal access.
•Capital Structure—considering factors such as common stock authorization and stock distributions.
•Executive and Director Compensation—considering factors such as performance goals and employee stock purchase plans.
•State of Incorporation—considering factors such as state takeover statutes and voting on reincorporation proposals.
•Mergers and Corporate Restructuring—considering factors such as spinoffs and asset sales.
•Mutual Fund Proxy Voting—considering factors such as election of directors and proxy contests.
•Consumer and Public Safety Issues—considering factors such as social and environmental issues as well as labor issues.
A full description of the Guidelines is maintained by the Advisor and the Advisor
has established a committee that monitors the effectiveness of the Guidelines (the “Brokerage Allocation and Proxy Voting Committee” or the “Committee”).
The Advisor reserves the right to modify any of the recommendations set forth in the
Guidelines with respect to any particular issue in the future, in accordance with the Advisor intent to vote
proxies for clients in a manner that the Advisor determines is in the best interests of clients and which seeks
to maximize the value of the client’s investments. The Advisor is not required to vote every proxy in fulfilling its proxy voting obligations. In some cases, the Advisor may determine that it is in the best interests
of a client to refrain from exercising proxy voting rights. For example, the Advisor may determine that the cost
of voting certain proxies exceeds the expected benefit to the client (such as where casting a vote on a foreign
security would require hiring a translator), and may abstain from voting in such cases.
C-2
In cases where the Advisor does not receive a solicitation or enough information with
respect to a proxy vote within a sufficient time (as reasonably determined by the Advisor) prior to the proxy-voting
deadline, the Advisor may be unable to vote. With respect to non- U.S. companies, it is typically
difficult and costly to vote proxies due to local regulations, customs or other requirements or restrictions, and
such circumstances may outweigh any anticipated economic benefit of voting. The major difficulties and costs
may include: (i) appointing a proxy; (ii) obtaining reliable information about the time and location
of a meeting; (iii) obtaining relevant information about voting procedures for foreign shareholders; (iv) restrictions
on trading securities that are subject to proxy votes (share-blocking periods); (v) arranging for a proxy
to vote locally in person; (vi) fees charged by custody banks for providing certain services with regard to voting
proxies; and (vii) foregone income from securities lending programs. The Advisor does not vote proxies
of non-U.S. companies if it determines that the expected costs of voting outweigh any anticipated economic
benefit to the client of voting.
Overview of the Proxy Voting Process
In relying on ISS to vote client proxies, the Advisor will take reasonable steps and
obtain adequate information to verify that ISS has the capacity to provide adequate proxy advice,
is independent of the Advisor, has an adequate conflict of interest policy, and does not have the incentive
to vote proxies in anyone’s interest other than that of the Advisor’s client. In addition, the Committee will monitor for conflicts concerning ISS.
As proxy agent, ISS devotes research for proxies based on the level of complexity
of the proxy materials to be voted. ISS assigns complex issues such as mergers or restructuring to senior analysts.
Recurring issues for which case-by-case analysis is unnecessary are handled by more junior analysts. In
every case, an analyst reviews publicly available information such as SEC filings and recent news reports
and, if necessary, may contact issuers directly. Such discussions with issuers may be handled by telephone
or in a face-to-face meeting. Analysts will seek to speak directly with management when a question is not
answered by publicly available information and such information is needed for an informed recommendation.
As part of ISS’s quality assurance process, every analysis is reviewed by a director of research or a chief policy advisor. Complex issues such as mergers are assigned to senior staff members.
Contested issues are reviewed by research directors. While a senior analyst takes the lead on every proxy
contest, a member of management will frequently conduct additional review by participating in calls with
principals directly involved with the proxy issue.
Generally, proxies are voted in accordance with the voting recommendations as stated
in the Guidelines. ISS will consult the Advisor on non-routine issues. Information about the Guidelines is
available on the ISS web site at: http://www.issgovernance.com/file/policy/2015-us-summary-voting-guidelines-updated.pdf.
Oversight of the Proxy Voting Process
The Advisor has established the Brokerage Allocation and Proxy Voting Committee, in
part, to oversee the proxy voting process. ISS provides the Advisor quarterly reports, which the Advisor
reviews to ensure that client proxies are being voted properly. The Advisor and ISS also perform spot checks
on an intra-quarterly basis. ISS’s management meets on a regular basis to discuss its approach to new developments and amendments to existing policies. Information on such developments or amendments, in
turn, is provided to the Committee.
Conflicts of Interest
From time to time, proxy issues may pose a material conflict of interest between the
Advisor and its clients. It shall be the duty of the Committee to monitor for and to identify potential conflicts
of interest. The Committee will also determine which conflicts are material (if any). To ensure that
proxy voting decisions are based on the best interests of the client in the event a conflict of interest arises,
the Advisor will direct ISS to use its independent judgment to vote affected proxies in accordance with the Guidelines.
If a registered investment company managed by the Advisor owns shares of another investment company
managed by the
C-3
Advisor, “echo voting” is employed to avoid certain potential conflicts of interest. Echo voting means that the Advisor votes the shares of each such underlying investment company in the same proportion
as the vote of all of the other holders of the underlying investment company’s shares.
The Committee will disclose to clients any voting issues that created a conflict of
interest and the manner in which ISS, on behalf of the Advisor, voted such proxies.
Securities Lending Program
The Advisor acknowledges that, when a registered fund client (a “Fund”) lends its portfolio securities, the Fund’s Trustees (who generally have delegated proxy voting responsibility to the Advisor) retain a fiduciary obligation to vote proxies relating to such securities and to recall the securities
in the event of a shareholder vote on a material event affecting the security on the loan. Under the Fund’s securities lending agreements, the Fund generally retains the right to recall a loaned security and to exercise the security’s voting rights. In order to vote the proxies of securities out on loan, the Advisor must recall the securities
prior to the established record date. It is the Advisor’s general policy to use its best efforts to recall securities on loan and to vote proxies relating to such securities if the Advisor determines that such proxies
involve a material event affecting the loaned securities. The Advisor may utilize third party service providers
to assist it in identifying and evaluating whether an event is material.
As noted, in certain cases, the Advisor may determine that voting proxies is not in
the best interest of a client and may refrain from voting if the costs, including the opportunity costs, of voting
would, in the view of the Advisor, exceed the expected benefits of voting to the client. For securities on loan,
the Advisor will balance the revenue-producing value of loans against the difficult-to-assess value of casting
votes. If the Advisor determines that the expected value of casting a vote will be less than the securities
lending income, either because the votes would not have significant economic consequences or because the
outcome of the vote would not be affected by the Advisor’s recalling the loaned securities in order to ensure they are voted (e.g., for an annual shareholder meeting at which purely routine votes are at issue, or if
the relevant Fund owns a de minimus percentage of the outstanding shares at issue). The Advisor intends to
recall securities on loan if it determines that voting the securities is likely to affect materially the value of
the Fund’s investment and that it is in the Fund’s best interests to do so.
Availability of Information; Record of Proxy Voting
The Advisor, with the assistance of ISS, shall maintain for a period of at least five
years the following records relating to proxy voting on behalf of clients:
(1) proxy voting policies and procedures;
(2) proxy statements received for clients (unless such statements are available on the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system);
(3) any documents prepared by the Advisor that were material to making a proxy voting
decision or that memorialized the basis for the decision;
(4) records of votes cast on behalf of clients (which may be maintained by a third
party service provider if the service provider undertakes to provide copies of those records promptly upon request);
and
(5) records of written requests for proxy voting information and written responses
from the Advisor to either a written or oral request.
For the first two years, the Advisor will store such records at its principal office.
Voting records will also be maintained and will be available free of charge by calling the Advisor at 888-776-1972.
The voting record is available on the website of the Securities and Exchange Commission at www.sec.gov.
C-4
Disclosure
The Advisor will inform its clients as to how to obtain information regarding the Advisor’s voting of the clients’ securities. The Advisor will provide its clients with a summary of its proxy voting guidelines, process and policies and will inform its clients as to how they can obtain a copy of the complete
Guidelines upon request. The Advisor will include such information described in the preceding two
sentences in its Form ADV and will provide its existing clients with the above information. The Advisor shall
disclose in the statements of additional information of registered fund clients a summary of procedures which
the Advisor uses to determine how to vote proxies relating to portfolio securities of such clients. The
disclosure will include a description of the procedures used when a vote presents a conflict of interest between
shareholders and the Advisor or an affiliate of the Advisor.
The semi-annual reports of Fund clients shall indicate that the Fund’s proxy voting records are available: (i) by calling a toll-free number; or (ii) on the SEC’s website. If a request for the records is received, the requested description must be sent within three business days by a prompt method of
delivery.
The Advisor, on behalf of the Fund it advises, shall file its proxy voting record with the SEC on Form N-PX no later than August 31 of each year, for the twelve-month period ending June 30 of
the current year. Such filings shall contain all information required to be disclosed on Form N-PX.
C-5
PART C. OTHER INFORMATION
ProFunds
ITEM 28. Exhibits
(c)
Not applicable
(1)
(d)
(1)
(i)
(ii)
Schedule A to the Amended and Restated Investment Advisory Agreement, dated as of
December 11, 2024 (39)
(iii)
(iv)
(2)
Amended and Restated Investment Management Agreement between Government Cash Management
Portfolio and Deutsche Investment Management Americas Inc. (now known as DWS Investment
Management Americas, Inc.), dated as of June 1, 2006, and revised as of January 1,
2007, May 14, 2007, August 1, 2007, and May 1, 2016 (22)
(3)
(i)
(ii)
Schedule A to the ProFunds Amended and Restated Expense Limitation Agreement between
ProFunds and ProFund Advisors LLC, dated as of January 1, 2004 and amended as of March 10, 2005 and further amended as of June 20, 2006, effective December 1, 2024
to November 30, 2025 for the Operational Public ProFunds (39)
(iii)
(iv)
(v)
(vi)
(vii)
C-0
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
(xv)
(xvi)
(xvii)
(xviii)
(xix)
(xx)
(4)
(e)
(1)
(f)
Not Applicable
(iii)
C-1
(2)
(h)
(1)
(i)
(iii)
(iv)
(2)
(i)
(ii)
(3)
(4)
(i)
(ii)
Schedule A, as of December 11, 2024 to the Amended and Restated Management Services
Agreement (399)
(6)
(7)
(9)
(10)
(i)
(ii)
(11)
(i)
(ii)
(iii)
(iv)
(i)
(1)
Opinion and Consent of Counsel (39)
C-2
(j)
Not Applicable
(k)
Not Applicable
(l)
(1)
(m)
(1)
(i)
(3)
(i)
(ii)
(4)
(5)
(6)
(o)
Not Applicable
(p)
(1)
(1)
Previously filed on October 29, 1997 as part of Pre-Effective Amendment No. 3 and
incorporated by reference herein.
(2)
Previously filed on October 15, 1999 as part of Post-Effective Amendment No. 8 and
incorporated by reference herein.
(3)
Previously filed on July 13, 2000 as part of Post-Effective Amendment No. 14 and incorporated
by reference herein.
(4)
Previously filed on February 28, 2003 as part of Post-Effective Amendment No. 23 and
incorporated by reference herein.
(5)
Previously filed on February 20, 2004 as part of Post-Effective Amendment No. 29 and
incorporated by reference herein.
(6)
Previously filed on April 29, 2005 as part of Post-Effective Amendment No. 38 and
incorporated by reference herein.
(7)
Previously filed on February 24, 2006 as part of Post-Effective Amendment No. 44 and
incorporated by reference herein.
(8)
Previously filed on March 28, 2006 as part of Post-Effective Amendment No. 45 and
incorporated by reference herein.
(9)
Previously filed on July 26, 2006 as part of Post-Effective Amendment No. 50 and incorporated
by reference herein.
(10)
Previously filed on November 27, 2006 as part of Post-Effective Amendment No. 54 and
incorporated by reference herein.
(11)
Previously filed on April 30, 2007 as part of Post-Effective Amendment No. 57 and
incorporated by reference herein.
(12)
Previously filed on April 29, 2009 as part of Post-Effective Amendment No. 64 and
incorporated by reference herein.
(13)
Previously filed on April 30, 2010 as part of Post-Effective Amendment No. 69 and
incorporated by reference herein.
(14)
Previously filed on April 29, 2011 as part of Post-Effective Amendment No. 71 and
incorporated by reference herein.
(15)
Previously filed on April 27, 2012 as part of Post-Effective Amendment No. 76 and
incorporated by reference herein.
(16)
Previously filed on April 26, 2013 as part of Post-Effective Amendment No. 82 and
incorporated by reference herein.
(17)
Previously filed on November 26, 2013 as part of Post-Effective Amendment No. 80 and
incorporated by reference herein.
(18)
Previously filed on April 28, 2014 as part of Post-Effective Amendment No. 84 and
incorporated by reference herein.
(19)
Previously filed on April 28, 2015 as part of Post-Effective Amendment No. 88 and
incorporated by reference herein.
(20)
Previously filed on April 29, 2016 as part of Post-Effective Amendment No. 93 and
incorporated by reference herein.
(21)
Previously filed on June 30, 2016 as part of Post-Effective Amendment No. 95 and incorporated
by reference herein.
(22)
Previously filed on May 1, 2017 as part of Post-Effective Amendment No. 99 and incorporated
by reference herein.
(23)
Previously filed on April 30, 2018 as part of Post-Effective Amendment No. 103 and
incorporated by reference herein.
(24)
Previously filed on April 29, 2019 as part of Post-Effective Amendment No. 107 and
incorporated by reference herein.
C-3
(25)
Previously filed on November 26, 2019 as part of Post-Effective Amendment No. 110
and incorporated by reference herein.
(26)
Previously filed on April 27, 2020 as part of Post-Effective Amendment No. 113 and
incorporated by reference herein.
(27)
Previously filed on April 21, 2021 as part of Post-Effective Amendment No. 119 and
incorporated by reference herein.
(28)
Previously filed on April 27, 2021 as part of Post-Effective Amendment No. 120 and
incorporated by reference herein.
(29)
Previously filed on July 27, 2021 as part of Post-Effective Amendment No. 122 and
incorporated by reference herein.
(30)
Previously filed on November 23, 2021 as part of Post-Effective Amendment No. 123
and incorporated by reference herein.
(31)
Previously filed on April 26, 2022 as part of Post-Effective Amendment No. 125 and
incorporated by reference herein.
(32)
Previously filed on June 17, 2022 as part of Post-Effective Amendment No. 126 and
incorporated by reference herein.
(33)
Previously filed on November 23, 2022 as part of Post-Effective Amendment No. 127
and incorporated by reference herein.
(34)
Previously filed on April 26, 2023 as part of Post-Effective Amendment No. 129 and
incorporated by reference herein.
(35)
Previously filed on September 18, 2023 as part of Post-Effective Amendment No. 130
and incorporated by reference herein.
(36)
Previously filed on November 22, 2023 as part of Post-Effective Amendment No. 131
and incorporated by reference herein.
(37)
Previously filed on April 26, 2024 as part of Post-Effective Amendment No. 134 and
incorporated by reference herein.
(38)
Previously filed on November 26, 2024 as part of Post-Effective Amendment No. 147
and incorporated by reference herein.
(39)
Filed herein.
ITEM 29. Persons Controlled by or Under Common Control With Registrant.
None.
ITEM 30. Indemnification
ProFunds (the “Trust”) is organized as a Delaware statutory trust and is operated pursuant to a Declaration of Trust, dated as of April 17, 1997 (the “Declaration of Trust”), that permits ProFunds to indemnify its trustees and officers under certain circumstances. Such indemnification, however, is subject to
the limitations imposed by the Securities Act of 1933, as amended, and by the Investment Company Act of 1940, as
amended. The Declaration of Trust of ProFunds provides that officers and trustees of the Trust shall be indemnified
by the Trust against liabilities and expenses they may incur while defending themselves in proceedings brought against
them arising out of (i) their service as officers or trustees of the Trust, or else (ii) their service as officers
or trustees of another entity, when serving at the request of such other entity. This indemnification is subject to the
following conditions:
(a)
no trustee or officer of the Trust is indemnified against any liability to the Trust
or its security holders which was the result of any willful misconduct, bad faith, gross negligence, or reckless
disregard of his duties;
(b)
officers and trustees of the Trust are indemnified only for actions taken in good
faith which the officers and trustees believed were in or not opposed to the best interests of the Trust; and
(c)
expenses of any suit or proceeding will be paid in advance only if the persons who
will benefit by such advance undertake to repay the expenses unless it subsequently is determined that
such persons are entitled to indemnification.
The Declaration of Trust of ProFunds provides that if indemnification is not ordered
by a court, indemnification may be authorized upon determination by shareholders, or by a majority
vote of a quorum of the trustees who were not parties to the proceedings or, if this quorum is not obtainable,
if directed by a quorum of disinterested trustees, or by independent legal counsel in a written opinion, that
the persons to be indemnified have met the applicable standard.
ITEM 31. Business and Other Connections of Investment Adviser
ProFund Advisors LLC is a limited liability company formed under the laws of the State
of Maryland on May 8, 1997. Reference is made to the captions “ProFunds VP Management” and “Fund Management” in the Prospectuses constituting Part A which is incorporated herein by reference and “Management of ProFunds” in the Statement of Additional Information constituting Part B which is incorporated herein
by reference. The information as to the directors and officers of ProFund Advisors LLC is set forth in ProFund Advisors LLC’s Form ADV filed with the Securities and Exchange Commission on July 3, 1997 and amended through March 31, 2024.
Information relating to the business and other connections of DWS Investment Management
Americas, Inc., which serves as investment adviser to the Government Cash Management Portfolio, in
which Government Money Market ProFund, a series of ProFunds, invests substantially all of its assets, and
each director, officer or partner of DWS Investment Management Americas, Inc. is hereby incorporated by reference to disclosures
in Item 31 of Amendment No. 45 to the Registration Statement of Government Cash Management Portfolio
(File No. 811-06073). For additional information, please see the Government Money Market ProFund’s Statement of Additional Information.
ITEM 32. Principal Underwriter
Item 32(a)
C-4
The following lists the names of each investment company for which the Trust’s principal underwriter, ProFunds Distributors, Inc., a wholly-owned subsidiary of ProFund Advisors LLC, acts
as a principal underwriter:
ProFunds
The Distributor is registered with the Securities and Exchange Commission as a broker-dealer
and is a member of the Financial Industry Regulatory Authority or “FINRA”. The Distributor has its main address at 7272 Wisconsin Avenue, 21st Floor, Bethesda, Maryland 20814.
Item 32(b)
Information about the directors and officers of ProFunds Distributors Inc. (“PDI”) is as follows:
All directors’ and officers’ addresses are 7272 Wisconsin Avenue, 21st Floor, Bethesda, MD 20814.
|
Name
|
Position with PDI
|
|
Michael L. Sapir
|
Director
|
|
Louis M. Mayberg
|
Director
|
|
Steven B. Cohen
|
President
|
|
Richard F. Morris
|
Chief Legal Officer
|
|
Victor M. Frye
|
Secretary and Chief Compliance Officer
|
|
Edward J. Karpowicz
|
Treasurer
|
Item 32(c)
Not Applicable
ITEM 33. Location of Accounts and Records
All accounts, books, and records required to be maintained and preserved by Section
31(a) of the Investment Company Act of 1940, as amended, and Rules 31a-1 and 31a-2 thereunder,
will be kept by the Registrant at:
(1)
ProFund Advisors LLC, 7272 Wisconsin Avenue, 21st Floor, Bethesda, Maryland (records relating to its functions as investment adviser and manager);
(2)
ProFunds Distributors, Inc., 7272 Wisconsin Avenue, 21st Floor, Bethesda, Maryland (records relating to its function as Distributor);
(3)
Ultimus Fund Solutions, LLC, 2 Eaton Oval, Suite 300, Columbus, Ohio 43219 (official
records of the Trust and records produced by Ultimus Fund Solutions, LLC, in its role as administrator
and fund accountant);
(4)
FIS Investor Services LLC, 4249 Easton Way, Suite 400 Columbus, OH 43219 (official
records of the Trust and records produced by FIS Investor Services LLC, in its role as transfer agent);
and
(5)
UMB Bank, N.A., 928 Grand Avenue, Kansas City, Missouri for each series of the Trust
(records relating to its function as Custodian).
Information relating to the location of accounts and records of DWS Investment Management
Americas, Inc., which serves as investment adviser to Government Cash Management Portfolio, in which
Government Money Market ProFund, a series of ProFunds, invests substantially all of its assets, is hereby
incorporated by reference to disclosures in Item 33 of Amendment No. 45 to the Registration Statement of Government
Cash Management Portfolio (File No. 811-06073).
ITEM 34. Management Services
Not Applicable
ITEM 35. Undertakings
Not Applicable
C-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this
Registration Statement under Rule 485(b) and has duly caused this post-effective amendment (the “Amendment”) to its Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Bethesda
and the State of Maryland on December 23, 2024.
|
ProFunds
|
|
|
By:
|
/s/ Todd B. Johnson
|
|
|
Todd B. Johnson President and Principal Executive Officer
|
Pursuant to the requirements of the Securities Act of 1933, this Amendment to the
Registration Statement has been signed below by the following persons in the capacities indicated.
|
Signature
|
Title
|
Date
|
|
/s/ Michael L. Sapir*
Michael L. Sapir
|
Trustee, Chairman
|
December 23, 2024
|
|
/s/ Russell S. Reynolds, III*
Russell S. Reynolds, III
|
Trustee
|
December 23, 2024
|
|
/s/ Michael C. Wachs*
Michael C. Wachs
|
Trustee
|
December 23, 2024
|
|
/s/ William D. Fertig*
William D. Fertig
|
Trustee
|
December 23, 2024
|
|
/s/ Todd B. Johnson
Todd B. Johnson
|
President and Principal Executive Officer
|
December 23, 2024
|
|
/s/ Rebecca Colvin
Rebecca Colvin
|
Treasurer (Principal Financial Officer and Principal
Accounting Officer)
|
December 23, 2024
|
|
* By:/s/ Richard F. Morris
Richard F. Morris
As Attorney-in-fact
Date: December 23, 2024
|
|
|
|
|
|
|
C-6
ATTACHMENTS / EXHIBITS
XBRL TAXONOMY EXTENSION SCHEMA
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
XBRL TAXONOMY EXTENSION LABEL LINKBASE
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