RYDEX DYNAMIC FUNDS
H CLASS SHARES
PROSPECTUS JANUARY 1, 2001
Titan 500 Fund
Tempest 500 Fund
Velocity 100 Fund
Venture 100 Fund
Rydex Series Funds
U.S. Government Money Market Fund
(dated August 1, 2000, as supplemented October 9, 2000)
The Securities and Exchange Commission has not approved or disapproved the
Trusts shares or passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
<PAGE>
<Table of Contents>
Table of Contents
2 Rydex Dynamic Funds Overview
2 Titan 500 Fund
4 Tempest 500 Fund
6 Velocity 100 Fund
8 Venture 100 Fund
10 Rydex Series Funds Overview
10 U.S. Government Money Market Fund
12 Additional fund information
12 The Fund's Investment Objectives
12 Advisor's Investment Strategy in Managing the Dynamic Funds
13 Master-Feeder Investment Structure
14 Who May Want to Invest in the Rydex Dynamic Funds
15 Risks of Investing in the Funds
20 Shareholder information guide
20 Purchasing Shares By Exchange Transactions
21 Determination of Net Asset Value
21 Minimum Investment
22 Making Investments by Mail, Telephone, or Fax
24 Tax-Qualified Retirement Plans
24 Exchanges
25 Redeeming Fund Shares
26 Procedures for Exchanges and Redemptions
28 Management of the Funds
29 Distribution Plans
30 Dividends, Distributions, and Taxes
30 Dividends and Distributions
30 Tax Information
32 Financial Highlights
38 Benchmark Information>
Prospectus
<PAGE>
Prospectus
RYDEX DYNAMIC FUNDS
H CLASS SHARES
9601 Blackwell Road, Suite 500, Rockville, Maryland 20850
800.820.0888 301.296.5100 www.rydexfunds.com
Rydex Dynamic Funds (the "Trust") is a mutual fund complex with a number of
separate investment portfolios, four of which are described in this Prospectus
(the "Dynamic Funds"). In addition, the Rydex U.S. Government Money Market Fund
(the "Money Market Fund") is a portfolio within Rydex Series Funds, a separate
mutual fund in the Rydex Family of Funds (together with the Dynamic Funds, the
"Funds"). H Class Shares of the Funds are sold principally to professional money
managers and to investors who take part in certain strategic and tactical asset
allocation investment programs. Investors may exchange and redeem shares of the
Funds through the Rydex Web site - www.rydexfunds.com - and over the phone.
The Funds' Investment Objectives
Each Fund has a separate investment objective. The investment objective of each
Dynamic Fund is non-fundamental and may be changed without shareholder approval.
Risks of Investing in the Funds
The value of the Funds may fluctuate. In addition, Fund shares:
* may decline in value, and you may lose money
* are not federally insured
* are not guaranteed by any government agency
* are not bank deposits
* are not guaranteed to achieve their objectives
|1
<PAGE>
RYDEX DYNAMIC FUNDS OVERVIEW
TITAN 500 FUND
FUND OBJECTIVE
The Titan 500 Fund seeks to provide investment results that will match the
performance of a specific benchmark on a daily basis. The Funds current
benchmark is 200% of the performance of the S&P 500 Index -R- (the "S&P 500
Index").
If the Fund meets its objective, the value of the Funds shares will tend to
increase on a daily basis by 200% of the value of any increase in the S&P 500
Index. When the value of the S&P 500 Index declines, the value of the Fund's
shares should also decrease on a daily basis by 200% of the value of any
decrease in the Index (e.g., if the S&P 500 Index goes down by 5%, the value of
the Fund's shares should go down by 10% on that day).
INVESTMENT STRATEGY
The Fund pursues its investment objective through what is referred to as a
"master-feeder arrangement". The Fund invests all of its assets in the Titan 500
Master Fund, a separate series of the Trust with an identical investment
objective.
The Titan 500 Master Fund employs as its investment strategy a program of
investing in leveraged instruments, such as equity index swaps, futures
contracts and options on securities, futures contracts, and stock indices.
Equity index swaps and futures and options contracts enable the Titan 500 Master
Fund to pursue its objective without investing directly in the securities
included in the benchmark, or in the same proportion that those securities are
represented in that benchmark. On a day-to-day basis, the Titan 500 Master Fund
holds U.S. Government securities or cash equivalents to collateralize these
futures and options contracts. The Titan 500 Master Fund also may purchase
equity securities and enter i nto repurchase agreements.
RISK CONSIDERATIONS
The Titan 500 Master Fund is subject to a number of risks that will affect the
value of its shares, including:
EQUITY RISK - The equity markets are volatile, and the value of the Fund's
futures and options contracts and other securities may fluctuate significantly
from day to day. This volatility may cause the value of your investment in the
Fund to decrease.
LEVERAGING RISK - The more the Fund invests in leveraged instruments, the more
this leverage will magnify any losses on those investments.
SWAP COUNTERPARTY CREDIT RISK - The Fund is subject to credit risk on the amount
it expects to receive from swap agreement counterparties. If a swap counterparty
defaults on its payment obligations to the Fund, this default will cause the
value of your investment in the Fund to decrease.
TRACKING ERROR RISK - The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily or
2|
<PAGE>
aggregate basis. Tracking Error may cause the Funds performance to be less than
you expect.
TRADING HALT RISK - If a trading halt occurs, the Fund may temporarily be unable
to purchase or sell options or futures contracts. Such a trading halt near the
time the Fund prices its shares may limit the Fund's ability to use leverage and
may prevent the Fund from achieving its investment objective.
INVESTOR PROFILE
Investors who expect the S&P 500 Index to go up and want highly accelerated
investment gains when the Index does so. These investors must also be willing to
bear the risk of equally accelerated losses if the S&P 500 Index goes down.
PERFORMANCE
The Fund is new and therefore does not have a performance history for a full
calendar year.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Titan 500 Fund.
SHAREHOLDER FEES* NONE
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets) ***
Management Fees .90%
Distribution (12b-1) Fees .25%
Other Expenses** .60%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.75%
* The Fund may impose a wire transfer charge of $15 on certain redemptions
under $5,000.
** Other expenses are estimated.
***This table and the example include both the fees paid by the Fund and its
share of the fees of the Titan 500 Master Fund.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your cost would be:
<TABLE>
1 Year 3 Years
<S> <C> <C>
Titan 500 Fund $184 $569
</TABLE>
|3
<PAGE> 3
RYDEX DYNAMIC FUNDS OVERVIEW
TEMPEST 500 FUND
FUND OBJECTIVE
The Tempest 500 Fund seeks to provide investment results that will match the
performance of a specific benchmark on a daily basis. The Fund's current
benchmark is 200% of the inverse (opposite) performance of the S&P 500 Index.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase on a daily basis by 200% of the value of any decrease in the S&P 500
Index (e.g., if the S&P 500 Index goes down by 5%, the value of the Fund's
shares should go up by 10% on that day). When the value of the S&P 500 Index
increases, the value of the Fund's shares should decrease on a daily basis by
200% of the value of any increase in the Index (e.g., if the S&P 500 Index goes
up by 5%, the value of the Fund's shares should go down by 10% on that day).
INVESTMENT STRATEGY
The Fund pursues its investment objective through what is referred to as a
"master-feeder arrangement". The Fund invests all of its assets in the Tempest
500 Master Fund, a separate series of the Trust with an identical investment
objective.
The Tempest 500 Master Fund employs as its investment strategy a program of
engaging in short sales of securities and investing in leveraged instruments,
such as equity index swaps, futures contracts and options on securities, futures
contracts, and stock indices. Equity index swaps, short sales, and futures and
options contracts enable the Tempest 500 Master Fund to pursue its objective
without investing directly in the securities included in the benchmark. On a
day-to-day basis, the Tempest 500 Master Fund holds U.S. Government securities
or cash equivalents to collateralize these futures and options contracts. The
Tempest 500 Master Fund also may enter into repurchase agreements.
RISK CONSIDERATIONS
The Tempest 500 Master Fund is subject to a number of risks that will affect the
value of its shares, including:
EQUITY RISK - The equity markets are volatile, and the value of the Fund's
futures and options contracts and other securities may fluctuate significantly
from day to day. Equity market volatility may also negatively affect the Fund's
short sales of securities. This volatility may cause the value of your
investment in the Fund to decrease.
LEVERAGING RISK - The more the Fund invests in leveraged instruments, the more
this leverage will magnify any losses on those investments.
SWAP COUNTERPARTY CREDIT RISK - The Fund is subject to credit risk on the amount
it expects to receive from swap agreement counterparties. If a swap counterparty
defaults on its payment obligations to the Fund, this default will cause the
value of your investment in the Fund to decrease.
4|
<PAGE>
TRACKING ERROR RISK - The Advisor may not be able to cause the Funds performance
to match that of the Fund's benchmark, either on a daily or aggregate basis.
Tracking Error may cause the Fund's performance to be less than you expect.
TRADING HALT RISK - If a trading halt occurs, the Fund may temporarily be unable
to purchase or sell options or futures contracts. Such a trading halt near the
time the Fund prices its shares may limit the Fund's ability to use leverage and
may prevent the Fund from achieving its investment objective.
INVESTOR PROFILE
Investors who expect the S&P 500 Index to go down and want highly accelerated
investment gains when the Index does so. These investors must also be willing to
bear the risk of equally accelerated losses if the S&P 500 Index goes up.
PERFORMANCE
The Fund is new and therefore does not have a performance history for a full
calendar year.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Tempest 500 Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* NONE
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)***
Management Fees .90%
Distribution (12b-1) Fees .25%
Other Expenses** .60%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.75%
* The Fund may impose a wire transfer charge of $15 on certain redemptions under
$5,000.
** Other expenses are estimated.
*** This table and the example include both the fees paid by the Fund and its
share of the fees of the Tempest 500 Master Fund
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your cost would be:
<TABLE>
1 Year 3 Years
<S> <C> <C>
Tempest 500 Fund $184 $569
</TABLE>
|5
<PAGE>
RYDEX DYNAMIC FUNDS OVERVIEW
VELOCITY 100 FUND
FUND OBJECTIVE
The Velocity 100 Fund seeks to provide investment results that will match the
performance of a specific benchmark on a daily basis. The Fund's current
benchmark is 200% of the performance of the NASDAQ 100 Index -R- (the "NASDAQ
100 Index") .
If the Fund meets its objective, the value of the Fund's shares will tend to
increase on a daily basis by 200% of the value of any increase in the NASDAQ 100
Index. When the value of the NASDAQ 100 Index declines, the value of the Fund's
shares should also decrease on a daily basis by 200% of the value of any
decrease in the Index (e.g., if the NASDAQ 100 Index goes down by 5%, the value
of the Fund's shares should go down by 10% on that day).
INVESTMENT STRATEGY
The Fund pursues its investment objective through what is referred to as a
"master-feeder arrangement". The Fund invests all of its assets in the Velocity
100 Master Fund, a separate series of the Trust with an identical investment
objective.
The Velocity 100 Master Fund employs as its investment strategy a program of
investing in leveraged instruments, such as equity index swaps, futures
contracts and options on securities, futures contracts, and stock indices.
Equity index swaps, futures and options contracts enable the Velocity 100 Master
Fund to pursue its objective without investing directly in the securities
included in the benchmark, or in the same proportion that those securities are
represented in that benchmark. On a day-to-day basis, the Velocity 100 Master
Fund holds U.S. Government securities or cash equivalents to collateralize these
futures and options contracts. The Velocity 100 Master Fund also may purchase
equity securities and enter into repurchase agreements.
RISK CONSIDERATIONS
The Velocity 100 Master Fund is subject to a number of risks that will affect
the value of its shares, including:
EQUITY RISK - The equity markets are volatile, and the value of the Fund's
futures and options contracts and other securities may fluctuate significantly
from day to day. This volatility may cause the value of your investment in the
Fund to decrease.
LEVERAGING RISK - The more the Fund invests in leveraged instruments, the more
this leverage will magnify any losses on those investments.
SWAP COUNTERPARTY CREDIT RISK - The Fund is subject to credit risk on the amount
it expects to receive from swap agreement counterparties. If a swap counterparty
defaults on its payment obligations to the Fund, this default will cause the
value of your investment in the Fund to decrease.
6|
<PAGE>
TRACKING ERROR RISK - The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily or
aggregate basis. Tracking Error may cause the Fund's performance to be less than
you expect.
TRADING HALT RISK - If a trading halt occurs, the Fund may temporarily be unable
to purchase or sell options or futures contracts. Such a trading halt near the
time the Fund prices its shares may limit the Fund's ability to use leverage and
may prevent the Fund from achieving its investment objective.
INVESTOR PROFILE
Investors who expect the NASDAQ 100 Index to go up and want highly accelerated
investment gains when the Index does so. These investors must also be willing to
bear the risk of equally accelerated losses if the NASDAQ 100 Index goes down.
PERFORMANCE
The Fund is new and therefore does not have a performance history for a full
calendar year.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Velocity 100 Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* NONE
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets) ***
Management Fees .90%
Distribution (12b-1) Fees .25%
Other Expenses** .60%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.75%
* The Fund may impose a wire transfer charge of $15 on certain redemptions
under $5,000.
** Other expenses are estimated.
*** This table and the example include both the fees paid by the Fund and its
share of the fees of the Velocity 100 Master Fund.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your cost would be:
<TABLE>
1 Year 3 Years
<S> <C> <C>
Velocity 100 Fund $184 $569
</TABLE>
|7
<PAGE>
RYDEX DYNAMIC FUNDS OVERVIEW
VENTURE 100 FUND
FUND OBJECTIVE
The Venture 100 Fund seeks to provide investment results that will match the
performance of a specific benchmark on a daily basis. The Fund's current
benchmark is 200% of the inverse (opposite) performance of the NASDAQ 100 Index.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase on a daily basis by 200% of the value of any decrease in the NASDAQ 100
Index (e.g., if the NASDAQ 100 Index goes down by 5%, the value of the Fund's
shares should go up by 10% on that day). When the value of the NASDAQ 100 Index
increases, the value of the Fund's shares should decrease on a daily basis by
200% of the value of any increase in the Index (e.g., if the NASDAQ 100 Index
goes up by 5%, the value of the Fund's shares should go down by 10% on that
day).
INVESTMENT STRATEGY
The Fund pursues its investment objective through what is referred to as a
"master-feeder arrangement". The Fund invests all of its assets in the Venture
100 Master Fund, a separate series of the Trust with an identical investment
objective.
The Venture 100 Master Fund employs as its investment strategy a program of
engaging in short sales of securities and investing in leveraged instruments,
such as equity index swaps, futures contracts and options on securities, futures
contracts, and stock indices. Equity index swaps, short sales, and futures and
options contracts enable the Venture 100 Master Fund to pursue its objective
without investing directly in the securities included in the benchmark. On a
day-to-day basis, the Venture 100 Master Fund holds U.S. Government securities
or cash equivalents to collateralize these futures and options contracts. The
Venture 100 Master Fund also may enter into repurchase agreements.
RISK CONSIDERATIONS
The Venture 100 Master Fund is subject to a number of risks that will affect the
value of its shares, including:
EQUITY RISK - The equity markets are volatile, and the value of the Fund's
futures and options contracts and other securities may fluctuate significantly
from day to day. Equity market volatility may also negatively affect the Fund's
short sales of securities. This volatility may cause the value of your
investment in the Fund to decrease.
LEVERAGING RISK - The more the Fund invests in leveraged instruments, the more
this leverage will magnify any losses on those investments.
SWAP COUNTERPARTY CREDIT RISK - The Fund is subject to credit risk on the amount
it expects to receive from swap agreement counterparties. If a swap counterparty
defaults on its payment obligations to the Fund, this default will cause the
value of your investment in the Fund to decrease.
8|
<PAGE>
TRACKING ERROR RISK - The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily or
aggregate basis. Tracking Error may cause the Fund's performance to be less than
you expect.
TRADING HALT RISK - If a trading halt occurs, the Fund may temporarily be unable
to purchase or sell options or futures contracts. Such a trading halt near the
time the Fund prices its shares may limit the Fund's ability to use leverage and
may prevent the Fund from achieving its investment objective.
INVESTOR PROFILE
Investors who expect the NASDAQ 100 Index to go down and want highly accelerated
investment gains when the Index does so. These investors must also be willing to
bear the risk of equally accelerated losses if the NASDAQ 100 Index goes up.
PERFORMANCE
The Fund commenced is new and therefore does not have a performance history for
a full calendar year.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Venture 100 Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* NONE
ANNUAL FUND OPERATING EXPENSES (
expenses that are deducted from fund assets)***
Management Fees .90%
Distribution (12b-1) Fees .25%
Other Expenses** .60%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.75%
* The Fund may impose a wire transfer charge of $15 on certain redemptions under
$5,000.
** Other expenses are estimated.
*** This table and the example include both the fees paid by the Fund and its
share of the fees of the Venture 100 Master Fund.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and
that the Fund's estimated operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your cost
would be:
<TABLE>
1 Year 3 Years
<S> <C> <C>
Venture 100 Fund $184 $569
</TABLE>
|9
<PAGE>
RYDEX SERIES FUNDS OVERVIEW
U.S. GOVERNMENT MONEY MARKET FUND
FUND OBJECTIVE
The U.S. Government Money Market Fund seeks to provide security of principal,
high current income, and liquidity.
INVESTMENT STRATEGY
The Fund invests primarily in money market instruments issued or guaranteed as
to principal and interest by the U.S. Government, its agencies or
instrumentalities, and enters into repurchase agreements fully
collateralized by U.S. Government securities. The Fund operates under
Securities and Exchange Commission ("SEC") rules which impose certain
liquidity, maturity, and diversification requirements. All securities
purchased by the Fund must have remaining maturities of 397 days or less,
and must be found by the Advisor to represent minimal credit risk and be of
eligible quality.
RISK CONSIDERATIONS
The Fund is subject to the following risks that will potentially affect the
value of its shares:
INTEREST RATE RISK - Interest Rate Risk involves the potential for decline in
the rate of dividends the Fund pays in the event of declining interest rates.
STABLE PRICE PER SHARE RISK -The Fund's assets are valued using the amortized
cost method, which enables the Fund to maintain a stable price of $1.00 per
share. Although the Fund is managed to maintain a stable price per share of
$1.00, there is no guarantee that the price will be constantly maintained, and
it is possible to lose money.
PERFORMANCE
The following bar chart and table provide some indication of the risks of
investing in the Fund by showing both the year-to-year performance of the
Fund's Investor Class Shares and the Fund's average annual returns,
compared to the performance of an appropriate broad-based index, over
different periods of time. Performance of the Fund's Advisor Class Shares
would differ only to the extent that each Class has different expenses.
Past performance is no guarantee of future results.
U.S. GOVERNMENT MONEY MARKET FUND
[GRAPHIC OMMITED]
BAR CHART
<TABLE>
<S> <C>
1994 3.23%
1995 4.93%
1996 4.49%
1997 4.59%
1998 4.72%
1999 4.25%
</TABLE>
HIGHEST QUARTER RETURN 1.27%
(quarter ended 6/30/95)
LOWEST QUARTER RETURN .50%
(quarter ended 3/31/94)
*The year-to-date return for the period from January 1, 2000 through June 30,
2000 is 2.51%.
10|
<PAGE>
AVERAGE ANNUAL TOTAL RETURN (1) (for periods ended December 31, 1999)
<TABLE>
Since Inception
1 Year 5 Year (12/03/93)(2)
<S> <C> <C> <C>
INVESTOR CLASS SHARES 4.25% 4.60% 4.31%
ADVISOR CLASS SHARES 3.73% 4.41% 4.21%
90-DAY TREASURY COMPOSITE(3) 4.64% 5.00% 4.84%
1 These figures assume the reinvestment of dividends and capital gains
distributions.
2 Inception date reflects commencement of Fund operation. Advisor Class
Shares were offered beginning April 1, 1998.
3 The 90-day Treasury Composite Index is an unmanaged index that is a widely
recognized indicator of general money market performance.
</TABLE>
YIELD
Call (800) 820-0888 or visit www.rydexfunds.com for the Fund's current yield.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
either Investor Class or Advisor Class Shares of the U.S. Government Money
Market Fund.
<TABLE>
INVESTOR CLASS ADVISOR CLASS
<S> <C> <C>
SHAREHOLDER FEES* NONE NONE
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
Management Fees 50% .50%
Distribution (12b-1) Fees NONE .25%
Other Expenses .38% .65%
TOTAL ANNUAL FUND OPERATING EXPENSES .88% 1.40%
* The Fund may impose a wire transfer charge of $15 on certain redemptions under
$5,000.
</TABLE>
Example
This example is intended to help you compare the cost of investing in either the
Investor Class or Advisor Class Shares of the Fund with the cost of
investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and
that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your cost would
be:
<TABLE>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Investor Class $92 $289 $501 $1,113
Advisor Class $147 $457 $789 $1,727
</TABLE>
|11
<PAGE>
ADDITIONAL FUND INFORMATION
THE FUNDS INVESTMENT OBJECTIVES
Each Dynamic Fund's objective is to provide investment results that match the
performance of a specific benchmark. The current benchmark used by each Dynamic
Fund is set forth below:
FUND NAME BENCHMARK
Titan 500 Fund 200% of the performance, measured on a daily
basis, of the S&P 500 Index
Tempest 500 Fund 200% of the inverse (opposite) performance,
measured on a daily basis, of the S&P 500 Index
Velocity 100 Fund 200% of the performance, measured on a daily
basis, of the NASDAQ 100 Index
Venture 100 Fund 200% of the inverse (opposite) performance,
measured on a daily basis, of the NASDAQ 100
Index
A BRIEF GUIDE TO THE BENCHMARKS
The S&P 500 Index. The S&P 500 Index is a capitalization-weighted index
composed of 500 common stocks, which are chosen by the Standard & Poor's
Corporation ("S&P") on a statistical basis.
The NASDAQ 100 Index. The NASDAQ 100 Index is a modified
capitalization-weighted index composed of 100 of the largest non-financial
companies listed on the National Association of Securities Dealers
Automated Quotations System ("NASDAQ").
ADVISORS INVESTMENT STRATEGY IN MANAGING THE DYNAMIC FUNDS
In managing the Dynamic Funds, Rydex Global Advisors (the "Advisor") uses a
"passive" investment strategy to manage each Fund's portfolio, meaning that the
Advisor does not attempt to select securities based on their individual
potential to perform better than the market. The Advisor's primary objective is
to match the performance of each Fund's benchmark as closely as possible on a
daily basis. The Advisor uses quantitative analysis techniques to structure each
Fund to obtain the highest correlation to its particular benchmark. The Advisor
does not engage in temporary defensive investing, keeping each Fund's assets
fully invested in all market environments. The Advisor monitors each Fund on an
ongoing basis, and makes adjustments to its portfolio, as necessary, to minimize
tracking error and to maximize liquidity.
12|
<PAGE>
The Advisor pursues the Dynamic Funds' investment objectives by regularly
utilizing leveraged instruments, such as futures contracts and options on
securities, futures contracts, and stock indices. In addition, the Advisor will
regularly utilize short selling techniques designed to help the Tempest 500
Fund's and the Venture 100 Fund's performance to inversely correlate to 200% of
the performance of the S&P 500 Index and the NASDAQ 100 Index, respectively.
MASTER-FEEDER INVESTMENT STRUCTURE
As discussed in their respective Fund Overviews, the Titan 500 Fund, Tempest 500
Fund, Velocity 100 Fund, and Venture 100 Fund pursue their respective investment
objectives INDIRECTLY by investing through what is sometimes referred to as a
"master-feeder arrangement". The predecessor Titan 500, Tempest 500, Velocity
100, and Venture 100 Funds were reorganized into this master-feeder structure on
December 31, 2000. As a result of the reorganization the predecessor Funds sold
all of their assets and liabilities to the Master Funds in exchange for shares
of the new Titan 500, Tempest 500, Velocity 100, and Venture 100 Feeder Funds .
Under the master-feeder arrangement, a Fund's investment portfolio is comprised
solely of shares of a "master fund", which is a separate mutual fund that has an
identical investment objective, e.g., the Titan 500 Fund acts as a "feeder
fund", holding shares of its master fund as its only investment. As a result,
the Fund has an indirect interest in all of the securities owned by the master
fund. Because of this indirect interest, the Fund's investment returns should be
the same as those of the master fund, adjusted for Fund expenses.
The Advisor manages the investment portfolios of each Fund and its corresponding
master fund. Under the master-feeder arrangement, the Advisor has adjusted its
fees in order to avoid any "layering" of fees, e.g., each Fund's Total Annual
Operating Expenses have not increased as a result of investing through a
master-feeder arrangement. In addition, the Advisor may choose to discontinue
investing through the master-feeder arrangement and resume managing the Funds
directly if the Trusts Board determines that doing so would be in the best
interests of shareholders.
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<PAGE>
ADDITIONAL FUND INFORMATION
INVESTORS SEEK TO UTILIZE "CONSISTENTLY APPLIED LEVERAGE"
WHO MAY WANT TO INVEST IN THE RYDEX DYNAMIC FUNDS
The Dynamic Funds may be appropriate for investors who believe that over the
long term, the value of a particular index will increase or decrease, and that
by investing with the objective of doubling the index's daily return they will
achieve superior results over time. Investors should understand that since each
Fund seeks to double the daily performance of the index underlying its
benchmark, it should have twice the daily volatility of a conventional index
fund. This increases the potential risk of loss.
DYNAMIC ASSET ALLOCATORS
The Dynamic Funds may be appropriate for investors who use an investment
strategy that relies on frequent buying, selling, or exchanging among stock
mutual funds, since the Funds do not limit how often an investor may exchange
among Funds. In addition, the Funds do not impose any transaction fees (other
than wire fees for redemptions under $5,000) when investors buy, sell, or
exchange shares. The Funds provide multiple opportunities for investors to
capitalize on market trends and to capture market momentum with intra-day Fund
share pricing and trading. Dynamic asset allocators may also utilize intra-day
trading as a defensive strategy to react to market movements before investments
are adversely affected.
STRATEGIC ASSET ALLOCATORS
The Dynamic Funds may be appropriate for investors who use an investment
strategy that involves the strategic allocation of investments among different
asset classes. By utilizing consistently applied leverage, the Fund's investment
strategy can create alternative investment opportunities for strategic asset
allocators who seek to match the S&P 500's or NASDAQ 100's daily return because
less capital is needed to achieve a desired exposure. For example, an investor
might invest $50,000 in a conventional S&P 500 Index fund. Alternatively, that
same investor could invest half that amount - $25,000 - in the Titan 500 Fund
and target the same daily return. This increased cash position could then be
used for a tactical overlay, such as the introduction of an additional asset
class or an undervalued market sector. 14|
<PAGE>
RISKS OF INVESTING IN THE FUNDS
As indicated below, the Funds (which includes their respective "master fund")
are subject to a number of risks that may affect the value of the Funds' shares.
EQUITY RISK
ALL DYNAMIC FUNDS - The Funds invest primarily in instruments that attempt to
track the price movement of equity indices as well as equity securities,
including common stocks. Investments in equity securities and equity derivatives
in general are subject to market risks that may cause their prices to fluctuate
over time. Fluctuations in the value of equity securities in which the Funds
invest will cause the net asset value of the Funds to fluctuate. Historically,
the equity markets have moved in cycles, and the value of the Funds' equity
securities and equity derivatives may fluctuate drastically from day to day.
This price volatility is the principal risk of investing in equity securities.
Because of their link to the equity markets, an investment in the Funds may be
more suitable for long-term investors who can bear the risk of short-term
principal fluctuations.
NON-DIVERSIFICATION RISK
ALL DYNAMIC FUNDS - Each Fund is non-diversified and may invest in the
securities of a limited number of issuers. To the extent that a Fund
invests a significant percentage of its assets in a limited number of
issuers, the Fund is subject to the risks of investing in those few
issuers, and may be more susceptible to a single adverse economic or
regulatory occurrence.
INDUSTRY CONCENTRATION RISK
ALL DYNAMIC FUNDS - None of the Funds will invest 25% or more of the value of
the Fund's total assets in the securities of one or more issuers conducting
their principal business activities in the same industry; except that, to the
extent the index underlying a Fund's benchmark is concentrated in a particular
industry, a Fund will necessarily be concentrated in that industry. Currently,
the index underlying the Velocity 100 Fund's and the Venture 100 Fund's
benchmark the - NASDAQ 100 Index - is concentrated in technology companies. The
risk of concentrating Fund investments in a limited number of issuers conducting
business in the same industry is that the Fund will be more susceptible to the
risks associated with those issuers (or that industry) than a fund that does not
concentrate its investments.
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<PAGE>
ADDITIONAL FUND INFORMATION
ALL DYNAMIC FUNDS - While the Funds do not expect returns to deviate
significantly from their respective benchmarks on a daily basis, certain factors
may affect their ability to achieve close correlation. These factors may include
Fund expenses, imperfect correlation between the Funds' investments and those of
their benchmarks, rounding of share prices, changes to the benchmark, regulatory
policies, and leverage. The cumulative effect of these factors may over time
cause the Funds' returns to deviate from their respective benchmarks on an
aggregate basis. The magnitude of any tracking error may be affected by a higher
portfolio turnover rate.
TRADING HALT RISK
ALL DYNAMIC FUNDS - The Funds typically will hold short-term options and futures
contracts. The major exchanges on which these contract's are traded, such as the
Chicago Mercantile Exchange ("CME"), have established limits on how much an
option or futures contract may decline over various time periods within a day.
If an option or futures contract's price declines more than the established
limits, trading on the exchange is halted on that instrument. If a trading halt
occurs, the Fund may temporarily be unable to purchase or sell options or
futures contracts. Such a trading halt near the time the Fund prices its shares
may limit the Fund's ability to use leverage and may prevent the Fund from
achieving its investment objective. In such an event, a Fund also may be
required to use a "fair-value" method to price its outstanding contracts.
FUTURES AND OPTIONS RISK
ALL DYNAMIC FUNDS - The Funds will invest a percentage of their assets in
futures and options contracts. The Funds may use futures contracts and related
options for bona fide hedging purposes to offset changes in the value of
securities held or expected to be acquired. They may also be used to gain
exposure to a particular market or instrument, to create a synthetic money
market position, and for certain other tax-related purposes. The Funds will only
enter into futures contracts traded on a national futures exchange or board of
trade. Futures and options contracts are described in more detail to the right:
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<PAGE>
FUTURES CONTRACTS
* Futures contracts and options on futures contracts provide for the future sale
by one party and purchase by another party of a specified amount of a specific
security at a specified future time and at a specified price. An option on a
futures contract gives the purchaser the right, in exchange for a premium, to
assume a position in a futures contract at a specified exercise price during the
term of the option. Index futures are futures contracts for various indices that
are traded on registered securities exchanges.
OPTIONS
* The buyer of an option acquires the right to buy (a call option) or sell (a
put option) a certain quantity of a security (the underlying security) or
instrument at a certain price up to a specified point in time. The seller or
writer of an option is obligated to sell (a call option) or buy (a put option)
the underlying security. When writing (selling) call options on securities, the
Funds may cover its positions by owning the underlying security on which the
option is written or by owning a call option on the underlying security.
Alternatively, the Funds may cover its position by maintaining in a segregated
account cash or liquid securities equal in value to the exercise price of the
call option written by the Funds.
THE RISKS ASSOCIATED WITH THE FUNDS' USE OF FUTURES AND OPTIONS CONTRATCS
INCLUDE:
* A Fund experiencing losses over certain ranges in the market that exceed
losses experienced by a fund that does not use futures contracts and options.
* There may be an imperfect correlation between the changes in market value of
the securities held by a Fund and the prices of futures and options on futures.
* Although the Funds will only purchase exchange-traded futures, due to market
conditions there may not always be a liquid secondary market for a futures
contract. As a result, the Funds may be unable to close out their futures
contracts at a time which is advantageous.
* Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and options.
* Because option premiums paid or received by the Funds are small in relation to
the market value of the investments underlying the options, buying and selling
put and call options can be more speculative than investing directly in
securities.
|17
<PAGE>
ADDITIONAL FUND INFORMATION
EARLY CLOSING RISK
ALL DYNAMIC FUNDS - The normal close of trading of securities listed on NASDAQ
and the New York Stock Exchange ("NYSE") is 4:00 p.m., Eastern Time.
Unanticipated early closings may result in a Fund being unable to sell or buy
securities on that day. If an exchange closes early on a day when one or more of
the Funds needs to execute a high volume of securities trades late in a trading
day, a Fund might incur substantial trading losses.
SHORT SALES RISK
TEMPEST 500 FUND AND VENTURE 100 FUND - Short sales are transactions in which a
Fund sells a security it does not own. To complete the transaction, the Fund
must borrow the security to make delivery to the buyer. The Fund is then
obligated to replace the security borrowed by purchasing the security at the
market price at the time of replacement. The price at such time may be higher or
lower than the price at which the security was sold by the Fund. If the
underlying security goes down in price between the time the Fund sells the
security and buys it back, the Fund will realize a gain on the transaction.
Conversely, if the underlying security goes up in price during the period, the
Fund will realize a loss on the transaction. The risk of such price increases is
the principal risk of engaging in short sales.
SWAPS
ALL DYNAMIC FUNDS - The Funds may enter into equity index or interest rate swap
agreements for purposes of attempting to gain exposure to a particular group of
stocks or to an index of stocks without actually purchasing those stocks, or to
hedge a position. The Funds will use short-term swap agreements to exchange the
returns (or differentials in rates of return) earned or realized in particular
predetermined investments or instruments. A Fund will not enter into any swap
agreement unless the Advisor believes that the other party to the transaction is
creditworthy. 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. A Fund bears the risk of loss of
the amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty.
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<PAGE>
ROLE OF THE MONEY MARKET FUND
In order to purchase shares of the Dynamic Funds, investors may first have to
purchase shares of the Money Market Fund. The Money Market Fund shares may then
be exchanged for shares of the Dynamic Funds. Investors may make subsequent
exchanges directly from one or more Dynamic Funds to other Dynamic Funds.
Investors wishing to exchange Dynamic Fund shares for shares of other Rydex
Funds, not included in the Dynamic Funds complex, must first exchange shares of
the Dynamic Funds for shares of the Money Market Fund. For additional
information, please see "Purchasing Shares by Exchange Transactions".
Investor Class Shares of the Money Market Fund are primarily utilized by
individuals investing directly with the Fund or through a registered investment
advisor with discretionary authority over the account. Advisor Class Shares of
the Money Market Fund are utilized by certain financial intermediaries, who
provide distribution and/or shareholder services to their customers. Investors
should consider which class best suits their needs. To find out if shares of the
Dynamic Funds may be purchased directly, without first purchasing shares of the
Money Market Fund, investors should check with their financial intermediaries.
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<PAGE>
SHAREHOLDER INFORMATION GUIDE
PURCHASING SHARES BY EXCHANGE TRANSACTIONS
SHARES OF THE FUNDS ARE AVAILABLE PRIMARILY THROUGH EXCHANGES
* Investors generally need to make two separate transactions to acquire shares
of the Dynamic Funds. First, you must purchase shares of the Money Market Fund.
Then, you may acquire shares of the Dynamic Funds by exchanging your Money
Market Fund shares. There are no fees for these transactions.
* You can acquire shares through exchange transactions among the Dynamic Funds
or with the Money Market Fund.
* Investors may purchase shares of the Money Market Fund and make exchanges on
any day that the NYSE is open for business (a "Business Day").
* You may purchase shares of the Money Market Fund by check or bank wire
transfer. Once you open an account, you may make subsequent wire purchases by
telephone. Procedures for purchasing shares of the Money Market Fund by mail,
telephone or fax are discussed in more detail in the "Making Investments by
Mail, Telephone or Fax" section.
* Shareholders may acquire shares of the Funds through exchange transactions by
using the Rydex Web site - www.rydexfunds.com. By using this option, you can
direct your requests for exchange transactions to the transfer agent by
following the directions described on the Rydex Web site.
* You may only purchase shares of the Dynamic Funds by exchange at any Business
Day's afternoon NAV if your investment in the Money Market Fund is processed at
that Business Day's midday NAV.
PROCEDURES FOR SUBSEQUENT EXCHANGES FROM THE MONEY MARKET FUND INTO THE DYNAMIC
FUNDS (AND EXCHANGES AMONG THE DYNAMIC FUNDS) ARE DISCUSSED IN MORE DETAIL IN
THE "EXCHANGES" SECTION.
* Initial applications and investments, as well as subsequent investments, in
the Money Market Fund must be received in good form by the transfer agent,
on any Business Day, at or prior to 1:00 p.m., Eastern Time in order to be
processed at that Business Day's midday NAV. An initial application that is
sent to the transfer agent does not constitute a purchase order until the
application has been processed and correct payment by check or wire
transfer has been received by the transfer agent.
* You may also make investments in the Money Market Fund and exchanges into
the Funds through intermediaries or securities dealers who have the
responsibility to transmit orders promptly. Intermediaries may charge fees
for services provided in connection with buying, selling or exchanging
shares. Each intermediary also may have its own rules about share
transactions and may
20|
<PAGE>
have earlier cutoff times for purchases. For more information about how to
purchase and exchange shares through an intermediary, you should contact that
intermediary directly.
DETERMINATION OF NET ASSET VALUE
The price per share (the offering price) will be the net asset value per share
("NAV") next determined after your exchange request is processed by the
transfer agent. NAV is calculated by (1) taking the current market value of
a Funds total assets, (2) subtracting the liabilities, and (3) dividing
the amount by the total number of shares owned by shareholders. No sales
charges are imposed on initial or subsequent investments in a Fund.
The Dynamic Funds calculate 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 Money Market
Fund calculates its NAV twice each Business Day, first at midday and again
in the afternoon. The midday NAV is calculated at 1:00 p.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).
If the exchange or market where a Fund's securities or other investments are
primarily traded closes early, NAV may be calculated earlier. On days when
the exchange or market is scheduled to close early, such as the day before
a holiday, the Funds will only calculate NAV once at the close of the
exchange or market. For more information on these early closings, please
call 800.820.0888 or visit the Rydex Web site. To receive the current NAV,
the transfer agent must receive your purchase order before the cutoff times
specified in the "Exchanges" section for each method of investing.
Intermediaries may have earlier cutoff times. In addition, intermediaries
may not offer intra-day trading or pricing regardless of when you place
your order with your intermediary.
MINIMUM INVESTMENT
The minimum initial investment in H Class Shares of the Dynamic Funds and
Investor Class Shares of the Money Market Fund is $25,000 for shareholder
accounts that are not managed by a registered investment advisor
("Self-Directed Accounts"). However, if a registered investment advisor has
discretionary authority over your account, the minimum initial investment
in H Class Shares of the Dynamic Funds and Investor Class Shares of the
Money Market Fund is $15,000. The minimum initial investment in Advisor
Class Shares of the Money Market Fund is $25,000. These minimums also apply
to retirement plan accounts. The transfer agent, at its discretion, may
accept lesser amounts in certain circumstances. There is no minimum amount
for subsequent investments in the Funds. The Funds reserve the right to
modify the minimum investment requirements at any time. The Funds also
reserve the right to reject or refuse, at the Fund's discretion, any order
for the purchase of a Fund's shares in whole or in part.
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<PAGE>
SHAREHOLDER INFORMATION GUIDE
MAKING INVESTMENTS BY MAIL, TELEPHONE, OR FAX
You may open an account in the Money Market Fund by mail or fax and, once you
open an account, make subsequent purchases by telephone. You may make
initial investments in the Money Market Fund by printing out the Account
Application Agreement located on the Rydex Web site, completing it offline
and sending it by mail or fax to the transfer agent. You may also obtain an
Account Application Agreement by calling 800.820.0888 or 301.296.5100.
Investors must also make arrangements for payment by either bank wire
transfer or check using the procedures described below.
Investments by mail, telephone or fax for both initial investments and
subsequent investments in the Money Market Fund must be received in good
form by the transfer agent, on any Business Day, at or prior to 1:00 p.m.
to be processed in the Money Market Fund at that Business Day's midday NAV
and at or prior to 3:45 p.m. to be processed at that Business Day's
afternoon NAV. Intermediaries may have earlier cutoff times for purchases.
For more information about how to purchase through an intermediary, you
should contact that intermediary directly.
Procedures for payment by either bank wire transfer or check are as follows:
BY BANK WIRE TRANSFER
First, fill out the Account Application Agreement and send the completed
application, along with a request for a shareholder account number, to the
transfer agent. You do not need to fill out an Account Application
Agreement to make subsequent investments in the Money Market Fund. Then,
request that your bank wire transfer the purchase amount to our custodian
by using the following instructions:
Firstar
Cincinnati, Ohio
Routing Number: 0420-00013
For Account of: Rydex Series Funds U.S. Government Money Market Fund
Account Number: 48038-9030
[Your Name]
[Your Shareholder Account Number]
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<PAGE>
After instructing your bank to transfer money by wire for both initial and
subsequent purchases into the Money Market Fund, you MUST contact the
transfer agent by telephone at 800.820.0888 and inform the transfer agent
as to the amount that you have transferred and the name of the bank sending
the transfer in order to obtain same-day or midday pricing or credit. For
initial purchases, you MUST also supply the time the wire was sent and the
Fed Wire reference number. If the purchase is canceled because your wire
transfer is not received, you may be liable for any loss that the Fund
incurs.
BY CHECK
First, fill out the Account Application Agreement and send the completed
application, along with a request for a shareholder account number, to the
transfer agent. Then mail your check, payable to: Rydex Series Funds - U.S.
Government Money Market Fund, along with the application, to:
Rydex Series Funds
U.S. Government Money Market Fund
Attn: Operations Department
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
The transfer agent will not process your request until it receives your check.
You may avoid a delay in processing your purchase request by purchasing
shares by wire. In addition to charges described elsewhere in this
prospectus, the transfer agent also may charge $50 for checks returned for
insufficient or uncollectible funds.
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<PAGE>
SHAREHOLDER INFORMATION GUIDE
TAX-QUALIFIED RETIREMENT PLANS
Investors may purchase shares of the Money Market Fund (and make subsequent
exchanges) through any of the following types of tax-qualified retirement
plans:
* Individual Retirement Accounts (IRAs, including Roth IRAs)
* Keogh Accounts - Defined Contribution Plans (Profit Sharing Plans)
* Keogh Accounts - Pension Plans (Money Purchase Plans)
* Internal Revenue Code Section 403(b) Plans
Retirement plans are charged an annual $15.00 maintenance fee and a $15.00
account closing fee. Additional information regarding these accounts,
including the annual maintenance fee, may be obtained by calling
800.820.0888 or 301.296.5100.
EXCHANGES
You may exchange shares of any Dynamic Fund for shares of any other Dynamic
Fund that currently offers shares on the basis of the respective net asset
values of the shares involved. You may also acquire shares of the Dynamic
Funds through exchanges with the Money Market Fund. Exchanges may be made
subject to the procedures set forth below.
To exchange your shares, you need to provide certain information, including
the name on the account, the account number (or your taxpayer
identification number), the number or dollar value of shares (or the
percentage of the total value of your account) you want to exchange, and
the names of the Funds involved in the exchange transaction. Electronic
investors should review the instructions on the Rydex Web site for more
information regarding procedures for exchanges made via the Internet.
Exchange requests are processed at the NAV next determined after their receipt
by the transfer agent. Exchange requests received before 10:30 a.m. by the
transfer agent will be processed and communicated to a Dynamic Fund in time
for its 10:45 a.m. determination of NAV. Exchange requests received before
3:45 p.m. by the transfer agent (3:55 p.m. for electronic investors) will
be processed and communicated to a Fund in time for its 4:00 p.m.
determination of NAV. The exchange privilege may be modified or
discontinued at any time.
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<PAGE>
REDEEMING FUND SHARES
GENERAL
You may redeem all or any portion of your Fund shares at the next determined NAV
after the transfer agent receives your redemption request (subject to applicable
account minimums). Each Fund may allow you to redeem your shares via the
Internet by following the procedures set forth on the Rydex Web site. Your
redemption proceeds normally will be sent within five Business Days of the
transfer agent's receipt of your request. For investments made by check, payment
on redemption requests may be delayed until the transfer agent is reasonably
satisfied that payment has been collected (which may require up to 10 Business
Days). If you invest by check, you may not wire out any redemption proceeds for
the 30 calendar days following the purchase. You may avoid a delay in receiving
redemption proceeds by purchasing shares by wire. Telephone redemptions will be
sent only to your address or your bank account (as listed in the transfer
agent's records). Each Fund may charge $15.00 for certain wire transfers of
redemption proceeds.
You may also redeem your shares by letter or by telephone subject to the
procedures and fees set forth in "Procedures for Exchanges and Redemptions".
The proceeds of redemption requests will be sent directly to your address (as
listed in the transfer agent's records). If you request payment of
redemption proceeds to a third party or to a location other than your
address or your bank account (as listed in the transfer agent's records),
this request must be in writing and must include an original signature
guarantee. You may have to transmit your redemption request to your
intermediary at an earlier time in order for your redemption to be
effective that Business Day. Please contact your intermediary to find out
their specific requirements for written and telephone requests for
redemptions and signature guarantees.
INVOLUNTARY REDEMPTIONS
Because of the administrative expense of handling small accounts, any request
for a redemption when your account balance (a) is below the currently
applicable minimum investment, or (b) would be below that minimum as a
result of the redemption, will be treated as a request for the complete
redemption of that account. If, due to withdrawals or transfers, your
account balance across all Funds advised by the Advisor drops below the
required minimum, each Fund reserves the right to redeem your remaining
shares without any additional notification to you.
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<PAGE>
SHAREHOLDER INFORMATION GUIDE
SUSPENSION OF REDEMPTIONS
With respect to each Fund, and as permitted by the SEC, the right of redemption
may be suspended, or the date of payment postponed: (1) for any period
during which the NYSE is closed (other than customary weekend or holiday
closings) or trading on the NYSE is restricted; (2) for any period during
which an emergency exists so that disposal of Fund investments or the
determination of NAV is not reasonably practicable; or (3) for such other
periods as the SEC, by order, may permit for protection of fund investors.
In cases where NASDAQ, the CME or Chicago Board Options Exchange ("CBOE")
is closed or trading is restricted, a Fund may ask the SEC to permit the
right of redemption to be suspended. On any day that the New York Fed or
the NYSE closes early, the principal government securities and corporate
bond markets close early (such as on days in advance of holidays generally
observed by participants in these markets), or as permitted by the SEC, the
right is reserved to advance the time on that day at which NAV is
determined and by when purchase and redemption orders must be received.
PROCEDURES FOR EXCHANGES AND REDEMPTIONS
YOU SHOULD FOLLOW THE PROCEDURES DESCRIBED ON THE RYDEX WEB SITE FOR ALL
EXCHANGES AND REDEMPTIONS ALLOWED VIA THE INTERNET. The transfer agent
anticipates that most shareholders will make exchange and redemption
requests via the Internet through the Rydex Web site.
You may also request redemptions and exchanges by mail or telephone.
Written requests for redemptions and exchanges should be sent to:
Rydex Dynamic Funds
Attn: Operations Department
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
(Requests should be signed by the record owner or owners.)
Telephone redemption and exchange requests may be made by calling 800.820.0888
or 301.296.5100 by the cutoff time specified in the "Exchanges" section for
exchanges between Funds, on any Business Day. The transfer agent's offices
are open between 8:30 a.m. and 5:30 p.m., Eastern Time on each Business
Day. The Funds reserve the right to suspend the right of redemption as
described in the previous section.
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<PAGE>
If you own shares that are registered in your intermediary's name, and you
want to either transfer the registration to another intermediary or
register the shares in your name, contact your intermediary for
instructions to make this change.
COMFIRMATION OF SHAREHOLDER TRANSACTIONS*
You will receive confirmation of your investment transactions. The transfer
agent may allow you to choose to receive your confirmation either
electronically or through the mail by following the instructions made
available on the Rydex Web site. If you consent to receive electronic
confirmation of your transactions, you may print a copy of the electronic
confirmation you receive for your records. Shareholders who consent to
receive all communications (such as trade confirmations; prospectuses and
shareholder reports; etc.) from the Funds through the Rydex Web site or
other electronic means must:
* Have and maintain access to the Rydex Web site and provide the transfer agent
with a valid and current e-mail address.
* Notify the transfer agent immediately if they no longer have access to the
Rydex Web site, change their e-mail address or wish to revoke their consent to
receive all communications from the Funds through the Rydex Web site or other
electronic means.
You may revoke your consent to receive electronic confirmations and other
communications from the Funds through the Rydex Web site or other
electronic means at any time by informing the transfer agent in writing.
Once you revoke such consent you will receive all shareholder
communications through the mail.
TRANSACTIONS OVER THE INTERNET OR TELEPHONE
Internet and telephone redemption and exchange transactions are extremely
convenient, but are not risk-free. To ensure that your Internet and
telephone transactions are safe, secure, and as risk-free as possible, the
transfer agent has instituted certain safeguards and procedures for
determining the identity of Web site users (including the use of secure
passwords and 128-bit encryption technology) and of telephone callers and
authenticity of instructions. As a result, neither the Funds nor the
transfer agent will be responsible for any loss, liability, cost, or
expense for following Internet, telephone or wire instructions they
reasonably believe to be genuine. If you or your intermediary make exchange
or redemption requests via the Internet or telephone, you will generally
bear the risk of any loss. If you are unable to reach the transfer agent by
Internet or by calling 800.820.0888 or 301.296.5100, you may want to try to
reach the transfer agent by other means.
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SHAREHOLDER INFORMATION GUIDE
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISOR
Rydex Global Advisors with offices at 9601 Blackwell Road, Suite 500, Rockville
,Maryland 20850, serves as investment advisor and manager of the Funds.
CHAIRMAN OR THE BOARD AND PRESIDENT OF THE ADVISOR
Albert P. Viragh, Jr., owns a controlling interest in the Advisor. From 1985
until the incorporation of the Advisor, Mr. Viragh was a Vice President of
Money Management Associates ("MMA"), a Maryland-based registered investment
advisor. From 1992 to June 1993, Mr. Viragh was the portfolio manager of
The Rushmore Nova Portfolio, a series of The Rushmore Fund, Inc., an
investment company managed by MMA.
The Advisor makes investment decisions for the assets of the Funds and
continuously reviews, supervises, and administers each Fund's investment
program.
The Trustees of both, the Trust and the Rydex Series Funds, supervise the
Advisor and establish policies that the Advisor must follow in its
day-to-day management activities.
Under investment advisory agreements with the Advisor, the Funds pay the Advisor
a fee at an annualized rate, based on the average daily net assets for each
Fund, as set forth below:
<TABLE>
FUND ADVISORY FEE
<S> <C>
Titan 500 Fund .90%
Tempest 500 Fund .90%
Velocity 100 Fund .90%
Venture 100 Fund .90%
U.S. Government Money Market Fund .50%
</TABLE>
* Each Dynamic Fund is managed by a team and no one person is responsible for
making investment decisions for a Fund.
* The Advisor bears all of its own costs associated with providing these
advisory services and the expenses of the Trustees which are affiliated with the
Advisor. The Advisor may make payments from its own resources to broker-dealers
and other financial institutions in connection with the sale of fund shares.
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* 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 Advisor's 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.
DISTRIBUTION PLANS
The Dynamic Funds have adopted a Distribution Plan (the "Plan") that allows the
Funds to pay distribution fees to Rydex Distributors, Inc. (the "Distributor")
and other firms that provide distribution services ("Service Providers"). The
Dynamic Funds will pay distribution fees to the Distributor at an annual rate
not to exceed .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. Because the Funds pay
these fees out of assets on an ongoing basis, over time these fees may cost you
more than other types of sales charges.
The Money Market Fund has adopted a Distribution and Shareholder Services Plan
(the "Advisor Class Plan") applicable to its Advisor Class Shares that
allows the Money Market Fund to pay distribution and service fees to the
Distributor and other Service Providers. If a Service Provider provides
distribution services, the Fund will pay distribution fees to the
Distributor at an annual rate not to exceed .25% of average daily net
assets, pursuant to Rule 12b-1 of the 1940 Act. If a Service Provider
provides shareholder services, the Fund will pay service fees to the
Distributor at an annual rate not to exceed .25% of the average daily net
assets of the Fund. The Distributor will, in turn, pay the Service Provider
out of its fees. Because the Fund pays these fees out of assets on an
ongoing basis, over time these fees may cost you more than other types of
sales charges.
|29
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Income dividends, if any, are paid at least annually by each of the Funds,
except the Money Market Fund, which declares dividends daily and pays them
monthly. If you own Fund shares on a Fund's record date, you will be entitled to
receive the dividend. The Funds may declare and pay dividends on the same date.
The Funds make distributions of capital gains, if any, at least annually. Each
Fund, however, may declare a special capital gains distribution if the Trustees
believe that such a distribution would be in the best interest of the
shareholders of a Fund.
You will receive dividends and distributions in the form of additional fund
shares unless you have elected to receive payment in cash. If you have not
already elected to receive cash payments on your application, you must
notify the transfer agent in writing prior to the date of distribution.
Your election will become effective for dividends paid after the transfer
agent receives your written notice. To cancel your election, simply send
written notice to the transfer agent.
Dividends and distributions from a Fund are taxable to you whether they are
reinvested in additional shares of the Fund or are received in cash. You
will receive an account statement at least quarterly.
TAX INFORMATION
The following is a summary of some important tax issues that affect the Funds
and their shareholders. The summary is based on current tax laws, which may
be changed by legislative, judicial or administrative action. This is not
intended to present a detailed explanation of the tax treatment of the
Funds, or the tax consequences of an investment in the Funds. More
information about taxes is located in each Statement of Additional
Information ("SAI"). You are urged to consult your tax advisor regarding
specific questions as to federal, state and local income taxes.
TAX STATUS OF EACH FUND
Each Fund is treated as a separate entity for federal tax purposes, and intends
to qualify for the special tax treatment afforded regulated investment
companies. As long as a Fund qualifies as a regulated investment company,
it pays no federal income tax on the earnings it distributes to
shareholders.
30|
<PAGE>
TAX STAUS OF DISTRIBUTIONS
Each Fund will distribute substantially all of its income. The income dividends
you receive from the Funds will be taxed as ordinary income whether you
receive the dividends in cash or in additional shares.
Corporate shareholders may be entitled to a dividends-received deduction for the
portion of dividends they receive which are attributable to dividends
received by a fund from U.S. corporations.
Capital gains distributions will result from gains on the sale or exchange of
capital assets held for more than one year.
Distributions paid in January but declared by a Fund in October, November or
December of the previous year, may be taxable to you in the previous year.
TAX STATUS OF SHARE TRANSACTIONS
Each sale, exchange, or redemption of Fund shares is a taxable event to you. You
should consider the tax consequences of any redemption or exchange before
making such a request, especially with respect to redemptions, if you
invest in the Funds through a tax-qualified retirement plan.
STATE TAX CONSIDERATIONS
A Fund is not liable for any income or franchise tax in Delaware as long as
it qualifies as a regulated investment company for federal income tax
purposes.
Distributions by the Funds may be subject to state and local taxation. You
should verify your tax liability with your tax advisor.
|31
<PAGE>
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT MONEY MARKET FUND
The financial highlights tables are intended to help you understand the Money
Market Funds financial performance for the past five years. Certain information
reflects financial results for a single Investor Class Share and an Advisor
Class Share. The total returns in the tables represent the rate that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
Deloitte & Touche LLP, whose report, along with the financial statements and
related notes, appears in the Rydex Series Funds' 2000 Annual Report. The 2000
Annual Report is available by telephoning the transfer agent at 800.820.0888 or
301.296.5100. The Annual Report is incorporated by reference in the SAI.
(For a share outstanding throughout each period)
<TABLE>
YEAR YEAR YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED
<S> <C> <C> <C> <C> <C>
INVESTOR CLASS 3/31/00 3/31/99 3/31/98 3/31/97* 6/30/96
PER SHARE OPERATING PERFORMANCE ***:
NET ASSET VALUE,
BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
NET INVESTMENT INCOME (LOSS) .04 .04 .04 .03 .04
NET INCREASE IN NET ASSET VALUE
RESULTING FROM OPERATIONS .04 .04 .04 .03 .04
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME (.04) (.04) (.04) (.03) (.04)
NET INCREASE IN NET ASSET VALUE .00 .00 .00 .00 .00
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL INVESTMENT RETURN (%) 4.48 4.55 4.69 4.39** 4.60
RATIOS TO AVERAGE NET ASSETS
GROSS EXPENSES (%) .89 .84 .89 .86** -
NET EXPENSES (%) .88 .83 .89 .86** .99
NET INVESTMENT INCOME(%) 4.36 4.37 4.37 4.06** 4.18
SUPPLEMENTARY DATA
NET ASSETS, END OF PERIOD $686,198 $949,802 $253,295 $283,553 $153,925
(000's omitted)
*** Calculated using the average daily shares outstanding for the year.
*During 1997, the Trust changed its fiscal year end from June 30 to March 31.
Accordingly, the period ended March 31, 1997 reflects nine months of
activity.
** Annualized
</TABLE>
32|
<PAGE>
(For a share outstanding throughout each period)
<TABLE>
YEAR PERIOD
ENDED ENDED
<S> <C> <C>
ADVISOR CLASS 3/31/00 3/31/99*
PER SHARE OPERATING PERFORMANCE ***:
NET ASSET VALUE,
BEGINNING OF PERIOD $1.00 $1.00
NET INVESTMENT INCOME (LOSS) .04 .04
NET INCREASE IN NET ASSET VALUE
RESULTING FROM OPERATIONS .04 .04
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME (.04) (.04)
NET INCREASE IN NET ASSET VALUE .00 .00
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
TOTAL INVESTMENT RETURN (%) 3.94 4.02
RATIOS TO AVERAGE NET ASSETS
GROSS EXPENSES(%) 1.41 1.34**
NET EXPENSES(%) 1.40 1.33**
NET INVESTMENT INCOME (%) 3.85 3.83**
SUPPLEMENTARY DATA
NET ASSETS, END OF PERIOD $212,181 $321,581
(000's omitted)
*** Calculated using the average daily shares outstanding for the year.
* Since the commencement of operations: April 1, 1998.
** Annualized
</TABLE>
|33
<PAGE>
FINANCIAL HIGHLIGHTS
TITAN 500 FUND
The financial highlights table is intended to help you understand the Fund's
financial performance for its (and its predecessor's) period of operations.
Certain information reflects financial results for a single H Class Share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in an H Class Share of the Fund
(assuming reinvestment of all dividends and distributions). On December 31,
2000 the Fund acquired all of the assets and liabilities of the predecessor
Titan 500 Fund as a result of the master-feeder reorganization. This
information has not been audited. The 2000 Semi-Annual Report is available
by telephoning the transfer agent at 800.820.0888 or 301.296.5100. The
Semi-Annual Report is incorporated by reference in the SAI.
(For a share outstanding throughout each period)
<TABLE>
PERIOD
H CLASS ENDED
<S> <C>
TITAN 500 FUND* 6/30/00
PER SHARE OPERATING PERFORMANCE ****:
NET ASSET VALUE, BEGINNING OF PERIOD $25.00
NET INVESTMENT INCOME .06
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON SECURITIES 1.01
NET INCREASE (DECREASE) IN NET ASSET VALUE RESULTING FROM OPERATIONS 1.07
DISTRIBUTIONS TO SHAREHOLDERS -
NET INCREASE (DECREASE) IN NET ASSET VALUE 1.07
NET ASSET VALUE, END OF PERIOD $26.07
TOTAL INVESTMENT RETURN 4.28%
RATIOS TO AVERAGE NET ASSETS
GROSS EXPENSES 8.18%**
NET EXPENSES 1.75%**
NET INVESTMENT INCOME 2.02%**
SUPPLEMENTARY DATA
PORTFOLIO TURNOVER RATE 0%***
NET ASSETS, END OF PERIOD (000's omitted) $16,311
* Commencement of Operations: May 19, 2000
** 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.
</TABLE>
34|
<PAGE>
TEMPEST 500 FUND
The financial highlights table is intended to help you understand the Fund's
financial performance for its (and its predecessor's) period of operations.
Certain information reflects financial results for a single H Class Share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in an H Class Share of the Fund (assuming
reinvestment of all dividends and distributions). On December 31, 2000 the Fund
acquired all of the assets and liabilities of the predecessor Tempest 500 Fund
as a result of the master-feeder reorganization. This information has not been
audited. The 2000 Semi-Annual Report is available by telephoning the transfer
agent at 800.820.0888 or 301.296.5100. The Semi-Annual Report is incorporated by
reference in the SAI.
(For a share outstanding throughout each period)
<TABLE>
PERIOD
H CLASS ENDED
<S> <C>
TEMPEST 500 FUND* 6/30/00
PER SHARE OPERATING PERFORMANCE ****:
NET ASSET VALUE, BEGINNING OF PERIOD $50.00
NET INVESTMENT INCOME .15
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON SECURITIES (3.17)
NET INCREASE (DECREASE) IN NET ASSET VALUE RESULTING FROM OPERATIONS (3.02)
DISTRIBUTIONS TO SHAREHOLDERS -
NET INCREASE (DECREASE) IN NET ASSET VALUE (3.02)
NET ASSET VALUE, END OF PERIOD $46.98
TOTAL INVESTMENT RETURN (6.04)%
RATIOS TO AVERAGE NET ASSETS
GROSS EXPENSES 9.02%**
NET EXPENSES 1.75%**
NET INVESTMENT INCOME 2.92%**
SUPPLEMENTARY DATA
PORTFOLIO TURNOVER RATE 0%***
NET ASSETS, END OF PERIOD (000's omitted) $12,561
* Commencement of Operations: May 19, 2000
** 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.>
</TABLE>
|35
<PAGE>
FINANCIAL HIGHLIGHTS
VELOCITY 100 FUND
The financial highlights table is intended to help you understand the Fund's
financial performance for its (and its predecessor's) period of operations.
Certain information reflects financial results for a single H Class Share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in an H Class Share of the Fund
(assuming reinvestment of all dividends and distributions). On December 31,
2000 the Fund acquired all of the assets and liabilities of the predecessor
Velocity 100 Fund as a result of the master-feeder reorganization. This
information has not been audited. The 2000 Semi-Annual Report is available
by telephoning the transfer agent at 800.820.0888 or 301.296.5100. The
Semi-Annual Report is incorporated by reference in the SAI.
(For a share outstanding throughout each period)
<TABLE>
PERIOD
H CLASS ENDED
<S> <C>
VELOCITY 100 FUND* 6/30/00
PER SHARE OPERATING PERFORMANCE ****:
NET ASSET VALUE, BEGINNING OF PERIOD $25.00
NET INVESTMENT INCOME .10
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON SECURITIES 8.29
NET INCREASE (DECREASE) IN NET ASSET VALUE RESULTING FROM OPERATIONS 8.39
DISTRIBUTIONS TO SHAREHOLDERS -
NET INCREASE (DECREASE) IN NET ASSET VALUE 8.39
NET ASSET VALUE, END OF PERIOD $33.39
TOTAL INVESTMENT RETURN 33.56%
RATIOS TO AVERAGE NET ASSETS
GROSS EXPENSES 4.88%**
NET EXPENSES 1.74%**
NET INVESTMENT INCOME 3.19%**
SUPPLEMENTARY DATA
PORTFOLIO TURNOVER RATE 0%***
NET ASSETS, END OF PERIOD (000's omitted) $49,303
* Commencement of Operations: May 24, 2000
** 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.
</TABLE>
36|
<PAGE>
VENTURE 100 FUND
The financial highlights table is intended to help you understand the Fund's
financial performance for its (and its predecessor's) period of operations.
Certain information reflects financial results for a single H Class Share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in an H Class Share of the Fund
(assuming reinvestment of all dividends and distributions). On December 31,
2000 the Fund acquired all of the assets and liabilities of the predecessor
Venture 100 Fund as a result of the master-feeder reorganization. This
information has not been audited. The 2000 Semi-Annual Report is available
by telephoning the transfer agent at 800.820.0888 or 301.296.5100. The
Semi-Annual Report is incorporated by reference in the SAI.
(For a share outstanding throughout each period)
<TABLE>
PERIOD
H CLASS ENDED
<S> <C>
VENTURE 100 FUND* 6/30/00
PER SHARE OPERATING PERFORMANCE ****:
NET ASSET VALUE, BEGINNING OF PERIOD $50.00
NET INVESTMENT INCOME .22
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON SECURITIES (21.25)
NET INCREASE (DECREASE) IN NET ASSET VALUE RESULTING FROM OPERATIONS (21.03)
DISTRIBUTIONS TO SHAREHOLDERS -
NET INCREASE (DECREASE) IN NET ASSET VALUE (21.03)
NET ASSET VALUE, END OF PERIOD $28.97
TOTAL INVESTMENT RETURN (42.06)%
RATIOS TO AVERAGE NET ASSETS
GROSS EXPENSES 13.79%**
NET EXPENSES 1.73%**
NET INVESTMENT INCOME 6.48%**
SUPPLEMENTARY DATA
PORTFOLIO TURNOVER RATE 0%***
NET ASSETS, END OF PERIOD (000's omitted) $4,181
* Commencement of Operations: May 23, 2000
** 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.
</TABLE>
|37
<PAGE>
Neither Titan 500 nor Tempest 500 is sponsored, endorsed, sold, or promoted by
S&P ; and neither Velocity 100 nor Venture 100 is sponsored, endorsed, sold,
or promoted by NASDAQ or any of NASDAQ's affiliates (NASDAQ and its
affiliates hereinafter collectively referred to as "NASDAQ").
Neither S&P nor NASDAQ makes any representation or warranty, implied or express,
to the investors in the Funds, or any member of the public, regarding the
advisability of investing in index funds or the ability of the S&P 500
Index or the NASDAQ 100 Index, respectively, to track general stock market
performance.
Neither S&P nor NASDAQ guarantees the accuracy and/or the completeness of the
S&P 500 Index and NASDAQ 100 Index, respectively, or any date included
therein.
Neither S&P nor NASDAQ makes any warranty, express or implied, as to results to
be obtained by any of the Funds, the investors in the Funds, or any person
or entity from the use of the S&P 500 Index or the NASDAQ 100 Index,
respectively, or any data included therein.
Neither S&P nor NASDAQ makes any express or implied warranties of
merchantability or fitness for a particular purpose for use with respect to
the S&P 500 Index or the NASDAQ 100 Index, respectively, or any data
included therein.
38|
<PAGE>
Additional information about the Dynamic Funds is included in the SAI dated
January 1, 2001, which contains more detailed information about the Dynamic
Funds. Additional information about the Money Market Fund is included in an
SAI dated August 1, 2000, as supplemented October 9, 2000 which contains
more information about the Rydex Series Funds. Each SAI has been filed with
the SEC and is incorporated by reference into this Prospectus and,
therefore, legally forms a part of this Prospectus.
The SEC maintains the EDGAR database on its Web site ("http://www.sec.gov")
that contains each SAI, material incorporated by reference, and other
information regarding registrants that file electronically with the SEC.
You may also review and copy documents at the SEC Public Reference room in
Washington, D.C. (for information on the operation of the Public Reference
Room, call 202.942.8090). You may request documents by mail from the SEC,
upon payment of a duplication fee, by writing to: Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-0102. You may
also obtain this information, upon payment of a duplicating fee, by
e-mailing the SEC at the following address: [email protected].
You may obtain a copy of each SAI or the annual or semi-annual reports, without
charge by calling 800.820.0888 or by writing to Rydex Dynamic Funds, at
9601 Blackwell Road, Suite 500, Rockville, Maryland 20850. Additional
information about the Funds investments is available in the annual and
semi-annual reports. Also, in the Funds annual reports, you will find a
discussion of the market conditions and investment strategies that
significantly affected the Funds performance during its last fiscal year.
No one has been authorized to give any information or to make any
representations not contained in this Prospectus or each SAI in connection
with the offering of Fund Shares. Do not rely on any such information or
representations as having been authorized by the Funds or Rydex Global
Advisors. This prospectus does not constitute an offering by the Funds in
any jurisdiction where such an offering is not lawful.
Titan500 Fund, Tempest 500 Fund, Velocity 100 Fund, and Venture 100 Fund,
series of Rydex Dynamic Funds, SEC File number 811-9525. U.S. Government
Money Market Fund, a series of Rydex Series Funds, SEC File number
811-7584.
9601 Blackwell Road, Suite 500,
Rockville, Maryland 20850
www.rydexfunds.com
DYN-1-11/00
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
RYDEX DYNAMIC FUNDS
9601 Blackwell Road, Suite 500,
Rockville, Maryland 20850
1 - 800 - 820 - 0888
301- 296-5100
www.rydexfunds.com
This Statement of Additional Information ("SAI") relates to shares of the
following portfolios (the "Funds") of Rydex Dynamic Funds (the "Trust"):
Titan 500 Fund
Tempest 500 Fund
Velocity 100 Fund
Venture 100 Fund
Titan 500 Master Fund
Tempest 500 Master Fund
Velocity 100 Master Fund
Venture 100 Master Fund
This SAI is not a prospectus. It should be read in conjunction with the Trust's
Prospectuses for C Class and H Class Shares, dated January 1, 2001. A copy of
the Trust's Prospectus is available, without charge, upon request to the Trust
at the address above or by telephoning the Trust at the telephone numbers above.
The date of this SAI is January 1, 2001.
<PAGE> 1
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
GENERAL INFORMATION ABOUT THE TRUST..................3
INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS.....3
INVESTMENT RESTRICTIONS.............................11
PORTFOLIO TRANSACTIONS AND BROKERAGE................13
MANAGEMENT OF THE TRUST.............................14
DETERMINATION OF NET ASSET VALUE....................19
PERFORMANCE INFORMATION.............................20
CALCULATION OF RETURN QUOTATIONS....................20
PURCHASE AND REDEMPTION OF SHARES...................21
DIVIDENDS, DISTRIBUTIONS, AND TAXES.................22
OTHER INFORMATION...................................24
COUNSEL.............................................25
AUDITORS AND CUSTODIAN..............................25
FINANCIAL STATEMENTS................................25
<PAGE> 2
GENERAL INFORMATION ABOUT THE TRUST
The Trust was organized as a Delaware business trust on August 6, 1999.
The Trust is permitted to offer separate portfolios and different
classes of shares. All payments received by the Trust for shares of
any Fund belong to that Fund. Each Fund has its own assets and
liabilities. Currently, the Trust is comprised of the following
series: Titan 500, Tempest 500, Velocity 100, Venture 100, Titan 500
Master, Tempest 500 Master, Velocity 100 Master, and Venture 100
Master Funds. The Titan 500 Master, Tempest 500 Master, Velocity 100
Master, and Venture 100 Master Funds (collectively, the "Master
Funds") serve as master funds in a master-feeder arrangement with the
Titan 500, Tempest 500, Velocity 100, and Venture 100 Funds,
respectively (the "Feeder Funds").
The Feeder Funds currently offer C Class Shares and H Class Shares. The
different classes provide for variations in certain shareholder
servicing and distribution expenses and in the minimum initial
investment requirement. In addition, a contingent deferred sales load
is imposed on the redemption of C Class Shares. Sales charges and
minimum investment requirements are described in the Prospectuses. For
more information on shareholder servicing and distribution expenses,
see "Distributor". Additional Funds and/or classes may be created from
time to time.
INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS
GENERAL
Each Funds investment objective and principal investments are described in the
Prospectuses. The following information supplements, and should be read in
conjunction with, those sections of the Prospectuses. Under the master-feeder
arrangement, the Feeder Funds may only invest in the Master Funds. As a result,
references in this section to "Funds" generally apply to the Master Funds only.
The investment strategies of the Funds discussed below and in the Prospectuses
may be used by a Fund if, in the opinion of the Advisor, these strategies will
be advantageous to that Fund. A Fund is free to reduce or eliminate its activity
in any of those areas without violating the Fund's fundamental investment
policies. There is no assurance that any of these strategies or any other
strategies and methods of investment available to a Fund will result in the
achievement of that Fund's objectives.
BORROWING
The Funds may borrow money, including borrowing for investment purposes.
Borrowing for investment is known as leveraging. Leveraging investments, by
purchasing securities with borrowed money, is a speculative technique, which
increases investment risk, but also increases investment opportunity. Since
substantially all of a Fund's assets will fluctuate in value, whereas the
interest obligations on borrowings may be fixed, the net asset value per share
of the Fund will increase more when the Fund's portfolio assets increase in
value and decrease more when the Fund's portfolio assets decrease in value than
would otherwise be the case. Moreover, interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the returns on the borrowed funds. Under adverse conditions, the Funds
might have to sell portfolio securities to meet interest or principal payments
at a time investment considerations would not favor such sales. The Funds intend
to use leverage during periods when the Advisor believes that the respective
Funds investment objective would be furthered.
Each Fund may also borrow money to facilitate management of the Fund's portfolio
by enabling the Fund to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or disadvantageous. Such borrowing
is not for investment purposes and will be repaid by the borrowing Fund
promptly.
As required by the 1940 Act, a 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,
<PAGE> 3
the Fund, within three days (not including Sundays and holidays), will reduce
the amount of the Fund's borrowings to the extent necessary to meet this 300%
coverage. Maintenance of this percentage limitation may result in the sale of
portfolio securities at a time when investment considerations otherwise indicate
that it would be disadvantageous to do so.
In addition to the foregoing, the Funds are 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 Funds are
authorized to pledge portfolio securities as the Advisor deems appropriate in
connection with any borrowings.
ILLIQUID SECURITIES
While none of the Funds anticipates doing so, each Fund may purchase illiquid
securities, including securities that are not readily marketable and securities
that are not registered ("restricted securities") under the Securities Act of
1933, as amended (the "1933 Act"), but which can be offered and sold to
"qualified institutional buyers" under Rule144A under the 1933 Act. A Fund will
not invest more than 15% of the Fund's net assets in illiquid securities. If the
percentage of a Funds net assets invested in illiquid securities exceeds 15% due
to market activity, the Fund will take appropriate measures to reduce its
holdings of illiquid securities. Each Fund will adhere to a more restrictive
limitation on the Fund's investment in illiquid securities as required by the
securities laws of those jurisdictions where shares of the Fund are registered
for sale. The term "illiquid securities" for this purpose means securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Under the
current guidelines of the staff of the Securities and Exchange Commission (the
"SEC"), illiquid securities also are considered to include, among other
securities, purchased over-the-counter options, certain cover for
over-the-counter options, repurchase agreements with maturities in excess of
seven days, and certain securities whose disposition is restricted under the
federal securities laws. The Fund may not be able to sell illiquid securities
when the Advisor considers it desirable to do so or may have to sell such
securities at a price that is lower than the price that could be obtained if the
securities were more liquid. In addition, the sale of illiquid securities also
may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.
Institutional markets for restricted securities have developed as a result of
the promulgation of Rule 144A under the 1933 Act, which provides a "safe harbor"
from 1933 Act registration requirements for qualifying sales to institutional
investors. When Rule 144A restricted securities present an attractive investment
opportunity and meet other selection criteria, a Fund may make such investments
whether or not such securities are "illiquid" depending on the market that
exists for the particular security. The trustees of the Trust (the "Trustees")
have delegated the responsibility for determining the liquidity of Rule 144A
restricted securities, which may be invested in by a Fund, to the Advisor.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Master Funds presently may invest in the securities of other investment
companies to the extent that such an investment would be consistent with the
requirements of Section 12(d)(1) of the 1940 Act. A Fund, therefore, may invest
in the securities of another investment company (the "acquired company")
provided that the Fund, immediately after such purchase or acquisition, does not
own in the aggregate: (i) more than 3% of the total outstanding voting stock of
the acquired company; (ii) securities issued by the acquired company having an
aggregate value in excess of 5% of the value of the total assets of the Fund; or
(iii) securities issued by the acquired company and all other investment
companies (other than Treasury stock of the Fund) having an aggregate value in
excess of
<PAGE> 4
10% of the value of the total assets of the Fund. A Fund may also invest in the
securities of other investment companies if such securities are the only
investment securities held by the Fund, such as through a master-feeder
arrangement. Each Fund currently pursues its respective investment objective
through such an arrangement.
If a Fund invests in, and, thus, is a shareholder of, another investment
company, the Fund's shareholders will indirectly bear the Fund's proportionate
share of the fees and expenses paid by such other investment company, including
advisory fees, in addition to both the management fees payable directly by the
Fund to the Fund's own investment adviser and the other expenses that the Fund
bears directly in connection with the Fund's own operations.
LENDING OF PORTFOLIO SECURITIES
Subject to the investment restrictions set forth below, each of the Funds may
lend portfolio securities to brokers, dealers, and financial institutions,
provided that cash equal to at least 100% of the market value of the securities
loaned is deposited by the borrower with the Fund and is maintained each
business day in a segregated account pursuant to applicable regulations. While
such securities are on loan, the borrower will pay the lending Fund any income
accruing thereon, and the Fund may invest the cash collateral in portfolio
securities, thereby earning additional income. A Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which the Fund's shares are qualified for sale, and the Funds
will not lend more than 33 1/3% of the value of the Fund's total assets. Loans
would be subject to termination by the lending Fund on four business days'
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities, which occurs during the term of the loan inures to the
lending Fund and that Fund's shareholders. A lending Fund may pay reasonable
finders, borrowers, administrative, and custodial fees in connection with a
loan.
OPTIONS TRANSACTIONS
OPTIONS ON SECURITIES. The Titan 500 Master Fund and Velocity 100 Master Fund
may buy call options and write (sell) put options on securities, and the Tempest
500 Master Fund and Venture 100 Master Fund may buy put options and write call
options on securities for the purpose of realizing the Fund's investment
objective. By writing a call option on securities, a Fund becomes obligated
during the term of the option to sell the securities underlying the option at
the exercise price if the option is exercised. By writing a put option, a Fund
becomes obligated during the term of the option to purchase the securities
underlying the option at the exercise price if the option is exercised.
During the term of the option, the writer may be assigned an exercise notice by
the broker-dealer through whom the option was sold. The exercise notice would
require the writer to deliver, in the case of a call, or take delivery of, in
the case of a put, the underlying security against payment of the exercise
price. This obligation terminates upon expiration of the option, or at such
earlier time that the writer effects a closing purchase transaction by
purchasing an option covering the same underlying security and having the same
exercise price and expiration date as the one previously sold. Once an option
has been exercised, the writer may not execute a closing purchase transaction.
To secure the obligation to deliver the underlying security in the case of a
call option, the writer of a call option is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Option
Clearing Corporation (the "OCC"), an institution created to interpose itself
between buyers and sellers of options. The OCC assumes the other side of every
purchase and sale transaction on an exchange and, by doing so, gives its
guarantee to the transaction.
A Fund may purchase and write options on an exchange or over-the-counter.
Over-the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
<PAGE> 5
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the SEC that OTC options are illiquid.
OPTIONS ON SECURITY INDICES. The Titan 500 Fund and Velocity 100 Fund may
purchase call options and write put options, and the Tempest 500 Fund and
Venture 100 Fund may purchase put options and write call options, on stock
indices listed on national securities exchanges or traded in the
over-the-counter market as an investment vehicle for the purpose of realizing
the Fund's investment objective.
Options on indices are settled in cash, not in delivery of securities. The
exercising holder of an index option receives, instead of a security, cash equal
to the difference between the closing price of the securities index and the
exercise price of the option. When a Fund writes a covered option on an index,
the Fund will be required to deposit and maintain with a custodian cash or
liquid securities equal in value to the aggregate exercise price of a put or
call option pursuant to the requirements and the rules of the applicable
exchange. If, at the close of business on any day, the market value of the
deposited securities falls below the contract price, the Fund will deposit with
the custodian cash or liquid securities equal in value to the deficiency.
OPTIONS ON FUTURES CONTRACTS. Under Commodities Futures Trading Commission
("CFTC") Regulations, a Fund may engage in futures transactions, either for
"bona fide hedging" purposes, as this term is defined in the CFTC Regulations,
or for non-hedging purposes to the extent that the aggregate initial margins and
option premiums required to establish such non-hedging positions do not exceed
5% of the liquidation value of the Fund's portfolio. In the case of an option on
futures contracts that is "in-the-money" at the time of purchase (i.e., the
amount by which the exercise price of the put option exceeds the current market
value of the underlying security, or the amount by which the current market
value of the underlying security exceeds the exercise price of the call option),
the in-the-money amount may be excluded in calculating this 5% limitation.
When a Fund purchases or sells a stock index futures contract, or sells an
option thereon, the Fund "covers" its position. To cover its position, a Fund
may maintain with its custodian bank (and marked-to-market on a daily basis), a
segregated account consisting of cash or liquid securities that, when added to
any amounts deposited with a futures commission merchant as margin, are equal to
the market value of the futures contract or otherwise "cover" its position. If
the Fund continues to engage in the described securities trading practices and
properly segregates assets, the segregated account will function as a practical
limit on the amount of leverage which the Fund may undertake and on the
potential increase in the speculative character of the Fund's outstanding
portfolio securities. Additionally, such segregated accounts will generally
assure the availability of adequate funds to meet the obligations of the Fund
arising from such investment activities.
A Fund may cover its long position in a futures contract by purchasing a put
option on the same futures contract with a strike price (i.e., an exercise
price) as high or higher than the price of the futures contract. In
thealternative, if the strike price of the put is less than the price of the
futures contract, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. A Fund may also cover its long position
in a futures contract by taking a short position in the instruments underlying
the futures contract, or by taking positions in instruments with prices which
are expected to move relatively consistently with the futures contract. A Fund
may cover its short position in a futures contract by taking a long position in
the instruments underlying the futures contracts, or by taking positions in
instruments with prices which are expected to move relatively consistently with
the futures contract.
A Fund may cover its sale of a call option on a futures contract by taking a
long position in the underlying futures contract at a price less than or equal
to the strike price of the call option. In the
<PAGE> 6
alternative, if the long position in the underlying futures contract is
established at a price greater than the strike price of the written (sold) call,
the Fund will maintain in a segregated account cash or liquid securities equal
in value to the difference between the strike price of the call and the price of
the futures contract. A Fund may also cover its sale of a call option by taking
positions in instruments with prices, which are expected to move relatively
consistently with the call option. A Fund may cover its sale of a put option on
a futures contract by taking a short position in the underlying futures contract
at a price greater than or equal to the strike price of the put option, or, if
the short position in the underlying futures contract is established at a price
less than the strike price of the written put, the Fund will maintain in a
segregated account cash or liquid securities equal in value to the difference
between the strike price of the put and the price of the futures contract. A
Fund may also cover its sale of a put option by taking positions in instruments
with prices, which are expected to move relatively consistently with the put
option.
SWAP AGREEMENTS
The Funds may enter into equity index or interest rate swap agreements for
purposes of attempting to gain exposure to the stocks making up an index of
securities in a market without actually purchasing those stocks, or to hedge a
position. Swap agreements are two-party contracts entered into primarily by
institutional investors for periods ranging from a day to more than one year. In
a standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount", i.e.,
the return on or increase in value of a particular dollar amount invested in a
"basket" of securities representing a particular index. Forms of swap agreements
include interest rate caps, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap", interest rate floors, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; and interest rate
dollars, under which a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.
Most swap agreements entered into by the Funds calculate the obligations of the
parties to the agreement on a "net basis". Consequently, a Fund's current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
A Fund's current obligations under a swap agreement will be accrued daily
(offset against any amounts owing to the Fund) and any accrued but unpaid net
amounts owed to a swap counterparty will be covered by segregating assets
determined to be liquid. Obligations under swap agreements so covered will not
be construed to be "senior securities" for purposes of a Fund's investment
restriction concerning senior securities. Because they are two party contracts
and because they may have terms of greater than seven days, swap agreements may
be considered to be illiquid for the Fund illiquid investment limitations. A
Fund will not enter into any swap agreement unless the Advisor believes that the
other party to the transaction is creditworthy. A Fund bears the risk of loss of
the amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty.
Each Fund may enter into swap agreements to invest in a market without owning or
taking physical custody of securities in circumstances in which direct
investment is restricted for legal reasons or is otherwise impracticable. The
counterparty to any swap agreement will typically be a bank, investment banking
firm or broker/dealer. The counterparty will generally agree to pay the Fund the
amount, if any, by which the notional amount of the swap agreement would have
increased in value had it been invested in the particular stocks, plus the
dividends that would have been received on those stocks. The Fund will agree to
pay to the counterparty a floating rate of interest on the notional amount of
the swap agreement plus the amount, if any, by which the notional amount would
have
<PAGE> 7
decreased in value had it been invested in such stocks. Therefore, the return to
the Fund on any swap agreement should be the gain or loss on the notional amount
plus dividends on the stocks less the interest paid by the Fund on the notional
amount.
Swap agreements typically are settled on a net basis, which means that the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. Payments may be made at the
conclusion of a swap agreement or periodically during its term. Swap agreements
do not involve the delivery of securities or other underlying assets.
Accordingly, the risk of loss with respect to swap agreements is limited to the
net amount of payments that a Fund is contractually obligated to make. If the
other party to a swap agreement defaults, a Fund's risk of loss consists of the
net amount of payments that such Fund is contractually entitled to receive, if
any. The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each equity swap will be accrued on a daily basis
and an amount of cash or liquid assets, having an aggregate net asset value at
least equal to such accrued excess will be maintained in a segregated account by
a Fund's custodian. Inasmuch as these transactions are entered into for hedging
purposes or are offset by segregated cash of liquid assets, as permitted by
applicable law, the Funds and their Advisor believe that these transactions do
not constitute senior securities under the 1940 Act and, accordingly, will not
treat them as being subject to a Fund's borrowing restrictions.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the markets for other similar
instruments, which are traded in the over-the-counter market. The Advisor, under
the supervision of the Board of Trustees, is responsible for determining and
monitoring the liquidity of Fund transactions in swap agreements.
The use of equity swaps is a highly specialized activity, which involves
investment techniques and risks different from those associated with
ordinary portfolio securities transactions.
PORTFOLIO TURNOVER
The Trust anticipates that investors in the Funds, as part of an asset
allocation investment strategy, will frequently purchase and/or redeem shares of
the Funds. The nature of the Funds as asset allocation tools will cause the
Funds to experience substantial portfolio turnover. (See "Risks of Investing in
the Funds" in the Trust's Prospectuses). Because each Fund's portfolio turnover
rate to a great extent will depend on the purchase, redemption, and exchange
activity of the Fund's investors, it is very difficult to estimate what the
Fund's actual turnover rate will be in the future.
"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 the 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 are
excluded from the calculation of the portfolio turnover rate. Instruments
excluded from the calculation of portfolio turnover generally would include the
futures contracts and option contracts in which the Funds invest since such
contracts generally have remaining maturities of less than one year. The Funds
expect to hold most of their investments in short-term options and futures
contracts, which are excluded for purposes of computing portfolio turnover.
Therefore, based on the above formula, each Fund expects a portfolio turnover
rate of approximately 0%.
REPURCHASE AGREEMENTS
As discussed in the Trust's Prospectuses, each of the Funds may enter into
repurchase agreements with financial institutions. The Funds each follow certain
procedures designed to minimize the risks inherent in such agreements. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions whose condition
will be continually
<PAGE> 8
monitored by the Advisor. In addition, the value of the collateral underlying
the repurchase agreement will always be at least equal to the repurchase price,
including any accrued interest earned on the repurchase agreement. In the event
of a default or bankruptcy by a selling financial institution, a Fund will seek
to liquidate such collateral. However, the exercising of each Fund's right to
liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss. It
is the current policy of each of the Funds 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
Funds total assets. The investments of each of the Funds in repurchase
agreements, at times, may be substantial when, in the view of the Advisor,
liquidity or other considerations so warrant.
REVERSE REPURCHASE AGREEMENTS
The Tempest 500 Fund, Tempest 500 Master Fund, Venture 100 Fund, and Venture 100
Master Fund may use reverse repurchase agreements as part of that Fund's
investment strategy. Reverse repurchase agreements involve sales by a Fund of
portfolio assets concurrently with an agreement by the Fund to repurchase the
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 Funds intend to use the reverse repurchase
technique only when this will be advantageous to the Funds. Each Fund will
establish a segregated account with the Trust's custodian bank in which the Fund
will maintain cash or cash equivalents or other portfolio securities equal in
value to the Fund's obligations in respect of reverse repurchase agreements.
SHORTSALES
The Tempest 500 Fund, Tempest 500 Master Fund, Venture 100 Fund, and Venture 100
Master Fund also may engage in short sales transactions under which the Fund
sells a security it does not own. To complete such a transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund then is obligated to
replace the security borrowed by purchasing the security at the market price at
the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Fund. Until the security is
replaced, the Fund is required to pay to the lender amounts equal to any
dividends or interest, which accrue during the period of the loan. To borrow the
security, the Fund also may be required to pay a premium, which would increase
the cost of the security sold. The proceeds of the short sale will be retained
by the broker, to the extent necessary to meet the margin requirements, until
the short position is closed out.
Until the Tempest 500 Fund, Tempest 500 Master Fund, Venture 100 Fund, or
Venture 100 Master Fund closes its short position or replaces the borrowed
security, the Fund will: (a)maintain a segregated account containing cash or
liquid securities at such a level that (i)the amount deposited in the account
plus the amount deposited with the broker as collateral will equal the current
value of the security sold short and (ii)the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will not be less
than the market value of the security at the time the security was sold short;
or (b)otherwise cover the Fund's short position. Each of the Funds may use up to
100% of its portfolio to engage in short sales transactions and collateralize
its open short positions.
The Titan 500 Fund, Titan 500 Master Fund, Velocity 100 Fund, and Velocity 100
Master Fund each may engage in short sales if, at the time of the short sale,
the Fund owns or has the right to acquire an equal amount of the security being
sold at no additional cost. While none of these Funds currently
<PAGE> 9
expect to do so, these Funds may make a short sale when the Fund wants to sell
the security it owns at a current attractive price, in order to hedge or limit
the exposure of the Fund's position.
STOCK INDEX FUTURES
Contracts A Fund may buy and sell stock index futures contracts with respect to
any stock index traded on a recognized stock exchange or board of trade. A stock
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. The
stock index futures contract specifies that no delivery of the actual stocks
making up the index will take place. Instead, settlement in cash must occur upon
the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract.
At the time a Fund purchases a futures contract, an amount of cash, U.S.
Government securities or other liquid securities equal to the market value of
the futures contract will be deposited in a segregated account with the Fund's
custodian. When writing a futures contract, the Fund will maintain with its
custodian liquid assets that, when added to the amounts deposited with a futures
commission merchant or broker as margin, are equal to the market value of the
instruments underlying the contract. Alternatively, a Fund may "cover" its
position by owning the instruments underlying the contract (or, in the case of
an index futures contract, a portfolio with a volatility substantially similar
to that of the index on which the futures contract is based), or holding a call
option permitting the Fund to purchase the same futures contract at a price no
higher than the price of the contract written by the Fund (or at a higher price
if the difference is maintained in liquid assets with the Fund's custodian).
TRACKING ERROR
The following factors may affect the ability of the Funds to achieve correlation
with the performance of their respective benchmarks: (1)Fund expenses, including
brokerage (which may be increased by high portfolio turnover); (2)a Fund holding
less than all of the securities in the benchmark and/or securities not included
in the benchmark; (3)an imperfect correlation between the performance of
instruments held by a Fund, such as futures contracts and options, and the
performance of the underlying securities in the market; (4)bid-ask spreads (the
effect of which may be increased by portfolio turnover); (5)a Fund holding
instruments traded in a market that has become illiquid or disrupted; (6)Fund
share prices being rounded to the nearest cent; (7)changes to the index
underlying a benchmark that are not disseminated in advance; (8)the need to
conform a Fund's portfolio holdings to comply with investment restrictions or
policies or regulatory or tax law requirements; or (9)market movements that run
counter to a leveraged Fund's investments. Market movements that run counter to
a leveraged Fund's investments will cause some divergence between the Fund and
its benchmark over time due to the mathematical effects of leveraging. The
magnitude of the divergence is dependent upon the magnitude of the market
movement, its duration, and the degree to which the Fund is leveraged. The
tracking error of a leveraged Fund is generally small during a well-defined up
trend or downtrend in the market when measured from price peak to price peak,
absent a market decline and subsequent recovery, however, the deviation of the
Fund from its benchmark may be significant.
U.S. GOVERNMENT SECURITIES
The Funds may invest in U.S. Government Securities. Securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities include
U.S. Treasury securities, which are backed by the full faith and credit of the
U.S. Treasury and which differ only in their interest rates, maturities, and
times of issuance. U.S. Treasury bills have initial maturities of one year or
less; U.S. Treasury notes have initial maturities of one to ten years; and U.S.
Treasury bonds generally have initial maturities of greater than ten years.
Certain U.S. Government Securities are issued or guaranteed by agencies or
instrumentalities of the U.S. Government including, but not limited to,
obligations of U.S. Government agencies or instrumentalities such as Fannie Mae,
the Government National Mortgage
<PAGE> 10
Association, the Small Business Administration, the Federal Farm Credit
Administration, the Federal Home Loan Banks, Banks for Cooperatives (including
the Central Bank for Cooperatives), the Federal Land Banks, the Federal
Intermediate Credit Banks, the Tennessee Valley Authority, the Export-Import
Bank of the United States, the Commodity Credit Corporation, the Federal
Financing Bank, the Student Loan Marketing Association, and the National Credit
Union Administration.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, including, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury. Other obligations issued by or guaranteed by
federal agencies, such as those securities issued by Fannie Mae, are supported
by the discretionary authority of the U.S. Government to purchase certain
obligations of the federal agency, while other obligations issued by or
guaranteed by federal agencies, such as those of the Federal Home Loan Banks,
are supported by the right of the issuer to borrow from the U.S. Treasury, while
the U.S. Government provides financial support to such U.S. Government-sponsored
federal agencies, no assurance can be given that the U.S. Government will always
do so, since the U.S. Government is not so obligated by law. U.S. Treasury notes
and bonds typically pay coupon interest semi-annually and repay the principal at
maturity.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each Fund, from time to time, in the ordinary course of business, may purchase
securities on a when-issued or delayed-delivery basis (i.e., delivery and
payment can take place between a month and 120days after the date of the
transaction). These securities are subject to market fluctuation and no interest
accrues to the purchaser during this period. At the time a Fund makes the
commitment to purchase securities on a when-issued or delayed-delivery basis,
the Fund will record the transaction and thereafter reflect the value of the
securities, each day, of such security in determining the Fund's net asset
value. A Fund will not purchase securities on a when-issued or delayed-delivery
basis if, as a result, more than 15% of the Fund's net assets would be so
invested. At the time of delivery of the securities, the value of the securities
may be more or less than the purchase price. The Fund will also establish a
segregated account with the Fund's custodian bank in which the Fund will
maintain cash or liquid securities equal to or greater in value than the Fund's
purchase commitments for such when-issued or delayed-delivery securities. The
Trust does not believe that a Fund's net asset value or income will be adversely
affected by the Fund's purchase of securities on a when-issued or
delayed-delivery basis.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
The following investment limitations (and those set forth in the Prospectuses)
are fundamental policies of the Funds, which cannot be changed with respect to a
Fund without the consent of the holders of a majority of that Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of a Fund's shares present at a meeting, if more than 50% of the
outstanding shares of that Fund are present or represented by proxy, or (ii)
more than 50% of that Fund's outstanding shares, whichever is less.
A Fund shall not:
1. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate the Fund to purchase securities or
require the Fund to segregate assets are not considered to be
borrowing. Asset coverage of a least 300% is required for all
borrowing, except where the Fund has borrowed money for temporary
purposes in amounts not exceeding 5% of its total assets. The Fund
will not purchase securities while its borrowing exceeds 5% of its
total assets.
<PAGE> 11
2. Make loans if, as a result, more than 33 1/3% of its
total assets would be lent to other parties, except that the Fund may
(i) purchase or hold debt instruments in accordance with its
investment objective and policies; (ii) enter into repurchase
agreements; and (iii) lend its securities.
3. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling a portfolio security.
4. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
5. Issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the SEC.
6. Purchase or sell real estate, physical commodities, or commodities
contracts, except that the Fund may purchase (i) marketable securities
issued by companies which own or invest in real estate (including real
estate investment trusts), commodities, or commodities contracts; and
(ii) commodities contracts relating to financial instruments, such as
financial futures contracts and options on such contracts.
7. Invest 25% or more of the value of the Fund's total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry; except that, to the extent the
benchmark selected for a particular Fund is concentrated in a
particular industry, the Fund will necessarily be concentrated in that
industry. This limitation does not apply to investments or obligations
of the U.S. Government or any of its agencies or instrumentalities.
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of the Funds
and may be changed with respect to any Fund by the Board of Trustees.
Each Fund may not:
1. Invest in warrants.
2. Invest in real estate limited partnerships.
3. Invest in mineral leases.
4. Pledge, mortgage or hypothecate assets except to secure borrowing
permitted by the Fund's fundamental limitation on borrowing.
5. Invest in companies for the purpose of exercising control.
6. Purchase securities on margin or effect short sales, except that a
Fund may (i)obtain short-term credits as necessary for the clearance
of security transactions; (ii)provide initial and variation margin
payments in connection with transactions involving futures contracts
and options on such contracts; and (iii)make short sales "against the
box" or in compliance with the SECs position regarding the asset
segregation requirements imposed by Section 18 of the 1940 Act.
7. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act or any rule, regulation or order of the SEC.
<PAGE> 12
8. Purchase or hold illiquid securities, i.e., securities that cannot be
disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing
in more than seven days) if, in the aggregate, more than 15% of its
net assets would be invested in illiquid securities.
The foregoing percentages (except for the limitation on illiquid securities):
(i) are based on total assets; (ii) will apply at the time of the purchase of a
security; and (iii) shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of a purchase of
such security.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, the Advisor is responsible
for decisions to buy and sell securities for each of the Funds, the selection of
brokers and dealers to effect the transactions, and the negotiation of brokerage
commissions, if any. The Advisor expects that the Funds may execute brokerage or
other agency transactions through registered broker-dealers, for a commission,
in conformity with the 1940 Act, the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
The Advisor may serve as an investment manager to a number of clients, including
other investment companies. It is the practice of the Advisor to cause purchase
and sale transactions to be allocated among the Funds and others whose assets
the Advisor manages in such manner as the Advisor deems equitable. The main
factors considered by the Advisor in making such allocations among the Funds and
other client accounts of the Advisor are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinions of the person(s) responsible, if any, for
managing the portfolios of the Funds and the other client accounts.
The policy of each Fund regarding purchases and sales of securities for the
Fund's portfolio is that primary consideration will be given to obtaining the
most favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange, each
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. Each Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Advisor from obtaining a high quality of brokerage and
research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Advisor relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily subjective
and imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
Purchases and sales of U.S. Government securities are normally transacted
through issuers, underwriters or major dealers in U.S. Government securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased from
an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between bid
and asked prices.
In managing the investment portfolios of the Funds, the Advisor effects
transactions with those brokers and dealers who the Advisor believes provide the
most favorable prices and are capable of providing efficient executions. If the
Advisor believes such prices and executions are obtainable from more than one
broker or dealer, the Advisor may give consideration to placing portfolio
transactions
<PAGE> 13
with those brokers and dealers who also furnish research and other services to
the Fund or the Advisor. In addition, Section 28(e) of the Securities Exchange
Act of 1934 permits the Advisor to cause a Fund to pay commission rates in
excess of those another dealer or broker would have charged for effecting the
same transaction, if the Advisor determines, in good faith, that the commission
paid is reasonable in relation to the value of brokerage and research services
provided.
Such research services may include information on the economy, industries,
groups of securities, individual companies, statistical information, accounting
and tax law interpretations, political developments, legal developments
affecting portfolio securities, technical market action, pricing and appraisal
services, credit analysis, risk measurement analysis, performance analysis,
analysis of corporate responsibility issues or in the form of access to various
computer-generated data, computer hardware and software. Such research may be
provided by brokers and dealers in the form of written reports, telephone
contacts and personal meetings with security analysts, corporate and industry
spokespersons, economists, academicians, and government representatives.
Brokerage services and equipment may facilitate the execution and monitoring of
securities transactions, for example, by providing rapid communications with
financial markets and brokers or dealers, or by providing real-time tracking of
orders, settlements, investment positions and relevant investment criteria and
restrictions applicable to the execution of securities transactions. In some
cases, brokerage and research services are generated by third parties but are
provided to the Advisor by or through brokers and dealers. The Advisor may
allocate brokerage for research services that are also available for cash, where
appropriate and permitted by law. The Advisor may also pay cash for certain
research services received from external sources.
In addition, the information and services received by the Advisor from brokers
and dealers may not in all cases benefit a Fund directly. For example, such
information and services received by the Advisor as a result of the brokerage
allocation of one of the Funds may be of benefit to the Advisor in the
management of other accounts of the Advisor, including other Funds of the Trust
and other investment companies advised by the Advisor. While the receipt of such
information and services is useful in varying degrees and would generally reduce
the amount of research or services otherwise performed by the Advisor and
thereby reduce the Advisor's expenses, this information and these services are
of indeterminable value and the management fee paid to the Advisor is not
reduced by any amount that may be attributable to the value of such information
and services.
MANAGEMENT OF THE TRUST
The Trustees are responsible for the general supervision of the Trust's
business. The day-to-day operations of the Trust are the responsibilities of the
Trust's officers. The names (and ages) of the Trustees and the officers of the
Trust and the officers of the Advisor, together with information as to their
principal business occupations during the past five years, are set forth below.
Unless otherwise indicated below, the address of each of the Trustees and
officers is 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850. Fees and
expenses for non-interested Trustees will be paid by the Trust.
Trustees
(1) Albert P. Viragh, Jr. (59)
Chairman of the Board of Trustees and President of Rydex Series Funds, a
registered mutual fund, 1993 to present; Chairman of the Board of
Trustees and President of Rydex Variable Trust, a registered mutual
fund, 1998 to present; Chairman of the Board of Trustees and
--------
1 This trustee is deemed to be an interested person of the Trust,
within the meaning of Section 2(a)(19) of the 1940 Act, in as much as this
person is affiliated with the Advisor, as described herein.
<PAGE> 14
President of Rydex Dynamic Funds, a registered mutual fund, 1999 to
present; Chairman of the Board of Directors, President, and Treasurer
of PADCO Advisors, Inc., investment adviser, 1993 to present; Chairman
of the Board of Directors, President, and Treasurer of PADCO Service
Company, Inc., shareholder and transfer agent servicer, 1993 to
present; Chairman of the Board of Directors, President, and Treasurer
of PADCO Advisors II, Inc., investment adviser, 1998 to present;
Chairman of the Board of Directors, President, and Treasurer of Rydex
Distributors, Inc., a registered broker-dealer firm, 1996 to present;
Vice President of Rushmore Investment Advisors Ltd., a registered
investment adviser, 1985 to 1993.
Corey A. Colehour (55)
Trustee of Rydex Series Funds, 1993 to present; Trustee of Rydex Variable
Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999 to
present; Senior Vice President of Marketing of Schield Management
Company, a registered investment adviser, 1985 to present.
J. Kenneth Dalton (59)
Trustee of Rydex Series Funds, 1995 to present; Trustee of Rydex Variable
Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999 to
present; Mortgage Banking Consultant and Investor, The Dalton Group, a
real estate company, 1995 to present; President, CRAM Mortgage Group,
Inc., 1966 to 1995.
John O. Demaret (60)
Trustee of Rydex Series Funds, 1997 to present; Trustee of Rydex Variable
Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999 to
present; Founder and Chief Executive Officer, Health Cost Controls
America, Chicago, Illinois, 1987 to 1996; sole practitioner, Chicago,
Illinois, 1984 to 1987; General Counsel for the Chicago Transit
Authority, 1981 to 1984; Senior Partner, O'Halloran, LaVarre &
Demaret, Northbrook, Illinois, 1978 to 1981.
Patrick T. McCarville (58)
Trustee of Rydex Series Funds, 1997 to present; Trustee of Rydex Variable
Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999 to
present; Founder and Chief Executive Officer, Par Industries, Inc.,
Northbrook, Illinois, 1977 to present; President and Chief Executive
Officer, American Health Resources, Northbrook, Illinois, 1984 to
1986.
Roger Somers (56)
Trustee of Rydex Series Funds, 1993 to present; Trustee of Rydex Variable
Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999 to
present; President, Arrow Limousine, 1963 to present.
Officers
Robert M. Steele (42)
Secretary and Vice President of Rydex Series Funds, 1994 to present;
Secretary and Vice President of Rydex Variable Trust, 1998 to present;
Secretary and Vice President of Rydex Dynamic Funds, 1999 to present;
Executive Vice President of Rydex Global Advisors, 1996 to present;
Vice President of Rydex Distributors, Inc., 1996 to present; Vice
President of The Boston Company, Inc., an institutional money
management firm, 1987 to 1994.
Carl G. Verboncoeur (48)
Vice President and Treasurer of Rydex Series Funds, 1997 to present; Vice
President and Treasurer of the Rydex Variable Trust, 1998 to present;
Vice President and Treasurer of Rydex Dynamic Funds, 1999 to present;
Vice President of Rydex Distributors, Inc., 1997 to
<PAGE> 15
present; Vice President of Rydex Fund Services, Inc., 1997 to present;
Senior Vice President, Crestar Bank, 1995 to 1997; Senior Vice
President, Crestar Asset Management Company, a registered investment
adviser, 1993 to 1995; Vice President of Perpetual Savings Bank, 1987
to 1993.
Michael P. Byrum (30)
Vice President and Assistant Secretary of Rydex Series Funds, 1997 to
present; Vice President and Assistant Secretary of the Rydex Variable
Trust, 1998 to present; Vice President and Assistant Secretary of the
Rydex Dynamic Funds, 1999 to present; Vice President and Senior
Portfolio Manager of PADCO Advisors, Inc., investment adviser, 1993 to
present; Vice President and Senior Portfolio Manager of PADCO
Advisors II Inc., investment adviser, 1996 to present; Secretary of
Rydex Distributors, Inc., 1996 to present; Investment Representative,
Money Management Associates, a registered investment adviser, 1992 to
1993.
Joanna M. Haigney (34)
Assistant Secretary of Rydex Series Funds, 2000 to present; Assistant Secretary
of the Rydex Variable Trust, 2000 to present; Assistant Secretary of the Rydex
Dynamic Funds, 2000 to present; Assistant Secretary of Rydex Distributors, Inc.,
2000 to present; Vice President Compliance of Rydex Fund Services, Inc., 2000 to
present; Vice President Fund Administration, Chase Global Funds Services Co., a
division of Chase Manhattan Bank NA, 1994 to 1999.
The aggregate compensation paid by the Trust to each of its Trustees
serving during the fiscal year ended December 31, 1999, is set forth
in the table below:
<TABLE>
Pension or Estimated Total
Retirement Annual Compensation
Benefits Benefits from Fund
Name of Aggregate Accrued as Upon Complex For
Person, Compensation Part of Trust's Retirement Service On
Position From Trust Expenses Three Boards**
<S> <C> <C> <C> <C>
-------------- ----------- -------------- ------------- ---------------
-------------- ----------- -------------- ------------- ---------------
Albert P.
Viragh, Jr.*, $0 $0 $0 $0
Chairman and
President
-------------- ------------ ---------------- ------------- ---------------
-------------- ------------ ---------------- ------------- ---------------
Corey A.
Colehour, $3,500 $0 $0 $34,500
Trustee
--------------- ----------- ---------------- ------------- ---------------
--------------- ----------- ---------------- ------------- ---------------
J. Kenneth
Dalton, $3,500 $0 $0 $34,500
Trustee
--------------- ----------- ---------------- ------------- ---------------
--------------- ----------- ---------------- ------------- ---------------
Roger Somers, $3,500 $0 $0 $34,500
Trustee
--------------- ---------- ----------------- -------------- --------------
--------------- ---------- ----------------- -------------- --------------
John O.
Demaret, $3,500 $0 $0 $34,500
Trustee
--------------- ---------- ------------------ ------------- --------------
--------------- ---------- ------------------ ------------- --------------
Patrick T.
McCarville, $3,500 $0 $0 $34,500
Trustee
--------------- ---------- ------------------ ------------- --------------
<PAGE> 16
* Denotes an "interested person" of the Trust.
** Each member of the Board of Trustees also serves as a Trustee to Rydex
Variable Trust and to Rydex Series Funds.
As of the date of this Statement of Additional Information, the Trustees and the
officers of the Trust, as a group, owned, of record and beneficially, less than
1% of the outstanding shares of each Fund.
</TABLE>
ADVISOR
PADCO Advisors, Inc., 9601 Blackwell Road, Suite 500, Rockville, MD 20850,
provides portfolio management to each Fund pursuant to an advisory contract with
the Trust. The Advisor was incorporated in the State of Maryland on February 5,
1993 and does business under the name Rydex Global Advisors (the "Advisor").
Albert P. Viragh, Jr., the Chairman of the Board of Trustees and President of
the Advisor, owns a controlling interest in the Advisor.
The Advisor manages the investment and the reinvestment of the assets of each
of the Funds, in accordance with the investment objectives, policies, and
limitations of the Fund, subject to the general supervision and control of
the Trustees and the officers of the Trust. The Advisor bears all costs
associated with providing these advisory services and the expenses of the
Trustees of the Trust who are affiliated with or interested persons of the
Advisor. The Advisor, from its own resources, including profits from
advisory fees received from the Funds, provided such fees are legitimate
and not excessive, may make payments to broker-dealers and other financial
institutions for their expenses in connection with the distribution of Fund
shares, and otherwise currently pay all distribution costs for Fund shares.
Under an investment advisory agreement the Advisor serves as the investment
adviser for each series of the Trust and provides investment advice to the
Funds and oversees the day-to-day operations of the Funds, subject to
direction and control by the Trustees and the officers of the Trust. As of
November 30, 2000, assets under management of the Advisor were
approximately $6.8 billion. Pursuant to the advisory agreement with the
Advisor, the Funds pay the Advisor the following fees at an annual rate,
which is calculated daily and paid monthly, at an annual rate of 0.90% of
the average daily net assets of each Master Fund. The Advisor may, from
time to time reimburse certain expenses of the Funds in order to limit the
Fund's operating expenses as described in the Prospectuses.
THE ADMINISTRATIVE SERVICE AGREEMENT AND ACCOUNTING SERVICE AGREEMENT
General administrative, shareholder, dividend disbursement, transfer agent, and
registrar services are provided to the Trust and the Funds by Rydex Fund
Services, Inc. (the "Servicer"), 9601 Blackwell Road, Suite 500, Rockville,
Maryland 20850, subject to the general supervision and control of the Trustees
and the officers of the Trust, pursuant to a service agreement between the Trust
and the Servicer. The Servicer is wholly-owned by Albert P. Viragh, Jr., who is
the Chairman of the Board and the President of the Trust and the sole
controlling person and majority owner of the Advisor.
Under the service agreement, the Servicer provides the Trust and each Fund with
all required general administrative services, including, without limitation,
office space, equipment, and personnel; clerical and general back office
services; bookkeeping, internal accounting, and secretarial services; the
determination of net asset values; and the preparation and filing of all
reports, registration statements, proxy statements, and all other materials
required to be filed or furnished by the Trust and each Fund
<PAGE> 17
under federal and state securities laws. The Servicer also maintains the
shareholder account records for each Fund, disburses dividends and
distributions payable by each Fund, and produces statements with respect to
account activity for each Fund and each Fund's shareholders. The Servicer
pays all fees and expenses that are directly related to the services
provided by the Servicer to each Fund; each Fund reimburses the Servicer
for all fees and expenses incurred by the Servicer which are not directly
related to the services the Servicer provides to the Fund under the service
agreement. In consideration for its services, the Servicer is entitled to a
fee, which is calculated daily and paid monthly, at an annual rate of 0.35%
of the average daily net assets of each Fund.
DISTRIBUTION
Pursuant to the Distribution Agreement adopted by the Trust, Rydex Distributors,
Inc. (the "Distributor"), 9601 Blackwell Road, Suite 500, Rockville, Maryland
20850, acts as distributor for the shares of the Trust under the general
supervision and control of the Trustees and the officers of the Trust. The
Distribution Agreement grants the Distributor the exclusive right to distribute
the shares of the Trust. In addition, the Distribution Agreement permits the
Distributor to receive as compensation any front-end sales load or contingent
deferred sales charge collected by the Funds or other asset-based sales charges
collected pursuant to any distribution or shareholder services plans adopted by
the Funds on behalf of the various classes of shares. Each of the Funds' current
distribution and shareholder services plans, as well as a description of the
services performed under each, are described below.
C CLASS DISTRIBUTION AND SHAREHOLDER SERVICING PLAN - The Titan 500 Fund and
Velocity 100 Fund have adopted a Distribution and Shareholder Services Plan for
C Class Shares (the "C Class Plan"). Under the C Class Plan, the Distributor, or
designated Service Providers, may receive up to 1.00% of each Fund's assets
attributable to C Class Shares as compensation for distribution and shareholder
services pursuant to Rule 12b-1 of the 1940 Act. The C Class Plan allows for
payment of up to .75% of each Fund's assets attributable to C Class Shares as
compensation for distribution services and up to .25% of each Fund's assets
attributable to C Class Shares as compensation for shareholder services.
H CLASS DISTRIBUTION PLAN - Each Fund has adopted a Distribution and Shareholder
Services Plan for their H Class Shares (the "H Class Plan" ). Under the H Class
Plan, the Distributor, or designated Service Providers, may receive up to .25%
of each Fund's assets attributable to H Class Shares as compensation for
distribution services pursuant to Rule 12b-1 of the 1940 Act.
DESCRIPTION OF DISTRIBUTION AND SHAREHOLDER SERVICES - Distribution services may
include: (i) services in connection with distribution assistance, or (ii)
payments to financial institutions and other financial intermediaries, such as
banks, savings and loan associations, insurance companies, investment
counselors, broker-dealers, mutual fund "supermarkets" and the Distributor's
affiliates and subsidiaries, as compensation for services or reimbursement of
expenses incurred in connection with distribution assistance. The Distributor
may, at its discretion, retain a portion of such payments to compensate itself
for distribution services and distribution related expenses such as the costs of
preparation, printing, mailing or otherwise disseminating sales literature,
advertising, and prospectuses (other than those furnished to current
shareholders of the Fund), promotional and incentive programs, and such other
marketing expenses that the Distributor may incur.
Shareholder services may include: (i) maintaining accounts relating to clients
that invest in shares; (ii) arranging for bank wires; (iii) responding to
client inquiries relating to the services performed by the Services
Provider; (iv) responding to inquiries from clients concerning their
investment in shares; (v) assisting clients in changing dividend options,
account designations and addresses; (vi) providing information periodically
to clients showing their position in shares; (vii) forwarding shareholder
communications from the Funds such as proxies, shareholder reports, annual
reports, and dividend distribution and tax notices to clients; and (viii)
processing dividend payments from the Funds on behalf of clients.
<PAGE> 18
COSTS AND EXPENSES
Each Fund bears all expenses of its operations other than those assumed by the
Advisor or the Servicer. Fund expenses include: the management fee; the
servicing fee (including administrative, transfer agent, and shareholder
servicing fees); custodian and accounting fees and expenses; legal and auditing
fees; securities valuation expenses; fidelity bonds and other insurance
premiums; expenses of preparing and printing prospectuses, confirmations, proxy
statements, and shareholder reports and notices; registration fees and expenses;
proxy and annual meeting expenses, if any; all federal, state, and local taxes
(including, without limitation, stamp, excise, income, and franchise taxes);
organizational costs; non-interested Trustees' fees and expenses; the costs and
expenses of redeeming shares of the Fund; fees and expenses paid to any
securities pricing organization; dues and expenses associated with membership in
any mutual fund organization; and costs for incoming telephone WATTS lines. In
addition, each of the Funds pays an equal portion of the Trustee fees and
expenses for attendance at Trustee meetings for the Trustees of the Trust who
are not affiliated with or interested persons of the Advisor.
DETERMINATION OF NET ASSET VALUE
The net asset value of a Fund serves as the basis for the purchase and
redemption price of that Fund's shares. The net asset value per share of a Fund
is calculated by dividing the market value of the Fund's securities plus the
value of its other assets, less all liabilities, by the number of outstanding
shares of the Fund. If market quotations are not readily available, a security
will be valued at fair value by the Advisor using methods established or
ratified by the Board of Trustees.
Options on securities and indices purchased by a Fund generally are valued at
their last bid price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter ("OTC") market, the average of the last
bid price as obtained from two or more dealers unless there is only one dealer,
in which case that dealers price is used. Futures contracts generally are valued
based upon the unrealized gain or loss on the contract determined with reference
to the first price reported by established futures exchanges after the close of
a Fund pricing cycle, or alternatively, with reference to the average price at
which futures are bought and sold by a Fund. Options on futures contracts
generally are valued with reference to the underlying futures contract. If the
market makes a limit move with respect to a particular commodity, the commodity
will be valued at fair value by the Advisor using methods established or
ratified by the Board of Trustees.
On days when the CBOT is closed during its usual business hours, but the shares
of a Fund have been purchased, redeemed, and/or exchanged, the portfolio
securities held by a Fund which are traded on the CBOT are valued at the earlier
of (i) the time of the execution of the last trade of the day for a Fund in
those CBOT-traded portfolio securities and (ii) the time of the close of the
CBOT Evening Session. On days when the CBOT is closed during its usual business
hours and there is no need for a Fund to execute trades on the CBOT, the value
of the CBOT-traded portfolio securities held by a Fund will be the mean of the
bid and asked prices for those CBOT-traded portfolio securities at the open of
the CBOT Evening Session.
OTC securities held by a Fund shall be valued at the last sales price or, if no
sales price is reported, the mean of the last bid and asked price is used. The
portfolio securities of a Fund that are listed on national exchanges are taken
at the last sales price of such securities on such exchange; if no sales price
is reported, the mean of the last bid and asked price is used. For valuation
purposes, all assets and liabilities initially expressed in foreign currency
values will be converted into U.S. dollar values at the mean between the bid and
the offered quotations of such currencies against U.S. dollars as last quoted by
any recognized dealer. If such quotations are not available, the rate of
exchange will be determined in good faith by the Advisor based on guidelines
adopted by the Trustees. Dividend income and other distributions are recorded on
the ex-dividend date, except for certain dividends from foreign securities,
which are recorded as soon as the Trust is informed after the ex-dividend date.
<PAGE> 19
Illiquid securities, securities for which reliable quotations or pricing
services are not readily available, and all other assets will be valued at their
respective fair value as determined in good faith by, or under procedures
established by, the Trustees, which procedures may include the delegation of
certain responsibilities regarding valuation to the Advisor or the officers of
the Trust. The officers of the Trust report, as necessary, to the Trustees
regarding portfolio valuation determination. The Trustees, from time to time,
will review these methods of valuation and will recommend changes, which may be
necessary to assure that the investments of the Funds are valued at fair value.
PERFORMANCE INFORMATION
From time to time, each of the Funds may include the Fund's total return in
advertisements or reports to shareholders or prospective shareholders.
Quotations of average annual total return for a Fund will be expressed in terms
of the average annual compounded rate of return on a hypothetical investment in
the Fund over a period of at least one, five, and ten years (up to the life of
the Fund) (the ending date of the period will be stated). Total return of a Fund
is calculated from two factors: the amount of dividends earned by each Fund
share and by the increase or decrease in value of the Fund's share price. See
"Calculation of Return Quotations".
Performance information for each of the Funds contained in reports to
shareholders or prospective shareholders, advertisements, and other promotional
literature may be compared to the record of various unmanaged indices.
Performance information for the Funds may be compared to various unmanaged
indices, including, but not limited to, the S&P 500 Index or the Dow Jones
Industrial Average, the NASDAQ 100 Index -tm-, and the NASDAQ Composite Index
-tm-.
Such unmanaged indices may assume the reinvestment of dividends, but generally
do not reflect deductions for operating costs and expenses. In addition, a
Fund's total return may be compared to the performance of broad groups of
comparable mutual funds with similar investment goals, as such performance is
tracked and published by such independent organizations as Lipper Analytical
Services, Inc. ("Lipper"), and CDA Investment Technologies, Inc., among others.
When Lipper's tracking results are used, the Fund will be compared to Lipper's
appropriate fund category, that is, by fund objective and portfolio holdings.
Performance figures are based on historical results and are not intended to
indicate future performance.
In addition, rankings, ratings, and comparisons of investment performance and/or
assessments of the quality of shareholder service appear in numerous financial
publications such as Money, Forbes, Kiplinger's Magazine, Personal Investor,
Morningstar, Inc., and similar sources.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of a Fund to that of other
mutual funds and to other relevant market indices in advertisements or in
reports to shareholders, performance for the Fund may be stated in terms of
total return. Under the rules of the Securities and Exchange Commission ("SEC
Rules"), Funds advertising performance must include total return quotes
calculated according to the following formula:
P(1+T)n= ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years (1, 5, or 10); and
<PAGE> 20
ERV = ending redeemable value of a hypothetical $1,000 payment, made at the
beginning of the 1, 5, or 10 year periods, at the end of the 1, 5, or 10 year
periods (or fractional portion thereof).
Underthe foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover 1, 5, and
10 year periods or a shorter period dating from the effectiveness of the
Registration Statement of the Trust. In calculating the ending redeemable value,
all dividends and distributions by a Fund are assumed to have been reinvested at
net asset value as described in the Trust's Prospectuses on the reinvestment
dates during the period. Total return, or "T" in the formula above, is computed
by finding the average annual compounded rates of return over the 1, 5, and 10
year periods (or fractional portion thereof) that would equate the initial
amount invested to the ending redeemable value.
PURCHASE AND REDEMPTION OF SHARES
MINIMUM INVESTMENT REQUIREMENTS
Shareholders will be informed of any increase in the minimum investment
requirements by a new prospectus or a prospectus supplement, in which the new
minimum is disclosed. Any request for a redemption (including pursuant to check
writing privileges) by an investor whose account balance is (a) below the
currently applicable minimum investment, or (b) would be below that minimum as a
result of the redemption, will be treated as a request by the investor of a
complete redemption of that account. In addition, the Trust may redeem an
account whose balance (due in whole or in part to redemptions since the time of
last purchase) has fallen below the minimum investment amount applicable at the
time of the shareholder's most recent purchase of Fund shares (unless the
shareholder brings his or her account value up to the currently applicable
minimum investment).
TAX CONSEQUENCES
Note that in the case of tax-qualified retirement plans, a redemption from such
a plan may have adverse tax consequences. A shareholder contemplating such a
redemption should consult his or her own tax advisor. Other shareholders should
consider the tax consequences of any redemption.
SUSPENSION OF THE RIGHT OF REDEMPTION
The Funds may suspend the right of redemption or the date of payment: (i) for
any period during which the NYSE is closed (other than customary weekend or
holiday closings), or trading is restricted; (ii) for any period during which an
emergency exists so that sales of a Fund's investments or the determination of
its NAV is not reasonably practicable; or (iii) for such other periods as the
SEC may permit for the protection of a Fund's investors. In cases where NASDAQ,
the CME or Chicago Board Options Exchange, or any foreign market where the
Funds' securities trade is closed or trading is restricted, a Fund may ask the
SEC to permit the right of redemption to be suspended. On any day that
any of the securities exchanges on which the Funds' securities trade close early
(such as on days in advance of holidays generally observed by participants in
these markets), or as permitted by the SEC, the right is reserved to
advance the time on that day by which purchase and redemption orders must be
received.
HOLIDAYS
The NYSE, the Federal Reserve Bank of New York, the NASDAQ, the CME, the CBOT,
and other U.S. exchanges are closed on weekends and on the following holidays:
(i) New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day (the CBOT and CME will
have abbreviated trading schedules), Thanksgiving Day, and Christmas Day; and
(ii) the preceding Friday if any of these holidays falls on a Saturday, or the
subsequent Monday if any of these holidays falls on a Sunday. Although the Trust
expects the same
<PAGE> 21
holiday schedules to be observed in the future, each of the aforementioned
exchanges may modify its holiday schedule at any time.
REDEMPTIONS IN-KIND
The Trust intends to pay your redemption proceeds in cash. However, under
unusual conditions that make the payment in cash unwise (and for the protection
of the remaining shareholders of the Fund) the Trust reserves the right to pay
all, or part, of your redemption proceeds in liquid securities with a market
value equal to the redemption price (redemption in-kind). The Trust has elected
to be governed by Rule 18f-1 of the 1940 Act under which the Trust is obligated
to redeem shares for any one shareholder in cash only up to the lesser of
$250,000 or 1% of a Fund's net asset value during any 90-day period. Although it
is highly unlikely that your shares would ever actually be redeemed in kind, you
would probably have to pay brokerage costs to sell the securities distributed to
you.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and any distributions of net realized
capital gains from each of the Funds will be distributed as described in the
Trust's Prospectuses under "Dividends and Distributions". Normally, all such
distributions of a Fund will automatically be reinvested without charge in
additional shares of the same Fund.
REGULATED INVESTMENT COMPANY ("RIC") STATUS
As a RIC, a Fund would not be subject to federal income taxes on the net
investment income and capital gains that the Fund distributes to the Fund's
shareholders. The distribution of net investment income and capital gains will
be taxable to Fund shareholders regardless of whether the shareholder elects to
receive these distributions in cash or in additional shares. Distributions
reported to Fund shareholders as long-term capital gains shall be taxable as
such, regardless of how long the shareholder has owned the shares. Fund
shareholders will be notified annually by the Fund as to the federal tax status
of all distributions made by the Fund. Distributions may be subject to state and
local taxes.
Each of the Funds will seek to qualify for treatment as a RIC under the Code.
Provided that a Fund (i) is a RIC and (ii) distributes at least 90% of the
Fund's net investment income (including, for this purpose, net realized
short-term capital gains), the Fund itself will not be subject to federal income
taxes to the extent the Fund's net investment income and the Fund's net realized
long- and short-term capital gains, if any, are distributed to the Fund's
shareholders. To avoid an excise tax on its undistributed income, each Fund
generally must distribute at least 98% of its income, including its net
long-term capital gains. One of several requirements for RIC qualification is
that the Fund must receive at least 90% of the Fund's gross income each year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of securities or foreign currencies, or other
income derived with respect to the Fund's investments in stock, securities, and
foreign currencies (the "90% Test").
In the event of a failure by a Fund to qualify as a RIC, the Fund's
distributions, to the extent such distributions are derived from the Fund's
current or accumulated earnings and profits, would constitute dividends that
would be taxable to the shareholders of the Fund as ordinary income and would be
eligible for the dividends received deduction for corporate shareholders. This
treatment would also apply to any portion of the distributions that might have
been treated in the shareholder's hands as long-term capital gains, as discussed
below, had the Fund qualified as a RIC.
If a Fund were to fail to qualify as a RIC for one or more taxable years, the
Fund could then qualify (or requalify) as a RIC for a subsequent taxable
year only if the Fund had distributed to the Fund's shareholders a taxable
dividend equal to the full amount of any earnings or profits (less the
interest
<PAGE> 22
charge mentioned below, if applicable) attributable to such period. The Fund
might also be required to pay to the U.S. Internal Revenue Service ("IRS")
interest on 50% of such accumulated earnings and profits. In addition, pursuant
to the Code and an interpretative notice issued by the IRS, if the Fund should
fail to qualify as a RIC and should thereafter seek to requalify as a RIC, the
Fund may be subject to tax on the excess (if any) of the fair market of the
Fund's assets over the Fund's basis in such assets, as of the day immediately
before the first taxable year for which the Fund seeks to requalify as a RIC.
If a Fund determines that it will not qualify as a RIC under Subchapter M of the
Code, the Fund will establish procedures to reflect the anticipated tax
liability in the Fund's net asset value.
OPTIONS TRANSACTIONS BY THE FUNDS
If a call option written by a Fund expires, the amount of the premium received
by the Fund for the option will be short-term capital gain to the Fund. If such
an option is closed by a Fund, any gain or loss realized by the Fund as a result
of the closing purchase transaction will be short-term capital gain or loss. If
the holder of a call option exercises the holder's right under the option, any
gain or loss realized by the Fund upon the sale of the underlying security or
underlying futures contract pursuant to such exercise will be short-term or
long-term capital gain or loss to the Fund depending on the Fund's holding
period for the underlying security or underlying futures contract. The amount of
the premium received by the Fund increases the amount realized upon the sale.
With respect to call options purchased by a Fund, the Fund will realize
short-term or long-term capital gain or loss if such option is sold and will
realize short-term or long-term capital loss if the option is allowed to expire
depending on the Fund's holding period for the call option. If such a call
option is exercised, the amount paid by the Fund for the option will be added to
the basis of the stock or futures contract so acquired.
A Fund has available to it a number of elections under the Code concerning the
treatment of option transactions for tax purposes. A Fund will utilize the tax
treatment that, in the Fund's judgment, will be most favorable to a majority of
investors in the Fund. Taxation of these transactions will vary according to the
elections made by the Fund. These tax considerations may have an impact on
investment decisions made by the Fund.
Each of the Funds in its operations also will utilize options on stock indices.
Options on "broad based" stock indices are classified as "nonequity options"
under the Code. Gains and losses resulting from the expiration, exercise, or
closing of such nonequity options, as well as gains and losses resulting from
futures contract transactions, will be treated as long-term capital gain or loss
to the extent of 60% thereof and short-term capital gain or loss to the extent
of 40% thereof (hereinafter, "blended gain or loss"). In addition, any nonequity
option and futures contract held by a Fund on the last day of a fiscal year will
be treated as sold for market value on that date, and gain or loss recognized as
a result of such deemed sale will be blended gain or loss.
The trading strategies of each of the Funds involving nonequity options on stock
indices may constitute "straddle" transactions. "Straddles" may affect the
taxation of such instruments and may cause the postponement of recognition of
losses incurred in certain closing transactions. Each of these Funds will also
have available to the Fund a number of elections under the Code concerning the
treatment of option transactions for tax purposes. Each such Fund will utilize
the tax treatment that, in the Fund's judgment, will be most favorable to a
majority of investors in the Fund. Taxation of these transactions will vary
according to the elections made by the Fund. These tax considerations may have
an impact on investment decisions made by the Fund.
A Fund's transactions in options, under some circumstances, could preclude the
Fund's qualifying for the special tax treatment available to investment
companies meeting the requirements of
<PAGE> 23
Subchapter M of the Code. However, it is the intention of each Fund's portfolio
management to limit gains from such investments to less than 10% of the gross
income of the Fund during any fiscal year in order to maintain this
qualification.
BACK-UP WITHHOLDING
Each Fund is required to withhold and remit to the U.S. Treasury 31% of (i)
reportable taxable dividends and distributions and (ii) the proceeds of any
redemptions of Fund shares with respect to any shareholder who is not exempt
from withholding and who fails to furnish the Trust with a correct taxpayer
identification number, who fails to report fully dividend or interest income, or
who fails to certify to the Trust that the shareholder has provided a correct
taxpayer identification number and that the shareholder is not subject to
withholding. (An individual's taxpayer identification number is the individual's
social security number.) The 31% "back-up withholding" tax is not an additional
tax and may be credited against a taxpayer's regular federal income tax
liability.
OTHER ISSUES
Each Fund may be subject to tax or taxes in certain states where the Fund does
business. Furthermore, in those states, which have income tax laws, the tax
treatment of a Fund and of Fund shareholders with respect to distributions by
the Fund may differ from federal tax treatment.
Shareholders are urged to consult their own tax advisors regarding the
application of the provisions of tax law described in this Statement of
Additional Information in light of the particular tax situations of the
shareholders and regarding specific questions as to federal, state, or local
taxes.
OTHER INFORMATION
VOTING RIGHTS
You receive one vote for every full Fund share owned. Each Fund will vote
separately on matters relating solely to that Fund. All shares of the Funds are
freely transferable. Whenever a vote is required on matters pertaining to the
Master Funds, the Trust will either (a) seek instructions from the appropriate
Fund's shareholders with regard to the voting of the proxies and vote such
proxies only in accordance with such instructions; or (b) vote shares held by it
in the same proportion as the vote of all the other shareholders of the
particular Fund.
As a Delaware business trust, the Trust is not required to hold annual
shareholder meetings unless otherwise required by the Investment Company Act of
1940. However, a meeting may be called by shareholders owning at least 10% of
the outstanding shares of the Trust. If a meeting is requested by shareholders,
the Trust will provide appropriate assistance and information to the
shareholders who requested the meeting. Shareholder inquiries can be made by
calling 1-800-820-0888 or 301-296-5100, or by writing to the Trust at 9601
Blackwell Road, Suite 500, Rockville, Maryland 20850.
CODE OF ETHICS
The Board of Trustees of the Trust has adopted a Combined Code of Ethics (the
"Code") pursuant to Rule 17j-1 under the 1940 Act. The Advisor, Servicer and
Distributor are also covered by the Code. The Code applies to the personal
investing activities of trustees, directors, officers and certain employees
("access persons"). Rule 17j-1 and the Code is designed to prevent unlawful
practices in connection with the purchase or sale of securities by access
persons. Under the Code, access persons are permitted to engage in personal
securities transactions, but are required to report their personal securities
transactions for monitoring purposes. In addition, certain access persons are
required to obtain approval before investing in initial public offerings or
private placements. The Code is on file with the Securities and Exchange
Commission, and is available to the public.
<PAGE> 24
REPORTING
You will receive the Trust's unaudited financial information and audited
financial statements. In addition, the Trust will send you proxy statements and
other reports. If you are a customer of a financial institution that has
purchased shares of a Fund for your account, you may, depending upon the nature
of your account, receive all or a portion of this information directly from your
financial institution.
SHAREHOLDER INQUIRIES
You may visit the Trust's Web site at www.rydexfunds.com or call 1-800-820-0888
or 301-296-5100 to obtain information on account statements, procedures, and
other related information.
COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Trust.
AUDITORS AND CUSTODIAN
PriceWaterhouseCoopers LLP, 250 West Pratt Street, Suite 2100, Baltimore,
Maryland 21201 are the auditors and the independent certified public accountants
of the Trust and each of the Funds.
Firstar ("the Custodian"), Star Bank Center, 425 Walnut Street, Cincinnati, Ohio
45202, serves as custodian for the Trust and the Funds under a custody agreement
between the Trust and the Custodian. Under the custody agreement, the Custodian
holds the portfolio securities of each Fund and keeps all necessary related
accounts and records.
FINANCIAL STATEMENTS
Following are the Trust's initial financial statements. Also, the Trust's Report
for the semi annual period ended June 30, 2000 are incorporated by reference
into this SAI. A copy of these financial statements must accompany the delivery
of this Statement of Additional Information
RYDEX DYNAMIC FUNDS
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------
--------------------------------------
November 17, 1999
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TITAN TEMPEST VELOCITY VENTURE
500 500 100 100
Fund Fund Fund Fund
--
ASSETS
Cash in Custodian Bank.................25,000 25,000 25,000 25,000
Deferred Organization Costs (Note 1).. 66,791 66,791 66,791 66,791
--------------------------------------------------------------------------------
Total Assets...........91,791 91,791 91,791 91,791
--------------------------------------------------------------------------------
LIABILITIES
Accrued Organization Costs (Note 1)....66,791 66,791 66,791 66,791
--------------------------------------------------------------------------------
Total Liabilities..........66,791 66,791 66,791 66,791
--------------------------------------------------------------------------------
NET ASSETS...........................$ 25,000 $ 25,000 $ 25,000 $ 25,000
========---=======---========---==========
========---=======---========---==========
Shares Outstanding......................1,000 500 1,000 500
========---=======---========---==========
========---=======---========---==========
Net Asset Value Per Share.............$ 25.00 $ 50.00 $ 25.00 $ 50.00
========---=======---========---==========
========---=======---========---==========
See Notes to Financial Statements.
RYDEX DYNAMIC FUNDS
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 17, 1999
1. ORGANIZATION
The Rydex Dynamic Funds (the "Funds") is a non-diversified, open-ended
investment company established under the laws of Delaware by Declaration of
Trust dated August 6, 1999. The Funds are authorized to issue an unlimited
number of shares. The Funds currently consist of the Titan 500 Fund, Tempest 500
Fund, Velocity 100 Fund, and Venture 100 Fund. The Funds have had no operations
other than those related to organizational matters and the sale and issuance of
initial shares (1,000 each for the Titan 500 Fund and Velocity 100 Fund and 500
each for the Tempest 500 Fund and Venture 100 Fund) to shareholders. All
organizational expenses incurred or to be incurred in connection with the
organization and initial registration of the Funds were paid by PADCO Advisors,
Inc. (the "Advisor"), an affiliated entity. However, the Funds will reimburse
PADCO Advisors, Inc. for such costs, subject to an expense reimbursement and
recapture agreement between PADCO Advisors, Inc. and the Funds. Organizational
expenses of approximately $267,000 have been deferred and will be expensed
immediately upon commencement of operations of each Fund.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory contract, the Funds pay PADCO
Advisors, Inc., an affiliated entity, investment advisory fees calculated at an
annualized rate, based on average daily net assets, of one percent (1%) of net
assets of each Fund. Certain officers of the Funds are also officers of PADCO
Advisors, Inc. See "Management of the Funds" in the Prospectus for additional
information concerning the agreement.
PADCO Service Company, Inc., a subsidiary of the investment advisor, provides
transfer agent service to the Funds at an annualized rate, based on average
daily net assets, of forty-five hundredths of one percent (0.45%) of net assets
of each Fund.
The Funds have adopted a Distribution Plan that allows the Funds to pay
distribution fees to PADCO Financial Services, Inc. (the "Distributor"), an
affiliated entity, and other firms that provide distribution services ("Service
Providers"). The Funds will pay distribution fees to the Distributor at an
annual rate, based on average daily net assets, of one quarter of one percent
(0.25%) of net assets of each Fund, pursuant to Rule 12b-1 of the Investment
Company Act of 1940. If a Service Provider provides distribution services, the
Distributor will, in turn, pay the Service Provider out of its fees. See
"Distribution Plan" in the Prospectus for additional information concerning the
agreement.
3. INCOME TAXES The Funds intend 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, the Funds do not
expect to be subject to federal income or excise taxes.
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholder of
The Rydex Dynamic Funds:
We have audited the accompanying statements of assets and liabilities of the
Titan 500, Tempest 500, Velocity 100, and Venture 100 Funds of the Rydex Dynamic
Funds (the "Trust"), as of November 17, 1999. These financial statements are the
responsibility of the Trust"s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
portfolios constituting the Rydex Dynamic Funds as of November 17, 1999 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
November 22, 1999
