Titan 500 Fund
Tempest 500 Fund
Velocity 100 Fund
Venture 100 Fund
This report and the financial statements contained herein are submitted for the
general information of our shareholders. The report is not intended for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus. Rydex Distributors, Inc. Rydex Funds 6116 Executive
Blvd., Suite 400 Rockville, MD 20852 (301)468.8520 (800)820.0888
www.rydexfunds.com
<PAGE>
Semi-Annual Report June 2000
Titan 500 Fund
Tempest 500 Fund
Velocity 100 Fund
Venture 100 Fund
<PAGE>
DearShareholder, After a positive, although volatile first quarter, the second
quarter saw all of the major market indices in negative territory. A few
old economy stocks fared well, but the broad markets were dragged down by
the dismal performance of the new economy technology stocks. After peaking
in the middle of March, the tech heavy NASDAQ Composite Index fell by more
than 20%. The central bank has stayed on its tightening course and has
continued to successfully fight inflation as the economy sails along in a
record expansion. First Half Review The prolonged tech rally started to
fizzle out in late March when Abby Joseph Cohen, long standing bull and
influential market strategist from Goldman Sachs, recommended cutting back
on stocks and moved to a neutral position on technology. In April, Judge
Thomas Penfield Jackson ruled in the closely watched Microsoft case that
the tech bellwether illegally protected its software monopoly. While tech
stocks struggled, major pharmaceutical companies posted a hefty first half
gain. The S&P Health Care Index, a benchmark for major healthcare companies
advanced 21.63% for the period. Also, major oil companies fared well during
the first quarter as oil and gas prices rose substantially from their near
record 1998 lows. These two sectors helped the S&P 500, which was down
.99%, from going into further negative territory. As the stock market
languished, the bond market held its own, enduring three more rate
increases by the Fed. The central bank left U.S. interest rates unchanged
at the June FOMC meeting. This was due to May s weak employment report. The
yield on the 30-year Treasury Bond fell from 6.48% to 5.90% during the
reporting period. Investors switching from equities into bonds and a
shrinking supply of government bonds fueled the rally.
<PAGE>
Summary Although earnings reports for the first half showed excellent aggregate
growth, the stock market failed to rally in the wake of the Feds decision
to raise interest rates. The Fed will continue to watch the market with
keen eyes. Now, while the economy is still expanding at a strong pace,
consumer spending the force behind the record expansion and the
economys overall performance is starting to show signs of moderation. Some
of this slowdown can be attributed to the market pullback. Going forward,
investors will be looking for more signs that growth is slowing. They will
also be watching corporate earnings reports for evidence that higher
interest rates and a mildly decelerating economy are not diminishing
companies profitability. In closing, I would like to thank you for using
the Dynamic Funds, another innovation from Rydex. As always, we welcome
your questions or comments about the Rydex Funds. Feel free to contact us
over the Internet via our web site at www.rydexfunds.com or call us at
800-820-0888.
Sincerely,
Albert P. (Skip) Viragh, Jr.
chairman of the Board
<PAGE>
rydex dynamic funds
Titan 500 Fund
Schedule Of Investments (Unaudited) June 30, 2000
Face Amount Market Value
----------- ------------
(Note 1)
Federal Agency Discount Notes 66.8%
Federal Home Loan Banks 6.50% 7/3/00.......$10,000,000 $ 9,996,388
----------
Total Federal Agency Discount Notes (Cost $9,996,388) 9,996,388
---------
U.S. Treasury Obligations 19.9%
U.S. Treasury Bill 5.66% 8/17/00 ........... 3,000,000 2,977,832
---------
Total U.S. Treasury Obligations (Cost $2,977,832) ... 2,977,832
---------
Contracts
---------
Options Purchased 13.3%
Call Options on:
September 2000 S&P 500 Futures Contracts,
Expiring September 2000, with strike 1050 19 1,985,975
Put Options on:
July 2000 S&P 500 Futures Contracts,
Expiring July 2000, with strike 1100 .... 20 500
Expiring July 2000, with strike 1025 .... 65 0
Total Options Purchased (Cost $2,121,665) ....... 1,986,475
---------
Total Investments 100% (Cost $15,095,885) ....... $14,960,695
===========
Unrealized
Contracts Loss (Note 1)
--------- -------------
Futures Contracts Purchased
S&P 500 Futures Contracts, Expiring September 2000...... ..70 $(188,953)
S&P 500 E-Mini Futures Contracts, Expiring September 2000...6 (2,612)
------
(Total Underlying Face Amount at Market Value $26,132,180) $(191,565)
=========
<PAGE>
Tempest 500 Fund
Schedule Of Investments (Unaudited) June 30, 2000
Market Value
Face Amount (Note 1)
----------- --------
Federal Agency Discount Notes 39.7%
Federal Home Loan Banks 6.50% 7/3/00 $ 3,000,000 $ 2,998,916
------------
Total Federal Agency Discount Notes (Cost $2,998,916) 2,998,916
---------
U.S. Treasury Obligations 26.3%
U.S. Treasury Bill 5.66% 8/17/00 2,000,000 1,985,222
---------
Total U.S.Treasury Obligations (Cost $1,985,222) 1,985,222
---------
Contracts
---------
Options Purchased 34.0%
Call Options on:
September 2000 S&P 500 Futures Contracts,
Expiring September 2000, with strike 1975 30 0
Expiring September 2000, with strike 1900 21 0
Put Options on:
September 2000 S&P 500 Futures Contracts,
Expiring September 2000, with strike 1800 31 2,572,225
Total Options Purchased (Cost $2,486,862) 2,572,225
---------
Total Investments 100% (Cost $7,471,000) $ 7,556,363
===========
Unrealized
Contracts Gain (Note 1)
--------- -------------
Futures Contracts Sold Short
S&P 500 Futures Contracts, Expiring September 2000 33 $ 122,319
S&P 500 E-Mini Futures Contracts, Expiring September 2000 16 13,583
------
(Total Underlying Face Amount at Market Value $13,286,305) $ 135,902
==========
<PAGE>
Velocity 100 Fund
Schedule Of Investments (Unaudited) June 30, 2000
Market Value
Shares (Note 1)
------ --------
Common Stocks 92.9%
Cisco Systems, Inc.* .......................... 30,800 $1,957,725
Intel Corp. ................................... 14,500 1,938,469
Microsoft Corp.* .............................. 22,400 1,792,000
Oracle Corp.* ................................. 14,600 1,227,313
JDS Uniphase Corp.* ........................... 8,700 1,042,912
Sun Microsystems, Inc.* ....................... 8,500 772,969
Nextel Communications, Inc., Class A* ......... 11,500 703,656
QUALCOMM, Inc.* ............................... 11,100 666,000
MCI WorldCom, Inc.* ........................... 12,800 587,200
Dell Computer Corp.* .......................... 11,700 576,956
VERITAS Software Corp.* ....................... 5,100 576,380
Siebel Systems, Inc.* ......................... 2,900 474,331
Applied Materials, Inc.* ...................... 5,200 471,250
Xilinx, Inc.* ................................. 5,300 437,581
Immunex Corp.* ................................ 8,500 420,219
ADC Telecommunications, Inc.* ................. 5,000 419,375
Amgen, Inc.* .................................. 5,900 414,475
Yahoo! Inc.* .................................. 3,200 396,400
VeriSign, Inc* ................................ 2,200 388,300
PMC-Sierra, Inc.* ............................. 2,000 355,375
Altera Corp.* ................................. 3,400 346,587
SDL, Inc.* .................................... 1,190 339,373
CIENA Corp.* .................................. 2,000 333,375
Maxim Integrated Products, Inc.* .............. 4,900 332,894
Linear Technology Corp. ....................... 5,200 332,475
VoiceStream Wireless Corp.* ................... 2,800 325,631
Network Appliance, Inc.* ...................... 3,900 313,950
Global Crossing, Ltd.* ........................ 11,700 307,856
Telefonaktiebolaget LM Ericsson, Sponsored ADR* 14,700 294,000
Apple Computer, Inc.* ......................... 5,600 293,300
Level 3 Communications, Inc.* ................. 3,200 281,600
i2 Technologies, Inc.* ........................ 2,600 271,091
<PAGE>
Market Value
Shares (Note 1)
------ --------
Common Stocks (continued)
Metromedia Fiber Network, Inc., Class A* 6,500 257,969
Comcast Corp., Special Class A ......... 5,300 214,650
MedImmune, Inc.* ....................... 2,800 207,200
NTL, Inc.* ............................. 3,400 203,575
Tellabs, Inc.* ......................... 2,900 198,469
Comverse Technology, Inc.* ............. 2,000 186,000
Paychex, Inc. .......................... 4,400 184,800
Adobe Systems, Inc. .................... 1,400 182,000
BroadVision, Inc.* ..................... 3,500 177,844
Applied Micro Circuits Corp.* .......... 1,800 177,750
CMGI, Inc.* ............................ 3,800 174,087
Gemstar International Group, Ltd.* ..... 2,700 165,923
KLA-Tencor Corp.* ...................... 2,800 163,975
Vitesse Semiconductor Corp.* ........... 2,100 154,481
Chiron Corp.* .......................... 3,100 147,250
Conexant Systems, Inc.* ................ 3,000 145,875
Sanmina Corp.* ......................... 1,700 145,350
Biogen, Inc.* .......................... 2,200 141,900
Intuit, Inc.* .......................... 3,200 132,400
American Power Conversion Corp.* ....... 3,200 130,600
eBay, Inc.* ............................ 2,400 130,350
Starbucks Corp.* ....................... 3,200 122,200
3Com Corp.* ............................ 2,100 121,013
McLeodUSA, Inc., Class A* .............. 5,800 119,987
NEXTLINK Communications, Inc., Class A* 3,150 119,503
PanAmSat Corp.* ........................ 2,600 113,588
Amazon.com, Inc.* ...................... 2,900 105,306
RF Micro Devices, Inc.* ................ 1,190 104,274
EchoStar Communications Corp., Class A* 3,000 99,328
Costco Wholesale Corp.* ................ 2,900 95,700
Lycos, Inc.* ........................... 1,700 91,800
<PAGE>
Velocity 100 Fund
Schedule Of Investments (Unaudited) (Concluded) June 30, 2000
Market Value
Shares (Note 1)
------ --------
Common Stocks (continued)
RealNetworks, Inc.* ................... 1,800 91,013
USA Networks, Inc.* ................... 4,200 90,825
Cintas Corp. .......................... 2,400 88,050
BMC Software, Inc.* ................... 2,300 83,914
Bed Bath & Beyond, Inc.* .............. 2,300 83,375
Fiserv, Inc.* ......................... 1,900 82,175
Peoplesoft, Inc.* ..................... 4,800 80,400
Concord EFS, Inc.* .................... 3,000 78,000
Genzyme Corp. - General Division* ..... 1,300 77,269
Atmel Corp.* .......................... 2,000 73,750
Biomet, Inc. .......................... 1,900 73,031
At Home Corp., Series A* .............. 3,500 72,625
Adelphia Communications Corp., Class A* 1,500 70,312
Staples, Inc.* ........................ 3,900 59,963
QLogic Corp.* ......................... 870 57,474
Molex, Inc. ........................... 1,190 57,269
Citrix Systems, Inc.* ................. 2,700 51,131
Electronic Arts, Inc.* ................ 700 51,056
Parametric Technology Corp.* .......... 4,600 50,600
Dollar Tree Stores, Inc.* ............. 1,190 47,079
Novell, Inc.* ......................... 4,800 44,400
PACCAR, Inc. .......................... 1,080 42,863
Microchip Technology, Inc. ............ 700 40,786
Smurfit-Stone Container Corp.* ........ 3,000 38,625
Synopsys, Inc.* ....................... 1,080 37,328
Network Associates, Inc.* ............. 1,800 36,675
Sigma-Aldrich Corp. ................... 1,190 34,808
CNET Networks, Inc.* .................. 1,190 29,229
Compuware Corp.* ...................... 2,800 29,050
Quintiles Transnational Corp.* ........ 2,000 28,250
Northwest Airlines Corp.* ............. 870 26,481
Adaptec, Inc.* ........................ 1,080 24,570
VISX, Inc.* ........................... 870 24,414
<PAGE>
Market Value
Shares (Note 1)
------ --------
Common Stocks (continued)
Apollo Group, Inc., Class A* ......................... 870 24,360
PacifiCare Health Systems, Inc.* ..................... 400 24,075
Herman Miller, Inc. .................................. 700 18,113
Legato Systems, Inc.* ................................ 1,190 17,999
------
Total Common Stocks (Cost $26,101,577) 26,047,502
----------
Face Amount
Federal Agency Discount Notes 7.1%
Federal Home Loan Banks 6.50% 7/3/00 $ 2,000,000 1,999,278
---------
Total Federal Agency Discount Notes (Cost $1,999,278) 1,999,278
---------
Contracts
Options Purchased 0.0%
Put Options on:
July 2000 NASDAQ 100 Futures Contracts,
Expiring July 2000, with strike 2000 20 0
-----
Total Options Purchased (Cost $1,440) 0
------
Total Investments 100% (Cost $28,102,295) $ 28,046,780
============
Unrealized
Contracts Gain (Note 1)
--------- -------------
Futures Contracts Purchased
NASDAQ 100 Futures Contracts, Expiring September 2000
(Underlying Face Amount at Market Value $13,741,200) 36 $ 125,048
=========
<PAGE>
Venture 100 Fund
Schedule Of Investments (Unaudited) June 30, 2000
Market Value
Face Amount (Note 1)
----------- --------
Federal Agency Discount Notes 100.0%
Federal Home Loan Banks 6.50% 7/3/00 $ 1,000,000 $ 999,639
---------
Total Federal Agency Discount Notes (Cost $999,639) 999,639
-------
Contracts
Options Purchased 0.0%
Call Options on:
July 2000 NASDAQ 100 Futures Contracts,
Expiring July 2000, with strike 5200 4 0
-----
Total Options Purchased (Cost $308) 0
----
Total Investments 100% (Cost $999,947) $ 999,639
==========
Unrealized
Contracts Loss (Note 1)
--------- -------------
Futures Contracts Sold Short
NASDAQ 100 Futures Contracts, Expiring September 2000
(Underlying Face Amount at Market Value $1,526,800) 4 $ (17,172)
==========
<PAGE>
Statement of Assets and Liabilities (Unaudited) June 30, 2000
Titan 500 Tempest 500 Velocity 100 Venture 100
Fund Fund Fund Fund
---- ---- ---- ----
Assets
Securities at Value (Note 1)
See Accompanying Schedules $14,960,695 $ 7,556,363 $28,046,780 $999,639
Cash at Custodian Bank ... 7,744,399 3,347,693 3,406,556 991,595
Segregated Cash with Broker 0 0 14,615,553 1,553,436
Receivable for Equity Index
Swaps Settlement 0 0 1,379,142 0
Receivable for Futures
Contracts Settlement 277,292 0 309,600 0
Investment Income Receivable 0 0 81,145 17,276
Receivable for Shares
Purchased 1,894,100 6,422,123 2,002,923 985,947
Other Assets .......... 295 0 0 149,236
Total Assets ........... 24,876,781 17,326,179 49,841,699 4,697,129
========== ========== ========== =========
Liabilities
Payable for Securities Purchased 0 166,014 0 0
Payable for Equity Index
Swaps Settlement 0 0 0 156,442
Payable for Futures Contracts
Settlement 0 74,568 0 34,400
Payable for Shares Redeemed 8,534,730 4,504,716 475,579 316,800
Investment Advisory Fee
Payable (Note 3) 9,591 9,159 22,024 4,453
Transfer Agent Fee
Payable (Note 3) 2,664 2,544 6,118 1,237
Distribution Fee
Payable (Note 3) 2,664 2,544 6,118 1,237
Portfolio Accounting Fee
Payable (Note 3) 1,296 1,152 2,494 685
Payable to Advisor 12,736 0 19,282 0
Other Liabilities 2,535 4,754 6,648 1,232
----- ----- ----- -----
Total Liabilities 8,566,216 4,765,451 538,263 516,486
========= ========= ======= =======
Net Assets $ 16,310,565 $ 12,560,728 49,303,436 4,180,643
============ ============ ========== =========
Shares Outstanding 625,765 267,382 1,476,733 144,321
======= ======= ========= =======
Net Asset Value Per Share $ 26.07 $ 46.98 $ 33.39 $ 28.97
======= ======= ======= ========
<PAGE>
Statement of Operations (Unaudited) Period Ended June 30, 2000
Titan 500 Tempest 500 Velocity 100 Venture 100
Fund* Fund* Fund* Fund*
Investment Income
Interest $ 62,058 $ 56,035 $ 151,205 $ 42,871
Other Income (12,441) (2,283) (20,189) 13,988
------- ------ ------- ------
Total Income 49,617 53,752 131,016 56,859
====== ====== ======= ======
Expenses
Organizational Expenses 83,509 83,509 83,509 83,509
Investment Advisory
Fees (Note 3) 11,664 10,364 23,827 6,168
Transfer Agent
Fees (Note 3) 3,240 2,879 6,619 1,713
Distribution Fees (Note 3) 3,240 2,879 6,619 1,713
Portfolio Accounting
Fees (Note 3) 2,000 1,560 3,372 1,393
Miscellaneous 2,536 2,470 5,741 1,006
----- ----- ----- -----
Total Expenses 106,189 103,661 129,687 95,502
Less Expenses Waived by
Advisor (Note 3) (83,509) (83,509) (83,509) (83,509)
- ------- ------- ------- -------
Net Expenses 22,680 20,152 46,178 11,993
------ ------ ------ ------
Net Investment Income 26,937 33,600 84,838 44,866
------ ------ ------ ------
Realized and Unrealized Gain (Loss) on Investments
Net Realized Gain (Loss) on:
Investment Securities 221,778 (411,206) 0 0
Equity Index Swaps 0 0 899,809 (3,153,944)
Futures Contracts 906,752 (480,848) (7,428) (9,014)
------- -------- ------ ------
Total Net Realized
Gain (Loss) 1,128,530 (892,054) 892,381 (3,162,958)
--------- -------- ------- ----------
Net Change in Unrealized
Appreciation (Depreciation)
on:
Investment Securities (135,190) 85,363 (55,515) (308)
Equity Index Swaps 0 0 1,049,358 (139,000)
Futures Contracts (191,565) 135,902 125,048 17,172
-------- ------- ------- ------
Net Change in Unrealized
Appreciation (Depreciation) (326,755) 221,265 1,118,891 (122,136)
-------- ------- --------- --------
Net Gain (Loss)
on Investments 801,775 (670,789) 2,011,272 (3,285,094)
------- -------- --------- ----------
Net Increase (Decrease) in
Net Assets from Operations 828,712 (637,189) 2,096,110 (3,240,228)
======= ======== ========= ==========
*Commencement of Operations: May 19, 2000 Titan 500 Fund and Tempest 500 Fund,
May 24, 2000 Velocity 100 Fund, and May 23, 2000 Venture 100 Fund
See Notes to Financial Statements.
<PAGE>
Statement of Changes in Net Assets (Unaudited) Period Ended June 30, 2000
Titan 500 Tempest 500 Velocity 100 Venture 100
Fund* Fund* Fund* Fund*
----- ----- ----- -----
Changes from Operations
Net Investment Income 26,937 33,600 84,838 44,866
Net Realized Gain (Loss)
on Investments 1,128,530 (892,054) 892,381 (3,162,958)
Net Change in
Unrealized Appreciation
(Depreciation) on Investments (326,755) 221,265 1,118,891 (122,136)
-------- ------- --------- --------
Net Increase (Decrease)
in Net Assets from Operations 828,712 (637,189) 2,096,110 (3,240,228)
Distributions to
Shareholders (Note 1) 0 0 0 0
Net Increase in Net Assets
from Share
Transactions (Note 6) 15,481,853 13,197,917 47,207,326 7,420,871
- ---------- ---------- ---------- ---------
Net Increase in Net Assets 16,310,565 12,560,728 49,303,436 4,180,643
NET ASSETS-Beginning of Period 0 0 0 0
NET ASSETS-End of Period 16,310,565 12,560,728 49,303,436 4,180,643
========== ========== ========== =========
*Commencement of Operations: May 19, 2000 Titan 500 Fund and Tempest 500 Fund,
May 24, 2000 Velocity 100 Fund, and May 23, 2000 Venture 100 Fund
See Notes to Financial Statements.
<PAGE>
Financial Highlights (Unaudited) Period Ended June 30, 2000
Titan 500 Tempest 500 Velocity 100 Venture 100
Fund* Fund* Fund* Fund*
Per Share Operating Performance:
Net Asset Value
Beginning of Period 25.00 50.00 25.00 50.00
----- ----- ----- -----
Net Investment Income .06 .15 .10 .22
Net Realized and Unrealized
Gains (Losses) on Securities 1.01 (3.17) 8.29 (21.25)
---- ----- ---- ------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations 1.07 (3.02) 8.39 (21.03)
Distributions to Shareholders 0 0 0 0
Net Increase (Decrease)
in Net Asset Value 1.07 (3.02) 8.39 (21.03)
---- ----- ---- ------
Net Asset Value - End of Period 26.07 46.98 33.39 28.97
===== ===== ===== =====
Total Investment Return 4.28% (6.04)% 33.56% (42.06)%
Ratios to Average Net Assets:
Gross Expenses** 8.18% 9.02% 4.88% 13.79%
Net Expenses** 1.75% 1.75% 1.74% 1.73%
Net Investment Income** 2.02% 2.92% 3.19% 6.48%
Supplementary Data:
Portfolio Turnover Rate*** 0 0 0 0
Net Assets, End of Period
(000 s omitted) 16,311 12,561 49,303 4,181
*Commencement of Operations: May 19, 2000 Titan 500 Fund and Tempest 500 Fund
May 24, 2000 Velocity 100 Fund, and May 23, 2000 Venture 100 Fund
**Annualized
***Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year.
Calculated using the average daily shares outstanding for the period.
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES
The Rydex Dynamic Funds (the Trust) is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 (the 1940
Act ) as a non-diversified, open-ended investment company, and is
authorized to issue an unlimited number of shares. The Trust consists of
four separate funds. Sales of shares of each fund are made without a sales
charge at the net asset value per share. The following significant
accounting policies are in conformity with generally accepted accounting
principles and are consistently followed by the Trust. A. Securities listed
on an exchange are valued at the last quoted sales price as of 4:00 P.M. on
the valuation date. Securities not traded on an exchange are valued at
their last sales price. Listed options held by the Trust are valued at
their last bid price. Over-the-counter options held by the Trust are valued
using the average bid price obtained from one or more security dealers. The
value of futures contracts purchased and sold by the Trust are accounted
for using the unrealized gain or loss on the contracts that is determined
by marking the contracts to their current realized settlement prices.
Short-term securities are valued at amortized cost, which approximates
market value. Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith by
or under direction of the Board of Trustees or by the Advisor using methods
established or ratified by the Board of Trustees. B. Securities
transactions are recorded on trade date for financial reporting purposes.
Realized gains and losses from securities transactions are recorded using
the identified cost basis. Dividend income, if applicable, is recorded on
the ex-dividend date, net of applicable taxes withheld by foreign
countries, and subsequently adjusted to reflect actual holdings on the
record date. Interest income is accrued on a daily basis. C. When the Trust
engages in a short sale, an amount equal to the proceeds is reflected as an
asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the market value of the short
sale. The Trust maintains a segregated account of securities as collateral
for the short sales. The Trust is exposed to market risk based on the
amount, if any, that the market value of the stock exceeds the market value
of the securities in the segregated account.
<PAGE>
D. When the Trust writes
(sells) an option, an amount equal to the premium received is entered in
the Trusts accounting records as an asset and equivalent liability. The
amount of the liability is subsequently marked to market to reflect the
current value of the option written. When an option expires, or if the
Trust enters into a closing purchase transaction, the Trust realizes a gain
(or loss if the cost of a closing purchase transaction exceeds the premium
received when the option was sold). E. The Trust may purchase or sell stock
index futures contracts and options on such futures contracts. Futures
contracts are contracts for delayed delivery of securities at a specified
future delivery date and at a specific price. Upon entering into a
contract, the Trust deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Trust agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and are
recorded by the Trust as unrealized gains or losses. When the contract is
closed, the Trust records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value
at the time it was closed. F. The Trust may enter into equity index swap
agreements, which are over-the-counter contracts in which one party agrees
to make periodic payments based on the change in market value of a
specified equity security, basket of equity securities, or equity index in
return for periodic payments based on a fixed or variable interest rate or
the change in market value of a different equity security, basket of equity
securities, or equity index. Swap agreements may be used to obtain exposure
to an equity or market without owning or taking physical custody of
securities. G. The Trust intends to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and will
distribute all net investment income to its shareholders. Therefore, no
Federal income tax provision is required. H. Distributions to shareholders
are recorded on the ex-dividend date. Distributions from net investment
income and net realized capital gains are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
items such as deferral of wash sales and post-October losses and regulated
futures contracts and options. Net investment income and loss, net realized
gains and losses, and net assets were not affected by these differences.
<PAGE>
I.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates. 2. FINANCIAL INSTRUMENTS As part of its investment strategy, the
Trust may utilize a variety of derivative instruments, including options,
futures and swap agreements. These investments involve, to varying degrees,
elements of market risk and risks in excess of the amounts recognized in
the Statements of Assets and Liabilities. The risk associated with
purchasing options is limited to the premium originally paid. Options
written by a fund involve to varying degrees, risk of loss in excess of the
option value reflected in the Statement of Assets and Liabilities. The risk
in writing a covered call option is that a fund may forego the opportunity
for profit if the market price of the underlying security increases and the
option is exercised. The risk in writing a covered put option is that a
fund may incur a loss if the market price of the underlying security
decreases and the option is exercised. In addition, there is the risk that
a fund may not be able to enter into a closing transaction because of an
illiquid secondary market or, for over-the-counter options, because of the
counterpartys inability to perform. There are several risks in connection
with the use of futures contracts. Futures contracts involve, to varying
degrees, risk of loss in excess of amounts reflected in the financial
statements. Risks may be caused by an imperfect correlation between
movements in the price of the instruments and the price of the underlying
securities. In addition, there is the risk that a fund may not be able to
enter into a closing transaction because of an illiquid secondary market.
In conjunction with the use of options and futures, as well as short sales
of securities, the Funds are required to maintain collateral in various
forms. The funds use, where appropriate, depending on the financial
instrument utilized and the broker involved, margin deposits at the broker,
cash segregated at the custodian bank, or the repurchase agreements
allocated to each fund.
<PAGE>
The use of equity swaps involves risks that are
different from those associated with ordinary portfolio securities
transactions. Swap agreements may be considered to be illiquid. Although a
fund will not enter into any swap agreement unless the Advisor believes
that the other party to the transaction is creditworthy, a fund does bear
the risk of loss of the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of the agreement
counterparty. The risks inherent in the use of options, futures contracts,
options on futures contracts, and swap agreements include 1) adverse
changes in the value of such instruments; 2) imperfect correlation between
the price of the instruments and movements in the price of the underlying
securities, index, or futures contract; and 3) the possible absence of a
liquid secondary market for any particular instrument at any time. 3. FEES
AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of an investment
advisory contract, the Trust pays Rydex Global Advisors, an affiliated
entity, investment advisory fees calculated at an annualized rate of
nine-tenths of one percent (0.90%) of the average daily net assets of each
of the funds. Certain officers and trustees of the Trust are also officers
and directors of Rydex Global Advisors. PADCO Service Company, Inc., an
affiliated entity, provides transfer agent services to the Trust for fees
calculated at an annualized rate of one-quarter of one percent (0.25%) of
the average daily net assets of each of the funds. Certain officers and
trustees of the Trust are also officers and directors of PADCO Service
Company, Inc. The Trust paid PADCO Service Company, Inc. $8,325 for
portfolio accounting fees for the period ended June 30, 2000. The Trust has
adopted a Distribution Plan that allows the Trust to pay distribution fees
to Rydex Distributors, Inc. (the Distributor), an affiliated entity, and
other firms that provide distribution services (Service Providers). The
Trust will pay distribution fees to the Distributor at an annual rate not
to exceed one-quarter of one percent (0.25%) of average daily net assets,
pursuant to Rule 12b-1 of the 1940 Act. If a Service Provider provides
distribution services, the Distributor will, in turn, pay the Service
Provider out of its fees. Certain officers and trustees of the Trust are
also officers and directors of Rydex Distributors, Inc.
<PAGE>
The Advisor has voluntarily agreed to maintain the actual Total Annual
Operating Expenses of the Dynamic Funds at an expense cap of 1.75%. This
means that the Advisor will reimburse certain expenses of the Funds so that
expenses do not exceed 1.75%. Because the Advisors agreement to maintain
an expense cap is voluntary, the Advisor may discontinue all or part of its
reimbursements at any time. In addition, if at any point during the first
three years of Fund operations it becomes unnecessary for the Advisor to
make reimbursements, the Advisor may retain the difference between the
Total Annual Operating Expenses of any fund and 1.75% to recapture any of
its prior reimbursements.
4. SECURITIES TRANSACTIONS During the period ended June 30, 2000, purchases
and sales of investment securities, excluding short-term and temporary cash
investments, were: (Unaudited)
Velocity 100 Fund
Purchases $ 26,101,577
Sales $
5. NET UNREALIZED APPRECIATION
(DEPRECIATION) OF SECURITIES
At June 30, 2000, unrealized appreciation (depreciation) and cost of investment
securities for Federal income tax purposes were: (Unaudited)
Titan 500 Tempest 500 Velocity 100 Venture 100
Fund Fund Fund Fund
---- ---- ---- ----
Gross Unrealized
Appreciation 0 87,258 443,784 0
Gross Unrealized
(Depreciation) (135,190) (1,895) (499,299) (308)
-------- ------ -------- ----
Net Unrealized
Appreciation
(Depreciation) (135,190) 85,363 (55,515) (308)
======== ====== ======= ====
Cost of Investments
for Federal
Income Tax Purposes 15,095,885 7,471,000 28,102,295 999,947
========== ========= ========== =======
<PAGE>
6. SHARE TRANSACTIONS
The Trust is authorized to distribute an unlimited number of shares.
Transactions in shares for the period ended June 30, 2000 were: (Unaudited)
Titan 500 Tempest 500 Velocity 100 Venture 100
Fund* Fund* Fund* Fund*
----- ----- ----- -----
Shares Purchased 5,515,172 2,745,178 4,521,980 1,195,266
Purchased through
Dividend Reinvestment 0 0 0 0
Total Purchased 5,515,172 2,745,178 4,521,980 1,195,266
Shares Redeemed (4,889,407) (2,477,796) (3,045,247) (1,050,945)
---------- ---------- ---------- ----------
Net Shares
Purchased 625,765 267,382 1,476,733 144,321
======= ======= ========= =======
Transactions in dollars for the period ended June 30, 2000 were: (Unaudited)
Titan 500 Tempest 500 Velocity 100 Venture 100
Fund* Fund* Fund* Fund*
----- ----- ----- -----
Shares Purchased 143,519,584 128,862,906 145,634,612 40,313,468
Purchased through
Dividend Reinvestment 0 0 0 0
Total Purchased 143,519,584 128,862,906 145,634,612 40,313,468
Shares Redeemed (128,037,731) (115,664,989) (98,427,286) (32,892,597)
------------ ------------ ----------- -----------
Net Increase 15,481,853 13,197,917 47,207,326 7,420,871
========== ========== ========== =========
* Commencement of Operations: May 19, 2000 Titan 500 Fund and Tempest 500 Fund
, May 24, 2000 Velocity 100 Fund, and May 23, 2000 Venture 100 Fund
<PAGE>
7. NET ASSETS
At June 30, 2000, net assets consisted of: (Unaudited)
Titan 500 Tempest 500 Velocity 100 Venture 100
Fund Fund Fund Fund
---- ---- ---- ----
Paid-In-Capital 15,481,853 13,197,917 47,207,326 7,420,871
Undistributed Net
Investment Income 26,937 33,600 84,838 44,866
Accumulated Net Realized
Gain (Loss) on Investments 1,128,530 (892,054) 892,381 (3,162,958)
Net Unrealized Appreciation (Depreciation)
on Investments, Options
and Futures Contracts (326,755) 221,265 1,118,891 (122,136)
-------- ------- --------- --------
Net Assets 16,310,565 12,560,728 49,303,436 4,180,643
========== ========== ========== =========
8. EQUITY INDEX SWAP AGREEMENTS
The Trust has entered into the following equity index swap agreements as of
June 30, 2000: (Unaudited)
Notional Maturity
Fund Market Value Return Date
---- ------------ ------ --
Velocity 100 Fund $58,794,360 Price Return* 7/21/00
Venture 100 Fund $6,872,032 Price Return* 7/21/00
NASDAQ 100 Index financing at a
variable rate.
<PAGE>
9. SUBSEQUENT EVENT Effective on July 14, 2000, the Trust began calculating a
net asset value per share (NAV) twice each business day, first in the
morning and again in the afternoon. The morning NAV is calculated at 10:45
a.m., Eastern Time, and the afternoon NAV is calculated at the close of the
New York Stock Exchange (currently 4:00 p.m., Eastern Time). The NAV is
calculated using the current market value of each Funds total assets as of
the respective time of calculation.
