PAGE
<PAGE>
As Filed With The Securities And Exchange Commission On
October 30, 1996.
File Nos. 33-59692 and 811-7584
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 27 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 (X)
Amendment No. 28 (X)
RYDEX SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
(Address of Principal Executive Offices) (Zip Code)
(301) 468-8520
(Registrant's Telephone Number, Including Area Code)
Albert P. Viragh, Jr.
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
(Name and Address of Agent for Service of Process)
Copies to:
James F. Jorden, Esq.
W. Randolph Thompson, Esq.
James Bernstein, Esq.
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D. C. 20007
Approximate Date of Commencement of the Proposed Public
Offering of the Securities:
PAGE
<PAGE>
It is proposed that this filing will become effective (check
appropriate box):
X immediately upon filing pursuant to paragraph (b) of
rule 485
on (date) pursuant to paragraph (b)(1)(v) of rule
485
60 days after filing pursuant to paragraph (a)(1) of
rule 485
on (date) pursuant to paragraph (a)(1) of rule 485
75 days after filing pursuant to paragraph (a)(2) of
rule 485
on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
This post-effective amendment designates a new
effective date for a previously-filed post-effective
amendment.
T h e Registrant has previously filed a declaration of
indefinite registration of its shares pursuant to Rule 24f-2
under the Investment Company Act of 1940. The Rule 24f-2
Notice for the Registrant's fiscal year ended June 30, 1996
was filed on August 28, 1996.
PAGE
<PAGE>
RYDEX SERIES TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
This Post-Effective Amendment No. 27 under the Securities Act
of 1933, and Amendment No. 28 under the Investment Company Act
of 1940, to the Registrant's Registration Statement on Form N-
1A shall not supersede or effect this Registration Statement
as this Registration Statement applies to The Rydex High Yield
Fund.
N-1A Location in
Item No. Registration Statement
Part A: Information Required In Prospectus
1. Cover Page Outside Front Cover Page of
Prospectus
2. Synopsis Prospectus Summary; Fees
and Expenses of the Funds;
Tax-Sheltered Retirement
Plans; Transaction Charges
3. Condensed Financial Financial Highlights of the
Information Funds
4. General Description of The Rydex Funds; Investment
Registrant Objectives and Policies;
Special Risk
Considerations; Investment
Techniques and Other
Investment Policies;
General Information About
the Trust; Appendix A
5. Management of the Fund Management of the Trust
5A. Management s Discussion Annual Report of the Trust;
of Fund Performance Performance Information
6. Capital Stock and Other Dividends and
Securities Distributions; Taxes;
General Information About
the Trust
PAGE
<PAGE>
7. Purchase of Securities How to Invest in the Funds;
Being Offered Exchanges; Determination of
Net Asset Value;
Distribution Plan
8. Redemption or Repurchase Redeeming an Investment
(Withdrawals); Procedures
for Redemptions and
Exchanges
9. Legal Proceedings Not Applicable
PAGE
<PAGE>
N-1A Location in
Item No. Registration Statement
Part B: Information Required In
Statement of Additional Information
10. Cover Page Outside Front Cover Page of
Statement of Additional
Information
11. Table of Contents Table of Contents
12. General Information The Rydex Funds
and History
13. Investment Objectives Investment Policies and
and Policies Techniques; Investment
Restrictions
14. Management of the Registrant Management of the Trust
15. Control Persons and Management of the Trust;
Principal Holders of Principal Holder of
Securities Securities
16. Investment Advisory and Management of the Trust;
Other Services Distribution Plan; Auditors
and Custodian
17. Brokerage Allocation Investment Policies and
Techniques; Portfolio
Transactions and Brokerage
18. Capital Stock and Other Not Applicable
Securities
19. Purchase, Redemption, and Not Applicable
Pricing of Securities Being
Offered
20. Tax Status Dividends, Distributions,
and Taxes
21. Underwriters Management of the Trust;
Distribution Plan
22. Calculation of Performance Performance Information;
Data Calculation of Return
Quotations; Information on
Computation of Yield
PAGE
<PAGE>
23. Financial Statements Financial Statements
PAGE
<PAGE>
N-1A Location in
Item No. Registration Statement
Part C: Other Information
24. Financial Statements Financial Statements and
and Exhibits Exhibits
25. Persons Controlled By Persons Controlled By or
or Under Common Control Under Common Control
26. Number of Holders of Number of Holders of Shares
Securities of Beneficial Interest
27. Indemnification Indemnification
28. Business and Other Business and Other
Connections of Investment Connections of Investment
Adviser Adviser
29. Principal Underwriters Principal Underwriter
30. Location of Accounts and Location of Accounts and
Records Records
31. Management Services Management Services
32. Undertakings Undertakings
33. Signatures Signatures
PAGE
<PAGE>
PART A
PAGE
<PAGE>
Combined Prospectus
of
The Nova Fund,
The Ursa Fund,
The Rydex OTC Fund,
The Rydex Precious Metals Fund,
The Rydex U.S. Government Bond Fund,
The Juno Fund,
and
The Rydex U.S. Government Money Market Fund
<PAGE>
[LOGO]
RYDEX SERIES TRUST
PROSPECTUS
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
(800) 820-0888 (301) 468-8520
Rydex Series Trust (the "Trust") is a no-load mutual fund
complex with nine separate investment portfolios (the "Funds"
or "Rydex Funds"), seven of which Funds are described in this
P r o s pectus. The Funds are principally designed for
professional money managers and investors who intend to invest
in the Funds as part of an asset-allocation or market-timing
investment strategy. Sales are made, without sales charge, at
each Fund s per share net asset value.
Except for the Rydex U.S. Government Money Market Fund, each
Fund is intended to provide investment exposure with respect
to a particular segment of the securities markets. Each of
these Funds seeks investment results that correspond over time
to a specified benchmark. The Funds may be used independently
or in combination with each other as part of an overall
investment strategy. Additional Funds may be created from time
to time.
The following are the Funds and their benchmarks:
FUND BENCHMARK
The Nova Fund 150% of the performance of the S&P 500
Composite Stock Price IndexTM
The Ursa Fund Inverse (opposite) of the S&P 500 Composite
Stock Price IndexTM
Rydex OTC Fund NASDAQ 100 IndexTM (NDX)
Rydex Precious Philadelphia Stock Exchange Gold/Silver
Metals Fund IndexTM (XAU)
PAGE
<PAGE>
Rydex U.S. 120% of the price movement of current Long
Government Bond Treasury Bond
Fund
The Juno Fund Inverse (opposite) of the price movement of
the current Long Treasury Bond
The Trust also offers The Rydex U.S. Government Money Market
Fund. This Fund seeks to provide security of principal, high
current income, and liquidity by investing primarily in money
market instruments which are issued or guaranteed, as to
principal and interest, by the U.S. Government, its agencies
or instrumentalities. The securities of the Rydex U.S.
Government Money Market Fund are not deposits or obligations
of any bank, and are not endorsed or guaranteed by any bank,
and an investment in this Fund is neither insured nor
guaranteed by the United States Government. The Rydex U.S.
Government Money Market Fund seeks to maintain a constant
$1.00 net asset value per share, although this cannot be
assured.
The Funds (other than the Rydex U.S. Government Money Market
Fund) may engage in certain aggressive investment techniques,
which include engaging in short sales and transactions in
options and futures contracts. The Nova Fund and the Rydex
U.S. Government Bond Fund may use the speculative technique
known as leverage to increase funds available for investment
(see "Other Investment Policies"). Investors in the Nova Fund
may experience substantial losses during sustained periods of
falling equity prices. Investors in the Ursa Fund and the Juno
Fund may experience substantial losses during sustained
periods of rising equity prices and rising bond prices,
r e s pectively. Because of the inherent risks in any
investment, there can be no assurance that any Fund s
investment objective will be achieved.
None of the Funds alone constitutes a balanced investment
plan, and certain of the Funds involve special risks not
traditionally associated with investment companies. The
nature of the Funds generally will result in significant
portfolio turnover which would likely cause higher expenses
and additional costs and increase the risk that a Fund will
not qualify as a regulated investment company under the
Federal tax laws. The Trust is not intended for investors
whose principal objective is current income or preservation of
capital and may not be a suitable investment for persons who
intend to follow an "invest and hold" strategy. See "Special
Risk Considerations."
ADDITIONAL INFORMATION
<PAGE> - 2 -<PAGE>
The Trust also offers the Rydex Institutional Money Market
Fund and, beginning on or about December 1, 1996 (subject to
obtaining all necessary regulatory approvals), also will offer
the Rydex High Yield Fund, each of which series of the Trust
is described in a separate prospectus.
Investors should read this Prospectus and retain it for future
reference. This Prospectus is designed to set forth concisely
the information an investor should know about the Trust before
investing. A Statement of Additional Information, dated
November 1, 1996, containing additional information about the
Trust has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. A copy of
this Statement of Additional Information is available, without
charge, upon request to the Trust at the address above or by
telephoning the Trust at the telephone numbers above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 1, 1996.
<PAGE> - 3 -<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY
FEES AND EXPENSES OF THE FUNDS
FINANCIAL HIGHLIGHTS OF THE FUNDS
INVESTMENT OBJECTIVES AND POLICIES
SPECIAL RISK CONSIDERATIONS
INVESTMENT TECHNIQUES AND OTHER
INVESTMENT POLICIES
PORTFOLIO TRANSACTIONS AND BROKERAGE
HOW TO INVEST IN THE FUNDS
REDEEMING AN INVESTMENT (WITHDRAWALS)
EXCHANGES
PROCEDURES FOR REDEMPTIONS AND
EXCHANGES
DETERMINATION OF NET ASSET VALUE
TAX-SHELTERED RETIREMENT PLANS
TRANSACTION CHARGES
DIVIDENDS AND DISTRIBUTIONS
TAXES
MANAGEMENT OF THE TRUST
PERFORMANCE INFORMATION
GENERAL INFORMATION ABOUT THE TRUST
PROSPECTUS SUMMARY
THE RYDEX FUNDS
Each Fund has its own distinct investment objective. There
is, of course, no guarantee that any Fund will achieve its
investment objective. The investment objectives of the Funds
are as follows:
<PAGE> - 4 -<PAGE>
The Nova Fund. The Nova Fund s investment objective is to
provide investment returns that correspond to 150% of the
performance of the Standard & Poor s 500 Composite Stock Price
IndexTM (the "S&P500 Index"). In attempting to achieve its
objective, the Nova Fund expects that a substantial portion of
its assets usually will be devoted to investment techniques
i n c luding certain transactions in stock index futures
contracts, options on stock index futures contracts, and
options on securities and stock indexes. In contrast to
returns on a mutual fund that seeks to approximate the return
of the S&P500 Index, the Nova Fund should increase gains
during periods when the prices of the securities in the S&P500
Index are rising and increase losses to investors during
periods when such prices are declining. Investors in the Nova
Fund could experience substantial losses during sustained
periods of falling equity prices.
The Ursa Fund. The Ursa Fund s investment objective is to
provide investment results that will inversely correlate to
the performance of the S&P500 Index. The Ursa Fund seeks to
achieve this inverse correlation result on each trading day.
If the Ursa Fund is successful in meeting this objective, the
net asset value on Ursa Fund shares will increase for each day
in direct proportion to any decreases in the level of the
S&P500 Index. Conversely, the net asset value on Ursa Fund
shares will decrease for each day in direct proportion to any
increases in the level of the S&P500 Index. In seeking to
achieve its objective, the Ursa Fund primarily engages in
short sales and certain transactions in stock index futures
contracts, options on stock index futures contracts, and
option on securities and stock indexes. The Ursa Fund
involves special risks not traditionally associated with
investment companies. Investors in the Ursa Fund may
experience substantial losses during sustained periods of
rising equity prices.
The Rydex OTC Fund. The investment objective of the Rydex
OTC Fund (the "OTC Fund") is to provide investment results
t h a t correspond to a benchmark for over-the-counter
securities. The OTC Fund s current benchmark is the NASDAQ
100 IndexTM. The OTC Fund does not aim to hold all of the 100
securities included on the NASDAQ 100 IndexTM. Instead, the
OTC Fund intends to hold representative securities included in
the NASDAQ 100 IndexTM or other instruments which are expected
to provide returns that correspond to those of the NASDAQ 100
IndexTM. The OTC Fund may engage in transactions on stock
index futures contracts, options on stock index futures
contracts, and options on securities and stock indexes.
<PAGE> - 5 -<PAGE>
The Rydex Precious Metals Fund. The investment objective of
the Rydex Precious Metals Fund (the "Metals Fund") is to
provide investment results that correspond to a benchmark
primarily for metals-related securities. The Metals Fund s
c u r r ent benchmark is the Philadelphia Stock Exchange
Gold/Silver IndexTM (the "XAU Index"). To achieve its
objective, the Metals Fund invests in securities included in
the XAU Index. In addition, the Metals Fund may invest in
other securities that are expected to perform in a manner that
will assist the Metals Fund s performance to track closely the
XAU Index. The Metals Fund may invest in securities of
foreign issuers. These securities present certain risks not
present in domestic investments and expose the investor to
general market conditions which differ significantly from
those in the United States.
The Rydex U.S. Government Bond Fund. The investment
objective of the Rydex U.S. Government Bond Fund (the "Bond
Fund") is to provide investment results that correspond to a
benchmark for U.S. Government securities. The Bond Fund s
current benchmark is 120% of the price movement of the Current
Long Treasury Bond (the "Long Bond"), without consideration of
interest paid. In attempting to achieve its objective, the
Bond Fund invests primarily in obligations of the U.S.
Treasury or obligations either issued or guaranteed, as to
principal and interest, by agencies or instrumentalities of
the U.S. Government ("U.S. Government Securities"). The Bond
Fund may engage in transactions in futures contracts and
options on futures contracts on U.S. Treasury bonds. The Bond
Fund also may invest in U.S. Treasury zero coupon bonds.
The Juno Fund. The Juno Fund s investment objective is to
provide total return before expenses and costs that will
inversely correlate to the price movements of a benchmark for
U.S. Treasury debt instruments or futures contract on a
specified debt instrument. The Juno Fund seeks to achieve
this inverse correlation result on each trading day. The Long
Bond is the Juno Fund s current benchmark. In seeking its
objective, the Juno Fund will employ certain investment
techniques including engaging in short sales and transactions
in futures contracts and options thereon. If the Juno Fund is
successful in meeting its objective, the total return on its
shares before expenses and costs will increase for each day
proportionally to any decreases in the price of the Long Bond.
Conversely, the total return on its shares before expenses and
cost will decrease for each day proportionally to any
increases in the price of the Long Bond. Investors in the
Juno Fund may experience substantial losses during periods of
falling interest rates/rising bond prices.
<PAGE> - 6 -<PAGE>
The Rydex U.S. Government Money Market Fund. The investment
objective of the Rydex U.S. Government Money Market Fund (the
"Money Market Fund") is to provide security of principal, high
current income, and liquidity. To achieve its objective, the
M o n e y Market Fund invests primarily in money market
instruments which are issued or guaranteed, as to principal
and interest, by the U.S. Government, its agencies or
i n strumentalities, as well as in repurchase agreements
collateralized fully by U.S. Government Securities.
A discussion of each Fund s investment objective(s) and
policies is provided below under "Investment Objectives and
Policies" and "Investment Techniques and Other Investment
Policies." The Trust also offers shares in the Rydex High
Yield Fund and the Rydex Institutional Money Market Fund, each
of which series of the Trust is described in a separate
prospectus.
SPECIAL RISK CONSIDERATIONS
The Trust expects that a substantial portion of the assets of
the Funds will be derived from professional money managers and
investors who intend to invest in the Funds as part of an
asset-allocation or market-timing investment strategy. These
investors are likely to redeem or exchange their Fund shares
frequently to take advantage of anticipated changes in market
conditions. The strategies employed by investors in the Funds
may result in considerable assets moving in and out of the
Funds. Consequently, the Trust expects that the Funds will
generally experience significant portfolio turnover, which
will likely cause higher expenses and additional costs and
increase the risk that the Fund will not qualify as a
"regulated investment company" under the Federal tax laws and
may also adversely affect the ability of the Fund to meet its
investment objective. For further information concerning the
portfolio turnover of the Funds and the Federal tax treatment
of the Funds, see "Investment Objectives and Policies" and
"Taxes" in this Prospectus and "Investment Policies and
Techniques" and "Dividends, Distributions, and Taxes" in the
Statement of Additional Information.
While the Funds do not expect that the returns over a year
w i l l deviate adversely from their respective current
benchmarks by more than ten percent, certain factors may
affect their ability to achieve this correlation. See
"Special Risk Considerations" for a discussion of these
factors.
The Funds (other than the Money Market Fund) may engage in
certain aggressive investment techniques, which may include
engaging in short sales and transactions in futures contracts
a n d options on securities, stock indexes, and futures
<PAGE> - 7 -<PAGE>
c o ntracts. As discussed more fully under "Investment
Objectives and Policies" and "Investment Techniques and Other
Investment Policies," these techniques are specialized and
involve risks that are not traditionally associated with
investment companies.
PURCHASES, REDEMPTIONS, AND
EXCHANGES OF TRUST SHARES
The shares of each Fund may be purchased and redeemed, without
any respective sales or redemption charge, at the net asset
value per share of the Fund next determined. Shares of any
available Fund described in this Prospectus may be exchanged
at any time for shares of any other available Fund, without
any charge, on the basis of the relative net asset values next
computed. Because of the administrative expense of handling
small accounts, the Trust reserves the right to redeem
involuntarily an investor's account, including a retirement
account, which falls below the applicable minimum investment
in total value in the Trust due to redemptions. In addition,
both a request for a partial redemption by an investor whose
account balance is below the minimum investment and a request
for a partial redemption by an investor that would bring the
account balance below the minimum investment will be treated
as a request by the investor for a complete redemption of that
account. The Trust reserves the right to modify its minimum
investment requirements and the corresponding amounts below
which involuntary redemptions may be effected. See "How To
Invest In the Fund," "Redeeming An Investment (Withdrawals),"
and "Exchanges."
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 under "Dividends and Distributions."
All such distributions of a Fund automatically will be
reinvested without charge in additional shares of the same
Fund unless otherwise specified by a shareholder.
INVESTMENT ADVISER AND SERVICER
The investment adviser of each Fund is PADCO Advisors, Inc.
(the "Advisor"). PADCO Service Company, Inc. (the "Servicer")
provides the Funds with general administrative, shareholder,
and registrar services. Both the Advisor and the Servicer are
located in Rockville, Maryland. See "Management of the
Trust."
TRANSFER AGENT AND CUSTODIAN
<PAGE> - 8 -<PAGE>
The Servicer also serves as the Trust s transfer and dividend
disbursement agent. Star Bank, N.A. serves as the custodian
of each Fund s securities and cash. See "Management of the
Trust."
<PAGE> - 9 -<PAGE>
FEES AND EXPENSES OF THE FUNDS
The following table illustrates all expenses and fees that a
shareholder of each Fund will incur:
<TABLE>
<CAPTION>
The Rydex
Precious
The Nova The Ursa The Rydex Metals
Fund Fund OTC Fund Fund
<S> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Sales Load Imposed on None None None None
Purchases
Sales Load Imposed on None None None None
Reinvested Dividends
Deferred Sales Load None None None None
Redemption Fees None None None None
Exchange Fees None None None None
Annual Fund Operating
Expenses
Management Fees 0.75% 0.90% 0.75% 0.75%
12b-1 Fees None None None None
Other Expenses
Administrative Fees 0.25% 0.25% 0.20% 0.20%
Additional Expenses 0.31% 0.24% 0.38% 0.38%
Total Other Expenses 0.56% 0.49% 0.56% 0.58%
Total Fund Operating 1.31% 1.39% 1.33% 1.33%
Expenses*
The Rydex
The Rydex U.S.
U.S. Government
Government The Juno Money
Bond Fund Fund Market Fund
<PAGE> - 10 -<PAGE>
<S> <C> <C> <C>
Shareholder Transaction
Expenses
Sales Load Imposed on None None None
Purchases
Sales Load Imposed on None None None
Reinvested Dividends
Deferred Sales Load None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating
Expenses
Management Fees 0.50% 0.90% 0.50%
12b-1 Fees None None None
Other Expenses
Administrative Fees 0.20% 0.25% 0.20%
Additional Expenses 0.56% 0.49% 0.29%
Total Other Expenses 0.76% 0.74% 0.49%
Total Fund Operating 1.26% 1.64% 0.99%
Expenses*
</TABLE>
* Retirement plans are charged an annual $15.00 maintenance
fee. See "Tax-Sheltered Retirement Plans."
<PAGE> - 11 -<PAGE>
EXAMPLE
Assuming hypothetical investments of $1,000 in each of the
Funds, a five-percent annual return, and redemption at the end
of each time period, an investor in each of the Funds would
pay transaction and operating expenses at the end of each year
as follows:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 years
<S> <C> <C> <C> <C>
The Nova Fund $13.34 $41.52 $71.82 $157.90
The Ursa Fund $14.15 $44.00 $76.05 $169.86
Rydex OTC Fund $13.54 $42.14 $72.88 $160.14
Rydex Precious $13.54 $42.14 $72.88 $160.14
Metals Fund
Rydex U.S.
Government $12.84 $39.96 $69.16 $152.56
Bond Fund
The Juno Fund $16.68 $51.73 $89.17 $194.37
Rydex U.S.
Government Money $10.10 $31.53 $54.71 $121.30
Market Fund
</TABLE>
T h e same level of expenses would be incurred if the
investments were held throughout the period indicated.
The preceding table of fees and expenses is provided to assist
investors in understanding the various costs and expenses
which may be borne directly or indirectly by an investor in
each of the Funds. The percentages shown above are based on
actual expenses incurred by the Funds for the fiscal year
ended June 30, 1996. The five-percent assumed annual return is
for comparison purposes only. The actual return for a
particular Fund in future periods may be more or less
depending on market conditions, and the actual expenses an
investor incurs in future periods may be more or less than
those shown above and will depend on the amount invested and
on the actual growth rate of the particular Fund. For a more
complete discussion of the fees connected with an investment
in the Funds and the services provided to the Funds, see
"Management of the Trust" in this Prospectus and in the
Statement of Additional Information.
<PAGE> - 12 -<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUNDS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Funds, for
the periods identified, have been audited by Deloitte & Touche
LLP, independent certified public accountants, whose report
t h ereon appears in the Trust's 1996 Annual Report to
Shareholders and is incorporated by reference in the Statement
of Additional Information. This information should be read in
conjunction with the financial statements and related notes
thereto included in the Statement of Additional Information.
A copy of the Trust's 1996 Annual Report to Shareholders may
be obtained, without charge, by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
The Nova Fund
For the For the For the
Year Year Period
Ended Ended Ended
June 30, June 30, June 30,
1996 1995 1994*
<S> <C> <C> <C>
Per Share Operating
Performance:
Net Asset Value -- Beginning
of Period $ 11.81 $ 9.77 $ 10.01
Net Investment Income
(Loss) 0.56 0.28 0.01
Net Realized and Unrealized
Gains (Losses) on
Securities 3.31 2.88 (0.25)
Net Increase (Decrease) in
Net Asset Value Resulting from Operations 3.87 3.16 (0.24)
Dividends to Shareholders 0.00 (0.29) 0.00
Distributions to
Shareholders
From Net Realized Capital
Gain 0.00 (0.83) 0.00
Net Increase (Decrease) in Net Asset Value 3.87 2.04 (0.24)
Net Asset Value -- End of
Period $ 15.68 $ 11.81 $ 9.77
Total Investment Return 32.77% 32.65% (2.47)%
<PAGE> - 13 -<PAGE>
Ratios to Average Net Assets
Expenses 1.31% 1.43% 1.73%**
Net Investment Income 3.14% 2.62% 1.05%**
Supplementary Data:
Portfolio Turnover Rate*** 0.00% 0.00% 0.00%
Net Assets, End of Period $ 224,541 $ 62,916 $ 77,914 (000's omitted)
</TABLE>
The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
* Commencement of Operations: July 12, 1993.
** Annualized for the period ending June 30, 1994
*** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year. The Nova Fund typically holds most of its
investments in options and futures contracts which are
deemed short-term securities.
<PAGE> - 14 -<PAGE>
<TABLE>
<CAPTION>
The Ursa Fund
For the For the For the
Year Year Period
Ended Ended Ended
June 30, June 30, June 30,
1996 1995 1994*
<S> <C> <C> <C>
Per Share Operating
Performance:
Net Asset Value -- Beginning of Period $ 8.79 $ 10.54 $ 10.00
Net Investment Income (Loss) 0.30 0.35 0.01
Net Realized and Unrealized
Gains (Losses) on Securities (1.54) (1.78) 0.53
Net Increase (Decrease) in
Net Asset Value Resulting
from Operations (1.24) (1.43) 0.54
Dividends to Shareholders 0.00 (0.32) 0.00
Distributions to Shareholders
From Net Realized Capital
Gain 0.00 0.00 0.00
Net Increase (Decrease) in
Net Asset Value (1.24) (1.75) 0.54
Net Asset Value -- End of Period $ 7.55 $ 8.79 $ 10.54
Total Investment Return (14.11)% (14.08)% 10.89%
Ratios to Average Net Assets
Expenses 1.39% 1.39% 1.67%**
Net Investment Income 3.38% 3.50% 1.43%**
Supplementary Data:
Portfolio Turnover Rate*** 0.00% 0.00% 0.00%
Net Assets, End of Period $192,553 $127,629 $110,899
(000's omitted)
</TABLE>
The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
* Commencement of Operations: January 7, 1994.
** Annualized for the period ending June 30, 1994
*** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year. The Ursa Fund typically holds most of its
investments in options and futures contracts which are
deemed short-term securities.
<PAGE> - 15 -<PAGE>
<TABLE>
<CAPTION>
The Rydex OTC Fund
For the For the
year Year For the
Ended Ended Period Ended
June 30, June 30, June 30,
1996 1995 1994*
<S> <C> <C> <C>
Per Share Operating
Performance: $ 12.22 $ 8.76 $ 10.00
Net Asset Value -- Beginning of
Period
Net Investment Income (Loss) 0.06 0.14 0.01
Net Realized and Unrealized
Gains (Losses) on Securities 3.24 4.17 (1.25)
Net Increase (Decrease) in Net Asset Value Resulting
from Operations 3.30 4.31 (1.24)
Dividends to Shareholders 0.00 (0.12) 0.00
Distributions to Shareholders
From Net Realized Capital
Gain (0.36) 0.00
(0.73)
Net Increase (Decrease) in
Net Asset Value 2.94 (1.24)
3.46
Net Asset Value -- End of Period $ 15.16 $ 12.22 $ 8.76
Total Investment Return 26.44% 49.00% (30.17)%
Ratios to Average Net Assets
Expenses 1.33% 1.41% 1.97%**
Net Investment Income 0.44% 1.34% 1.69%**
Supplementary Data: Portfolio Turnover Rate*** 2,578.56% 2,241.00% 1,171.00%
Net Assets, End of Period $ 48,716 $ 61,948 $ 30,695
(000's omitted)
The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
* Commencement of Operations: February 14, 1994.
** Annualized for the period ended June 30, 1994. *** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year.
<PAGE> - 16 -<PAGE>
</TABLE>
<TABLE>
<CAPTION>
The Rydex Precious Metals Fund
For the For the
Year Period
For the Year Ended Ended
Ended June 30, June 30,
June 30,1996 1995 1994*
<S> <C> <C> <C>
Per Share Operating
Performance:
Net Asset Value -- Beginning of
Period $ 8.73 $ 8.29 $ 10.00
Net Investment Income (Loss) 0.00 0.10 0.01
Net Realized and Unrealized
Gains (Losses) on Securities 0.32 0.43 (1.72)
Net Increase (Decrease) in Net Asset Value Resulting
from Operations 0.32 0.53 (1.71)
Dividends to Shareholders 0.00 (0.09) 0.00
Distributions to Shareholders
From Net Realized Capital
Gain 0.00 0.00 0.00
Net Increase (Decrease) in Net Asset Value 0.32 0.44 (1.71)
Net Asset Value -- End of Period $ 9.05 $ 8.73 $ 8.29
Total Investment Return 3.67% 6.21% (29.27)%
Ratios to Average Net Assets
Expenses 1.33% 1.38% 2.06%**
Net Investment Income (0.01)% 1.15% 1.23%**
Supplementary Data:
Portfolio Turnover Rate*** 1,036.37% 1,765.00% 2,728.00%
Average Commission Rate 1.51% -- --
Paid**** $ 36,574 $ 40,861 $ 1,526
Net Assets, End of Period
(000's omitted)
The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
* Commencement of Operations: December 1, 1993.
** Annualized for the period ended June 30, 1994.
*** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one year.
**** For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission
rate per share for purchases and sales on equity
securities.
<PAGE> - 17 -<PAGE>
</TABLE>
<PAGE> - 18 -<PAGE>
<TABLE>
<CAPTION>
The Rydex U.S. Government Bond
Fund
For the For the For the
Year Year Period
Ended Ended Ended
June June 30, June 30,
30,1996 1995 1994*
<S> <C> <C> <C>
Per Share Operating
Performance: Net Asset Value -- Beginning of
Period $ 9.55 $ 8.24 $ 10.00
Net Investment Income (Loss) 0.46 0.39 0.02
Net Realized and Unrealized
Gains (Losses) on Securities (0.45) 1.17 (1.76)
Net Increase (Decrease) in
Net Asset Value Resulting
from Operations 0.01 1.56 (1.74)
Dividends to Shareholders (0.46) (0.25) (0.02)
Distributions to Shareholders
From Net Realized Capital
Gain (0.13) 0.00 0.00
Net Increase (Decrease) in
Net Asset Value (0.58) 1.31 (1.76)
Net Asset Value -- End of Period $ 8.97 $ 9.55 $ 8.24
Total Investment Return (1.48)% 18.97% (32.63)%
Ratios to Average Net Assets
Expenses 1.26% 2.26% 3.05%**
Net Investment Income 4.73% 4.64% 3.39%**
Supplementary Data: Portfolio Turnover Rate*** 780.30% 3,452.59% 1,290.00%
Net Assets, End of Period $ 18,331 $ 2,592 $ 1,564
(000's omitted)
The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
* Commencement of Operations: January 3, 1994. ** Annualized for the period ended June 30, 1994.
*** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year.
<PAGE> - 19 -<PAGE>
</TABLE>
<PAGE> - 20 -<PAGE>
<TABLE>
<CAPTION>
The Juno Fund
For the
Period
For the Year Ended
Ended June 30,
June 30,1996 1995*
<S> <C> <C>
Per Share Operating Performance:
Net Asset Value -- Beginning of
Period $ 9.08 $ 10.00
Net Investment Income (Loss) 0.34 0.14
Net Realized and Unrealized
Gains (Losses) on Securities 0.05 (1.06)
Net Increase (Decrease) in Net
Asset Value Resulting from Operations 0.39 (0.92)
Dividends to Shareholders 0.00 0.00
Distributions to Shareholders
From Net Realized Capital Gain 0.00 0.00
Net Increase (Decrease) in Net
Asset Value 0.39 (0.92)
Net Asset Value -- End of Period $ 9.47 $ 9.08
Total Investment Return 4.30% (9.20)%
Ratios to Average Net Assets
Expenses 1.64% 1.50%**
Net Investment Income 3.63% 1.32%**
Supplementary Data:
Portfolio Turnover Rate*** 0.00% 0.00%
Net Assets, End of Period (000's $ 18,860 $ 4,301
omitted)
The per share data of the Financial Highlights table is calculated using the daily shares outstanding average for
the year.
* Commencement of Operations: March 3, 1995.
** Annualized for the period ended June 30, 1995.
*** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year. The Juno Fund typically holds most of its
investments in options and futures contracts which are
deemed short-term securities.
</TABLE>
<PAGE> - 21 -<PAGE>
<TABLE>
<CAPTION>
The Rydex U.S. Government
Money Market Fund
For the For the For the
Year Year Period
Ended Ended Ended
June 30, June 30, June 30,
1996 1995 1994*
<S> <C> <C> <C>
Per Share Operating
Performance: Net Asset Value -- Beginning of Period $ 1.00 $ 1.00 $ 1.00
Net Investment Income
(Loss) 0.04 0.04 0.01
Net Realized and Unrealized
Gains(Losses) on
Securities 0.00 0.00 0.00
Net Increase (Decrease) in
Net Asset Value Resulting
from Operations 0.04 0.04 0.01
Dividends to Shareholders (0.04) (0.04) (0.01)
Distributions to
Shareholders From Net
Realized Capital Gain 0.00 0.00 0.00
Net Increase (Decrease) in
Net Asset Value 0.00 0.00 0.00
Net Asset Value End of Period $ 1.00 $ 1.00 $ 1.00
Total Investment Return 4.60% 4.43% 2.47%
Ratios to Average Net Assets 0.99% 0.89% 1.16%**
Expenses 4.18% 4.23% 2.34%**
Net Investment Income
Supplementary Data:
Portfolio Turnover Rate*** 0.00% 0.00% 0.00%
Net Assets, End of Period $ 153,925 $ 284,198 $ 88,107
(000's omitted)
The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
* Commencement of Operations: December 3, 1993.
** Annualized for the period ended June 30, 1994. *** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year.
</TABLE>
<PAGE> - 22 -<PAGE>
<PAGE> - 23 -<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
General
The Funds are principally designed for professional money
managers and investors who intend to follow an asset-
allocation or market-timing investment strategy. Except for
the Money Market Fund, each Fund is intended to provide
investment exposure with respect to a particular segment of
the securities markets. These Funds seek investment results
that correspond over time to a specified benchmark. The Funds
may be used independently or in combination with each other as
part of an overall investment strategy. Additional Funds may
be created from time to time.
Fundamental securities analysis is not generally used by the
A d v i sor in seeking to correlate with the respective
benchmarks. Rather, the Advisor primarily uses statistical
and quantitative analysis to determine the investments the
Fund makes and techniques it employs. While the Advisor
attempts to minimize any "tracking error" (that statistical
measure of the difference between the investment results of a
Fund and the performance of its benchmark), certain factors
will tend to cause the Fund's investment results to vary from
a perfect correlation to its benchmark. The Funds, however,
do not expect that their total returns will vary adversely
from their respective current benchmarks by more than ten
percent over a year. See "Special Risk Considerations." It
is the policy of these Funds to pursue their investment
objectives regardless of market conditions, to remain nearly
fully invested and not to take defensive positions.
The investment objectives (including the benchmarks of the
Nova and Ursa Funds) and certain investment restrictions of
the Funds are fundamental policies and may not be changed
without the affirmative vote of at least the majority of the
outstanding shares of that Fund, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). All other
investment policies of the Funds not specified as fundamental
(including the benchmarks of the Funds other than Nova and
Ursa Funds) may be changed by the trustees of the Trust (the
Trustees ) without the approval of shareholders.
The Trustees may consider changing a Fund s benchmark (to the
extent permitted) if, for example, the current benchmark
b e c omes unavailable; the Trustees believe the current
benchmark no longer serves the investment needs of a majority
of shareholders or another benchmark better serves their
needs; or the financial or economic environment makes it
difficult for the Fund s investment results to correspond
s u f f iciently to its current benchmark. If believed
<PAGE> - 24 -<PAGE>
appropriate, the Trustees may specify a benchmark for a Fund
that is "leveraged" or proprietary. Of course, there can be
no assurance that a Fund will achieve its objective.
The Nova Fund
The investment objective of the Nova Fund is to provide
investment returns that correspond to 150% of the performance
of the S&P500 Index. In attempting to achieve its objective,
the Nova Fund expects that a substantial portion of its assets
usually will be devoted to employing certain investment
techniques. These techniques include engaging in certain
transactions in stock index futures contracts, options on
stock index futures contracts, and options on securities and
stock indexes. Under the techniques in which the Nova Fund
engages, the Nova Fund will generally incur a loss if the
price of the underlying security or index decreases between
the date of the employment of the technique and the date on
which the Nova Fund terminates the position. The amount of
any gain or loss on an investment technique may be affected by
any premium or amounts in lieu of dividends or interest income
the Nova Fund pays or receives as the result of the
transaction. The Nova Fund may also invest in shares of
individual securities which are expected to track the Nova
Fund s benchmark.
In contrast to returns on a mutual fund that seeks to
approximate the return of the S&P500 Index, the Nova Fund
should increase gains to investors during periods when the
prices of the securities in the S&P500 Index are rising and
increase losses to investors during periods when they are
declining. Investors in the Nova Fund could experience
substantial losses during sustained periods of falling equity
prices.
The Ursa Fund
The Ursa Fund is designed to allow shareholders to hedge an
existing portfolio of securities or mutual fund shares or to
speculate on anticipated decreases in the S&P500 Index. The
Ursa Fund's investment objective is to provide investment
results that will inversely correlate to the performance of
the S&P500 Index. The Ursa Fund seeks to achieve this inverse
correlation result on each trading day. While a close
correlation can be achieved on any single trading day, over
time the cumulative percentage increase or decrease in the net
asset value of the shares of the Ursa Fund may diverge
significantly from the cumulative percentage decrease or
increase in the S&P500 Index due to a compounding effect.
<PAGE> - 25 -<PAGE>
If the Ursa Fund achieved a perfect inverse correlation for
any single trading day, the net asset value of the shares of
the Ursa Fund would increase for that day in direct proportion
to any decrease in the level of the S&P500 Index. Conversely,
the net asset value of the shares of the Ursa Fund would
decrease for that day in direct proportion to any increase in
the level of the S&P500 Index for that day. For example, if
the S&P500 Index were to decrease by 1% by the close of
business on a particular trading day, investors in the Ursa
F u n d would experience a gain in net asset value of
approximately 1% for that day. Conversely, if the S&P500
Index were to increase by 1% by the close of business on a
particular trading day, investors in the Ursa Fund would
experience a loss in net asset value of approximately 1% for
that day.
Even if there is a perfect inverse correlation between the
Ursa Fund and the S&P500 Index on a daily basis, however, the
symmetry between the changes in the S&P500 Index and the
changes in the value of shares in the Ursa Fund can be
significantly altered over time by a compounding effect.
Thus, if the Ursa Fund achieved a perfect inverse correlation
with the S&P500 Index on every trading day over an extended
period, and if there were a significant decrease in the level
of the S&P500 Index during that period, there would be a
compounding effect with the result that the net asset value of
the shares of the Ursa Fund for that period should generally
increase by a percentage that is somewhat greater than the
percentage of decrease in the level of the S&P500 Index.
Conversely, if a perfect inverse correlation were maintained
over an extended period and if there were a significant
increase in the level of the S&P500 Index over that period,
then there would be a compounding effect with the result that
the net asset value of the shares of the Ursa Fund for that
period should generally decrease by a percentage that is
somewhat less than the percentage increase in the level of the
S&P500 Index for that period.
The Ursa Fund intends to pursue its investment objective
regardless of market conditions and does not intend to take
defensive positions in anticipation of rising equity prices.
Consequently, investors in the Ursa Fund may experience
substantial losses during sustained periods of rising equity
prices.
In pursuing its investment objective, the Ursa Fund generally
does not invest in traditional securities, such as common
stock of operating companies. Rather, the Ursa Fund employs
certain investment techniques, including engaging in short
sales and in certain transactions in stock index futures
contracts, options on stock index futures contracts, and
options on securities and stock indexes. Under these
<PAGE> - 26 -<PAGE>
techniques, the Ursa Fund will generally incur a loss if the
price of the underlying security or index increases between
the date of the employment of the technique and the date on
which the Ursa Fund terminates the position. The Ursa Fund
will generally realize a gain if the underlying security or
index declines in price between those dates. This result is
the opposite of what one would expect from a cash purchase of
a long position in a security. The amount of any gain or loss
on an investment technique may be affected by any premium or
amounts in lieu of dividends or interest that the Ursa Fund
pays or receives as the result of the transaction.
The Rydex OTC Fund
The investment objective of the OTC Fund is to provide
investment results that correspond to a benchmark for over-
the-counter securities. The OTC Fund's current benchmark is
the NASDAQ 100 Index.
The OTC Fund does not aim to hold all of the 100 securities
included in the NASDAQ 100 Index. Instead, the OTC Fund
intends to hold representative securities included in the
NASDAQ 100 Index or other instruments which the Advisor
believes will provide returns that correspond to those of the
NASDAQ 100 IndexTM. The OTC Fund may engage in transactions
on stock index futures contracts, options on stock index
futures contracts, and options on securities and stock
indexes.
Companies whose securities are traded on the over-the-counter
("OTC") markets generally are smaller market-capitalization or
newer companies than those listed on the New York Stock
Exchange (the "NYSE") or the American Stock Exchange (the
"AMEX"). OTC companies often have limited product lines, or
relatively new products or services, and may lack established
m a rkets, depth of experienced management, or financial
resources and the ability to generate funds. The securities
of these companies may have limited marketability and may be
more volatile in price than securities of larger-capitalized
or more well-known companies. Among the reasons for the
greater price volatility of securities of certain smaller OTC
companies are the less certain growth prospects of comparably
smaller firms, the lower degree of liquidity in the OTC
markets for such securities, and the greater sensitivity of
smaller-capitalized companies to changing economic conditions
than larger-capitalized, exchange-traded securities.
Conversely, because many of these OTC securities may be
overlooked by investors and undervalued in the marketplace,
there is potential for significant capital appreciation.
The Rydex Precious Metals Fund
<PAGE> - 27 -<PAGE>
The investment objective of the Metals Fund is to provide
investment results that correspond to a benchmark primarily
for metals-related securities. The Metals Fund s current
benchmark is the XAU Index.
Metals-related investments are considered speculative and are
influenced by a host of world-wide economic, financial, and
political factors. Historically, the prices of gold and
precious metals have been subject to wide price movements
caused by political as well as economic factors, and,
accordingly, prices of equity securities of companies involved
in the precious metals-related industry have been volatile.
Such fluctuation and volatility may be due to changes in
inflation or in expectations regarding inflation in various
countries, the availability of supplies of such precious
metals and minerals, changes in industrial and commercial
demand, metal and mineral sales by governments, central banks,
or international agencies, investment speculation, monetary
and other economic policies of various governments, and
governmental restrictions on the private ownership of certain
precious metals and minerals. Such price volatility in
precious metals prices will have a similar effect on the
Metals Fund's share prices. The Fund may invest in other
securities that are expected to perform in a manner that will
assist the Metals Fund s performance to closely track the XAU
Index.
The Metals Fund may invest in securities of foreign issuers.
These securities present certain risks not present in domestic
i n vestments and expose the investor to general market
conditions which differ significantly from those in the United
States. Securities of foreign issuers may be affected by the
strength of foreign currencies relative to the U.S. dollar or
by political or economic developments in foreign countries.
Foreign companies may not be subject to accounting standards
or governmental regulations comparable to those that affect
United States companies, and there may be less public
i n formation about the operations of foreign companies.
Foreign securities also may be subject to foreign government
taxes that could reduce the yield on such securities.
The Rydex U.S. Government Bond Fund
The investment objective of the Bond Fund is to provide
investment results that correspond to a benchmark for U.S.
Government Securities. The Bond Fund s current benchmark is
120% of the price movement of the Long Bond, without
consideration of interest paid.
In attempting to achieve this objective, the Bond Fund invests
primarily in U.S. Government Securities. U.S. Government
Securities are obligations of the U.S. Treasury or obligations
<PAGE> - 28 -<PAGE>
either issued or guaranteed, as to principal and interest, by
agencies or instrumentalities of the U.S. Government. The
Bond Fund may engage in transactions in futures contracts and
options on futures contracts on U.S. Treasury bonds. The Bond
Fund also may invest in U.S. Treasury zero coupon bonds.
While U.S. Government Securities provide substantial
protection against credit risk, investment in those securities
do not protect investors against price changes due to changing
interest rate levels and, as such, the share price of the Bond
F u nd is not guaranteed and will fluctuate over time.
Accordingly, the return of the Bond Fund should move inversely
with movements in prevailing interest rates on the Long Bond.
The Fund intends to adjust its portfolio each time the Long
Bond is issued (currently twice yearly) in an attempt to track
the price movement of the newly-issued Long Bond. See "The
Benchmarks."
The Juno Fund
The Juno Fund is designed to allow investors to hedge an
existing portfolio of securities or mutual fund shares against
general increases in interest rates or to speculate on
anticipated decreases in the price of the Long Bond. The Juno
Fund s investment objective is to provide total return before
expenses and costs that will inversely correlate to the price
movements of a benchmark debt instrument or futures contract
on a specified debt instrument. The Long Bond has been
designated as the Juno Fund s current benchmark.
In attempting to achieve its objective, the Fund intends to
devote its assets primarily to employing certain investment
techniques. The investment techniques that may be employed by
the Fund include engaging in short sales on U.S. Treasury
bonds and engaging in transactions in futures contracts on
U.S. Treasury bonds and options on such contracts to produce
synthetic short positions. These techniques are highly
specialized and involve certain risks not traditionally
associated with investment companies. Under these techniques,
the Fund will generally incur a loss if the price of the
underlying security or futures contract increases between the
date of the employment of the technique and the date on which
the Fund terminates the position. The Fund will generally
realize a gain if the underlying security or futures contract
declines in price between those dates. This result is the
opposite of what one would expect from a cash purchase of a
long position in a security.
The Juno Fund seeks to achieve this inverse correlation result
on each trading day. While a close correlation can be
achieved on any single trading day, over time the cumulative
percentage increase or decrease in the Juno Fund's total
return before expenses and costs may diverge significantly
<PAGE> - 29 -<PAGE>
from the cumulative percentage decrease or increase in the
price of the Long Bond due to a compounding effect. If the
Juno Fund achieved a perfect inverse correlation for any
single trading day, the Juno Fund's total return before
expenses and costs would increase for that day in direct
proportion to any decrease in the price of the Long Bond.
Conversely, the Juno Fund's total return before expenses and
costs would decrease for that day in direct proportion to any
increase in the price of the Long Bond for that day. For
example, if the price of the Long Bond were to decrease by 1%
by the close of business on a particular trading day,
investors in the Juno Fund would experience a gain in total
return before expenses and costs of approximately 1% for that
day. Conversely, if the price of the Long Bond were to
increase by 1% by the close of business on a particular
trading day, investors in the Juno Fund would experience a
l o s s in total return before expenses and costs of
approximately 1% for that day.
Even if there is a perfect inverse correlation between the
Juno Fund's total return before expenses and costs and the
price of the Long Bond on a daily basis, however, the symmetry
between the changes in the price of the Long Bond and the
changes in the Juno Fund's total return can be significantly
altered over time by a compounding effect. Thus, if the Juno
Fund achieved a perfect inverse correlation with the price of
the Long Bond on every trading day over an extended period,
and if there were a significant decrease in the price of the
Long Bond during that period, there would be a compounding
effect with the result that the Juno Fund's total return
before expenses and costs for that period should generally
increase by a percentage that is somewhat greater than the
percentage of decrease in the price of the Long Bond.
Conversely, if a perfect inverse correlation were maintained
over an extended period and if there were a significant
increase in the price of the Long Bond over that period, then
there would be a compounding effect with the result that the
Juno Fund's total return before expenses and costs for that
period should generally decrease by a percentage that is
somewhat less than the percentage increase in the price of the
Long Bond for that period.
For purposes of determining the Juno Fund's total return
before expenses and costs, costs include the Juno Fund s
"carrying cost" in maintaining short positions. When entering
an actual or synthetic short position on the Long Bond, the
Juno Fund must effectively pay interest equal to interest
accrued on the underlying U.S. Treasury bond. The difference,
if any, between the interest effectively paid by the Juno Fund
on its short positions and any interest earned by the Juno
Fund on its assets is the Juno Fund s carrying cost.
<PAGE> - 30 -<PAGE>
The interest rate on a U.S. Treasury bond is set at the time
the particular bond is issued and does not change for the
maturity of the bond so that the interest paid on the bond is
constant throughout the life of the bond. The price at which
a previously-issued U.S. Treasury bond can be bought and sold
in the open market, however, does change. The market value of
U.S. Treasury bonds rises when interest rates in general
decrease and falls when interest rates in general increase.
Accordingly, if the Juno Fund is successful in meeting its
investment objective, the Fund s total return should rise with
increases in interest rates and fall with decreases in
interest rates.
The Rydex U.S. Government Money
Market Fund
The investment objectives of the Money Market Fund are
security of principal, high current income, and liquidity.
The Money Market Fund seeks to achieve its objectives by
investing in U.S. Government Securities, including money
market instruments which are issued or guaranteed, as to
principal and interest, by the U.S. Government, its agencies
or instrumentalities, as well as in repurchase agreements
collateralized fully by U.S. Government Securities. An
investment in the Money Market Fund is neither insured nor
guaranteed by the U.S. Government. The Money Market Fund
seeks to maintain a constant $1.00 net asset value per share,
although this cannot be assured.
The Money Market Fund may invest in securities that take the
form of participation interests in, and may be evidenced by
deposit or safekeeping receipts for, any of the foregoing
securities. Participation interests are pro rata interests in
U.S. Government Securities; and instruments evidencing deposit
or safekeeping are documentary receipts for such original
securities held in custody by others.
The Benchmarks
The S&P500 Index (SPX). Standard & Poor's Corporation
("S&P") chooses the 500 stocks comprising the S&P500 Index on
the basis of market values and industry diversification. Most
of the stocks in the S&P500 Index are issued by the 500
largest companies, in terms of the aggregate market value of
their outstanding stock, and such companies are generally
listed on the NYSE. Additional stocks that are not among the
500 largest market value stocks are included in the S&P500
Index for diversification purposes. S&P will not be a sponsor
of, or in any other way affiliated with, the Funds.
The NASDAQ 100 IndexTM (NDX). The NASDAQ 100 IndexTM is a
capitalization-weighted index composed of 100 of the largest
<PAGE> - 31 -<PAGE>
non-financial securities listed on the NASDAQ Stock Market.
The index was created in 1985.
The XAU Index. The XAU Index is a capitalization-weighted
index featuring eleven widely-held securities in the gold and
silver mining and production industry or companies investing
in such mining and production companies. The XAU Index was
set to an initial value of 100 in January 1979. The following
issuers are currently included in the XAU Index: ASA Limited;
Barrick Gold Corp.; Battle Mountain Gold Co.; Echo Bay Mines
Limited; Hecla Mining Co.; Homestake Mining Co.; Newmont
Mining Corp.; Placer Dome Inc.; Pegasus Gold, Inc.; TVX Gold,
Inc.; and Santa Fe Pacific Gold Corp. While the majority of
these companies are based in North America, they generally
have operations in countries based outside North America.
The Long Bond. The Long Bond is the U.S. Treasury bond with
the longest maturity. Currently, the longest maturity of a
U.S. Treasury bond is 30 years. At this time, the 30-year
U.S. Treasury bond is issued twice yearly. In the future, the
U.S. Treasury may change the number of times each year that
the Long Bond is issued.
SPECIAL RISK CONSIDERATIONS
Shareholders should consider the special factors discussed
below that are associated with the investment policies of the
Funds in determining the appropriateness of investing in the
Funds.
Portfolio Turnover
The Trust anticipates that investors in the Funds, as part of
an asset-allocation or market-timing investment strategy, will
frequently redeem shares of a particular Fund, as well as
exchange their shares of a particular Fund for shares in other
Funds pursuant to the exchange policy of the Trust (see
"Exchanges"), which would cause that Fund to experience high
portfolio turnover. Because each Fund's portfolio turnover
r a te 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 generally will be. Pursuant to the formula prescribed by
the Securities and Exchange Commission (the "Commission"), the
portfolio turnover rate for each Fund is calculated without
regard to securities, including options and futures contracts,
having a maturity of less than one year. The Nova Fund, the
Ursa Fund, and the Juno Fund typically hold most of their
investments in short-term options and futures contracts,
<PAGE> - 32 -<PAGE>
which, therefore, are excluded for purposes of computing
portfolio turnover.
Significant portfolio turnover will tend to increase the
realization by a Fund of gains (or losses) on securities that
have been held by the Fund for less than three months. Any
such realized gains on securities that have been held by a
Fund for less than three months, and other factors related to
large cash flows into and out of the Fund, will increase the
risk that, in any given year, the Fund may fail to qualify as
a regulated investment company under Subchapter M of the U.S.
Internal Revenue Code of 1986, as amended (the "Code") (see
"Taxes"). If a Fund should so fail to qualify under the Code,
the Fund's net investment income and net capital gain would
become subject to Federal income tax at corporate rates. The
imposition of such taxes would directly reduce the return to
an investor from an investment in the Fund. In addition, a
h i g her portfolio turnover rate would likely involve
c o rrespondingly greater brokerage commissions and other
expenses which would be borne by the Fund. Furthermore, a
Fund's portfolio turnover level may adversely affect the
ability of the Fund to achieve its investment objective.
Tracking Error
While the Funds do not expect that the returns over a year
will deviate adversely from their respective benchmarks by
more than ten percent, several factors may affect their
ability to achieve this correlation. Among these factors are:
(1) Fund expenses, including brokerage (which may be increased
by high portfolio turnover); (2) less than all of the
securities in the benchmark being held by a Fund and
securities not included in the benchmark being held by a Fund;
(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 cash market; (4) bid-ask spreads (the effect of which may
be increased by portfolio turnover); (5) a Fund holds
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 benchmark index that are not
disseminated in advance; or (8) the need to conform a Fund s
portfolio holdings to comply with investment restrictions or
policies or regulatory or tax law requirements.
Aggressive Investment Techniques
Each of the Funds (other than the Money Market Fund) may
engage in certain aggressive investment techniques which may
include engaging in short sales and transactions in futures
contracts and options on securities, securities indexes, and
futures contracts. The Trust expects that the Nova Fund, the
<PAGE> - 33 -<PAGE>
Ursa Fund, and the Juno Fund will primarily use these
techniques in seeking to achieve their objectives and that a
significant portion (up to 100%) of the assets of these Funds
will be held in high-grade liquid debt in a segregated account
by these Funds as "cover" for these investment techniques.
Participation in the options or futures markets by a Fund
involves distinct investment risks and transaction costs.
Risks inherent in the use of options, futures contracts, and
options on futures contracts include: (1) adverse changes in
the value of such instruments; (2) imperfect correlation
between the price of options and futures contracts and options
t h ereon and movements in the price of the underlying
securities, index, or futures contracts; (3) the fact that the
skills needed to use these strategies are different from those
needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular
instrument at any time; and (5) the possible need to defer
c l o s i ng out certain positions to avoid adverse tax
c o nsequences. For further information regarding these
investment techniques, see "Investment Techniques and Other
Investment Policies."
Early NASDAQ Closings
The normal close of trading of securities listed on the
National Association of Securities Dealers Automated
Quotations (the "NASDAQ"), which is operated by the National
Association of Securities Dealers, Inc. (the "NASD"), is 4:00
P.M. While an infrequent occurrence, the NASD has closed
trading on the NASDAQ as much as 15 minutes prior to the
normal close because of computer systems failures. Early
closing of the NASDAQ may result in a Fund being unable to
sell (or buy) OTC securities traded on the NASDAQ on that day.
If the NASDAQ closes prior to the close of business on a day
when one or more of the Funds needs to execute a high volume
of trades late in a trading day, a Fund, in particular the OTC
Fund, might incur substantial trading losses.
INVESTMENT TECHNIQUES AND OTHER
INVESTMENT POLICIES
Futures Contracts and Options Thereupon
The Nova Fund and the OTC Fund may purchase stock index
futures contracts as a substitute for a comparable market
position in the underlying securities. The Ursa Fund may sell
stock index futures contracts. The Bond Fund may purchase
f u t ures contracts on U.S. Government Securities as a
substitute for a comparable market position in the cash
market. The Juno Fund may sell futures contracts on U.S.
Government Securities. The principal trading markets for
<PAGE> - 34 -<PAGE>
S&P500 index futures contracts and U.S. Treasury bond futures
contracts are the Chicago Mercantile Exchange (the "CME") and
the Chicago Board of Trade (the "CBOT"), respectively.
A futures contract obligates the seller to deliver (and the
purchaser to take delivery of) the specified commodity on the
expiration date of the contract. A stock index futures
contract obligates the seller to deliver (and the purchaser to
take) an amount of cash equal to a specific dollar amount
times the difference between the value of a specific stock
index at the close of the last trading day of the contract and
the price at which the agreement is made. No physical
delivery of the underlying stocks in the index is made.
The Nova Fund and the OTC Fund may purchase call options and
write (sell) put options, and the Ursa Fund may purchase put
options and write call options, on stock index futures
contracts. The Bond Fund may purchase call options and write
put options on U.S. Government Securities futures contracts
and the Juno Fund may write call options and purchase put
options on futures contracts on U.S. Government Securities.
When a Fund purchases a put or call option on a futures
contract, the Fund pays a premium for the right to sell or
purchase the underlying futures contract for a specified price
upon exercise at any time during the option period. By
writing (selling) a put or call option on a futures contract,
a Fund receives a premium in return for granting to the
purchaser of the option the right to sell to or buy from the
Fund the underlying futures contract for a specified price
upon exercise at any time during the option period.
Whether a Fund realizes a gain or loss from futures activities
depends generally upon movements in the underlying commodity.
The extent of the Fund s loss from an unhedged short position
in futures contracts or from writing (selling) call options on
futures contracts is potentially unlimited. The Funds may
engage in related closing transactions with respect to options
on futures contracts. The Funds will only engage in
transactions in futures contracts and options thereupon that
are traded on a United States exchange or board of trade. In
addition to the uses set forth hereunder, each Fund may also
engage in futures and futures options transactions in order to
hedge or limit the exposure of its position, to create a
synthetic money market position, and for certain other tax-
related purposes. See "Taxes."
The Funds may purchase and sell futures contracts, index
futures contracts, and options thereon only to the extent that
such activities would be consistent with the requirements of
Section 4.5 of the regulations under the Commodity Exchange
Act promulgated by the Commodity Futures Trading Commission
<PAGE> - 35 -<PAGE>
(the "CFTC Regulations"), under which each of these Funds
would be excluded from the definition of a "commodity pool
operator." Under Section 4.5 of the 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 mark-to-market on a daily basis) a segregated
account consisting of cash or high-quality liquid debt
instruments, including U.S. Government Securities or
repurchase agreements secured by U.S. Government 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
t r a ding 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
o u t s tanding 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, or, 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 high-grade
liquid debt securities equal in value to the difference
between the strike price of the put and the price of the
future. 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
i n struments the prices of 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
<PAGE> - 36 -<PAGE>
contract, or by taking positions in instruments the prices of
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, or, 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 high-grade liquid
debt securities equal in value to the difference between the
strike price of the call and the price of the future. A Fund
may also cover its sale of a call option by taking positions
in instruments the prices of 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 high-grade liquid debt securities equal in value to
the difference between the strike price of the put and the
price of the future. A Fund may also cover its sale of a put
option by taking positions in instruments the prices of which
are expected to move relatively consistently with the put
option.
Although the Funds intend to sell futures contracts only if
there is an active market for such contracts, no assurance can
be given that a liquid market will exist for any particular
contract at any particular time. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no
trades may be made that day at a price beyond that limit or
trading may be suspended for specified periods during the day.
Futures contract prices could move to the limit for several
consecutive trading days with little or no trading, thereby
p r eventing prompt liquidation of futures positions and
potentially subjecting a Fund to substantial losses. If
trading is not possible, or a Fund determines not to close a
futures position in anticipation of adverse price movements,
the Fund will be required to make daily cash payments of
variation margin. The risk that the Fund will be unable to
close out a futures position will be minimized by entering
into such transactions on a national exchange with an active
and liquid secondary market.
Index Options Transactions
<PAGE> - 37 -<PAGE>
The Nova Fund, the OTC Fund, and the Metals Fund may purchase
call options and write (sell) put options, and the Ursa Fund
may purchase put options and write call options, on stock
indexes. All of the Funds may write and purchase put and call
options on stock indexes in order to hedge or limit the
exposure of their positions, to create synthetic money market
positions, and for certain other tax-related purposes. See
"Taxes."
A stock index fluctuates with changes in the market values of
the stocks included in the index. Options on stock indexes
give the holder the right to receive an amount of cash upon
exercise of the option. Receipt of this cash amount will
depend upon the closing level of the stock index upon which
the option is based being greater than (in the case of a call)
or less than (in the case of a put) the exercise price of the
option. The amount of cash received, if any, will be the
difference between the closing price of the index and the
exercise price of the option, multiplied by a specified dollar
multiple. The writer (seller) of the option is obligated, in
return for the premiums received from the purchaser of the
option, to make delivery of this amount to the purchaser.
U n like the options on securities discussed below, all
settlements of index options transactions are in cash.
Some stock index options are based on a broad market index
such as the S&P 500 Index, the NYSE Composite Index, or the
AMEX Major Market Index, or on a narrower index such as the
Philadelphia Stock Exchange Over-the-Counter Index. Options
currently are traded on the Chicago Board Options Exchange
(the "CBOE"), the AMEX, and other exchanges ("Exchanges").
Purchased over-the-counter options and the cover for written
over-the-counter options will be subject to the respective
Fund s 15% limitation on investment in illiquid securities.
See "Illiquid Securities."
Each of the Exchanges has established limitations governing
the maximum number of call or put options on the same index
which may be bought or written (sold) by a single investor,
whether acting alone or in concert with others (regardless of
whether such options are written on the same or different
Exchanges or are held or written on one or more accounts or
through one or more brokers). Under these limitations, option
positions of all investment companies advised by the same
investment adviser are combined for purposes of these limits.
Pursuant to these limitations, an Exchange may order the
liquidation of positions and may impose other sanctions or
restrictions. These position limits may restrict the number
of listed options which a Fund may buy or sell; however, the
Advisor intends to comply with all limitations.
<PAGE> - 38 -<PAGE>
Index options are subject to substantial risks, including the
risk of imperfect correlation between the option price and the
value of the underlying securities comprising the stock index
selected and the risk that there might not be a liquid
secondary market for the option. Because the value of an
index option depends upon movements in the level of the index
rather than the price of a particular stock, whether a Fund
will realize a gain or loss from the purchase or writing
(sale) of options on an index depends upon movements in the
level of stock prices in the stock market generally or, in the
case of certain indexes, in an industry or market segment,
rather than upon movements in the price of a particular stock.
Whether a Fund will realize a profit or loss by the use of
options on stock indexes will depend on movements in the
direction of the stock market generally or of a particular
industry or market segment. This requires different skills
and techniques than are required for predicting changes in the
price of individual stocks. A Fund will not enter into an
option position that exposes the Fund to an obligation to
another party, unless the Fund either (i) owns an offsetting
position in securities or other options and/or (ii) maintains
with the Fund s custodian bank (and marks-to-market on a daily
b a s is) a segregated account consisting of cash, U.S.
G o vernment Securities, or other liquid high-grade debt
securities that, when added to the premiums deposited with
respect to the option, are equal to the market value of the
underlying stock index not otherwise covered.
Options on Securities
The Nova Fund, the OTC Fund, and Metals Fund may buy call
options and write (sell) put options on securities, and the
Ursa Fund may buy put options and write call options on
securities. By buying a call option, a Fund has the right, in
return for a premium paid during the term of the option, to
buy the securities underlying the option at the exercise
price. By writing (selling) a call option and receiving a
premium, a Fund becomes obligated during the term of the
option to deliver the securities underlying the option at the
exercise price if the option is exercised. By buying a put
option, a Fund has the right, in return for a premium paid
during the term of the option, to sell the securities
underlying the option at the exercise price. 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. Options on securities written (sold) by the
Funds will be conducted on recognized securities exchanges.
When writing (selling) call options on securities, a Fund may
cover its position by owning the underlying security on which
the option is written. Alternatively, the Fund may cover its
position by owning a call option on the underlying security,
<PAGE> - 39 -<PAGE>
on a share for share basis, which is deliverable under the
option contract at a price no higher than the exercise price
of the call option written by the Fund or, if higher, by
owning such call option and depositing and maintaining in a
segregated account cash or liquid high-grade debt securities
equal in value to the difference between the two exercise
prices. In addition, a Fund may cover its position by
depositing and maintaining in a segregated account cash or
liquid high-grade debt securities equal in value to the
exercise price of the call option written by the Fund. When a
Fund writes (sells) a put option, the Fund will have and
maintain on deposit with its custodian bank cash or liquid
high-grade debt securities having a value equal to the
exercise value of the option. The principal reason for a Fund
to write (sell) call options on stocks held by the Fund is to
attempt to realize, through the receipt of premiums, a greater
return than would be realized on the underlying securities
alone.
If a Fund that writes (sells) an option wishes to terminate
the Fund s obligation, the Fund may effect a "closing purchase
transaction." The Fund accomplishes this by buying an option
of the same series as the option previously written by the
Fund. The effect of the purchase is that the writer s
position will be canceled by the Options Clearing Corporation.
However, a writer (seller) may not effect a closing purchase
transaction after the writer has been notified of the exercise
of an option. Likewise, a Fund which is the holder of an
option may liquidate its position by effecting a "closing sale
transaction." The Fund accomplishes this by selling an option
of the same series as the option previously purchased by the
Fund. There is no guarantee that either a closing purchase or
a closing sale transaction can be effected. If any call or
put option is not exercised or sold, the option will become
worthless on its expiration date.
A Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put option previously
written (sold) by the Fund if the premium, plus commission
costs, paid by the Fund to purchase the call or put option to
close the transaction is less (or greater) than the premium,
less commission costs, received by the Fund on the sale of the
call or the put option. The Fund also will realize a gain if
a call or put option which the Fund has written lapses
unexercised, because the Fund would retain the premium.
A Fund will realize a gain (or a loss) on a closing sale
transaction with respect to a call or a put option previously
purchased by the Fund if the premium, less commission costs,
received by the Fund on the sale of the call or the put option
to close the transaction is greater (or less) than the
premium, plus commission costs, paid by the Fund to purchase
<PAGE> - 40 -<PAGE>
the call or the put option. If a put or a call option which
the Fund has purchased expires out-of-the-money, the option
will become worthless on the expiration date, and the Fund
will realize a loss in the amount of the premium paid, plus
commission costs.
Although certain securities exchanges attempt to provide
continuously liquid markets in which holders and writers of
options can close out their positions at any time prior to the
expiration of the option, no assurance can be given that a
market will exist at all times for all outstanding options
purchased or sold by a Fund. If an options market were to
become unavailable, the Fund would be unable to realize its
profits or limit its losses until the Fund could exercise
options it holds, and the Fund would remain obligated until
options it wrote were exercised or expired.
Because option premiums paid or received by a Fund 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 common stocks.
Short Sales
The Ursa Fund and the Juno 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 Ursa Fund or Juno Fund closes its short position or
replaces the borrowed security, the Fund will: (a) maintain a
segregated account containing cash or liquid high grade debt
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.
<PAGE> - 41 -<PAGE>
The Nova Fund, the OTC Fund, and the Metals 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 ("selling against
the box"). These Funds may make a short sale when the Fund
wants to sell the security the Fund owns at a current
attractive price, but also wishes to defer recognition of a
gain or loss for Federal income tax purposes and for purposes
of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code.
U.S. Government Securities
The Bond Fund and the Money Market Fund may invest in U.S.
G o v e rnment Securities in pursuit of their investment
objectives. The Funds, except for the Money Market Fund, may
invest in U.S. Government Securities as "cover" for the
investment techniques these Funds employ as part of a cash
reserve or for liquidity purposes.
Yields on short-, intermediate-, and long-term U.S. Government
Securities are dependent on a variety of factors, including
the general conditions of the money and bond markets, the size
of a particular offering, and the maturity of the obligation.
Debt securities with longer maturities tend to produce higher
yields and are generally subject to potentially greater
capital appreciation and depreciation than obligations with
shorter maturities and lower yields. The market value of U.S.
Government Securities generally varies inversely with changes
in market interest rates. An increase in interest rates,
therefore, would generally reduce the market value of a Fund s
portfolio investments in U.S. Government Securities, while a
decline in interest rates would generally increase the market
value of a Fund s portfolio investments in these securities.
S o m e obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government are backed by the
full faith and credit of the U.S. Treasury. Such agencies and
instrumentalities may borrow funds from the U.S. Treasury.
However, no assurances can be given that the U.S. Government
will provide such financial support to the obligations of the
other U.S. Government agencies or instrumentalities in which a
Fund invests, since the U.S. Government is not obligated to do
so. These other agencies and instrumentalities are supported
by either the issuer s right to borrow, under certain
circumstances, an amount limited to a specific line of credit
from the U.S. Treasury, the discretionary authority of the
U.S. Government to purchase certain obligations of an agency
o r i nstrumentality, or the credit of the agency or
instrumentality itself.
<PAGE> - 42 -<PAGE>
U.S. Government Securities may be purchased at a discount.
Such securities, when held to maturity or retired, may include
an element of capital gain. Capital losses may be realized
when such securities purchased at a premium are held to
maturity or are called or redeemed at a price lower than their
purchase price. Capital gains or losses also may be realized
upon the sale of securities.
Repurchase Agreements
U.S. Government Securities include repurchase agreements
secured by U.S. Government Securities. Under a repurchase
agreement, a Fund purchases a debt security and simultaneously
agrees to sell the security back to the seller at a mutually
agreed-upon future price and date, normally one day or a few
days later. The resale price is greater than the purchase
price, reflecting an agreed-upon market interest rate during
the purchaser s holding period. While the maturities of the
underlying securities in repurchase transactions may be more
than one year, the term of each repurchase agreement will
always be less than one year. A Fund will enter into
repurchase agreements only with member banks of the Federal
R e s erve System or primary dealers of U.S. Government
Securities. The Advisor will monitor the creditworthiness of
each of the firms which is a party to a repurchase agreement
with any of the Funds. In the event of a default or
bankruptcy by the seller, the Fund will liquidate those
securities (whose market value, including accrued interest,
must be at least equal to 100% of the dollar amount invested
by the Fund in each repurchase agreement) held under the
applicable repurchase agreement, which securities constitute
collateral for the seller s obligation to pay. However,
liquidation could involve costs or delays and, to the extent
proceeds from the sales of these securities were less than the
agreed-upon repurchase price, the Fund would suffer a loss. A
Fund also may experience difficulties and incur certain costs
in exercising its rights to the collateral and may lose the
interest the Fund expected to receive under the repurchase
agreement. Repurchase agreements usually are for short
periods, such as one week or less, but may be longer. It is
the current policy of the Funds to treat repurchase agreements
that do not mature within seven days as illiquid for the
purposes of their investment policies.
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
<PAGE> - 43 -<PAGE>
amended (the 1933 Act ), but which can be offered and sold to
qualified institutional buyers under Rule 144A under the
1933 Act. A Fund will not invest more than 15% (10% with
respect to the Money Market Fund) of the Fund s net assets in
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 Commission staff, 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.
Cash Reserve
As a cash reserve or for liquidity purposes, each Fund may
temporarily invest all or part of the Fund s assets in cash or
cash equivalents, which include, but are not limited to,
short-term money market instruments, U.S. Government
Securities, certificates of deposit, banker s acceptances, or
repurchase agreements secured by U.S. Government Securities.
Other Investment Policies
The Funds also may engage in certain other investment
practices described below, however none of the Funds presently
intends to invest more than 5% of the Fund's net assets in any
of these practices. Each of the Funds may purchase securities
on a when-issued or delayed-delivery basis, and also may lend
portfolio securities to brokers, dealers, and financial
institutions. Each Fund may borrow money, and the Nova and
Bond Funds also may borrow money for investment purposes.
Each of the Funds (other than the Bond and Money Market Funds)
also may invest in the securities of other investment
companies to the extent that such an investment would be
<PAGE> - 44 -<PAGE>
consistent with the requirements of Section 12(d)(1) of the
1940 Act. In addition, the Bond and Juno Funds also may
invest in U.S. Treasury zero coupon securities, while each of
the Ursa, Juno, and Money Market Funds also may use reverse
repurchase agreements as part of that Fund's investment
strategies. A more-detailed explanation of these investment
practices, including the risks associated with each practice,
is included in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND
BROKERAGE
The Advisor determines which securities to purchase and sell
for each Fund, selects brokers and dealers to effect the
transactions, and negotiates commissions. The Advisor expects
t h at the Funds may execute brokerage or other agency
t r a n sactions through registered broker-dealers, for a
commission, in conformity with the 1940 Act, the Securities
E x change Act of 1934, as amended, and the rules and
regulations thereunder. In placing orders for portfolio
transactions, the Advisor s policy is to obtain the most
favorable price and efficient execution available. Brokerage
commissions are normally paid on exchange-traded securities
transactions and on options and futures transactions, as well
as on common stock transactions. In order to obtain the
brokerage and research services described below, a higher
commission may sometimes be paid. The ability to receive
research services, however, may be a factor in the selection
of one dealer acting as a principal over another.
W h en selecting broker-dealers to execute portfolio
transactions, the Advisor considers many factors including the
rate of commission or size of the broker-dealer s "spread,"
the size and difficulty of the order, the nature of the market
for the security, the willingness of the broker-dealer to
p o sition, the reliability, financial condition, general
execution and operational capabilities of the broker-dealer,
and the research, statistical and economic data furnished by
the broker-dealer to the Advisor. The Advisor uses these
services in connection with all of the Advisor s investment
activities, including other investment accounts the Advisor
advises. Conversely, brokers or dealers which supply research
may be selected for execution of transactions for such other
accounts, while the data may be used by the Advisor in
providing investment advisory services to the Funds.
HOW TO INVEST IN THE FUNDS
For shareholders who have engaged a registered investment
adviser with discretionary authority over the shareholder s
account, the minimum initial investment in the Trust is
$15,000. For all other shareholder accounts ("Self-Directed
<PAGE> - 45 -<PAGE>
Accounts"), the minimum initial investment in the Trust is
$25,000. These minimums also apply to retirement plan
accounts. The Trust, at its discretion, may accept lesser
amounts in certain circumstances. The shares of each Fund are
offered at the daily public offering price, which is the net
asset value per share (see "Determination of Net Asset Value")
next computed after receipt of the investor s order. No sales
charges are imposed on initial or subsequent investments in a
Fund. The Trust reserves the right to reject or refuse, at
the Trust s discretion, any order for the purchase of a Fund s
shares in whole or in part. There is no minimum amount for
subsequent investments in a Fund.
Investments in the Funds may be made (i) through securities
dealers who have the responsibility to transmit orders
promptly and who may charge a processing fee or (ii) directly
with the Trust by mail or by bank wire transfer as follows:
By Mail: Fill out an application and make out a check payable
to "Rydex Series Trust." Mail the check along with the
application to:
Rydex Series Trust
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
By Bank Wire Transfer: Request a wire transfer to:
Star Bank, N.A.
Routing Number: 0420-00013
For Account of Rydex Series Trust
Account Number: 48038-9030
Your Name
Your Account Number or, if a new
account, Federal Tax I.D. Number
(e.g., Social Security Number)
After instructing your bank to transfer money by wire, please
call the Trust and inform the Trust as to the amount you have
transferred and the name of the bank sending the transfer.
Your bank may charge a fee for such services. If the purchase
is canceled because your wire transfer is not received, you
may be liable for any loss that the Trust may incur.
I n the interest of economy and convenience, physical
certificates representing a Fund s shares are not issued.
Shares of each Fund are recorded on a register by the Trust s
transfer agent.
REDEEMING AN INVESTMENT
(WITHDRAWALS)
<PAGE> - 46 -<PAGE>
General
An investor may withdraw all or any portion of his investment
by redeeming Fund shares at the next-determined net asset
value per share after receipt of the order. Redemptions may
be made by letter or by telephone subject to the procedures
set forth below. The privilege to initiate redemption
transactions by telephone will be made available to Fund
shareholders automatically. Telephone redemptions will be
sent only to the address of record of the redeeming investor
or to bank accounts specified by the redeeming investor in his
account application. The Trust charges $15 for each wire
transfer of redemption proceeds; this charge may be waived at
the discretion of the Trust. If any investor purchases shares
of a Fund by check, the purchaser may not wire out any
proceeds of a redemption of such shares for the 30 calendar
days following the purchase.
The proceeds of non-telephone redemptions will be sent
directly to the investor s address of record. If the investor
requests payment of redemptions to a third party or to a
location other than the investor s address of record or a bank
account specified in the investor s account application, this
request must be in writing and the investor s signature must
be guaranteed by a commercial bank; a broker, dealer,
municipal securities dealer, municipal securities broker,
government securities dealer, or government securities broker;
a credit union; a national securities exchange, registered
securities association, or clearing agency; or a savings
association.
Each Fund will redeem its shares at a redemption price equal
to the net asset value of the shares as next computed
following the receipt of a request for redemption. There is
no redemption charge. Payment for the redemption price will
be made within seven days after the Trust s receipt of the
request for redemption. For investments that have been made
by check, payment on withdrawal requests may be delayed until
the Trust s transfer agent is reasonably satisfied that the
purchase payment has been collected by the Trust (which may
require up to 10 business days). An investor may avoid a
delay in receiving redemption proceeds by purchasing shares
with a certified check.
With respect to each Fund, the right of redemption may be
suspended, or the date of payment postponed: (i) for any
period during which the NYSE, the Federal Reserve Bank of New
York (the New York Fed ), the NASDAQ, the CME, or the CBOT,
as appropriate, is closed (other than customary weekend or
holiday closings) or trading on the NYSE, the NASDAQ, the CME,
or the CBOT, as appropriate, is restricted; (ii) for any
period during which an emergency exists so that disposal of
<PAGE> - 47 -<PAGE>
the Fund s investments or the determination of its net asset
value is not reasonably practicable; or (iii) for such other
periods as the Commission, by order, may permit for protection
of the Fund s investors.
Because of the administrative expense of handling small
accounts, the Trust reserves the right to redeem involuntarily
an investor s account, including a retirement account, which
falls below the applicable minimum investment in total value
in the Trust due to redemptions. The involuntary redemption
of a retirement account may have an adverse tax effect. In
addition, both a request for a partial redemption by an
investor whose account balance is below the minimum investment
and a request for a partial redemption by an investor that
would bring the account balance below the minimum investment
will be treated as a request by the investor for a complete
redemption of that account. The Trust reserves the right to
modify its minimum investment requirements and the
corresponding amounts below which involuntary redemptions may
be effected.
Draft Checks
With respect to shares of the Money Market Fund, investors may
elect to redeem such shares by draft check (minimum check -
$500) made payable to the order of any person or institution.
Upon the Trust s receipt of a completed signature card,
investors will be supplied with draft checks which are drawn
on the Money Market Fund s account and are paid through the
Money Market Fund s custodian, Star Bank, N.A. The Trust
reserves the right to change or suspend this checking service.
There is a $25 charge for each stop payment request on the
draft checks. Investors are subject to the same rules and
regulations that the banks apply to checking accounts. An
investors Money Market Fund account may not be closed by
draft check.
EXCHANGES
Shares of any Rydex Fund may be exchanged, without any charge,
for shares of any other Rydex Fund on the basis of the
respective net asset values of the shares involved. Exchanges
with respect to Self-Directed Accounts must be for at least
the lesser of $1,000 or 100% of the account value for the Fund
from which the transfer is made. The Trust currently is
composed of nine separate Rydex Funds, seven of which Funds,
The Nova Fund, The Ursa Fund, The Rydex OTC Fund (the OTC
Fund ), The Rydex Precious Metals Fund (the Metals Fund ),
The Rydex U.S. Government Bond Fund, The Juno Fund, and The
Rydex U.S. Government Money Market Fund (the Money Market
Fund ), are described in this Prospectus. The eighth and
ninth series of the Trust, The Rydex High Yield Fund (the
<PAGE> - 48 -<PAGE>
High Yield Fund ) and The Rydex Institutional Money Market
Fund (the "Institutional Fund"), are each described in a
separate prospectus; other separate Rydex Funds may be added
in the future. The minimum initial investment in the
Institutional Fund for all shareholder accounts, including
retirement plan accounts, is $2,000,000, and an exchange into
the Institutional Fund is permitted only if the Institutional
F u nd s minimum investment of $2,000,000 is satisfied.
Exchanges may be made by letter or by telephone subject to the
procedures set forth below.
To implement an exchange, shareholders should provide the
following information: account name, account number, taxpayer
identification number, number of or percentage of shares or
dollar value of shares to be exchanged, and the names of the
Rydex Funds involved in the exchange transaction. Exchanges
may be made only if such exchanges are between identically
registered accounts. Shareholders contemplating such an
exchange for shares of a Rydex Fund not described in this
Prospectus should obtain and review the prospectus of the
Rydex Fund to which the investment is to be transferred. The
exchange privilege is available only in states where the
e x change legally may be made and may be modified or
discontinued at any time. Shares of the Money Market Fund
received in an exchange for shares of the OTC Fund or the
Metals Fund are issued on the third business day following the
day on which the Rydex Fund receives the exchange request.
PROCEDURES FOR REDEMPTIONS AND
EXCHANGES
Written requests for redemptions and exchanges should be sent
to the Rydex Series Trust, 6116 Executive Boulevard, Suite
400, Rockville, Maryland 20852, and should be signed by the
record owner or owners. Telephone redemption and exchange
requests with respect to the Rydex Funds may be made by
calling (800) 820-0888 or (301) 468-8520, on any day the Trust
is open for business. Such requests may be made only between
8:30 A.M., Eastern Time, and the times indicated below (all
times are Eastern Time). For exchanges, the earlier of the
times indicated below for the Funds whose shares are being
exchanged applies.
The Nova, Ursa, and Rydex
OTC Funds . . . . 3:45 P.M.
The Rydex Precious Metals
Fund . . . . . . . 3:30 P.M.
The Rydex U.S. Government
Bond and Juno Funds 2:45 P.M.
The Rydex High Yield Fund 2:15 P.M.
<PAGE> - 49 -<PAGE>
Telephone redemption and exchange orders will be accepted only
during the period indicated above. If the primary exchange or
market on which a Fund transacts business closes early, the
above cut-off time will be approximately fifteen minutes
(thirty minutes, in the case of the Precious Metals Fund, and
forty-five minutes in the case of the High Yield Fund) prior
to the close of such exchange or market. Telephone redemption
and exchange privileges may be terminated or modified by the
Trust at any time.
When acting on instructions believed to be genuine, the Trust
will not be liable for any loss resulting from a fraudulent
telephone transaction request and the investor would bear the
risk of any such loss. The Trust will employ reasonable
procedures to confirm that telephone instructions are genuine;
and if the Trust does not employ such procedures, then the
Trust may be liable for any losses due to unauthorized or
f r a u dulent instructions. The Trust follows specific
procedures for transactions initiated by telephone, including,
among others, requiring some form of personal identification
prior to acting upon instructions received by telephone,
providing written confirmation not later than five business
days after such transactions, and/or tape recording of
telephone instructions. Investors also should be aware that
telephone redemptions or exchanges may be difficult to
implement in a timely manner during periods of drastic
economic or market changes. If such conditions occur,
redemption or exchange orders can be made by mail.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Nova Fund, the Ursa
Fund, the Metals Fund, and the OTC Fund is determined each day
on which the NYSE is open for business as of the close of
normal trading on the NYSE (currently 4:00 P.M., Eastern
Time). The net asset value of the shares of the High Yield
Fund, the Money Market Fund, and the Institutional Fund is
determined each day on which both the NYSE and the New York
Fed are open for business. Currently, the NYSE and the New
York Fed are closed on weekends, and the following holiday
closings have been scheduled for 1996: (i) New Year's Day,
Martin Luther King Jr.'s Birthday, Washington's Birthday, Good
Friday, Memorial Day, July Fourth, Labor Day, Columbus Day,
Thanksgiving Day, and Christmas Day; and (ii) the preceding
Friday when any of those holidays falls on a Saturday or the
subsequent Monday when any of these holidays falls on a
Sunday. The High Yield Fund determines its net asset value at
3:00 P.M., Eastern Time, and the Money Market Fund and the
Institutional Fund each determines its net asset value at 1:00
P.M., Eastern Time, on such days. The net asset value of the
shares of the Bond Fund and the Juno Fund is determined each
day on which the CBOT is open for trading futures contracts on
<PAGE> - 50 -<PAGE>
U.S. Treasury bonds as of the close of normal trading on the
CBOT (normally 3:00 P.M., Eastern Time). Currently, the CBOT
is closed on weekends and on the following holidays: (i) New
Year s Day, Martin Luther King, Jr. Day, President s Day,
Memorial Day, July Fourth, Labor Day, Columbus Day, Veterans
Day, Thanksgiving Day, and Christmas Day; and (ii) the
preceding Friday when any one of those holidays falls on a
Saturday or the subsequent Monday when any one of those
holidays falls on a Sunday. To the extent that portfolio
securities of a Fund are traded in other markets on days when
the Fund s principal trading market(s) is closed, the Fund s
net asset value may be affected on days when investors do not
have access to the Fund to purchase or redeem shares.
Although the Trust expects the same holiday schedules to be
observed in the future, the NYSE, the CBOT, and the New York
Fed each may modify its holiday schedule at any time.
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 values of its
o t her 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 Board of Trustees or by the Advisor using methods
established or ratified by the Board of Trustees.
The Money Market Fund will utilize the amortized cost method
in valuing that Fund s portfolio securities, which method
involves valuing a security at its cost adjusted by a constant
a m o rtization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the
market value of the instrument. The purpose of this method of
calculation is to facilitate the maintenance of a constant net
asset value per share for the Money Market Fund of $1.00.
However, there is no assurance that the $1.00 net asset value
will be maintained. For further information regarding the
amortized cost method for valuing the Money Market Fund s
portfolio securities, see "Determination of Net Asset Value"
in the Statement of Additional Information.
For purposes of determining net asset value per share of a
Fund, options and futures contracts will be valued 15 minutes
after the 4:00 P.M., Eastern Time, close of trading on the
NYSE, except that U.S. Treasury bond options and futures
contracts traded on the CBOT will be valued at 3:00 P.M.,
Eastern Time, the close of trading of that exchange. 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 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
<PAGE> - 51 -<PAGE>
dealer s price is used. The value of a futures contract
equals the unrealized gain or loss on the contract that is
determined by marking the contract to the current settlement
price for a like contract acquired on the day on which the
futures contract is being valued. The value of options on
futures contracts is determined based upon the current
settlement price for a like option acquired on the day on
which the option is being valued. A settlement price may not
be used for the foregoing purposes if the market makes a limit
move with respect to a particular commodity.
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 or foreign stock
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
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.
lliquid 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.
TAX-SHELTERED RETIREMENT PLANS
Tax-sheltered retirement plans of the following types will be
available to investors:
Individual Retirement Accounts (IRAs)
Keogh Accounts - Defined Contribution
Plans (Profit-Sharing Plans)
<PAGE> - 52 -<PAGE>
Keogh Accounts - Money Purchase Plans
Pension Plans)
Internal Revenue Code Section 403(b)
Plans
Retirement plans are charged an annual $15.00 maintenance fee.
Additional information regarding these accounts, including the
annual maintenance fee, may be obtained by contacting the
Trust.
TRANSACTION CHARGES
In addition to charges described elsewhere in this Prospectus,
the Trust also may make a charge of $25 for items returned for
insufficient or uncollectible funds.
DIVIDENDS AND DISTRIBUTIONS
General
All income dividends and capital gains distributions of each
Fund automatically will be reinvested in additional shares of
the Fund at the net asset value calculated on the ex-dividend
date, unless an investor has requested otherwise from the
Trust in writing. Dividends and distributions of a Fund are
taxable to the shareholders of the Fund, as discussed below
under "Taxes," whether such dividends and distributions are
reinvested in additional shares of the Fund or are received in
cash. Statements of account will be sent to the Fund
shareholders at least quarterly.
The Nova Fund; The Ursa Fund; The Rydex OTC Fund; The Rydex
Precious Metals Fund; The Juno Fund
The Nova Fund, the Ursa Fund, the OTC Fund, the Metals Fund,
and the Juno Fund each intend to distribute annually any net
i n v e stment income and net realized capital gains to
shareholders. The Trustees, however, may declare a special
distribution for any of these Funds if the Trustees believe
that such a distribution would be in the best interests of the
shareholders of that Fund.
The Rydex U.S. Government Bond Fund
The Bond Fund intends (i) to declare dividends of ordinary
income for shares of the Bond Fund on a daily basis, and to
distribute such dividends to shareholders of the Bond Fund on
a monthly basis, and (ii) to distribute annually any long-term
capital gains to the shareholders of the Bond Fund.
The Rydex U.S. Government Money Market Fund
<PAGE> - 53 -<PAGE>
The Money Market Fund ordinarily (i) declares dividends of net
investment income (and net short-term capital gains, if any)
for shares of the Money Market Fund on a daily basis and (ii)
distributes such dividends to shareholders of the Money Market
Fund on a monthly basis. The Trustees, however, may revise
this dividend and distribution policy of the Money Market
Fund, postpone the payment of dividends thereunder, or take
any other action necessary with respect thereto in order to
facilitate, to the extent possible, the maintenance by the
Money Market Fund of a constant net asset value per share of
$1.00.
TAXES
The Internal Revenue Code provides that each investment
portfolio of a series investment company is to be treated as a
separate corporation. Accordingly, each of the Funds will
seek to qualify for treatment as a regulated investment
company (a "RIC") under Subchapter M of the Code. Because of
the nature of the investment strategies and the expected
turnover of the portfolios of the Funds, there can be no
assurance that a Fund will qualify for such treatment. If a
Fund qualifies as a RIC and satisfies the distribution
requirements under the Code for any taxable year, the Fund
itself will not be subject to income tax on the ordinary
i n c o me and capital gains it has distributed to its
shareholders for that year.
To qualify as a RIC under the Code, a Fund must satisfy
certain requirements, including the requirements that the Fund
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"), and that the Fund derive less
than 30% of the Fund s gross income from the sale or other
disposition of any of the following instruments which have
been held for less than three months (the "30% Test"): (i)
stock or securities; (ii) certain options, futures, or forward
contracts; or (iii) foreign currencies (or certain options,
futures, or forward contracts on such foreign currencies).
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 shareholders of that Fund. 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.
<PAGE> - 54 -<PAGE>
Satisfaction of the 90% Test will impose limitations on the
investment strategies that may be pursued by any of the Funds,
and in particular by the Metals Fund. Income from investments
in precious metals and minerals will not be qualifying income
for purposes of the 90% Test. Therefore, the Metals Fund will
seek to limit its investment transactions in precious metals
and minerals so as to avoid a violation of the 90% Test.
I n addition, because of the anticipated frequency of
redemptions and exchanges of the shares of the Funds, each of
the Funds, other than the Money Market Fund, will have greater
difficulty than other mutual funds in satisfying the 30% Test.
The Trust expects that investors in the Funds, as part of
their market-timing investment strategy, are likely to redeem
or exchange their shares in the Funds frequently to take
advantage of anticipated changes in market conditions. Such
redemptions or exchanges are likely to require a Fund to sell
securities to meet the Fund s payment obligations. The larger
the volume of such redemptions or exchanges, the more
difficult it will be for the Fund to satisfy the 30% Test. To
minimize the risk of failing the 30% Test, each of the Funds
intends to satisfy obligations in connection with redemptions
and exchanges first by using available cash or borrowing
facilities and by selling securities that have been held for
at least three months or as to which there will be a loss or
the smallest gain. If a Fund also must sell securities that
have been held for less than three months, then, to the extent
possible, the Fund will seek to conduct such sales in a manner
that will allow such sales to qualify for a special provision
in the Code that excludes from the 30% Test any gains
r e s u lting from sales made as a result of "abnormal
redemptions." To the reduce the risk of failing the 30% Test,
the Funds (other than the Money Market Fund) also may engage
i n other investment techniques, including engaging in
transactions in futures contracts and options on futures
contracts and indexes on an unrestricted basis (subject to the
investment policies of the Funds and Commission regulations).
Notwithstanding these actions, there can be no assurance that
a Fund will be able to satisfy the 30% Test. For additional
information concerning this special Code provision, see
"Dividends, Distributions, and Taxes" in the Statement of
Additional Information.
If the Trust determines that a Fund will not qualify as a RIC
under Subchapter M of the Internal Revenue Code, the Trust
will establish procedures for that Fund to reflect the
anticipated tax liability in the Fund s net asset value. To
the extent that management of a Fund determines that Federal
income taxes will more likely than not be payable by the Fund
with respect to the Fund s current tax year, the Fund intends
to make a good-faith estimate of the potential tax liability
<PAGE> - 55 -<PAGE>
of the Fund and to make an accrual for tax expenses.
Thereafter, the Fund would make a daily determination whether
it is appropriate for the Fund to continue to accrue for a tax
expense and, if so, to make a good-faith estimate of the
Fund s potential tax liability. Any amount by which the
accrual is reduced, or the entire amount of the accrual if the
Fund determines that the accrual is no longer appropriate,
will be reclassified as income to the Fund.
Under current law, dividends derived from interest and
dividends received by a Fund, together with distributions of
any short-term capital gains, if any, are taxable to the
shareholders of the Fund, as ordinary income at Federal income
tax rates of up to 39.6%, whether or not such dividends and
distributions are reinvested in shares of such Fund or are
received in cash.
Under current law, distributions of net long-term gains, if
any, realized by a Fund and designated as capital gains
distributions will be taxed to the shareholders of that Fund
as long-term capital gains regardless of the length of time
the shares of that Fund have been held. Currently, long-term
capital gains of individual investors are taxed at rates of up
to 28%. Statements as to the Federal tax status of
shareholders dividends and distributions will be mailed
annually. Shareholders should consult their tax advisors
concerning the tax status of the Funds dividends in their own
states and localities.
Ordinary dividends paid to corporate or individual residents
o f foreign countries generally are subject to a 30%
withholding tax. The rate of withholding tax may be reduced
if the United States has an income tax treaty with the foreign
c o u n try where the recipient resides. Capital gains
distributions received by foreign investors should, in most
cases, be exempt from U.S. tax. A foreign investor will be
required to provide the Fund with supporting documentation in
order for the Fund to apply a reduced rate or exemption from
U.S. withholding tax.
Shareholders are required by law to certify that their tax
identification number is correct and that they are not subject
to back-up withholding. In the absence of this certification,
the Trust is required to withhold taxes at the rate of 31% on
dividends, capital gains distributions, and redemptions.
Shareholders who are non-resident aliens may be subject to a
withholding tax on dividends earned.
<PAGE> - 56 -<PAGE>
MANAGEMENT OF THE TRUST
Investment Adviser
The Trust is provided investment advice and management
services by PADCO Advisors, Inc., a Maryland corporation with
offices at 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852 (the "Advisor"). The Advisor was incorporated
in the State of Maryland on February 5, 1993. Albert P.
Viragh, Jr., the Chairman of the Board and the President of
the Advisor, 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 adviser. 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. From 1989 to 1992, Mr.
Viragh was the Vice President of Sales and Marketing for The
Rushmore Fund, Inc. Mr. Viragh received his bachelor s degree
in Business Administration from Spring Hill College, of
Mobile, Alabama, in 1964.
The portfolio manager for the Nova Fund and the Juno Fund is
Thomas Michael, who joined the Advisor in March 1994. From
1992 to February 1994, Mr. Michael was a financial markets
analyst at Cedar Street Investment Management Co., of Chicago,
Illinois, an institutional consulting firm specializing in
developing hedging and speculative strategies in stock index
futures contracts and U.S. Treasury bond futures contracts.
From 1989 to 1991, Mr. Michael was the Director of Research
for Chronometrics, Inc., of Chicago, Illinois, a registered
commodity trading advisor and was responsible for managing the
firm s proprietary, on-line trading model for twelve financial
futures contracts. Mr. Michael received his bachelor of arts
degree in Geology from Colgate University, of Hamilton, New
York, in 1974.
The portfolio manager for the OTC Fund and the Bond Fund is
Terry Apple, who joined the Advisor in January 1994. From
1992 to December 1993, Mr. Apple was employed by MMA and was
the Director of Investments for The Rushmore Funds, Inc. From
1985 to 1991, Mr. Apple was a Vice President and the Director
of Technical Research for Cale Futures, Inc. ("Cale"), of
Hilton Head, South Carolina, a registered commodity trading
advisor, and managed Multitech Partners, a commodity pool
advised by Cale. Mr. Apple received his bachelor s degree in
Business Administration from Baylor University, of Waco,
Texas, in 1964.
The portfolio manager of the Ursa Fund, the Metals Fund, and
the Money Market Fund is Michael P. Byrum. Prior to joining
the PADCO Advisors, Inc. organization in July 1993, Mr. Byrum
<PAGE> - 57 -<PAGE>
worked for one year as an investor representative with MMA.
Mr. Byrum s responsibilities at MMA included brokerage
solicitation and investor relations. Mr. Byrum received his
bachelor s degree in Business Administration from Miami
University, of Oxford, Ohio, in 1992.
Under an investment advisory agreement between the Trust and
the Advisor, dated May 14, 1993, and as most recently amended
on September 25, 1996, the Funds each pay the Advisor a fee at
an annualized rate, based on the average daily net assets for
each respective Fund, of 0.75% for the Nova Fund, the OTC
Fund, and the Metals Fund, 0.90% for the Ursa Fund and the
Juno Fund, and 0.50% for the Bond Fund and the Money Market
Fund.
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 who are affiliated 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, also may make payments to
broker-dealers and other financial institutions for their
expenses in connection with the distribution of Fund shares,
and otherwise currently pays all distribution costs for Fund
shares.
Servicer
General administrative, shareholder, dividend disbursement,
transfer agent, and registrar services are provided to the
Trust and the Funds by PADCO Service Company, Inc., 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852 (the
"Servicer"), 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, dated
S e p tember 19, 1995, and as most recently amended on
September 25, 1996. Under this service agreement, the Funds
each pay the Servicer a fee at an annualized rate, based on
the average daily net assets for each respective Fund, of
0.25% for the Nova Fund, Ursa Fund, and the Juno Fund and
0.20% for the other Funds.
The Servicer provides the Trust and the Funds 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,
<PAGE> - 58 -<PAGE>
registration statements, proxy statements, and all other
materials required to be filed or furnished by the Trust and
the Funds under Federal and state securities laws. The
Servicer also maintains the shareholder account records for
t h e T rust and the Funds, distributes dividends and
distributions payable by the Funds, and produces statements
with respect to account activity for the Funds and their
shareholders. The Servicer pays all fees and expenses that
are directly related to the services provided by the Servicer
to the Trust; 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.
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
s h areholder reports and notices; registration fees and
expenses; proxy and annual meeting expenses, if any; all
F e d e r al, state, and local taxes (including, without
limitation, stamp, excise, income, and franchise taxes);
organizational costs; and non-interested Trustees fees and
expenses. For the period from July 1, 1995 through June 30,
1996, the total expenses paid by the Nova Fund, the Ursa Fund,
the OTC Fund, the Metals Fund, the Bond Fund, the Juno Fund,
and the Money Market Fund were approximately 1.31%, 1.39%,
1.33%, 1.33%, 1.26%, 1.64%, and 0.99% of the respective Fund s
average net assets.
PERFORMANCE INFORMATION
Total Return Calculations
From time to time, each of the Funds (other than the Money
Market Fund) may advertise the total return of the Fund for
prior periods. Any such advertisement would include at least
average annual total return quotations for one, five, and ten-
year periods, or for the life of the Fund. Other total return
quotations, aggregate or average, over other time periods for
the Fund also may be included.
The total return of a Fund for a particular period represents
the increase (or decrease) in the value of a hypothetical
investment in the Fund from the beginning to the end of the
period. Total return is calculated by subtracting the value
<PAGE> - 59 -<PAGE>
of the initial investment from the ending value and showing
the difference as a percentage of the initial investment; this
calculation assumes that the initial investment is made at the
current net asset value and that all income dividends or
capital gains distributions during the period are reinvested
in shares of the Fund at net asset value. Total return is
based on historical earnings and asset value fluctuations and
i s not intended to indicate future performance. No
adjustments are made to reflect any income taxes payable by
shareholders on dividends and distributions paid by the Fund.
Average annual total return quotations for periods of two or
more years are computed by finding the average annual
compounded rate of return over the period that would equal the
initial amount invested to the ending redeemable value. A
more-detailed description of the method by which the total
return of a Fund is calculated is contained in the Statement
o f Additional Information under "Calculation of Return
Quotations."
Yield Calculations
In addition to total return information, the Bond Fund may
also advertise its current "yield." Yield figures are based
on historical earnings and are not intended to indicate future
performance. Yield is determined by analyzing the Bond Fund s
net income per share for a thirty-day (or one-month) period
(which period will be stated in the advertisement), and
dividing by the maximum offering price per share on the last
day of the period. A "bond equivalent" annualization method
is used to reflect a semi-annual compounding.
For purposes of calculating yield quotations, net income is
determined by a standard formula prescribed by the Commission
t o facilitate comparison with yields quoted by other
investment companies. Net income computed for this formula
differs from net income reported by the Bond Fund in
accordance with generally accepted accounting principles and
from net income computed for Federal income tax reporting
purposes. Thus, the yield computed for a period may be
greater or lesser than the Bond Fund s then-current dividend
rate.
The Bond Fund s yield is not fixed and will fluctuate in
response to prevailing interest rates and the market value of
portfolio securities, and as a function of the type of
securities owned by the Bond Fund, portfolio maturity, and the
Bond Fund s expenses.
Yield quotations should be considered relative to changes in
the net asset value of the Bond Fund s shares, the Bond Fund s
investment policies, and the risks of investing in shares of
<PAGE> - 60 -<PAGE>
the Bond Fund. The investment return and principal value of
an investment in the Bond Fund will fluctuate so that an
investor s shares, when redeemed, may be worth more or less
than the original cost of such shares.
From time to time, the Money Market Fund advertises its
"yield" and "effective yield." Both yield figures are based
on historical earnings and are not intended to indicate future
performance. The "yield" of the Money Market Fund refers to
the income generated by an investment in the Money Market Fund
over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that
week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The
" e f f ective yield" is calculated similarly, but, when
annualized, the income earned by an investment in the Money
Market Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the
c o m p ounding effect of this assumed reinvestment. A
description of the respective methods by which the yield of
the Bond Fund and the current and effective yields of the
Money Market Fund are calculated is contained in the Statement
of Additional Information under "Information on Computation of
Yield."
Since yield fluctuates, yield data cannot necessarily be used
to compare an investment in the Bond Fund s or the Money
Market Fund s shares with bank deposits, savings accounts, and
similar investment alternatives which often provide an agreed
or guaranteed fixed yield for a stated period of time.
Shareholders of the Bond Fund and the Money Market Fund should
remember that yield generally is a function of the kind and
quality of the instrument held in portfolio, portfolio
maturity, operating expenses, and market conditions.
Comparisons of Investment Performance
In conjunction with performance reports, promotional
literature, and/or analyses of shareholder service for a Fund,
comparisons of the performance information of the Fund for a
given period to the performance of recognized, unmanaged
indexes for the same period may be made. Such indexes
include, but are not limited to, ones provided by Dow Jones &
Company, Standard & Poor s Corporation, Lipper Analytical
Services, Inc., Shearson Lehman Brothers, National Association
of Securities Dealers, Inc., The Frank Russell Company, Value
Line Investment Survey, the American Stock Exchange, the
Philadelphia Stock Exchange, Morgan Stanley Capital
International, Wilshire Associates, the Financial Times-Stock
E x c h ange, and the Nikkei Stock Average and Deutcher
Aktienindex, all of which are unmanaged market indicators.
<PAGE> - 61 -<PAGE>
Such comparisons can be a useful measure of the quality of a
Fund s investment performance. In particular, performance
information for the Nova Fund and the Ursa Fund may be
compared to various unmanaged indexes, including, but not
limited to, the S&P500 Index or the Dow Jones Industrial
Average; performance information for the OTC Fund may be
compared to various unmanaged indexes, including, but not
limited to its current benchmark, the NASDAQ 100 IndexTM;
performance information for the Metals Fund may be compared to
various unmanaged indexes, including, but not limited to its
current benchmark, the XAU Index; and performance information
for the Bond Fund and the Juno Fund may be compared to various
unmanaged indexes, including, but not limited to, the Shearson
Lehman Government (LT) Index.
In addition, rankings, ratings, and comparisons of investment
performance and/or assessments of the quality of shareholder
service appearing in publications such as Money, Forbes,
Kiplinger s Magazine, Personal Investor, Morningstar, Inc.,
a n d similar sources which utilize information compiled
(i) internally, (ii) by Lipper Analytical Services, Inc.
("Lipper"), or (iii) by other recognized analytical services,
may be used in sales literature. The total return of each
Fund (other than the Money Market Fund) also may be compared
to the performances of broad groups of comparable mutual funds
with similar investment goals, as such performance is tracked
and published by such independent organizations as Lipper and
CDA Investment Technologies, Inc., among others. The Lipper
ranking and comparison, which may be used by the Trust in
p e r formance reports, will be drawn from the "Capital
Appreciation Funds" grouping for each of the Nova Fund and the
Ursa Fund, from the "Small Company Growth Funds" grouping for
the OTC Fund, from the "Precious Metals Funds" grouping for
the Metals Fund, and from the "Bond Funds" grouping for the
Bond Fund and the Juno Fund. In addition, the broad-based
Lipper groupings may be used for comparison to any of the
Funds. Additional information concerning the comparison of
the investment performances of the Funds is contained in the
S t a tement of Additional Information under "Performance
Information."
Further information about the performance of the Funds will be
contained in the Trust s annual reports to shareholders, which
may be obtained without charge by writing to the Trust at the
address or telephoning the Trust at telephone number set forth
on the cover page of this Prospectus.
<PAGE> - 62 -<PAGE>
GENERAL INFORMATION ABOUT THE
TRUST
Organization and Description of Shares of Beneficial Interest
The Trust is a registered open-end investment company under
the 1940 Act. The Trust was organized as a Delaware business
trust on February 10, 1993, and has present authorized capital
of unlimited shares of beneficial interest of no par value
which may be issued in more than one class. Currently, the
Trust has issued shares of nine separate classes: The Nova
Fund, The Ursa Fund, The Rydex OTC Fund, The Rydex Precious
Metals Fund, The Rydex U.S. Government Bond Fund, The Juno
Fund, The Rydex High Yield Fund, The Rydex U.S. Government
Money Market Fund, and The Rydex Institutional Money Market
Fund. Other separate classes may be added in the future.
All shares of the Funds are freely transferable. The Fund
shares do not have preemptive rights or cumulative voting
rights, and none of the shares have any preference to
conversion, exchange, dividends, retirements, liquidation,
redemption, or any other feature. Fund shares have equal
voting rights, except that, in a matter affecting a particular
series in the Trust, only shares of that series may be
entitled to vote on the matter. Shareholder inquiries can be
made by telephone (at 800-820-0888 or 301-468-8520) or by mail
(to 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852).
Under the Delaware General Corporation Law, a registered
i n vestment company is not required to hold an annual
shareholders meeting if the 1940 Act does not require such a
meeting. Generally, there will not be annual meetings of
Trust shareholders. Trust shareholders may remove Trustees of
the Trust from office by votes cast at a meeting of Trust
s h areholders or by written consent. If requested by
shareholders of at least 10% of the outstanding shares of the
Trust, the Trust will call a meeting of Trust shareholders for
the purpose of voting upon the question of removal of a
T r ustee or Trustees of the Trust and will assist in
communications with other Trust shareholders.
Unlike the stockholder of a corporation, shareholders of a
business trust such as the Trust could be held personally
liable, under certain circumstances, for the obligations of
the business trust. The Trust s Declaration of Trust,
however, disclaims liability of the shareholders of the Trust,
the Trustees, or the officers of the Trust for acts or
obligations of the Trust which are binding only on the assets
and property of the Trust. The Declaration of Trust provides
for indemnification out of Trust property for all loss and
expense of any Trust shareholder held personally liable for
<PAGE> - 63 -<PAGE>
the obligations of the Trust. The risk of a Trust shareholder
incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust itself would
not be able to meet the Trust s obligations and this risk,
thus, should be considered remote.
Classification of the Funds
Each of the Funds (other than the Money Market Fund) is a
"non-diversified" series of the Trust. A Fund is considered
"non-diversified" because a relatively-high percentage of the
Fund s assets may be invested in the securities of a limited
number of issuers, primarily within the same industry or
economic sector. That Fund s portfolio securities, therefore,
may be more susceptible to any single economic, political, or
regulatory occurrence than the portfolio securities of a
diversified investment company.
A Fund s classification as a "non-diversified" investment
company means that the proportion of the Fund s assets that
may be invested in the securities of a single issuer is not
limited by the 1940 Act. Each Fund, however, intends to seek
to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code, which requires that, at the end of
each quarter of the taxable year, (i) at least 50% of the
market value of the Fund s total assets (a diversified
investment company would be so limited with respect to 75% of
such market value) be invested in cash, U.S. Government
Securities, the securities of other regulated investment
companies, and other securities, with such securities of any
one issuer limited for the purposes of this calculation to an
amount not greater than 5% of the value of Fund s total assets
and 10% of the outstanding voting securities of any one
issuer, and (ii) not more than 25% of the value of the Fund s
total assets be invested in the securities of any one issuer
(other than U.S. Government Securities or the securities of
other regulated investment companies).
Trustees and Officers
The Trust has a Board of Trustees which is responsible for the
general supervision of the Trust s business. The day-to-day
operations of the Trust are the responsibility of the Trust s
officers.
Auditors
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey
08540, are the auditors of and the independent public
accountants for the Trust and each of the Funds.
Custodian
<PAGE> - 64 -<PAGE>
Pursuant to a separate custody agreement entered into by the
Trust, Star Bank, N.A. (the "Custodian"), Star Bank Center,
425 Walnut Street, Cincinnati, Ohio 45202, serves as
custodian for the Trust and the Funds. Under the terms of
this custody agreement, the Custodian holds the portfolio
securities of each Fund and keeps all necessary related
accounts and records.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR
IN THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN
BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
P R ESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING BY THE TRUST IN ANY JURISDICTION IN WHICH SUCH AN
OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE> - 65 -<PAGE>
Prospectus
of
The Rydex Institutional Money Market Fund
PAGE
<PAGE>
[Logo]
RYDEX SERIES TRUST PROSPECTUS
RYDEX INSTITUTIONAL
MONEY MARKET FUND
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852
(800) 820-0888 (301) 468-8520
INVESTMENT OBJECTIVE AND POLICIES
The Rydex Institutional Money Market Fund (the "Fund") is a
diversified series of the Rydex Series Trust, an open-end
management investment company (the "Trust"). The investment
objectives of the Fund are security of principal, high current
income, and liquidity consistent with preservation of capital.
In attempting to achieve its objectives, the Fund will invest
primarily in money market instruments which are issued or
guaranteed, as to principal and interest, by the U.S.
Government, its agencies or instrumentalities, as well as in
repurchase agreements secured by such securities and in bank
money market instruments and commercial paper. The Fund is
part of the Rydex Group of Funds, which is designed for
professional money managers and knowledgeable investors who
intend to invest in the Rydex Group of Funds as part of an
asset-allocation or market-timing investment strategy.
The securities of the Fund are not deposits or obligations of
any bank, and are not endorsed or guaranteed by any bank, and
an investment in the Fund is neither insured nor guaranteed by
the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other agency of the U.S. Government. The Fund
seeks to maintain a constant $1.00 net asset value per share,
although this cannot be assured.
PAGE
<PAGE>
ADDITIONAL INFORMATION
Investors should read this Prospectus and retain it for future
reference. This Prospectus is designed to set forth concisely
the information an investor should know before investing in
the Fund. A Statement of Additional Information, dated
November 1, 1996, containing additional information about the
Fund and the Trust has been filed with the Securities and
Exchange Commission and is incorporated herein by reference.
A copy of this Statement of Additional Information is
available, without charge, upon request to the Trust at the
address above or by telephoning the Trust at the telephone
numbers above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 1, 1996.
<PAGE> 2<PAGE>
TABLE OF CONTENTS
Page
FEES AND EXPENSES OF THE FUND
FINANCIAL HIGHLIGHTS OF THE FUND
THE RYDEX FUNDS
INVESTMENT OBJECTIVES AND POLICIES
HOW TO INVEST IN THE FUND
REDEEMING AN INVESTMENT (WITHDRAWALS)
EXCHANGES
PROCEDURES FOR REDEMPTIONS AND EXCHANGES
DETERMINATION OF NET ASSET VALUE
TAX-SHELTERED RETIREMENT PLANS
DIVIDENDS AND DISTRIBUTIONS
TAXES
MANAGEMENT OF THE TRUST
DISTRIBUTION PLAN
PERFORMANCE INFORMATION
GENERAL INFORMATION ABOUT THE TRUST
APPENDIX A
<PAGE> 3<PAGE>
FEES AND EXPENSES OF THE FUND
The following table illustrates all expenses and fees that a
shareholder of the Fund will incur:
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
<S> <C>
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested None
Dividends
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Management Fees 0.55%
12b-1 Fees 0.25%
Other Expenses:
Administrative Fees 0.20%
Additional Expenses 0.15%*
Total Fund Operating Expenses** 1.15%
* Additional expenses are based on estimated amounts for the
current fiscal year.
** The Fund s investment adviser has guaranteed that the
ratio of expenses, including investment management fees,
to average net assets shall not exceed 1.20%. Any
expenses in excess of this amount will be absorbed by the
adviser.
</TABLE>
Example
<PAGE> 4<PAGE>
Assuming a hypothetical investment of $1,000, a five-percent
annual return, and redemption at the end of each time period,
an investor in the Fund would pay transaction and operating
expenses at the end of each year as follows:
1 YEAR 3 YEARS
$11 $33
The same level of expenses would be incurred if the investment
were held throughout the period indicated.
The preceding table is provided to assist the investor in
understanding the various costs and expenses which may be
borne directly or indirectly by an investor in the Fund. The
percentages shown above are based on the estimate by the
Fund's investment adviser of the expenses to be incurred by
the Fund during the Fund's current fiscal year. The five-
percent assumed annual return is for comparison purposes only.
The actual return for the Fund in future periods may be more
or less depending on market conditions, and the actual
expenses an investor incurs in future periods may be more or
less than those shown above and will depend on the amount
invested and on the actual growth rate of the Fund. For a
more complete discussion of the fees connected with an
investment in the Fund, including any fees that may be charged
by securities dealers, banks, and other financial institutions
in connection with wire transfers, and the services to be
provided to the Fund, see "How to Invest in the Fund,"
"Management of the Fund," and "Distribution Plan" in this
Prospectus.
<PAGE> 5<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUND
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Fund for
the period July 11, 1996 to September 30, 1996 are unaudited.
<TABLE>
<CAPTION>
For the Period
Ended
September 30,
1996*
(Unaudited)
<S> <C>
Per Share Operating Performance:
Net Asset Value -- Beginning of Period $ 1.00
Net Investment Income (Loss) 0.01
Net Realized and Unrealized Gains
(Losses) on Securities 0.00
Net Increase (Decrease) in Net Asset
Value Resulting from Operations 0.00
Dividends to Shareholders (0.01)
Distributions to Shareholders From Net
Realized Capital Gain 0.00
Net Increase (Decrease) in Net Asset
Value 0.00
Net Asset Value End of Period $ 1.00
Total Investment Return 4.28%**
Ratios to Average Net Assets
Expenses 1.24%**
Net Investment Income 4.22%**
Supplementary Data:
Portfolio Turnover Rate*** 0.00%
Net Assets, End of Period (000's $30,781
omitted)
The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the period.
* Commencement of Operations: July 11, 1996.
** Annualized for the period ended September 30, 1996.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year.
</TABLE>
<PAGE> 6<PAGE>
<PAGE> 7<PAGE>
THE RYDEX FUNDS
The Trust is an open-end management investment company, and
currently is composed of nine separate series, including the
Fund, The Nova Fund, The Ursa Fund, The Rydex OTC Fund, The
Rydex Precious Metals Fund, The Rydex U.S. Government Bond
Fund, The Juno Fund, The Rydex U.S. Government Money Market
Fund, and, beginning on or about December 1, 1996 (subject to
obtaining all necessary regulatory approvals), the Rydex High
Yield Fund (collectively, the "Rydex Funds"); other separate
Rydex Funds may be added in the future. The Rydex Funds are
principally designed for professional money managers and
investors who intend to follow an asset-allocation or market-
timing investment strategy. Except for the Fund and the Rydex
U.S. Government Money Market Fund, each Rydex Fund is intended
to provide investment exposure with respect to a particular
segment of the securities markets. These Rydex Funds seek
investment results that correspond over time to a specified
benchmark. The Rydex Funds may be used independently or in
combination with each other as part of an overall investment
strategy.
Shares of any Rydex Fund may be exchanged, without any charge,
for shares of any other Rydex Fund on the basis of the
respective net asset values of the shares involved; provided,
that, in connection with exchanges for shares of a Fund,
certain minimum investment levels are maintained. The Trust
r e s e rves the right to modify its minimum investment
requirements (see "Exchanges"). Copies of the separate
Prospectuses and Statements of Additional Information for the
Rydex Funds other than the Fund are available, without charge,
upon request to the Trust at 6116 Executive Boulevard, Suite
400, Rockville, Maryland 20852, or by telephoning the Trust at
(800) 820-0888 or (301) 468-8520.
INVESTMENT OBJECTIVES AND POLICIES
General
The investment objectives of the Fund are security of
principal, high current income, and liquidity consistent with
preservation of capital. Although there is no assurance that
the Fund's objectives will be achieved, the Fund will seek to
achieve its objectives by investing primarily in money market
instruments which are issued or guaranteed, as to principal
and interest, by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"), as well as
in repurchase agreements secured by U.S. Government Securities
and in bank money market instruments and commercial paper. An
investment in the Fund is neither insured nor guaranteed by
the U.S. Government. The Fund seeks to maintain a constant
<PAGE> 8<PAGE>
$1.00 net asset value per share, although this cannot be
assured.
The Fund will invest in short-term U.S. Government Securities,
including U.S. Treasury bills, U.S. Treasury notes, and U.S.
Treasury bonds that mature within one year. All securities
purchased by the Fund are held by the Trust's custodian bank.
U.S. Treasury securities are backed by the full faith and
credit of the U.S. Government. Repurchase agreements invested
in the Fund are fully collateralized by U.S. Government
Securities, but the value of the underlying collateral may be
affected by sharp fluctuations in short-term interest rates.
The investment objectives of the Fund are fundamental and may
not be changed without the approval of at least a majority of
the shareholders, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"). All other investment
policies of the Fund not specified as fundamental may be
changed without the approval of shareholders.
The Fund will maintain a dollar-weighted average portfolio
maturity of 90 days or less. All securities in which the Fund
invests will have remaining maturities of 397 days or less on
the date of purchase, will be denominated in U.S. dollars, and
will have been determined to be of high quality by nationally-
recognized statistical rating organizations ("NSROs") or
determined to be of comparable quality if not so rated.
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government include
a variety of U.S. Treasury securities, which differ only in
their interest rates, maturities, and dates 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
y e ars, and U.S. Treasury bonds generally have initial
maturities of greater than ten years at the date of issuance.
U.S. Treasury securities are backed by the full faith and
credit of the United States. Yields on short-, intermediate-,
and long-term U.S. Government Securities are dependent on a
variety of factors, including the general conditions of the
money and bond markets, the size of a particular offering, and
the maturity of the obligation. Debt securities with longer
maturities tend to produce higher yields and are generally
subject to potentially greater capital appreciation and
depreciation than obligations with shorter maturities and
lower yields. The market value of U.S. Government Securities
generally varies inversely with changes in market interest
rates. An increase in interest rates, therefore, would
generally reduce the market value of the Fund s portfolio
investments in U.S. Government Securities, while a decline in
<PAGE> 9<PAGE>
interest rates would generally increase the market value of
the Fund s portfolio investments in these securities.
Certain U.S. Government Securities are issued or guaranteed by
a g e n cies or instrumentalities of the U.S. Government
including, but not limited to, obligations of U.S. Government
agencies or instrumentalities such as the Federal National
M o r tgage Association, the Government National Mortgage
Association, the Small Business Administration, the Export-
Import Bank, 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.
S o m e obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government are backed by the
full faith and credit of the U.S. Treasury. Such agencies and
instrumentalities may borrow funds from the U.S. Treasury.
However, no assurances can be given that the U.S. Government
will provide such financial support to the obligations of the
other U.S. Government agencies or instrumentalities in which
the Fund invests, since the U.S. Government is not obligated
to do so. These other agencies and instrumentalities are
supported by either the issuer s right to borrow, under
certain circumstances, an amount limited to a specific line of
credit from the U.S. Treasury, the discretionary authority of
the U.S. Government to purchase certain obligations of an
agency or instrumentality, or the credit of the agency or
instrumentality itself.
The Fund may also invest in securities which are not backed by
the full faith and credit of the United States. In these
instances, such obligations may be supported by the right of
the issuer to borrow from the U.S. Treasury, while still
others are supported only by the credit of the
instrumentality. Securities not backed by the full faith and
credit of the United States may be backed, in part, by a line
of credit with the U.S. Treasury (such as securities of the
Federal National Mortgage Association), or the Fund must look
to the agency issuing or guaranteeing the obligation for
ultimate repayment (such as securities of the Federal Farm
Credit System), in which case the Fund may not be able to
assert a claim against the United States itself in the event
the agency or instrumentality does not meet its commitments.
U.S. Government Securities may be purchased at a discount.
Such securities, when held to maturity or retired, may include
an element of capital gain. Capital losses may be realized
<PAGE> 10<PAGE>
when such securities purchased at a premium are held to
maturity or are called or redeemed at a price lower than their
purchase price. Capital gains or losses also may be realized
upon the sale of securities.
The Fund also may invest in securities that take the form of
participation interests in, and may be evidenced by deposit or
safekeeping receipts for, any of the foregoing securities.
Participation interests are pro rata interests in U.S.
Government Securities such as interests in pools of mortgages
s o l d by the Government National Mortgage Association;
instruments evidencing deposit or safekeeping are documentary
receipts for such original securities held in custody by
others.
Repurchase Agreements
The Fund may also invest in repurchase agreements secured by
U.S. Government Securities. Under a repurchase agreement, the
Fund purchases a debt security and simultaneously agrees to
sell the security back to the seller at a mutually agreed-upon
future price (thereby determining the yield during the
purchaser's holding period) and date, normally one day or a
few days later. The resale price is greater than the purchase
price, reflecting an agreed-upon market interest rate during
the purchaser s holding period. While the maturities of the
underlying securities in repurchase transactions may be more
than one year, the term of each repurchase agreement will
always be less than one year. The Fund will enter into
repurchase agreements only with member banks of the Federal
R e s erve System or primary dealers of U.S. Government
Securities. The Fund's investment adviser will monitor the
creditworthiness of each of the firms which is a party to a
repurchase agreement with the Fund. In the event of a default
or bankruptcy by the seller, the Fund will liquidate those
securities (whose market value, including accrued interest,
must be at least equal to 100% of the dollar amount invested
by the Fund in each repurchase agreement) held under the
applicable repurchase agreement, which securities constitute
collateral for the seller s obligation to pay. However,
liquidation could involve costs or delays and, to the extent
proceeds from the sales of these securities were less than the
agreed-upon repurchase price, the Fund would suffer a loss.
The Fund also may experience difficulties and incur certain
costs in exercising its rights to the collateral and may lose
the interest the Fund expected to receive under the repurchase
agreement. Repurchase agreements usually are for short
periods, such as one week or less, but may be longer. It is
the current policy of the Fund to treat repurchase agreements
that do not mature within seven days as illiquid for the
purposes of the Fund's investment policies.
<PAGE> 11<PAGE>
The Fund will not enter into repurchase agreements of more
than seven days duration if more than 10% of the market value
of the Fund's net assets would be so invested together with
any other investment the Fund may hold for which market
quotations are not readily available.
Other Investment Policies and Risk Considerations
Bank Money Market Instruments. The Fund also may purchase
bank money market instruments, including certificates of
deposit, time deposits, bankers' acceptances, and other short-
term obligations issued by U.S. banks which are members of the
F e d eral Reserve System. Certificates of deposit are
negotiable certificates evidencing the obligation of a bank to
repay funds deposited with the bank for a specified period of
time. Time deposits are non-negotiable deposits maintained in
a banking institution for a specified period of time (in no
event longer than seven days) at a stated interest rate. Time
deposits which may be held by the Fund will not benefit from
insurance from the Bank Insurance Fund or the Savings
Association Insurance Fund administered by the Federal Deposit
Insurance Corporation. Investments in time deposits and
certificates of deposits are limited to domestic banks that
have total assets in excess of one billion dollars. Bankers'
acceptances are credit instruments evidencing the obligation
of a bank to a draft drawn on the bank by a customer of the
bank. These credit instruments reflect the obligation both of
the bank and of the drawer to pay the face amount of the
instrument upon maturity. Other short-term bank obligations
in which the Fund may invest include uninsured, direct
obligations of a bank that bear fixed, floating, or variable
interest rates.
Commercial Paper. The Fund also may invest in commercial
paper, including corporate notes. These instruments are
short-term obligations issued by banks and corporations that
have maturities ranging from two to 270 days. Each commercial
paper instrument may be backed only by the credit of the
issuer or may be backed by some form of credit enhancement,
typically in the form of a guarantee by a commercial bank.
I n v e stments in commercial paper and other short-term
promissory notes issued by corporations (including variable
and floating rate instruments) must be rated at the time of
purchase "A-2" or better by Standard & Poor's Ratings Group
("S&P"), "Prime-2" or better by Moody's Investors Service,
Inc. ("Moody's"), "F-2" or better by Fitch Investors Service,
Inc. ("Fitch"), "Duff 2" or better by Duff & Phelps Credit
Rating Co. ("Duff"), or "A2" or better by IBCA, Inc., or, if
not rated by S&P, Moody's, Fitch, Duff, or IBCA, Inc., must be
determined by PADCO Advisors, Inc. (the "Advisor"), the
Trust's investment adviser, to be of comparable quality
pursuant to guidelines approved by the trustees of the Trust
<PAGE> 12<PAGE>
(the Trustees ). Please refer to Appendix A to this
Prospectus for more detailed information concerning commercial
paper ratings.
The Fund also may make limited investments in guaranteed
i n v estment contracts ("GICs") issued by United States
insurance companies. The Fund will purchase a GIC only when
the Advisor has determined, under guidelines established by
the Trustees of the Trust, that the GIC presents minimal
credit risks to the Fund and is of comparable quality to
i n s truments that are rated "high quality" by certain
nationally-recognized statistical rating organizations.
When-Issued and Delayed Delivery Securities. The Fund may
purchase securities on a when-issued or delayed delivery basis
(i.e., delivery and payment can take place a month or more
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 the 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, each day, of such security in
determining its net asset value. The Fund will not purchase
securities on a when-issued or delayed delivery basis if, as a
result, more than 10% of the Fund's net assets would be so
invested. The Fund will maintain, in a segregated account,
cash or liquid securities having a value equal to or greater
than the Fund's purchase commitments.
Portfolio Transactions
W h en selecting broker-dealers to execute portfolio
transactions, the Advisor considers many factors, including
the size of the broker-dealer s "spread," the size and
difficulty of the order, the nature of the market for the
security, the willingness of the broker-dealer to position,
and the reliability, financial condition, general execution
and operational capabilities of the broker-dealer.
HOW TO INVEST IN THE FUND
The minimum initial investment in the Fund for all shareholder
accounts, including retirement plan accounts, is $2,000,000.
The Trust, at its discretion, may accept lesser amounts than
these minimum initial investments in certain circumstances.
There is no minimum amount for subsequent investments.
The shares of the Fund are offered at the daily public
offering price, which is the net asset value per share (see
"Determination of Net Asset Value") next computed after
receipt of the investor s order. No sales charges are imposed
on initial or subsequent investments. The Trust reserves the
<PAGE> 13<PAGE>
right to reject or refuse, at the Trust s discretion, any
order for the purchase of the Fund s shares in whole or in
part. There is no minimum amount for subsequent investments.
Investments in the Fund may be made (i) through securities
dealers who have the responsibility to transmit orders
promptly and who may charge a processing fee or (ii) directly
with the Trust by bank wire transfer as follows:
By Bank Wire Transfer: Request a wire transfer to:
Star Bank, N.A.
Routing Number: 0420-00013
For Account of Rydex Series Trust
Account Number: 48038-9030
Your Name
Your Account Number or, if a new
account, Federal Tax I.D. Number
(e.g., Social Security Number)
After instructing your bank to transfer money by wire, please
call the Trust and inform the Trust as to the amount you have
transferred and the name of the bank sending the transfer.
Your bank may charge a fee for such services. If the purchase
is canceled because your wire transfer is not received, you
may be liable for any loss that the Trust may incur.
Shares of the Fund are sold at a price based on the net asset
value next calculated after receipt of a purchase order in
good form, as described below. If a purchase order is
received by the Fund at or prior to 1:00 P.M., Eastern Time,
on any business day, the purchase of Fund shares is executed
at the offering price determined as of 1:00 P.M., Eastern
Time, that day. If the purchase order is received after 1:00
P.M., Eastern Time, the purchase of Fund shares will be
effected on the next business day. (See "Procedures for
Redemptions and Exchanges.")
I n the interest of economy and convenience, physical
certificates representing the Fund s shares are not issued.
Shares of the Fund are recorded on a register by the Trust s
transfer agent.
REDEEMING AN INVESTMENT
(WITHDRAWALS)
An investor may withdraw all or any portion of his investment
by redeeming Fund shares at the next-determined net asset
value per share after receipt of the order. Redemptions may
be made by letter or by telephone subject to the procedures
set forth below. The privilege to initiate redemption
transactions by telephone will be made available to Fund
<PAGE> 14<PAGE>
shareholders automatically. Telephone redemptions will be
sent only to the address of record of the redeeming investor
or to bank accounts specified by the redeeming investor in his
account application.
The proceeds of non-telephone redemptions will be sent
directly to the investor s address of record. If the investor
requests payment of redemptions to a third party or to a
location other than the investor s address of record or a bank
account specified in the investor s account application, this
request must be in writing and the investor s signature must
be guaranteed by a commercial bank; a broker, dealer,
municipal securities dealer, municipal securities broker,
government securities dealer, or government securities broker;
a credit union; a national securities exchange, registered
securities association, or clearing agency; or a savings
association.
The Fund will redeem its shares at a redemption price equal to
the net asset value of the shares as next computed following
the receipt of a request for redemption. There is no
redemption charge. Payment for the redemption price will be
made within seven days after the Trust s receipt of the
request for redemption.
With respect to the Fund, the right of redemption may be
suspended, or the date of payment postponed: (i) for any
period during which the Federal Reserve Bank of New York (the
"New York Fed") or the New York Stock Exchange (the "NYSE") is
closed (other than customary weekend or holiday closings) or
trading on the NYSE is restricted; (ii) for any period during
which an emergency exists so that disposal of the Fund s
investments or the determination of its net asset value is not
reasonably practicable; or (iii) for such other periods as the
Securities and Exchange Commission (the "Commission"), by
order, may permit for protection of the Fund s investors. On
any day that the New York Fed or the NYSE closes early, the
principal government securities markets close early (such as
o n days in advance of holidays generally observed by
participants in such markets), or as permitted by the
Commission, the right is reserved to advance the time on that
day by which purchase and redemption orders must be received.
(See "Determination of Net Asset Value.")
EXCHANGES
Shares of any Rydex Fund may be exchanged, without any charge,
for shares of any other Rydex Fund on the basis of the
respective net asset values next determined of the shares
involved; provided that, in connection with exchanges for
shares of a Rydex Fund, certain minimum investment levels are
maintained. An exchange of other Rydex Fund shares for shares
<PAGE> 15<PAGE>
of the Fund is permitted only if the $2,000,000 minimum
investment in the Fund is satisfied. The Trust reserves the
right to modify its minimum investment requirements. The
Trust currently is composed of nine separate series, The Nova
Fund, The Ursa Fund, The Rydex OTC Fund (the "OTC Fund"), The
Rydex Precious Metals Fund (the "Metals Fund"), The Rydex U.S.
Government Bond Fund (the "Bond Fund"), The Juno Fund, The
Rydex High Yield Fund (the High Yield Fund ), The Rydex U.S.
Government Money Market Fund (the "Money Market Fund"), and
t h e Rydex Institutional Money Market Fund (the series
described in this Prospectus); other separate Rydex Funds may
be added in the future. Exchanges may be made by letter or by
telephone subject to the procedures set forth below.
To implement an exchange, shareholders should provide the
following information: account name, account number, taxpayer
identification number, number of or percentage of shares or
dollar value of shares to be exchanged, and the names of the
Rydex Funds involved in the exchange transaction. Exchanges
may be made only if such exchanges are between identically
registered accounts. Shareholders contemplating such an
exchange for shares of a Rydex Fund not described in this
Prospectus should obtain and review the prospectus of the
Rydex Fund to which the investment is to be transferred. The
exchange privilege is available only in states where the
e x change legally may be made and may be modified or
discontinued at any time. Shares of the Money Market Fund
received in an exchange for shares of the OTC Fund or the
Metals Fund are issued on the third business day following the
day on which the Rydex Fund receives the exchange request.
PROCEDURES FOR REDEMPTIONS AND EXCHANGES
Written requests for redemptions and exchanges should be sent
to Rydex Series Trust, 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852, and should be signed by the record
owner or owners. Telephone redemption and exchange requests
with respect to the Rydex Funds may be made by calling (800)
820-0888 or (301) 468-8520, on any day the Trust is open for
business. Such requests may be made only between 8:30 A.M.,
Eastern Time, and the times indicated below (all times are
Eastern Time). For exchanges, the earlier of the times
indicated below for the Rydex Funds whose shares are being
exchanged applies.
The Nova, Ursa, and Rydex
OTC Funds 3:45 P.M.
The Rydex Precious Metals
Fund 3:30 P.M.
The Rydex U.S. Government
Bond and Juno Funds 2:45 P.M.
The Rydex High Yield Fund 2:15 P.M.
<PAGE> 16<PAGE>
Telephone redemption and exchange orders will be accepted only
during the period indicated above. If the primary exchange or
market on which the Rydex Fund transacts business closes
early, the above cut-off time will be approximately fifteen
minutes (thirty minutes, in the case of the Metals Fund, and
forty-five minutes in the case of the High Yield Fund) prior
to the close of such exchange or market. Telephone redemption
and exchange privileges may be terminated or modified by the
Trust at any time.
When acting on instructions believed to be genuine, the Trust
will not be liable for any loss resulting from a fraudulent
telephone transaction request and the investor would bear the
risk of any such loss. The Trust will employ reasonable
procedures to confirm that telephone instructions are genuine;
and if the Trust does not employ such procedures, then the
Trust may be liable for any losses due to unauthorized or
f r a u dulent instructions. The Trust follows specific
procedures for transactions initiated by telephone, including,
among others, requiring some form of personal identification
prior to acting upon instructions received by telephone,
providing written confirmation not later than five business
days after such transactions, and/or tape recording of
telephone instructions. Investors also should be aware that
telephone redemptions or exchanges may be difficult to
implement in a timely manner during periods of drastic
economic or market changes. If such conditions occur,
redemption or exchange orders can be made by mail.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund's shares is determined each
day on which both the NYSE and the New York Fed are open for
business at 1:00 P.M., Eastern Time. Currently, the NYSE and
the New York Fed are closed on weekends, and the following
holiday closings have been scheduled for 1996: (i) New Year's
Day, Martin Luther King Jr.'s Birthday, Washington's Birthday,
Good Friday, Memorial Day, July Fourth, Labor Day, Columbus
Day, Thanksgiving Day, and Christmas Day; and (ii) the
preceding Friday when any of those holidays falls on a
Saturday or the subsequent Monday when any one of those
holidays falls on a Sunday. To the extent that portfolio
securities of the Fund are traded in other markets on days
when the New York Fed or the NYSE is closed, the Fund's net
asset value may be affected on days when investors do not have
access to the Fund to purchase or redeem shares. Although the
Trust expects the same holiday schedule to be observed in the
future, the New York Fed and the NYSE each may modify its
holiday schedule at any time. The net asset value of the Fund
serves as the basis for the purchase and redemption price of
the Fund's shares.
<PAGE> 17<PAGE>
The Fund will utilize the amortized cost method in valuing its
portfolio securities, which method involves valuing a security
at its cost adjusted by a constant amortization to maturity of
a n y discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the
instrument. The purpose of this method of calculation is to
facilitate the maintenance of a constant net asset value per
share for the Fund of $1.00. However, there is no assurance
that the $1.00 net asset value will be maintained. For
further information regarding the amortized cost method for
valuing the Fund s portfolio securities, see "Determination of
Net Asset Value" in the Statement of Additional Information.
TAX-SHELTERED RETIREMENT PLANS
Tax-sheltered retirement plans of the following types will be
available to investors:
Individual Retirement Accounts (IRAs)
Keogh Accounts - Defined Contribution
Plans (Profit-Sharing Plans)
Keogh Accounts - Money Purchase Plans
Pension Plans)
Internal Revenue Code Section 403(b)
Plans
A d ditional information regarding these accounts may be
obtained by contacting the Trust.
DIVIDENDS AND DISTRIBUTIONS
All income dividends and capital gains distributions of the
Fund automatically will be reinvested in additional shares of
the Fund at the net asset value calculated on the ex-dividend
date, unless an investor has requested otherwise from the
Trust in writing. Dividends and distributions of the Fund are
taxable to the shareholders of the Fund, as discussed below
under "Taxes," whether such dividends and distributions are
reinvested in additional shares of the Fund or are received in
cash. Statements of account will be sent to the Fund
shareholders at least quarterly.
The Fund ordinarily (i) declares dividends of net investment
income (and net short-term capital gains, if any) for shares
of the Fund on a daily basis and (ii) distributes such
dividends to shareholders of the Fund on a monthly basis. The
Trustees, however, may revise this dividend and distribution
policy of the Fund, postpone the payment of dividends
thereunder, or take any other action necessary with respect
thereto in order to facilitate, to the extent possible, the
<PAGE> 18<PAGE>
maintenance by the Fund of a constant net asset value per
share of $1.00.
TAXES
The U.S. Internal Revenue Code of 1986, as amended (the
"Code"), provides that each investment portfolio of a series
investment company is to be treated as a separate corporation.
Accordingly, the Fund will seek to qualify for treatment as a
regulated investment company (a "RIC") under Subchapter M of
the Code. So long as the Fund qualifies as a RIC and
satisfies the distribution requirements under the Code for any
taxable year, the Fund itself will not be subject to income
t a x on the ordinary income and capital gains it has
distributed to its shareholders for that year.
To qualify as a RIC under the Code, the Fund must satisfy
certain requirements, including the requirements that the Fund
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"), and that the Fund derive less
than 30% of the Fund s gross income from the sale or other
disposition of any of the following instruments which have
been held for less than three months (the "30% Test"): (i)
stock or securities; (ii) certain options, futures, or forward
contracts; or (iii) foreign currencies (or certain options,
futures, or forward contracts on such foreign currencies).
Provided that the 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 short-term capital gains, if any, are distributed to
the shareholders of that Fund. To avoid an excise tax on its
undistributed income, the Fund generally must distribute at
least 98% of its income.
Under current law, dividends derived from interest and
dividends received by the Fund, together with distributions of
any short-term capital gains, if any, are taxable to the
shareholders of the Fund, as ordinary income at Federal income
tax rates of up to 39.6%, whether or not such dividends and
distributions are reinvested in shares of the Fund or are
received in cash.
Ordinary dividends paid to corporate or individual residents
o f foreign countries generally are subject to a 30%
withholding tax. The rate of withholding tax may be reduced
if the United States has an income tax treaty with the foreign
c o u n try where the recipient resides. Capital gains
<PAGE> 19<PAGE>
distributions received by foreign investors should, in most
cases, be exempt from U.S. tax. A foreign investor will be
required to provide the Fund with supporting documentation in
order for the Fund to apply a reduced rate or exemption from
U.S. withholding tax.
Shareholders are required by law to certify that their tax
identification number is correct and that they are not subject
to back-up withholding. In the absence of this certification,
the Fund is required to withhold taxes at the rate of 31% on
dividends, capital gains distributions, and redemptions.
Shareholders who are non-resident aliens may be subject to a
withholding tax on dividends earned. For further information
regarding the taxation of dividends and distributions from the
Fund and the tax treatment of shareholders of the Fund, see
"Dividends, Distributions, and Taxes," in the Statement of
Additional Information.
Shareholders are urged to consult their own tax advisors
regarding specific questions as to Federal, state or local
taxes.
MANAGEMENT OF THE TRUST
Investment Adviser
The Trust is provided investment advice and management
services by PADCO Advisors, Inc., a Maryland corporation with
offices at 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852 (the "Advisor"). The Advisor was incorporated
in the State of Maryland on February 5, 1993. Albert P.
Viragh, Jr., the Chairman of the Board and the President of
the Advisor, owns a controlling interest in the Advisor. The
portfolio manager of the Fund is Michael P. Byrum. Prior to
joining the PADCO Advisors, Inc. organization in July 1993,
Mr. Byrum worked for one year as an investor representative
with Money Management Associates ("MMA"), a Maryland-based
registered investment adviser. Mr. Byrum s responsibilities
at MMA included brokerage solicitation and investor relations.
M r . Byrum received his bachelor s degree in Business
Administration from Miami University, of Oxford, Ohio, in
1992.
Under an investment advisory agreement between the Trust and
the Advisor, dated May 14, 1993, and as most recently amended
on September 25, 1996, the Fund pays the Advisor a fee at an
annualized rate of 0.55% of the average daily net assets of
the Fund.
The Advisor manages the investment and the reinvestment of the
assets of the Fund, in accordance with the investment
objectives, policies, and limitations of the Fund, subject to
<PAGE> 20<PAGE>
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 who are affiliated persons of the Advisor. The
Advisor, from its own resources, including profits from
advisory fees received from the Fund, provided such fees are
legitimate and not excessive, also may make payments to
broker-dealers and other financial institutions for their
expenses in connection with the distribution of Fund shares,
which payments, to the extent made by the Advisor, may be in
addition to those payments made pursuant to a plan of
distribution for the Fund adopted by the Trust pursuant to
Rule 12b-1 under the 1940 Act (the " Distribution Plan"). See
"Distribution Plan."
Servicer
General administrative, shareholder, dividend disbursement,
transfer agent, and registrar services are provided to the
Trust and the Fund by PADCO Service Company, Inc., 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852 (the
"Servicer"), 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, dated
S e p tember 19, 1995, and as most recently amended on
September 25, 1996. Under this service agreement, the Fund
pays the Servicer a fee at an annualized rate of 0.20% of the
average daily net assets of the Fund.
The Servicer provides the Trust and the Fund with all required
g e n eral 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
the Fund under Federal and state securities laws. The
Servicer also maintains the shareholder account records for
t h e T r ust and the Fund, distributes dividends and
distributions payable by the Fund, and produces statements
with respect to account activity for the Fund and the
shareholders of the Fund. The Servicer pays all fees and
expenses that are directly related to the services provided by
the Servicer to the Trust; the 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.
Distributor
<PAGE> 21<PAGE>
Pursuant to the Distribution Plan for the Fund adopted by the
Trust pursuant to Rule 12b-1 under the 1940 Act, the Fund is
provided certain distribution services by PADCO Financial
S e r v ices, Inc., 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852 (the "Distributor"), subject to the
general supervision and control of the Trustees and the
officers of the Trust. Under the Distribution Plan, dated
March 8, 1996, the Fund reimburses the Distributor for a
portion of the Distributor's costs incurred in distributing
the shares of the Fund at an annualized rate not to exceed
0.25% of the average daily net assets of the Fund. See
"Distribution Plan."
Costs and Expenses
The Fund bears all expenses of its operations other than those
assumed by the Advisor, the Servicer, or the Distributor.
Fund expenses include: the management fee; the servicing fee
(including administrative, transfer agent, and shareholder
servicing fees); payments to be made by the Fund to the
Distributor under the Distribution Plan; custodian and
accounting fees and expenses; legal and auditing fees;
securities valuation expenses; fidelity bonds and other
i n surance 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 (to the extent that these
expenses are not covered by payments made by the Fund under
the Distribution Plan); all Federal, state, and local taxes
(including, without limitation, stamp, excise, income, and
franchise taxes); organizational costs; and non-interested
Trustees fees and expenses.
The Advisor has agreed to limit the operating expenses of the
Fund so that the ratio of expenses, including investment
management fees, to average net assets on an annual basis for
the Fund shall not exceed 1.20%. Any expenses incurred by the
Fund in excess of this amount will be absorbed by the Advisor.
For the period of July 11, 1996 through September 30, 1996,
the total expenses of the Fund were 1.24% of the Fund s
average net assets (annualized).
The Advisor has advanced the organizational expenses of the
Fund. These costs, which are approximately $40,000, will be
reimbursed by the Fund, and the Fund will amortize these costs
over a five-year period from the date the Fund commences
operations.
DISTRIBUTION PLAN
The Trust finances activities which are primarily intended to
result in the sale of Fund shares and has adopted the
<PAGE> 22<PAGE>
Distribution Plan for the Fund pursuant to Rule 12b-1 under
the 1940 Act. The Trust's Distribution Plan for the Fund
provides that the Fund will pay the Distributor monthly up to
a maximum of 0.25% per annum of the Fund's daily net assets
for expenses actually incurred by the Distributor during that
month in the distribution and promotion of the Fund's shares,
including the printing of certain reports used for sales
purposes, expenses for preparation and printing of sales
literature, and related expenses, including any maintenance,
distribution, or service fees paid to securities dealers or
brokers, administrators, investment advisers, institutions,
i n c l u ding bank trust departments, and other persons
("Recipients") who have executed a distribution or service
agreement with the Distributor. As of September 30, 1996, the
Fund had total net assets of approximately $30.8 million and
the Distributor s aggregated uncovered distribution charges
for the Fund (i.e., the expenses actually incurred by the
Distributor less amounts received by the Distributor pursuant
to the Distribution Plan) are $3,089.
The Glass-Steagall Act generally prohibits Federal and state
chartered or supervised banks from engaging in the business of
underwriting, selling, or distributing securities. Although
the scope of this prohibition under the Glass-Steagall Act has
not been clearly defined by the courts or appropriate
regulatory agencies, the Distributor believes that the Glass-
Steagall Act should not preclude a bank from performing
shareholder support services or servicing and recordkeeping
functions. The Distributor intends to engage banks only to
perform such functions. Changes in Federal or state statutes
and regulations pertaining to the permissible activities of
banks and their affiliates or subsidiaries, as well as further
judicial or administrative decisions or interpretations,
however, could prevent a bank from continuing to perform all
or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what
actions, if any, would be necessary to continue to provide
such efficient and effective shareholder services. In such
event, changes in the operation of the Fund might occur,
including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is
not expected that shareholders of the Fund would suffer any
adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed
herein, and banks and other financial institutions may be
required to register as dealers pursuant to state law.
The Fund may execute portfolio transactions with, and purchase
securities issued by, depository institutions that receive
payments under the Distribution Plan. No preference for the
instruments of such depository institutions will be shown in
<PAGE> 23<PAGE>
the selection of investments. For further information
regarding the Distribution Plan, see "Distribution Plan" in
the Statement of Additional Information.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its current "yield"
and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future
performance. The "yield" of the Fund refers to the income
generated by an investment in the Fund over a seven-day period
(which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is
calculated similarly, but, when annualized, the income earned
by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield"
b e c a u s e of the compounding effect of this assumed
reinvestment. A description of the respective methods by
which the yield and effective yield of the Fund are calculated
is contained in the Statement of Additional Information under
"Information on Computation of Yield."
Since yield fluctuates, yield data cannot necessarily be used
to compare an investment in the Fund s shares with bank
d e posits, savings accounts, and similar investment
alternatives which often provide an agreed or guaranteed fixed
yield for a stated period of time. Shareholders of the Fund
should remember that yield generally is a function of the kind
and quality of the instrument held in portfolio, portfolio
maturity, operating expenses, and market conditions.
GENERAL INFORMATION ABOUT THE TRUST
Organization and Description of Shares of Beneficial Interest
The Trust is a registered open-end investment company under
the 1940 Act. The Trust was organized as a Delaware business
trust on February 10, 1993, and has present authorized capital
of unlimited shares of beneficial interest of no par value
which may be issued in more than one class. Currently, the
Trust has issued shares of nine separate classes: The Nova
Fund, The Ursa Fund, The Rydex OTC Fund, The Rydex Precious
Metals Fund, The Rydex U.S. Government Bond Fund, The Juno
Fund, The Rydex High Yield Fund, The Rydex U.S. Government
Money Market Fund, and The Rydex Institutional Money Market
Fund. Other separate classes may be added in the future.
All shares of the Rydex Funds are freely transferable. The
Rydex Fund shares do not have preemptive rights or cumulative
<PAGE> 24<PAGE>
voting rights, and none of the shares have any preference to
conversion, exchange, dividends, retirements, liquidation,
redemption, or any other feature. Rydex Fund shares have
equal voting rights, except that, in a matter affecting a
particular series in the Trust, only shares of that series may
be entitled to vote on the matter. Shareholder inquiries can
be made by telephone (at 800-820-0888 or 301-468-8520) or by
mail (to 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852).
Under the Delaware General Corporation Law, a registered
i n vestment company is not required to hold an annual
shareholders meeting if the 1940 Act does not require such a
meeting. Generally, there will not be annual meetings of
Trust shareholders. Trust shareholders may remove Trustees of
the Trust from office by votes cast at a meeting of Trust
s h areholders or by written consent. If requested by
shareholders of at least 10% of the outstanding shares of the
Trust, the Trust will call a meeting of Trust shareholders for
the purpose of voting upon the question of removal of a
T r ustee or Trustees of the Trust and will assist in
communications with other Trust shareholders.
Unlike the stockholder of a corporation, shareholders of a
business trust such as the Trust could be held personally
liable, under certain circumstances, for the obligations of
the business trust. The Trust s Declaration of Trust,
however, disclaims liability of the shareholders of the Trust,
the Trustees, or the officers of the Trust for acts or
obligations of the Trust which are binding only on the assets
and property of the Trust. The Declaration of Trust provides
for indemnification out of Trust property for all loss and
expense of any Trust shareholder held personally liable for
the obligations of the Trust. The risk of a Trust shareholder
incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust itself would
not be able to meet the Trust s obligations and this risk,
thus, should be considered remote.
As of the date of this Prospectus, no officer or Trustee of
the Trust owned any of the Fund shares.
Trustees and Officers
The Trust has a Board of Trustees which is responsible for the
general supervision of the Trust s business. The day-to-day
operations of the Trust are the responsibility of the Trust s
officers.
Auditors
<PAGE> 25<PAGE>
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey
08540, are the auditors of and the independent public
accountants for the Trust and the Fund.
Custodian
Pursuant to a separate custody agreement entered into by the
Trust, Star Bank, N.A. (the "Custodian"), Star Bank Center,
425 Walnut Street, Cincinnati, Ohio 45202, serves as
custodian for the Trust and the Fund. Under the terms of this
c u s t ody agreement, the Custodian holds the portfolio
securities of the Fund and keeps all necessary related
accounts and records.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, OR IN THE STATEMENT OF ADDITIONAL
INFORMATION INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR
PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE TRUST IN ANY JURISDICTION
IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE> 26<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Commercial paper rated "Prime" by Moody's Investors
Service, Inc. ("Moody's"), is based upon Moody's evaluation of
many factors including: (1) the management of the issuer; (2)
the issuer's industry or industries and the speculative-type
risks which may be inherent in certain areas; (3) the issuer's
products in relation to competition and customer acceptance;
(4) liquidity; (5) amount and quality of long-term debt; (6)
trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist
with the issue; and (8) recognition by the management of
obligations which may be present or may arise as a result of
public interest questions and preparations to meet such
obligations. Relative differences in these factors determine
whether the issuer's commercial paper is rated "Prime-1,"
"Prime-2," or "Prime-3" by Moody's.
"Prime-1" indicates a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment capacity
will normally be evidenced by the following characteristics:
(1) leading market positions in well-established industries;
(2) high rates of return on funds employed; (3) conservative
capitalization structures with moderate reliance on debt and
ample asset protection; (4) broad margins in earnings coverage
of fixed financial charges and high internal cash generation;
and (5) well-established access to a range of financial
markets and assured sources of alternative liquidity.
"Prime-2" indicates a strong capacity for repayment of
short-term promissory obligations. This repayment capacity
normally will be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to
v a riation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions.
Ample alternative liquidity is maintained.
Standard & Poor's Rating Group
Commercial paper rated by Standard & Poor's Rating Group
("S&P") has the following characteristics: (1) liquidity
ratios adequate to meet cash requirements; (2) long-term
senior debt is rated "A" or better; (3) the issuer has access
to at least two additional channels of borrowing; (4) basic
earnings and cash flow have an upward trend with allowance
made for unusual circumstances; (5) typically, the issuer's
industry is well-established and the issuer has a strong
<PAGE> A-1<PAGE>
position within the industry; and (6) the reliability and
quality of management are unquestioned. The relative strength
or weakness of the above factors determine whether the
issuer's commercial paper is rated "A-1," "A-2," or "A-3."
A-1 -- This designation rating indicates that the degree
of safety regarding timely payment is either overwhelming or
very strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus (+) sign
designation.
A-2 -- The capacity for timely payment on issues with
this designation rating is strong; however, the relative
degree of safety is not as high as for issues designated "A-
1."
Fitch Investors Service, Inc.
Commercial paper rated by Fitch Investors Service, Inc.
("Fitch"), reflects Fitch's current appraisal of the degree of
assurance of timely payment of such debt. An appraisal
results in the rating of an issuer's paper as "F-1," "F-2,"
"F-3," or "F-4."
F-1 -- This designation rating indicates that the
commercial paper is regarded as having the strongest degree of
assurance for timely payment.
F-2 -- Commercial paper issues assigned this designation
rating reflect an assurance of timely payment only slightly
less in degree than those issues rated "F-1."
Duff and Phelps Credit Rating Co.
Short-term ratings by Duff & Phelps Credit Rating Co.
("Duff") are consistent with the rating criteria utilized by
m o ney market participants. The ratings apply to all
obligations with maturities of under one year, including
commercial paper, the uninsured portion of certificates of
d e p o sit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current
maturities of long-term debt. Asset-backed commercial paper
is also rated according to this scale.
An emphasis of Duff's short-term ratings is placed on
" l i quidity," which is defined as not only cash from
operations, but also access to alternative sources of funds
including trade credit, bank lines, and the capital markets.
<PAGE> A-2<PAGE>
An important consideration is the level of an obligor's
reliance on short-term funds on an ongoing basis.
The distinguishing feature of Duff's short-term ratings
is the refinement of the traditional "1" category. The
majority of short-term debt issuers carry the highest rating,
yet quality differences exist within that tier. As a
consequence, Duff has incorporated gradations of "1+" (one
plus) and "1-" (one minus) to assist investors in recognizing
those differences.
Duff 1+ -- This designation rating indicates the highest
certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
Duff 1 -- This designation rating indicates a very high
certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk
factors are minor.
Duff 1- -- This designation rating indicates a high
certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk
factors are very small.
Duff 2 -- This designation rating indicates a good
certainty of timely payment. Liquidity factors and company
fundamental are sound. Although ongoing funding needs may
enlarge total financing requirements, access capital markets
is good. Risk factors are small.
IBCA, Inc.
In addition to conducting a careful review of an
institution's reports and published figures, IBCA's analysts
regularly visit the companies for discussions with senior
management. These meetings are fundamental to the preparation
of individual reports and ratings. To keep abreast of any
changes that may affect assessments, analysts maintain contact
throughout the year with the management of the companies that
the analysts cover.
IBCA's analysts speak the languages of the countries that
the analysts cover, which is essential to maximize the value
of their meetings with management and to analyze properly a
company's written materials. IBCA's analysts also have a
thorough knowledge of the laws and accounting practices that
<PAGE> A-3<PAGE>
govern the operations and reporting of companies within the
various countries.
Often, in order to ensure a full understanding of their
position, companies entrust IBCA with confidential data.
While these data cannot be disclosed in reports, these data
are taken into account by IBCA when assigning IBCA's ratings.
Before dispatch to subscribers, a draft of the report is
submitted to each company to permit the correction of any
factual errors and to enable the clarification of issues
raised.
IBCA's Rating Committees meet at regular intervals to
review all ratings and to ensure that individual ratings are
assigned consistently for institutions in all the countries
covered. Following these committee meetings, IBCA ratings are
issued directly to subscribers. At the same time, the company
is informed of the ratings as a matter of courtesy, but not
for discussion.
A1+ -- This designation rating indicates obligations
supported by the highest capacity for timely repayment.
A1 -- This designation rating indicates obligations
supported by a very strong capacity for timely repayment.
A2 -- This designation rating indicates obligations
supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
<PAGE> A-4<PAGE>
PART B
PAGE
<PAGE>
Combined Statement of Additional Information
of
The Nova Fund,
The Ursa Fund,
The Rydex OTC Fund,
The Rydex Precious Metals Fund,
The Rydex U.S. Government Bond Fund,
The Juno Fund,
and
The Rydex U.S. Government Money Market Fund
PAGE
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
RYDEX SERIES TRUST
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
(800) 820-0888
(301) 468-8520
The Rydex Series Trust (the "Trust") is a no-load mutual fund
with nine separate investment portfolios (the "Funds" or
"Rydex Funds"), seven of which Funds are described in this
S t a t ement of Additional Information. The Funds are
principally designed for professional money managers and
investors who intend to invest in the Funds as part of an
asset-allocation or market-timing investment strategy. Sales
are made, without sales charge, at each Fund s per share net
asset value.
Except for the Rydex U.S. Government Money Market Fund, each
Fund is intended to provide investment exposure with respect
to a particular segment of the securities markets. Each of
these Funds seeks investment results that correspond over time
to a specified benchmark. The Funds may be used independently
or in combination with each other as part of an overall
investment strategy. Additional Funds may be created from time
to time.
The following are the Funds and their benchmarks:
FUND BENCHMARK
The Nova Fund 150% of the performance of the S&P 500
Composite Stock Price IndexTM
The Ursa Fund Inverse (opposite) of the S&P 500
Composite Stock Price IndexTM
Rydex OTC Fund NASDAQ 100 IndexTM (NDX)
Rydex Precious Philadelphia Stock Exchange Gold/Silver
Metals Fund IndexTM (XAU)
Rydex U.S. 120% of the price movement of current Long
Government Bond Treasury Bond
Fund
The Juno Fund Inverse (opposite) of the price movement
of the current Long Treasury Bond
The Trust also offers The Rydex U.S. Government Money Market
Fund. This Fund seeks to provide security of principal, high
current income, and liquidity by investing primarily in money
PAGE
<PAGE>
market instruments which are issued or guaranteed, as to
principal and interest, by the U.S. Government, its agencies
or instrumentalities. The securities of the Rydex U.S.
Government Money Market Fund are not deposits or obligations
of any bank, and are not endorsed or guaranteed by any bank,
and an investment in this Fund is neither insured nor
guaranteed by the United States Government. The Rydex U.S.
Government Money Market Fund seeks to maintain a constant
$1.00 net asset value per share, although this cannot be
assured.
The Funds (other than the Rydex U.S. Government Money Market
Fund) may engage in certain aggressive investment techniques,
which include engaging in short sales and transactions in
options and futures contracts. The Nova Fund and the Rydex
U.S. Government Bond Fund also may use the speculative
technique known as leverage to increase funds available for
investment. See "Borrowing." Investors in the Nova Fund may
experience substantial losses during sustained periods of
falling equity prices, while investors in the Ursa Fund and
the Juno Fund may experience substantial losses during
sustained periods of rising equity prices and declining
interest rates respectively. Because of the inherent risks in
any investment, there can be no assurance that any Fund s
investment objective will be achieved.
None of the Funds alone constitutes a balanced investment
plan, and certain of the Funds involve special risks not
traditionally associated with investment companies. The
nature of the Funds generally will result in significant
portfolio turnover which would likely cause higher expenses
and additional costs and increase the risk that the Fund will
not qualify as a regulated investment company under the
Federal tax laws. The Trust is not intended for investors
whose principal objective is current income or preservation of
capital and may not be a suitable investment for persons who
intend to follow an "invest and hold" strategy. See "Special
Risk Considerations in the Trust s Prospectus.
The Trust also offers The Rydex Institutional Money Market
Fund and, beginning on or about December 1, 1996 (subject to
obtaining all necessary regulatory approvals), also will offer
The Rydex High Yield Fund, each of which series of the Trust
is described in a separate prospectus and a separate statement
of additional information.
This Statement of Additional Information is not a prospectus.
It should be read in conjunction with the Trust's Prospectus,
dated November 1, 1996. 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.
<PAGE> 2<PAGE>
The date of this Statement of Additional Information is
November 1, 1996.
<PAGE> 3<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
THE RYDEX FUNDS
INVESTMENT POLICIES AND TECHNIQUES
INVESTMENT RESTRICTIONS
PORTFOLIO TRANSACTIONS AND BROKERAGE
MANAGEMENT OF THE TRUST
PRINCIPAL HOLDERS OF SECURITIES
DETERMINATION OF NET ASSET VALUE
PERFORMANCE INFORMATION
CALCULATION OF RETURN QUOTATIONS
INFORMATION ON COMPUTATION OF YIELD
DIVIDENDS, DISTRIBUTIONS, AND TAXES
AUDITORS AND CUSTODIAN
FINANCIAL STATEMENTS
<PAGE> 4<PAGE>
THE RYDEX FUNDS
The Trust is an open-end management investment company, and
currently is composed of nine separate series, including The
Nova Fund, The Ursa Fund, The Rydex OTC Fund, The Rydex
Precious Metals Fund, The Rydex U.S. Government Bond Fund, The
Juno Fund, The Rydex U.S. Government Money Market Fund, The
Rydex Institutional Money Market Fund, and, beginning on or
about December 1, 1996 (subject to obtaining all regulatory
approvals), The Rydex High Yield Fund (collectively, the
"Funds"); other separate Funds may be added in the future.
The Funds are principally designed for professional money
managers and investors who intend to follow an asset-
allocation or market-timing investment strategy. Except for
the Rydex U.S. Government Money Market Fund and the Rydex
Institutional Money Market Fund, each Fund is intended to
provide investment exposure with respect to a particular
s e gment of the securities markets. These Funds seek
investment results that correspond over time to a specified
benchmark. The Funds may be used independently or in
combination with each other as part of an overall investment
strategy.
Shares of any Fund may be exchanged, without any charge, for
shares of any other Fund on the basis of the respective net
asset values of the shares involved; provided, that, in
connection with exchanges for shares of the Fund, certain
minimum investment levels are maintained (see "Exchanges").
Copies of the separate Prospectus and Statement of Additional
Information for each of the Rydex High Yield Fund and the
Rydex Institutional Money Market Fund are available, without
charge, upon request to the Trust at 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852, or by telephoning the
Trust at (800) 820-0888 or (301) 468-8520.
INVESTMENT POLICIES AND TECHNIQUES
General
Reference is made to the sections entitled "Investment
Objectives and Policies" and "Investment Techniques and Other
I n v estment Policies" in the Trust's Prospectus for a
discussion of the investment objectives and policies of the
Funds. In addition, set forth below is further information
relating to the Funds. Portfolio management is provided to
each Fund by the Trust's investment adviser, PADCO Advisors,
Inc., a Maryland corporation with offices at 6116 Executive
B o u l evard, Suite 400, Rockville, Maryland 20852 (the
"Advisor").
<PAGE> 5<PAGE>
The investment strategies of the Funds discussed below, and as
discussed in the Trust's Prospectus, may be used by a Fund if,
in the opinion of the Advisor, these strategies will be
advantageous to the Fund. The Fund is free to reduce or
eliminate the Fund's activity in any of those areas without
changing 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 the Fund's objectives.
Options Transactions
Options on Securities. The Nova Fund, The Rydex OTC Fund
(the "OTC Fund"), and the Rydex Precious Metals Fund (the
"Metals Fund") may buy call options and write (sell) put
options on securities, and the Ursa 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 Options 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.
Options on Security Indexes. The Nova Fund, the OTC Fund,
and the Metals Fund may purchase call options and write put
options, and the Ursa Fund may purchase put options and write
call options, on stock indexes listed on national securities
exchanges or traded in the over-the-counter market as an
<PAGE> 6<PAGE>
investment vehicle for the purpose of realizing the Fund's
investment objective.
Options on indexes 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 high-grade, liquid short-
term debt 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 high-grade, liquid short-
term debt securities equal in value to the deficiency.
Foreign Securities
The Metals Fund may invest in issuers located outside the
United States. These purchases may be made by purchasing
American Depository Receipts ("ADRs"), "ordinary shares," or
"New York shares" in the United States. ADRs are dollar-
denominated receipts representing interests in the securities
of a foreign issuer, which securities may not necessarily be
denominated in the same currency as the securities into which
they may be converted. ADRs are receipts typically issued by
United States banks and trust companies which evidence
ownership of underlying securities issued by a foreign
corporation. Generally, ADRs in registered form are designed
for use in domestic securities markets and are traded on
exchanges or over-the-counter in the United States. Ordinary
shares are shares of foreign issuers that are traded abroad
and on a United States exchange. New York shares are shares
that a foreign issuer has allocated for trading in the United
States. ADRs, ordinary shares, and New York shares all may be
purchased with and sold for U.S. dollars, which protects the
Metals Fund from the foreign settlement risks described below.
Investing in foreign companies may involve risks not typically
associated with investing in United States companies. The
value of securities denominated in foreign currencies, and of
dividends from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S.
dollar. Foreign securities markets generally have less
trading volume and less liquidity than United States markets,
and prices in some foreign markets can be very volatile. Many
foreign countries lack uniform accounting and disclosure
standards comparable to those that apply to United States
companies, and it may be more difficult to obtain reliable
information regarding a foreign issuer's financial condition
<PAGE> 7<PAGE>
and operations. In addition, the costs of foreign investing,
i n cluding withholding taxes, brokerage commissions, and
custodial fees, generally are higher than for United States
investments.
Investing in companies located abroad carries political and
economic risks distinct from those associated with investing
in the United States. Foreign investments may be affected by
actions of foreign governments adverse to the interests of
U n i ted States investors, including the possibility of
expropriation or nationalization of assets, confiscatory
taxation, restrictions on United States investment, or on the
ability to repatriate assets or to convert currency into U.S.
dollars. There may be a greater possibility of default by
f o r eign governments or foreign-government sponsored
enterprises. Investments in foreign countries also involve a
risk of local political, economic, or social instability,
military action or unrest, or adverse diplomatic developments.
At the present time, there are five major producers and
processors of gold bullion and other precious metals and
minerals. In order of magnitude, these producers and
processors are: the Republic of South Africa, the former
republics of the former Soviet Union, Canada, the United
States, and Australia. Political and economic conditions in
several of these countries may have a direct effect on the
mining, distribution, and price of precious metals and
minerals, and on the sales of central bank gold holdings,
particularly in the case of South Africa and the former
republics of the former Soviet Union. South African mining
stocks represent a special risk in view of the history of
political unrest in that country. Besides that factor,
various government bodies such as the South African Ministry
of Mines and the Reserve Bank of South Africa exercise
regulatory authority over mining activity and the sale of
gold. The policies of these South African government bodies
in the future could be detrimental to the Metals Fund's
objectives.
U.S. Government Securities
The Rydex U. S. Government Bond Fund (the "Bond Fund") invests
primarily in U.S. Government Securities, and each of the other
Funds also may invest in U.S. Government Securities. The Juno
Fund may enter into short transactions on 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
<PAGE> 8<PAGE>
y e ars; and U.S. Treasury bonds generally have initial
maturities of greater than ten years. Certain U.S. Government
S e c u r ities are issued or guaranteed by agencies or
instrumentalities of the U.S. Government including, but not
limited to, obligations of U.S. Government agencies or
instrumentalities such as the Federal National Mortgage
Association, the Government National Mortgage Association, the
Small Business Administration, the Export-Import Bank, 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
M a r k eting Association, and the National Credit Union
Administration.
Some obligations issued or guaranteed by U.S. Government
a g encies 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 the
Federal National Mortgage Association, 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. The Bond Fund will
invest in such U.S. Government Securities only when the
Advisor is satisfied that the credit risk with respect to the
issuer is minimal.
Repurchase Agreements
As discussed in the Trust's Prospectus, 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 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
<PAGE> 9<PAGE>
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, other than The
Rydex U.S. Government Money Market Fund (the "Money Market
Fund"), not to invest in repurchase agreements that do not
mature within seven days if any such investment, together with
any other illiquid assets held by the Fund, amounts to more
than 15% (10% with respect to the Money Market Fund) of the
Fund's 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.
Zero Coupon Bonds
The Bond Fund and the Juno Fund may invest in U.S. Treasury
zero-coupon bonds. These securities are U.S. Treasury bonds
which have been stripped of their unmatured interest coupons,
t h e coupons themselves, and receipts or certificates
representing interests in such stripped debt obligations and
coupons. Interest is not paid in cash during the term of
these securities, but is accrued and paid at maturity. Such
o b l igations have greater price volatility than coupon
obligations and other normal interest-paying securities, and
the value of zero coupon securities reacts more quickly to
changes in interest rates than do coupon bonds. Since
dividend income is accrued throughout the term of the zero
c o upon obligation, but is not actually received until
maturity, the Fund may have to sell other securities to pay
said accrued dividends prior to maturity of the zero coupon
obligation. Unlike regular U.S. Treasury bonds which pay
semi-annual interest, U.S. Treasury zero coupon bonds do not
generate semi-annual coupon payments. Instead, zero coupon
bonds are purchased at a substantial discount from the
maturity value of such securities, the discount reflecting the
current value of the deferred interest; this discount is
amortized as interest income over the life of the security,
and is taxable even though there is no cash return until
maturity. Zero coupon U.S. Treasury issues originally were
created by government bond dealers who bought U.S. Treasury
bonds and issued receipts representing an ownership interest
in the interest coupons or in the principal portion of the
bonds. Subsequently, the U.S. Treasury began directly issuing
zero coupon bonds with the introduction of "Separate Trading
of Registered Interest and Principal of Securities" (or
"STRIPS"). While zero coupon bonds eliminate the reinvestment
r i sk of regular coupon issues, that is, the risk of
subsequently investing the periodic interest payments at a
<PAGE> 10<PAGE>
lower rate than that of the security held, zero coupon bonds
fluctuate much more sharply than regular coupon-bearing bonds.
Thus, when interest rates rise, the value of zero coupon bonds
will decrease to a greater extent than will the value of
regular bonds having the same interest rate.
Reverse Repurchase Agreements
The Ursa Fund, the Juno Fund, and the Money Market 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 to the Fund's
advantage to do so. Each Fund will establish a segregated
account with the Trust's custodian bank in which the Fund will
m a i ntain cash or cash equivalents or other portfolio
securities equal in value to the Fund's obligations in respect
of reverse repurchase agreements.
Borrowing
The Nova Fund and the Bond Fund 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 Nova Fund and the Bond Fund might have to sell
portfolio securities to meet interest or principal payments at
a time investment considerations would not favor such sales.
The Nova Fund and the Bond Fund intend to use leverage during
periods when the Advisor believes that the respective Fund s
investment objective would be furthered.
<PAGE> 11<PAGE>
Each Fund may 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 Investment Company Act of 1940, as amended
(the 1940 Act ), a Fund must maintain continuous asset
c o verage (total assets, including assets acquired with
borrowed funds, less liabilities exclusive of borrowings) of
300% of all amounts borrowed. If, at any time, the value of
the Fund s assets should fail to meet this 300% coverage test,
the Fund, within three days (not including 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
b o rrow money from a bank 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
i s 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.
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, except that the Money Market Fund will not lend more
than 10% of the value of the Money Market 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
<PAGE> 12<PAGE>
inures to the lending Fund and that Fund's shareholders. A
l e n d i ng Fund may pay reasonable finders, borrowers,
administrative, and custodial fees in connection with a loan.
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
b e tween a month and 120 days after the date of the
t r ansaction). 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% (10% with
respect to the Money Market Fund) 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 to 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.
Investments in Other Investment Companies
The Funds (other than the Bond Fund and the Money Market Fund)
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 10% of the value of the
total assets of the Fund. The Bond Fund and the Money Market
Fund may invest in the securities of other investment
companies only as part of a merger, reorganization, or
acquisition, subject to the requirements of the 1940 Act.
<PAGE> 13<PAGE>
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.
The foregoing strategies, and those discussed in the Trust s
Prospectus under the heading "Investment Objectives and
Policies," may subject a Fund to the effects of interest rate
fluctuations to a greater extent than would occur if such
strategies were not used. While these strategies may be used
by a Fund if, in the opinion of the Advisor, these strategies
will be advantageous to the Fund, the Fund will be free to
reduce or eliminate its activity in any of those areas without
c h anging its fundamental investment policies. Certain
provisions of the Internal Revenue Code, related regulations,
and rulings of the Internal Revenue Service may also have the
effect of reducing the extent to which the previously-cited
techniques may be used by a Fund, either individually or in
combination. Furthermore, 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 the Fund s objectives.
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 Rule 144A under the
1933 Act. A Fund will not invest more than 15% (10% with
respect to the Money Market Fund) of the Fund s net assets in
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 Commission ), illiquid securities also are
considered to include, among other securities, purchased over-
t h e-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
<PAGE> 14<PAGE>
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 other meet selection criteria, a
Fund may make such investments. Whether or not such
securities are illiquid depends on the market that exists
for the particular security. The Commission staff has taken
the position that the liquidity of Rule 144A restricted
securities is a question of fact for a board of trustees to
determine, such determination to be based on a consideration
of the readily-available trading markets and the review of any
contractual restrictions. The staff also has acknowledged
that, while a board of trustees retains ultimate
responsibility, the trustees may delegate this function to an
investment adviser. The trustees of the Trust (the Trustees)
h a ve delegated this responsibility for determining the
liquidity of Rule 144A restricted securities which may be
invested in by a Fund to the Advisor. It is not possible to
predict with assurance exactly how the market for Rule 144A
restricted securities or any other security will develop. A
security which when purchased enjoyed a fair degree of
marketability may subsequently become illiquid and,
accordingly, a security which was deemed to be liquid at the
time of acquisition may subsequently become illiquid. In such
event, appropriate remedies will be considered to minimize the
effect on the Fund s liquidity.
Portfolio Turnover
As discussed in the Trust's prospectus, the Trust anticipates
that investors in the Funds, as part of a market-timing or
asset allocation investment strategy, will frequently exchange
shares of the Funds for shares in other Funds pursuant to the
exchange policy of the Trust as well as frequently redeem
shares of the Funds (see "Exchanges" in the Trust's
Prospectus). The nature of the Funds has caused the Funds to
experience substantial portfolio turnover. Because each
Fund's portfolio turnover rate to a great extent will depend
<PAGE> 15<PAGE>
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. However,
the Trust expects that the portfolio turnover experienced the
Funds will continue to be substantial.
"Portfolio Turnover Rate" is defined under the rules of the
Securities and Exchange Commission as the value of the
s e curities purchased or securities sold, excluding all
securities whose maturities at time of acquisition were one
year or less, divided by the average monthly value of such
securities owned during the year. Based on this definition,
instruments with remaining maturities of less than one year
are excluded from the calculation of portfolio turnover rate.
I n struments 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 a remaining maturity of less than one
year. All instruments held by a Fund during a specified
period may have a remaining maturity of less than one year in
which case the portfolio turnover rate for that period, under
the definition, would be equal to zero. However, because of
the nature of Funds as described above, the actual portfolio
turnover of the Funds has been and it is anticipated that
their actual portfolio turnover in the future will be
unusually high.
INVESTMENT RESTRICTIONS
As described in the section of the Trust's Prospectus entitled
"Investment Objectives and Policies," each of the Funds has
a d o pted certain investment restrictions as fundamental
policies which cannot be changed without the approval of the
holders of a "majority" of the outstanding shares of the Fund,
as that term is defined in the 1940 Act. The term "majority"
is defined in the 1940 Act as the lesser of: (i) 67% or more
of the shares of the series present at a meeting of
shareholders, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by
proxy; or (ii) more than 50% of the outstanding shares of the
series. (All policies of a Fund not specifically identified
in this Statement of Additional Information or the Trust's
Prospectus as fundamental may be changed without a vote of the
shareholders of the Fund.) For purposes of the following
limitations, all percentage limitations apply immediately
after a purchase or initial investment. Any subsequent change
in a particular percentage resulting from fluctuations in
value does not require the elimination of any security from a
Fund's portfolio.
<PAGE> 16<PAGE>
The following restrictions are applicable to the Nova Fund,
the Ursa Fund, the OTC Fund, the Metals Fund, the Bond Fund,
and the Juno Fund:
A Fund shall not:
1. Lend any security or make any other loan if, as a
result, more than 33 1/3% of the value of the Fund's
total assets would be lent to other parties, except
(i) through the purchase of a portion of an issue of
debt securities in accordance with the Fund's
investment objective, policies, and limitations, or
(ii) by engaging in repurchase agreements with
respect to portfolio securities, or (iii) through
the loans of portfolio securities provided the
borrower maintains collateral equal to at least 100%
of the value of the borrowed security and marked-to-
market daily.
2. Underwrite securities of any other issuer.
3. Purchase, hold, or deal in real estate or oil and
gas interests, although the Fund may purchase and
sell securities that are secured by real estate or
interests therein and may purchase mortgage-related
securities and may hold and sell real estate
acquired for the Fund as a result of the ownership
of securities.
4. Issue any senior security (as such term is defined
in Section 18(f) of the 1940 Act) (including the
amount of senior securities issued but excluding
liabilities and indebtedness not constituting senior
securities), except that the Fund may issue senior
s e curities in connection with transactions in
options, futures, options on futures, and other
s i m ilar investments, and except as otherwise
permitted herein and in Investment Restriction Nos.
5, 7, 8, 9, 10, 11, 13, and 14, as applicable to the
Fund.
5. Pledge, mortgage, or hypothecate the Fund's assets,
except to the extent necessary to secure permitted
borrowings and to the extent related to the deposit
of assets in escrow in connection with (i) the
writing of covered put and call options, (ii) the
purchase of securities on a forward-commitment or
delayed-delivery basis, and (iii) collateral and
i n itial or variation margin arrangements with
respect to currency transactions, options, futures
contracts, including those relating to indexes, and
options on futures contracts or indexes.
<PAGE> 17<PAGE>
The following restrictions are applicable to the Nova Fund,
the Ursa Fund, the OTC Fund, the Bond Fund, and the Juno Fund:
A Fund shall not:
6. Invest in commodities except that the Fund may
purchase and sell futures contracts, including those
relating to securities, currencies, indexes, and
o p t ions on futures contracts or indexes and
currencies underlying or related to any such futures
contracts, and purchase and sell currencies (and
o p tions thereon) or securities on a forward-
commitment or delayed-delivery basis.
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. This limitation does not apply
to investments or obligations of the U.S. Government
or any of its agencies or instrumentalities.
<PAGE> 18<PAGE>
The following restriction is applicable to the Ursa Fund, the
OTC Fund, the Metals Fund, and the Money Market Fund:
A Fund shall not:
8. Borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes and then only in
amounts not in excess of 5% of the value of the
Fund's total assets from a bank or (ii) in an amount
up to one-third of the value of the Fund's total
assets, including the amount borrowed, in order to
meet redemption requests without immediately selling
portfolio instruments. This provision is not for
i n v estment leverage but solely to facilitate
management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or
disadvantageous.
The following restriction is applicable to the Nova Fund, the
OTC Fund, and the Metals Fund:
A Fund shall not:
9. Make short sales of portfolio securities or purchase
any portfolio securities on margin, except for such
s h o rt-term credits as are necessary for the
clearance of transactions. The deposit or payment
by the Fund of initial or variation margin in
connection with futures or options transactions is
not considered to be a securities purchase on
margin. The Fund 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 ("selling against
the box").
The following restriction is applicable to the Nova Fund and
the Bond Fund:
A Fund shall not:
10. Borrow money, except the Fund may borrow money
(i) from a bank in an amount not in excess of 33
1/3% of the total value of the Fund's assets
(including the amount borrowed) less the Fund's
liabilities (not including the Fund's borrowings),
and (ii) for temporary purposes in an amount not in
excess of 5% of the total value of the Fund's
assets.
<PAGE> 19<PAGE>
The following restriction is applicable to the Ursa Fund and
the Juno Fund:
A Fund shall not:
11. Make short sales of portfolio securities or maintain
a short position unless at all times when a short
position is open (i) the Fund maintains a segregated
account with the Fund's custodian to cover the short
position in accordance with the position of the
Securities and Exchange Commission or (ii) the Fund
o w n s an equal amount of such securities or
securities convertible into or exchangeable, without
payment of any further consideration, for securities
of the same issue as, and equal in amount to, the
securities sold short.
The following restrictions are applicable to the Metals Fund:
The Metals Fund shall not:
12. P u r chase and sell commodities or commodities
contracts, but this shall not prevent the Metals
Fund from: (a) trading in futures contracts and
options on futures contracts; or (b) investing in
precious-metals and precious minerals.
13. Invest 25% or more of the value of the Metals Fund's
total assets in the securities of one or more
issuers conducting their principal business
activities in the same industry; except that the
Metals Fund will invest 25% or more of the value of
the Metals Fund's total assets in the securities in
the metals-related and minerals-related industries.
This limitation does not apply to investments or
obligations of the U.S. Government or any of its
agencies or instrumentalities.
The following restriction is applicable to the Bond Fund:
The Bond Fund shall not:
14. Make short sales of portfolio securities or purchase
any portfolio securities on margin, except for such
s h o rt-term credits as are necessary for the
clearance of transactions. The deposit or payment
by the Bond Fund of initial or variation margin in
connection with futures or options transactions is
not considered to be a securities purchase on
margin.
<PAGE> 20<PAGE>
The following restrictions are applicable to the Money Market
Fund:
The Money Market Fund shall not:
15. Make loans to others except through the purchase of
qualified debt obligations, loans of portfolio
securities and entry into repurchase agreements.
16. Lend the Money Market Fund's portfolio securities in
excess of 15% of the Money Market Fund's total
assets. Any loans of the Money Market Fund's
portfolio securities will be made according to
guidelines established by the Board of Trustees of
the Trust, including maintenance of cash collateral
of the borrower equal at all times to the current
market value of the securities loaned.
17. Issue senior securities, except as permitted by the
M o ney Market Fund's investment objectives and
policies.
18. Write or purchase put or call options.
19. Invest in securities of other investment companies,
except as these securities may be acquired as part
of a merger, consolidation, acquisition of assets,
or plan of reorganization.
20. Mortgage, pledge, or hypothecate the Money Market
Fund's assets except to secure permitted borrowings.
In those cases, the Money Market Fund may mortgage,
pledge, or hypothecate assets having a market value
not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets of the
Money Market Fund at the time of the borrowing.
21. Make short sales of portfolio securities or purchase
any portfolio securities on margin, except for such
s h o rt-term credits as are necessary for the
clearance of transactions.
The following restriction is applicable to the Juno Fund:
The Juno Fund shall not:
22. Borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes and then only in
amounts not in excess of 5% of the value of the
Fund's total assets from a bank or (ii) in an amount
up to one-third of the value of the Fund's total
assets, including the amount borrowed, in order to
<PAGE> 21<PAGE>
meet redemption requests without immediately selling
portfolio instruments. This provision is not for
i n v estment leverage but solely to facilitate
management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or
disadvantageous. The Juno Fund shall not make
purchases while borrowing in excess of 5% of the
value of its total assets. For purposes of this
l i m i tation, Fund assets invested in reverse
repurchase agreements are included in the amounts
borrowed.
Furthermore, the Trustees have adopted additional investment
restrictions for each Fund. These restrictions are not
fundamental investment policies, but rather are operating
policies of each Fund, as indicated, and may be changed by the
Trustees without Fund shareholder approval. With respect to
each of the Funds, except as otherwise indicated, these
additional investment restrictions adopted by the Trustees, to
date, are as follows:
1. The Fund will not invest in warrants.
2. The Fund will not invest in real estate limited
partnerships.
3. The Fund will not invest in mineral leases; except
that the Metals Fund may invest in mineral leases
although the Metals Fund does not presently intend
to invest in such leases.
In addition, none of the Funds presently intends:
1. To lend the Fund's assets. If, in the future, a
Fund does lend its assets, the Fund will adhere to
all limitations on the Fund's ability to lend its
assets as required by the securities laws of those
j u r i sdictions where shares of the Fund are
registered for sale.
2. To enter into currency transactions; except that the
Metals Fund may enter into currency transactions
although the Metals Fund does not presently intend
to enter into such transactions.
3. To purchase illiquid securities. If in the future,
a Fund does purchase illiquid securities, the Fund
will not invest more than 15% of its net assets in
illiquid securities; except that the Money Market
Fund will not invest more than 10% of its net assets
in illiquid securities. Each Fund will adhere to a
<PAGE> 22<PAGE>
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.
4. To purchase and sell real property (including
limited partnership interests), to purchase and sell
securities that are secured by real estate or
interests therein, to purchase mortgage-related
securities, or to hold and sell real estate acquired
for the Fund as a result of the ownership of
securities.
If a percentage restriction is adhered to at the time of an
investment, a later increase or decrease in the investment's
percentage of the value of the Fund's total assets resulting
from a change in such values or assets will not constitute a
violation of the percentage restriction.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, the
A d visor 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
p r a c tice 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
a c counts 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
s e c u rities 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
<PAGE> 23<PAGE>
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 seeking to implement a Fund's policies, 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 with those brokers and dealers who also
furnish research and other services to the Fund or the
Advisor. Such services may include, but are not limited to,
any one or more of the following: information as to the
availability of securities for purchase or sale; statistical
or factual information or opinions pertaining to investment;
wire services; and appraisals or evaluations of portfolio
securities. If the broker-dealer providing these additional
services is acting as a principal for its own account, no
commissions would be payable. If the broker-dealer is not a
principal, a higher commission may be justified, at the
determination of the Advisor, for the additional services.
The information and services received by the Advisor from
brokers and dealers may be of benefit to the Advisor in the
management of accounts of some of the Advisor's other clients
and may not in all cases benefit a Fund directly. 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
<PAGE> 24<PAGE>
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.
The Nova Fund, the Ursa Fund, the OTC Fund, the Metals Fund,
the Bond Fund, the Juno Fund, and the Money Market Fund
commenced operations on July 12, 1993, January 7, 1994,
February 14, 1994, December 1, 1993, January 3, 1994, March 3,
1995, and December 3, 1993, respectively. For the period from
inception to June 30, 1994, total brokerage commissions paid
by the Nova Fund, the Ursa Fund, the OTC Fund, the Metals
Fund, the Bond Fund, and the Money Market Fund amounted to
$ 1 50,696, $197,412, $23,577, $381,380, $6,324, and $0,
respectively. For the period from July 1, 1994 (or inception,
if later) to June 30, 1995, total brokerage commissions paid
by the Nova Fund, the Ursa Fund, the OTC Fund, the Metals
Fund, the Bond Fund, the Juno Fund, and the Money Market Fund
amounted to $268,283, $494,223, $35,421, $550,858, $2,390,
$14,999, and $0, respectively. For the period from July 1,
1995 to June 30, 1996, total brokerage commissions paid by
the Nova Fund, the Ursa Fund, the OTC Fund, the Metals Fund,
the Bond Fund, The Juno Fund, and the Money Market Fund
amounted to $293,000, $669,000, $673,000, $35,000, $11,000,
$23,000, and $0, respectively.
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 addresses (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. Fees and expenses
for non-interested Trustees will be paid by the Trust.
Trustees
*Albert P. Viragh, Jr. (55)
Chairman of the Board of Trustees and President of the
Trust; Chairman of the Board, President, and Treasurer of
PADCO Advisors, Inc., investment adviser to the Trust,
1993 to present; Chairman of the Board, President, and
Treasurer of PADCO Service Company, Inc., shareholder and
transfer agent servicer to the Trust, 1993 to present;
Chairman of the Board of Managers of the Rydex Advisor
Variable Annuity Account (the Separate Account ), a
separate account of Great American Reserve Insurance
C o mpany, 1996 to present; Chairman of the Board,
President, and Treasurer of PADCO Advisors II, Inc.,
investment adviser to the Separate Account, 1996 to
<PAGE> 25<PAGE>
present; Chairman of the Board, President, and Treasurer
of PADCO Financial Services, Inc., a registered broker-
dealer firm, and the Rydex Institutional Money Market
Fund s principal underwriter, 1996 to present; Vice
P r esident of Rushmore Investment Advisors Ltd., a
registered investment adviser, 1985 to 1993. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
Corey A. Colehour (51)
Trustee of the Trust; Manager of the Separate Account,
1996 to present; Senior Vice President of Marketing of
Schield Management Company, a registered investment
adviser, 1985 to present. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
J. Kenneth Dalton (55)
Trustee of the Trust; Manager of the Separate Account,
1 9 9 6 to present; Mortgage Banking Consultant and
Investor, The Dalton Group, April 1995 to present;
President, CRAM Mortgage Group, Inc. 1966 to April 1995.
Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
<PAGE> 26<PAGE>
Roger Somers (52)
Trustee of the Trust; Manager of the Separate Account,
1996 to present; President, Arrow Limousine, 1963 to
present. Address: 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.
Officers
Timothy P. Hagan (54)
Treasurer and Vice President of the Trust; Vice President
of PADCO Advisors, Inc., investment adviser to the Trust,
1993 to present; Treasurer and Vice President of the
Separate Account, 1996 to present; Vice President of
PADCO Advisors II, Inc., investment adviser to the
Separate Account, 1996 to present; Employee of PADCO
Service Company, Inc., shareholder and transfer agent
servicer to the Trust, 1993 to present; President and
D i rector of Rushmore Services, Inc., a registered
transfer agent, 1981 to 1993. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
Robert M. Steele (38)
Secretary and Vice President of the Trust; Vice President
of PADCO Advisors, Inc., investment adviser to the Trust,
1994 to present; Secretary and Vice President of the
Separate Account, 1996 to present; Vice President of
PADCO Advisors II, Inc., investment adviser to the
Separate Account, 1996 to present; Vice President of The
Boston Company, Inc., an institutional money management
firm, 1987 to 1994. Address: 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852.
Michael P. Byrum (26)
Assistant Secretary of the Trust; Employee of PADCO
Advisors, Inc., 1993 to present; portfolio manager of The
Ursa Fund (since 1996), The Rydex Precious Metals Fund
(since 1993), The Rydex U.S. Government Money Market Fund
(since 1993), and The Rydex Institutional Money Market
Fund (since 1996), each a series of the Trust; Assistant
Secretary of the Separate Account, 1996 to present;
Employee of PADCO Advisors II, Inc., investment adviser
to the Separate Account; Investment Representative, Money
Management Associates, a registered investment adviser,
1992 to 1993; Student, Miami University, of Oxford, Ohio
(B.A., Business Administration, 1992). Address: 6116
Executive Boulevard, Suite 400, Rockville, Maryland
20852.
__________________________
<PAGE> 27<PAGE>
* This Trustee is deemed to be an "interested person" of
the Trust, within the meaning of Section 2(a)(19) of the
1940 Act, inasmuch as this person is affiliated with the
Advisor, as described herein.
Under an investment advisory agreement with the Advisor, dated
May 14, 1993, and amended on November 2, 1993, and also
a m e n ded on December 13, 1994, March 8, 1996, and
September 25, 1996, 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. The Trust currently is
composed of nine separate series, the Nova Fund, the Ursa
Fund, the Rydex OTC Fund, the Rydex Precious Metals Fund, the
Rydex U.S. Government Bond Fund, the Juno Fund, the Rydex U.S.
Government Money Market Fund, The Rydex High Yield Fund, and
the Rydex Institutional Money Market Fund; other separate
series may be added in the future. As of the September 30,
1996, net Trust assets under management of the Advisor were
a p proximately $973 million. Pursuant to the advisory
agreement with the Advisor, the Funds pay the Advisor the
following fees at an annual rate based on the average daily
net assets for each respective Fund, as set forth below:
The Nova Fund 0.75%
The Ursa Fund 0.90%
The Rydex OTC Fund 0.75%
The Rydex Precious Metals Fund 0.75%
The Rydex U.S. Government Bond Fund 0.50%
The Juno Fund 0.90%
The Rydex U.S. Government Money Market Fund 0.50%
The Nova Fund, the Ursa Fund, the OTC Fund, the Metals Fund,
the Bond Fund, the Juno Fund, and the Money Market Fund
commenced operations on July 12, 1993, January 7, 1994,
February 14, 1994, December 1, 1993, January 3, 1994, March 3,
1995, and December 3, 1993, respectively. For the period from
inception to June 30, 1994, total management fees paid by the
Nova Fund, the Ursa Fund, the OTC Fund, the Metals Fund, the
Bond Fund, and the Money Market Fund to the Advisor amounted
to $158,834, $193,185, $14,901, $16,816, $4,888, and $163,459,
respectively. For the period from July 1, 1994 (or inception,
if later) to June 30, 1995, total management fees paid by the
Nova Fund, the Ursa Fund, the OTC Fund, the Metals Fund, the
Bond Fund, the Juno Fund, and the Money Market Fund to the
Advisor amounted to $411,286, $1,587,040, $361,659, $221,309,
$7,704, $29,837, and $727,027, respectively. For the period
from July 1, 1995 to June 30, 1996, total management fees paid
by the Nova Fund, the Ursa Fund, the OTC Fund, the Metals
Fund, the Bond Fund, the Juno Fund, and the Money Market Fund
<PAGE> 28<PAGE>
to the Advisor amounted to $1,022,794, $1,607,706, $541,443,
$406,902, $97,820, $174,866, and $891,864, respectively.
The Advisor reimbursed the Bond Fund $0, $5,831, and $0 for
the fiscal years ended June 30, 1994, 1995, and 1996,
respectively.
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.
General administrative, shareholder, dividend disbursement,
transfer agent, and registrar services are provided to the
Trust and the Funds by PADCO Service Company, Inc., 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852
(the "Servicer"), 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, dated September 19, 1995, and amended on March 8,
1996 and also amended on September 25, 1996. 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 this service agreement, the Funds pay the Servicer the
following fees at an annual rate based on the average daily
net assets for each respective Fund, as set forth below:
The Nova Fund 0.25%
The Ursa Fund 0.25%
The Rydex OTC Fund 0.20%
The Rydex Precious Metals Fund 0.20%
The Rydex U.S. Government Bond Fund 0.20%
The Juno Fund 0.25%
The Rydex U.S. Government Money Market Fund 0.20%
For the period from inception to June 30, 1994, total service
fees paid by the Nova Fund, the Ursa Fund, the OTC Fund, the
Metals Fund, the Bond Fund, and the Money Market Fund to the
Advisor amounted to $37,545, $53,647, $3,973, $4,641, $1,955,
and $65,383, respectively. For the period from July 1, 1994
<PAGE> 29<PAGE>
(or inception, if later) to June 30, 1995, total service fees
paid by the Nova Fund, the Ursa Fund, the OTC Fund, the Metals
Fund, the Bond Fund, the Juno Fund, and the Money Market Fund
to the Advisor amounted to $137,082, $440,721, $96,637,
$59,001, $3,333, $8,232, and $290,811, respectively. For the
period from July 1, 1995 to June 30, 1996, total service fees
paid by the Nova Fund, the Ursa Fund, the OTC Fund, the Metals
Fund, the Bond Fund, the Juno Fund, and the Money Market Fund
to the Advisor amounted to $327,476, $451,107, $123,358,
$114,476, $37,793, $47,333, and $403,167, respectively.
Under the service agreement, the Servicer provides the Trust
and each Fund with all required general administrative
s e r vices, 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
p r e p a ration 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 under
Federal and state securities laws. The Servicer also
maintains the shareholder account records for each Fund,
distributes 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.
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
s h areholder reports and notices; registration fees and
expenses; proxy and annual meeting expenses, if any; all
F e d e r al, state, and local taxes (including, without
limitation, stamp, excise, income, and franchise taxes);
o r ganizational 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.
<PAGE> 30<PAGE>
For the period from inception to June 30, 1994, the total
expenses of Fund operations borne by the Nova Fund, the Ursa
Fund, the OTC Fund, the Metals Fund, the Bond Fund, and the
Money Market Fund to the Advisor amounted to $376,156,
$ 3 67,676, $44,250, $45,787, $30,901, and $384,373,
respectively. For the period from July 1, 1994 (or inception,
if later) to June 30, 1995, the total expenses of Fund
operations borne by the Nova Fund, the Ursa Fund, the OTC
Fund, the Metals Fund, the Bond Fund, the Juno Fund, and the
Money Market Fund to the Advisor amounted to $785,175,
$ 2 , 4 41,508, $680,241, $405,626, $40,599, $51,932, and
$1,290,628, respectively. For the period from July 1, 1995 to
June 30, 1996, the total expenses of Fund operations borne by
the Nova Fund, the Ursa Fund, the OTC Fund, the Metals Fund,
the Bond Fund, the Juno Fund, and the Money Market Fund to the
A d v i sor amounted to $1,747,874, $2,469,816, $916,004,
$704,167, $236,172, $320,232, and $1,758,657, respectively.
The aggregate compensation paid by the Trust to each of its
trustees serving during the fiscal year ended June 30, 1996,
is set forth in the table below:
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement
Compensation Benefits Accrued Estimated Annual
Name of Person, from the as Part of the Benefit upon
Position Trust** Trust s Expenses Retirement
----------- ---------- ------------- ----------
<S> <C> <C> <C>
Albert P. Viragh, $0 $0 $0
Jr.*
Chairman and
President
Corey A. Colehour $7,500 $0 $0
Trustee
J. Kenneth Dalton $4,500 $0 $0
Trustee
Roger Somers $7,500 $0 $0
Trustee
* Denotes an interested person of the Trust.
** Mr. David R. Petersen, who resigned as a Trustee, effective October 13,
1995, was paid $2,000 in aggregate compensation by the Trust during the
fiscal year ended June 30, 1996.
</TABLE>
<PAGE> 31<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of October 17, 1996, the following persons were the only
persons who were record owners or, to the knowledge of the
Trust, beneficial owners of 5% or more of the shares of the
Funds.
<TABLE>
<CAPION>
Fund Name and Address Number of Shares % ownership
------ ----------------- ---------------- ------------
<S> <C> <C> <C>
Nova National Financial 4,638,399.963 26.6%1/
Fund Services Corp.
P.O. Box 3908
New York, NY 10008
Schwab & Company 2,846,108.327 16.3%1/
101 Montgomery
Street
San Francisco, CA
94104
First Trust Corp. 1,085,284.837 6.2%1/
P.O. Box 173736
Denver, CO 80217
Record Owner for:
Portfolio Advisory 1,085,284.837 6.2% 2/
Services
725 South Figueroa
Suite 2328
Los Angeles, CA
90017
Donaldson Lufkin 1,077,196.868 6.2%1/
Jenrette
P.O. Box 2052
Jersey City, NJ
07303
First Trust Corp. 886,137.511 5.1%1/
P.O. Box 173736
Denver, CO 80217
Record Owner for:
Keystone Capital 886,137.511 5.1%2/
Management
<PAGE> 32<PAGE>
</TABLE>
<TABLE>
<CAPION>
Fund Name and Address Number of Shares % ownership
------ ----------------- ---------------- ------------
<S> <C> <C> <C>
The Hatten
Building
Suite 313
Gulfport, MS 39502
Ursa Schwab & Company 7,394,264.720 17.1%1/
Fund 101 Montgomery
Street
San Francisco, CA
94104
National Financial 4,025,622.414 9.3%1/
Services Corp.
P.O. Box 3908
New York, NY 10008
Donaldson Lufkin 3,290,932.667 7.6%1/
Jenrette
P.O. Box 2052
Jersey City, NJ
07303
Schwab & Company 2,681,825.883 6.2%1/
101 Montgomery
Street
San Francisco, CA
94104
OTC Fund First Trust Corp. 1,742,714.527 25.3%1/
P.O. Box 173736
Denver, CO 80217
Record Owner for:
Keystone Capital 1,742,714.527 25.3%2/
Management
The Hatten
Building
Suite 313
Gulfport, MS 39502
Donaldson Lufkin 650,141.713 9.4%1/
Jenrette
P.O. Box 2052
Jersey City, NJ
07303
<PAGE> 33<PAGE>
</TABLE>
<TABLE>
<CAPION>
Fund Name and Address Number of Shares % ownership
------ ----------------- ---------------- ------------
<S> <C> <C> <C>
Stocktontrust 575,744.824 8.4%1/
Nominee Partnership
c/o Stockton Trust,
Inc.
3001 East Camelback
Phoenix, AZ 85016
First Trust Corp. 502,513.450 7.3%1/
P.O. Box 173736
Denver, CO 80217
Record Owner for:
Potomac Fund 502,513.450 7.3%2/
Management
19522 Clubhouse
Road
Gaithersburg, MD
20879
First Trust Corp. 483,725.149 7.0%1/
P.O. Box 173736
Denver, CO 80217
Record Owner for:
Trendline Research 483,725.149 7.0%2/
& Mgmt.
1100 Boulders
Parkway
Suite 702
Richmond, VA 23225
Precious First Trust Corp. 544,187.863 16.1%1/
Metals P.O. Box 173736
Fund Denver, CO 80217
Record Owner for:
Clark Capital 544,187.863 16.1%2/
1735 Market Street
Philadelphia, PA
19103
<PAGE> 34<PAGE>
</TABLE>
<TABLE>
<CAPION>
Fund Name and Address Number of Shares % ownership
------ ----------------- ---------------- ------------
<S> <C> <C> <C>
Donaldson Lufkin 226,588.181 6.7%1/
Jenrette
P.O. Box 2052
Jersey City, NJ
07303
U.S. Independent Trust 265,817.521 21.3%1/
Govern- Corporation
ment 15255 S. 94th Avenue
Bond Suite 303
Fund Orland Park, IL
60462-3897
Record Owner for:
Brookstreet 265,817.521 21.3%2/
Securities
2361 Campus Drive
Suite 210
Irvine, CA 92715
National Financial 214,773.435 17.2%1/
Services Corp.
P.O. Box 3908
New York, NY 10008
Independent Trust 129,575.912 10.4%1/
Corporation
15255 S. 94th Avenue
Suite 303
Orland Park, IL
60462-3897
Record Owner for:
Brookstreet 129,575.912 10.4%2/
Securities
2361 Campus Drive
Suite 210
Irvine, CA 92715
Independent Trust 92,026.093 7.4%1/
Corporation
15255 S. 94th Avenue
Suite 303
Orland Park, IL
60462-3897
<PAGE> 35<PAGE>
</TABLE>
<TABLE>
<CAPION>
Fund Name and Address Number of Shares % ownership
------ ----------------- ---------------- ------------
<S> <C> <C> <C>
Record Owner for:
Trendstat Capital 92,026.093 7.4%2/
Management, Inc.
6991 East
Camelback
Suite D210
Scottsdale, AZ
85251
Juno National Financial 168,993.240 11.7%1/
Fund Services Corp.
P.O. Box 3908
New York, NY 10008
Donaldson Lufkin 135,642.359 9.4%1/
Jenrette
P.O. Box 2052
Jersey City, NJ
07303
1/ Record owner only.
2/ Beneficial owner only.
</TABLE>
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 1.0% of the outstanding
shares of each Fund.
DETERMINATION OF NET ASSET VALUE
The Money Market Fund will utilize the amortized cost method
i n v aluing its portfolio securities for purposes of
determining the net asset value of the shares of the Money
Market Fund. The Money Market Fund will utilize the amortized
cost method in valuing its portfolio securities even though
the portfolio securities may increase or decrease in market
value, generally, in connection with changes in interest
rates. The amortized cost method of valuation involves
valuing a security at its cost adjusted by a constant
a m o rtization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the
<PAGE> 36<PAGE>
market value of the instrument. While this method provides
certainty in valuation, this method may result in periods
during which value, as determined by amortized cost, is higher
or lower than the price the Money Market Fund would receive if
this Fund sold the instrument. During such periods, the yield
to investors in the Money Market Fund may differ somewhat from
that obtained in a similar company which uses mark-to-market
values for all its portfolio securities. For example, if the
use of amortized cost resulted in a lower (higher) aggregate
portfolio value on a particular day, a prospective investor in
the Money Market Fund would be able to obtain a somewhat
higher (lower) yield than would result from investment in such
a similar company and existing investors would receive less
(more) investment income. The purpose of this method of
calculation is to facilitate the maintenance of a constant net
asset value per share of $1.00.
The Money Market Fund's use of the amortized cost method to
value its portfolio securities and the maintenance of the per
share net asset value of $1.00 is permitted pursuant to Rule
2a-7 under the 1940 Act (the "Rule"), and is conditioned on
the Money Market Fund's compliance with various conditions
including: (a) the Board is obligated, as a particular
responsibility within the overall duty of care owed to the
M o ney Market Fund's shareholders, to establish written
procedures reasonably designed, taking into account current
market conditions and the Money Market Fund's investment
objectives, to stabilize the net asset value per share as
computed for the purpose of distribution and redemption at
$1.00 per share; (b) the procedures should provide for (i) the
calculation, at such intervals as the Trustees determine are
appropriate and as are reasonable in light of current market
conditions, of the deviation, if any, between net asset value
per share using amortized cost to value portfolio securities
and net asset value per share based upon available market
quotations with respect to such portfolio securities; (ii) the
periodic review by the Trustees of the amount of deviation as
well as methods used to calculate the amount of deviation; and
(iii) the maintenance of written records of the procedures,
the Trustees considerations made pursuant to the procedures
and any actions taken upon such considerations; (c) the
Trustees should consider what steps should be taken, if any,
in the event of a difference of more than 1/2 of 1% between
the two methods of valuation; and (d) the Trustees should take
such action as the Trustees deem appropriate (such as
shortening the average portfolio maturity, realizing gains or
losses, or, as provided by the Trust's Declaration of Trust,
reducing the number of the outstanding shares of the Money
Market Fund) to eliminate or reduce to the extent reasonably
practicable material dilution or other unfair results to
investors or existing shareholders. Any reduction of the
outstanding shares of the Money Market Fund will be effected
<PAGE> 37<PAGE>
by having each shareholder proportionately contribute to the
Money Market Fund's capital the shares necessary to eliminate
or reduce the material dilution or other unfair results to
investors or existing shareholders. Each Money Market Fund
shareholder will be deemed to have agreed to such contribution
in these circumstances by investment in the Money Market Fund.
The Rule further requires that the Money Market Fund limit its
investments to U.S. dollar-denominated instruments which the
Trustees determine present minimal credit risks and which are
Eligible Securities (as defined below). The Rule also
requires the Money Market Fund to maintain a dollar-weighted
average portfolio maturity (not more than 90 days) appropriate
to the Money Market Fund's objective of maintaining a stable
net asset value of $1.00 per share and precludes the purchase
of any instrument with a remaining maturity of more than
thirteen months. Should the disposition of a portfolio
s e curity result in a dollar-weighted average portfolio
maturity of more than 90 days, the Money Market Fund would be
required to invest its available cash in such a manner as to
reduce such maturity to 90 days or less as soon as reasonably
practicable.
Generally, for purposes of the procedures adopted under the
Rule, the maturity of a portfolio instrument is deemed to be
the period remaining (calculated from the trade date or such
other date on which the Money Market Fund's interest in the
instrument is subject to market action) until the date noted
on the face of the instrument as the date on which the
principal amount must be paid, or, in the case of an
instrument called for redemption, the date on which the
redemption payment must be made.
A variable rate obligation that is subject to a demand feature
is deemed to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or
the period remaining until the principal amount can be
recovered through demand. A floating rate instrument that is
subject to a demand feature is deemed to have a maturity equal
to the period remaining until the principal amount can be
recovered through demand.
An Eligible Security is defined in the Rule to mean a security
which: (a) has a remaining maturity of thirteen months or
less; (b) either (i) is rated in the two highest short-term
rating categories by any two nationally-recognized statistical
rating organizations ("NSROs") that have issued a short-term
rating with respect to the security or class of debt
obligations of the issuer, or (ii) if only one NSRO has issued
a short-term rating with respect to the security, then by that
NSRO; (c) was a long-term security at the time of issuance
whose issuer has outstanding a short-term debt obligation
<PAGE> 38<PAGE>
which is comparable in priority and security and has a rating
as specified in clause (b) above; or (d) if no rating is
assigned by any NSRO as provided in clauses (b) and (c) above,
the unrated security is determined by the Trustees to be of
comparable quality to any such rated security.
As permitted by the Rule, the Trustees have delegated to the
Advisor, subject to the Trustees' oversight pursuant to
guidelines and procedures adopted by the Trustees, the
authority to determine which securities present minimal credit
risks and which unrated securities are comparable in quality
to rated securities.
If the Trustees determine that it is no longer in the best
interests of the Money Market Fund and its shareholders to
maintain a stable price of $1.00 per share, or if the Trustees
believe that maintaining such price no longer reflects a
market-based net asset value per share, the Trustees have the
right to change from an amortized cost basis of valuation to
valuation based on market quotations. The Money Market Fund
will notify shareholders of any such change.
The Money Market Fund will manage its portfolio in an effort
to maintain a constant $1.00 per share price, but the Money
Market Fund cannot assure that the value of the shares of the
Money Market Fund will never deviate from this price. Since
dividends from net investment income (and net short-term
capital gains, if any) are declared and accrued on a daily
b a sis, the net asset value per share, under ordinary
circumstances, is likely to remain constant. Otherwise,
r e alized and unrealized gains and losses will not be
distributed on a daily basis but will be reflected in the
Money Market Fund's net asset value. The amounts of such
gains and losses will be considered by the Trustees in
determining the action to be taken to maintain the Money
Market Fund's $1.00 per share net asset value. Such action
may include distribution at any time of part or all of the
then-accumulated undistributed net realized capital gains, or
reduction or elimination of daily dividends by an amount equal
to part or all of the then-accumulated net realized capital
losses. However, if realized losses should exceed the sum of
net investment income plus realized gains on any day, the net
asset value per share on that day might decline below $1.00
per share. In such circumstances, the Money Market Fund may
reduce or eliminate the payment of daily dividends for a
period of time in an effort to restore the Money Market Fund's
$1.00 per share net asset value. A decline in prices of
securities could result in significant unrealized depreciation
on a mark-to-market basis. Under these circumstances the
Money Market Fund may reduce or eliminate the payment of
dividends, and utilize a net asset value per share as
<PAGE> 39<PAGE>
determined by using available market quotations, or reduce the
number of Money Market Fund shares outstanding.
PERFORMANCE INFORMATION
From time to time, each of the Funds (other than the Money
M a r ket Fund) 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
c o m pared to the record of various unmanaged indexes.
Performance information for the Nova Fund, the Ursa Fund, and
the Metals Fund may be compared to various unmanaged indexes,
including, but not limited to, the S&P500 Index or the Dow
Jones Industrial Average. Performance information for the
Metals Fund also may be compared to its current benchmark, the
XAU Index. Performance information for the OTC Fund may be
compared to various unmanaged indexes, including, but not
limited to, its current benchmark, the NASDAQ 100 IndexTM, and
the NASDAQ Composite IndexTM. The NASDAQ Composite IndexTM
comparison may be provided to show how the OTC Fund's total
return compares to the record of a broad average of over-the-
counter stock prices over the same period. The OTC Fund has
the ability to invest in securities not included in the NASDAQ
100 IndexTM or the NASDAQ Composite IndexTM, and the OTC
Fund's investment portfolio may or may not be similar in
composition to NASDAQ 100 IndexTM or the NASDAQ Composite
IndexTM. The NASDAQ Composite IndexTM is based on the prices
of an unmanaged group of stocks and, unlike the OTC Fund's
returns, the returns of the NASDAQ Composite IndexTM, and such
other unmanaged indexes, may assume the reinvestment of
dividends, but generally do not reflect payments of brokerage
commissions or deductions for operating costs and other
expenses of investing. Performance information for the Bond
Fund and the Juno Fund may be compared to various unmanaged
indexes, including, but not limited to, the Shearson Lehman
Government (LT) Index.
S u ch unmanaged indexes may assume the reinvestment of
dividends, but generally do not reflect deductions for
<PAGE> 40<PAGE>
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. Accordingly, the Lipper
ranking and comparison, which may be used by the Trust in
p e r formance reports, will be drawn from the "Capital
Appreciation Funds" grouping for each of the Nova Fund and the
Ursa Fund, from the "Small Company Growth Funds" grouping for
the OTC Fund, from the "Precious Metals Funds" grouping for
the Metals Fund, and from the "Bond Funds" grouping for the
Bond Fund and the Juno Fund. Rankings may be listed among one
or more of the asset-size classes as determined by Lipper.
Since the assets in all mutual funds are always changing, a
Fund may be ranked within one Lipper asset-size class at one
time and in another Lipper asset-size class at some other
time. Footnotes in advertisements and other marketing
literature will include the time period and Lipper asset-size
c l a s s , as applicable, for the ranking in question.
Performance figures are based on historical results and are
not intended to indicate future performance.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of a
Fund (other than the Money Market Fund) to that of other
m u tual funds and to other relevant market indexes 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
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
t h e 1, 5, or 10 year periods (or
fractional portion thereof).
<PAGE> 41<PAGE>
Under the 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 Prospectus 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.
From time to time, each Fund, other than the Money Market
Fund, also may include in such advertising a total return
figure that is not calculated according to the formula set
f o r th above in order to compare more accurately the
performance of the Fund with other measures of investment
return. For example, in comparing the total return of a Fund
with data published by Lipper Analytical Services, Inc., or
with the performance of the S&P500 Index or the Dow Jones
Industrial Average for each of the Nova Fund and the Ursa
Fund, the NASDAQ 100 IndexTM for the OTC Fund, the XAU Index
for the Metals Fund, and the Lehman Government (LT) Index for
the Bond Fund and the Juno Fund, each respective Fund
calculates its aggregate total return for the specified
periods of time by assuming the investment of $10,000 in Fund
shares and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date.
Percentage increases are determined by subtracting the initial
value of the investment from the ending value and by dividing
the remainder by the beginning value. Such alternative total
return information will be given no greater prominence in such
advertising than the information prescribed under SEC Rules.
For the one year period ended June 30, 1996, and for the
p e r i o d from inception of the Funds (see "Portfolio
Transactions and Brokerage") to June 30, 1996, the average
annual compounded rate of return of the respective Funds
(other than the Money Market Fund), assuming the reinvestment
of all dividends and distributions, was as follows:
<TABLE>
<CAPTION>
<PAGE> 42<PAGE>
One Year From Inception
<S> <C> <C>
The Nova Fund 32.77% 71.89%
The Ursa Fund -14.11% -22.21%
The Rydex OTC Fund 26.44% 65.03%
The Rydex Precious Metals Fund 3.67% -8.72%
The Rydex U.S. Government
Bond Fund -1.48% -1.75%
The Juno Fund 4.30% -5.30%
</TABLE>
INFORMATION ON COMPUTATION OF YIELD
The Bond Fund. In addition to the total return quotations
discussed above, the Bond Fund also may advertise the Bond
Fund's yield based on a thirty-day (or one month) period ended
on the date of the most recent balance sheet included in the
Trust's Registration Statement, computed by dividing the net
investment income per share of the Bond Fund earned during the
period by the maximum offering price per Bond Fund share on
the last day of the period, according to the following
formula:
YIELD = 2[( a-b +1)6-1]
cd
Where: a = dividends and interest earned during the
period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends; and
d = the maximum offering price per share on
the last day of the period.
<PAGE> 43<PAGE>
Under this formula, interest earned on debt obligations for
purposes of "a" above, is calculated by (i) computing the
yield to maturity of each obligation held by the Bond Fund
based on the market value of the obligation (including actual
accrued interest) at the close of business on the last day of
each month, or, with respect to obligations purchased during
the month, the purchase price (plus actual accrued interest),
(ii) dividing that figure by 360 and multiplying the quotient
by the market value of the obligation (including actual
accrued interest as referred to above) to determine the
interest income on the obligation that is in the Bond Fund's
portfolio (assuming a month of thirty days), and (iii)
computing the total of the interest earned on all debt
obligations and all dividends accrued on all equity securities
during the thirty-day or one month period. In computing
dividends accrued, dividend income is recognized by accruing
1/360 of the stated dividend rate of a security each day that
the security is in the Bond Fund's portfolio. Undeclared
earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum
offering price calculation required pursuant to "d" above.
The Bond Fund from time to time may also advertise its yield
based on a thirty-day period ending on a date other than the
most recent balance sheet included in the Trust's Registration
Statement, computed in accordance with the yield formula
described above, as adjusted to conform with the differing
period for which the yield computation is based.
Any quotation of performance stated in terms of yield (whether
based on a thirty-day or one month period) will be given no
greater prominence than the information prescribed under SEC
Rules. In addition, all advertisements containing performance
data of any kind will include a legend disclosing that such
performance data represents past performance and that the
investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be
worth more or less than the original cost of such shares.
The Bond Fund's yield as of September 30, 1996, based on a
thirty-day base period, was approximately 5.51%.
The Money Market Fund. The Money Market Fund's annualized
current yield, as may be quoted from time to time in
advertisements and other communications to shareholders and
potential investors, is computed by determining, for a stated
seven-day period, the net change, exclusive of capital changes
and including the value of additional shares purchased with
dividends and any dividends declared therefrom (which reflect
deductions of all expenses of the Money Market Fund such as
management fees), in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the
<PAGE> 44<PAGE>
period, and dividing the difference by the value of the
account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by
(365/7).
The Money Market Fund's annualized effective yield, as may be
q u oted from time to time in advertisements and other
communications to shareholders and potential investors, is
computed by determining (for the same stated seven-day period
as the current yield) the net change, exclusive of capital
changes and including the value of additional shares purchased
with dividends and any dividends declared therefrom (which
reflect deductions of all expenses of the Money Market Fund
such as management fees), in the value of a hypothetical pre-
existing account having a balance of one share at the
beginning of the period, and dividing the difference by the
value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base
period return by adding 1, raising the sum to a power equal to
365 divided by 7, and subtracting 1 from the result.
The Money Market Fund's annualized effective yield and
annualized current yield, for the seven-day period ended
September 30, 1996, were 4.45% and 4.36%, respectively.
The yields quoted in any advertisement or other communication
should not be considered a representation of the yields of the
Money Market Fund in the future since the yield is not fixed.
Actual yields will depend not only on the type, quality, and
maturities of the investments held by the Money Market Fund
and changes in interest rates on such investments, but also on
changes in the Money Market Fund's expenses during the period.
Yield information may be useful in reviewing the performance
of the Money Market Fund and for providing a basis for
comparison with other investment alternatives. However,
unlike bank deposits or other investments which typically pay
a fixed yield for a stated period of time, the Money Market
Fund's yield fluctuates.
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 Prospectus under "Dividends and Distributions." All
such distributions of a Fund normally automatically will be
reinvested without charge in additional shares of the same
Fund.
As discussed in the Trust's Prospectus, the Money Market Fund
intends to declare dividends daily from net investment income
<PAGE> 45<PAGE>
(and net short-term capital gains, if any) and distribute such
dividends monthly. Net income, for dividend purposes,
includes accrued interest and accretion of original issue and
market discount, plus or minus any short-term gains or losses
r e a l ized on sales of portfolio securities, less the
amortization of market premium and the estimated expenses of
the Money Market Fund. Net income will be calculated
immediately prior to the determination of net asset value per
share of the Money Market Fund.
The Trustees may revise the dividend policy, or postpone the
payment of dividends, if the Money Market Fund should have or
anticipate any large unexpected expense, loss, or fluctuation
in net assets which, in the opinion of the Trustees, might
have a significant adverse effect on shareholders of the Money
Market Fund. On occasion, in order to maintain a constant
$1.00 per share net asset value for the Money Market Fund, the
Trustees may direct that the number of outstanding shares of
the Money Market Fund be reduced in each shareholder's
account. Such reduction may result in taxable income to a
shareholder of the Money Market Fund in excess of the net
increase (i.e., dividends, less such reduction), if any, in
the shareholder's account for a period of time. Furthermore,
such reduction may be realized as a capital loss when the
shares are liquidated.
With respect to the investment by the Bond Fund in U.S.
Treasury zero coupon bonds, a portion of the difference
between the issue price of zero coupon securities and the face
value of such securities (the "original issue discount") is
considered to be income to the Bond Fund each year, even
though the Bond Fund will not receive cash interest payments
from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable
income of the Bond Fund which must be distributed to
shareholders of the Bond Fund in order to maintain the
qualification of the Bond Fund as a regulated investment
company (a "RIC") under Subchapter M of the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), as described
immediately below under "Regulated Investment Company Status,"
and to avoid Federal income tax at the level of the Bond Fund.
Shareholders of the Bond Fund will be subject to income tax on
such original issue discount, whether or not such shareholders
elect to receive their distributions in cash.
Regulated Investment Company 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
<PAGE> 46<PAGE>
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.
Shareholders of the Money Market Fund will be subject to
Federal income tax on dividends paid from interest income
derived from taxable securities and on distributions of
realized net short-term capital gains. Interest and realized
net short-term capital gains distributions are taxable to a
shareholder of the Money Market Fund as ordinary dividend
income regardless of whether the shareholder receives such
distributions in additional shares of the Money Market Fund or
in cash. Since the Money Market Fund's income is expected to
be derived entirely from interest rather than dividends, none
of such distributions will be eligible for the Federal
dividends received deduction available to corporations.
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").
Income from investments in precious metals and in precious
minerals will not qualify as gross income from "securities"
for purposes of the 90% Test. The Metals Fund, therefore,
intends to restrict its investment in precious metals and in
precious minerals to avoid a violation of the 90% Test.
In addition, under the Code, a Fund will not qualify as a RIC
for any taxable year if more than 30% of the Fund's gross
income for that year is derived from gains on the sale of
securities held less than three months (the "30% Test").
These requirements may also restrict the extent of a Fund's
a c tivities in option and other portfolio transactions.
Specifically, the 30% Test will limit the extent to which a
Fund may: (i) sell securities held for less than three
<PAGE> 47<PAGE>
months; (ii) write options which expire in less than three
months; and (iii) effect closing transactions with respect to
call or put options that have been written or purchased within
the preceding three months. Finally, as discussed below, this
30% Test requirement also may limit investments by a Fund in
futures contracts and options on stock indexes, securities,
and futures contracts.
Each of the Funds, other than the Money Market Fund, expects
to have greater difficulty than other mutual funds in
satisfying the 30% Test because of frequent redemptions and
exchanges of shares that are expected to occur as investors in
the Fund seek to take advantage of anticipated changes in
market conditions as a part of their market-timing investment
strategies. To minimize the risk that it will not satisfy the
30% Test because of such frequent redemptions and exchanges of
shares, each Fund will seek to meet that Fund's obligations in
c o n nection with redemptions and exchanges without the
realization of gains on the sales of stock or securities,
options, futures or forward contracts, options on futures
c o n tracts, or foreign currencies (or options, futures
contracts, or forward contracts on such foreign currencies).
In this regard, the Fund will seek (consistent with the Fund's
investment strategies) to use available cash, proceeds of
borrowing facilities, proceeds of the sale of stock or
securities, options, futures or forward contracts, options on
futures contracts, or foreign currencies (or options, futures
contracts, or forward contracts on such foreign currencies)
that have been held for three months or more, and the proceeds
of the sale of such assets that produce either no gain or the
smallest amount of such gain.
Section 851(h)(3) of the Code provides a special rule for
series mutual funds with respect to the 30% Test. Pursuant to
Section 851(h)(3), a RIC that is part of a series fund will
not fail the 30% Test as a result of sales made within five
days of "abnormal redemptions" if: (i) the sum of the
percentages for abnormal redemptions exceeds 30%; and (ii) the
RIC of which such fund is a part would meet the 30% Test if
all the funds of the investment company were treated as a
single corporation. Abnormal redemptions are defined as
redemptions which occur on any day when net redemptions exceed
one percent of net asset value. If abnormal redemptions
require a Fund to sell securities with a holding period of
less than three months, the Fund intends to make those sales
within five days of such redemptions so as to qualify for the
exclusion afforded by Section 851(h)(3) of the Code if it is
possible to do so. Despite each Fund's objective to satisfy
the requirements of Section 851 of the Code, there can be no
assurance that a Fund's efforts to achieve that objective will
be successful.
<PAGE> 48<PAGE>
If a Fund does not satisfy the 30% Test for the Fund's first
taxable year, or for any subsequent taxable year, the Fund
will not qualify as a RIC for that year. If a Fund fails to
qualify as a RIC for any taxable year, the Fund would be taxed
in the same manner as an ordinary corporation. In that event,
the Fund would not be entitled to deduct the distributions
which the Fund had paid to shareholders and, thus, would incur
a corporate income tax liability on all of the Fund's taxable
income whether or not distributed. The imposition of
corporate income taxes on the Fund would directly reduce the
return to an investor from an investment in the Fund.
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 charge mentioned below, if applicable) attributable
to such period. The Fund might also be required to pay to the
U.S. Internal Revenue Service (the "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 the Fund 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.
When a Fund, other than the Money Market Fund, is required to
sell securities to meet significant redemptions or exchanges,
the Fund may enter into futures contracts as a hedge against
price changes in the securities to be sold. Gains realized by
the Fund upon closing out the Fund's position in these
contracts are subject to the 30% Test. Ordinarily, these
gains could not be offset by declines in the value of the
<PAGE> 49<PAGE>
hedged securities for purposes of the 30% Test. Section
851(g)(1) of the Code, however, provides that, in the case of
a "designated hedge," for purposes of the 30% Test, increases
and decreases in value (during the period of the hedge) of
positions which are part of the hedge are to be netted.
Section 851(g)(2) of the Code provides that a "designated
hedge" exists when: (i) the taxpayer's risk of loss with
respect to any position in property is reduced by reason of a
c o n tractual obligation to sell substantially identical
property; and (ii) the taxpayer clearly identifies the
positions which are part of the hedge in the manner prescribed
in the IRS regulations.
IRS regulations have not yet been issued specifying how this
identification requirement can be satisfied. The legislative
history with respect to Section 851(g) states that, prior to
issuance of regulations, the identification requirement is
satisfied either by: (i) placing the positions that are part
of the hedge in a separate account that is maintained by a
broker, futures commission merchant ("FCM"), custodian, or
similar person, and that is designated as a hedging account,
provided that such person maintaining such account makes
notations identifying the hedged and hedging positions and the
d a te on which the hedge is established; or (ii) the
designation by such a broker, FCM, custodian, or similar
person of such positions as a hedge for purposes of these
provisions, provided that the RIC is provided with a written
confirmation stating the date that the hedge is established
and identifying the hedged and hedging positions.
When a Fund, other than the Money Market Fund, enters into
futures contracts to hedge against price changes of securities
to be sold, the Fund may identify such securities and
contracts as a hedge so as to qualify under Section 851(g)(1)
of the Code. There can be no assurances, however, that a Fund
(or the Fund's agents) will be able to comply with the
identification requirements that may be contained in future
IRS regulations. Moreover, the netting rule of Section
851(g)(1) is available only if the securities to be sold and
the property subject to the futures contracts constitute
"substantially identical" property. Each of the Funds, other
than the Money Market Fund, generally intends to sell pro rata
the securities being hedged, but it is unclear whether the
s e c urities and the futures contracts would constitute
"substantially identical" property.
Special Considerations Applicable to The Rydex Precious Metals
Fund. In general, with respect to the Metals Fund, gains from
"foreign currencies" and from foreign currency options,
f o reign currency futures, and forward foreign exchange
contracts ("forward contracts") relating to investments in
stock, securities, or foreign currencies will be qualifying
<PAGE> 50<PAGE>
income for purposes of determining whether the Metals Fund
qualifies as a RIC. It is currently unclear, however, who
will be treated as the issuer of a foreign currency instrument
or how foreign currency options, futures, or forward contracts
will be valued for purposes of the RIC diversification
requirements applicable to the Metals Fund.
Under Code Section 988, special rules are provided for certain
transactions in a foreign currency other than the taxpayer's
functional currency (i.e., unless certain special rules apply,
currencies other than the U.S. dollar). In general, foreign
currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts," and from
unlisted options will be treated as ordinary income or loss
under Code Section 988. Also, certain foreign exchange gains
derived with respect to foreign fixed-income securities are
also subject to Section 988 treatment. In general, Code
Section 988 gains or losses will increase or decrease the
amount of the Metals Fund's investment company taxable income
available to be distributed to shareholders as ordinary
income, rather than increasing or decreasing the amount of the
Metals Fund's net capital gain. Additionally, if Code Section
988 losses exceed other investment company taxable income
during a taxable year, the Metals Fund would not be able to
make any ordinary dividend distributions.
The Metals Fund may incur a liability for dividend withholding
tax as a result of the Metals Fund's investment in stock or
securities of foreign corporations. If, at any year end, more
than 50% of the assets of the Metals Fund are comprised of
stock or securities of foreign corporations, the Metals Fund
may elect to "pass through" to shareholders the amount of
foreign taxes paid by the Metals Fund. The Metals Fund will
make such an election only if the Metals Fund deems this to be
in the best interests of its shareholders. If the Metals Fund
does not qualify to make this election or does qualify, but
does not choose to do so, the imposition of such taxes would
directly reduce the return to an investor from an investment
in the Metals Fund.
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 or long-term capital gain to the
Fund depending on the Fund's holding period for the underlying
security or underlying futures contract. 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
or long-term capital gain or loss depending on the Fund's
holding period for the underlying security or underlying
futures contract. 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
<PAGE> 51<PAGE>
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.
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 Nova Fund, the Ursa Fund, the OTC Fund, and the
Metals Fund in its operations also will utilize options on
stock indexes. Options on "broad based" stock indexes 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 Nova Fund, the Ursa
Fund, the OTC Fund, and the Metals Fund involving nonequity
options on stock indexes 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 four 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.
<PAGE> 52<PAGE>
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 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
c o r r e ct 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.
AUDITORS AND CUSTODIAN
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey
08540, are the auditors and the independent certified public
accountants of the Trust and each of the Funds. Star Bank,
N.A., 425 Walnut Street, Cincinnati, Ohio 45202, acts as the
Custodian bank for the Trust and each of the Funds.
FINANCIAL STATEMENTS
The Financial Statements (audited) of the Trust for the fiscal
year ended June 30, 1996, are incorporated by reference from
the Trust's 1996 Annual Report to Shareholders. Copies of the
Trust's Annual Report may be obtained without charge by
contacting the Trust at 6116 Executive Boulevard, Suite 400,
<PAGE> 53<PAGE>
Rockville, Maryland 20852, or by telephoning the Trust at 800-
820-0888 or 301-468-8520.
<PAGE> 54<PAGE>
Audited Financial Statements
for
Rydex Series Trust,
for the Fiscal Year Ended June 30, 1996,
Including the Report of
Deloitte & Touche LLP,
Independent Auditors for
Rydex Series Trust
PAGE
<PAGE>
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
ANNUAL REPORT,
JUNE 30, 1996
RYDEX SERIES
TRUST
6116 Executive
Boulevard, Suite 400
Rockville, MD
20852
[RYDEX INVESTMENT FLEXIBILITY LOGO (301) 468-8520
(800) 820-0888
APPEARS HERE]
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
DEAR SHAREHOLDER:
We are pleased to present the Rydex Series Trust Annual
Report for the fiscal
year ended June 30, 1996. We will briefly describe the
economic environment for
U.S. Shareholders for the period covered by this report. In
addition, we will
discuss how the Rydex Funds performed in this environment
relative to their
stated objectives.
FISCAL YEAR IN REVIEW
The U.S. Economy was characterized by slow to moderate
economic growth and
low inflation during much of our latest fiscal year. The
equity markets ended
the period generally higher, while bonds, trading in a wide
range, finished
slightly higher, as measured by the Lehman Long T-Bond Index.
During the period, the U.S. Federal
Reserve Board (the Fed) held eight
regularly scheduled FOMC meetings to
establish monetary policy. The Fed
reduced its federal funds target rate
from 6.00% to 5.25% in an effort to
promote a soft landing for the economy
(See graph). Short term interest rates,
<PAGE> 56<PAGE>
as represented by the three month T-
Bill, followed suit. The Federal
Reserve Board attempts to strike a
balance between restrictive monetary
policy that may drive the economy into
a recession and easy monetary policy
which may promote excessive inflation.
The Fed's bias toward easing indicated
their belief that lower interest rates
were needed to spur economic growth and
prevent a recession.
[SHORT TERM INTEREST
RATE CHART
APPEARS HERE ]
Source: Bloomberg
Financial Markets
A number of macroeconomic indicators supported the Fed's
view. Specifically,
the Consumer Price Index (a common measure of inflation)
remained stable for
the third and fourth quarter of 1995 at 2.0% and 2.4%,
respectively. Real GDP
measured at 3.6% for the third quarter 1995 and a lackluster
0.5% for the
fourth quarter. In addition, in early 1996,
<PAGE>
Federal budget battles led to two government shutdowns which
furthered the
cause of economic weakness. All indications were for low
inflation and slowing
economic growth to continue. As a result, the consensus
forecast was for the
Fed to continue to lower the federal funds target rate to
prevent a recession.
However, in early 1996, several economic indicators caused
market psychology
to change almost in the blink of an eye. Several reports of
conflicting
macroeconomic data led most market participants to question
whether the economy
could sustain a period of slow growth and low inflation.
Unfortunately, the
major question on Wall Street in early 1996, the direction of
the economy and
interest rates, was far from being resolved.
Of particular note was the U.S.
<PAGE> 57<PAGE>
nonfarm payroll employment data. The
payroll employment data is the primary
monthly indicator of aggregate economic
activity because it encompasses every
major sector of the economy. It is
released on the first Friday of each
month. In early 1996, a series of
released employment data figures shocked
the market by coming in above
expectations. Specifically, the February
and May employment numbers came in far
above estimates, triggering sharp sell-
offs in the bond market and pushing
long-term interest rates higher. The
three month moving average confirmed an
upward trend in payroll employment.
[PAYROLL EMPLOYMENT
CHART APPEARS
HERE ]
Source: Bureau of
Labor Statistics
As the new year progressed, it became clear that the economy
was growing
stronger than originally thought. The first quarter GDP growth
rate was a
robust 2.3% and the forecast of 3.6% for the second quarter
was in contrast to
1995's growth rate of 2.0%. Payroll employment rose by an
average of 229,000 a
month for the first six months of 1996. Producer inflation
picked up due to
higher commodity and oil prices. As a result, the market
reversed its
expectations of further easing by the Fed (for the time being)
to an
expectation of tightening. Overall, the economy ended the
second quarter on a
firm note, suggesting a surprising amount of forward momentum
going into the
second half of the year.
FUND STRATEGY AND PERFORMANCE
The following is a description of each of the Rydex Funds as
compared to
their respective benchmarks. Each Fund, with the exception of
the U.S
Government Money Market Fund, has an investment objective to
correlate its
returns to a particular benchmark as stated below.
<PAGE> 58<PAGE>
2
<PAGE>
The Nova Fund
-------------
Benchmark: 150% of the performance of the S & P 500 Composite
Stock Price Index
Inception: July 12, 1993
The general stock market, as represented by the S & P 500
Composite Stock
Price Index, ended the fiscal year with a 23.11% total return.
The Nova Fund
ended the period with a 32.77% total return. To achieve its
objective, Nova
invested primarily in S & P 500 futures contracts and call
options on S & P 500
futures contracts. Nova was able to outperform the S & P 500
Index and perform
consistent with its benchmark by using its call options and
futures contracts
to maintain 150% exposure to the market.
[LINE GRAPH APPEARS HERE]
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Total
Return
------------
One Year ended Since
Inception (7-12-93)
6-30-96 to
6-30-96
--------------------------------------------------------------
---------------
<S> <C> <C>
Nova Fund 32.77%
71.89%
Standard & Poor's 500 Stock Index 23.11%
49.37%
--------------------------------------------------------------
---------------
</TABLE>
<PAGE> 59<PAGE>
Past performance is no guarantee of future results. The S & P
500 Stock Index
is an unmanaged stock index and, unlike the Fund, has no
management fees or
other operating expenses to reduce its reported return.
Returns are historical
and include changes in principal and reinvested dividends and
capital gains.
3
<PAGE>
The Ursa Fund
-------------
Benchmark: Inverse (opposite) of the S & P 500 Composite Stock
Price Index
Inception: January 7, 1994
Similar to the Nova Fund, Ursa utilizes S & P 500 futures
contracts and
options on S & P 500 futures contracts to achieve its
objective. The Ursa Fund
showed a -14.11% total return for the period as a result of
its short position
in the S & P 500 Index. This compared to a 23.11% return for
the S & P 500.
Ursa performed better than its benchmark since it is able to
earn interest on
cash balances which it is required to keep in order to cover
its short
positions.
[LINE GRAPH APPEARS HERE]
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Total Return
------------
One Year ended Since
Inception (1-7-94)
6-30-96 to
6-30-96
--------------------------------------------------------------
--------------
<S> <C> <C>
Ursa Fund -14.11%
-22.21%
<PAGE> 60<PAGE>
Standard & Poor's 500 Stock Index 23.11%
42.72%
--------------------------------------------------------------
--------------
</TABLE>
Past performance is no guarantee of future results. The S & P
500 Stock Index
is an unmanaged stock index and, unlike the Fund, has no
management fees or
other operating expenses to reduce its reported return.
Returns are historical
and include changes in principal and reinvested dividends and
capital gains.
4
<PAGE>
The Rydex OTC Fund
------------------
Benchmark: NASDAQ 100 Index (NDX)
Inception: February 14, 1994
Over-the-counter securities performed quite well during the
fiscal year. The
NASDAQ Composite Index, which represents the universe of all
OTC securities,
was up 26.95% during the period. The OTC Fund outperformed its
benchmark, the
NASDAQ 100, by .55 percentage points during the fiscal year.
The Fund performed
i n sync with the NASDAQ 100 by closely matching its
investments to that of the
index. Generally, the Fund owned approximately eighty of the
highest
capitalization stocks that comprise the NASDAQ 100. These
stocks represented
roughly 95% of the capitalization of the index.
[LINE GRAPH APPEARS HERE]
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Total Return
------------
One Year ended Since Inception
(2-14-94)
<PAGE> 61<PAGE>
6-30-96 to 6-30-96
--------------------------------------------------------------
----
<S> <C> <C>
OTC Fund 26.44% 65.03%
NASDAQ 100 Index 25.89% 67.19%
NASDAQ Composite Index 26.95% 50.87%
--------------------------------------------------------------
----
</TABLE>
Past performance is no guarantee of future results. The NASDAQ
Composite Index
and the NASDAQ 100 Index are unmanaged stock indices and,
unlike the Fund, have
no management fees or other operating expenses to reduce their
reported
returns. Returns are historical and include changes in
principal and reinvested
dividends and capital gains.
5
<PAGE>
The Rydex Precious Metals Fund
------------------------------
Benchmark: Philadelphia Stock Exchange Gold/Silver Index (XAU)
Inception: December 1, 1993
Gold prices remained within a trading range of $380 an ounce
to $430 an ounce
for the fiscal year. The XAU Index--which is comprised of
mainly North American
gold and silver mining and production companies--had a
turbulent year. Between
June and November the XAU fell from 120.19 to 107.18 or 10.8%.
Gold stocks were
mainly pressured by Central Bank selling of gold bullion and
at the prospects
for low inflation. After November, the index made impressive
gains until the
end of May when it reached 148.89. Unfortunately, much of that
gain was lost by
the end of the fiscal year. The Rydex Precious Metals Fund
mimicked the
performance of the XAU Index during the period due to a
similar weighting of
stocks held by the fund as in the index.
[LINE GRAPH APPEARS HERE]
<PAGE> 62<PAGE>
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Total
Return
------------
One Year ended Since
Inception (12-1-93)
6-30-96 to
6-30-96
--------------------------------------------------------------
---------------
<S> <C> <C>
Precious Metals Fund 3.67%
-8.72%
Philadelphia Stock Exchange
Gold/Silver Index 2.97%
2.40%
Standard & Poor's 500 Stock Index 23.11%
45.19%
--------------------------------------------------------------
---------------
</TABLE>
Past performance is no guarantee of future results. The S & P
500 Index and the
PSE Gold/Silver Index are unmanaged stock indexes and, unlike
the Fund, have no
management fees or other operating expenses to reduce their
reported returns.
Returns are historical and include changes in principal and
reinvested
dividends and capital gains.
6
<PAGE>
The Rydex U. S. Government Bond Fund
------------------------------------
Benchmark: 120% of the price movement of current Long Treasury
Bond
Inception: January 3, 1994
To meet its objective, the Fund purchased U. S. Government
Bonds and options
on Treasury Bond futures traded on the Chicago Board of Trade.
Throughout the
period, the Fund held a position in the current 30-year
Treasury Bond. By
<PAGE> 63<PAGE>
combining a position in the 30-year Treasury Bond with call
options on Treasury
Bond futures, the Fund effectively increased its duration to
approximate 120%
exposure to the Long Bond. The rise in interest rates during
1996 caused the
price of the longer term Treasury Bonds to decrease. As a
result, the Fund
ended the period with a total return of -1.48%.
[LINE GRAPH APPEARS HERE]
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Total
Return
------------
One Year ended Since
Inception (1-3-94)
6-30-96 to
6-30-96
--------------------------------------------------------------
---------------
<S> <C> <C>
U.S. Government Bond Fund -1.48%
-1.75%
Price movement of 30 year Treasury
Bond -5.17%
-9.72%
Lehman Brothers Long T-Bond Index 3.36%
14.46%
--------------------------------------------------------------
---------------
</TABLE>
Past performance is no guarantee of future results. The Lehman
Brothers Long T-
Bond Index is an unmanaged bond index and, unlike the Fund,
has no management
fees or other operating expenses to reduce its reported
return. The Price
movement of the 30-year Treasury Bond represents a cumulative
percentage change
in its closing price. Returns are historical and include
changes in principal
and reinvested dividends and capital gains.
7
<PAGE>
<PAGE> 64<PAGE>
The Juno Fund
-------------
Benchmark: Inverse (opposite) of the price movement of current
Long Treasury
Bond
Inception: March 3, 1995
To achieve its objective, Juno attempts to approximate a
100% short position
in the Long Treasury Bond. During the fiscal year, the Fund
sold Treasury Bond
Futures and bought puts on the Treasury Bond Futures traded on
the Chicago
Board of Trade. Generally, the Treasury Bond Futures will have
a high
correlation to the 30-year Treasury Bond. For the fiscal year,
the price
movement on the 30-year Treasury Bond was down 5.17%. Juno was
up 4.30% under-
performing its benchmark by .87 percentage points. Juno's
under-performance was
due to the fact that the bond futures did not decline as much
as the cash bond
during the period.
[LINE GRAPH APPEARS HERE]
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Total
Return
------------
One Year ended Since
Inception (3-3-95)
6-30-96 to
6-30-96
--------------------------------------------------------------
---------------
<S> <C> <C>
The Juno Fund 4.30%
-5.30%
Price movement of 30 year Treasury
Bond -5.17%
6.04%
Lehman Brothers Long T-Bond Index 3.36%
16.71%
<PAGE> 65<PAGE>
--------------------------------------------------------------
---------------
</TABLE>
Past performance is no guarantee of future results. The Lehman
Brothers Long T-
Bond Index is an unmanaged bond index and, unlike the Fund,
has no management
fees or other operating expenses to reduce its reported
return. The Price
movement of the 30-year Treasury Bond represents a cumulative
percentage change
in its closing price. Returns are historical and include
changes in principal
and reinvested dividends and capital gains.
8
<PAGE>
THE RYDEX U. S. GOVERNMENT MONEY MARKET FUND
The objective of the Rydex U. S. Government Money Market
Fund is to provide
security of principal, high current income, and liquidity. To
meet its
objective, the Fund invested in U. S. Government money market
instruments,
keeping the Fund's average maturity to a minimum. The low
average maturity
allowed the Fund to accommodate a high turnover while
participating in
increases in short term interest rates. For the fiscal year,
the Fund posted an
average annual total return of 4.60%.
During the fiscal year shareholders redeemed $2,520,809,574
from the Nova
Fund. A portion of those proceeds received by shareholders
represent capital
gain distributions in the amounts of $12,578,277 in the Nova
Fund.
Additionally, on September 29, 1995 the OTC Fund made a
long-term capital gain
d i stribution of $511,919 to shareholders of record of
September 28, 1995. This
notification is to meet certain IRS requirements.
IN SUMMARY
The past year has been an eventful period for investors. We
are pleased with
<PAGE> 66<PAGE>
the performance of each of our funds as they have afforded our
shareholders
opportunities in step with specific market benchmarks. As
always, we remain
committed to providing new, innovative products to service the
needs of
professional money managers and their clients. At Rydex, we
appreciate our
shareholder's confidence which is represented by our asset
growth over the past
few years. If you have any questions or comments, call us at
(800) 820-0888 or
(301) 468-8520.
Sincerely,
/s/ Albert P. Viragh
Albert P. (Skip) Viragh
Chairman of the Board
9
<PAGE>
RYDEX SERIES TRUST
NOVA FUND
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------
------------------
June 30, 1996
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
------------ ---------------
<S> <C>
<C>
OPTIONS PURCHASED 15.9%
Call Options on:
S&P 500 Futures Contracts Expiring September 1996
at 530
<PAGE> 67<PAGE>
(Cost $29,691,424)
423 $ 31,048,200
------------
<CAPTION>
Face
Amount
------------
<S> <C>
<C>
U.S. TREASURY OBLIGATIONS 25.3%
U.S. Treasury Bills 5.12% due 9/12/96 (Cost
$49,480,889)
$50,000,000 49,480,889
------------
REPURCHASE AGREEMENT 58.8%
Repurchase Agreement Collateralized by U.S.
Treasury Obligations--
5.45% due 7/1/96 (Note 3)
114,900,000 114,900,000
------------
Total Investments 100% (Cost $194,072,313)
$195,429,089
============
--------------------------------------------------------------
-----------------
<CAPTION>
Unrealized Gain
Contracts (Note 1)
------------ ---------------
<S> <C>
<C>
FUTURES CONTRACTS PURCHASED
S&P 500 Futures Contracts Expiring September 1996
(Underlying Face Amount at Market Value
$191,287,475)
570 $ 1,595,338
============
</TABLE>
See Notes to Financial Statements.
<PAGE> 68<PAGE>
10
<PAGE>
RYDEX SERIES TRUST
URSA FUND
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------
------------------
June 30, 1996
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Market
Value
Contracts
(Note 1)
-----------
---------------
<S> <C>
<C>
OPTIONS PURCHASED 52.8%
Put Options on:
S&P 500 Futures Contract Expiring September 1996
at 750
(Cost $3,192,635) 89
$ 3,257,400
------------
Call Options on:
S&P 500 Index Expiring August 21, 1996 at 320
(Cost $200,056,600) 6,000
210,648,000
------------
Total Options Purchased (Cost $203,249,235)
213,905,400
------------
<CAPTION>
Face Amount
-----------
<S> <C>
<C>
U.S. TREASURY OBLIGATIONS 24.5%
<PAGE> 69<PAGE>
U.S. Treasury Bill 4.97% due 8/15/96 $50,000,000
49,689,375
U.S. Treasury Bill 5.10% due 9/12/96 50,000,000
49,483,424
------------
Total U.S. Treasury Obligations (Cost
$99,172,799)
99,172,799
------------
REPURCHASE AGREEMENT 22.7%
Repurchase Agreement Collateralized by U.S.
Treasury Obligations--
5.45% due 7/1/96 (Note 3) 92,000,000
92,000,000
------------
Total Investments 100% (Cost $394,422,034)
$405,078,199
============
--------------------------------------------------------------
---------------
<CAPTION>
Unrealized Gain
Contracts
(Note 1)
-----------
---------------
<S> <C>
<C>
FUTURES CONTRACTS SOLD
S&P 500 Futures Contract Expiring September 1996
(Underlying Face Amount at Market Value
$164,682,875) 484
$ 892,600
============
Market
Value
WRITTEN OPTIONS CONTRACTS
(Note 1)
------------
Call Options on:
S&P 500 Index Expiring August 21, 1996 at 330
<PAGE> 70<PAGE>
(Proceeds $194,132,927) 6,000
$204,690,000
============
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
RYDEX SERIES TRUST
U.S. GOVERNMENT MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------
------------------
June 30, 1996
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Market
Value
Face
Amount (Note 1)
----------- ------------
<S> <C>
<C>
FEDERAL AGENCY DISCOUNT NOTES 29.4%
Federal National Mortgage Association 5.18% due
7/1/96
$10,000,000 $ 10,000,000
Federal National Mortgage Association 5.26% due
7/15/96
10,000,000 9,994,155
Federal National Mortgage Association 5.19% due
7/18/96
10,000,000 9,975,492
Federal National Mortgage Association 5.27% due
7/25/96
10,000,000 9,964,867
Federal National Mortgage Association 5.28% due
7/30/96
10,000,000 9,957,467
<PAGE> 71<PAGE>
------------
Total Federal Agency Discount Notes (Cost
$49,891,981)
49,891,981
------------
REPURCHASE AGREEMENT 70.6%
Repurchase Agreement Collateralized by U.S. Treasury
Obligations--5.45% due 7/1/96 (Note 3)
120,000,000 120,000,000
------------
Total Investments 100% (Cost $169,891,981)
$169,891,981
============
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
RYDEX SERIES TRUST
OVER-THE-COUNTER FUND
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------
------------------
June 30, 1996
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Market
Value
Shares (Note 1)
------ -----------
<S> <C> <C>
COMMON STOCKS 80.1%
Microsoft Corp.* 61,278 $ 7,361,020
Intel Corp. 85,350 6,267,891
Cisco Systems, Inc.* 57,636 3,263,638
Oracle Systems Corp.* 70,300 2,772,437
Amgen* 27,733 1,497,582
MCI Communications, Inc. 56,272 1,441,970
Sun Microsystems, Inc.* 18,979 1,117,389
<PAGE> 72<PAGE>
Worldcom, Inc.* 20,064 1,111,044
Tele-Communications, Inc. 60,017 1,087,808
U.S. Healthcare, Inc. 14,331 788,205
U.S. Robotics, Inc.* 9,192 785,916
3Com Corp.* 14,959 684,374
Tellabs, Inc.* 9,342 624,746
HBO & Company 8,586 581,702
Parametric Technology* 13,392 580,878
Applied Materials, Inc.* 18,928 577,304
Novell, Inc.* 38,095 528,568
MFS Communications* 12,989 488,711
Dell Computer Corp.* 9,522 484,432
Stratcom* 7,762 436,612
Price/Costco, Inc.* 19,840 429,040
Chiron Corp.* 4,305 421,890
America Online, Inc.* 8,932 390,775
Nordstrom, Inc. 8,624 383,768
Comcast Corp. Class A 20,325 376,012
Peoplesoft, Inc.* 5,170 368,363
Northwest Airline Corp.* 9,303 367,468
DSC Communications Corp.* 12,109 364,783
Paychex, Inc. 7,495 360,697
Informix Corp.* 15,412 346,770
Qualcomm* 6,386 339,256
Willamette Industries, Inc. 5,611 333,854
BMC Software, Inc.* 5,354 319,902
Staples* 15,982 311,649
Oxford Health Plans, Inc.* 7,554 310,658
Glenayre Tech., Inc.* 6,213 310,650
Atmel Corp.* 10,269 309,354
ADC Telecommunications, Inc.* 6,388 287,460
Sigma Aldrich Corp. 5,050 270,175
</TABLE>
<TABLE>
<CAPTION>
Market
Value
Shares (Note 1)
------ -----------
<S> <C> <C>
Viking Office Products* 8,571 $ 268,915
Adaptec* 5,661 268,190
Adobe Systems 7,470 267,986
Apple Computer, Inc. 12,513 262,773
Cintas Corp. 4,887 261,455
Gateway 2000, Inc.* 7,570 257,380
St. Jude Medical, Inc.* 7,335 245,722
Paging Network* 10,205 244,920
Linear Technology Corp. 7,793 233,790
<PAGE> 73<PAGE>
Xilinx, Inc.* 7,302 231,838
Stryker Corp.* 10,107 229,934
Intuit, Inc.* 4,710 222,548
Tyson Foods, Inc. 7,960 217,905
NEXTEL Communications, Inc.* 11,394 217,198
AES Corp.* 7,617 215,180
Boston Chicken Inc.* 6,520 211,900
PACCAR, Inc. 3,984 195,216
Worthington Industries, Inc. 9,329 194,743
American Greetings, Corp. 6,960 190,530
Biogen, Inc.* 3,382 185,587
Centocor, Inc.* 6,106 182,417
Genzyme Corp.* 3,506 176,177
Biomet, Inc.* 12,092 173,822
Altera Corp.* 4,529 172,102
Healthcare Compare Corp.* 3,528 171,990
Sybase, Inc.* 7,107 167,903
Compuware Corp.* 4,239 167,441
McCormick & Co. 6,995 154,764
General Nutrition Companies, Inc.* 8,806 154,105
Electronics Arts, Inc.* 5,760 154,080
Cracker Barrel Old Country Store, Inc. 6,310 153,018
Idexx Laboratories Inc.* 3,898 152,997
Autodesk, Inc. 4,831 144,326
KLA Instruments, Inc.* 4,986 115,925
Cirrus Logic, Inc.* 6,314 110,495
American Power Conversion Corp.* 9,273 95,048
Perrigo Company* 7,384 83,070
Lam Research Corp.* 3,032 78,832
Stewart & Stevenson Services, Inc. 3,465 78,829
-----------
Total Common Stocks
(Cost $38,825,017) $46,395,802
-----------
</TABLE>
* Non-Income Producing Securities.
See Notes to Financial Statements.
13
<PAGE>
RYDEX SERIES TRUST
OVER-THE-COUNTER FUND
SCHEDULE OF INVESTMENTS (continued)
--------------------------------------------------------------
------------------
June 30, 1996
<PAGE> 74<PAGE>
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- -----------
<S> <C>
<C>
OPTIONS PURCHASED 0.0%
Call Options On:
NASDAQ 100 Option Contract Expiring July 1996 at 690
(Cost $34,349)
37 $ 32,375
-----------
<CAPTION>
Face
Amount
-----------
<S> <C>
<C>
REPURCHASE AGREEMENT 19.9%
Repurchase Agreement Collateralized by U.S. Treasury
Obligations--5.45% due 7/1/96 (Note 3)
$11,500,000 11,500,000
-----------
Total Investments 100% (Cost $50,359,366)
$57,928,177
===========
--------------------------------------------------------------
---------------
<CAPTION>
Market
Value
Contracts (Note 1)
----------- -----------
<PAGE> 75<PAGE>
<S> <C>
<C>
WRITTEN OPTIONS CONTRACTS
Put Options On:
NASDAQ 100 Option Contract Expiring July 1996 at 690
(Proceeds $88,577)
37 $ 74,463
===========
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
RYDEX SERIES TRUST
PRECIOUS METALS FUND
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------
------------------
June 30, 1996
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Market
Value
Shares (Note 1)
------- -----------
<S> <C> <C>
COMMON STOCKS 94.8%
Mining and Precious Metals Stocks
Barrick Gold Corp. 428,073 $11,611,480
Placer Dome, Ltd. 286,354 6,836,702
Newmont Mining Corp. 118,961 5,873,711
Homestake Mining Co. 175,528 3,005,917
Santa Fe Pacific Gold Corp. 157,471 2,224,278
Echo Bay Mines, Ltd. 156,426 1,681,580
TVX Gold, Inc.* 191,582 1,388,969
Battle Mountain Gold Co. 95,842 694,854
Pegasus Gold, Inc.* 41,718 511,046
Horsham Corp. 32,443 450,147
ASA Limited 11,492 448,188
Hecla Mining Co. 61,144 428,008
Getchell Gold Corp.* 11,106 391,486
First Mississippi Corp. 11,882 264,374
<PAGE> 76<PAGE>
Agnico Eagle Mines, Ltd. 14,496 235,560
Hemlo Gold Mines, Inc. 9,900 105,188
Kinross Gold Corp.* 8,700 65,250
Freeport McMoran, Inc., Class A 1,887 56,374
Engelhard Corp. 2,438 56,074
Newmont Gold Corp. 1,100 55,412
Cambior, Inc. 2,908 38,894
Anglo American Gold Investment Co., Ltd. 3,470 29,495
Western Deep Levels, Ltd. 800 29,000
Amax Gold, Inc.* 4,324 23,782
Amax, Inc.* 592 17,982
MK Gold Co.* 4,437 6,656
Siskon Gold Corp., Class A* 2,959 5,178
Buffelsfontein Gold Mining Co., Ltd.* 894 4,135
-----------
Total Common Stocks (Cost $38,944,761) $36,539,720
-----------
</TABLE>
* Non-Income Producing Securities.
See Notes to Financial Statements.
15
<PAGE>
RYDEX SERIES TRUST
PRECIOUS METALS FUND
SCHEDULE OF INVESTMENTS (continued)
--------------------------------------------------------------
------------------
June 30, 1996
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- -----------
<S> <C>
<C>
OPTIONS PURCHASED 0.0%
Call Options On:
XAU Index Option Contract Expiring July 1996 at 130
<PAGE> 77<PAGE>
(Cost $10,060)
20 $ 2,750
-----------
<CAPTION>
Face
Amount
-----------
<S> <C>
<C>
REPURCHASE AGREEMENT 5.2%
Repurchase Agreement Collateralized by U.S. Treasury
Obligations--
5.45% due 7/1/96 (Note 3)
$2,000,000 2,000,000
-----------
Total Investments 100% (Cost $40,954,821)
$38,542,470
===========
--------------------------------------------------------------
---------------
<CAPTION>
Market
Value
Contracts (Note 1)
----------- -----------
<S> <C>
<C>
WRITTEN OPTION CONTRACTS
Put Options On:
XAU Index Expiring July 1996 at 130
(Proceeds $9,189)
20 $ 14,250
===========
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
<PAGE> 78<PAGE>
RYDEX SERIES TRUST
U.S. GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------
------------------
June 30, 1996
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Market
Value
Face
Amount (Note1)
----------- -----------
<S> <C>
<C>
U.S. TREASURY OBLIGATIONS 92.0%
U.S. Treasury Bond 6.00% due 2/15/2026 (Cost
$16,295,276)
$18,519,000 $16,418,251
-----------
<CAPTION>
Contracts
-----------
<S> <C>
<C>
OPTIONS PURCHASED 3.0%
Call Options On:
U.S. Treasury Bond Futures Contract Expiring
September 1996 at 100 (Cost $451,165)
55 525,078
-----------
<CAPTION>
Face
Amount
-----------
<S> <C>
<C>
REPURCHASE AGREEMENT 5.0%
<PAGE> 79<PAGE>
Repurchase Agreement Collateralized by U.S. Treasury
Obligations--
5.45% due 7/1/96 (Note 3) $
900,000 900,000
-----------
Total Investments 100.0% (Cost $17,646,441)
$17,843,329
===========
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
RYDEX SERIES TRUST
JUNO FUND
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------
------------------
June 30, 1996
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- -----------
<S> <C>
<C>
OPTIONS PURCHASED 0.7%
Put Options On:
U.S. Treasury Bond Futures Contracts Expiring
September 1996 at 132 (Cost $141,622)
6,000 $ 134,812
-----------
<CAPTION>
<PAGE> 80<PAGE>
Face
Amount
-----------
<S> <C>
<C>
REPURCHASE AGREEMENT 99.3%
Repurchase Agreement collateralized by U.S. Treasury
Obligations--5.45% 7/1/96 (Note 3)
$18,700,000 18,700,000
-----------
Total Investments 100% (Cost $18,841,622)
$18,834,812
===========
--------------------------------------------------------------
----------------
<CAPTION>
Unrealized
Contracts (Loss)
----------- -----------
<S> <C>
<C>
FUTURES CONTRACTS SOLD
U.S. Treasury Bond Futures Contract Expiring
September 1996
(Underlying Face Amount at Market Value
$18,291,719)
167 $ (380,793)
===========
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------
------------------
<PAGE> 81<PAGE>
June 30, 1996
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
U.S.
Government
Nova
Ursa Money
Fund
Fund Market Fund
------------
------------ ------------
<S> <C> <C>
<C>
ASSETS
Securities at Value (Note 1)--See
Accompanying Schedules $195,429,089
$405,078,199 $169,891,981
Receivable for Future Contracts
Settlement 932,795
0 0
Investment Income Receivable 51,911
41,783 54,500
Cash in Custodian Bank 1,526,720
1,524,942 2,121
Cash on Deposit with Broker 0
4,175,000 0
Receivable for Shares Purchased 36,514,486
1,054,705 11,921,785
Unamortized Organization Costs (Note 1) 70,760
41,417 22,333
Prepaid Expenses 8,929
14,155 16,957
------------
------------ ------------
Total Assets 234,534,690
411,930,201 181,909,677
------------
------------ ------------
LIABILITIES
Payable for Securities Purchased 4,028,551
0 0
Payable for Futures Contracts
Settlement 0
963,305 0
Written Options at Market Value 0
204,690,000 0
<PAGE> 82<PAGE>
Liability for Shares Redeemed 5,809,645
13,518,618 27,876,178
Dividends Payable 0
0 6,435
Investment Advisory Fee Payable 101,726
142,245 62,886
Transfer Agent Fee Payable 33,909
39,513 25,154
Other Liabilities 19,743
23,252 14,477
------------
------------ ------------
Total Liabilities 9,993,574
219,376,933 27,985,130
------------
------------ ------------
NET ASSETS $224,541,116
$192,553,268 $153,924,547
============
============ ============
Shares Outstanding 14,321,854
25,507,832 153,983,648
============
============ ============
Net Asset Value Per Share $15.68
$7.55 $1.00
======
===== =====
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------
------------------
June 30, 1996
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Over-the- Precious
U.S.
Counter Metals
Government Juno
<PAGE> 83<PAGE>
Fund Fund Bond
Fund Fund
----------- -----------
----------- -----------
<S> <C> <C> <C>
<C>
ASSETS
Securities at Value (Note 1)--
See Accompanying Schedules $57,928,177 $38,542,470
$17,843,329 $18,834,812
Receivable for Securities Sold 4,639,775 2,396,213
0 0
Investment Income Receivable 7,425 10,008
418,552 8,493
Cash in Custodian Bank 49,838 91,025
15,918 74,025
Cash on Deposit with Broker 532,705 197,692
0 403,686
Receivable for Shares
Purchased 10,302,505 317,286
4,255,955 30,486
Unamortized Organization Costs
(Note 1) 12,352 17,098
10,391 24,852
Other Assets 7,287 4,987
4,093 974
----------- -----------
----------- -----------
Total Assets 73,480,064 41,576,779
22,548,238 19,377,328
----------- -----------
----------- -----------
LIABILITIES
Payable for Securities
Purchased 16,424,003 1,306,676
2,490,360 0
Payable for Futures Contracts
Settlement 0 0
0 194,870
Written Options at Market
Value 74,463 14,250
0 0
Liability for Shares Redeemed 8,204,898 3,625,201
1,550,956 260,825
Dividends Payable 0 0
155,645 0
Investment Advisory Fee
Payable 26,440 30,914
6,427 12,681
Transfer Agent Fee Payable 7,051 8,244
2,571 3,523
Organization Expense Payable
<PAGE> 84<PAGE>
to Advisor 0 0
0 33,792
Other Liabilities 27,295 17,924
11,134 12,024
----------- -----------
----------- -----------
Total Liabilities 24,764,150 5,003,209
4,217,093 517,715
----------- -----------
----------- -----------
NET ASSETS $48,715,914 $36,573,570
$18,331,145 $18,859,613
=========== ===========
=========== ===========
Shares Outstanding 3,213,376 4,039,466
2,043,061 1,991,493
=========== ===========
=========== ===========
Net Asset Value Per Share $15.16 $9.05
$8.97 $9.47
====== =====
===== =====
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF OPERATIONS
--------------------------------------------------------------
------------------
Year
Ended June 30, 1996
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
U.S.
Government
Nova
Ursa Money
Fund
Fund Market Fund
-----------
------------ -----------
<PAGE> 85<PAGE>
<S> <C> <C>
<C>
INVESTMENT INCOME
Interest $ 5,854,668 $
8,410,112 $9,185,697
Dividends 0
0 0
-----------
------------ ----------
Total Income 5,854,668
8,410,112 9,185,697
-----------
------------ ----------
EXPENSES
Advisory Fees (Note 4) 1,022,794
1,607,706 891,864
Transfer Agent Fees (Note 4) 327,476
451,107 403,167
Audit and Outside Services 90,116
108,157 129,480
Accounting Fees (Note 4) 21,463
24,343 5,683
Legal 59,596
66,258 66,647
Organizational Expenses 34,953
16,583 8,901
Registration Fees 20,997
56,530 108,866
Custodian Fees 76,774
76,277 37,995
Miscellaneous 93,705
62,855 106,054
-----------
------------ ----------
Total Expenses 1,747,874
2,469,816 1,758,657
Custodian Fees Paid Indirectly (Note 5) 72,371
71,474 32,792
-----------
------------ ----------
Net Expenses 1,675,503
2,398,342 1,725,865
-----------
------------ ----------
Net Investment Income 4,179,165
6,011,770 7,459,832
-----------
------------ ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss) on:
<PAGE> 86<PAGE>
Investment Securities 16,449,931
71,815,746 467
Written Options (985,101)
(82,325,052) 0
Futures Contracts 6,629,915
(26,008,525) 0
-----------
------------ ----------
Total Net Realized Gain (Loss) 22,094,745
(36,517,831) 467
Net Change in Unrealized Appreciation
(Depreciation) on Investments, Options
and Futures Contracts 2,685,556
3,161,168 0
-----------
------------ ----------
Net Gain (Loss) on Investments 24,780,301
(33,356,663) 467
-----------
------------ ----------
Net Increase (Decrease) in Net Assets
from Operations $28,959,466
$(27,344,893) $7,460,299
===========
============ ==========
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF OPERATIONS
--------------------------------------------------------------
------------------
Year
Ended June 30, 1996
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Over-the- Precious
U.S.
Counter Metals
Government Juno
Fund Fund Bond
Fund Fund
<PAGE> 87<PAGE>
---------- -----------
---------- -----------
<S> <C> <C> <C>
<C>
INVESTMENT INCOME
Interest $1,048,165 $ 303,537
$1,111,295 $ 1,014,806
Dividends 148,945 376,675
0 0
---------- -----------
---------- -----------
Total Income 1,197,110 680,212
1,111,295 1,014,806
---------- -----------
---------- -----------
EXPENSES
Advisory Fees (Note 2) 541,443 406,902
97,820 174,866
Transfer Agent Fees (Note 2) 123,358 114,476
37,793 47,333
Audit and Outside Services 90,610 66,908
28,067 18,097
Accounting Fees (Note 4) 0 13,469
7,545 8,276
Legal 19,049 18,081
11,068 5,127
Organizational Expenses 4,945 6,844
2,899 6,775
Registration Fees 23,997 30,041
16,394 12,790
Custodian Fees 59,835 32,224
12,592 20,426
Miscellaneous 52,767 15,222
21,994 26,542
---------- -----------
---------- -----------
Total Expenses 916,004 704,167
236,172 320,232
Custodian Fees Paid
Indirectly (Note 5) 23,410 20,521
7,789 16,022
---------- -----------
---------- -----------
Net Expenses 892,594 683,646
228,383 304,210
---------- -----------
---------- -----------
Net Investment Income (Loss) 304,516 (3,434)
882,912 710,596
---------- -----------
---------- -----------
REALIZED AND UNREALIZED GAIN
<PAGE> 88<PAGE>
(LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on:
Investment Securities 7,421,330 2,270,470
(103,013) 7,014
Written Options (12,698) 17,800
0 0
Futures Contracts 0 0
0 (1,862,302)
---------- -----------
---------- -----------
Total Net Realized Gain
(Loss) 7,408,632 2,288,270
(103,013) (1,855,288)
Net Change in Unrealized
Appreciation (Depreciation)
on Investments, Options and
Futures Contracts (894,564) (6,585,369)
188,414 (397,053)
---------- -----------
---------- -----------
Net Gain (Loss) on
Investments 6,514,068 (4,297,099)
85,401 (2,252,341)
---------- -----------
---------- -----------
Net Increase (Decrease) in
Net Assets from Operations $6,818,584 $(4,300,533) $
968,313 $(1,541,745)
========== ===========
========== ===========
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Nova Fund
Ursa Fund
-------------------------
--------------------------
<PAGE> 89<PAGE>
Year Ended Year Ended Year
Ended Year Ended
June 30,1996 June 30,1995 June
30,1996 June 30,1995
------------ ------------
------------ ------------
<S> <C> <C> <C>
<C>
FROM INVESTMENT
ACTIVITIES
Net Investment Income
(Loss) $ 4,179,165 $ 1,439,357 $
6,011,770 $ 6,175,756
Net Realized Gain
(Loss) on Investments 22,094,745 13,817,408
(36,517,831) (35,881,477)
Net Change in
Unrealized
Appreciation
(Depreciation) of
Investments, Options
and Futures Contracts 2,685,556 1,292,835
3,161,168 (6,422,346)
------------ ------------
------------ ------------
Net Increase (Decrease)
in Net Assets from
Operations 28,959,466 16,549,600
(27,344,893) (36,128,067)
------------ ------------
------------ ------------
Distributions to
Shareholders
From Net Investment
Income (Note 1) 0 (1,456,675)
0 (5,638,191)
From Realized Gain on
Investments 0 (4,253,350)
0 0
Net Increase (Decrease)
in Net Assets from
Shares Transactions
(Note 8) 132,666,112 (25,838,163)
92,269,466 58,496,332
------------ ------------
------------ ------------
Net Increase in Net
Assets 161,625,578 (14,998,588)
64,924,573 16,730,074
------------ ------------
------------ ------------
NET ASSETS--Beginning of
<PAGE> 90<PAGE>
Period 62,915,538 77,914,126
127,628,695 110,898,621
------------ ------------
------------ ------------
NET ASSETS--End of
Period $224,541,116 $ 62,915,538
$192,553,268 $127,628,695
============ ============
============ ============
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
U.S.
Government
Money Market
Fund
---------------------------
Year Ended
Year Ended
June 30,1996
June 30,1995
-------------
------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net Investment Income (Loss) $ 7,459,832 $
6,154,866
Net Realized Gain (Loss) on Investments 467
0
Net Change in Unrealized Appreciation
(Depreciation) of Investments 0
0
-------------
------------
Net Increase (Decrease) in Net Assets from
<PAGE> 91<PAGE>
Operations 7,460,299
6,154,866
-------------
------------
Distributions to Shareholders
From Net Investment Income (Note 1) (7,466,933)
(6,073,204)
From Realized Gain on Investments (467)
0
Net Increase (Decrease) in Net Assets
from Shares Transactions (Note 8) (130,266,747)
196,010,161
-------------
------------
Net Increase (Decrease) in Net Assets (130,273,848)
196,091,823
-------------
------------
NET ASSETS--Beginning of Period 284,198,395
88,106,572
-------------
------------
NET ASSETS--End of Period $ 153,924,547
$284,198,395
=============
============
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Over-the-
Precious Metals
Counter Fund
Fund
--------------------------
--------------------------
<PAGE> 92<PAGE>
Year Ended Year Ended Year
Ended Year Ended
June 30,1996 June 30,1995 June
30,1996 June 30,1995
------------ ------------
------------ ------------
<S> <C> <C> <C>
<C>
FROM INVESTMENT
ACTIVITIES
Net Investment Income
(Loss) $ 304,516 $ 647,070 $
(3,434) $ 339,855
Net Realized Gain
(Loss) on Investments 7,408,632 8,710,161
2,288,270 (9,206,800)
Net Change in
Unrealized
Appreciation
(Depreciation) of
Investments, and
Option Contracts (894,564) 8,840,779
(6,585,369) 4,226,627
------------ -----------
----------- -----------
Net Increase (Decrease)
in Net Assets from
Operations 6,818,584 18,198,010
(4,300,533) (4,640,318)
Distributions to
Shareholders
From Net Investment
Income (Note 1) 0 (542,955)
0 (332,993)
From Realized Gain on
Investments (1,826,446) (3,435,400)
0 0
Net Increase (Decrease)
in Net Assets from
Shares Transactions
(Note 8) (18,223,812) 17,033,155
13,022 44,308,359
------------ -----------
----------- -----------
Net Increase (Decrease)
in Net Assets (13,231,674) 31,252,810
(4,287,511) 39,335,048
------------ -----------
----------- -----------
NET ASSETS--Beginning of
Period 61,947,588 30,694,778
40,861,081 1,526,033
<PAGE> 93<PAGE>
------------ -----------
----------- -----------
NET ASSETS--End of
Period $ 48,715,914 $61,947,588
$36,573,570 $40,861,081
============ ===========
=========== ===========
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
U.S. Government
Bond Fund
Juno Fund
--------------------------
---------------------------
Year Ended Year Ended Year
Ended Period Ended
June 30,1996 June 30,1995 June
30,1996 June 30,1995*
------------ ------------
------------ -------------
<S> <C> <C> <C>
<C>
FROM INVESTMENT
ACTIVITIES
Net Investment Income
(Loss) $ 882,912 $ 71,541 $
710,596 $ 135,504
Net Realized Gain
(Loss) on Investments (103,013) 277,544
(1,855,288) (1,636,350)
Net Change in
Unrealized
Appreciation
(Depreciation) of
Investments, Options
<PAGE> 94<PAGE>
and Futures Contracts 188,414 56,925
(397,053) 9,450
----------- ----------
----------- -----------
Net Increase (Decrease)
in Net Assets from
Operations 968,313 406,010
(1,541,745) (1,491,396)
Distributions to
Shareholders
From Net Investment
Income (Note 1) (885,787) (46,239)
0 0
From Realized Gain on
Investments (243,678) 0
0 0
Net Increase (Decrease)
in Net Assets from
Shares Transactions
(Note 8) 15,900,788 667,535
16,100,047 5,792,707
----------- ----------
----------- -----------
Net Increase (Decrease)
in Net Assets 15,739,636 1,027,306
14,558,302 4,301,311
----------- ----------
----------- -----------
NET ASSETS--Beginning of
Period 2,591,509 1,564,203
4,301,311 0
----------- ----------
----------- -----------
NET ASSETS--End of
Period $18,331,145 $2,591,509
$18,859,613 $ 4,301,311
=========== ==========
=========== ===========
</TABLE>
* Commencement Of Operations: March 3, 1995.
See Notes to Financial Statements.
26
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
<PAGE> 95<PAGE>
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Nova Fund
----------------------------------------
For the Year For the
Year For the Period
Ended
Ended Ended
June 30, June
30, June 30,
1996
1995 1994*
------------
------------ --------------
<S> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD $ 11.81 $ 9.77
$ 10.01
-------- -------
-------
Net Investment Income .56 .28
.01
Net Realized and Unrealized Gains
(Losses) on Securities 3.31 2.88
(.25)
-------- -------
-------
Net Increase (Decrease) in Net Asset
Value from Operations 3.87 3.16
(.24)
Dividends to Shareholders .00 (.29)
.00
Distributions to Shareholders From
Net Realized Capital Gain .00 (.83)
.00
-------- -------
-------
Net Increase (Decrease) in Net Asset
Value 3.87 2.04
(.24)
-------- -------
-------
NET ASSET VALUE--END OF PERIOD $ 15.68 $ 11.81
$ 9.77
<PAGE> 96<PAGE>
======== =======
=======
TOTAL INVESTMENT RETURN 32.77% 32.65%
(2.47)%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.31% 1.43%
1.73%**
Net Investment Income 3.14% 2.62%
1.05%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0% 0%
0%
Net Assets, End of Period (000's
omitted) $224,541 $62,916
$77,914
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the
daily shares outstanding average for the year.
* Commencement of Operations: July 12, 1993.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to
short-term
securities having a maturity of less than one year. The
Nova, Ursa, and Juno
Funds typically hold most of their investments in options
and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
27
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Ursa Fund
----------------------------------------
For the Year For the
Year For the Period
<PAGE> 97<PAGE>
Ended
Ended Ended
June 30, June
30, June 30,
1996
1995 1994*
------------
------------ --------------
<S> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD $ 8.79 $ 10.54
$ 10.00
-------- --------
--------
Net Investment Income .30 .35
.01
Net Realized and Unrealized Gains
(Losses) on Securities (1.54) (1.78)
.53
-------- --------
--------
Net Increase (Decrease) in Net Asset
Value from Operations (1.24) (1.43)
.54
Dividends to Shareholders .00 (.32)
.00
Distributions to Shareholders From
Net Realized Capital Gain .00 .00
.00
-------- --------
--------
Net Increase (Decrease) in Net Asset
Value (1.24) (1.75)
.54
-------- --------
--------
NET ASSET VALUE--END OF PERIOD $ 7.55 $ 8.79
$ 10.54
======== ========
========
TOTAL INVESTMENT RETURN (14.11)% (14.08)%
10.89%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.39% 1.39%
1.67%**
Net Investment Income 3.38% 3.50%
1.43%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0% 0%
0%
Net Assets, End of Period (000's
<PAGE> 98<PAGE>
omitted) $192,553 $127,629
$110,899
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the
daily shares outstanding average for the year.
* Commencement of Operations: January 7, 1994.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to
short-term
securities having a maturity of less than one year. The
Nova, Ursa, and Juno
Funds typically hold most of their investments in options
and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
28
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Money Market
Fund
----------------------------------------
For the Year For the
Year For the Period
Ended
Ended Ended
June 30, June
30, June 30,
1996
1995 1994*
------------
------------ --------------
<S> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD $ 1.00 $ 1.00
$ 1.00
<PAGE> 99<PAGE>
-------- --------
-------
Net Investment Income .04 .04
.01
Net Realized and Unrealized Gains
(Losses) on Securities .00 .00
.00
-------- --------
-------
Net Increase (Decrease) in Net Asset
Value from Operations .04 .04
.01
Dividends to Shareholders (.04) (.04)
(.01)
Distributions to Shareholders From
Net Realized Capital Gain .00 .00
.00
-------- --------
-------
Net Increase (Decrease) in Net Asset
Value .00 .00
.00
-------- --------
-------
NET ASSET VALUE--END OF PERIOD $ 1.00 $ 1.00
$ 1.00
======== ========
=======
TOTAL INVESTMENT RETURN 4.60% 4.43%
2.47%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.99% 0.89%
1.16%**
Net Investment Income 4.18% 4.23%
2.34%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0% 0%
0%
Net Assets, End of Period (000's
omitted) $153,925 $284,198
$88,107
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the
daily shares outstanding average for the year.
* Commencement of Operations: December 3, 1993.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to
short-term
securities having a maturity of less than one year. The
Nova, Ursa, and Juno
<PAGE> 100<PAGE>
Funds typically hold most of their investments in options
and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
29
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Over-the-Counter Fund
----------------------------------------
For the Year For the
Year For the Period
Ended
Ended Ended
June 30, June
30, June 30,
1996
1995 1994 *
------------
------------ --------------
<S> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD $ 12.22 $ 8.76
$ 10.00
---------- ----------
----------
Net Investment Income (Loss) .06 .14
.01
Net Realized and Unrealized Gains
(Losses) on Securities 3.24 4.17
(1.25)
---------- ----------
----------
Net Increase (Decrease) in Net Asset
Value from Operations 3.30 4.31
(1.24)
<PAGE> 101<PAGE>
Dividends to Shareholders .00
(.12) .00
Distributions to Shareholders From
Net Realized Capital Gain (.36)
(.73) .00
---------- ----------
----------
Net Increase (Decrease) in Net Asset
Value 2.94 3.46
(1.24)
---------- ----------
----------
NET ASSET VALUE--END OF PERIOD $ 15.16 $ 12.22
$ 8.76
========== ==========
==========
TOTAL INVESTMENT RETURN 26.44% 49.00%
(30.17)%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.33% 1.41%
1.97%**
Net Investment Income 0.44% 1.34%
1.69%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate 2,578.56% 2,241.00%
1,171.00%
Net Assets, End of Period (000's
omitted) $ 48,716 $ 61,948
$ 30,695
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the
daily shares outstanding average for the year.
* Commencement of Operations: February 14, 1994.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to
short-term
securities having a maturity of less than one year. The
Nova, Ursa, and Juno
Funds typically hold most of their investments in options
and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
30
<PAGE>
RYDEX SERIES TRUST
<PAGE> 102<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Precious
Metals Fund
----------------------------------------
For the Year For the
Year For the Period
Ended
Ended Ended
June 30, June
30, June 30,
1996
1995 1994 *
------------
------------ --------------
<S> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD $ 8.73 $ 8.29
$ 10.00
---------- ----------
----------
Net Investment Income (Loss) .00 .10
.01
Net Realized and Unrealized Gains
(Losses) on Securities .32 .43
(1.72)
---------- ----------
----------
Net Increase (Decrease) in Net Asset
Value from Operations .32 .53
(1.71)
Dividends to Shareholders .00
(.09) .00
Distributions to Shareholders From
Net Realized Capital Gain .00 .00
.00
---------- ----------
----------
Net Increase (Decrease) in Net Asset
Value .32 .44
(1.71)
---------- ----------
----------
<PAGE> 103<PAGE>
NET ASSET VALUE--END OF PERIOD $ 9.05 $ 8.73
$ 8.29
========== ==========
==========
TOTAL INVESTMENT RETURN 3.67% 6.21%
(29.27)%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.33% 1.38%
2.06%**
Net Investment Income (0.01)% 1.15%
1.23%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 1,036.37% 1,765.00%
2,728.00%
Average Commission Rate Paid**** 1.5100% --
--
Net Assets, End of Period (000's
omitted) $ 36,574 $ 40,861
$ 1,526
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the
daily shares outstanding average for the year.
* Commencement of Operations: December 1, 1993.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to
short-term
securities having a maturity of less than one year. The
Nova, Ursa, and Juno
Funds typically hold most of their investments in options
and futures
contracts which are deemed short-term securities.
**** For fiscal years beginning on or after September 1, 1995
the fund is
required to disclose its average commission rate per share
for purchases and
sales of equity securities.
See Notes to Financial Statements.
31
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------
------------------
<PAGE> 104<PAGE>
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
U.S. Government
Bond Fund
----------------------------------------
For the Year For the
Year For the Period
Ended
Ended Ended
June 30, June
30, June 30,
1996
1995 1994 *
------------
------------ --------------
<S> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD $ 9.55 $ 8.24
$ 10.00
-------- ----------
----------
Net Investment Income (Loss) .46 .39
.02
Net Realized and Unrealized Gains
(Losses) on Securities (.45) 1.17
(1.76)
-------- ----------
----------
Net Increase (Decrease) in Net Asset
Value from Operations .01 1.56
(1.74)
Dividends to Shareholders (.46)
(.25) (.02)
Distributions to Shareholders From
Net Realized Capital Gain (.13) .00
.00
-------- ----------
----------
Net Increase (Decrease) in Net Asset
Value (.58) 1.31
(1.76)
-------- ----------
----------
NET ASSET VALUE--END OF PERIOD $ 8.97 $ 9.55
$ 8.24
======== ==========
==========
<PAGE> 105<PAGE>
TOTAL INVESTMENT RETURN (1.48)% 18.97%
(32.63)%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.26% 2.26%
3.05%**
Net Investment Income 4.73% 4.64%
3.39%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 780.30% 3,452.59%
1,290.00%
Net Assets, End of Period (000's
omitted) $ 18,331 $ 2,592
$ 1,564
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the
daily shares outstanding average for the year.
* Commencement of Operations: January 3, 1994.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to
short-term
securities having a maturity of less than one year. The
Nova, Ursa, and Juno
Funds typically hold most of their investments in options
and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
32
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
<TABLE>
<CAPTION>
Juno
Fund
---------------------------
For the Year
For the Period
Ended
Ended
<PAGE> 106<PAGE>
June 30,
June 30,
1996
1995 *
------------
--------------
<S> <C>
<C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD $ 9.08
$ 10.00
-------
-------
Net Investment Income (Loss) .34
.14
Net Realized and Unrealized Gains (Losses) on
Securities .05
(1.06)
-------
-------
Net Increase (Decrease) in Net Asset Value
from Operations .39
(.92)
Dividends to Shareholders .00
.00
Distributions to Shareholders From Net
Realized Capital Gain .00
.00
-------
-------
Net Increase (Decrease) in Net Asset Value .39
(.92)
-------
-------
NET ASSET VALUE--END OF PERIOD $ 9.47
$ 9.08
=======
=======
TOTAL INVESTMENT RETURN 4.30%
(9.20)%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.64%
1.50%**
Net Investment Income 3.63%
1.32%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0.00%
0.00%
Net Assets, End of Period (000's omitted) $18,860
$ 4,301
</TABLE>
<PAGE> 107<PAGE>
+ The per share data of the Financial Highlights table is
calculated using the
daily shares outstanding average for the year.
* Commencement of Operations: March 3, 1995.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to
short-term
securities having a maturity of less than one year. The
Nova, Ursa, and Juno
Funds typically hold most of their investments in options
and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
33
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Rydex Series Trust (the "Trust") is registered with the
Securities and
Exchange Commission under the Investment Company Act of 1940
as a non-
diversified, open-ended investment company. The Trust consists
of seven
separate series, the Nova Fund, the Ursa Fund, the U.S.
Government Money Market
Fund, the Over-the-Counter Fund, the Precious Metals Fund, the
U.S. Government
Bond Fund and the Juno Fund. The following significant
accounting policies are
in conformity with generally accepted accounting principles
and are
consistently followed by the Trust.
A. Securities listed on an exchange are valued at the latest
quoted sales
prices as of 4:00 P.M. on the valuation date. Securities not
traded on an
exchange are valued at their last sales price. Listed options
held by the Trust
<PAGE> 108<PAGE>
are valued at their last bid price. Over-the-counter options
held by the Trust
are valued using the average bid price obtained from one or
more security
dealers. The value of futures contracts purchased and sold by
the Trust are
accounted for using the unrealized gain or loss on the
contracts that is
determined by marking the contracts to their current realized
settlement
prices. Short term securities with less than sixty days to
maturity are valued
at amortized cost, which approximates market. Security and
assets for which
market quotations are not readily available are valued at fair
value as
determined in good faith by or under direction of the Board of
Trustees of the
Trust.
B. Securities transactions are recorded on the trade date (the
date the order
to buy or sell is executed). Realized gains and losses from
securities
transactions are recorded on the identified cost basis.
Dividend income is
recorded on the ex-dividend date. Interest income is accrued
on a daily basis.
C. Net investment income is computed, and dividends are
declared daily in the
U.S. Government Money Market Fund and U.S. Government Bond
Fund. Income
dividends in these funds are paid monthly. Dividends are
reinvested in
additional shares unless shareholders request payment in cash.
Generally,
short-term capital gains are distributed monthly in the U.S.
Government Money
Market Fund.
D. When the Trust engages in a short sale, an amount equal to
the proceeds
received by the Trust is reflected as an asset and an
equivalent liability. The
amount of the liability is subsequently marked to market to
reflect the market
value of the short sale. The Trust maintains a segregated
account of securities
as collateral for the short sales. The Trust is exposed to
market risk based on
<PAGE> 109<PAGE>
the amount, if any, that the market value of the stock exceeds
the market value
of the securities in the segregated account.
E. When the Trust writes (sells) an option, an amount equal to
the premium
received is entered in the Trust's accounting records as an
asset and
e q u ivalent liability. The amount of the liability is
subsequently
34
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
marked to market to reflect the current value of the option
written. When an
option expires, or if the Trust enters into a closing purchase
transaction, the
Trust realizes a gain (or loss if the cost of a closing
purchase transaction
exceeds the premium received when the option was sold).
F. The Trust may purchase or sell stock index futures
contracts and options on
such futures contracts. Futures contracts are contracts for
delayed delivery of
securities at a specified future delivery date and at a
specific price. Upon
entering into a contract, the Trust deposits and maintains as
collateral such
initial margin as required by the exchange on which the
transaction is
effected. Pursuant to the contract, the Trust agrees to
receive from or pay to
the broker an amount of cash equal to the daily fluctuation in
value of the
contract. Such receipts or payments are known as variation
margin and are
recorded by the Trust as unrealized gains or losses. When the
contract is
closed, the Trust records a realized gain or loss equal to the
difference
<PAGE> 110<PAGE>
between the value of the contract at the time it was opened
and the value at
the time it was closed.
G. Futures contracts and written options involve to varying
degrees, elements
of market risk and risks in excess of the amount recognized in
the Statements
of Assets and Liabilities. The face or contract amounts
reflect the extent of
the involvement each fund has in the particular classes of
instruments. Risks
may be caused by an imperfect correlation between movements in
the price of the
instruments and the price of the underlying securities.
H. The Trust intends to comply with the provisions of the
Internal Revenue Code
a p p licable to regulated investment companies and will
distribute all net
investment income to its shareholders. Therefore, no Federal
income tax
provision is required.
I. Costs incurred by the Trust in connection with its
organization and
registration have been deferred and are being amortized on the
straight-line
method over a five year period beginning on the date on which
the Trust
commenced its investment activities.
J. The preparation of financial statements in conformity with
generally
accepted accounting principles requires management to make
estimates and
assumptions that affect the reported amount of assets and
liabilities and
disclosure of contingent assets and liabilities at the date of
the financial
statements and the reported amounts of revenues and expenses
during the
reporting period. Actual results could differ from those
estimates.
2. OPERATING POLICIES
The Trust, which includes seven separate funds, utilizes
futures contracts,
options, and options on futures contracts in order to meet the
specific
investment objectives of the individual funds.
<PAGE> 111<PAGE>
35
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
The Nova Fund, which is designed to provide total returns over
time that are
superior to the Standard and Poor's 500 Composite Stock Price
Index ("S&P
500"), invests primarily in futures on the S&P 500 index and
options on those
futures in order to correlate its return with an amount
approximately 150% of
the performance of the S&P 500. The Ursa Fund primarily sells
futures contracts
and buys options on futures contracts in furtherance of its
investment
objective to inversely correlate the S&P 500. The Precious
Metals Fund seeks
capital appreciation. It buys primarily equity securities and
purchases call
options and sells put options on the XAU Index. The Bond Fund
strives to
provide income and capital appreciation. It purchases futures
contracts on U.S.
Treasury Bonds and buys call options on U.S. Treasury Bond
futures as a
substitute for a comparable market position in the underlying
U.S. Treasury
Securities. The Juno Fund seeks to inversely correlate with
the price changes
of the current Thirty Year Treasury Bond. To meet this
objective, Juno
primarily buys put options on Treasury Bond futures and sells
Treasury Bond
futures. The OTC Fund strives to provide investment results
before fees and
expenses that closely correlate the total return of the NASDAQ
100 Index. The
fund invests in securities included in the NASDAQ 100 Index
and buys call
<PAGE> 112<PAGE>
options and sells put options on stock indexes. In addition,
the Nova Fund, the
Ursa Fund, the OTC Fund, and the Precious Metals Fund write
options to further
meet their investment objectives.
The risks inherent in the use of options, futures contracts,
and options on
futures contracts include 1) adverse changes in the value of
such instruments;
2) imperfect correlation between the price of options and
futures contracts and
options thereon and movements in the price of the underlying
securities, index,
or futures contract; 3) the possible absences of a liquid
secondary market for
any particular instrument at any time; and 4) the possible
need to defer
c l o s i ng out certain positions to avoid adverse tax
consequences.
3. REPURCHASE AGREEMENTS
The Trust transfers uninvested cash balances into a single
joint account, the
daily aggregate balance of which is invested in repurchase
agreements
collateralized by Federal obligations. As of June 30, 1996,
the repurchase
agreements with Fuji Securities and PaineWebber Inc. in the
joint account and
the related collateral thereon were as follows:
<TABLE>
<CAPTION>
Security Type Range of rates Par Value
Market Value
------------- -------------- ------------
------------
<S> <C> <C> <C>
United States Treasury Bond 8.75%-11.875% $ 54,990,000 $
67,679,000
United States Treasury Note 5.625%-6.875% $205,685,000
$207,321,000
United States Treasury Bill 5.45% $ 85,521,000 $
85,000,000
</TABLE>
36
<PAGE>
RYDEX SERIES TRUST
<PAGE> 113<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
4. INVESTMENT ADVISORY, TRANSACTIONS WITH AFFILIATES, AND
TRANSFER AGENT
SERVICES
Under the terms of an investment advisory contract, the Trust
pays PADCO
Advisors, Inc., investment advisory fees calculated at an
annual percentage
rate of one half of one percent (0.50%) of the net assets of
the U.S.
Government Money Market Fund and the U.S. Government Bond
Fund; three-quarters
of one percent (0.75%) of the net assets of the Nova Fund, the
Precious Metals
Fund, and the Over-the-Counter Fund; and nine-tenths of one
percent (0.90%) of
the net assets of the Ursa Fund and the Juno Fund.
PADCO Service Company, Inc., a subsidiary of the investment
advisor, provides
transfer agent service to the Trust at an annual rate of
two-tenths of one
percent (0.20%) of the net assets of the U.S. Government Money
Market Fund,
U . S . Government Bond Fund, Precious Metals Fund, and
Over-the-Counter Fund and
at an annual rate of one-quarter of one percent (0.25%) of the
Nova Fund, the
Ursa Fund, and the Juno Fund.
The Trust paid PADCO Services Inc., $80,779 for accounting
services during the
fiscal year. Accounting fees are based on each fund's monthly
average net
assets.
5. ACCOUNTING FOR EXPENSES
The increase in "Total Expenses," and the offsetting "Fees
Paid Indirectly,"
reflect the amount that the funds would have paid for
securities custodian
<PAGE> 114<PAGE>
services in the absence of compensating balance arrangements.
The values of
these compensating balances for the year ended June 30, 1996
are as follow:
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Ursa Market
Fund Fund Fund
------- ------- ----------
<S> <C> <C>
$72,371 $71,474 $32,792
Over- U.S.
the- Precious Government
Counter Metals Bond Juno
Fund Fund Fund Fund
------- -------- ---------- -------
<S> <C> <C> <C>
$23,410 $20,521 $ 7,789 $16,022
</TABLE>
6. SECURITIES TRANSACTIONS
During the year ended June 30, 1996 purchases and sales of
investment
securities were:
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Ursa Market
Fund Fund Fund
----------- ----------- -----------
<S> <C> <C> <C>
Purchases $ 0 $ 0 $ 0
Sales $ 0 $ 0 $ 0
U.S.
Over-the- Precious Government
Counter Metals Bond
Juno
Fund Fund Fund
Fund
-------------- -------------- --------------
-----------
<PAGE> 115<PAGE>
<S> <C> <C> <C>
<C>
Purchases $1,687,520,814 $ 501,063,230 $ 137,156,061 $
0
Sales $1,708,510,775 $ 500,418,169 $ 123,000,803 $
0
</TABLE>
The transactions shown above exclude short-term and temporary
cash investments.
37
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
7. NET UNREALIZED APPRECIATION/DEPRECIATION OF SECURITIES
At June 30, 1996 unrealized appreciation (depreciation) and
cost of investment
securities for Federal income tax purposes was:
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Ursa
Market
Fund Fund
Fund
------------ ------------
------------
<S> <C> <C> <C>
Gross Unrealized
Appreciation $ 2,952,114 $ 11,548,765 $
0
<PAGE> 116<PAGE>
Gross Unrealized
(Depreciation) 0 (10,557,073)
0
------------ ------------
------------
Net Unrealized
Appreciation/
(Depreciation) $ 2,952,114 $ 991,692 $
0
Cost of Investments for
Federal Income Tax
Purposes $194,072,313 $394,422,034
$169,891,981
</TABLE>
<TABLE>
Over-the- Precious Government
Counter Metals Bond Juno
Fund Fund Fund Fund
- - - -------- ----------- -----------
-----------
<S> <C> <C> <C> <C>
Gross Unrealized
Appreciation $ 2,608,519 $ 361,720 $ 0 $
0
Gross Unrealized
(Depreciation) (4,423,621) (7,619,699) (525,860)
(387,603)
----------- ----------- -----------
-----------
Net Unrealized
Appreciation/
(Depreciation) $(1,815,102) $(7,257,979) $ (525,860) $
(387,603)
Cost of Investments for
Federal Income Tax
Purposes $59,743,279 $45,800,449 $18,369,189
$18,841,622
</TABLE>
8. SHARE TRANSACTIONS
Transactions in dollars for the year ended June 30, 1996 were:
<TABLE>
<CAPTION>
U.S.
<PAGE> 117<PAGE>
Government
Money
Nova Ursa
Market
Fund Fund
Fund
-------------- --------------
--------------
<S> <C> <C> <C>
S h a r es Purchased $2,653,475,866 $2,245,867,707
$4,139,232,212
Purchased
through
Dividend
Reinvestment 0 0
7,466,821
-------------- --------------
--------------
T o t a l Purchased 2,653,475,866 2,245,867,707
4,146,699,033
S h a res Redeemed (2,520,809,754) (2,153,598,241)
(4,276,965,780)
-------------- --------------
--------------
Net Shares
Purchased/
(Redeemed) $ 132,666,112 $ 92,269,466 $
(130,266,747)
============== ==============
==============
U.S.
Over-the- Precious Government
Counter Metals Bond
Juno
Fund Fund Fund
Fund
--------- ------------
------------ ------------
<S> <C> <C> <C>
<C>
Shares Purchased $2,261,882,356 $836,754,933 $189,414,530
$233,349,428
Purchased
through
Dividend
Reinvestment 1,413,792 0 879,023
0
<PAGE> 118<PAGE>
-------------- ------------ ------------
------------
Total Purchased 2,263,296,148 836,754,933 190,293,553
233,349,428
Shares Redeemed (2,281,519,960) (836,741,911) (174,392,765)
(217,249,381)
-------------- ------------ ------------
------------
Net Shares
Purchased/
(Redeemed) $ (18,223,812) $ 13,022 $ 15,900,788 $
16,100,047
============== ============ ============
============
</TABLE>
38
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
Transactions in shares for the year ended June 30, 1996 were:
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Ursa
Market
Fund Fund
Fund
------------ ------------
--------------
<S> <C> <C> <C>
Shares Purchased 188,794,994 276,476,043
4,139,232,212
Dividend Reinvestment 0 0
7,466,821
<PAGE> 119<PAGE>
------------ ------------
--------------
Total Purchased 188,794,994 276,476,043
4,146,699,033
S h ares Redeemed (179,799,246) (265,490,770)
(4,276,965,783
------------ ------------
--------------
Net Shares
Purchased/(Redeemed) 8,995,748 10,985,273
(130,266,750)
============ ============
==============
U.S.
Over-the- Precious Government
Counter Metals Bond
Juno
Fund Fund Fund
Fund
---------- ----------- -----------
-----------
<S> <C> <C> <C>
<C>
Shares Purchased 168,346,003 87,901,045 19,714,470
25,594,613
Dividend Reinvestment 108,337 0 97,996
0
------------ ----------- -----------
-----------
Total Purchased 168,454,340 87,901,045 19,812,466
25,594,613
Shares Redeemed (170,312,258) (88,544,497) (18,040,885)
(24,076,731)
------------ ----------- -----------
-----------
Net Shares
Purchased/(Redeemed) (1,857,918) (643,452) 1,771,581
1,517,882
============ =========== ===========
===========
</TABLE>
Transactions in dollars for the year ended June 30, 1995 were:
<TABLE>
<CAPTION>
U.S.
Government
Money
<PAGE> 120<PAGE>
Nova Ursa
Market
Fund Fund
Fund
--------------- ---------------
-----------
<S> <C> <C>
<C>
Shares Purchased $ 1,557,769,087 $ 3,164,566,132 $
3,587,402,384
Purchased through
Dividend
Reinvestment 5,223,393 4,561,095
6,208,014
--------------- ---------------
---------------
Total Purchased 1,562,992,480 3,169,127,227
3,593,610,398
S h ares Redeemed (1,588,830,643) (3,110,630,895)
(3,397,600,237)
--------------- ---------------
---------------
Net Shares
Purchased/
(Redeemed) $ (25,838,163) $ 58,496,332 $
196,010,161
=============== ===============
===============
U.S.
Over-the- Precious Government
Counter Metals Bond
Juno
Fund Fund Fund
Fund*
--------------- ------------- ------------
------------
<S> <C> <C> <C>
<C>
Shares Purchased $ 1,388,186,680 $ 772,461,150 $ 48,656,940
$ 64,916,051
Purchased through
Dividend
Reinvestment 3,427,684 301,229 41,641
0
--------------- ------------- ------------
------------
Total Purchased 1,391,614,364 772,762,379 48,698,581
64,916,051
Shares Redeemed (1,374,581,209) (728,454,020) (48,031,046)
(59,123,344)
<PAGE> 121<PAGE>
--------------- ------------- ------------
------------
Net Shares
Purchased/
(Redeemed) $ 17,033,155 $ 44,308,359 $ 667,535
$ 5,792,707
=============== ============= ============
============
* Commencement of Operations: March 3, 1995--Juno Fund.
</TABLE>
39
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
Transactions in shares for the year ended June 30, 1995 were:
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Ursa
Market
Fund Fund
Fund
------------ ------------
--------------
<S> <C> <C> <C>
Shares Purchased 143,873,524 318,793,746
3,587,402,384
Purchased through
Dividend Reinvestment 470,095 490,546
6,208,014
------------ ------------
--------------
Total Purchased 144,343,619 319,284,292
3,593,610,398
<PAGE> 122<PAGE>
S h ares Redeemed (146,990,905) (315,284,708)
(3,397,600,237)
------------ ------------
--------------
Net Shares
Purchased/(Redeemed) (2,647,286) 3,999,584
196,010,161
============ ============
==============
U.S.
Over-the- Precious Government
Counter Metals Bond
Juno
Fund Fund Fund
Fund*
------------ ----------- ----------
----------
<S> <C> <C> <C>
<C>
Shares Purchased 135,125,955 92,309,340 5,731,162
6,683,227
Purchased through
Dividend Reinvestment 316,047 36,198 4,837
0
------------ ----------- ----------
----------
Total Purchased 135,442,002 92,345,538 5,735,999
6,683,227
Shares Redeemed (133,874,331) (87,846,703) (5,654,424)
(6,209,616)
------------ ----------- ----------
----------
Net Shares
Purchased/(Redeemed) 1,567,671 4,498,835 81,575
473,611
============ =========== ==========
==========
</TABLE>
9. OPTION CONTRACTS WRITTEN
During the year ended June 30, 1996 the Trust wrote the
following contracts:
<TABLE>
<CAPTION>
<PAGE> 123<PAGE>
Nova Fund
Ursa Fund
----------------------
-------------------------
Number of Initial Number of
Initial
Contracts Premiums Contracts
Premiums
--------- ------------ ---------
---------------
<S> <C> <C> <C>
<C>
Outstanding at Beginning of
Period 0 $ 0 0
$ 0
Options Written 3,012 89,604,623 68,000
2,051,146,402
Options Terminated (3,012) (89,604,623) (62,000)
(1,857,013,475)
------ ------------ -------
---------------
Outstanding at End of
Period 0 $ 0 6,000
$ 194,132,927
====== ============ =======
===============
<CAPTION>
Over-the-Counter Fund
Precious Metals Fund
----------------------
-------------------------
Number of Initial Number of
Initial
Contracts Premiums Contracts
Premiums
--------- ------------ ---------
---------------
<S> <C> <C> <C>
<C>
Outstanding at Beginning of
Period 34 $ 19,157 50
$ 17,598
Options Written 1,805 2,494,440 400
147,170
Options Terminated (1,802) (2,425,020) (430)
(155,579)
------ ------------ -------
---------------
Outstanding at End of
Period 37 $ 88,577 20
$ 9,189
<PAGE> 124<PAGE>
====== ============ =======
===============
</TABLE>
40
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------
------------------
--------------------------------------------------------------
------------------
10. NET ASSETS
At June 30, 1996, net assets consisted of:
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Fund Ursa Fund Market
Fund
------------ ------------
------------
<S> <C> <C> <C>
Paid-In-Capital $221,230,953 $267,465,208
$153,931,181
Undistributed Net
Investment Income 0 736,280
0
Overdistribution of Net
Investment Income 0 0
(6,634)
Accumulated Net Realized
Gain (Loss) on
Investments 358,049 (76,639,912)
0
Distribution in Excess
of Realized Gains* 0 0
0
Net Unrealized
<PAGE> 125<PAGE>
Appreciation
(Depreciation) on
Investments, Options
and Futures Contracts 2,952,114 991,692
0
------------ ------------
------------
Net Assets $224,541,116 $192,553,268
$153,924,547
============ ============
============
<CAPTION>
Over-the-
U.S.
Counter Precious
Government Juno
Fund Metals Fund Bond
Fund Fund
------------ ------------
------------ -----------
<S> <C> <C> <C>
<C>
Paid-In-Capital $ 49,698,232 $ 48,087,669 $
18,713,170 $22,677,052
Undistributed Net
Investment Income 976,052 0
16,759 61,802
Distribution in Excess
of Net Investment
Income 0 (1,091)
0 0
Accumulated Net Realized
Gain (Loss) on
Investments (9,541,295) (9,095,596)
(351,994) (3,491,638)
Distribution in Excess
of Realized Gains* 0 0
(243,678) 0
Net Unrealized
Appreciation
(Depreciation) on
Investments, Options
and Futures Contracts 7,582,925 (2,417,412)
196,888 (387,603)
------------ ------------
------------ -----------
Net Assets $ 48,715,914 $ 36,573,570 $
18,331,145 $18,859,613
============ ============
============ ===========
</TABLE>
<PAGE> 126<PAGE>
* Realized capital gains differ for financial statement and
tax purposes
primarily because of the timing of the recognition of post
October 31 capital
losses.
41
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (concluded)
--------------------------------------------------------------
-----------------
--------------------------------------------------------------
-----------------
11. LOSS CARRYFORWARD--FEDERAL INCOME TAX
At June 30, 1996, for Federal income tax purposes, the
following funds had
capital loss carryovers which may be applied against future
net taxable
realized gains of each succeeding year until the earlier of
its utilization or
its expiration:
<TABLE>
<CAPTION>
Precious
Expires Ursa Metals Juno
June 30, Fund Fund Fund
-------- ---------- --------- ---------
<S> <C> <C> <C>
2003 $6,618,786 $0 $0
2004 43,168,709 4,249,968 3,647,178
</TABLE>
42
<PAGE>
RYDEX SERIES TRUST
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------
-----------------
<PAGE> 127<PAGE>
--------------------------------------------------------------
-----------------
The Shareholders and Board of Trustees,
Rydex Series Trust:
We have audited the statements of assets and liabilities,
including the
schedules of investments, of the Nova, Ursa, U.S. Government
Money Market,
Over-the-Counter, Precious Metals, U.S. Government Bond and
Juno Funds of
Rydex Series Trust as of June 30, 1996, the related statements
of operations,
changes in net assets, and the financial highlights for the
periods presented.
These financial statements and financial highlights are the
responsibility of
the Trust's management. Our responsibility is to express an
opinion on these
financial statements and financial highlights 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 and
financial highlights are free of material misstatement. An
audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in
the financial statements. Our procedures included confirmation
of securities
owned as of June 30, 1996 by correspondence with the custodian
and brokers. 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, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
the Nova, Ursa,
U.S. Government Money Market, Over-the-Counter, Precious
Metals, U.S.
<PAGE> 128<PAGE>
Government Bond and Juno Funds of the Rydex Series Trust as of
June 30, 1996,
the results of their operations, the changes in their net
assets, and the
financial highlights for the periods presented in conformity
with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
August 20, 1996
43
<PAGE>
[LOGO OF RYDEX APPEARS HERE]
The First Family of Funds
Designed for Professional
Money Managers
Nova Fund
Juno Fund ANNUAL REPORT
Ursa Fund JUNE 30, 1996
OTC Fund
Precious Metals Fund
U.S. Government Bond Fund
U.S. Government Money Market
Nova Fund
Juno Fund
RYDEX SERIES TRUST Ursa Fund
6116 Executive Blvd., Suite 400 OTC Fund
Rockville, MD 20852 Precious
Metals Fund
(301) 468-8520 (800) 820-0888 U.S.
Government Bond Fund
U.S.
Government Money Market
<PAGE> 129<PAGE>
Statement of Additional Information
of
The Rydex Institutional Money Market Fund
PAGE
<PAGE>
RYDEX SERIES TRUST
RYDEX INSTITUTIONAL MONEY MARKET FUND
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852
(800) 820-0888 (301) 468-8520
STATEMENT OF ADDITIONAL INFORMATION
The Rydex Institutional Money Market Fund (the "Fund") is a
diversified series of the Rydex Series Trust, an open-end
management investment company (the "Trust"). The investment
objectives of the Fund are security of principal, high current
income, and liquidity consistent with preservation of capital.
In attempting to achieve its objectives, the Fund will invest
primarily in money market instruments which are issued or
guaranteed, as to principal and interest, by the U.S.
Government, its agencies or instrumentalities, as well as in
repurchase agreements secured by such securities and in bank
money market instruments and commercial paper. The Fund is
part of the Rydex Group of Funds, which is designed for
professional money managers and knowledgeable investors who
intend to invest in the Rydex Group of Funds as part of an
asset-allocation or market-timing investment strategy.
The securities of the Fund are not deposits or obligations of
any bank, and are not endorsed or guaranteed by any bank, and
an investment in the Fund is neither insured nor guaranteed by
the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other agency of the U.S. Government. The Fund
seeks to maintain a constant $1.00 net asset value per share,
although this cannot be assured.
This Statement of Additional Information is not a prospectus.
It should be read in conjunction with the Fund's Prospectus,
dated November 1, 1996. A copy of the Fund's Prospectus may
be obtained without charge by writing or telephoning the Fund.
The date of this Statement of Additional Information is
November 1, 1996.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
PAGE
<PAGE>
THE RYDEX FUNDS
INVESTMENT POLICIES AND TECHNIQUES
INVESTMENT RESTRICTIONS
PORTFOLIO TRANSACTIONS
MANAGEMENT OF THE TRUST
DISTRIBUTION PLAN
PRINCIPAL HOLDERS OF SECURITIES
DETERMINATION OF NET ASSET VALUE
INFORMATION ON COMPUTATION OF YIELD
DIVIDENDS, DISTRIBUTIONS, AND TAXES
AUDITORS AND CUSTODIAN
FINANCIAL STATEMENTS
<PAGE> 2<PAGE>
THE RYDEX FUNDS
The Trust is an open-end management investment company, and
currently is composed of nine separate series, including The
Rydex Institutional Money Market Fund, The Nova Fund, The Ursa
Fund, The Rydex OTC Fund, The Rydex Precious Metals Fund, The
Rydex U.S. Government Bond Fund, The Juno Fund, The Rydex U.S.
Government Money Market Fund, and, beginning on or about
D e c ember 1, 1996 (subject to obtaining all necessary
r e gulatory approvals), The Rydex High Yield Fund
(collectively, the "Rydex Funds"); other separate Rydex Funds
may be added in the future. Shares of any Rydex Fund may be
exchanged, without any charge, for shares of any other Rydex
Fund on the basis of the respective net asset values of the
shares involved; provided, that, in connection with exchanges
for shares of the Rydex Institutional Money Market Fund,
certain minimum investment levels are maintained. Copies of
t h e separate Prospectuses and Statements of Additional
I n formation for the Rydex Funds other than the Rydex
Institutional Money Market Fund are available, without charge,
upon request to the Trust at 6116 Executive Boulevard, Suite
400, Rockville, Maryland 20852, or by telephoning the Trust at
(800) 820-0888 or (301) 468-8520.
INVESTMENT POLICIES AND TECHNIQUES
General
Reference is made to the sections entitled "Investment
Objectives and Policies" in the Fund's Prospectus for a
discussion of the investment objectives and policies of the
Fund. In addition, set forth below is further information
relating to the Fund. Portfolio management is provided to the
Fund by the Trust's investment adviser, PADCO Advisors, Inc.,
a Maryland corporation with offices at 6116 Executive
B o u l evard, Suite 400, Rockville, Maryland 20852 (the
"Advisor").
The investment strategies of the Fund discussed below, and as
discussed in the Fund's Prospectus, may be used by the Fund
if, in the opinion of the Advisor, these strategies will be
advantageous to the Fund. The Fund is free to reduce or
eliminate the Fund's activity in any of those areas without
changing 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 the Fund
will result in the achievement of the Fund's objectives.
U.S. Government Securities
The Fund invests primarily in money market instruments which
are issued or guaranteed, as to principal and interest, by the
<PAGE> 3<PAGE>
U.S. Government, its agencies or instrumentalities ("U.S.
G o v e rnment Securities"). 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 the Federal National Mortgage
Association, are supported by the discretionary authority of
the U.S. Government to purchase certain obligations of the
F e d eral 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. The Fund will invest in U.S. Government Securities
only when the Advisor is satisfied that the credit risk with
respect to the issuer is minimal.
Repurchase Agreements
As discussed in the Fund's Prospectus, the Fund may enter into
repurchase agreements with financial institutions. The Fund
follows 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 monitored by the Advisor. In
a d d ition, the value of the collateral underlying the
repurchase agreement will always be at least equal to the
repurchase price, including any accrued interest earned on the
repurchase agreement. In the event of a default or bankruptcy
by a selling financial institution, the Fund will seek to
liquidate such collateral. However, the exercising of the
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 the Fund not to invest in
repurchase agreements that do not mature within seven days if
any such investment, together with any other illiquid assets
held by the Fund, amounts to more than 10% of its net assets.
The Fund's investments in repurchase agreements may, at times,
be substantial when, in the view of the Advisor, liquidity or
other considerations so warrant.
When-Issued and Delayed Delivery Securities
<PAGE> 4<PAGE>
As discussed in the Fund's Prospectus, the 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 120
days after the date of the transaction). At the time the Fund
makes the commitment to purchase securities on a when-issued
o r delayed delivery basis, the Fund will record the
t r a n saction and thereafter reflect the value of the
securities, each day, of such security in determining the
Fund's net asset value. 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 its custodian bank in which the Fund
will maintain cash or cash equivalents or other portfolio
securities equal in value to commitments for such when-issued
or delayed delivery securities. The Fund does not believe
that the 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.
The foregoing strategies, and those discussed in the Fund's
Prospectus under the heading "Investment Objectives and
Policies," may subject the Fund to the effects of interest
rate fluctuations to a greater extent than would occur if such
strategies were not used. While these strategies may be used
by the Fund if, in the opinion of the Advisor, these
strategies will be advantageous to the Fund, the Fund will be
free to reduce or eliminate its activity in any of those areas
without changing its fundamental investment policies. Certain
provisions of the Internal Revenue Code, related regulations,
and rulings of the Internal Revenue Service may also have the
effect of reducing the extent to which the previously-cited
techniques may be used by the Fund, either individually or in
combination. Furthermore, there is no assurance that any of
these strategies or any other strategies and methods of
i n v estment available to the Fund will result in the
achievement of the Fund s objectives.
Illiquid Securities
While the Fund does not anticipate doing so, the 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 Rule 144A under the
1933 Act. The Fund will not invest more than 10% of the
Fund s net assets in illiquid securities. The Fund will
adhere to a more restrictive limitation on the Fund s
i n v estment 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
<PAGE> 5<PAGE>
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 Commission ),
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 other meet selection criteria, the
Fund may make such investments. Whether or not such
securities are illiquid depends on the market that exists
for the particular security. The Commission staff has taken
the position that the liquidity of Rule 144A restricted
securities is a question of fact for a board of trustees to
determine, such determination to be based on a consideration
of the readily-available trading markets and the review of any
contractual restrictions. The staff also has acknowledged
that, while a board of trustees retains ultimate
responsibility, the trustees may delegate this function to an
investment adviser. The trustees of the Trust (the Trustees)
h a ve delegated this responsibility for determining the
liquidity of Rule 144A restricted securities which may be
invested in by the Fund to the Advisor. It is not possible to
predict with assurance exactly how the market for Rule 144A
restricted securities or any other security will develop. A
security which when purchased enjoyed a fair degree of
marketability may subsequently become illiquid and,
accordingly, a security which was deemed to be liquid at the
time of acquisition may subsequently become illiquid. In such
event, appropriate remedies will be considered to minimize the
effect on the Fund s liquidity.
<PAGE> 6<PAGE>
INVESTMENT RESTRICTIONS
As described in the section of the Fund's Prospectus entitled
"Investment Objectives and Policies," the Fund has adopted
certain investment restrictions as fundamental policies which
cannot be changed without the approval of the holders of a
"majority" of the outstanding shares of the Fund, as that term
is defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). The term "majority" is defined in the 1940
Act as the lesser of: (i) 67% or more of the shares of the
series present at a meeting of shareholders, if the holders of
more than 50% of the outstanding shares of the Fund are
present or represented by proxy; or (ii) more than 50% of the
outstanding shares of the series. (All policies of the Fund
not specifically identified in this Statement of Additional
Information or the Fund's Prospectus as fundamental may be
changed without a vote of the shareholders of the Fund.) For
p u r poses of the following limitations, all percentage
limitations apply immediately after a purchase or initial
investment. Any subsequent change in a particular percentage
resulting from fluctuations in value does not require the
elimination of any security from the Fund's portfolio.
These restrictions provide that the Fund may not:
1. Borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes and then only in
amounts not in excess of 5% of the value of its total
assets from a bank or (ii) in an amount up to one-third
of the value of its total assets, including the amount
borrowed, in order to meet redemption requests without
i m m e diately selling portfolio instruments. This
provision is not for investment leverage but solely to
facilitate management of the portfolio by enabling the
Fund to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or
disadvantageous.
2. Mortgage, pledge, or hypothecate its assets except to
secure permitted borrowings. In those cases, the Fund
may mortgage, pledge, or hypothecate assets having a
market value not exceeding the lesser of the dollar
amounts borrowed or 15% of the value of total assets at
the time of the borrowing.
3. Issue senior securities, except as permitted by its
investment objectives and policies.
4. Write or purchase put or call options.
5. Underwrite the securities of another issuer.
<PAGE> 7<PAGE>
6. Purchase, hold, or deal in real estate or oil and gas
interests, although the Fund may purchase and sell
securities that are secured by real estate or interests
therein and may purchase mortgage-related securities and
may hold and sell real estate acquired for the Fund as a
result of the ownership of securities.
7. Make loans to others except through the purchase of
qualified debt obligations, loans of portfolio securities
and entry into repurchase agreements.
8. Make short sales of portfolio securities or purchase any
portfolio securities on margin, except for such short-
term credits as are necessary for the clearance of
transactions.
9. Invest in securities of other investment companies,
except as they may be acquired as part of a merger,
c o n s olidation, acquisition of assets or plan of
reorganization.
10. Lend its portfolio securities in excess of 15% of its
total assets. Any loans of portfolio securities will be
made according to guidelines established by the trustees
of the Trust, including maintenance of cash collateral of
the borrower equal at all times to the current market
value of the securities loaned.
The Fund has no present intention to borrow money or pledge
assets in excess of 5% of the value of its net assets. Except
with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or
decrease in percentage resulting from any change in value or
net assets will not result in a violation of such restriction.
PORTFOLIO TRANSACTIONS
Subject to the general supervision by the Trustees, and in
conformity with the 1940 Act, the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder,
the Advisor is responsible for decisions to buy and sell
securities for each of the Rydex Funds (including the Fund)
and the selection of brokers and dealers to effect the
transactions. In seeking to implement the Fund's policies,
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.
The Advisor may serve as an investment manager to a number of
clients, including other investment companies. It is the
p r a c tice of the Advisor to cause purchase and sale
transactions to be allocated among the Rydex Funds and others
whose assets the Advisor manages in such manner as the Advisor
<PAGE> 8<PAGE>
deems equitable. The main factors considered by the Advisor
in making such allocations among the Rydex 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 Rydex Funds and the other
client accounts.
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.
Portfolio turnover rate is defined as the value of the
s e curities purchased or securities sold, excluding all
securities whose maturities at time of acquisition were one
year or less, divided by the average monthly value of such
securities owned during the year. Based on this definition,
it is anticipated that the Fund's policy of investing in
government securities with remaining maturities of less than
one year will not result in a quantifiable portfolio turnover
rate. However, because of the short-term nature of the Fund's
portfolio securities, it is anticipated that the number of
purchases and sales or maturities of such securities will be
substantial. Nevertheless, as brokerage commissions are not
normally charged on purchases and sales of such securities,
the large number of these transactions does not have an
adverse effect upon the net yield and net asset value of the
shares of the Fund.
The Fund commenced operations on July 11, 1996. For the
period from inception to September 30, 1996, total brokerage
commissions paid by the Fund amounted to $0.
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 addresses (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. Fees and expenses
for non-interested Trustees will be paid by the Trust.
<PAGE> 9<PAGE>
Trustees
*Albert P. Viragh, Jr. (55)
Chairman of the Board of Trustees and President of the
Trust; Chairman of the Board, President, and Treasurer of
PADCO Advisors, Inc., investment adviser to the Trust,
1993 to present; Chairman of the Board, President, and
Treasurer of PADCO Service Company, Inc., shareholder and
transfer agent servicer to the Trust, 1993 to present;
Chairman of the Board of Managers of the Rydex Advisor
Variable Annuity Account (the Separate Account ), a
separate account of Great American Reserve Insurance
C o mpany, 1996 to present; Chairman of the Board,
President, and Treasurer of PADCO Advisors II, Inc.,
investment adviser to the Separate Account, 1996 to
present; Chairman of the Board, President, and Treasurer
of PADCO Financial Services, Inc., a registered broker-
dealer firm, and the Rydex Institutional Money Market
Fund s principal underwriter, 1996 to present; Vice
P r esident of Rushmore Investment Advisors Ltd., a
registered investment adviser, 1985 to 1993. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
Corey A. Colehour (51)
Trustee of the Trust; Manager of the Separate Account,
1996 to present; Senior Vice President of Marketing of
Schield Management Company, a registered investment
adviser, 1985 to present. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
J. Kenneth Dalton (55)
Trustee of the Trust; Manager of the Separate Account,
1 9 9 6 to present; Mortgage Banking Consultant and
Investor, The Dalton Group, April 1995 to present;
President, CRAM Mortgage Group, Inc. 1966 to April 1995.
Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
Roger Somers (52)
Trustee of the Trust; Manager of the Separate Account,
1996 to present; President, Arrow Limousine, 1963 to
present. Address: 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.
Officers
Timothy P. Hagan (54)
<PAGE> 10<PAGE>
Treasurer and Vice President of the Trust; Vice President
of PADCO Advisors, Inc., investment adviser to the Trust,
1993 to present; Treasurer and Vice President of the
Separate Account, 1996 to present; Vice President of
PADCO Advisors II, Inc., investment adviser to the
Separate Account, 1996 to present; Employee of PADCO
Service Company, Inc., shareholder and transfer agent
servicer to the Trust, 1993 to present; President and
D i rector of Rushmore Services, Inc., a registered
transfer agent, 1981 to 1993. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
Robert M. Steele (38)
Secretary and Vice President of the Trust; Vice President
of PADCO Advisors, Inc., investment adviser to the Trust,
1994 to present; Secretary and Vice President of the
Separate Account, 1996 to present; Vice President of
PADCO Advisors II, Inc., investment adviser to the
Separate Account, 1996 to present; Vice President of The
Boston Company, Inc., an institutional money management
firm, 1987 to 1994. Address: 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852.
Michael P. Byrum (26)
Assistant Secretary of the Trust; Employee of PADCO
Advisors, Inc., 1993 to present; portfolio manager of The
Ursa Fund (since 1996), The Rydex Precious Metals Fund
(since 1993), The Rydex U.S. Government Money Market Fund
(since 1993), and The Rydex Institutional Money Market
Fund (since 1996), each a series of the Trust; Assistant
Secretary of the Separate Account, 1996 to present;
Employee of PADCO Advisors II, Inc., investment adviser
to the Separate Account; Investment Representative, Money
Management Associates, a registered investment adviser,
1992 to 1993; Student, Miami University, of Oxford, Ohio
(B.A., Business Administration, 1992). Address: 6116
Executive Boulevard, Suite 400, Rockville, Maryland
20852.
_________________________
* This Trustee is deemed to be an "interested person" of
the Trust, within the meaning of Section 2(a)(19) of the
1940 Act, inasmuch as this person is affiliated with the
Advisor, as described herein.
The Advisor, which has its office at 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852, provides the Fund with
investment advisory services. The Advisor was incorporated in
the State of Maryland on February 5, 1993. Albert P. Viragh,
<PAGE> 11<PAGE>
Jr., the Chairman of the Board of Trustees and the President
of the Advisor, owns a controlling interest in the Advisor.
Under an investment advisory agreement with the Advisor,
dated May 14, 1993, and amended on November 2, 1993, December
13, 1994, March 8, 1996, and September 25, 1996, 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. The
Trust currently is composed of nine separate series, the Nova
Fund, the Ursa Fund, the Rydex OTC Fund, the Rydex Precious
Metals Fund, the Rydex U.S. Government Bond Fund, the Juno
Fund, The Rydex High Yield Fund, the Rydex U.S. Government
Money Market Fund, and the Rydex Institutional Money Market
Fund; other separate series may be added in the future. As of
September 30, 1996, net Trust assets under management of the
A d v i s or were approximately $973 million, and as of
September 30, 1996, net Fund assets under management of the
Advisor were approximately $30.8 million. Pursuant to the
advisory agreement, the Fund pays the Advisor a fee at an
annual rate based on 0.55% of the net assets of the Fund. The
Fund commenced operations on July 11, 1996. For the period
from July 11, 1996 to September 30, 1996, total management
fees paid by the Fund to the Advisor amounted to $47,002. The
Advisor manages the investment and the reinvestment of the
assets of the Fund, in accordance with the Fund's investment
objectives, policies, and limitations, subject to the general
supervision and control of the officers of the Trust and the
Trustees. The Advisor bears all costs associated with
providing these advisory services. The Advisor, from its own
resources, including profits from advisory fees received from
the Fund, 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 pays all
distribution costs for Fund shares.
General administrative, shareholder, dividend disbursement,
transfer agent, and registrar services are provided to the
Trust and the Fund by PADCO Service Company, Inc., 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852
(the "Servicer"), 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, dated September 19, 1995 and as amended on March 8,
1996 and also amended on September 25, 1996. 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.
<PAGE> 12<PAGE>
Under the service agreement with the Servicer, the Fund pays
the Servicer an annual fee based on 0.20% of the net assets of
the Fund. For the period from July 11, 1996 to September 30,
1996, total service fees paid by the Fund to the Servicer
amounted to $17,100. Under the service agreement, the
S e r vicer provides the Fund with all required general
administrative services, including, without limitation, office
space, equipment, and personnel; clerical and general back
o f f ice 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 Fund under Federal and state
securities laws. The Servicer also maintains the shareholder
account records for the Fund, distributes dividends and
distributions payable by the Fund, and produces statements
with respect to account activity for the Fund and its
shareholders. The Servicer pays all fees and expenses that
are directly related to the services provided by the Servicer
to the Fund; the 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.
The 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; fidelity bonds and other insurance premiums;
e x p e nses 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 nine
Rydex Funds, including the Fund, 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. For the period from
July 11, 1996 to September 30, 1996, the total expenses of
Fund operations borne by the Fund, other than those expenses
assumed or reimbursed by the Advisor or the Servicer, amounted
to $98,553.
<PAGE> 13<PAGE>
The aggregate compensation paid by the Trust to each of its
Trustees serving during the fiscal year ended June 30, 1996,
is set forth in the table below:
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Benefits Estimated
Compensation Accrued as Part Annual Benefit
Name of Person, from the of the Trust s upon
Position Trust** Expenses Retirement
---------- ---------- ------------- ----------
<S> <C> <C> <C>
Albert P. Viragh, $0 $0 $0
Jr.*
Chairman and
President
Corey A. Colehour $7,500 $0 $0
Trustee
J. Kenneth Dalton $4,500 $0 $0
Trustee
Roger Somers $7,500 $0 $0
Trustee
___________________________
* Denotes an "interested person" of the Trust.
** Mr. David R. Petersen, who resigned as a Trustee, effective October 13,
1995, was paid $2,000 in aggregate compensation by the Trust during the
fiscal year ended June 30, 1996.
</TABLE>
As of the date of this Statement of Additional Information, no
person, other than the Advisor, was a record owner or, to the
knowledge of the Trust, beneficial owner of 5% or more of the
shares of the Fund.
DISTRIBUTION PLAN
Pursuant to the Trust's plan of distribution for the Fund
adopted by the Trust pursuant to Rule 12b-1 under the 1940 Act
(the "Distribution Plan"), the Fund will pay PADCO Financial
Services, Inc. (the "Distributor"), monthly at a rate not to
exceed 0.25% of the average daily net assets of the Fund
during that month for expenses actually incurred in the
distribution and promotion of the Fund's shares, and the
Distributor, in turn, on a quarterly basis will pay certain
securities dealers or brokers, administrators, investment
advisers, institutions, including bank trust departments, and
other persons ("Recipients") amounts based on the average
<PAGE> 14<PAGE>
daily net asset value of shares of the Fund owned by that
Recipient or its customers during that quarter. No such
payments, however, will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares
held by the Recipient or its customers at the end of such
quarter, taken without regard to the minimum holding period,
does not exceed a minimum amount. The minimum holding period
and minimum level of holdings, if any, will be determined from
time to time by a majority of the Trustees of the Trust who
are not "interested persons" of the Trust, as defined in the
1940 Act, and who have no direct or indirect financial
interest in the operation of the Distribution Plan or any
agreements related to the Distribution Plan (the "Rule 12b-1
Trustees"). The services to be provided by the Recipients may
i n c l ude, but are not limited to, distributing sales
literature, answering routine customer inquiries regarding the
Trust and the Fund, assisting in establishing and maintaining
shareholder accounts and processing purchase and redemption
t r a nsactions, making the Trust's investment plans and
shareholder services options available and providing such
other information and services as the Distributor or the Trust
may reasonably request from time to time.
Pursuant to the Distribution Plan, the Distributor, in
addition to being reimbursed by the Fund for any payments to
Recipients, also will be entitled to reimbursement monthly (up
to the maximum of 0.25% per annum of the average net assets of
the Fund) for the Distributor's other expenses incurred in the
distribution and promotion of the Fund's shares, including,
but not limited to, the printing of certain reports used for
sales purposes, advertisements, expenses of preparation and
printing of sales literature, and other distribution related
expenses, including any distribution or service fees paid to
Recipients who have executed a distribution or service
agreement with the Distributor. The maximum amount which may
be paid to these Recipients by the Distributor (which will be
determined according to the services provided in assisting
investors with their accounts and/or shares sold) is 0.25% (on
an annual basis) of the Fund's average net assets owned by
those Recipients or by clients of those Recipients.
For the period from July 11, 1996 to September 30, 1996, and
pursuant to the Distribution Plan, the total reimbursement
payments paid or payable by the Fund to the Distributor
amounted to $21,627, which constituted 0.25 of 1% of the
Fund's average daily net assets during this period. Of these
payments by the Fund to the Distributor under the Distribution
Plan, $16,740 was paid as compensation by the Distributor to
Recipients pursuant to agreements related to the Distribution
P l an, and $4,887 was spent on the printing of sales
literature, travel entertainment, due diligence, and other
promotional expenses; none of these payments was spent on
<PAGE> 15<PAGE>
advertising and marketing, the printing and mailing of
prospectuses for persons other than current shareholders of
the Fund, or as compensation to wholesalers of the Distributor
in respect of sales of shares of the Fund. In addition, for
the period from July 11, 1996 to September 30, 1996, the
Advisor, pursuant to agreements related to the Distribution
Plan, also made payments from its own resources to Recipients
aggregating $11,066. In the event that the Distributor is not
fully reimbursed for payments or expenses incurred by the
D i stributor, these unreimbursed expenses under the
Distribution Plan will not be carried forward beyond twelve
months from the date these expenses were incurred. For the
period from July 11, 1996 to September 30, 1996, an aggregate
of $3,089 of distribution expenses, or 0.04% of the average
daily net assets of the Fund's shares (annualized), was not
reimbursed or recovered by the Distributor through the receipt
of reimbursement payments under the Distribution Plan.
The Distributor is required to report in writing to the
Trustees of the Trust at least quarterly on the monies
reimbursed to the Distributor under the Distribution Plan, as
well as to furnish the Trustees with such other information as
may reasonably be requested in connection with the payments
made under the Distribution Plan in order to enable the
Trustees to make an informed determination as to whether the
Distribution Plan should be continued.
The Trustees of the Trust have determined that a consistent
cash flow resulting from the sale of new shares of the Fund is
necessary and appropriate to meet redemptions and to take
advantage of buying opportunities without having to make
unwarranted liquidations of portfolio securities of the Fund.
The Trustees, therefore, felt that it will likely benefit the
Fund to have monies available for the direct distribution
activities of the Distributor in promoting the sale of the
Fund's shares. The Trustees, including the Rule 12b-1
Trustees, concluded, in the exercise of their reasonable
business judgment and in light of their fiduciary duties, that
there is a reasonable likelihood that the Distribution Plan
will benefit the Fund and its shareholders.
The Distribution Plan has been approved by the Trustees of the
Trust, including all of the Rule 12b-1 Trustees, and by the
Fund's initial shareholder. The Distribution Plan must be
renewed annually by the Trustees of the Trust, including by a
majority of the Rule 12b-1 Trustees, cast in person at a
meeting called for that purpose. The Distribution Plan and
any distribution or service agreement may be terminated at any
time, without any penalty, by the Trustees or by a vote of a
majority of the Fund's outstanding shares on sixty (60) days'
written notice. The Distributor or any Recipient also may
<PAGE> 16<PAGE>
terminate their respective distribution or service agreement
at any time upon written notice.
T h e Distribution Plan and any distribution or service
agreement may not be amended to increase materially the amount
spent for distribution expenses or in any other material way
without approval by a majority of the Fund's outstanding
shares, and all material amendments to the Distribution Plan
or any distribution or service agreement shall be approved by
the Rule 12b-1 Trustees, cast in person at a meeting called
for the purpose of voting on any such amendment.
PRINCIPAL HOLDERS OF SECURITIES
As of October 17, 1996, the following persons were the only
persons who were record owners or, to the knowledge of the
Trust, beneficial owners of 5% or more of the shares of the
Fund:
<TABLE>
<CAPTION>
Name and Address Number of Shares % Ownership
----------------- ---------------- -----------
<S> <C> <C>
Centurion Trust Co. 12,504,710.830 36.1%1/
2525 East Camelback Road
Suite 640
Phoenix, AZ 85016
Trust Company of America 8,268,087.240 23.8%1/
7103 S. Revere Parkway
Denver, CO 80217
Record Owner for:
Satell Investment 8,268,087.240 23.8%2/
Management
8015 Broadway
Suite 101
San Antonio, TX 78209
Independent Trust 4,253,999.820 12.3%1/
Corporation
15255 S. 94th Avenue
Suite 303
Orland Park, IL 60462-3897
Record Owner for:
<PAGE> 17<PAGE>
Name and Address Number of Shares % Ownership
----------------- ---------------- -----------
<S> <C> <C>
Portfolio Strategies 4,253,999.820 12.3%2/
1102 Broadway Plaza
Suite 302
Tacoma, WA 98402
National Financial 2,455,310.000 7.1%1/
Services Corp.
P.O. Box 3908
New York, NY 10008
First Trust Corp. 2,059,117.620 5.9%1/
P.O. Box 173736
Denver, CO 80217
Record Owner for:
Zweig/Avatar 2,059,117.620 5.9%2/
900 Third Avenue
New York, New York 10022
Independent Trust 1,794,309.660 5.2%1/
Corporation
15255 S. 94th Avenue
Suite 303
Orland Park, IL 60462-3897
Record Owner for:
Brookstreet Securities 1,794,309.660 5.2%2/
2361 Campus Drive
Suite 210
Irvine, CA 92715
1/ Record owner only.
2/ Beneficial owner only.
</TABLE>
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 1.0% of the outstanding
shares of the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund's shares is determined each
day on which both the New York Stock Exchange (the "NYSE") and
the Federal Reserve Bank of New York (the "New York Fed") are
<PAGE> 18<PAGE>
open for business at 1:00 P.M., Eastern Time. Currently, the
NYSE and the New York Fed are closed on weekends, and the
following holiday closings have been scheduled for 1996: (i)
N e w Y ear's Day, Martin Luther King Jr.'s Birthday,
Washington's Birthday, Good Friday, Memorial Day, July Fourth,
Labor Day, Columbus Day, Thanksgiving Day, and Christmas Day;
and (ii) the preceding Friday when any of those holidays falls
on a Saturday or the subsequent Monday when any one of those
holidays falls on a Sunday. To the extent that portfolio
securities of the Fund are traded in other markets on days
when the NYSE or the New York Fed is closed, the Fund's net
asset value may be affected on days when investors do not have
access to the Fund to purchase or redeem shares. Although the
Trust expects the same holiday schedule to be observed in the
future, the NYSE and the New York Fed each may modify its
holiday schedule at any time. The net asset value of the Fund
serves as the basis for the purchase and redemption price of
the Fund's shares.
The Fund will utilize the amortized cost method in valuing its
portfolio securities for purposes of determining the net asset
value of the shares of the Fund. The Fund will utilize the
amortized cost method in valuing its portfolio securities even
though the portfolio securities may increase or decrease in
market value, generally, in connection with changes in
interest rates. The amortized cost method of valuation
involves valuing a security at its cost adjusted by a constant
a m o rtization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the
market value of the instrument.
The Fund's use of the amortized cost method to value its
portfolio securities and the maintenance of the per share net
asset value of $1.00 is permitted pursuant to Rule 2a-7 under
the 1940 Act (the "Rule"), and is conditioned on the Fund's
compliance with various conditions including: (a) the Trustees
are obligated, as a particular responsibility within the
overall duty of care owed to the Fund's shareholders, to
establish written procedures reasonably designed, taking into
account current market conditions and the Fund's investment
objectives, to stabilize the net asset value per share as
computed for the purpose of distribution and redemption at
$1.00 per share; (b) the procedures should provide for (i) the
calculation, at such intervals as the Trustees determine are
appropriate and as are reasonable in light of current market
conditions, of the deviation, if any, between net asset value
per share using amortized cost to value portfolio securities
and net asset value per share based upon available market
quotations with respect to such portfolio securities; (ii) the
periodic review by the Trustees of the amount of deviation as
well as methods used to calculate the amount of deviation; and
(iii) the maintenance of written records of the procedures,
<PAGE> 19<PAGE>
the Trustees' considerations made pursuant to the procedures
and any actions taken upon such considerations; (c) the
Trustees should consider what steps should be taken, if any,
in the event of a difference of more than 1/2 of 1% between
the two methods of valuation; and (d) the Trustees should take
such action as the Trustees deem appropriate (such as
shortening the average portfolio maturity, realizing gains or
losses, or, as provided by the Declaration of Trust, reducing
the number of the outstanding shares of the Fund) to eliminate
or reduce to the extent reasonably practicable material
dilution or other unfair results to investors or existing
shareholders. Any reduction of outstanding shares will be
effected by having each shareholder proportionately contribute
to the Fund's capital the shares necessary to eliminate or
reduce the material dilution or other unfair results to
investors or existing shareholders. Each shareholder will be
deemed to have agreed to such a contribution in these
circumstances by investment in the Fund.
The Rule further requires that the Fund limits its investments
to U.S. dollar-denominated instruments which the Trustees
determine present minimal credit risks and which are Eligible
Securities (as defined below). The Rule also requires the
Fund to maintain a dollar-weighted average portfolio maturity
(not more than 90 days) appropriate to the Fund's objective of
maintaining a stable net asset value of $1.00 per share and
precludes the purchase of any instrument with a remaining
maturity of more than thirteen months. Should the disposition
of a portfolio security result in a dollar-weighted average
portfolio maturity of more than 90 days, the Fund would be
required to invest its available cash in such a manner as to
reduce such maturity to 90 days or less as soon as reasonably
practicable.
An Eligible Security is defined in the Rule to mean a security
which: (a) has a remaining maturity of thirteen months or
less; (b) either (i) is rated in the two highest short-term
rating categories by any two nationally-recognized statistical
rating organizations ("NSROs") that have issued a short-term
rating with respect to the security or class of debt
obligations of the issuer, or (ii) if only one NSRO has issued
a short-term rating with respect to the security, then by that
NSRO; (c) was a long-term security at the time of issuance
whose issuer has outstanding a short-term debt obligation
which is comparable in priority and security and has a rating
as specified in clause (b) above; or (d) if no rating is
assigned by any NSRO as provided in clauses (b) and (c) above,
the unrated security is determined by the Trustees to be of
comparable quality to any such rated security.
As permitted by the Rule, the Trustees have delegated to the
Fund's Advisor, subject to the Trustees' oversight pursuant to
<PAGE> 20<PAGE>
guidelines and procedures adopted by the Trustees, the
authority to determine which securities present minimal credit
risks and which unrated securities (and securities that are
rated only by a single NSRO) are comparable in quality to
rated securities. The Advisor will, under the supervision of
the Trustees, cause the Fund to dispose of any security as
soon as practicable if the security is no longer of high
quality, unless the Trustees determine that this action would
not be in the best interest of the Fund.
If the Trustees determine that it is no longer in the best
interests of the Fund and its shareholders to maintain a
stable price of $1.00 per share, or if the Trustees believe
that maintaining such price no longer reflects a market-based
net asset value per share, the Trustees have the right to
change from an amortized cost basis of valuation to valuation
based on market quotations. The Fund will notify shareholders
of any such change.
The Fund will manage its portfolio in an effort to maintain a
constant $1.00 per share price, but the Fund cannot assure
that the value of the Fund's shares will never deviate from
this price. Since dividends from net investment income (and
net short-term capital gains, if any) are declared and accrued
on a daily basis, the net asset value per share, under
o r d inary circumstances, is likely to remain constant.
Otherwise, realized and unrealized gains and losses will not
be distributed on a daily basis but will be reflected in the
Fund's net asset value. The amounts of such gains and losses
will be considered by the Trustees in determining the action
to be taken to maintain the Fund's $1.00 per share net asset
value. Such action may include distribution at any time of
part or all of the then-accumulated undistributed net realized
capital gains, or reduction or elimination of daily dividends
by an amount equal to part or all of the then-accumulated net
realized capital losses. However, if realized losses should
exceed the sum of net investment income plus realized gains on
any day, the net asset value per share on that day might
decline below $1.00 per share. In such circumstances, the
Fund may reduce or eliminate the payment of daily dividends
for a period of time in an effort to restore the Fund's $1.00
per share net asset value. A decline in prices of securities
could result in significant unrealized depreciation on a mark-
to-market basis. Under these circumstances the Fund may
reduce or eliminate the payment of dividends, and utilize a
net asset value per share as determined by using available
market quotations, or reduce the number of its shares
outstanding.
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
<PAGE> 21<PAGE>
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.
INFORMATION ON COMPUTATION OF YIELD
The Fund's annualized current yield, as may be quoted from
time to time in advertisements and other communications to
s h a r eholders and potential investors, is computed by
determining, for a stated seven-day period, the net change,
exclusive of capital changes and including the value of
additional shares purchased with dividends and any dividends
declared therefrom (which reflect deductions of all expenses
of the Fund such as management fees), in the value of a
hypothetical pre-existing account having a balance of one
share at the beginning of the period, and dividing the
difference by the value of the account at the beginning of the
base period to obtain the base period return, and then
multiplying the base period return by (365/7).
The Fund's annualized effective yield, as may be quoted from
time to time in advertisements and other communications to
s h a r eholders and potential investors, is computed by
determining (for the same stated seven-day period as the
current yield), the net change, exclusive of capital changes
and including the value of additional shares purchased with
dividends and any dividends declared therefrom (which reflect
deductions of all expenses of the Fund such as management
fees), in the value of a hypothetical pre-existing account
having a balance of one share at the beginning of the period,
and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return,
and then compounding the base period return by adding 1,
raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
The Fund s annualized effective yield and annualized current
yield, for the seven-day period ended September 30, 1996, were
4.46% and 4.37%, respectively.
The yields quoted in any advertisement or other communication
should not be considered a representation of the yields of the
Fund in the future since the yield is not fixed. Actual
yields will depend not only on the type, quality, and
maturities of the investments held by Fund and changes in
<PAGE> 22<PAGE>
interest rates on such investments, but also on changes in the
Fund's expenses during the period.
Yield information may be useful in reviewing the performance
of the Fund and for providing a basis for comparison with
other investment alternatives. However, unlike bank deposits
or other investments which typically pay a fixed yield for a
stated period of time, the Fund's yield fluctuates.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
Dividends and Distributions. As discussed in the Fund's
Prospectus, the Fund intends to declare dividends daily from
net investment income (and net short-term capital gains, if
any) and distribute such dividends monthly. Net income, for
dividend purposes, includes accrued interest and amortization
of original issue and market discount, plus or minus any
short-term gains or losses realized on sales of portfolio
securities, less the amortization of market premium and the
estimated expenses of the Fund. Net income will be calculated
immediately prior to the determination of net asset value per
share of the Fund.
The Trustees may revise the dividend policy, or postpone the
payment of dividends, if the Fund should have or anticipate
any large unexpected expense, loss, or fluctuation in net
assets which, in the opinion of the Trustees, might have a
significant adverse effect on shareholders. On occasion, in
order to maintain a constant $1.00 per share net asset value,
the Trustees may direct that the number of outstanding shares
be reduced in each shareholder's account. Such reduction may
result in taxable income to a shareholder in excess of the net
increase (i.e., dividends, less such reduction), if any, in
the shareholder's account for a period of time. Furthermore,
such reduction may be realized as a capital loss when the
shares are liquidated.
Regulated Investment Company Status. The Fund intends to
qualify as a regulated investment company (a "RIC") under
Subchapter M of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"). As a RIC, the Fund itself 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
o f w h ether the shareholder elects to receive these
distributions in cash or in additional shares. Distributions
may be subject to state and local taxes.
Shareholders will be subject to Federal income tax on
dividends paid from interest income derived from taxable
securities and on distributions of realized net short-term
<PAGE> 23<PAGE>
capital gains. Interest and realized net short-term capital
gains distributions are taxable to the shareholder as ordinary
dividend income regardless of whether the shareholder receives
such distributions in additional shares or in cash. Since the
Fund's income is expected to be derived entirely from interest
rather than dividends, none of such distributions will be
e l i gible for the Federal dividends received deduction
available to corporations.
The Fund will seek to qualify for treatment as a RIC under the
Code. Provided that the 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 short-term capital gains, if any, are
distributed to the Fund's shareholders. To avoid an excise
tax on its undistributed income, the Fund generally must
distribute at least 98% of its income. 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 addition, under the Code, the Fund will not qualify as a
RIC for any taxable year if more than 30% of the Fund's gross
income for that year is derived from gains on the sale of
securities held less than three months (the "30% Test"). If
the Fund does not satisfy the 30% Test for the Fund's first
taxable year, or for any subsequent taxable year, the Fund
will not qualify as a RIC for that year. If the Fund fails to
qualify as a RIC for any taxable year, the Fund would be taxed
in the same manner as an ordinary corporation. In that event,
the Fund would not be entitled to deduct the distributions
which the Fund had paid to shareholders and, thus, would incur
a corporate income tax liability on all of the Fund's taxable
income whether or not distributed. The imposition of
corporate income taxes on the Fund would directly reduce the
return to an investor from an investment in the Fund.
In the event of a failure by the 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.
<PAGE> 24<PAGE>
If the 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 charge mentioned below, if applicable) attributable
to such period. The Fund might also be required to pay to the
U.S. Internal Revenue Service (the "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 the Fund determines that the Fund 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.
Back-Up Withholding. The 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
c o r r e ct 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. The 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
t h e F und 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.
AUDITORS AND CUSTODIAN
<PAGE> 25<PAGE>
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey
08540, are the auditors and the independent certified public
accountants of the Trust and the Fund. Star Bank, N.A., 425
Walnut Street, Cincinnati, Ohio 45202, acts as the Custodian
bank for the Trust and the Fund.
FINANCIAL STATEMENTS
Unaudited financial statements for the Fund, for the period
from July 11, 1996 (the date the Fund commenced operations) to
September 30, 1996, are included herein.
<PAGE> 26<PAGE>
Unaudited Financial Statements
for
The Rydex Institutional Money Market Fund,
for the Period From
July 11, 1996 to September 30, 1996
PAGE
<PAGE>
RYDEX SERIES TRUST
THE RYDEX INSTITUTIONAL MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Face Amount Market Value
----------- ------------
<S> <C> <C>
COMMERCIAL PAPER 22.6%
American Express Credit 5.33% due
10/15/96 $1,000,000 $997,927
Ford Motor Credit Co. 5.37% due
10/15/96 2,000,000 1,995,823
General Electric Credit Corp. 5.34%
due 10/10/96 1,000,000 998,665
General Motors Acceptance Corp.
5.34% due 10/7/96 1,000,000 999,100
General Motors Acceptance Corp.
5.36% due 10/9/96 1,000,000 998,809
General Motors Acceptance Corp.
5.37% due 10/11/96 1,000,000 998,508
Total Commercial Paper (Cost
$6,988,842) 6,988,842
FEDERAL AGENCY DISCOUNT NOTES 19.3%
Federal Home Loan Bank Board 5.21%
due 10/16/96 1,000,000 997,829
Federal Home Loan Mortgage Corp.
5.37% due 11/13/96 2,000,000 1,987,172
Federal National Mortgage Assoc.
5.32% due 10/8/96 1,000,000 998,966
Federal National Mortgage Assoc.
5.16% due 11/15/96 1,000,000 993,550
Federal National Mortgage Assoc.
5.19% due 1/13/97 1,000,000 985,007
Total Federal Agency Discount
Notes (Cost $5,962,524)
U.S. TREASURY BILL 58.1%
U.S. Treasury Bill 5.12% due
10/10/96 18,000,000 17,976,960
(Cost $17,976,960)
PAGE
<PAGE>
Total Investments 100% (Cost
$30,928,326) $30,928,326
</TABLE>
<PAGE> 29<PAGE>
<TABLE>
<CAPTION>
RYDEX SERIES TRUST
THE RYDEX INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996
(Unaudited)
<S> <C>
ASSETS
Securities at Value $30,928,326
Investment Income Receivable 3,105
Cash in Custodian Bank 55,953
Receivable for Shares Purchased 2,084,249
Total Assets 33,071,633
LIABILITIES
Payable for Shares Redeemed 2,084,249
Dividends Payable 158,814
Investment Advisory Fee Payable 22,932
Transfer Agent Fee Payable 11,076
Distribution Fee Payable 11,887
Other Liabilities 1,791
Total Liabilities 2,290,749
NET ASSETS $30,780,884
Share Outstanding 30,780,884
Net Asset Value Per Share $1.00
</TABLE>
PAGE
<PAGE>
<TABLE>
<CAPTION>
RYDEX SERIES TRUST
THE RYDEX INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF OPERATIONS*
September 30, 1996
(Unaudited)
<S> <C>
INVESTMENT INCOME
Interest $453,849
EXPENSES
Advisory Fees 47,002
Transfer Agent Fees 17,100
Distribution Fees 21,627
Registration Fees 4,399
Accounting Fees 4,188
Miscellaneous Expenses 4,237
Total Expenses 98,553
Net Investment Income 355,296
REAL AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on
Investment Securities 0
Net Unrealized Gain (Loss) on
Investment Securities 0
Net Gain (Loss) on Investments 0
Net Increase in Net Assets from
Operations $355,296
* Since commencement of operations on July 11, 1996.
</TABLE>
<TABLE>
<CAPTION>
RYDEX SERIES TRUST
THE RYDEX INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS*
September 30, 1996
(Unaudited)
PAGE
<PAGE>
<S> <C>
FROM INVESTMENT ACTIVITIES
Net Investment Income $355,296
Net Realized Gain (Loss) on Investments 0
Net Unrealized Gain (Loss) on 0
Investments
Net Increase in Net Assets from 355,296
Operations
Distributions to Shareholders:
From Net Investment Income (355,296)
From Realized Gain on Investments 0
Net Increase in Net Assets from
Shares Transactions 30,780,884
NET ASSETS - Beginning of Period 0
NET ASSETS - End of Period $30,780,884
Shares Issued and Redeemed
Shares Purchased 267,794,601
Shares Purchased through
Dividend Reinvestment 196,660
Total Purchased 267,991,261
Shares Redeemed (237,210,377)
Net Shares Purchased 30,780,884
* Since commencement of operations on July 11, 1996.
</TABLE>
<PAGE> 32<PAGE>
<TABLE>
<CAPTION>
RYDEX SERIES TRUST
THE RYDEX INSTITUTIONAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Fund for the period July 11,
1996 to September 30, 1996 are unaudited.
For the Period
Ended
September 30,
1996*
(Unaudited)
---------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE -- BEGINNING OF PERIOD $ 1.00
Net Investment Income (Loss) 0.01
Net Realized and Unrealized Gains
(Losses) on Securities 0.00
Net Increase (Decrease) in Net Asset Value
Resulting from Operations 0.00
Dividends to Shareholders (0.01)
Distributions to Shareholders From Net
Realized Capital Gain 0.00
Net Increase (Decrease) in Net Asset Value 0.00
NET ASSET VALUE END OF PERIOD $ 1.00
TOTAL INVESTMENT RETURN 4.28%**
RATIOS TO AVERAGE NET ASSETS
Expenses 1.24%**
Net Investment Income 4.22%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0.00%
Net Assets, End of Period (000's omitted) $30,781
The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the period.
* Commencement of Operations: July 11, 1996.
** Annualized for the period ended September 30, 1996.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year.
PAGE
<PAGE>
</TABLE>
<PAGE> 34<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE RYDEX INSTITUTIONAL MONEY MARKET FUND
1. SIGNIFICANT ACCOUNTING POLICIES
Rydex Series Trust (the Trust ) is registered with the
Securities and Exchange Commission (the Commission ) under
the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Trust currently is
comprised of nine separate series: The Nova Fund, The Ursa
Fund, The Rydex U.S. Government Money Market Fund, The Rydex
OTC Fund, The Rydex Precious Metals Fund, The Rydex U.S.
Government Bond Fund, The Juno Fund, The Rydex Institutional
Money Market Fund, and The Rydex High Yield Fund (The Rydex
High Yield Fund presently is in registration with the
Commission and has not yet commenced operations). The
following significant accounting policies are in conformity
w i t h generally accepted accounting principles and are
consistently followed by the Trust in the preparation of its
financial statements:
A. Securities listed on an exchange are valued at the
latest quoted sales prices as of 4:00 p.m. on the valuation
date. Securities not traded on an exchange are valued at
their last sales price. Listed options held by the Trust are
valued at their last bid price. Over-the counter options held
by the Trust are valued using the average bid price obtained
from one or more securities dealers. The value of futures
contracts purchased and sold by the Trust are accounted for
using the unrealized gain or loss on the contracts that is
determined by marking the contracts to their current realized
settlement prices. Short-term securities with less than sixty
d a ys to maturity are valued at amortized cost, which
approximates market value. Securities and assets for which
market quotations are not readily available are valued at fair
value as determined in good faith by or under direction of the
Board of Trustees of the Trust.
B. Securities transactions are recorded on the trade
date (the date the order to buy or sell is executed).
Realized gains and losses from securities transactions are
recorded on the identified cost basis. Dividend income is
recorded on the ex-dividend date. Interest income is accrued
on a daily basis.
C. Net investment income is computed, and dividends are
declared, daily in The Rydex U.S. Government Money Market
Fund, The Rydex Institutional Money Market Fund, and The Rydex
U.S. Government Bond Fund. Income dividends in these series
of the Trust are paid monthly. Dividends are reinvested in
additional shares unless shareholders request payment in cash.
Generally, short-term capital gains are distributed monthly in
The Rydex U.S. Government Money Market Fund and The Rydex
Institutional Money Market Fund.<PAGE>
D. When a series of the Trust engages in a short sales
transaction, an amount equal to the proceeds received by the
Trust series is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked
to market to reflect the market value of the short sale. Each
series of the Trust maintains a segregated account of
securities as collateral for the short sales transactions
engaged in by the series. The Trust is exposed to market risk
based on the amount, if any, that the market value of the
stock subject to the short sale exceeds the market value of
the corresponding securities held as collateral in the
segregated account.
E. When a series of the Trust writes (sells) an
option, an amount equal to the premium received is entered in
the accounting records for that series as an asset and an
equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current value of
the option written. When an option expires, or if the Trust
enters into a closing purchase transaction, the Trust realizes
a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was sold).
F. Certain series of the Trust may purchase or sell
stock index futures contracts and options on such futures
contracts. Futures contracts are contracts for delayed
delivery of securities at a specified future delivery date and
at a specific price. Upon entering into a contract, a series
of the Trust deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Trust series agrees
to receive from or pay to the broker an amount of cash equal
to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are
recorded by the Trust series as unrealized gains or losses.
When the contract is closed, the Trust series records a
realized gain or loss equal to the difference between the
value of the contract at the time the contract was opened and
the value at the time the contract was closed.
G. Futures contracts and written options involve, to
varying degrees, elements of market risk and risks in excess
of the amount recognized in the Statements of Assets and
Liabilities of a Trust series. The face or contract amounts
of these instruments reflect the extent of the involvement
each series has in the particular classes of instruments.
Risks may be caused by an imperfect correlation between
movements in the price of the instruments and the price of the
underlying securities.
H. Each series of the Trust intends to comply with the
p r ovisions of the Internal Revenue Code applicable to
<PAGE> 2<PAGE>
regulated investment companies and will distribute all net
investment income to its shareholders. Therefore, no Federal
income tax provision is required.
I. Costs incurred by The Rydex Institutional Money
M a r k et Fund in connection with its organization and
registration have been deferred and are being amortized on the
straight-line method over a five year period beginning on the
date on which The Rydex Institutional Money Market Fund
commenced its investment activities.
J. The preparation of financial statements in
conformity with generally accepted accounting principles
requires Trust management to make estimates and assumptions
that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
2. OPERATING POLICIES
The Trust currently is comprised of nine separate series,
as identified in Note 1 above. Certain of these Trust series
utilize futures contract, options, and options on futures
contracts in order to meet the specific investment objectives
of the individual series.
The Nova Fund, which is designed to provide total returns
over time that are superior to the Standard & Poor s 500
Composite Stock Price Index (the S&P500 Index"), invests
primarily in futures contracts traded on the S&P500 Index and
in options on those futures contracts in order to correlate
The Nova Fund s return with an amount approximating 150% of
the performance of the S&P500 Index. The Ursa Fund primarily
sells futures contracts and buys options on futures contracts
in furtherance of its investment objective to correlate The
Ursa Fund s performance to the inverse of the performance of
the S&P500 Index. The Rydex Precious Metals Fund seeks
capital appreciation, and to this extent The Rydex Precious
Metal Fund primarily purchases equity securities and purchases
call options and sells put options on the Philadelphia Stock
Exchange Gold/Silver Index. The Rydex U.S. Government Bond
Fund strives to provide income and capital appreciation, and
to this extent The Rydex U.S. Government Bond Fund primarily
purchases futures contracts on U.S. Treasury bonds and
purchases call options on U.S. Treasury bond futures contracts
as a substitute for a comparable market position in the
underlying U.S. Treasury securities. The Juno Fund seeks to
correlate The Juno Fund s performance with the inverse of the
price changes of the current Thirty Year Treasury bond, and,
to meet this objective, The Juno Fund primarily purchases put
<PAGE> 3<PAGE>
options on U.S. Treasury bond futures contracts and sells U.S.
Treasury bond futures contracts. The Rydex OTC Fund strives
to provide investment results before fees and expenses that
closely correlate with the total return of the NASDAQ
Composite Index, and to this extent The Rydex OTC Fund invests
in securities included in the NASDAQ Composite Index and
purchases call options and sells put options on stock indexes.
In addition, The Nova Fund, The Ursa Fund, The Rydex OTC Fund,
and The Rydex Precious Metals Fund each writes (sells) options
on securities and stock indexes to further meet the investment
objectives of the series, as described in the Trust s
prospectus.
T h e risks inherent in the use of options, futures
contracts, and options on futures contracts include: (1)
adverse changes in the value of such instruments; (2)
imperfect correlation between the price of options and futures
contracts and options thereon and movements in the price of
the underlying securities, index, or futures contract; (3) the
possible absences of a liquid secondary market for any
particular instrument at any time; and (4) the possible need
to defer closing out certain positions to avoid adverse tax
consequences.
<PAGE> 4<PAGE>
PART C
PAGE
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
List all financial statements and exhibits filed as part of
the Registration Statement.
(a) Financial Statements:
In Part A: Audited Financial Highlights of The Nova Fund,
The Ursa Fund, The Rydex OTC Fund, The Rydex
Precious Metals Fund, The Rydex U.S. Government
Bond Fund, The Juno Fund, and The Rydex U.S.
Government Money Market Fund (collectively, the
"Rydex Funds") for the periods from July 12,
1993, January 7, 1994, February 14, 1994,
December 1, 1993, January 3, 1994, March 3,
1995, and December 3, 1993, respectively (the
respective dates on which the Rydex Funds
commenced operations), to June 30, 1995, and
for the fiscal year ended June 30, 1996;
Unaudited Financial Highlights of The Rydex
Institutional Money Market Fund from July 11,
1996 (commencement of operations) to September
30, 1996.
In Part B: Audited Financial Statements for Rydex Series
Trust for the fiscal year ended June 30, 1996,
including the Report of Deloitte & Touche LLP,
independent auditors for Rydex Series Trust;
Unaudited Financial Statements of The Rydex
Institutional Money Market Fund, for the period
from July 11, 1996 (commencement of operations)
to September 30, 1996.
In Part C: None.
(b) Exhibits
(1)(a) Certificate of Trust of Rydex Series Trust (the
"Registrant" or the "Trust").4/
(1)(b) Declaration of Trust of the Registrant.4/
(2) By-laws of Registrant.4/
(3) Not applicable.
(4) Specimen share certificate.4/
(5)(a) Investment Advisory Agreement between Registrant
and PADCO Advisors, Inc.4/
(5)(b) Sub-Advisory Agreement between PADCO Advisors,
Inc. and Loomis, Sayles & Company, L.P.4/
(6) Not applicable.
(7) Not applicable.
PAGE
<PAGE>
(8) Custody Agreement between Registrant and Star
Bank, N.A.4/
(9)(a) Trustees and Officers Indemnification and
Liability Insurance Policy.1/
(9)(b) Comprehensive Blanket Fidelity Bond Insurance
Policy.1/
(9)(c) Service Agreement between Registrant and PADCO
Service Company, Inc.4/
(9)(d) Portfolio Accounting Services Agreement between
Registrant and PADCO Service Company, Inc.4/
(9)(e) F i delity Bond Allocation Agreement Among
R e gistrant, PADCO Advisors, Inc., The Rydex
Advisor Variable Annuity Account, PADCO Advisors
II, Inc., and PADCO Service Company, Inc.4/
(10) Opinion and Consent of Jorden Burt Berenson &
Johnson LLP, counsel to the Registrant.4/
(11) Consent of Deloitte & Touche LLP, independent
auditors for the Registrant.4/
_________________________
1/ I n c o rporated herein by reference to Post-Effective
Amendment No. 24 to this Registration Statement, filed on
October 27, 1995.
2/ I n c o rporated herein by reference to Post-Effective
Amendment No. 25 to this Registration Statement, filed on
March 1, 1996.
3/ I n c o rporated herein by reference to Post-Effective
Amendment No. 26 to this Registration Statement, filed on
September 11, 1996.
4/ Filed herewith.
<PAGE> C-2<PAGE>
ITEM 24. Financial Statements and Exhibits (continued)
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15)(a) Plan of Distribution for The Rydex Institutional
Money Market Fund.2/
(15)(b) Plan of Distribution for The Rydex High Yield Fund
3/
(15)(c) Forms of Shareholder Servicing Support Agreements
between PADCO Financial Services, Inc. and Selling
R e c ipients in connection with the Plan of
Distribution for The Rydex Institutional Money
Market Fund.2/
(15)(d) Form of Shareholder Servicing Support Agreement
between PADCO Financial Services, Inc. and Selling
R e c ipients in connection with the Plan of
Distribution for The Rydex High Yield Fund.3/
(16) Not applicable.
(17) Financial Data Schedules for Rydex Series Trust.4/
(18) Not applicable.
____________________________
1/ I n c o rporated herein by reference to Post-Effective
Amendment No. 24 to this Registration Statement, filed on
October 27, 1995.
2/ I n c o rporated herein by reference to Post-Effective
Amendment No. 25 to this Registration Statement, filed on
March 1, 1996.
3/ I n c o rporated herein by reference to Post-Effective
Amendment No. 26 to this Registration Statement, filed on
September 11, 1996.
4/ Filed herewith.
<PAGE> C-3<PAGE>
ITEM 25. Persons Controlled By or Under Common Control With
Registrant
The following persons are directly or indirectly controlled by
or under the common control with the Registrant, a Delaware
business trust:
<TABLE>
<CAPTION>
Percentage of Voting
Securities Owned and/or
State of Organization Controlled By the
and Relationship Controlling Person or
(If Any) to Other Basis of
Company the Registrant Common Control
<S> <C> <C>
PADCO Advisors, a Maryland corporation, 80% of the voting
Inc. a registered investment securities of the
(the "Advisor") adviser, and the Advisor are owned by
Registrant's investment Albert P. Viragh, Jr.,
adviser the Chairman of the
Board of Directors, the
President, and the
Treasurer of the
Advisor, and 100% of the
voting securities are
controlled by Albert P.
Viragh, Jr.
PADCO Service a Maryland corporation, 100% of the voting
Company, Inc. a registered transfer securities of the
(the "Servicer") agent, and the Servicer are owned by
Registrant's Albert P. Viragh, Jr.,
shareholder and the Chairman of the
transfer agent servicer Board of Directors, the
President, and the
Treasurer of the
Servicer
PADCO Financial a Maryland corporation, 100% of the voting
Services, Inc. a registered broker- securities of the
(the dealer, and the Distributor are owned by
Distributor ) distributor of the Albert P. Viragh, Jr.,
shares of The Rydex the Chairman of the
Institutional Money Board of Directors, the
Market Fund and The President, and the
Rydex High Yield Fund, Treasurer of the
each a series of the Distributor
Registrant
<PAGE> C-4<PAGE>
PADCO Advisors a Maryland corporation 100% of the voting
II, Inc. and a registered securities are owned by
("PADCO II") investment adviser Albert P. Viragh, Jr.,
(PADCO II is not the Chairman of the
otherwise related to Board of Directors, the
the Registrant) President, and the
Treasurer of PADCO II
Rydex Advisor a managed separate the investment advisers
Variable Annuity account of Great for the Separate Account
Account American Reserve and the Registrant are
(the Separate Insurance Company, under the common control
Account ) which is organized of Albert P. Viragh,
under the laws of the Jr., the Chairman of the
State of Texas and is Board of Trustees,
advised by PADCO II President, and Treasurer
of the Registrant
</TABLE>
ITEM 26. Number of Holders of Securities
<TABLE>
<CAPTION>
The following information is given as of the date indicated:
Title of Class; Shares of Number of Record Holders
Beneficial Interest, no par value as of October 22, 1996
<S> <C>
The Nova Fund 1,412
The Rydex U.S. Government Money Market Fund 4,354
The Rydex Precious Metals Fund 1,212
The Ursa Fund 4,058
The Rydex U.S. Government Bond Fund 335
The Rydex OTC Fund 882
The Juno Fund 520
The Rydex Institutional Money Market Fund 22
The Rydex High Yield Fund 0
</TABLE>
ITEM 27. Indemnification
The Registrant is organized as a Delaware business trust and
is operated pursuant to a Declaration of Trust, dated as of
March 13, 1993 (the "Declaration of Trust"), that permits the
Registrant to indemnify its trustees and officers under
certain circumstances. Such indemnification, however, is
subject to the limitations imposed by the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
<PAGE> C-5<PAGE>
amended. The Declaration of Trust of the Registrant provides
that officers and trustees of the Trust shall be indemnified
by the Trust against liabilities and expenses of defense in
proceedings against them by reason of the fact that they each
serve as an officer or trustee of the Trust or as an officer
or trustee of another entity at the request of the entity.
This indemnification is subject to the following conditions:
(a) no trustee or officer of the Trust is indemnified
against any liability to the Trust or its security
h o lders which was the result of any willful
m i s feasance, bad faith, gross negligence, or
reckless disregard of his duties;
(b) officers and trustees of the Trust are indemnified
only for actions taken in good faith which the
officers and trustees believed were in or not
opposed to the best interests of the Trust; and
(c) expenses of any suit or proceeding will be paid in
advance only if the persons who will benefit by such
advance undertake to repay the expenses unless it
subsequently is determined that such persons are
entitled to indemnification.
The Declaration of Trust of the Registrant provides that if
indemnification is not ordered by a court, indemnification may
be authorized upon determination by shareholders, or by a
majority vote of a quorum of the trustees who were not parties
to the proceedings or, if this quorum is not obtainable, if
directed by a quorum of disinterested trustees, or by
independent legal counsel in a written opinion, that the
persons to be indemnified have met the applicable standard.
ITEM 28. Business and Other Connections of Investment Adviser
Each of the directors of the Trust's investment adviser, PADCO
Advisors, Inc. (the "Advisor"), Albert P. Viragh, Jr., the
Chairman of the Board of Directors, President, and Treasurer
of the Advisor, and Amanda C. Viragh, the Secretary of the
Advisor, is an employee of the Advisor at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852. Albert P.
Viragh, Jr. also has served (and continues to serve) as: (i)
the Chairman of the Board of Trustees and the President of the
Trust since the Trust's organization as a Delaware business
trust on March 13, 1993; (ii) the Chairman of the Board of
Directors, the President, and the Treasurer of PADCO Service
C o mpany, Inc. (the "Servicer"), the Trust's registered
transfer agent and shareholder servicer, since the
incorporation of the Servicer in the State of Maryland on
October 6, 1993; (iii) the Chairman of the Board of Directors,
<PAGE> C-6<PAGE>
the President, and the Treasurer of PADCO Advisors II, Inc.
("PADCO II"), a registered investment adviser, since the
incorporation of PADCO II in the State of Maryland on July 5,
1994; and (iv) the Chairman of the Board of Directors, the
President, and the Treasurer of PADCO Financial Services, Inc.
(the Distributor ), The Rydex Institutional Money Market
Fund s distributor, since the incorporation of the Distributor
in the State of Maryland on March 21, 1996. Amanda C. Viragh
also has served (and continues to serve) as the Secretary of
the Advisor, the Servicer, and PADCO II and also as the
Assistant Treasurer of the Servicer.
<PAGE> C-7<PAGE>
ITEM 29. Principal Underwriter
(a) PADCO Financial Services, Inc. serves as the principal
underwriter for the securities of The Rydex Institutional
Money Market Fund, a series of the Registrant, but does not
c u r rently serve as the principal underwriter for the
securities of any other series of the Registrant or any other
investment company.
(b) The following information is furnished with respect to
the directors and officers of PADCO Financial Services, Inc.,
the principal underwriter for The Rydex Institutional Money
Market Fund, a series of the Registrant:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
<S> <C> <C>
Albert P. Viragh, Jr. Director, President, Chairman of the Board of
and Treasurer Trustees and President
Amanda C. Viragh Director none
Victor J. Edgar Chief Operating Officer none
and Chief Financial
Officer
Michael P. Byrum Secretary Assistant Secretary
Sothara Chin Compliance Officer Compliance Officer
* The principal business address for each of the aforementioned directors
and officers of PADCO Financial Services, Inc., is 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
</TABLE>
<PAGE> C-8<PAGE>
ITEM 30. Location of Accounts and Records
All accounts, books, and records required to be maintained and
preserved by Section 31(a) of the Investment Company Act of
1940, as amended, and Rules 31a-1 and 31a-2 thereunder, will
be kept by the Registrant at 6116 Executive Boulevard, Suite
400, Rockville, Maryland 20852.
ITEM 31. Management Services
T h e re are no management-related service contracts not
discussed in Parts A and B.
ITEM 32. Undertakings
(a) The Registrant agrees to file a post-effective amendment
using financial statements with respect to the Rydex High
Yield Fund, which need not be certified, within four to six
months from the effective date of the Rydex High Yield Fund's
Securities Act of 1933 Registration Statement.
(b) Insofar as indemnification for liability arising under
the Securities Act of 1933, as amended (the "1933 Act"), may
be permitted to trustees, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
1933 Act and, therefore, is unenforceable. In the event that
a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or
paid by a trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit, or
p r o ceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities being
registered, the Registrant, unless in the opinion of the
R e g i strant's counsel the matter has been settled by
controlling precedent, will submit to a court of appropriate
jurisdiction the question whether such indemnification by the
Registrant is against public policy as expressed in the 1933
Act and will be governed by the final adjudication of such
issue.
(c) The Registrant undertakes that, if requested to do so by
the holders of at least 10% of its outstanding shares of the
Trust, the Registrant will call a meeting of shareholders of
the Trust for the purpose of voting upon the question of the
removal of a trustee or trustees of the Registrant and to
assist in communications with other shareholders as required
<PAGE> C-9<PAGE>
by Section 16(c) of the Investment Company Act of 1940, as
amended.
<PAGE> C-10<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies
that it meets all of the requirements for effectiveness of
this post-effective amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and
has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in
the City of Rockville in the State of Maryland on the 25th day
of October, 1996.
RYDEX SERIES TRUST
/s/ Albert P. Viragh, Jr.
Albert P. Viragh, Jr., Chairman of
the Board
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signatures Title Date
/s/ Albert P. Viragh, Jr. Chairman of the October 25, 1996
Albert P. Viragh, Jr. Board of Trustees,
President, and
Trustee
/s/ Timothy P. Hagan Vice President, October 25, 1996
Timothy P. Hagan Principal Financial
Officer and
Principal
Accounting Officer
Corey A. Colehour* Trustee October 25, 1996
Corey A. Colehour
J. Kenneth Dalton* Trustee October 25, 1996
J. Kenneth Dalton
Roger Somers* Trustee October 25,1996
Roger Somers
*By: /s/ Albert P. Viragh, Jr.
Albert P. Viragh, Jr.
Attorney-in-Fact
<PAGE> S-1<PAGE>
<PAGE> S-2<PAGE>
EXHIBITS
PAGE
<PAGE>
EXHIBIT INDEX
PAGE
<PAGE>
Exhibit
Number Description of Exhibit
(1)(a) Certificate of Trust of Rydex Series
Trust
(1)(b) Declaration of Trust of Rydex Series
Trust
(2) By-laws of Rydex Series Trust
(4) Specimen share certificate of Rydex
Series Trust
(5)(a) Investment Advisory Agreement between
Rydex Series Trust and PADCO Advisors,
Inc.
(5)(b) S u b-Advisory Agreement between PADCO
Advisors, Inc. and Loomis, Sayles &
Company, L.P.
(8) Custody Agreement between Rydex Series
Trust and Star Bank, N.A.
(9)(c) Service Agreement between Rydex Series
Trust and PADCO Service Company, Inc.
(9)(d) Portfolio Accounting Services Agreement
between Rydex Series Trust and PADCO
Service Company, Inc.
(9)(e) Fidelity Bond Allocation Agreement Among
Rydex Series Trust, PADCO Advisors, Inc.,
T h e Rydex Advisor Variable Annuity
Account, PADCO Advisors II, Inc., and
PADCO Service Company, Inc.
(10) O p inion and Consent of Jorden Burt
Berenson & Johnson LLP, counsel to Rydex
Series Trust
(11) C o n sent of Deloitte & Touche LLP,
independent auditors for Rydex Series
Trust
PAGE
<PAGE>
<PAGE> S-6<PAGE>
Exhibit (1)(a)
Certificate of Trust of Rydex Series Trust
PAGE
<PAGE>
State of Delaware
Office of the Secretary of State
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF BUSINESS TRUST OF RYDEX SERIES
TRUST FILED IN THIS OFFICE ON THE ELEVENTH DAY OF FEBRUARY,
A.D. 1993, AT 4 O CLOCK P.M.
[SEAL OF STATE OF DELAWARE]
/S/ William T. Quillen
William T. Quillen, Secretary of
State
AUTHENTICATION: *3812881
930435002 DATE: 03/09/1993
PAGE
<PAGE>
CERTIFICATE OF TRUST
of
Rydex Series Trust
This Certificate of Trust, a business trust registered under
the Investment Company Act of 1940, is filed in accordance
with the provisions of the Delaware Business Trust Act (12
Del. C. Section 3801 et seg.) and sets forth the following:
1. The name of the trust is
Rydex Series Trust
2. As required by 12 Del. C. Section 3807 and 3810(a)(1)b,
the Rydex Series Trust business address of the registered
office of the Trust and of the Registered agent of the
Trust for service of process is:
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
3. This certificate shall be effective upon filing.
4. Notice is hereby given that the Trust is a series Trust.
T h e debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with
respect to a particular series of the Trust shall be
enforceable against the assets of such series only and
not against the assets of the Trust generally.
This certificate is executed this 10th day of February, 1993
in Bethesda, Maryland, upon the penalties of perjury and
constitutes the oath or affirmation that the facts stated
above are true to the undersigned trustees belief of
knowledge.
/s/ Daniel S. Ryczek
Daniel S. Ryczek
/s/ William L. Major
William L. Major
/s/ Albert P. Viragh, Jr.
Albert P. Viragh, Jr.
PAGE
<PAGE>
Exhibit (1)(b)
Declaration of Trust of Rydex Series Trust
PAGE
<PAGE>
RYDEX SERIES TRUST
DECLARATION OF TRUST
DATED MARCH 13, 1993
PAGE
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - NAME AND DEFINITIONS
Section 1.01. Name 1
Section 1.02. Definitions 1
ARTICLE II - BENEFICIAL INTEREST
Section 2.01. Shares of Beneficial Interest 2
Section 2.02. Issuance of Shares 2
Section 2.03. Register of Shares and Share Certificates 2
Section 2.04. Transfer of Shares 3
Section 2.05. Treasury Shares 3
Section 2.06. Establishment of Series 3
Section 2.07. Investment in the Trust 3
Section 2.08. Assets and Liabilities of Series 4
Section 2.09. No Preemptive Rights 4
Section 2.10. Personal Liability of Shareholders 4
Section 2.11. Assent to Trust Instrument 5
Section 2.12. Redemption of Shares (Added By Amendment) --
ARTICLE III - THE TRUSTEES
Section 3.01. Management of the Trust 5
Section 3.02. Initial Trustees 5
Section 3.03. Term of Office of Trustees 5
Section 3.04. Vacancies and Appointment of Trustees 5
Section 3.05. Temporary Absence of Trustee 6
Section 3.06. Number of Trustees 6
Section 3.07. Effect of Death, Resignation, Etc., of a
Trustee 6
Section 3.08. Ownership of Assets of the Trust 6
ARTICLE IV - POWERS OF THE TRUSTEES
Section 4.01. Powers 6
Section 4.02. Issuance and Repurchase of Shares 9
Section 4.03. Trustees and Officers as Shareholders 9
Section 4.04. Action by the Trustees 9
Section 4.05. Chairman of the Trustees 9
Section 4.06. Principal Transactions 9
ARTICLE V - EXPENSES OF THE TRUST
Section 5.01. Trustee Reimbursement 10
ARTICLE VI - INVESTMENT ADVISOR, PRINCIPAL UNDERWRITER,
AND TRANSFER AGENT
PAGE
<PAGE>
Section 6.01. Investment Advisor 10
Section 6.02. Principal Underwriter 10
Section 6.03. Transfer Agent 11
Section 6.04. Parties to Contract 11
Section 6.05. Provisions and Amendments 11
ARTICLE VII - SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 7.01. Voting Powers 11
Section 7.02. Meetings 12
Section 7.03. Quorum and Required Vote 12
ARTICLE VIII - CUSTODIAN
Section 8.01. Appointment and Duties 12
Section 8.02. Central Certificate System 13
ARTICLE IX - DISTRIBUTIONS AND REDEMPTIONS
Section 9.01. Distributions 13
Section 9.02. Redemptions 14
Section 9.03. Determination of Net Asset Value and
Valuation of Portfolio Assets 14
Section 9.04. Suspension of the Right of Redemption 15
Section 9.05. Redemption of Shares in Order to Qualify as
Regulated Investment Company 15
ARTICLE X - LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 10.01. Limitation of Liability 15
Section 10.02. Indemnification 15
Section 10.03. Shareholders 16
PAGE
<PAGE>
ARTICLE XI - MISCELLANEOUS
Section 11.01. Trust Not a Partnership 17
Section 11.02. Trustee's Good Faith Action; Expert
Advice;
No Bond or Surety 17
Section 11.03. Establishment of Record Dates 17
Section 11.04. Termination of Trust 17
Section 11.05. Reorganization 18
Section 11.06. Filing of Copies; References; Headings 18
Section 11.07. Applicable Law 19
Section 11.08 Amendments 19
Section 11.09 Fiscal Year 19
Section 11.10. Provisions in Conflict With Law 19
AMENDMENTS TO DECLARATION OF TRUST, dated November 2, 1993
AMENDMENT TO DECLARATION OF TRUST, dated December 12, 1995
PAGE
<PAGE>
RYDEX SERIES TRUST
Dated March 13, 1993
DECLARATION OF TRUST (herein after "Trust
Instrument") made March 13, 1993 by Albert P. Viragh, Jr. and
Daniel L. O'Connor (the "Trustees").
WHEREAS, the Trustees desire to establish a business
trust for the investment and reinvestment of funds contributed
thereto;
NOW, THEREFORE, the Trustees declare that all money
and property contributed to the trust hereunder shall be held
and managed in trust under this Trust Instrument as herein set
forth below.
ARTICLE I
NAME AND DEFINITIONS
Section 1.01. Name. The name of the trust created hereby is
the "Rydex Series Trust."
Section 1.02. Definitions. Wherever used herein, unless
otherwise required by the context or specifically provided:
(a) The term "Bylaws" means the Bylaws referred to
in Article IV, Section 4.01(e) hereof, as from time to time
amended;
(b) The term "Commission" has the meaning given it
in the 1940 Act (as defined below). The terms "Affiliated
Person," "Assignment," "Interested Person," and "Principal
Underwriter" shall have the meanings given them in the 1940
Act, as modified by or interpreted by any applicable order or
orders of the Commission or any rules or regulations adopted
o r interpretive releases of the Commission thereunder.
"Majority Shareholder Vote" shall have the same meaning as the
term "vote of a majority of the outstanding voting securities"
is given in the 1940 Act, as modified by or interpreted by any
applicable order or orders of the Commission or any rules or
regulations adopted or interpretive releases of the Commission
thereunder.
(c) The term "Delaware Act" refers to Chapter 38 of
Title 12 of the Delaware Code entitled "Treatment of Delaware
Business Trusts," as it may be amended from time to time.
(d) The term "Net Asset Value" means the net asset
value of each Series (as defined below) of the Trust (as<PAGE>
defined below) determined in the manner provided in Article
IX, Section 9.03 hereof;
(e) The term "Outstanding Shares" means those
Shares (as defined below) shown from time to time in the books
of the Trust or its Transfer Agent as then issued and
outstanding, but shall not include Shares which have been
redeemed or repurchased by the Trust and which are at the time
held in the treasury of the Trust;
(f) The term "Series" means a series of Shares of
the Trust established in accordance with the provisions of
Article II, Section 2.06 hereof;
(g) The term "Shareholder" means a record owner of
Outstanding Shares of the Trust;
(h) The term "Shares" means the equal proportionate
transferable units of beneficial interest into which the
beneficial interest of each Series of the Trust or class
thereof shall be divided and may include fractions of Shares
as well as whole Shares;
(i) The term "Trust" refers to the Rydex Series
Trust and all Series of the Rydex Series Trust, and reference
to the Trust, when applicable to one or more Series of the
Trust, shall refer to any such Series;
(j) The term "Trustees" means the person or persons
who has or have signed this Trust Instrument, so long as he or
they shall continue in office in accordance with the terms
hereof, and all other persons who may from time to time be
duly qualified and serving as Trustees in accordance with the
provisions of Article III hereof and reference herein to a
Trustee or to the Trustees shall refer to the individual
Trustees in their capacity as Trustees hereunder;
(k) The term "Trust Property" means any and all
property, real or personal, tangible or intangible, which is
owned or held by or for the account of one or more of the
Trust or any Series, or the Trustees on behalf of the Trust or
any Series.
(l) The term "1940 Act" refers to the Investment
Company Act of 1940, as amended from time to time.
ARTICLE II
BENEFICIAL INTEREST
Section 2.01. Shares of Beneficial Interest. The
beneficial interest in the Trust shall be divided into such
<PAGE> 2<PAGE>
transferable Shares of one or more separate and distinct
Series or classes of a Series as the Trustees shall from time
to time create and establish. The number of Shares of each
Series, and class thereof, authorized hereunder is unlimited.
Each Share shall have no par value. All Shares issued
hereunder, including without limitation, Shares issued in
connection with a dividend in Shares or a split or reverse
split of Shares, shall be fully paid and nonassessable.
Section 2.02. Issuance of Shares. The Trustees in their
discretion may, from time to time, without vote of the
Shareholders, issue Shares, in addition to the then issued and
outstanding Shares and Shares held in the treasury, to such
p a r t y or parties and for such amount and type of
consideration, subject to applicable law, including cash or
securities, at such time or times and on such terms as the
Trustees may deem appropriate, and may in such manner acquire
other assets (including the acquisition of assets subject to,
and in connection with, the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the
Trustees may issue fractional Shares and Shares held in the
treasury. The Trustees from time to time may divide or
combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the
Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1,000th of
a Share or integral multiples thereof.
Section 2.03. Register of Shares and Share Certificates. A
register shall be kept at the principal office of the Trust or
an office of the Trust's transfer agent which shall contain
the names and addresses of the Shareholders of each Series,
the number of Shares of that Series (or any class or classes
thereof) held by them respectively and a record of all
transfers thereof. As to Shares for which no certificate has
been issued, such register shall be conclusive as to who are
the holders of the Shares and who shall be entitled to receive
dividends or other distributions or otherwise to exercise or
enjoy the rights of Shareholders. No Shareholder shall be
e n titled to receive payment of any dividend or other
distribution, nor to have notice given to him as herein or in
the Bylaws provided, until he has given his address to the
transfer agent or such other officer or agent of the Trustees
as shall keep the said register for entry thereon. The
Trustees, in their discretion, may authorize the issuance of
share certificates and promulgate appropriate rules and
regulations as to their use. Such certificates may be
issuable for any purpose limited in the Trustees discretion.
In the event that one or more certificates are issued, whether
in the name of a shareholder or a nominee, such certificate or
certificates shall constitute evidence of ownership of Shares
for all purposes, including transfer, assignment or sale of
<PAGE> 3<PAGE>
such Shares, subject to such limitations as the Trustees may,
in their discretion, prescribe.
Section 2.04. Transfer of Shares. E x cept as otherwise
provided by the Trustees, Shares shall be transferable on the
records of the Trust only by the record holder thereof of by
his agent thereunto duly authorized in writing, upon delivery
to the Trustees or the Trust's transfer agent of a duly
executed instrument of transfer, together with a Share
certificate, if one is outstanding, and such evidence of the
genuineness of each such execution and authorization and of
such other matters as may be required by the Trustees. Upon
such delivery the transfer shall be recorded on the register
of the Trust. Until such record is made, the Shareholder of
record shall be deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees nor the Trust, nor
any transfer agent or registrar nor any officer, employee or
agent of the Trust shall be affected by any notice of the
proposed transfer.
Section 2.05. Treasury Shares. Shares held in the treasury
shall, until reissued pursuant to Section 2.02 hereof, not
confer any voting rights on the Trustees, nor shall such
Shares be entitled to any dividends or other distributions
declared with respect to the Shares.
Section 2.06. Establishment of Series. The Trust created
hereby shall consist of one or more Series and separate and
distinct records shall be maintained by the Trust of each
Series and the assets associated with any such Series shall be
held and accounted for separately from the assets of the
Trust or any other Series. The Trustees shall have full power
and authority, in their sole discretion, and without obtaining
any prior authorization or vote of the Shareholders of any
Series of the Trust, to establish and designate and to change
in any manner such Series of Shares or any classes of initial
or additional Series and to fix such preferences, voting
powers, rights and privileges of such Series or classes
thereof as the Trustees may from time to time determine, to
divide and combine the Shares or any Series or classes thereof
into a greater or lesser number, to classify or reclassify any
issued Shares or any Series or classes thereof into one or
more Series or classes of Shares, and to take such other
action with respect to the Shares as the Trustees may deem
desirable. The establishment and designation of any Series
shall be effective upon the adoption of a resolution by a
majority of the Trustees setting forth such establishment and
designation and the relative rights and preferences of the
Shares of such Series. A Series may issue any number of
Shares and need not issue shares. At any time that there are
no Shares outstanding of any particular Series previously
established and designated, the Trustees may by a majority
<PAGE> 4<PAGE>
vote abolish that Series and the establishment and designation
thereof.
All references to Shares in this Trust Instrument
shall be deemed to be Shares of any or all Series, or classed
thereof, as the context may require. All provisions herein
relating to the Trust shall apply equally to each Series of
the Trust, and each class thereof, except as the context
otherwise requires.
Each Share of a Series of the Trust shall represent
an equal beneficial interest in the net assets of such Series.
Each holder of Shares of a Series shall be entitled to receive
his pro rata share of distributions of income and capital
gains, if any, made with respect to such Series. Upon
redemption of his Shares, such Shareholder shall be paid
solely out of the funds and property of such Series of the
Trust.
Section 2.07. Investment in the Trust. The Trustees shall
accept investments in any Series of the Trust from such
persons and on such terms as they may from time to time
authorize. At the Trustees' discretion, such investments,
subject to applicable law, may be in the form of cash or
securities in which the affected Series is authorized to
invest, valued as provided in Article IX, Section 9.03 hereof.
I n v e s tments in a Series shall be credited to each
Shareholder's account in the form of full Shares at the Net
Asset Value per Share next determined after the investment is
received; provided, however, that the Trustees may, in their
sole discretion, (a) fix the Net Asset Value per Share of the
initial capital contribution, (b) impose a sales charge upon
investments in the Trust in such manner and at such time
determined by the Trustees or (c) issue fractional Shares.
Section 2.08. Assets and Liabilities of Series. All
consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in
which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of
such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may
be, shall be held and accounted for separately from the other
assets of the Trust and of every other Series and may be
referred to herein as "assets belonging to" that Series. The
assets belonging to a particular Series shall belong to that
Series for all purposes, and to no other Series, subject only
to the rights of creditors of that Series. In addition, any
assets, income, earnings, profits or funds, or payments and
p r o ceeds with respect thereto, which are not readily
identifiable as belonging to any particular Series shall be
<PAGE> 5<PAGE>
allocated by the Trustees between and among one or more of the
Series in such manner as the Trustees, in their sole
discretion, deem fair and equitable. Each such allocation
shall be conclusive and binding upon the Shareholders of all
Series for all purposes, and such assets, income, earnings,
profits or funds, or payments and proceeds with respect
thereto shall be assets belonging to that Series. The assets
belonging to a particular Series shall be so recorded upon the
books of the Trust, and shall be held by the Trustees in trust
for the benefit of the holders of Shares of that Series. The
assets belonging to each particular Series shall be charged
with the liabilities of that Series and all expenses, costs,
charges, and reserves attributable to that Series. Any
general liabilities, expenses, costs, charges, or reserves of
the Trust which are not readily identifiable as belonging to a
particular Series shall be allocated and charged by the
Trustees between or among any one or more of the Series in
such manner as the Trustees, in their sole discretion, deem
fair and equitable. Each such allocation shall be conclusive
and binding upon the Shareholders of all Series for all
purposes. Without limitation of the foregoing provisions of
this Section 2.08, but subject to the right of the Trustees in
their discretion to allocate general liabilities, expenses,
costs, charges, or reserves as herein provided, the debts,
liabilities, obligations, and expenses incurred, contracted
for or otherwise existing with respect to a particular Series
s h all be enforceable against the assets of the Trust
generally. Notice of this contractual limitation on inter-
Series liabilities may, in the Trustee's sole discretion, be
set forth in the certificate of trust of the Trust (whether
originally or by amendment) as filed or to be filed in the
Office of the Secretary of State of the State of Delaware
pursuant to the Delaware Act, and upon the giving of such
notice in the certificate of trust, the statutory provisions
o f Section 3802 of setting forth such notice in the
certificate of trust shall become applicable to the Trust and
each Series. Any person extending credit to, contracting with
or having any claim against any Series may look only to the
assets of that Series to satisfy or enforce any debt,
liability, obligation or expense incurred, contracted for or
o t h erwise existing with respect to that Series. No
Shareholder or former Shareholder of any Series shall have a
claim on or any right to any assets allocated or belonging to
any other Series.
Section 2.09. No Preemptive Rights. Shareholders shall
have no preemptive or other right to subscribe to any
additional Shares or other securities issued by the Trust or
the Trustees, whether of the same or other Series.
Section 2.10. Personal Liability of Shareholders. E a c h
Shareholder of the Trust and of each Series shall not be
<PAGE> 6<PAGE>
personally liable for the debts, liabilities, obligations and
expenses incurred by, contracted for, or otherwise existing
with respect to, the Trust or by or on behalf of any Series.
The Trustees shall have no power to bind any Shareholder
personally or to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as
the Shareholder may at any time personally agree to pay by way
of subscription for any Shares or otherwise. Every note,
bond, contract or other undertaking issued by or on behalf of
the Trust or the Trustees relating to the Trust or to a Series
shall include a recitation limiting the obligation represented
thereby to the Trust or to one or more Series and its or their
assets (but the omission of such a recitation shall not
operate to bind any Shareholder or Trustee of the Trust).
Section 2.11. Assent to Trust Instrument. E v e r y
Shareholder, by virtue of having purchased a Share shall
become a Shareholder and shall be held to have expressly
assented and agreed to be bound by the terms hereof.
ARTICLE III
THE TRUSTEES
Section 3.01. Management of the Trust. The Trustees shall
have exclusive and absolute control over the Trust Property
and over the business of the Trust to the same extent as if
the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of
delegation as may be permitted by this Trust Instrument. The
Trustees shall have power to conduct the business of the Trust
and carry on its operations in any and all of its branches and
maintain offices both within and without the State of
Delaware, in any and all states of the United States of
America, in the District of Columbia, in any and all
commonwealths, territories, dependencies, colonies, or
possessions of the United States of America, and in any
foreign jurisdiction and to do all such other things and
execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned.
Any determination as to what is in the interests of the Trust
made by the Trustees in good faith shall be conclusive. In
construing the provisions of this Trust Instrument, the
presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power in this Trust
Instrument shall not be construed as limiting the aforesaid
power. The powers of the Trustees may be exercised without
order of or resort to any court.
<PAGE> 7<PAGE>
Except for the Trustees named herein or appointed to
fill vacancies pursuant to Section 3.04 of this Article III,
the Trustees shall be elected by the Shareholders owning of
record a plurality of the Shares voting at a meeting of
Shareholders. Such a meeting shall be held on a date fixed by
the Trustees. In the event that less than a majority of the
Trustees holding office have been elected by Shareholders, the
Trustees then in office will call a Shareholders' meeting for
the election of Trustees.
Section 3.02. Initial Trustees. The initial Trustees
shall be the persons named herein. On a date fixed by the
Trustees, the Shareholders shall elect at least five (5) but
not more than fifteen (15) Trustees, as specified by the
Trustees pursuant to Section 3.06 of this Article III.
Section 3.03. Term of Office of Trustees. T h e Trustees
shall hold office during the lifetime of this Trust, and until
its termination as herein provided, except that: (a) any
Trustee may resign his trust by written instrument signed by
him and delivered to the other Trustees, which shall take
effect upon such delivery or upon such later date as is
specified therein; (b) any Trustee may be removed at any time
by written instrument, signed by at least two-thirds of the
number of Trustees prior to such removal, specifying the date
when such removal shall become effective; (c) any Trustee who
requests in writing to be retired or who has died, become
physically or mentally incapacitated by reason of disease or
otherwise, or is otherwise unable to serve, may be retired by
written instrument signed by a majority of the other Trustees,
specifying the date of his retirement; and (d) a Trustee may
be removed at any meeting of the Shareholders of the Trust by
a vote of Shareholders owning at least two-thirds of the
outstanding Shares.
Section 3.04. Vacancies and Appointment of Trustees. In case
of the declination to serve, death, resignation, retirement,
removal, physical or mental incapacity by reason of disease or
otherwise, or a Trustee is otherwise unable to serve, or an
increase in the number of Trustees, a vacancy shall occur.
Whenever a vacancy in the Board of Trustees shall occur, until
such vacancy is filled, the other Trustees shall have all the
powers hereunder and the certificate of the other Trustees of
such vacancy shall be conclusive. In the case of an existing
vacancy, the remaining Trustees shall fill such vacancy by
appointing such other person as they in their discretion shall
see fit consistent with the limitations under the 1940 Act.
Such appointment shall be evidenced by a written instrument
signed by a majority of the Trustees in office or by
resolution of the Trustees, duly adopted, which shall be
recorded in the minutes of a meeting of the Trustees,
whereupon the appointment shall take effect.
<PAGE> 8<PAGE>
An appointment of a Trustee may be made by the Trustees
then in office in anticipation of a vacancy to occur by reason
of retirement, resignation or increase in number of Trustees
effective at a later date, provided that said appointment
shall become effective only at or after the effective date of
s a id retirement, resignation or increase in number of
Trustees. As soon as any Trustee appointed pursuant to this
Section 3.04 shall have accepted this trust, the trust estate
shall vest in the new Trustee or Trustees, together with the
continuing Trustees, without any further act or conveyance,
and he shall be deemed a Trustee hereunder. The power to
appoint a Trustee pursuant to this Section 3.04 is subject to
the provisions of Section 16(a) of the 1940 Act.
Section 3.05. Temporary Absence of Trustee. Any Trustee may,
by power of attorney, delegate his power for a period not
exceeding six months at any one time to any other Trustee or
Trustees, provided that in no case shall less than two
Trustees personally exercise the other powers hereunder except
as herein otherwise expressly provided.
Section 3.06. Number of Trustees. T h e number of Trustees
shall be at least five (5), and thereafter shall be such
number as shall be fixed from time to time by a majority of
the Trustees, provided, however, that the number of Trustees
shall in no event be more than fifteen (15).
Section 3.07. Effect of Death, Resignation, Etc., of a
Trustee. T h e declination to serve, death, resignation,
retirement, removal, incapacity, or inability of the Trustees,
or any one of them, shall not operate to terminate the Trust
or to revoke any existing agency created pursuant to the terms
of this Trust Instrument.
Section 3.08. Ownership of Assets of the Trust. The assets
of the Trust and of each Series shall be held separate and
apart from any assets now or hereafter held in any capacity
other than as Trustee hereunder by the Trustees or any
successor Trustees. Legal title in all of the assets of the
Trust and the right to conduct any business shall at all times
be considered as vested in the Trustees on behalf of the
Trust, except that the Trustees may cause legal title to any
Trust Property to be held by, or in the name of, the Trust, or
in the name of any person as nominee. No Shareholder shall be
deemed to have a severable ownership in any individual asset
of the Trust or of any Series or any right of partition or
possession thereof, but each Shareholder shall have, except as
otherwise provided for herein, a proportionate undivided
beneficial interest in the Trust or Series. The Shares shall
be personal property giving only the rights specifically set
forth in this Trust Instrument.
<PAGE> 9<PAGE>
ARTICLE IV
POWERS OF THE TRUSTEES
Section 4.01. Powers. The Trustees in all instances shall
act as principals, and are and shall be free from the control
of the Shareholders. The Trustees shall have full power and
authority to do any and all acts and to make and execute any
and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of
the Trust. The Trustees shall not in any way be bound or
limited by present or future laws or customs in regard to
trust investments, but shall have full authority and power to
make any and all investments which they, in their sole
discretion, shall deem proper to accomplish the purpose of
this Trust without recourse to any court or other authority.
Subject to any applicable limitation in this Trust Instrument
or the Bylaws of the Trust, the Trustees shall have power and
authority:
(a) To invest and reinvest cash and other property,
and to hold cash or other property uninvested, without in any
event being bound or limited by any present or future law or
custom in regard to investments by trustees, and to sell,
exchange, lend, pledge, mortgage, hypothecate, write options
on and lease any or all the assets of the Trust;
(b) To operate as and carry on the business of an
investment company, and exercise all the powers necessary and
appropriate to the conduct of such operations;
(c) To borrow money and in this connection issue
notes or other evidence of indebtedness; to secure borrowings
by mortgaging, pledging or otherwise subjecting as security
the Trust Property; to endorse, guarantee, or undertake the
performance of an obligation or engagement of any other Person
and to lend Trust Property;
(d) To provide for the distribution of interests of
the Trust either through a principal underwriter in the manner
hereinafter provided for or by the Trust itself, or both, or
otherwise pursuant to a plan of distribution of any kind;
(e) To adopt Bylaws not inconsistent with this
Trust Instrument providing for the conduct of the business of
the Trust and to amend and repeal them to the extent that they
do not reserve that right to the Shareholders; such Bylaws
shall be deemed incorporated and included in this Trust
Instrument;
(f) To elect and remove such officers and appoint
and terminate such agents as they consider appropriate;
<PAGE> 10<PAGE>
(g) To employ one or more banks, trust companies or
companies that are members of a national securities exchange
or such other entities as the Commission may permit as
custodians of any assets of the Trust subject to any
conditions set forth in this Trust Instrument or in the
Bylaws;
(h) To retain one or more transfer agents and
shareholder servicing agents, or both;
(i) To set record dates in the manner provided
herein or in the Bylaws;
(j) To delegate such authority as they consider
desirable to any officers of the Trust and to any investment
advisor, manager, custodian, underwriter or other agent or
independent contractor;
(k) To sell or exchange any or all of the assets of
the Trust, subject to the provisions of Article XI, Section
11.04(b) hereof;
(l) To vote or give assent, or exercise any rights
of ownership, with respect to stock or other securities or
property; and to execute and deliver powers of attorney to
such person or persons as the Trustees shall deem proper,
granting to such person or persons such power and discretion
with relation to securities or property as the Trustees shall
deem proper;
(m) To exercise powers and rights of subscription
or otherwise which in any manner arise out of ownership of
securities;
(n) To hold any security or property in a form not
i n d icating any trust, whether in bearer, book entry,
unregistered or other negotiable form; or either in the name
of the Trust or in the name of a custodian or a nominee or
n o minees, subject in either case to proper safeguards
according to the usual practice of Delaware business trusts or
investment companies;
(o) To establish separate and distinct Series with
separately defined investment objectives and policies and
distinct investment purposes in accordance with the provisions
of Article II hereof and to establish classes of such Series
having relative rights, powers and duties as they may provide
consistent with applicable law;
(p) Subject to the provisions of Section 3804 of
the Delaware Act, to allocate assets, liabilities and expenses
of the Trust to a particular Series or to apportion the same
<PAGE> 11<PAGE>
between or among two or more Series, provided that any
liabilities or expenses incurred by a particular Series shall
be payable solely out of the assets belonging to that Series
as provided for in Article II hereof;
(q) To consent to or participate in any plan for
the reorganization, consolidation or merger of any corporation
or concern, any security of which is held in the Trust; to
consent to any contract, lease, mortgage, purchase, or sale of
property by such corporation or concern, and to pay calls or
subscriptions with respect to any security held in the Trust;
(r) To compromise, arbitrate, or otherwise adjust
claims in favor of or against the Trust or any matter in
controversy including, but not limited to, claims for taxes;
(s) To make distributions of income and of capital
gains to Shareholders in the manner hereinafter provided;
(t) To establish, from time to time, a minimum
investment for Shareholders in the Trust or in one or more
Series or class, and to require the redemption of the Shares
of any Shareholders whose investment is less than such minimum
upon giving notice to such Shareholder;
(u) T o establish one or more committees, to
delegate any of the powers of the Trustees to said committees
a n d to adopt a committee charter providing for such
responsibilities, membership (including Trustees, officers or
o t h e r agents of the Trust therein) and any other
characteristics of said committees as the Trustees may deem
proper. Notwithstanding the provisions of this Article IV,
and in addition to such provisions or any other provision of
this Trust Instrument or of the Bylaws, the Trustees may by
resolution appoint a committee consisting of less than the
whole number of Trustees then in office, which committee may
be empowered to act for and bind the Trustees and the Trust,
as if the acts of such committee were the acts of all the
Trustees then in office, with respect to the institution,
prosecution, dismissal, settlement, review or investigation of
any action, suit or proceeding which shall be pending or
threatened to be brought before any court, administrative
agency or other adjudicatory body;
(v) T o interpret the investment policies,
practices, or limitations of any Series;
(w) To establish a registered office and have a
registered agent in the state of Delaware; and
(x) In general to carry on any other business in
connection with or incidental to any of the foregoing powers,
<PAGE> 12<PAGE>
to do everything necessary, suitable, or proper for the
accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either
alone or in association with others, and to do every other act
or thing incidental or appurtenant to or growing out of or
connected with the aforesaid business or purposes, objects or
powers.
The foregoing clauses shall be construed both as
objects and power, and the foregoing enumeration of specific
powers shall not be held to limit or restrict in any manner
the general powers of the Trustees. Any action by one or more
of the Trustees in their capacity as such hereunder shall be
deemed an action on behalf of the Trust or the applicable
Series, and not an action in an individual capacity.
The Trustees shall not be limited to investing in
obligations maturing before the possible termination of the
Trust.
No one dealing with the Trustees shall be under any
obligation to make any inquiry concerning the authority of the
Trustees, or to see to the application of any payments made or
property transferred to the Trustees or upon their order.
Section 4.02. Issuance and Repurchase of Shares. The Trustees
shall have the power to issue, sell, repurchase, redeem,
retire, cancel, acquire, hold, resell, reissue, dispose of,
and otherwise deal in Shares and, subject to the provisions
set forth in Article II and Article IX, to apply to any such
r e purchase, redemption, retirement, cancellation, or
acquisition of Shares any funds or property of the Trust, or
the particular Series of the Trust, with respect to which such
Shares are issued.
Section 4.03. Trustees and Officers as Shareholders. A n y
Trustee, officer, or other agent of the Trust may acquire,
own, and dispose of Shares to the same extent as if he were
not a Trustee, officer, or agent; and the Trustees may issue
and sell or cause to be issued and sold Shares to and buy such
Shares from any such person or any firm or company in which he
is interested, subject only to the general limitations herein
contained as to the sale and purchase of such Shares; and all
subject to any restrictions which may be contained in the
Bylaws.
Section 4.04. Action by the Trustees. The Trustees shall act
by majority vote at a meeting duly called or by unanimous
written consent without a meeting or by telephone meeting
provided a quorum of Trustees participate in any such
telephone meeting, unless the 1940 Act requires that a
particular action be taken only at a meeting at which the
<PAGE> 13<PAGE>
Trustees are present in person. At any meeting of the
Trustees, a majority of the Trustees shall constitute a
quorum. Meetings of the Trustees may be called orally or in
writing by the Chairman or by any two (2) other Trustees.
Notice of the time, date and place of all meetings of the
Trustees shall be given by the party calling the meeting to
each Trustee by telephone, telefax, or telegram sent to his
home or business address at least twenty-four (24) hours in
advance of the meeting or by written notice mailed to his home
or business address at least seventy-two (72) hours in advance
of the meeting. Notice need not be given to any Trustee who
attends the meeting without objecting to the lack of notice or
who executes a written waiver of notice with respect to the
meeting. Any meeting conducted by telephone shall be deemed
to take place at the principal office of the Trust, as
determined by the Bylaws or by the Trustees. Subject to the
requirements of the 1940 Act, the Trustees by majority vote
may delegate to any one or more of their number their
authority to approve particular matters or take particular
actions on behalf of the Trust. Written consents or waivers
of the Trustees may be executed in one or more counterparts.
Execution of a written consent or waiver and delivery thereof
to the Trust may be accomplished by telefax.
Section 4.05. Chairman of the Trustees. T h e Trustees
shall appoint one of their number to be Chairman of the Board
of Trustees. The Chairman shall preside at all meetings of
the Trustees, shall be responsible for the execution of
policies established by the Trustees and the administration of
the Trust, and may be (but is not required to be) the chief
executive, financial, and/or accounting officer of the Trust.
Section 4.06. Principal Transactions. Except to the extent
prohibited by applicable law, the Trustees, on behalf of the
Trust, may buy any securities from or sell any securities to,
or lend any assets of the Trust to, any Trustees or officer of
the Trust or any firm of which any such Trustee or officer is
a member acting as principal, or have any such dealings with
any investment advisor, distributor or transfer agent for the
Trust or with any Interested Person of such person; and the
Trust may employ any such person, or firm or company in which
such person is an Interested Person, as broker, legal counsel,
registrar, investment advisor, distributor, transfer agent,
dividend disbursing agent, or custodian, or in any other
capacity upon customary terms.
ARTICLE V
EXPENSES OF THE TRUST
Section 5.01. Trustee Reimbursement. S u bject to the
provisions of Article II, Section 2.08 hereof, the Trustees
<PAGE> 14<PAGE>
shall be reimbursed from the Trust estate or the assets
belonging to the appropriate Series for their expenses and
d i s bursements, including, without limitation, fees and
expenses of Trustees who are not Interested Persons of the
Trust, interest expense, taxes, fees and commissions of every
kind, expenses of pricing Trust portfolio securities, expenses
of issue, repurchase and redemption of shares, including
expenses attributable to a program of periodic repurchases or
redemptions, expenses of registering and qualifying the Trust
and its Shares under Federal and State laws and regulations or
under the laws of any foreign jurisdiction, charges of third
parties, including investment advisors, managers, custodians,
transfer agents, portfolio accounting and/or pricing agents,
and registrars, expenses of preparing and setting up in type
prospectuses and statements of additional information and
other related Trust documents, expenses of printing and
distributing prospectuses sent to existing Shareholders,
auditing and legal expenses, reports to Shareholders, expenses
of meetings of Shareholders and proxy solicitations therefor,
insurance expenses, association membership dues and for such
non-recurring items as may arise, including litigation to
which the Trust (or a Trustee acting as such) is a party, and
f o r all losses and liabilities by them incurred in
administering the Trust, and for the payment of such expenses,
disbursements, losses and liabilities the Trustees shall have
a lien on the assets belonging to the appropriate Series, on
the assets of each such Series, prior to any rights or
interests of the Shareholders thereto. This section shall not
p r e c lude the Trust from directly paying any of the
aforementioned fees and expenses.
ARTICLE VI
INVESTMENT ADVISOR, PRINCIPAL UNDERWRITER, AND TRANSFER AGENT
Section 6.01. Investment Advisor. The Trustees may in their
discretion, from time to time, enter into an investment
advisory or management contract or contracts with respect to
the Trust or any Series whereby the other party or parties to
such contract or contracts shall undertake to furnish the
Trustees with such management, investment advisory,
statistical and research facilities and services and such
other facilities and services, if any, and all upon such terms
and conditions, as the Trustees may in their discretion
determine; provided, however, that the initial approval and
entering into of such contract or contracts shall be subject
to a Majority Shareholder Vote. Notwithstanding any other
provision of this Trust Instrument, the Trustees may authorize
any investment advisor (subject to such general or specific
instructions as the Trustees from time to time may adopt) to
effect purchases, sales or exchanges of portfolio securities,
<PAGE> 15<PAGE>
other investment instruments of the Trust, or other Trust
Property on behalf of the Trustees, or may authorize any
officer, agent, or Trustee to effect such purchases, sales, or
exchanges pursuant to recommendations of the investment
advisor (and all without further action by the Trustees). Any
such purchases, sales, and exchanges shall be deemed to have
been authorized by all of the Trustees.
The Trustees may authorize, subject to applicable
requirements of the 1940 Act, including those relating to
Shareholder approval, the investment advisor to employ, from
time to time, one or more sub-advisors to perform such of the
acts and services of the investment advisor, and upon such
terms and conditions, as may be agreed upon between the
investment advisor and sub-advisor. Any reference in this
Trust Instrument to the investment advisor shall be deemed to
include such sub-advisors, unless the context otherwise
requires.
Section 6.02. Principal Underwriter. The Trustees may in
their discretion from time to time enter into an exclusive or
non-exclusive underwriting contract or contracts providing for
the sale of Shares, whereby the Trust may either agree to sell
Shares to the other party to the contract or appoint such
other party its sales agent for such Shares. In either case,
the contract shall be on such terms and conditions, if any, as
may be prescribed in the Bylaws, and such further terms and
conditions as the Trustees may in their discretion determine
not inconsistent with the provisions of this Article VI, or of
the Bylaws; and such contract may also provide for the
repurchase or sale of Shares by such other party as principal
or as agent of the Trust.
Section 6.03. Transfer Agent. The Trustees may in their
discretion from time to time enter into one or more transfer
agency and shareholder service contracts whereby the other
party or parties shall undertake to furnish the Trustees with
transfer agency and shareholder services. The contract or
contracts shall be on such terms and conditions as the
Trustees may in their discretion determine not inconsistent
with the provisions of this Trust Instrument or of the Bylaws.
Section 6.04. Parties to Contract. Any contract of the
character described in Sections 6.01, 6.02, and 6.03 of this
Article VI or any contract of the character described in
Article VIII hereof may be entered into with any corporation,
firm, partnership, trust, or association, although one or more
of the Trustees or officers of the Trust may be an officer,
director, trustee, shareholder, or member of such other party
to the contract, and no such contract shall be invalidated or
rendered void or voidable by reason of the existence of any
relationship, nor shall any person holding such relationship
<PAGE> 16<PAGE>
be disqualified from voting on or executing the same in his
capacity as Shareholder and/or Trustee, nor shall any person
holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized
directly or indirectly therefrom, provided that the contract
when entered into was not inconsistent with the provisions of
this Article VI or Article VIII hereof or of the Bylaws. The
same person (including a firm, corporation, partnership, trust
or association) may be the other party to contracts entered
into pursuant to Sections 6.01, 6.02 and 6.03 of this Article
VI or pursuant to Article VIII hereof, and any individual may
be financially interested or otherwise affiliated with persons
who are parties to any or all of the contracts mentioned in
this Section 6.04.
Section 6.05. Provisions and Amendments. A n y contract
entered into pursuant to Sections 6.01 or 6.02 of this Article
VI shall be consistent with and subject to the requirements of
Section 15 of the 1940 Act or other applicable Act of Congress
hereafter enacted with respect to its continuance in effect,
its termination, and the method of authorization and approval
of such contract or renewal thereof, and no amendment to any
contract, entered into pursuant to Section 6.01 of this
Article VI shall be effective unless assented to in a manner
consistent with the requirements of said Section 15, as
modified by any applicable rule, regulation or order of the
Commission.
ARTICLE VII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 7.01. Voting Powers. T h e Shareholders shall have
power to vote only (i) for the election of Trustees as
provided in Article III, Sections 3.01 and 3.02 hereof, (ii)
for the removal of Trustees as provided in Article III,
Section 3.03(d) hereof, (iii) with respect to any investment
advisory or management contract as provided in Article VI,
Sections 6.01 and 6.05 hereof, and (iv) with respect to such
additional matters relating to the Trust as may be required by
l a w, by this Trust Instrument, or the Bylaws or any
registration of the Trust with the Commission or any State, or
as the Trustees may consider desirable.
O n a ny matter submitted to a vote of the
S h areholders, all Shares shall be voted separately by
individual Series, except: (i) when required by the 1940 Act,
Shares shall be voted in the aggregate and not by individual
Series; and (ii) when the Trustees have determined that the
matter affects the interests of more than one Series, then the
<PAGE> 17<PAGE>
Shareholders of all such affected Series shall be entitled to
vote thereon. The Trustees also may determine that a matter
affects only the interests of one (1) or more classes of a
Series, in which case any such matter shall be voted on by
such class or classes. Each whole Share shall be entitled to
one (1) vote as to any matter on which it is entitled to vote,
and each fractional Share shall be entitled to a proportionate
fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by
proxy or in any manner provided for in the Bylaws. A proxy
may be given in writing. The Bylaws may provide that proxies
may also, or may instead, be given by any electronic or
telecommunications device or in any other manner.
Notwithstanding anything else herein or in the Bylaws, in the
event a proposal by anyone other than the officers or Trustees
of the Trust is submitted to a vote of the Shareholders of one
or more Series or of the Trust, or in the event of any proxy
contest or proxy solicitation or proposal in opposition to any
proposal by the officers or Trustees of the Trust, Shares may
be voted only in person or by written proxy. Until Shares are
issued, the Trustees may exercise all rights of Shareholders
and may take any action required or permitted by law, this
Trust Instrument or any of the Bylaws of the Trust to be taken
by Shareholders.
Section 7.02. Meetings. The first Shareholders' meeting shall
be held in order to elect Trustees as specified in Section
3.02 of Article III hereof at the principal office of the
Trust or such other place as the Trustees may designate.
Meetings may be held within or without the State of Delaware.
Special meetings of the Shareholders of any Series may be
called by the Trustees and shall be called by the Trustees
upon the written request of Shareholders owning at least one-
tenth of the Outstanding Shares entitled to vote. Whenever
ten (10) or more Shareholders meeting the qualifications set
forth in Section 16(c) of the 1940 Act, as the same may be
amended from time to time, seek the opportunity of furnishing
materials to the other Shareholders with a view to obtaining
signatures on such a request for a meeting, the Trustees shall
comply with the provisions of said Section 16(c) with respect
to providing such Shareholders access to the list of the
Shareholders of record of the Trust or the mailing of such
materials to such Shareholders of record, subject any rights
provided to the Trust or any Trustees provided by said Section
16(c). Notice determined by the Trustees, at least fifteen
(15) days prior to any such meeting.
Section 7.03. Quorum and Required Vote. O n e-third of
Shares entitled to vote in person or by proxy shall be a
quorum for the transaction of business at a Shareholders'
meeting, except that where any provision of law or of this
Trust Instrument permits or request that holders of any Series
<PAGE> 18<PAGE>
shall vote as a Series (or that holders of a class shall vote
as a class), then one-third of the aggregate number of Shares
of that Series (or that class) entitled to vote shall be
necessary to constitute a quorum for the transactions of
business by that Series (or that class). Any lesser number
shall be sufficient for adjournments. Any adjourned session
or sessions may be held, within a reasonable time after the
date set for the original meeting, without the necessity of
further notice. Except when a larger vote is required by law
or by any provision of this Trust Instrument of the Bylaws, a
majority of the Shares voted in person or by proxy shall
decide any questions and a plurality shall elect a Trustee,
provided that where any provision of law or of this Trust
Instrument permits or requires that the holders of any Series
hall vote as a Series (or that the holders of any class shall
vote as a class), then a majority of the Shares present in
person or by proxy of that Series or, if required by law, a
Majority Shareholder Vote of that Series (or class), voted on
the matter in person or by proxy shall decide matter insofar
as that Series (or class) is concerned. Shareholders may act
by unanimous written consent. Actions taken by Series (or
c l ass) may be consented to unanimously in writing by
Shareholders of that Series.
<PAGE> 19<PAGE>
ARTICLE VIII
CUSTODIAN
Section 8.01. Appointment and Duties. The Trustees at all
times shall employ a bank, a company that is a member of a
national securities exchange, or a trust company, each having
capital, surplus and undivided profits of at least two million
dollars ($2,000,000) as custodian with authority as its agent,
but subject to such restrictions, limitations, and other
requirements, if any, as may be contained in the Bylaws of the
Trust:
(1) to hold the securities owned by the Trust and
deliver the same upon written order or oral
order confirmed in writing;
(2) to receive and receipt for any moneys due to
the Trust and deposit the same in its own
banking department or elsewhere as the Trustees
may direct; and
(3) to disburse such funds upon orders or vouchers;
and the Trust also may employ such custodian as its agent:
(4) to keep the books and accounts of the Trust or
of any Series or class and furnish clerical and
accounting services; and
(5) to compute, if authorized to do so by the
Trustees, the Net Asset Value of any Series, or
class thereof, in accordance with the
provisions hereof; all upon such basis of
compensation as may be agreed upon between the
Trustees and the custodian.
The Trustees also may authorize the custodian to
employ one or more sub-custodians from time to time to perform
such of the acts and services of the custodian, and upon such
terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees,
provided that in every case such sub-custodian shall be a
bank, a company that is a member of a national securities
exchange, or a trust company organized under the laws of the
United States or one of the states thereof and having capital,
surplus and undivided profits of at least two million dollars
($2,000,000) or such other person as may be permitted by the
Commission, or otherwise in accordance with the 1940 Act.
Section 8.02. Central Certificate System. Subject to such
rules, regulations, and orders as the Commission may adopt,
<PAGE> 20<PAGE>
the Trustees may direct the custodian to deposit all or any
part of the securities owned by the Trust in a system for the
central handling of securities established by a national
securities exchange or a national securities association
registered with the Commission under the Securities Exchange
Act of 1934, as amended, or such other person as may be
permitted by the Commission, or otherwise in accordance with
the 1940 Act, pursuant to which system all securities of any
particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject
to withdrawal only upon the order of the Trust or its
custodians, sub-custodians or other agents.
ARTICLE IX
DISTRIBUTIONS AND REDEMPTIONS
Section 9.01. Distributions.
(a) The Trustees from time to time may declare and
pay dividends or other distributions with respect to any
Series. The amount of such dividends or distributions and the
payment of them and whether they are in cash or any other
Trust Property shall be wholly in the discretion of the
Trustees.
(b) Dividends and other distributions may be paid
or made to the Shareholders of record at the time of declaring
a dividend or other distribution or among the Shareholders of
record at such other date or time or dates or times as the
Trustees shall determine, which dividends or distributions, at
the election of the Trustees, may be paid pursuant to a
standing resolution or resolutions adopted only once or with
such frequency as the Trustees may determine. The Trustees
may adopt and offer to Shareholders such dividend reinvestment
plans, cash dividend payout plans, or related plans as the
Trustees shall deem appropriate.
(c) Anything in this Trust Instrument to the
contrary notwithstanding, the Trustees at any time may declare
a n d distribute a stock dividend pro rata among the
Shareholders of a particular Series, or class thereof, as of
the record date of that Series fixed as provided in paragraph
(b) of this Section 9.01.
Section 9.02. Redemptions. In case any holder of record of
Shares of a particular Series desires to dispose of his Shares
or any portion thereof, he may deposit at the office of the
transfer agent or other authorized agent of that Series a
<PAGE> 21<PAGE>
written request or such other form of request as the Trustees
from time to time may authorize, requesting that the Series
purchase the shares in accordance with this Section 9.02; and
the Shareholder so requesting shall be entitled to require the
S e r ies to purchase, and the Series or the principal
underwriter of the Series shall purchase his said Shares, but
only at the Net Asset Value thereof (as described in Section
9.03 of this Article IX). The Series shall make payment for
any shares to be redeemed, as aforesaid, in cash or property
from the assets of that Series and payment for such Shares
shall be made by the Series or the principal underwriter of
the Series to the Shareholder of record within seven (7) days
after the date upon which the request is effective. Upon
redemption, shares shall become Treasury shares and may be re-
issued from time to time.
Section 9.03. Determination of Net Asset Value and Valuation
of Portfolio Assets. The term "Net Asset Value" of any
Series shall mean that amount by which the assets of that
Series exceed its liabilities, all as determined by or under
the direction of the Trustees. Such value shall be determined
separately for each Series and shall be determined on such
days and at such times as the Trustees may determine. Such
determination shall be made with respect to securities for
which market quotations are readily available, at the market
value of such securities; and with respect to other securities
and assets, at the fair value as determined in good faith by
the Trustees; provided, however, that the Trustees, without
S h areholder approval, may alter the method of valuing
portfolio securities insofar as permitted under the 1940 Act
and the rules, regulations, and interpretations thereof
promulgated or issued by the Commission or insofar as
permitted by any Order of the Commission applicable to the
Series. The Trustees may delegate any of their powers and
duties under this Section 9.03 with respect to valuation of
assets and liabilities. The resulting amount, which shall
represent the total Net Asset Value of the particular Series,
shall be divided by the total number of shares of that Series
outstanding at the time and the quotient so obtained shall be
the Net Asset Value per Share of that Series. At any time the
Trustees may cause the Net Asset Value per Share last
determined to be determined again in similar manner and may
fix the time when such redetermined value shall become
effective. If, for any reason, the net income of any Series,
determined at any time, is a negative amount, the Trustees
shall have the power with respect to that Series: (i) to
offset each Shareholder's pro rata share of such negative
amount from the accrued dividend account of such Shareholder;
or (ii) to reduce the number of Outstanding Shares of such
Series by reducing the number of Shares in the account of each
Shareholder by a pro rata portion of the number of full and
fractional Shares which represents the amount of such excess
<PAGE> 22<PAGE>
negative net income; or (iii) to cause to be recorded on the
books of such Series an asset account in the amount of such
negative net income (provided that the same shall thereupon
become the property of such Series with respect to such Series
and shall not be paid to any Shareholder), which account may
be reduced by the amount, of dividends declared thereafter
upon the Outstanding Shares of such Series on the day such
negative net income is experienced, until such asset account
is reduced to zero; or (iv) to combine the methods described
in clauses (i) and (ii) and (iii) of the sentence; or (v) to
take any other action they deem appropriate, in order to cause
(or in order to assist in causing) the Net Asset Value per
Share of such Series to remain at a constant amount per
Outstanding Share immediately after each such determination
and declaration. The Trustees also shall have the power not
to declare a dividend out of net income for the purpose of
causing the Net Asset Value per share to be increased. The
Trustees shall not be required to adopt, but at any time may
adopt, discontinue, or amend the practice of maintaining the
Net Asset Value per Share of the Series at a constant amount.
Section 9.04. Suspension of the Right of Redemption. T h e
Trustees may declare a suspension of the right of redemption
or postpone the date of payment as permitted under the 1940
Act. Such suspension shall take effect at such time as the
Trustees shall specify but not later than the close of
business on the business day next following the declaration of
suspension, and thereafter there shall be no right of
redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the
right of redemption, a Shareholder may either withdraw his
request for redemption or receive payment based on the Net
Asset Value per Share next determined after the termination of
the suspension. In the event that any Series are divided into
classes, the provisions of this Section 9.03, to the extent
applicable as determined in the discretion of the Trustees and
consistent with applicable law, may be equally applied to each
such class.
Section 9.05. Redemption of Shares in Order to Qualify as
Regulated Investment Company. If the Trustees, at any time and
in good faith, shall be of the opinion that direct or indirect
o w nership of Shares of any Series has or may become
concentrated in any Person to an extent which would disqualify
any Series as a regulated investment company under the
Internal Revenue Code, then the Trustees shall have the power
(but not the obligation) by lot or other means deemed
equitable by them (i) to call for redemption by any such
person of a number, or principal amount, of Shares sufficient
to maintain or bring the direct or indirect ownership of
S h ares into conformity with the requirements for such
qualification and (ii) to refuse to transfer or issue Shares
<PAGE> 23<PAGE>
to any person whose acquisition of the Shares in question
would result in such disqualification. The redemption shall
be effected at the redemption price and in the manner provided
in this Article IX.
The holders of Shares, upon demand, shall disclose
to the Trustees in writing such information with respect to
direct and indirect ownership of Shares as the Trustees deem
necessary to comply with the provisions of the Internal
Revenue Code, or to comply with the requirements of any other
taxing authority.
ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 10.01. Limitation of Liability. A Trustee, when
acting in such capacity, shall not be personally liable to any
person other than the Trust or a beneficial owner for any act,
omission, or obligation of the Trust or any Trustee. A
Trustee shall not be liable for any act or omission of any
conduct whatsoever in his capacity as Trustee, provided that
nothing contained herein or in the Delaware Act shall protect
any Trustee against any liability to the Trust or to
Shareholders to which he otherwise would be subject by reason
of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of
the office of Trustee hereunder.
Section 10.02. Indemnification
(a) Subject to the exceptions and limitations
contained in paragraph (b) below:
(i) every Person who is, or has been, a
Trustee or officer of the Trust (hereinafter referred to as a
"Covered Person") shall be indemnified by the Trust to the
fullest extent permitted by law against liability and against
all expenses reasonably incurred or paid by him in connection
with any claim, action, suit, or proceeding in which he
becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof; and
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits, or
proceedings (civil, criminal, or other, including appeals),
actual or threatened, while in office or thereafter, and the
words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties, and other liabilities.
<PAGE> 24<PAGE>
(b) No indemnification shall be provided hereunder
to a Covered Person:
(i) who shall have been adjudicated by a court
or body before which the proceeding was brought (A) to be
liable to the Trust or its Shareholders by reason of willful
m i s feasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office
or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust;
or
(ii) in the event of a settlement, unless
there has been a determination that such Trustee or officer
did not engage in willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in
the conduct of his office:
(A) by the court or other body approving
the settlement;
(B) by at least a majority of those
Trustees who neither are Interested Persons of the Trust nor
are parties to the matter based upon a review of readily-
available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent
legal counsel based upon a review of readily-available facts
(as opposed to a full trial-type inquiry); provided, however,
that any Shareholder, by appropriate legal proceedings, may
challenge any such determination by the Trustees or by
independent counsel.
(c) The rights of indemnification herein provided
may be insured against by policies maintained by the Trust,
shall be severable, shall not be exclusive of or affect any
other rights to which any Covered Person may now or hereafter
be entitled, shall continue as to a person who has ceased to
be a Covered Person and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
N o t h ing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered
Persons, and other persons may be entitled by contract or
otherwise under law.
(d) Expenses in connection with the preparation and
presentation of a defense to any claim, action, suit, or
proceeding of the character described in paragraph (a) of this
Section 10.02 may be paid by the Trust or Series from time to
time prior to final disposition thereof upon receipt of any
undertaking by or on behalf of such Covered Person that such
amount will be paid over by him to the Trust or Series if it
<PAGE> 25<PAGE>
u l t imately is determined that he is not entitled to
indemnification under this Section 10.02; provided, however,
that either (a) such Covered Person shall have provided
appropriate security for such undertaking, (b) the Trust is
insured against losses arising out of any such advance
payments, or (c) either a majority of the Trustees who are
neither Interested Persons of the Trust nor parties to the
matter, or independent legal counsel in a written opinion,
shall have determined, based upon a review of readily-
available facts (as opposed to a trial-type inquiry or full
investigation), that there is a reason to believe that such
Covered Person will be found entitled to indemnification under
this Section 10.02.
Section 10.03. Shareholders. I n case any Shareholder or
former Shareholder of any Series shall be held to be
personally liable solely by reason of his being or having been
a Shareholder of such Series and not because of his acts or
omissions or for some other reason, the Shareholder or former
Shareholder (or his heirs, executors, administrators, or other
legal representatives, or, in the case of a corporation or
other entity, its corporate or other general successor) shall
be entitled out of the assets belonging to the applicable
Series to be held harmless from and indemnified against all
loss and expense arising from such liability. The Trust, on
behalf of the affected Series, shall assume, upon request by
the Shareholder, the defense of any claim made against the
Shareholder for any act or obligation of the Series and
satisfy any judgment thereon from the assets of the Series.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Trust Not a Partnership. It is hereby expressly
declared that a trust and not a partnership is created hereby.
No Trustee hereunder shall have any power to bind personally
either the Trust's officers or any Shareholder. All persons
extending credit to, contracting with, or having any claim
against the Trust or the Trustees shall look only to the
assets of the appropriate Series or (if the Trustees shall
have yet to have established the Series) the Trust for payment
under such credit, contract, or claim; and neither the
Shareholders nor the Trustees, nor any of their agents,
whether past, present, or future, shall be personally liable
therefore. Nothing in this Trust Instrument shall protect a
Trustee against any liability to which the Trustee otherwise
would be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved
in the conduct of the office of Trustee hereunder.
<PAGE> 26<PAGE>
Section 11.02. Trustee's Good Faith Action; Expert Advice; No
Bond or Surety. The exercise by the Trustees of their
powers and discretions hereunder in good faith and with
reasonable care under the circumstances then prevailing shall
b e binding upon everyone interested. Subject to the
provisions of Article X hereof and to Section 11.01 of this
Article XI, the Trustees shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees may take
advice of counsel or other experts with respect to the meaning
and operation of the Trust Instrument, and, subject to the
provisions of Article X hereof and Section 11.01 of this
Article XI, shall be under no liability for any act or
omission in accordance with such advice or for failing to
follow such advice. The Trustees shall not be required to
give any bond as such, nor any surety if a bond is obtained.
Section 11.03. Establishment of Record Dates. The Trustees
may close the Share transfer books of the Trust for a period
not exceeding sixty (60) days preceding the date of any
meeting of Shareholders, or the date for the payment of any
dividends or other distributions, or the date for the
allotment of rights, or the date when any change or conversion
or exchange of Shares shall go into effect; or in lieu of
closing the stock transfer books as aforesaid, the Trustees
may fix in advance a date, not exceeding sixty (60) days
preceding the date of any meeting of Shareholders, or the date
for payment of any dividend or other distribution, or the date
for the allotment of rights, or the date when any change or
conversion or exchange of shares shall go into effect, as a
record date for the determination of the Shareholders entitled
to notice of, and to vote at, any such meeting, or entitled to
receive payment of any such dividend or other distribution, or
to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion, or exchange of Shares,
a n d , in such case, such Shareholders and only such
Shareholders as shall be Shareholders of record on the date so
fixed shall be entitled to such notice of, and to vote at,
such meeting, or to receive payment of such dividend or other
distribution, or to receive such allotment or rights, or to
exercise such rights, as the case may be, notwithstanding any
transfer of any Shares on the books of the Trust after any
such date fixed as aforesaid.
Section 11.04. Termination of Trust
(a) This Trust shall continue without limitation of
time but subject to the provisions of paragraph (b) of this
Section 11.04.
(b) The Trustees, subject to a Majority Shareholder
Vote of each Series affected by the matter, or, if applicable,
<PAGE> 27<PAGE>
to a Majority Shareholder Vote of the Trust, and subject to a
vote of a majority of the Trustees, may:
(i) sell and convey all or substantially all of
the assets of the Trust or any affected Series to another
trust, partnership, association, or corporation, or to a
separate series of shares thereof, organized under the laws of
a n y state, which trust, partnership, association, or
corporation is an open-end management investment company as
defined in the 1940 Act, or is a series thereof, for adequate
c o nsideration which may include the assumption of all
outstanding obligations, taxes, and other liabilities, accrued
or contingent, of the Trust or any affected Series, and which
may include shares of beneficial interest, stock, or other
ownership interests of such trust, partnership, association,
or corporation or of a series thereof; or
(ii) at any time, sell and convert into money
all of the assets of the Trust or any affected Series.
U p on making reasonable provision, in the
determination of the Trustees, for the payment of all such
liabilities in either (i) or (ii) of this Section 11.04(b), by
such assumption or otherwise, the Trustees shall distribute
the remaining proceeds or assets (as the case may be) of each
Series (or class) ratably among the holders of Shares of that
Series then outstanding.
(c) Upon completion of the distribution of the
remaining proceeds or the remaining assets as provided in
paragraph (b) of this Section 11.04, the Trust or any affected
Series shall terminate and the Trustees and the Trust shall be
discharged of any and all further liabilities and duties
hereunder and the right, title, and interest of all parties
with respect to the Trust or Series shall be canceled and
discharged.
Upon termination of the Trust, following completion of
winding up of the Trust's business, the Trustees shall cause a
certificate of cancellation of the Trust's certificate of
trust to be filed in accordance with the Delaware Act, which
certificate of cancellation may be signed by any one Trustee.
Section 11.05. Reorganization. Notwithstanding anything
else herein, the Trustees, in order to change the form of
organization of the Trust, may, without prior Shareholder
approval, (i) cause the Trust to merge or consolidate with or
into one (1) or more trusts, partnerships, associations, or
corporations so long as the surviving or resulting entity is
an open-end management investment company under the 1940 Act,
or is a series thereof, that will succeed to or assume the
Trust's registration under that Act and which is formed,
<PAGE> 28<PAGE>
o r g a n ized, or existing under the laws of a state,
commonwealth, territory, possession, or colony of the United
States or (ii) cause the Trust to incorporate under the laws
o f S tate of Delaware. Any agreement of merger or
consolidation or certificate of merger may be signed by a
majority of Trustees and facsimile signature conveyed by
electronic or telecommunication means shall be valid.
Pursuant to and in accordance with the provisions of
Section 3815(f) of the Delaware Act, and notwithstanding
anything to the contrary contained in this Trust Instrument,
an agreement of merger or consolidation approved by the
Trustees in accordance with this Section 11.05 may effect any
amendment to the Trust Instrument or effect the adoption of a
new trust instrument of the Trust if the Trust is the
surviving or resulting trust in the merger or consolidation.
Section 11.06. Filing of Copies; References; Headings. T h e
original or a copy of this Trust Instrument and the original
or a copy of each amendment hereof or Trust Instrument
supplemental hereto shall be kept at the office of the Trust
where it may be inspected by any Shareholder. Anyone dealing
with the Trust may rely on a certificate by an officer or
Trustee of the Trust as to whether or not any such amendments
or supplements have been made and as to any matters in
connection with the Trust hereunder, and, with the same effect
as if it were the original, may rely on a copy certified by an
officer or Trustee of the Trust to be a copy of this Trust
Instrument or of any such amendment or supplemental Trust
Instrument, and references to this Trust Instrument, and all
expressions such as or similar to "herein," "hereof," and
"hereunder" shall be deemed to refer to this Trust Instrument
as amended or affected by any such supplemental Trust
Instrument. All expressions such as or similar to "his,"
"he," and "him" shall be deemed to include the feminine and
neuter, as well as masculine, genders. Headings are placed
herein for convenience of reference only and, in case of any
conflict, the text of this Trust Instrument, rather than the
headings, shall control. This Trust Instrument may be
executed in any number of counterparts each of which shall be
deemed an original.
Section 11.07. Applicable Law. The trust set forth in this
instrument is made in the State of Delaware, and the Trust and
this Trust Instrument, and the rights and obligations of the
Trustees and Shareholders hereunder, are to be governed by and
construed and administered according to the Delaware Act and
the laws of said State; provided, however, that there shall
not be applicable to the trust, the Trust, the Trustees or
this Trust Instrument (a) the provisions of Section 3540 of
Title 12 of the Delaware Code or (b) any provisions of the
laws (statutory or common) of the State of Delaware (other
<PAGE> 29<PAGE>
than the Delaware Act) pertaining to trusts which relate to or
regulate (i) the filing with any court or governmental body or
agency of trustee accounts or schedules of trustee fees and
charges, (ii) affirmative requirements to post bonds for
trustees, officers, agents, or employees of a trust, (iii) the
necessity for obtaining court or other governmental approval
concerning the acquisition, holding, or disposition of real or
personal property, (iv) fees or other sums payable to
trustees, officers, agents, or employees of a trust, (v) the
a l location of receipts and expenditures to income and
principal, (vi) restrictions or limitations on the permissible
nature, amount, or concentration of trust investments or
requirements relating to the titling, storage, or other manner
of holding of trust assets, or (vii) the establishment of
f i d u c iary or other standards or responsibilities or
limitations on the acts or powers of trustees, which are
i n c o n sistent with the limitations or liabilities or
authorities and powers of the Trustees set forth or referenced
in this Trust Instrument. The Trust shall be of the type
commonly called a "business trust," and, without limiting the
provisions hereof, the Trust may exercise all powers or
privileges afforded to trusts or actions that may be engaged
in by trusts under the Delaware Act, and the absence of a
specific reference herein to any such power, privilege, or
action shall not imply that the Trust may not exercise such
power or privilege or take such actions.
Section 11.08. Amendments. Except as specifically provided
herein, the Trustees, without shareholder vote, may amend or
otherwise supplement this Trust Instrument by making an
amendment, a Trust Instrument supplemental hereto, or an
amended and restated trust instrument. Shareholders shall
have the right to vote (i) on any amendment which would affect
their right to vote granted in Section 7.01 of Article VII
hereof, (ii) on any amendment to this Section 11.08, (iii) on
any amendment as may be required by law or by the Trust's
registration statement filed with the Commission, and (iv) on
any amendment submitted to the Shareholders by the Trustees.
Any amendment required or permitted to be submitted to
Shareholders which, as the Trustees determine, shall affect
the Shareholders of one or more Series shall be authorized by
vote of the Shareholders of each Series affected and no vote
of Shareholders of a Series not affected shall be required.
Notwithstanding anything else herein, any amendment to Article
X hereof shall not limit the rights to indemnification or
insurance provided therein with respect to action or omission
of Covered Persons prior to such amendment.
Section 11.09. Fiscal Year. The fiscal year of the Trust
shall end on a specified date as set forth in the Bylaws,
provided, however, that the Trustees, without Shareholder
approval, may change the fiscal year of the Trust.
<PAGE> 30<PAGE>
Section 11.10. Provisions in Conflict With Law. T h e
provisions of this Trust Instrument are severable, and if the
Trustees shall determine, with the advice of counsel, that any
of such provisions is in conflict with the 1940 Act, with the
regulated investment company provisions of the Internal
Revenue Code, or with other applicable laws and regulations,
the conflicting provision shall be deemed never to have
constituted a part of this Trust Instrument; provided,
however, that such determination shall not affect any of the
remaining provisions of this Trust Instrument or render
invalid or improper any action taken or omitted prior to such
determination. If any provision of this Trust Instrument
shall be held invalid or improper, unenforceability shall
attach only to such provision in such jurisdiction and shall
not in any manner affect such provisions in any other
jurisdiction or any other provision of this Trust Instrument
in any jurisdiction.
IN WITNESS WHEREOF, the undersigned, being all of the
initial Trustees of the Trust, have executed this instrument
this 13th day of March, 1993.
/s/ Albert P. Viragh, Jr.
A l b ert P. Viragh, Jr., as
Trustee
and not individually
/s/ Daniel L. O Connor
Daniel L. O'Connor, as Trustee
and not individually
<PAGE> 31<PAGE>
RYDEX SERIES TRUST
AMENDMENTS TO DECLARATION OF TRUST
The following resolutions amending the Declaration of
Trust of Rydex Series Trust were passed by the Board of
Trustees on November 2, 1993:
RESOLVED, that Article III, Section 3.02,
Initial Trustees, of the Trust s Declaration of
T r u s t , dated March 11, 1993 (the Trust
Declaration ), be, and hereby is, amended to read as
follows:
The initial Trustees shall be the persons
named herein. On a date fixed by the
Trustees, the Shareholders shall elect at
least three (3) but not more than fifteen
( 1 5 ) Trustees, as specified by the
Trustees pursuant to Section 3.06 of this
Article.
FURTHER RESOLVED, that Article III, Section
3.06, Number of Trustees, of the Trust Declaration
be, and hereby is, amended to read as follows:
The number of Trustees shall be at least
three (3), and thereafter shall be such
number as shall be fixed from time to time
by a majority of the Trustees, provided,
however, that the number of Trustees shall
in no event be more than fifteen (15).
By: /s/ Amanda C. Viragh
Amanda C. Viragh
Secretary
PAGE
<PAGE>
RYDEX SERIES TRUST
AMENDMENT TO DECLARATION OF TRUST
The following resolutions amending the Declaration of
Trust of Rydex Series Trust were passed by the Board of
Trustees on December 12, 1995:
WHEREAS, Section 3802(c), "Contributions by
beneficial owners," of the Delaware Business Trust
Act, provides as follows:
A governing instrument may provide that
the interest of any beneficial owner who
fails to make any contribution that he is
obligated to make shall be subject to
s p ecific penalties for, or specified
consequences of, such failure. Such
penalty or consequence may take the form
of reducing or eliminating the defaulting
beneficial owner's proportionate interest
in the business trust, subordinating his
beneficial interest to that of
nondefaulting beneficial owners, a forced
s a le of his beneficial interest,
forfeiture of his beneficial interest, the
lending by other beneficial owners of the
amount necessary to meet his commitment, a
fixing of the value of his beneficial
interest by appraisal or by formula, and
redemption or sale of his beneficial
interest at such value, or any other
penalty or consequence.
WHEREAS, the Trustees have determined that the
a u tomatic redemption by the Trust ("Automatic
Redemptions") of all shares of the Trust ("Shares")
in any Trust shareholder ("Shareholder") account,
(i) for a Shareholder who has engaged a registered
investment advisor with discretionary authority over
the Shareholder s account in which there are fewer
than $15,000 worth of Shares, and (ii) for any other
Shareholder account in which there are fewer than
$25,000 worth of Shares, is in the economic best
interest of the Trust and also is necessary to
reduce disproportionately burdensome expenses in
servicing Shareholder accounts.
PAGE
<PAGE>
NOW, THEREFORE, BE IT RESOLVED, that Article
II, "Beneficial Interest," of the Trust's
Declaration of Trust, dated March 11, 1993, and as
amended November 2, 1993 (the "Trust Declaration"),
be, and hereby is, amended by adding a new Section
2.12, entitled "Redemption of Shares," to Article II
of the Trust Declaration, which new Section 2.12
shall read as follows:
The Trust, pursuant to a resolution of the
Trustees and without the vote or consent
of the Shareholders of the Trust, shall
have the right to redeem at net asset
v a lue all Shares in any Shareholder
account, the value of which is less than a
reasonable minimum amount specified in
that resolution. In no event shall an
involuntary redemption be exercised with
respect to Shareholder accounts that are
at least as large as the Trust's minimum
initial investment amount at the time of
t h e redemption. Minimum initial
investment amounts may be different for a
Shareholder who has engaged a registered
i n vestment advisor with discretionary
authority over the Shareholder s account
and for any other Shareholder. The
resolution of the Trustees shall set forth
that the redemption of Shares in such
accounts has been determined to be in the
economic best interest of the Trust or to
be necessary to reduce disproportionately
burdensome expenses in servicing
Shareholder accounts. The resolution of
the Trustees also shall provide that prior
notice of at least sixty (60) days shall
be given to a Shareholder before
redemption of his or her Shares, and that
the Shareholder shall have the reasonable
period of time specified in the resolution
of the Trustees to avoid the redemption by
increasing the Shareholder's account to at
l e a s t the amount specified in the
resolution of the Trustees. Shareholders
shall be bound by and/or compelled to
accept such a redemption; provided, that
the terms and conditions set forth in this
Trust Instrument have been fulfilled.
<PAGE> 2<PAGE>
By: /s/ Robert M. Steele
Robert M. Steele
Secretary
<PAGE> 3<PAGE>
<PAGE> 4<PAGE>
Exhibit (2)
By-Laws of Rydex Series Trust
PAGE
<PAGE>
BYLAWS
of
RYDEX SERIES TRUST
These Bylaws of Rydex Series Trust (the "Trust"), a
D e l a ware business trust, are subject to the Trust's
Declaration of Trust, dated March 13, 1993, as from time to
t i m e amended, supplemented, or restated (the "Trust
Instrument"). Capitalized terms used herein which are defined
in the Trust Instrument are used as therein defined.
ARTICLE I
PRINCIPAL OFFICE
The principal office of the Trust shall be located
in Bethesda, Maryland or such other location as the Trustees,
from time to time, may determine. The Trust may establish and
maintain such other offices and places of business as the
Trustees, from time to time, may determine.
ARTICLE II
OFFICERS AND THEIR ELECTION
Section 1. Officers. The officers of the Trust shall be
President, a Treasurer, a Secretary, and such other officers
as the Trustees from time to time may elect. The Trustees may
delegate to any officer or committee the power to appoint any
subordinate officers or agents. It shall not be necessary for
any Trustee or officer to be a holder of Shares in the Trust.
Section 2. Election of Officers. The Treasurer and
Secretary shall be chosen by the Trustees. The President
shall be chosen by and from the Trustees. Two (2) or more
offices may be held by a single person except the offices or
President and Secretary. Subject to the provisions of Section
13 hereof, the President, the Treasurer, and the Secretary
shall each hold office until their successors are chosen and
qualified and all other officers shall hold office at the
pleasure of the Trustees.
Section 3. Resignations. Any officer of the Trust may
resign, notwithstanding Section 2 hereof, by filing a written
r e s ignation with the President, the Trustees, or the
Secretary, which resignation shall take effect on being so
filed or at such time as may be therein specified.
ARTICLE III
POWERS AND DUTIES OF OFFICERS AND TRUSTEES
PAGE
<PAGE>
Section 1. Management of the Trust; General. The business
and affairs of the Trust shall be managed by, or under the
direction of, the Trustees, and the Trustees shall have all
p o w e r s necessary and desirable to carry out their
responsibilities, so far as such powers are not inconsistent
with the laws of the State of Delaware, the Trust Instrument,
or with these Bylaws.
Section 2. Executive and Other Committees. The Trustees
may elect from their own number an executive committee, which
shall have any or all the powers of the Trustees while the
Trustees are not in session. The Trustees also may elect from
their own number other committees from time to time. The
number composing such committees and the powers conferred upon
the same are to be determined by vote of a majority of the
Trustees. All members of such committees shall hold such
offices at the pleasure of the Trustees. The Trustees may
abolish any such committee at any time. Any committee to
which the Trustees delegate any of their powers or duties
shall keep records of its meetings and shall report its
actions to the Trustees. The Trustees shall have power to
rescind any action of any committee, but no such rescission
shall have retroactive effect.
Section 3. Compensation. Each Trustee and each committee
member may receive such compensation for his services and
reimbursement for his expenses as may be fixed from time to
time by resolution of the Trustees.
Section 4. Chairman of the Trustees. T h e Trustees
shall appoint from among their number a Chairman who shall
serve as such at the pleasure of the Trustees. When present,
he shall preside at all meetings of the Shareholders and the
Trustees, and he may appoint, subject to the approval of the
Trustees, a Trustee to preside at such meetings in his
absence. He shall perform such other duties as the Trustees
from time to time may designate.
Section 5. President. The President shall be the chief
executive officer of the Trust and, subject to the direction
of the Trustees, shall have general administration of the
business and policies of the Trust. Except as the Trustees
otherwise may order, the President shall have the power to
grant, issue, execute, or sign such powers of attorney,
proxies, agreements, or other documents as may be deemed
advisable or necessary in the furtherance of the interest of
the Trust or any Series thereof. He also shall have the power
to employ attorneys, accountants, and other advisers and
agents and counsel for the Trust. The President shall perform
such duties additional to all of the foregoing as the Trustees
from time to time may designate.
<PAGE> 2<PAGE>
Section 6. Treasurer. T h e Treasurer shall be the
principal financial and accounting officer of the Trust. He
shall deliver all funds and securities of the Trust which may
come into his hands to such company as the Trustees shall
employ as Custodian in accordance with the Trust Instrument
and applicable provisions of law. He shall make annual
reports regarding the business and condition of the Trust,
which reports shall be preserved in Trust records, and he
shall furnish such other reports regarding the business and
condition of the Trust as the Trustees from time to time may
require. The Treasurer shall perform such additional
duties as the Trustees from time to time may designate.
Section 7. Secretary. The Secretary shall record in
books kept for the purpose all votes and proceedings of the
Trustees and the Shareholders at their respective meetings.
He shall have the custody of the seal of the Trust. The
Secretary shall perform such additional duties as the Trustees
from time to time may designate.
Section 8. Vice President. Any Vice President of the
Trust shall perform such duties as the Trustees or the
President from time to time may designate. At the request or
in the absence or disability of the President, the Vice
President (or, if there are two (2) or more Vice Presidents,
then the senior of the Vice Presidents present and able to
act) may perform all the duties of the President and, when so
acting, shall have all the powers of and be subject to all the
restrictions upon the President.
Section 9. Assistant Treasurer. A n y A s sistant
Treasurer of the Trust shall perform such duties as the
Trustees or the Treasurer from time to time may designate,
and, in the absence of the Treasurer, the senior Assistant
Treasurer, present and able to act, may perform all the duties
of the Treasurer.
Section 10. Assistant Secretary. A n y A s sistant
Secretary of the Trust shall perform such duties as the
Trustees or the Secretary from time to time may designate,
and, in the absence of the Secretary, the senior Assistant
Secretary, present and able to act, may perform all the duties
of the Secretary.
Section 11. Subordinate Officers. The Trustees from time
to time may appoint such other officers or agents as the
Trustees may deem advisable, each of whom shall have such
title, hold office for such period, have such authority, and
perform such duties as the Trustees may determine. The
Trustees from time to time may delegate to one (1) or more
officers or committees of Trustees the power to appoint any
<PAGE> 3<PAGE>
such subordinate officers or agents and to prescribe their
respective terms of office, authorities, and duties.
Section 12. Surety Bonds. The Trustees may require any
officer or agent of the Trust to execute a bond (including,
without limitation, any bond required by the Investment
Company Act of 1940, as amended ("the 1940 Act") and the rules
and regulations of the Securities and Exchange Commission
("Commission")) to the Trust in such sum and with such surety
or sureties as the Trustees may determine, conditioned upon
the faithful performance of such officer's or agent's duties
to the Trust including responsibility for negligence and for
the accounting of any of the Trust's property, funds, or
securities that may come into such officer's or agent's hands.
Section 13. Removal. Any officer of the Trust may be
removed from office whenever in the judgment of the Trustees
the best interest of the Trust will be served thereby, by the
vote of a majority of the Trustees given at any regular
meeting or any special meeting of the Trustees. In addition,
any officer or agent appointed in accordance with the
provisions of Section 11 hereof may be removed, either with or
without cause, by any officer upon whom such power of removal
shall have been conferred by the Trustees.
Section 14. Renumeration. T h e salaries or other
compensation, if any, of the officers of the Trust shall be
fixed from time to time by resolution of the Trustees.
ARTICLE IV
SHAREHOLDERS' MEETING
Section 1. Special Meetings. A special meeting of the
Shareholders shall be called by the Secretary whenever (i)
ordered by the Trustees or (ii) requested in writing by the
holder or holders of at least ten percent (10%) of the
Outstanding Shares entitled to vote. If the Secretary, when
so ordered or requested, refuses or neglects for more than
thirty (30) days to call such special meeting, the Trustees or
the Shareholders so requesting, in the name of the Secretary,
may call the meeting by giving notice thereof in the manner
required when notice is given by the Secretary. If the
meeting is a meeting of the Shareholders of one (1) or more
Series or classes of Shares, but not a meeting of all
Shareholders of the Trust, then only special meetings of the
Shareholders of such one (1) or more Series or Classes shall
be called and only the Shareholders of such one (1) or more
Series or Classes shall be entitled to notice of and to vote
at such meeting.
<PAGE> 4<PAGE>
Section 2. Notices. Except as above provided, notices of
any meeting of the Shareholders shall be given by the
Secretary by delivering or mailing, postage prepaid, to each
Shareholder entitled to vote at said meeting, written or
printed notification of such meeting at least fifteen (15)
days before the meeting, to such address as may be registered
with the Trust by the Shareholder. Notice of any Shareholder
meeting need not be given to any Shareholder if a written
waiver of notice, executed before or after such meeting, is
filed with the record of such meeting, or to any Shareholder
who shall attend such meeting in person or by proxy. Notice
of adjournment of a Shareholders' meeting to another time or
place need not be given, if such time and place are announced
at the meeting and reasonable notice is given to persons
present at the meeting and the adjourned meeting is held
within a reasonable time after the date set for the original
meeting.
Section 3. Voting-Proxies. Subject to the provisions
of the Trust Instrument, Shareholders entitled to vote may
vote either in person or by proxy, provided that either (i) an
instrument authorizing such proxy to act is executed by the
Shareholder in writing and dated not more than eleven (11)
months before the meeting, unless this instrument specifically
provides for a longer period or (ii) the Trustees adopt by
resolution an electronic, telephonic, computerized, or other
alternative to execution of a written instrument authorizing
the proxy to act, which authorization is received no more than
eleven (11) months before the meeting. Proxies shall be
delivered to the Secretary of the Trust or other persons
responsible for recording the proceedings before being voted.
A proxy with respect to Shares held in the name of two (2) or
more persons shall be valid if executed by one (1) of them
unless at or prior to exercise of such proxy the Trust
receives specific written notice to the contrary from any one
(1) of them. Unless otherwise specifically limited by their
terms, proxies shall entitle the holder thereof to vote at any
adjournment of a meeting. A proxy purporting to be exercised
by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of
providing invalidity shall rest on the challenger. At all
meetings of the Shareholders, unless the voting is conducted
by inspectors, all questions relating to the qualifications of
voters, the validity of proxies, and the acceptance or
rejection of votes shall be decided by the Chairman of the
meeting. Except as otherwise provided herein or in the Trust
Instrument, as these By-laws or such Trust Instrument may be
amended or supplemented from time to time, all matters
relating to the giving, voting, or validity or proxies shall
be governed by the General Corporation Law of the State of
Delaware relating to proxies, and judicial interpretations
<PAGE> 5<PAGE>
thereunder, as if the Trust were a Delaware corporation and
the Shareholders were shareholders of a Delaware corporation.
Section 4. Place of Meeting. All special meetings of the
Shareholders shall be held at the principal place of business
of the Trust or at such other place in the United States as
the Trustees may designate.
Section 5. Action Without a Meeting. Any action to be
taken by Shareholders may be taken without a meeting if all
Shareholders entitled to vote on the matter consent to the
action in writing and the written consents are filed with the
records of meetings of Shareholders of the Trust. Such
consent shall be treated for all purposes as a vote at a
meeting of the Trustees held at the principal place of
business of the Trust.
ARTICLE V
TRUSTEES' MEETINGS
Section 1. Special Meetings. Special meetings of the
Trustees may be called orally or in writing by the Chairman of
the Board of Trustees or any two (2) other Trustees.
Section 2. Regular Meetings. Regular meetings of the
Trustees may be held at such places and at such times as the
Trustees from time to time may determine; each Trustee present
at such determination shall be deemed a party calling the
meeting and no call or notice will be required to such Trustee
p r o v i ded that any Trustee who is absent when such
d e t e rmination is made shall be given notice of the
determination by the Chairman or any two (2) other Trustees,
as provided for in Section 4.04 of the Trust Instrument.
Section 3. Quorum. A majority of the Trustees shall
constitute a quorum for the transaction of business and an
action of a majority of the quorum shall constitute action of
the Trustees.
Section 4. Notice. Except as otherwise provided, notice
of any special meeting of the Trustees shall be given by the
party calling the meeting to each Trustee, as provided for in
Section 4.04 of the Trust Instrument. A written notice may be
mailed, postage prepaid, addressed to him at his address as
registered on the books of the Trust or, if not so registered,
at his last known address.
Section 5. Place of Meeting. All special meetings of the
Trustees shall be held at the principal place of business of
the Trust or such other place as the Trustees may designate.
Any meeting may adjourn to any place.
<PAGE> 6<PAGE>
Section 6. Special Action. When all the Trustees
shall be present at any meeting, however called or wherever
held, or shall assent to the holding of the meeting without
notice, or shall sign a written assent thereto filed with the
record of such meeting, the acts of such meeting shall be
valid as if such meeting had been regularly held.
Section 7. Action By Consent. Any action by the Trustees
may be taken without a meeting if a written consent thereto is
signed by all the Trustees and filed with the records of the
Trustees' meeting. Such consent shall be treated, for all
purposes, as a vote at a meeting of the Trustees held at the
principal place of business of the Trustees.
Section 8. Participation in Meetings By Conference
Telephone. Trustees may participate in a meeting of
Trustees by conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall
constitute presence in person at such meeting. Any meeting
conducted by telephone shall be deemed to take place at and
from the principal office of the Trust.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 1. Beneficial Interest. T h e b eneficial
interest in the Trust at all times shall be divided into such
transferable Shares of one (1) or more separate and distinct
Series, or classes thereof, as the Trustees from time to time
shall create and establish. The number of Shares is
unlimited, and each Share of each Series or class thereof
shall be without par value and shall represent an equal
proportionate interest with each other Share in the Series,
none having priority or preference over another, except to the
extent that such priorities or preferences are established
with respect to one (1) or more classes of shares consistent
with applicable law and any rule or order to the Commission.
Section 2. Transfer of Shares. The Shares of the Trust
shall be transferable, so as to affect the rights of the
Trust, only by transfer recorded on the books of the Trust, in
person or by attorney.
Section 3. Equitable Interest Not Recognized. The Trust
shall be entitled to treat the holder of record of any Share
or Shares of beneficial interest as the holder in fact
thereof, and shall not be bound to recognize any equitable or
other claim or interest in such Share or Shares on the part of
any other person except as otherwise may be expressly provided
by law.
<PAGE> 7<PAGE>
Section 4. Share Certificate. Each Shareholder shall be
entitled to a certificate or certificates which shall certify
the number of Shares owned by him in the respective Series.
Each certificate shall be signed by the President or a Vice
President and counter-signed by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer and shall
be sealed with the Trust Seal. The signatures may be either
manual or facsimile signatures and the seal may be either
facsimile or any other form. If certificates are not
requested by the Shareholder, his Shares will be held on
deposit by the Trust. In case any officer who has signed or
whose facsimile signature has been placed on such certificate
shall have ceased to be such officer before such certificate
is issued, such certificate may be issued by the Trust with
the same effect as if he or she were such officer at the time
of the certificate's issue.
In lieu of issuing certificates for Shares, the
Trustees or the transfer or shareholder services agent either
may issue receipts therefor or may keep accounts upon the
books of the Trust for the record holders of such Shares, who
in either case shall be deemed, for all purposes hereunder, to
be holders of certificates for such Shares as if they had
accepted such certificates and shall be held to have expressly
assented and agreed to the terms hereof.
Section 5. Loss of Certificate. In the case of the
alleged loss or destruction or the mutilation of a Share
certificate, a duplicate certificate may be issued in place
thereof, upon such terms as the Trustees may prescribe.
Section 6. Discontinuance of Issuance of Certificates.
The Trustees at any time may discontinue the issuance of Share
certificates and may require, by written notice to each
Shareholder, the surrender of Share certificates to the Trust
for cancellation. Such surrender and cancellation shall not
affect the ownership of Shares in the Trust.
ARTICLE VII
OWNERSHIP OF ASSETS OF THE TRUST
The Trustees, acting for and on behalf of the Trust,
shall be deemed to hold legal and beneficial ownership of any
income earned on securities held by the Trust issued by any
business entity formed, organized or existing under the laws
o f any jurisdiction other than a state, commonwealth,
possession, territory, or colony of the United States or the
laws of the United States.
ARTICLE VIII
<PAGE> 8<PAGE>
INSPECTION OF BOOKS
The Trustees from time to time shall determine
whether and to what extent, and at what times and places, and
under what conditions and regulations, the accounts and books
of the Trust or any of them shall be open to the inspection of
the Shareholders; and no Shareholder shall have any right to
inspect any account or book or document of the Trust except as
conferred by law or otherwise by the Trustees or by resolution
of the Shareholders.
ARTICLE IX
INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES
The Trust may purchase and maintain insurance on
behalf of any Covered Person or employee of the Trust,
including any Covered Person or employee of the Trust who is
or was serving at the request of the Trust as a Trustee,
o f f i c er, or employee of a corporation, partnership,
association, joint venture, trust, or other enterprise,
against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such,
whether or not the Trustees would have the power to indemnify
him against such liability.
The Trust may not acquire or obtain a contract for
insurance that protects or purports to protect any Trustee or
officer of the Trust against any liability to the Trust or its
Shareholders to which he otherwise would be subject by reason
of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of
his office.
ARTICLE X
SEAL
The seal of the Trust shall be circular in form
bearing the inscription:
"RYDEX SERIES TRUST
THE STATE OF DELAWARE"
The form of the seal shall be subject to alteration
by the Trustees and the seal may be used by causing the seal
or a facsimile to be impressed or affixed or printed or
otherwise reproduced.
Any officer or Trustee of the Trust shall have
authority to affix the seal of the Trust to any document,
instrument, or other paper executed and delivered by or on
<PAGE> 9<PAGE>
behalf of the Trust; however, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and
the seal's absence shall not impair the validity of, any
document, instrument, or other paper executed by or on behalf
of the Trust.
ARTICLE XI
FISCAL YEAR
The fiscal year of the Trust shall end on such date
as the Trustees from time to time shall determine.
ARTICLE XII
AMENDMENTS
These Bylaws may be amended at any meeting of the
Trustees of the Trust by a majority vote.
ARTICLE XIII
REPORT TO SHAREHOLDERS
The Trustees at least semi-annually shall submit to
the Shareholders a written financial report of the Trust
including financial statements which shall be certified at
least annually by independent public accountants.
ARTICLE XIV
HEADINGS
Headings are placed in these Bylaws for convenience
of reference only and, in case of any conflict, the text of
these Bylaws rather than the headings shall control.
<PAGE> 10<PAGE>
<PAGE> 11<PAGE>
Exhibit (4)
Specimen Share Certificate
of
Rydex Series Trust
PAGE
<PAGE>
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER [LOGO] SHARES
RYDEX SERIES TRUST
AUTHORIZED TO ISSUE 100 SHARES - PAR VALUE $.01 PER SHARE
[SPECIMEN COMMON STOCK]
THIS CERTIFIES THAT __________________________________ is the
registered holder of ___________________________________
Shares of the capital stock of the above named corporation,
fully paid and non-assessable, transferable only on the books
of the Corporation by the holder hereof in person or by
Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this
Certificate to be signed by its duly authorized officers and
its Corporate Seal to be hereunto affixed this ________ day of
_________________________________ A.D. 19____.
______________________________
____________________________
Secretary President
PAGE
<PAGE>
The following abbreviations, when used in the inscription
on the face of this certificate, shall be construed as though
they were written out in full according to applicable laws or
regulations:
TEN COM - as tenants in UNIF GIFT MIN ACT- Custodian
common (Cust) (Minor)
TEN ENT - as tenants by u n der Uniform Gifts to
Minors
the entireties
JT TEN - as joint tenants
with right of
survivorship and
not as tenants in
common Act..............
(State)
Additional abbreviations may also be used though not
in the above list.
For Value Received, _____ hereby sell, assign and
t r a n s f e r u n t o
_ _ _ _ ______________________________________________________
_______________________________________________________ Shares
r e p r esented by the within Certificate and do hereby
irrevocably constitute and appoint
___________________________________________________ Attorney
to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated ____________________ 19____.
In presence of ______________________
NOTICE THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE
WHATEVER.
PAGE
<PAGE>
Exhibit (5)(a)
Investment Advisory Agreement
between Rydex Series Trust and
PADCO Advisors, Inc.
PAGE
<PAGE>
Amendments,
Dated September 25, 1996,
to
Investment Management Contract
Between Rydex Series Trust
and PADCO Advisors, Inc.,
Dated May 14, 1993,
and as Previously Amended
November 2, 1993,
December 13, 1994, and
March 8, 1996
PAGE
<PAGE>
Amendments to
INVESTMENT MANAGEMENT CONTRACT
between
RYDEX SERIES TRUST
and
PADCO ADVISORS, INC.
Amendment to Include The Rydex High Yield Fund Under the
Management Contract and to Set the Manager's Compensation
Thereunder. The following amendment is made to Section 4 of
the Investment Management Contract between Rydex Series Trust
(the "Trust") and PADCO Advisors, Inc. (the "Manager"), dated
September 25, 1996, and as amended on November 2, 1993, and as
further amended on December 13, 1994, and as further amended
on March 8, 1996 (the "Contract"), and is hereby incorporated
into and made a part of the Contract:
Section 4 of the Contract is amended, effective
September 25, 1996, to read as follows:
" A s compensation for the services to be
rendered and charges and expenses to be assumed
and paid by the Manager as provided in Section
2, the Funds shall pay the Manager an annual
fee based on the average daily net value of the
r e s pective Funds in accordance with the
following schedule:
The Nova Fund 0.75% (75/100's of one percent)
The Rydex U.S.
Government Money
Market Fund 0.50% (50/100's of one percent)
The Rydex Precious
Metals Fund 0.75% (75/100's of one percent)
The Ursa Fund 0.90% (90/100's of one
percent)
The Rydex U.S.
Government
Bond Fund 0.50% (50/100's of one percent)
The Rydex OTC
PAGE
<PAGE>
Fund 0.75% (75/100's of one percent)
The Juno Fund 0.90% (90/100's of one percent)
The Rydex
Institutional
Money Market
Fund 0.55% (55/100's of one percent)
The Rydex High
Yield Fund 0.75% (75/100's of one percent)
The fee will be paid monthly not later than the fifth
(5th) business day of the month following the month
for which services have been provided. In the event
of termination of this Contract, the fee shall be
computed on the basis of the period ending on the
last business day on which this Contract is in effect
subject to a pro rata adjustment based on the number
of days elapsed in the current month as a percentage
of the total number of days in such month, and such
fee shall be payable on the date of termination of
this Contract with respect to each such Fund. For
purposes of calculating the Manager's fee, the value
of the net assets of each respective Fund shall be
determined in the same manner as such Fund uses to
compute the value of its net assets in connection
with the determination of the net asset value of its
shares, all as set forth more fully in such Fund's
c u rrent Prospectus and Statement of Additional
Information."
Amendment to Grant Authority to the Manager to Engage Sub-
Advisers for The Rydex High Yield Fund and Any Series of the
Trust that May Be Created in the Future. The following
a m e n dments are made to the Contract and are hereby
incorporated into and made a part of the Contract:
Sections 9 through 12 of the Contract are redesignated 10
through 13, respectively.
A new Section 9 is added to the Contract as follows:
9. In providing the services and
assuming the obligations set forth herein, in
connection with The Rydex High Yield Fund, or
any other Fund that the Trust may create in
the future, the Manager may, at its expense,
employ one or more sub-advisers, or may enter
into such service agreements as the Manager
deems appropriate in connection with the
performance of the Manager's duties and
<PAGE> 2<PAGE>
obligations hereunder. Reference herein to
t h e duties and responsibilities of the
Manager shall include any sub-adviser
employed by the Manager to the extent that
the Manager shall delegate such duties and
responsibilities to such sub-adviser. Any
agreement between the Manager and a sub-
adviser shall be subject to the approval of
t h e Trust's Board of Trustees and the
shareholders of any Fund affected thereby, as
required by the Investment Company Act of
1940, as amended, and any such sub-adviser
s h all at all times be subject to the
direction of the Board of Trustees of the
Trust or any officers of the Trust acting
pursuant to the oversight by the Board of
Trustees of any such sub-adviser in order to
assure continuing quality of performance by
said sub-adviser.
<PAGE> 3<PAGE>
In witness whereof, the parties hereto have caused these
Amendments to be executed in their names and on their behalf
and through their duly-authorized officers as of the 25th day
of September, 1996.
RYDEX SERIES TRUST
/s/ Albert P. Viragh, Jr.
By: Albert P. Viragh, Jr.
Title: President
PADCO ADVISORS, INC.
/s/ Albert P. Viragh, Jr.
By: Albert P. Viragh, Jr.
Title: President
<PAGE> 4<PAGE>
Amendments,
Dated March 8, 1996,
to
Investment Management Contract
Between Rydex Series Trust
and PADCO Advisors, Inc.,
Dated May 14, 1993,
and as Previously Amended
November 2, 1993, and
December 13, 1994<PAGE>
Amendments to
INVESTMENT MANAGEMENT CONTRACT
between
RYDEX SERIES TRUST
and
PADCO ADVISORS, INC.
The following Amendments are made to Section 4 and
Section 11 of the Investment Management Contract between Rydex
Series Trust (the "Trust") and PADCO Advisors, Inc. (the
"Manager"), dated March 8, 1996, and as amended on November 2,
1993 (the "Contract"), and as further amended on December 13,
1994, and is hereby incorporated into and made a part of the
Contract:
Section 4 of the Contract is amended, effective March 8,
1996, to read as follows:
"As compensation for the services to be rendered and
charges and expenses to be assumed and paid by the
Manager as provided in Section 2, the Funds shall
pay the Manager an annual fee based on the average
d a i ly net value of the respective Funds in
accordance with the following schedule:
The Nova Fund 0.75% (75/100's of one percent)
The Rydex U.S. Government
Money Market Fund 0.50% (50/100's of one percent)
The Rydex Precious
Metals Fund 0.75% (75/100's of one percent)
The Ursa Fund 0.90% (90/100's of one percent)
The Rydex U.S. Government
Bond Fund 0.50% (50/100's of one percent)
The Rydex OTC Fund 0.75% (75/100's of one percent)
The Juno Fund 0.90% (90/100's of one percent)
The Rydex Institutional
Money Market Fund 0.55% (55/100's of one percent)
The fee will be paid monthly not later than the
fifth (5th) business day of the month following the
month for which services have been provided. In the<PAGE>
event of termination of this Contract, the fee shall
be computed on the basis of the period ending on the
last business day on which this Contract is in
effect subject to a pro rata adjustment based on the
number of days elapsed in the current month as a
percentage of the total number of days in such
month, and such fee shall be payable on the date of
termination of this Contract with respect to each
s u ch Fund. For purposes of calculating the
Manager's fee, the value of the net assets of each
respective Fund shall be determined in the same
manner as such Fund uses to compute the value of its
net assets in connection with the determination of
the net asset value of its shares, all as set forth
more fully in such Fund's current Prospectus and
Statement of Additional Information."
Section 11 of the Contract is amended, effective March 8,
1996, to read as follows:
"All notices or other communications
r e q u ired or permitted to be given
hereunder shall be in writing and shall be
delivered or sent by prepaid, first-class
letter posted to the following addresses,
or to such other address as shall be
designated in a notice given in accordance
with this section, and such notice shall
be deemed to have been given at the time
of delivery of, if sent by post, five (5)
week days after posting by airmail:
If to the Trust:
Rydex Series Trust
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
Attention: President
If to the Manager:
PADCO Advisors, Inc.
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
Attention: President"
<PAGE> 2<PAGE>
In witness whereof, the parties hereto have caused these
Amendments to be executed in their names and on their behalf
and through their duly-authorized officers as of the 8th day
of March, 1996.
RYDEX SERIES TRUST
/s/ Albert P. Viragh Jr.
By: Albert P. Viragh, Jr.
Title: President
PADCO ADVISORS, INC.
/s/ Albert P. Viragh, Jr.
By: Albert P. Viragh, Jr.
Title: President
<PAGE> 3<PAGE>
Amendment,
Dated December 13, 1994,
to
Investment Management Contract
Between Rydex Series Trust
and PADCO Advisors, Inc.,
Dated May 14, 1993,
and as Previously Amended
November 2, 1993<PAGE>
Amendment to
INVESTMENT MANAGEMENT CONTRACT
between
RYDEX SERIES TRUST
and
PADCO ADVISORS, INC.
The following Amendment is made to Section 4 of the
Investment Management Contract between Rydex Series Trust (the
"Trust") and PADCO Advisors, Inc. (the "Manager"), dated May
14, 1993, and as amended on November 2, 1993 (the "Contract"),
and is hereby incorporated into and made a part of the
Contract:
Section 4 of the Contract is amended, effective December
13, 1994, to read as follows:
"As compensation for the services to be rendered and
charges and expenses to be assumed and paid by the
Manager as provided in Section 2, the Funds shall
pay the Manager an annual fee based on the average
d a i ly net value of the respective Funds in
accordance with the following schedule:
Nova Fund 0.75% (75/100's of one percent)
Rydex U.S. Government
Money Market 0.50% (50/100's of one percent)
Rydex Precious
Metals Fund 0.75% (75/100's of one percent)
The Ursa Fund 0.90% (90/100's of one percent)
Rydex U.S. Government
Bond Fund 0.50% (50/100's of one percent)
Rydex OTC Fund 0.75% (75/100's of one percent)
The Ursa Bond Fund 0.90% (90/100's of one percent)
The fee will be paid monthly not later than the
fifth (5th) business day of the month following the
month for which services have been provided. In the
event of termination of this Contract, the fee shall
be computed on the basis of the period ending on the
last business day on which this Contract is in
effect subject to a pro rata adjustment based on the<PAGE>
number of days elapsed in the current month as a
percentage of the total number of days in such
month, and such fee shall be payable on the date of
termination of this Contract with respect to each
s u ch Fund. For purposes of calculating the
Manager's fee, the value of the net assets of each
respective Fund shall be determined in the same
manner as such Fund uses to compute the value of its
net assets in connection with the determination of
the net asset value of its shares, all as set forth
more fully in such Fund's current Prospectus and
Statement of Additional Information."
In witness whereof, the parties hereto have caused this
Amendment to be executed in their names and on their behalf
and through their duly-authorized officers as of the 13th day
of December, 1994.
RYDEX SERIES TRUST
/s/ Albert P. Viragh, Jr.
By: Albert P. Viragh, Jr.
Title: Chairman
PADCO ADVISORS, INC.
/s/ Albert P. Viragh,Jr.
By: Albert P. Viragh, Jr.
Title: President
Amendment,
Dated November 2, 1993,
to
Investment Management Contract
Between Rydex Series Trust
and PADCO Advisors, Inc.,
Dated May 14, 1993<PAGE>
Amendment to
MANAGEMENT CONTRACT
between
RYDEX SERIES TRUST
and
PADCO ADVISORS, INC.
The following Amendment is made to the Preamble to the
Management Contract between Rydex Series Trust (the "Trust")
and PADCO Advisors, Inc. (the "Manager"), dated May 14, 1993
(the "Contract"), and is hereby incorporated into and made a
part of the Contract:
The Preamble to the Contract is amended, effective
November 2, 1993, to read as follows:
"This Management Contract (the "Contract"), dated as
of the 14th day of May, 1993, is entered into by and
between the Rydex Series Trust (the "Trust") and
PADCO Advisors, Inc. (the "Manager"). The Trust
wishes to engage the Manager, and the Manager wishes
to be engaged, to manage the Trust's investment
portfolios (hereinafter referred to individually as
the "Fund" and collectively as the "Funds," as
appropriate)."
The following Amendment is made to Section 4 of the
Contract and is hereby incorporated into and made a part of
the Contract:
Section 4 of the Contract is amended, effective November
2, 1993, to read as follows:
"As compensation for the services to be rendered and
charges and expenses to be assumed and paid by the
Manager as provided in Section 2, the Funds shall
pay the Manager an annual fee based on the average
d a i ly net value of the respective Funds in
accordance with the following schedule:
Nova Fund 0.75% (75/100's of one percent)
Rydex U.S. Government
Money Market 0.50% (50/100's of one percent)
Rydex Precious Metals
Fund 0.75% (75/100's of one percent)
The Ursa Fund 0.90% (90/100's of one percent)
Rydex U.S.
Government Bond<PAGE>
Fund 0.50% (50/100's of one percent)
Rydex OTC Fund 0.75% (75/100's of one
percent)
The fee will be paid monthly not later than the fifth (5th)
business day of the month following the month for which
services have been provided. In the event of termination of
this Contract, the fee shall be computed on the basis of the
period ending on the last business day on which this Contract
is in effect subject to a pro rata adjustment based on the
number of days elapsed in the current month as a percentage of
the total number of days in such month, and such fee shall be
payable on the date of termination of this Contract with
respect to each such Fund. For purposes of calculating the
Manager's fee, the value of the net assets of each respective
Fund shall be determined in the same manner as such Fund uses
to compute the value of its net assets in connection with the
determination of the net asset value of its shares, all as set
forth more fully in such Fund's current Prospectus and
Statement of Additional Information."
In witness whereof, the parties hereto have caused these
Amendments to be executed in their names and on their behalf
and through their duly-authorized officers as of the 2nd day
of November, 1993.
RYDEX SERIES TRUST
/s/ Albert P. Viragh, Jr.
By: Albert P. Viragh, Jr.
Title: Chairman
PADCO ADVISORS, INC.
/s/ Albert P. Viragh, Jr.
By: Albert P. Viragh, Jr.
Title: President
<PAGE> 2<PAGE>
Management Contract
Between Rydex Series Trust
and PADCO Advisors, Inc.,
Dated May 14, 1993
PAGE
<PAGE>
MANAGEMENT CONTRACT
BETWEEN
RYDEX SERIES TRUST
AND
PADCO ADVISORS, INC.
This Management Contract (the Contract ), dated as of
the 7th day of May, 1993, is entered into by and between The
Rydex Series Trust (the Trust ) and PADCO Advisors, Inc. (the
Manager ).
A. The Trust has engaged Money Management Associates
(the Administrator ) to render or make available to the
Trust, at the Trust s expense, all services needed for
m a nagement and operation of the Trust except for the
management of the Trust s investment portfolios (hereinafter
referred to individually as the Fund and collectively as the
Funds as appropriate).
B. The Trust wishes to engage the Manager, and the
Manager wishes to be engaged, to manage the Funds investment
portfolios.
WITNESSETH:
That in consideration of the mutual covenants hereinafter
contained, it is agreed as follows:
1. The Trust hereby employs the Manager to manage the
investment and reinvestment of the assets of the Funds
comprising the Trust in accordance with the investment
o b j e ctives and policies as set forth in the Trusts
registration statement filed pursuant to the Investment
Company Act of 1940 and the Securities Act of 1933 (the
Registration Statement ) and subject to the direction and
control of the officers and Board of Trustees of the Trust,
for the period and on the terms set forth in this Contract.
The Manager hereby accepts such employment and agrees to
render the services and to assume the obligations herein set
forth, for the compensation herein provided.
2. The Manager assumes and shall pay all expenses in
c o n nection with the management of the investment and
reinvestment of the portfolio assets of the Fund, except that
the Fund assumes and shall pay all broker s commissions and
transfer taxes chargeable to the Fund in connection with
securities transactions to which the Fund is a party.
PAGE
<PAGE>
3. In connection with the investment and reinvestment
of the assets of the Fund, the Manager is authorized on behalf
of the Fund, to place orders for the execution of the Fund s
portfolio transactions in accordance with the applicable
policies of the Fund as set forth in the Trust s Registration
Statement, as such Registration Statement may be amended from
time to time. The Manager shall place orders for the purchase
or sale of securities either directly with the issuer or with
a broker or dealer selected by the Manager. In placing the
Fund s securities trades, it is recognized that the Manager
will give primary consideration to securing the most favorable
price and efficient execution, so that the Fund s total cost
or proceeds in each transaction will be the most favorable
under all circumstances. Within the framework of this policy,
t h e Manager may consider the financial responsibility,
research and investment information, and other services
provided by brokers or dealers who may effect or be a party to
any such transaction or other transactions to which other
clients of the Manager may be a party.
It is understood that it is desirable for the Fund that
the Manager have access to investment and market research and
securities and economic analyses provided by brokers and
others. It is also understood that brokers providing such
services may execute brokerage transactions at a higher cost
to the Fund than might result from the allocation of brokerage
to other brokers on the basis seeking the most favorable price
and efficient execution. Therefore, the purchase and sale of
securities for the Fund may be made with brokers who provide
such research and analysis, subject to review by the Trust s
Board of Trustees from time to time with respect to the extent
and continuation of this practice to determine whether the
Fund benefits, directly or indirectly, from such practice. It
is understood by both parties that the Manager may select
broker-dealers for their execution of the Fund s portfolio
transactions who provide research and analysis as the Manager
m a y lawfully and appropriately use in its investment
management and advisory capacities, whether or not such
research and analysis also may be useful to the Manager in
connection with its services to other clients.
On occasions when the Manager deems the purchase or sale
of a security to be in the best interests of the Fund, as well
as of other clients, the Manager to the extent permitted by
applicable laws and regulations, may aggregate the securities
to be so purchased or sold in order to obtain the most
favorable price of lower brokerage commissions and the most
efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Manager in
the manner it considers to be the most equitable and
<PAGE> 2<PAGE>
consistent with its fiduciary obligations to the Fund and to
such other clients.
4. As compensation for the services to be rendered and
the charges and expenses to be assumed and paid by the Manager
as provided in Section 2, the Fund shall pay the Manager an
annual fee based on the average daily net asset value of the
Fund in accordance with the following schedule:
Nova Fund . . . . . . . . . . .0.75% (75/100's of
one percent)
The fee will be paid monthly not later than the fifth (5th)
business day of the month following the month for which
services have been provided. In the event of termination of
this Contract, the fee shall be computed on the basis of the
period ending on the last business day on which this Contract
is in effect subject to a pro rata adjustment based on the
number of days elapsed in the current month as a percentage of
the total number of days in such month, and such fee shall be
payable on the date of termination of this Contract with
respect to such Fund. For purposes of calculating the
Manager s fee, the value of the net assets of the Fund shall
be determined in the same manner as the Fund uses to compute
t h e value of its net assets in connection with the
determination of the net asset value of its shares, all as set
forth more fully in such Fund s current Prospectus and
Statement of Additional Information.
5. Subject to and in accordance with the Bylaws and
Declaration of Trust of the Trust and the Bylaws and Articles
o f Incorporation of the Manager respectively, and the
Investment Company Act of 1940, trustees, officers, agents and
shareholders of the Fund are or may be interested in the
Manager or its affiliates (or any successor thereof) as
shareholders or officers, directors, agents, or otherwise, and
directors, officers, agents or shareholders of the Manager or
its affiliates are or may be interested in the Fund as
trustees, officers, agents, shareholders or otherwise, and the
Manager or its affiliates may be interested in the Fund and
such relationships shall be governed by said governing
instruments and the applicable provisions of the Investment
Company Act of 1940. The Manager shall notify the Trust of
any change in ownership or control of PADCO Advisors, Inc.
that causes an assignment of this Contract (as the term
assignment is defined in the Investment Company Act of 1940
and the rules and regulations promulgated thereunder) within a
reasonable time after such change.
6. During the term of this Contract, the Trust agrees:
(A) to provide the Manager with copies of all prospectuses,
s t atements of additional information, proxy statements,
<PAGE> 3<PAGE>
r e gistration statements, reports to shareholders, sales
literature, and other material prepared for distribution to
shareholders of the Trust or the public that refer in any way
to the Manager not later than the date such material is first
distributed to the public, or sooner if practicable, and the
Trust shall not use such material, or shall discontinue use of
such material, if the Manager reasonably objects in writing
within five (5) business days (or within such other time as
may be mutually agreed) after the Manager s receipt thereof;
(B) to provide the Manager with true and correct copies of
each amendment or supplement to the Trust s Registration
S t a t ement (including any prospectus and statement of
additional information included therein), Bylaws and
Declaration of Trust not later than sooner if practicable; and
(C) to provide the Manager with (i) written notice of any
resolutions, policies, restrictions or procedures adopted by
the Trust s Board of Trustees which affect the Manager s
investment management responsibilities hereunder, and (ii) a
list of every natural person or entity deemed by the Trust to
be an affiliated person or promoter of or principal
underwriter for the Trust or an affiliated person of such
person, as such terms are defined or used in Sections
2(a)(3), 2(a)(29), 2(a)(30) and 17 of the Investment Company
Act of 1940, and the Trust shall promptly notify the Manager
of any additions or deletions to such list.
7. This Contract shall become effective with respect to
such Fund on the date first above written, and continue in
effect until the first meeting of the shareholders of such
Fund occurring subsequent to the date hereof (but in no event
longer than two years from the date hereof), and if approved
at such shareholders meeting, until two years from the date
hereof, and thereafter only so long as such continuance is
approved with respect to such Fund at least annually by a vote
of a majority of the Trust s Board of Trustees, including the
votes of a majority of the Trustees who are not parties to
such contract or interested persons of any such party, cast in
person at a meeting called for the purpose of voting such
approval. Provided, however, that (a) this Contract may be
terminated without penalty either by vote of the Board of
Trustees of the Trust or by vote of a majority of the
outstanding voting securities of such Fund, on sixty-days (60)
days prior written notice to the Manager, (b) this Contract
shall automatically terminate in the event of its assignment
(within the meaning of the Investment Company Act of 1940),
and (c) this Contact may be terminated by the Manager on
sixty-days (60) prior written notice to the Trust. Any notice
under this Contract shall be given as provided in Section 11
below. As used in this Contract, the terms interested
persons and vote of a majority of the outstanding
securities shall have the respective meanings set forth in
<PAGE> 4<PAGE>
Section 2(a)(19) and Section 2(a)(42) of the Investment
Company Act of 1940.
8. The services of the Manager to the Trust hereunder
are not to be deemed exclusive, and the Manager and each of
its affiliates shall be free to render similar services to
others so long as its services hereunder are not impaired
thereby. The Manager shall for purposes herein be deemed to
be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for
or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
9. No provisions of this Contract shall be deemed to
protect the Manager against any liability to the Trust or its
shareholders to which it otherwise would be subject by reason
of any willful misfeasance, bad faith or gross negligence in
the performance of its duties or the reckless disregard of its
obligations under this contract. Nor shall any provisions
hereof be deemed to protect any trustee or officer of the
Trust against any such liability to which he might otherwise
be subject by reason of any willful misfeasance, bad faith or
gross negligence in the performance of his duties or the
reckless disregard of his obligations. In the absence of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of its obligations or duties hereunder, the Manager
shall not be subject to liability to the Trust, the Fund or to
any shareholder of the Fund for any act or omission in the
course of or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding
or sale of any security or other property by the Fund. The
Manager shall not be required to do or refrain from doing or
concur in anything which (by act or omission to act) may
impose any liability on it. Any person, even though also an
officer, director, partner, employee or agent of the Manager,
who may be or become an officer, trustee, employee or agent of
the Trust, shall be deemed when rendering services to the
Trust or acting on any business of the Trust to be rendering
such services to or acting solely for the Trust and not as the
Manager s officer, director, partner, employee or agent or as
one under the Manager s control or direction even though paid
by the Manager. The Manager shall not be required to take any
legal action on behalf of the Trust unless fully indemnified
to the Manager s reasonable satisfaction for all costs and
liabilities likely to be incurred or suffered by it. If the
Trust requires the Manager to take any action which in the
Manager s opinion may make the Manager liable for payment of
monies or liable in any other way, the Manager shall be and
k e p t indemnified in any reasonable amount and form
satisfactory to it as a prerequisite to taking such action.
If any provision of this Contract shall be held or made
<PAGE> 5<PAGE>
invalid by a court decision, statute, rule or otherwise, the
remainder of this Contract shall not be affected thereby.
10. The Trust represents and warrants that it is duly
registered with the Securities and Exchange Commission under
the Investment Company Act of 1940 as an open-end management
investment company, and that all required action has been
taken by the Trust under the Securities Act of 1933 and the
Investment Company Act of 1940 to permit the public offering
of, and to consummate the sale of, the shares of beneficial
interest in the Trust pursuant to its current prospectus.
11. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall
be delivered or sent by prepaid, first-class letter posted to
the following addresses, or to such other address as shall be
designated in a notice given in accordance with this section,
and such notice shall be deemed to have been given at the time
of delivery of, if sent by post, five (5) week days after
posting by airmail.
If to the Trust:
Rydex Series Trust
4922 Fairmont Avenue
Bethesda, MD 20814
If to the Manager:
PADCO Advisors, Inc.
4922 Fairmont Avenue
Bethesda, MD 20814
12. This Contract shall be governed by and construed in
accordance with the laws of the State of Maryland applicable
to contracts between Maryland residents to be entered into and
performed entirely within the state of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Contract to be executed on the date first above written.
WITNESS: RYDEX SERIES TRUST
/s/ Albert P. Viragh, Jr.
By: President
WITNESS: PADCO ADVISORS, INC.
<PAGE> 6<PAGE>
/s/ Albert P. Viragh, Jr.
By: President
<PAGE> 7<PAGE>
<PAGE> 8<PAGE>
Exhibit (5)(b)
Sub-Advisory Agreement
between PADCO Advisors, Inc.
and Loomis, Sayles & Company, L.P.
PAGE
<PAGE>
SUB-ADVISORY AGREEMENT
between
PADCO ADVISORS, INC.
and
LOOMIS, SAYLES & COMPANY, L.P.
This Agreement is made as of the twenty-fifth day of
September, 1996, by and between PADCO ADVISORS, INC., a
M a r y land corporation, with offices at 6116 Executive
B o u l evard, Suite 400, Rockville, Maryland 20852 (the
"Advisor"), and LOOMIS, SAYLES & COMPANY, L.P., a Delaware
limited partnership, with offices at 2001 Pennsylvania Avenue,
N.W., Suite 200, Washington, D. C. 20016 (the "Sub-Advisor").
WHEREAS, Rydex Series Trust (the "Trust"), is a Delaware
business trust that is registered under the Investment Company
Act of 1940, as amended (the "1940 Act");
WHEREAS, the trustees of the Trust (the "Trustees")
approved the creation of the Rydex High Yield Fund (the
"Fund") as a series of the Trust on September 25, 1996;
WHEREAS, the Advisor is a registered investment adviser
under the Investment Advisers Act of 1940, as amended (the
"Advisers Act");
WHEREAS, the Advisor has been appointed as the investment
adviser to the Fund in accordance with the 1940 Act and the
Advisers Act;
WHEREAS, the Sub-Advisor is registered as an investment
adviser under the Advisers Act and engages in the business of
providing investment advisory services; and
WHEREAS, the Trustees have authorized the Advisor to
appoint the Sub-Advisor, subject to the requirements of the
1940 Act and the Advisers Act, as a sub-adviser with respect
to that portion of the assets of the Trust designated as "The
Rydex High Yield Fund" on the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the promises and
mutual covenants herein contained, and for other good and
valuable consideration, the receipt, sufficiency, and adequacy
o f which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree and promise as follows:
Section 1. Investment Advisory Services
PAGE
<PAGE>
(a) The Advisor hereby retains the Sub-Advisor, and
the Sub-Advisor hereby accepts engagement by the Advisor, to
supervise and manage on a fully-discretionary basis the cash,
securities and other assets of the Fund that the Advisor from
time to time shall place under the supervision of the Sub-
Advisor (such cash, securities, and other assets initially and
as same shall thereafter be increased or decreased by the
investment performance thereof and by additions thereto and
withdrawals therefrom by the Advisor shall hereinafter be
referred to as the "assets" of the Fund).
(b) All activities by the Sub-Advisor on behalf of the
Advisor and the Fund shall be in accordance with the
investment objectives, policies, and restrictions set forth in
the 1940 Act and in the Fund's prospectus and statement of
a d d itional information, as amended from time to time
(hereinafter collectively referred to as the "Prospectus") and
as interpreted from time to time by the Board of Trustees of
the Trust and by the Advisor. All activities of the Sub-
Advisor on behalf of the Advisor and the Fund shall also be
subject to the due diligence oversight and direction of the
Advisor.
(c) Subject to the supervision of the Advisor, the
Sub-Advisor shall have the sole and exclusive responsibility
to select members of securities exchanges, brokers, dealers,
a n d futures commission merchants for the execution of
transactions of the Fund and, when applicable, shall negotiate
commissions in connection therewith. All such selections
shall be made in accordance with the Fund's policies and
restrictions regarding brokerage allocation set forth in the
Prospectus.
(d) In carrying out its obligations to manage the
investments and reinvestments of the assets of the Fund, the
Sub-Advisor shall:
1. obtain and evaluate pertinent economic,
statistical, financial, and other
information affecting the economy
generally and individual companies or
industries the securities of which are
included in the assets of the Fund or
are under consideration for inclusion
therein;
2. formulate and implement a continuous
investment program for the Fund
consistent with the investment
objectives and related investment
policies and restrictions for such Fund
as set forth in the Prospectus; and
<PAGE> 2<PAGE>
3. take such steps as are necessary to
implement the aforementioned investment
p r ogram by placing orders for the
purchase and sale of securities by the
Fund.
(e) In connection with the purchase and sale of
securities by the Fund, the Sub-Advisor shall arrange for the
transmission to the Advisor and the Fund's custodian on a
daily basis such confirmation, trade tickets, and other
documents as may be necessary to enable the Advisor and the
F u n d 's custodian, respectively, to perform their
administrative responsibilities with respect to the Fund.
With respect to Fund securities to be purchased or sold
through the Depository Trust Company, the Sub-Advisor shall
arrange for the automatic transmission of the "identification"
or "I.D." confirmation of the trade to the Fund's custodian.
(f) In connection with the placement of orders for the
execution of the Fund's securities transactions, the Sub-
Advisor shall create and maintain all necessary records of the
Fund as are required of an investment adviser of a registered
investment company, including, but not limited to, records
required by the 1940 Act and the Advisers Act. All such
records pertaining to the Fund shall be the property of the
Fund and shall be available for inspection and use by the
Securities and Exchange Commission (the "Commission"), any
other regulatory authority having appropriate jurisdiction,
the Fund, the Advisor, or any person retained by the Fund or
t h e Advisor. When applicable, such records shall be
maintained by the Sub-Advisor for the period and in the place
required by Rule 3la-2 under the 1940 Act.
(g) The Sub-Advisor shall render such reports to the
Advisor and/or to the Board of Trustees of the Trust
concerning the investment activity and composition of the
assets of the Fund in such form and at such intervals as the
Advisor or the Board of Trustees from time to time reasonably
may require.
(h) In acting under this Agreement, the Sub-Advisor
shall be an independent contractor and not an agent of the
Advisor or the Fund.
Section 2. Expenses
(a) The Sub-Advisor shall assume and pay all of its
own costs and expenses, including those for furnishing such
office space, office equipment, office personnel, and office
services as the Sub-Advisor may require in the performance of
the Sub-Advisor's duties under this Agreement.
<PAGE> 3<PAGE>
(b) Pursuant to the terms of the Prospectus, the Fund
shall bear all expenses of the Fund's organization and
registration, and the Fund and Advisor shall bear all of their
respective expenses of their operations and businesses not
expressly assumed or agreed to be paid by the Sub-Advisor
under this Agreement. In particular, but without limiting the
generality of the foregoing, the Fund shall pay any fees due
to the Advisor, all interest, Federal, state, and local taxes,
g o v e r nmental charges or duties, fees, brokerage and
commissions of every kind arising hereunder or in connection
herewith, expenses of transactions with shareholders of the
Fund, expenses of offering interests in the Fund for sale,
i n surance, association membership dues, all charges of
custodians (including fees as custodian and for keeping books,
performing Fund valuations, and rendering other services to
the Fund), independent auditors, and legal counsel, expenses
of preparing, printing, and distributing all prospectuses,
proxy materials, reports and notices to shareholders of the
Fund, and all other costs incident to the Fund's existence.
<PAGE> 4<PAGE>
Section 3. Use of Services of Others
The Sub-Advisor, at the Sub-Advisor's expense, except
as set forth in Section 2 hereof, may employ, retain, or
otherwise avail itself of the services or facilities of other
persons or organizations for the purpose of providing the Sub-
Advisor with such statistical or factual information, such
advice regarding economic factors and trends, or such other
information, advice, or assistance as the Sub-Advisor may deem
necessary, appropriate, or convenient for the discharge of the
Sub-Advisor's obligations hereunder or otherwise helpful to
the Trust and the Fund.
Section 4. Sub-Advisory Fees
In consideration of the Sub-Advisor's services to the
Fund hereunder, the Sub-Advisor shall be entitled to a sub-
advisory fee, payable monthly, at the annual rate of 0.375% of
the average daily net assets of the Fund during the month (the
"Sub-Advisory Fee"). The Sub-Advisory Fee shall be accrued
for each calendar day and the sum of the daily Sub-Advisory
Fee accruals shall be paid monthly to the Sub-Advisor on or
before the fifth business day of the next succeeding month.
The daily fee accruals will be computed on the basis of the
valuations of the total net assets of the Fund as of the close
of business each day. The Sub-Advisory Fee shall be payable
solely by the Advisor, and the Fund shall not be liable to the
Sub-Advisor for any unpaid Sub-Advisory Fee.
Section 5. Limitation of Liability of Sub-Advisor
(a) T h e Sub-Advisor shall be liable for losses
resulting from its own acts or omissions caused by the Sub-
Advisor's willful misfeasance, bad faith, or gross negligence
in the performance of the Sub-Advisor's duties hereunder or
the Sub-Advisor's reckless disregard of the Sub-Advisor's
duties under this Agreement, and nothing herein shall protect
the Sub-Advisor against any such liability to the shareholders
of the Fund or to the Advisor. The Sub-Advisor shall not be
liable to the Fund or to any shareholder of the Fund or to the
Advisor for any claim or loss arising out of any investment by
the Fund or other act or omission in the performance of the
Sub-Advisor s duties under this Agreement, or for any loss or
damage resulting from the imposition by any government of
exchange control restrictions which might affect the liquidity
of the Fund's assets maintained with custodians or securities
depositories in foreign countries, or from any political acts
of any foreign governments to which such assets might be
exposed, or for any tax of any kind, including, without
limitation, any statutory, governmental, state, provincial,
regional, local, or municipal imposition, duty, contribution,
or levy imposed by any government or governmental agency upon
<PAGE> 5<PAGE>
or with respect to such assets or income earned with respect
thereto (collectively, "Taxation"). Notwithstanding the
foregoing sentence, the Sub-Advisor shall be liable for taxes
or tax penalties incurred by the Fund for any failure of the
Fund to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended,
as a direct result of portfolio transactions effected by the
Sub-Advisor other than in accordance with information provided
by the Advisor in connection with the redemptions and
purchases of Fund shares; provided, however, that the Sub-
Advisor shall be liable only for such taxes and tax penalties
if and to the extent that these taxes and tax penalties arise
from the Sub-Advisor s willful malfeasance, bad faith, gross
negligence, or reckless disregard of the Sub-Advisor s
obligations and duties.
(b) In the event that the Sub-Advisor is assessed any
Taxation in respect of the assets, income, or activities of
the Fund, the Advisor and the Fund jointly will indemnify the
Sub-Advisor for all such amounts wherever imposed, together
with all penalties, charges, costs, and interest relating
thereto and all expenditures, including reasonable attorney's
fees, incurred by the Sub-Advisor in connection with the
defense or settlement of any such assessment. The Advisor
shall undertake and control the defense or settlement of any
such assessment, including the selection of counsel or other
professional advisers; provided, that the selection of such
counsel and advisers and the settlement of any assessment
shall be subject to the approval of the Advisor and the Fund,
which approvals shall not be unreasonably withheld. The
Advisor and the Fund shall have the right to retain separate
counsel and assume the defense or settlement on behalf of the
Advisor and the Fund, as the case may be, of any such
assessment if representation of the Advisor and the Fund by
counsel selected by the Sub-Advisor would be inappropriate due
to actual or potential conflicts of interest.
Section 6. Services to Other Clients and the Fund
(a) Subject to compliance with the 1940 Act, nothing
contained in this Agreement shall be deemed to prohibit the
Sub-Advisor or any of the Sub-Advisor's affiliated persons
from acting, and being separately compensated for acting, in
one or more capacities on behalf of the Fund. The Advisor and
the Fund understand that the Sub-Advisor may act as investment
manager or in other capacities on behalf of other customers,
including entities registered under the 1940 Act. While
information, recommendations, and actions which the Sub-
Advisor supplies to and does on behalf of the Fund shall, in
t h e Sub-Advisor's judgment, be appropriate under the
circumstances in light of the investment objectives and
policies of the Fund, as set forth in the Prospectus delivered
<PAGE> 6<PAGE>
to the Sub-Advisor from time to time, it is understood and
agreed that said information, recommendations, and actions may
be different from the information, recommendations, and
actions that the Sub-Advisor or the Sub-Advisor's affiliated
persons supply to or do on behalf of other clients. The Sub-
Advisor and the Sub-Advisor's affiliated persons shall supply
information, recommendations, and any other services to the
Fund and to any other client in an impartial and fair manner
in order to seek good results for all clients involved. As
used herein, the term "affiliated person" shall have the
meaning assigned to this term in the 1940 Act and the rules
thereunder.
(b) On occasions when the Sub-Advisor deems the
purchase or sale of a security to be in the best interest of
the Fund as well as other customers of the Sub-Advisor, the
Sub-Advisor, to the extent permitted by applicable law, may
aggregate the securities to be so sold or purchased in order
to obtain the best execution or lower brokerage commissions,
if any. The Sub-Advisor also on occasion may purchase or sell
a particular security for one or more customers in different
amounts. On either occasion, and to the extent permitted by
a p plicable law and regulations, the allocation of the
securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Sub-Advisor
in the manner that the Sub-Advisor considers to be the most
equitable and consistent with the Sub-Advisor's fiduciary
obligations to the Fund and to such other customers.
(c) The Sub-Advisor agrees to use the same skill and
care in providing services to the Fund as the Sub-Advisor uses
in providing services to other similar accounts for which the
Sub-Advisor has investment responsibility. The Sub-Advisor
will conform with all applicable rules and regulations of the
Commission.
Section 7. Reports to the Sub-Advisor
The Advisor shall furnish to the Sub-Advisor the
Prospectus, proxy statements, reports, and other information
relating to the business and affairs of the Fund as the Sub-
Advisor, at any time or from time to time, reasonably may
require in order to discharge the Sub-Advisor's duties under
this Agreement.
Section 8. Term of Agreement
Provided that this Agreement shall have first been
approved by the Board of Trustees of the Trust, including a
majority of the members thereof who are not "interested
persons" (as that term is defined at Section 2(a)(19) of the
1940 Act) of either party, by a vote cast in person at a
<PAGE> 7<PAGE>
meeting called for the purpose of voting such approval, then
this Agreement shall be effective on the date hereof. Unless
earlier terminated as hereinafter provided, this Agreement
shall continue in effect until approved by a majority vote of
the voting securities of the Fund, at a meeting to take place
not more than one year after the effective date of the Fund's
registration statement relating to the Fund. Thereafter, this
Agreement shall continue in effect from year to year, subject
to approval annually by the Board of Trustees of the Trust or
by vote of a majority of the voting securities of the Fund and
also, in either event, by the vote, cast in person at a
meeting called for the purpose of voting on such approval, of
a majority of the Trustees of the Trust who are not parties to
this Agreement or "interested persons" (as that term is
defined at Section 2(a)(19) of the 1940 Act) of any such
person.
Section 9. Termination of Agreement; Assignment
(a) This Agreement may be terminated by either party
hereto without the payment of any penalty, upon ninety (90)
days' prior notice in writing to the other party and to the
Fund, or upon sixty (60) days' written notice by the Fund to
the two parties; provided, that, in the case of termination by
the Fund, such action shall have been authorized by resolution
of a majority of the Board of Trustees of the Trust or by vote
of a majority of the voting securities of the Fund. In
addition, this Agreement shall terminate upon the later of:
(i) the termination of the Advisor's agreement to provide
investment advisory services to the Fund; or (ii) notice to
the Sub-Advisor that the Advisor's agreement to provide
investment advisory services to the Fund has terminated.
(b) This Agreement shall automatically terminate in
the event of this Agreement's "assignment" (as that term is
defined at Section 2(a)(4) of the 1940 Act).
(c) Termination of this Agreement for any reason shall
not affect rights of the parties that have accrued prior
thereto.
Section 10. Notices
(a) The Sub-Advisor agrees promptly to notify the
Advisor of the occurrence of any of the following events:
1. any change in the Fund's portfolio
manager;
2. the Sub-Advisor fails to be registered
as an investment adviser under the
Advisers Act or under the laws of any
<PAGE> 8<PAGE>
jurisdiction in which the Sub-Advisor is
r e q u ired to be registered as an
investment adviser in order to perform
the Sub-Advisor's obligations under this
Agreement;
3. the Sub-Advisor is the subject of any
action, suit, proceeding, inquiry, or
investigation at law or in equity,
before or by any court, public board, or
body, involving the affairs of the Fund;
or
4. any change in control of the Sub-
Advisor.
(b) Any notice given hereunder shall be in writing and
may be served by being sent by telex, facsimile, or other
electronic transmission or sent by registered mail or by
courier to the address set forth below for the party for which
the notice is intended. A notice served by mail shall be
deemed to have been served seven (7) days after mailing and in
the case of telex, facsimile, or other electronic transmission
twelve (12) hours after dispatch thereof. Addresses for
notice may be changed by written notice to the other party.
If to the Advisor:
Albert P. Viragh, Jr.
PADCO Advisors, Inc.
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
Tel. No. 301-468-8520
Fax No. 301-468-8588
With a copy to:
Albert P. Viragh, Jr., President
Rydex Series Trust
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
Tel. No. 301-468-8520
Fax No. 301-468-8588
If to the Sub-Advisor:
Steven J. Doherty, Vice President
Loomis, Sayles & Company, L.P.
Suite 200
2001 Pennsylvania Avenue, N.W.
<PAGE> 9<PAGE>
Washington, D. C. 20016
Tel. No. 202-862-0040
Fax No. 202-293-8264
<PAGE> 10<PAGE>
Section 11. Governing Law
This Agreement shall be governed by and subject to the
requirements of the laws of the State of Maryland without
reference to the choice of law provisions thereof.
Section 12. Applicable Provisions of Law
This Agreement shall be subject to all applicable
p r o visions of law, including, without limitation, the
applicable provisions of the 1940 Act, and to the extent that
any provisions herein contained conflict with any such
applicable provisions of law, the latter shall control.
Section 13. Counterparts
This Agreement may be entered into in any number of
counterparts, each of which when so executed and delivered
shall be deemed an original, but all such counterparts shall
together constitute one and the same instrument.
Section 14. Entire Agreement
This Agreement contains the entire understanding and
agreement of the parties with respect to the Fund.
Section 15. Headings
The headings in the sections of this Agreement are
inserted for convenience of reference only and shall not
constitute a part hereof.
Section 16. Severability
Should any portion of this Agreement for any reason be
held to be void in law or in equity, the Agreement shall be
construed insofar as is possible as if such portion had never
been contained herein.
Section 17. Limitation of Liability
The Declaration of Trust establishing the Trust, dated
March 13, 1993, as amended on November 2, 1993, and as further
amended on December 12, 1995 (the "Declaration"), a copy of
which Declaration, together with all amendments thereto, is on
file in the office of the Trust, provides that the name "Rydex
Series Trust" refers to the "Trustees" under the Declaration
c o llectively as "Trustees," but not as individuals or
personally; and no Trustee, shareholder, officer, employee, or
agent of the Trust shall be held to any personal liability,
nor shall resort be had to their private property for the
satisfaction of any obligation or claim, in connection with
<PAGE> 11<PAGE>
the affairs of the Fund or any Fund thereof, but only the
assets belonging to the Fund, or to the particular portfolio
with which the obligee or claimant dealt, shall be liable.
IN WITNESS WHEREOF this Agreement has been executed by
the parties hereto as of the day and year first above written.
PADCO ADVISORS, INC.
By: /s/ Albert P. Viragh.
Albert P. Viragh, President
PADCO Advisors, Inc.
LOOMIS, SAYLES & COMPANY, L.P.
By: /s/ Steven J. Doherty
Steven J. Doherty, Vice
President
Loomis, Sayles & Company, L.P.
By: /s/ Stephanie S. Lord
Stephanie S. Lord, Vice
President
Loomis, Sayles & Company, L.P.
Accepted and Agreed:
RYDEX SERIES TRUST
on behalf of THE RYDEX
HIGH YIELD FUND
By: /s/ Albert P. Viragh Jr.
Albert P. Viragh, Jr., President
Rydex Series Trust
<PAGE> 12<PAGE>
<PAGE> 13<PAGE>
Exhibit (8)
Custody Agreement between
Rydex Series Trust and Star Bank, N.A.
PAGE
<PAGE>
CUSTODY AGREEMENT
Agreement made as of the 30th day of November , 1993, between
Rydex Series Trust (the Trust ), a business trust organized under the laws
of Delaware and having its office at 4641 Montgomery Avenue, Suite 400,
Bethesda, Maryland 20814 acting for and on behalf of all mutual fund
portfolios as are currently authorized and issued by the Trust or may be
authorized and issued by the Trust subsequent to the date of this Agreement
(the Fund ), which is operated and maintained by the Trust for the benefit
of the holders of shares of the Funds, and Star Bank, N.A. (The
Custodian ), a national banking association having its principal office
and place of business at Star Bank Center, 425 Walnut Street, Cincinnati,
Ohio 45202, which Agreement provides for the furnishing of custodian
services to the Funds.
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth
the Trust, on behalf of the Funds, and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. Authorized Person shall be deemed to include the Chairman,
President, Secretary, and the Vice President, or any other person, whether
or not any such person is an officer or employee of the Trust, duly
PAGE
<PAGE>
authorized by the Board of Trustees of the Trust to give Oral Instructions
on behalf of the Funds and listed in the Certificate annexed hereto as
Appendix A or such other Certificate as may be received by the Custodian
from time to time, subject in each case to any limitations on the authority
of such person as set forth in Appendix A or any such Certificate.
2. Book-Entry System shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its
successor or successors and its nominee or nominees, provided the Custodian
has received a certified copy of a resolution of Board of Trustees of the
Trust specifically approving deposits in the Book-Entry System.
3. Certificate shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given
to the Custodian which is signed on behalf of the Funds by an Officer of
the Trust and is actually received by the Custodian.
4. Depository shall mean The Depository Trust Company ( DTC ), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term Depository
shall further mean and include any other person or clearing agency
authorized to act as a depository under the Investment Company Act of 1940,
its successor or successors and its nominee or nominees, provided that the
Custodian has received a certified copy of a resolution of the Board of
Trustees of the Trust specifically approving such other person or clearing
agency as a depository.
<PAGE> 2<PAGE>
5. Dividend and Transfer Agent shall mean the dividend and
transfer agent active, from time to time, in such capacity pursuant to a
written agreement with the Fund, changes in which the Trust shall
immediately report to the Custodian in writing.
6. Money Market Security shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to principal and/or
i n t erest by the government of the United States or agencies or
i n s trumentalities thereof, commercial paper, obligations (including
certificates of deposit, bankers acceptances, repurchase and reverse
repurchase agreements with respect to the same) and bank time deposits of
domestic banks that are members of Federal Deposit Insurance Trust, and
short-term corporate obligations where the purchase and sale of such
securities normally require settlement in federal funds or their equivalent
on the same day as such purchase or sale.
7. Officers shall be deemed to include the Chairman, the
President, the Secretary, and Vice President of the Trust listed in the
Certificate annexed hereto as Appendix A or such other Certificate as may
be received by the Custodian from time to time.
8. Oral Instructions shall mean oral instructions actually
received by the Custodian from an Authorized Person (or from a person which
the Custodian reasonably believes in good faith to be an Authorized Person)
and confirmed by Written Instructions from Authorized Persons in such
manner so that such Written Instructions are received by the Custodian on
the next business day.
<PAGE> 3<PAGE>
9. Prospectus or Prospectuses shall mean the Funds currently
effective prospectus and statements of additional information, as filed
with and declared effective by the Securities and Exchange Commission.
10. Security or Securities shall mean Money Market Securities,
common or preferred stocks, options, futures, gold, silver, bonds,
d e b e ntures, corporate debt securities, notes, mortgages or other
obligations, and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the same, or
evidencing or representing any other rights or interest therein, or any
property or assets.
11. Written Instructions shall mean communication actually
received by the Custodian from one Authorized Person or from one person
which the Custodian reasonably believes in good faith to be an Authorized
Person in writing, telex or any other data transmission system whereby the
receiver of such communication is able to verify by codes or otherwise with
a reasonable degree of certainty the authenticity of the senders of such
communication.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Trust, acting for and on behalf of the Funds, hereby
constitutes and appoints the Custodian as custodian of all the Securities
and monies at any time owned by the Funds during the period of this
Agreement ( Fund Assets ).
<PAGE> 4<PAGE>
2. The Custodian hereby accepts appointments as such Custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
DOCUMENTS TO BE FURNISHED BY THE TRUST
The trust hereby agrees to furnish to the Custodian the following
documents:
1. A copy of its Declaration of Trust (the Declaration of Trust )
certified by its Secretary.
2. A copy of its By-Laws certified by its Secretary.
3. A copy of the resolution of its Board of Trustees appointing
the Custodian certified by its Secretary.
4. A copy of the most recent Prospectuses of the Trust.
5. A Certificate of the President and Secretary setting forth the
names and signatures of the present Officers of the Trust.
ARTICLE IV
CUSTODY OF CASH AND SECURITIES
1. The Trust will deliver or cause to be delivered to the
Custodian all Fund Assets, including cash received for the issuance of its
shares, at any time during the period of this Agreement. The Custodian
will not be responsible for such Fund Assets until actually received by it.
Upon such receipt, the Custodian shall hold in safekeeping and physically
segregate at all times from the property of any other persons, firms or
<PAGE> 5<PAGE>
corporations all Fund Assets received by it from or for the account of the
Funds. Any credits from third parties that are made to the Funds account
by the Custodian may be reversed if the monies for them are not finally
collected within 90 days from the day the credits are made. The Custodian
is hereby authorized by the Trust, acting on behalf of the Funds, to
actually deposit any Fund Assets in the Book-Entry System or in a
D e pository, provided, however, that the Custodian shall always be
accountable to the Trust for the Fund Assets so deposited. Funds Assets
deposited in the Book-Entry System or the Depository will be represented in
accounts which include only assets held by the Custodian for customers,
including but not limited to accounts in which the Custodian acts in a
fiduciary or representative capacity.
2. The Custodian shall credit to a separate account or accounts in
the name of each respective Fund all monies received by it for the account
of such Fund, and shall disburse the same only:
(a) In payment for Securities purchased for the account of such
Fund, as provided in Article V;
(b) In payment of dividends or distributions, as provided in
Article VI hereof;
(c) In payment of original issue or other taxes, as provided in
Article VII hereof;
(d) In payment for shares of such Fund redeemed by it, as provided
in Article VII hereof;
<PAGE> 6<PAGE>
(e) Pursuant to Certificates (i) directing payment and setting
forth the name and address of the person to whom the payment is
to be made, the amount of such payment and the purpose for
which payment is to be made (the Custodian not being required
to question such direction) or (ii) if reserve requirements are
established for the Fund by law or by valid regulation,
directing the Custodian to deposit a specified amount of
collected funds in the form of U.S. dollars at a specified
Federal Reserve bank and stating the purpose of such deposit;
or
(f) In reimbursement of the expenses and liabilities of the
Custodian, as provided in paragraph 10 of Article IX hereof.
3. Promptly after the close of business on each day the funds are
open and valuing their portfolios, the Custodian shall furnish the Trust
with a detailed statement of monies held for the Fund under this Agreement
and with confirmations and a summary of all transfers to or from the
account of the Funds during said day. Where Securities are transferred to
the account of the Fund without physical delivery, the Custodian shall also
identify as belonging to the Funds a quantity of Securities in a fungible
bulk of Securities registered in the name of the Custodian (or its nominee)
or shown on the Custodian s account on the books of the Book-Entry System
or the Depository. At least monthly and from time to time, the Custodian
shall furnish the Trust with a detailed statement of the Securities held
for the Funds under this Agreement.
<PAGE> 7<PAGE>
4. All Securities held for the Funds, which are issued or issuable
only in bearer form, except such Securities as are held in the Book-Entry
System, shall be held by the Custodian in that form; all other Securities
held for the Funds may be registered nominee of the Custodian as the
Custodian may from time to time determine, or in the name of the Book-Entry
System or the Depository or their successor or successors, or their nominee
or nominees. The Trust agrees to furnish to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee or in the
name of the Book-Entry System or the Depository, any Securities which it
may hold for the account of the Funds and which may from time to time be
registered in the name of the Funds. The Custodian shall hold all such
Securities which are not held in the Book-Entry System by the Depository or
a Sub-Custodian in a separate account or accounts in the name of the Funds
segregated at all times from those of any other fund maintained and
operated by the Trust and from those of any other person or persons.
5. Unless otherwise instructed to the contrary by a Certificate,
the Custodian shall with respect to all Securities held for the Funds in
accordance with this Agreement:
(a) Collect all income due or payable to the Funds with respect to
each Fund s Assets;
(b) Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed, or retired,
or otherwise become payable;
<PAGE> 8<PAGE>
(c) S u r r e nder Securities in temporary form to definitive
Securities;
(d) E x e c u te, as Custodian, any necessary declarations or
certificates of ownership under the Federal income tax laws or
the laws or regulations of any other taxing authority,
including any foreign taxing authority, now or hereafter in
effect; and
(e) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for
the account of the Funds all rights and similar securities
issued with respect to any Securities held by the Custodian
hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian
directly or through the use of the Book-Entry System or the Depository
shall:
(a) Execute and deliver to such persons as may be designated in
such Certificate proxies, consents, authorizations, and any
other instruments whereby the authority or the Fund as owner of
any Securities may be exercised;
(b) Deliver any Securities held for the Funds in exchange for other
Securities or cash issued or paid in connection with the
liquidation, reorganization, refinancing, merger, consolidation
or recapitalization of any corporation, or the exercise of any
conversion privilege;
<PAGE> 9<PAGE>
(c) Deliver any Securities held for the account of the Funds to any
protective committee, reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any
corporation, and received and hold under the terms of this
Agreement such certificates of deposit, interim receipts or
other instruments or documents as may be issued to it to
evidence such delivery; and
(d) Make such transfers or exchanges of the assets of the Funds and
take such other steps as shall be stated in said Certificate to
be for the purpose of effectuating any duly authorized plan of
l i quidation, reorganization, merger, consolidation or
recapitalization of the Funds.
7. The Custodian shall promptly deliver to the Trust all notices,
proxy material and executed but unvoted proxies pertaining to shareholder
meetings of Securities held by the Funds. The Custodian shall not vote or
authorize the voting of any Securities or give any consent, waiver or
approval with respect thereto unless so directed by a Certificate or
Written Instruction.
8. The Custodian shall promptly deliver to the Trust all material
received by the Custodian and pertaining to Securities held by the Funds
with respect to tender or exchange offers, calls for redemption or
purchase, expiration of rights, name changes, stock splits and stock
dividends, or any other activity involving ownership rights in such
Securities.
<PAGE> 10<PAGE>
ARTICLE V
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
1. Promptly after each purchase of Securities by the Funds, the
Trust shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate or Written
Instructions, and (ii) with respect to each purchase of Money Market
Securities, Written Instructions, a Certificate or Oral Instructions,
specifying with respect to each purchase: (a) The name of the issuer and
the title of the Securities, (b) the principal amount purchased and accrued
interest, if any, (c) the date of purchase and settlement, (d) the purchase
price per unit, (e) the total amount payable upon such purchase and (f) the
name of the person from whom or the broker through whom the purchase was
made. The Custodian shall upon receipt of Securities purchased by or for
the Funds, pay out of the monies held for the account of the Funds the
total amount payable to the person from whom or the broker through whom the
purchase was made, provided that the same conforms to the total amount
payable as set forth in such Certificate, Written Instructions or Oral
Instructions.
2. Promptly after each sale of Securities by the Trust for the
account of the Fund, the Trust shall deliver to the Custodian (i) with
respect to each sale of Securities which are not Money Market Securities, a
Certificate or Written Instructions, and (ii) with respect to each sale of
Money Market Securities, Written Instructions, a Certificate or Oral
Instructions, specifying with respect to each such sale: (a) the name of
the issuer and the title of the Security, (b) the principal amount sold,
<PAGE> 11<PAGE>
and accrued interest, if any, (c) the date of sale, (d) the sale price per
unit, (e) the total amount payable to the Funds upon such sale and (f) the
name of the broker through whom or the person to whom the sale was made.
The Custodian shall deliver the Securities upon receipt of the total amount
payable to the Funds upon such sale, provided that the same conforms to the
total amount payable as set forth in such Certificate, Written Instructions
or Oral Instructions. Subject to the foregoing, the Custodian may accept
payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs
prevailing among dealers in Securities.
3. Promptly after the time as of which the Trust, on behalf of a
Fund, either -
(a) writes an option on Securities or writes a covered put option
in respect of a Security, or
(b) notifies the Custodian that its obligations in respect of any
put or call option, as described in the Trust s Prospectus,
r e quire that the Fund deposit Securities or additional
Securities with the Custodian, specifying the type and value of
Securities required to be so deposited, or
(c) notifies the Custodian that its obligations in respect of any
other Security, as described in each Fund s respective
Prospectus, require that the Fund deposit Securities or
additional Securities with the Custodian, specifying the type
and value of Securities required to be so deposited, the
<PAGE> 12<PAGE>
Custodian will cause to be segregated or identified as
deposited, pursuant to the Fund s obligations as set forth in
such Prospectus, Securities of such kinds and having such
aggregate values as are required to meet the Fund s obligations
in respect thereof. The Trust will provide to the Custodian,
as of the end of each trading day, the market value of each
Fund s option liability if any and the market value of its
portfolio of common stocks.
4. On contractual settlement date, the account of each respective
Fund will be charged for all purchases settling on that day, regardless of
whether or not delivery is made. On contractual settlement date, sale
proceeds will likewise be credited to the account of such Fund irrespective
of delivery.
In the case of sale fails , the Custodian may request the assistance
of the Funds in making delivery of the failed Security.
ARTICLE VI
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Trust shall furnish to the Custodian a copy of the
resolution of the Board of Trustees, certified by the Secretary, either (i)
setting forth the date of the declaration of any dividend or distribution
in respect of shares of the Funds, the date of payment thereof, the record
date as of which Funds shareholders entitled to payment shall be
determined, the amount payable per share to Funds shareholders of record as
of that date and the total amount to be paid by the Dividend and Transfer
<PAGE> 13<PAGE>
Agent of the Funds on the payment date, or (ii) authorizing the declaration
of dividends and distributions in respect of shares of the Funds on a daily
basis and authorizing the Custodian to rely on Written Instructions or a
Certificate setting forth the date of the declaration of any such dividend
or distribution, the date of payment thereof, the record date as of which
Funds shareholders entitled to payment shall be determined, the amount
payable per share to Funds shareholders of record as of that date and the
total amount to be paid by the Dividend and Transfer Agent on the payment
date.
2. Upon the payment date specified in such resolution, Written
Instructions or Certificate, as the case may be, the Custodian shall
arrange for such payments to be made by the Dividend and Transfer Agent out
of monies held for the account of the Funds.
ARTICLE VII
SALE AND REDEMPTION OF SHARES OF THE FUND
1. The Custodian shall receive and credit to the account of each
Fund such payments for shares of such Fund issued or sold from time to time
as are received from the distributor for the Fund s shares, from the
Dividend and Transfer Agent of the Fund, or from the Trust.
2. Upon receipt of Written Instructions, the Custodian shall
arrange for payment of redemption proceeds to be made by the Dividend and
Transfer Agent out of the monies held for the account of the respective
Fund in the total amount specified in the Written Instructions.
<PAGE> 14<PAGE>
3. Notwithstanding the above provisions regarding the redemption
of any shares of the Fund, whenever shares of the Funds are redeemed
pursuant to any check redemption privilege which may from time to time be
offered by the Funds, the Custodian, unless otherwise subsequently
instructed by Written Instructions shall, upon receipt of any Written
Instructions setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the
check presented as part of such check redemption privilege out of the money
held in the account of the Funds for such purposes.
ARTICLE VIII
INDEBTEDNESS
In connection with any borrowings, the Trust on behalf of the Funds,
will cause to be delivered to the Custodian by a bank or broker (including
the Custodian, if the borrowing is from the Custodian), requiring
Securities as collateral for such borrowings, a notice or undertaking in
the form currently employed by any such bank or broker setting forth the
amount which such bank or broker will loan to the Funds against delivery of
a stated amount of collateral. The trust shall promptly deliver to the
Custodian a Certificate specifying with respect to each such borrowing: (a)
the name of the bank or broker; (b) the amount and terms of the borrowing,
which may be set forth by incorporating by reference an attached promissory
note, duly endorsed by the Trust, acting on behalf of the Fund, or other
loan agreement; (c) the date and time, if known, on which is to be entered
into; (d) the date on which the loan becomes due and payable; (e) the total
amount payable to the Fund on the borrowing date; (f) the market value of
<PAGE> 15<PAGE>
Securities collateralizing the loan, including the name of the issuer, the
title and the number of shares or the principal amount of any particular
Securities; and (g) a statement that such loan is in conformance with the
Investment Company Act of 1940 and the Fund s then current Prospectus. The
Custodian shall deliver on the borrowing date specified in a Certificate
the specified collateral and the executed promissory note, if any, against
delivery by the lending bank or broker of the total amount of the loan
payable provided that the same conforms to the total amount payable as set
forth in the Certificate. The Custodian may, at the option of the lending
bank or broker, keep such collateral in its possession, but such collateral
shall be subject to all rights therein given the lending bank or broker, by
virtue of any promissory note or loan agreement. The Custodian shall
deliver in the manner directed by the Trust from time to time such
Securities as additional collateral as may be specified in a Certificate to
collateralized further any transaction described in this paragraph. The
Trust shall cause all Securities released from collateral status to be
returned directly to the Custodian and the Custodian shall receive from
time to time such return of collateral as may be tendered to it. In the
event that the Trust fails to specify in a Certificate or Written
Instructions the name of the issuer, the title and number of shares or the
principal amount of any particular Securities to be delivered as collateral
by the Custodian, the Custodian shall not be under any obligation to
deliver any Securities. The Custodian may require such reasonable
conditions with respect to such collateral and its dealings with third-
party lenders as it may deem appropriate.
<PAGE> 16<PAGE>
ARTICLE IX
CONCERNING THE CUSTODIAN
1. Except as otherwise provided herein, the Custodian shall not be
liable for any loss or damage, including counsel fees, resulting from its
action or omission to act or otherwise, except for any such loss or damage
arising out of its negligence or willful misconduct. The Trust, on behalf
of the Funds and only from Fund Assets (or insurance purchased by the Trust
with respect to its liabilities on behalf of the Funds hereunder), shall
defend, indemnify and hold harmless the Custodian and its Trustees,
Officers, Employees and Agents with respect to any loss, claim, liability
or cost (including reasonable attorneys fees) arising or alleged to arise
from or relating to the Trust s duties with respect to the Funds hereunder
or any other action or inaction of the Trust or its Trustees, Officers,
Employees or Agents as to the Funds, except such as may arise from the
negligent action, omission or willful misconduct of the Custodian, its
Trustees, Officers, Employees or Agents. The Custodian shall defend,
indemnify and hold harmless the Trust and its Trustees, Officers, Employees
or Agents with respect to any loss, claim, liability or cost (including
reasonable attorneys fees) arising or alleged to arise from or relating to
the Custodian s duties with respect to the Funds hereunder or any other
action or inaction of the Custodian or its Trustees, Officers, Employees,
Agents, nominees or Sub-Custodians as to the Funds, except such as may
arise from the negligent action, omission or willful misconduct of the
Trust, its Trustees, Officers, Employees or Agents. The Custodian may,
with respect to questions of law apply for and obtain the advice and
opinion of counsel to the Trust at the expense of the Funds, or of its own
<PAGE> 17<PAGE>
counsel at its own expense, and shall be fully protected with respect to
anything done or omitted by it in good faith in conformity with the advice
or opinion of counsel to the Trust, and shall be similarly protected with
respect to anything done or omitted by it in good faith in conformity with
advice or opinion of its counsel, unless counsel to the Funds shall, within
a reasonable time after being notified of legal advice received by the
Custodian, have a differing interpretation of such question of law. The
Custodian shall be liable to the Trust for any proximate loss or damage
resulting from the use of the Book-Entry System or any Depository arising
by reason of any negligence, misfeasance or misconduct on the part of the
Custodian or any of its employees, agents, nominees or Sub-Custodians but
not for any special, incidental, consequential, or punitive damages;
provided, however, that nothing contained herein shall preclude recovery by
the Trust, on behalf of the Funds, of principal and of interest to the date
of recovery on, Securities incorrectly omitted from the Fund s account or
penalties imposed on the Trust, in connection with the Funds, for any
failures to deliver Securities.
In any case in which one party hereto may be asked to indemnify the
other or hold the other harmless, the party from whom indemnification is
sought (the Indemnifying Party ) shall be advised of all pertinent facts
concerning the situation in question, and the party claiming a right to
indemnification (the Indemnified Party ) will use reasonable care to
identify and notify the Indemnifying Party promptly concerning any
situation which presents or appears to present a claim for indemnification
against the Indemnifying Party. The Indemnifying Party shall have the
option to defend the Indemnified Party against any claim which may be the
<PAGE> 18<PAGE>
subject of the indemnification, and in the event the Indemnifying Party so
elects, such defense shall be conducted by counsel chosen by the
Indemnifying Party and satisfactory to the Indemnified Party and the
Indemnifying Party will so notify the Indemnified Party and thereupon such
Indemnifying Party shall take over the complete defense of the claim and
the Indemnifying Party shall sustain no further legal or other expenses in
such situation for which indemnification has been sought under this
paragraph, except the expenses of any additional counsel retained by the
Indemnified Party. In no case shall any party claiming the right to
indemnification confess any claim or make any compromise in any case in
which the other party has been asked to indemnify such party (unless such
confession or compromise is made with such other party s prior written
consent).
The obligations of the parties hereto under this paragraph shall
survive the termination of this Agreement.
2. W i t hout limiting the generality of the foregoing, the
Custodian, acting in the capacity of Custodian hereunder, shall be under no
obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased by or for
the account of the Funds, the legality of the purchase thereof,
or the propriety of the amount paid therefor;
(b) The legality of the sale of any Securities by or for the
account of the Funds, or the propriety of the amount for which
the same are sold;
<PAGE> 19<PAGE>
(c) The legality of the issue or sale of any shares of the Funds,
or the sufficiency of the amount to be received therefor;
(d) The legality of the redemption of any shares of the Funds, or
the propriety of the amount to be paid therefor;
(e) The legality of the declaration or payment of any dividend by
the Trust in respect of shares of the Funds;
(f) The legality of any borrowing by the Trust on behalf of the
Funds using Securities as collateral;
(g) The sufficiency of any deposit made pursuant to a Certificate
described in clause (ii) of paragraph 2(e) of Article IV
hereof.
3. The Custodian shall not be liable for any money or collected
funds in U.S. dollars deposited in a Federal Reserve Bank in accordance
with a Certificate described in clause (ii) of paragraph 2(e) of Article IV
hereof, nor be liable for or considered to be the Custodian of any money,
whether or not represented by any check, draft, or other instrument for the
payment of money, received by it on behalf of the Funds until the Custodian
actually receives and collects such money directly or by the final
crediting of the account representing the Fund s interest at the Book-Entry
System or Depository.
4. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Funds from the
Dividend and Transfer Agent of the Funds nor to take any action to effect
<PAGE> 20<PAGE>
payment or distribution by the Dividend and Transfer Agent of the Funds of
any amount paid by the Custodian to the Dividend and Transfer Agent of the
Funds in accordance with this Agreement.
5. Income due or payable to the Funds with respect to Funds Assets
will be credited to the account of the Funds as follows:
(a) Dividends will be credited on the first business day following
payable date irrespective of collection.
(b) Interest on fixed rate municipal bonds and debt securities
issued or guaranteed as to principal and/or interest by the
g o v ernment of the United States or agencies or
instrumentalities thereof (excluding securities issued by the
Government National Mortgage Association) will be credited on
payable date irrespective of collection.
(c) Interest on fixed rate corporate debt securities will be
credited on the first business day following payable date
irrespective of collection.
6. Notwithstanding paragraph 5 of this Article IX, the Custodian
shall not be under any duty or obligation to take action to effect
collection of any amount, if the Securities upon which such amount is
payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action
by a Certificate and (ii) it shall be assured to its satisfaction of
reimbursement of its costs and expenses in connection with any such action
or, at the Custodian s option, prepayment.
<PAGE> 21<PAGE>
7. The Custodian may appoint one or more financial or banking
institutions, as Depository or Depositories or as Sub-Custodian or Sub-
Custodians, including, but not limited to, banking institutions located in
foreign countries, of Securities and monies at any time owned by the Fund,
upon terms and conditions approved in a Certificate. Current Depository(s)
and Sub-Custodian(s) are noted in Appendix B. The Custodian shall not be
relieved of any obligation or liability under this Agreement in connection
with the appointment or activities of such Depositories or Sub-Custodians.
8. The Custodian shall not be under any duty or obligation to
ascertain whether any Securities at any time delivered to or held by it for
the account of the Funds are such as properly may be held by the Funds
under the provisions of the Declarations of Trust and the Trust s By-Laws.
9. The Custodian shall treat all records and other information
relating to the Trust, the Funds and the Funds Assets as confidential and
shall not disclose any such records or information to any other person
unless (a) the Trust shall have consented thereto in writing or (b) such
disclosure is compelled by law.
10. The Custodian shall be entitled to receive and the Trust agrees
to pay to the Custodian, for the Fund s account from Fund Assets only, such
compensation as shall be determined pursuant to Appendix C attached hereto,
or as shall be determined pursuant to amendments to such Appendix approved
by the Custodian and the Trust, on behalf of the Funds. The Custodian
shall be entitled to charge against any money held by it for the accounts
of the Funds the amount of any loss, damage, liability or expense,
including counsel fees, for which it shall be entitled to reimbursement
<PAGE> 22<PAGE>
under the provisions of this Agreement as determined by agreement of the
Custodian and the Trust or by the final order of any court or arbitrator
having jurisdiction and as to which all rights of appeal shall have
expired. The expenses which the Custodian may charge against the accounts
of the Funds include, but are not limited to, the expenses of Sub-
Custodians incurred in settling transactions involving the purchase and
sale of Securities of the Fund.
11. The Custodian shall be entitled to rely upon any Certificate if
such reliance is made in good faith. The Custodian shall be entitled to
rely upon any Oral Instructions and any Written Instructions actually
received by the Custodian pursuant to Article IV or V hereof. The Trust
agrees to forward to the Custodian Written Instructions from Authorized
Persons confirming Oral Instructions in such manner so that such Written
Instructions are received by the Custodian, whether by hand delivery, telex
or otherwise, on the first business day following the day on which such
Oral Instructions are given to the Custodian. The Trust agrees that the
fact that such confirming instructions are not received by the Custodian
shall in no way affect the validity of the transactions or enforceability
of the transactions hereby authorized by the Trust. The Trust agrees that
the Custodian shall incur no liability to the Funds in acting upon Oral
Instructions given to the Custodian hereunder concerning such transactions.
12. The Custodian will (a) set up and maintain proper books of
account and complete records of all transactions in the accounts maintained
by the Custodian hereunder in such manner as will meet the obligations of
the Funds under the Investment Company Act of 1940, with particular
<PAGE> 23<PAGE>
attention to Section 31 thereof and Rules 31 a-1 and 31 a-2 thereunder, and
(b) preserve for the periods prescribed by applicable Federal statute or
regulation all records required to be so preserved. The books and records
of the Custodian shall be open to inspection and audit at reasonable times
and with prior notice by Officers and auditors employed by the Trust.
13. The Custodian and its Sub-Custodians shall promptly send to the
Trust, for the account of the Funds, any report received on the systems of
internal accounting control of the Book-Entry System or the Depository and
with such reports on their own systems of internal accounting control as
the Trust may reasonably request from time to time.
14. The Custodian performs only the services of a custodian and
shall have no responsibility for the management, investment or reinvestment
of the Securities from time to time owned by the Funds. The Custodian is
not a selling agent for shares of the Funds and performance of its duties
as a custodial agent shall not be deemed to be a recommendation to the
Custodian s depositors or others of shares of the Funds as an investment.
ARTICLE X
TERMINATION
1. Either of the parties hereto may terminate this Agreement for
any reason by giving to the other party a notice in writing specifying the
date of such termination, which shall be not less than ninety (90) days
after the date of giving of such notice. If such notice is given by the
Trust, on behalf of the Fund, it shall be accompanied by a copy of a
resolution of the Board of Trustees of the Trust, certified by the
<PAGE> 24<PAGE>
Secretary or any Assistant Secretary, electing to terminate this Agreement
and designating a successor custodian or custodians, each of which shall be
a bank or trust company having not less than $2,000,000 aggregate capital,
surplus and undivided profits. In the event such notice is given by the
Custodian, the Trust shall, on or before the termination date, deliver to
the Custodian a copy of a resolution of its Board of Trustees, certified by
the Secretary, designating a successor custodian or custodians to act on
behalf of the Funds. In the absence of such designation by the Trust, the
Custodian may designate a successor custodian which shall be a bank or
trust company having not less than $2,000,000 aggregate capital, surplus
and undivided profits. Upon the date set forth in such notice this
Agreement shall terminate, and the Custodian, provided that it has received
a notice of acceptance by the successor custodian, shall deliver, on that
date, directly to the successor custodian all Securities and monies then
owned by the Funds and held by it as Custodian. Upon termination of this
Agreement the Trust shall pay to the Custodian on behalf of the Funds such
compensation as may be due as of the date of such termination. The Trust
agrees on behalf of the Funds that the Custodian shall be reimbursed for
its reasonable costs in connection with the termination of this Agreement.
2. If a successor custodian is not designated by the Trust, on
behalf of the Funds, or by the Custodian in accordance with the preceding
paragraph, or the designated successor cannot or will not serve, the Trust
shall upon the delivery by the Custodian to the Trust of all Securities
(other than Securities held in the Book-Entry System which cannot be
delivered to the Trust) and monies then owned by the Funds, other than
monies deposited with a Federal Reserve Bank pursuant to a Certificate
<PAGE> 25<PAGE>
described in clause (ii) of paragraph 2(e) of Article IV, be deemed to be
the custodian for the Funds, and the Custodian shall thereby be relieved of
all duties and responsibilities pursuant to this Agreement other than the
duty with respect to Securities held in the Book-Entry System which cannot
be delivered to the Trust to hold such Securities hereunder in accordance
with this Agreement.
ARTICLE XI
MISCELLANEOUS
1. Appendix A sets forth the names and the signatures of all
Authorized Persons. The Trust agrees to furnish to the Custodian, on
behalf of the Funds, a new Appendix A in form similar to the attached
Appendix A, if any present Authorized Person ceases to be an Authorized
Person or if any other additional Authorized Persons are elected or
appointed. Until such new Appendix A shall be received, the Custodian
shall be fully protected in acting under the provisions of this Agreement
upon Oral Instructions or signatures of the present Authorized Persons as
set forth in the last delivered Appendix A.
2. No recourse under any obligation of this Agreement or for any
claim based thereon shall be had against any organizer, shareholder,
Officer, Trustee, past, present or future as such, of the Trust or of any
such predecessor or successor, whether by virtue of any constitution,
statute or rule of law or equity, or by the enforcement of any assessment
of penalty or otherwise; it being expressly agreed and understood that this
Agreement and the obligations thereunder are enforceable solely against
Fund Assets, and that no such personal liability whatever shall attach to,
<PAGE> 26<PAGE>
or is or shall be incurred by, the organizers, shareholders, Officers,
Trustees of the Trust or of any predecessor or successor, or any of them as
such, because of the obligations contained in this Agreement or implied
therefrom and that any and all such liability is hereby expressly waived
and released by the Custodian as a condition of, and as a consideration
for, the execution of this Agreement.
3. The obligations set forth in this Agreement as having been made
by the Trust have been made by the Trustees of the Trust, acting as such
Trustees for and on behalf of the Funds, pursuant to the authority vested
in them under the laws of the State of Delaware, the Declaration of Trust
and the By-Laws of the Trust. This Agreement has been executed by Officers
of the Trust as Officers, and not individually, and the obligations
contained herein are not binding upon any of the Trustees, Officers, Agents
or holders of shares, personally, but bind only the Trust and then only to
the extent of Fund Assets.
4. Such provisions of the Prospectuses of the Funds and any other
documents (including advertising material) specifically mentioning the
Custodian (other than merely by name and address) shall be reviewed with
the Custodian by the Trust.
5. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or delivered to
it at its offices at Star Bank Center, 425 Walnut Street, M.L. 5127,
<PAGE> 27<PAGE>
Cincinnati, Ohio 45202, attention: Mutual Fund Custody Department, or at
such other place as the Custodian may from time to time designate in
writing.
6. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Trust shall be sufficiently
given when delivered to the Trust or on the second business day following
the time such notice is deposited in the U.S. mail postage prepaid and
addressed to the Trust at its office at 4641 Montgomery Avenue, Suite 400,
Bethesda, Maryland 20814 or at such other place as the Trust may from time
to time designate in writing.
7. This Agreement with the exception of Appendices A & B may not
be amended or modified in any manner except by a written agreement executed
by both parties with the same formality as this Agreement, and authorized
and approved by a resolution of the Board of Trustees of the Trust.
8. This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Trust or by the
Custodian, and no attempted assignment by the Trust or the Custodian shall
be effective without the written consent of the other party hereto.
9. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
<PAGE> 28<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective Officers, thereunto duly authorized as of
the day and year first above written.
ATTEST: Rydex Series Trust
Timothy P. Hagan By: /s/ Albert P. Viragh, Jr.
ATTEST: Star Bank, N.A.
_______________________ By:/s/ Lynnette C. Gibson
<PAGE> 29<PAGE>
APPENDIX A
Authorized Persons Specimen Signatures
Chairman:
Albert P. Viragh, Jr. /s/ Albert P. Viragh, Jr.
President:
Albert P. Viragh, Jr. /s/ Albert P. Viragh, Jr.
Secretary:
Amanda C. Viragh /s/ Amanda C. Viragh
Vice President:
Timothy P. Hagan /s/ Timothy P. Hagan
Adviser Employees:
James Terry Apple /s/ James Terry Apple
Michael P. Byrum /s/ Michael P. Byrum
PAGE
<PAGE>
APPENDIX B
T h e following Depository(s) and Sub-Custodian(s) are employed
currently by Star Bank, N.A. for securities processing and control...
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bankers Trust Company
16 Wall Street
New York, NY 10005
PAGE
<PAGE>
SCHEDULE C
STAR BANK, N.A.
CUSTODY TRANSACTION FEE SCHEDULE
Star Bank, N.A. as Custodian, will receive monthly compensation for
services according to the terms of the following schedule:
I. Portfolio Transaction Fees:
a) For each repurchase agreement trans-
action $7.00
b) For each portfolio transaction processed
through DTC or Federal Reserve 11.00
c) For each portfolio transaction processed
through our New York custodian 25.00
d) For each GNMA/Amortized Security
Purchase 25.00
e) For each GNMA Prin/Int Paydowns,
GNMA Sales 8.00
f) For each option/future contract written,
exercise 25.00
g) For each Cedel/Euroclear transaction 100.00
h) For each Disbursement (Fund expenses
only) 5.00
A transaction is a purchase/sale of a security, free
receipt/free delivery (excludes initial conversion),
maturity, tender or exchange.
PAGE
<PAGE>
II. Monthly Base Fee - Per Fund: $400.00
III. Out-of-Pocket Expenses
Star Bank shall be reimbursed for all out-of-pocket
expenses including, but not limited to postage,
insurance and long distance telephone charges.
IV. IRA Documents
Per shareholder/year to hold each IRA
document 8.00
V. Earnings Credits
On a monthly basis any earnings credits generated
from uninvested custody balances will be first
applied against any cash management service fees and
then to custody transaction fees (as referenced in
item #1 above). Earnings credits are based on the
average yield of the 91-day U.S. Treasury Bill for
the preceding thirteen weeks less the 10% reserve.
PAGE
<PAGE>
Exhibit (9)(c)
Service Agreement between
Rydex Series Trust and
PADCO Service Company, Inc.
PAGE
<PAGE>
Amendments,
Dated September 25, 1996,
to
Service Agreement
Between Rydex Series Trust
and PADCO Service Company, Inc.,
Dated September 19, 1995
PAGE
<PAGE>
Amendments to
SERVICE AGREEMENT
between
RYDEX SERIES TRUST
and
PADCO SERVICE COMPANY, INC.
Amendments to Delete Provisions Relating to Schedule IV and
Services Provided Thereunder. The following Amendments are
made to the Service Agreement between Rydex Series Trust (the
"Trust") and PADCO Service Company, Inc. (the "Servicer"),
dated September 19, 1995, and as amended on March 8, 1996 (the
"Service Agreement"), in contemplation of the Trust entering
into a separate Portfolio Accounting Services Agreement with
the Servicer, and these Amendments are hereby incorporated
into and made a part of the Service Agreement:
The following fourth WHEREAS clause of the
Service Agreement is deleted in its entirety,
effective September 25, 1996:
WHEREAS, the Trust desires to appoint the
Servicer as the Trust's accounting
services agent: (i) to perform certain
accounting and recordkeeping functions
required of a duly-registered investment
company; (ii) to file certain financial
reports; (iii) to maintain and preserve
certain books, accounts, and records as
the basis for such reports; and (iv) to
perform certain daily functions in
connection with such accounts and records;
and the Servicer is willing to perform
s u c h functions upon the terms and
conditions herein set forth;
Section 1 of the Service Agreement is amended,
effective September 25, 1996, to delete that
portion of the introductory language to that Section
referring to Schedule IV of the Agreement, and shall
read as follows:
In consideration of the compensation to
be paid by the Trust to the Servicer
PAGE
<PAGE>
pursuant to Section 4 of this Agreement,
the Servicer will:
The following Section 1.d. of the Service Agreement is
deleted in its entirety, effective September 25, 1996:
d. Provide the Trust with certain accounting and
recordkeeping services, including, without
limitation, those services described on Schedule IV,
a t tached hereto. The Servicer will maintain
sufficient trained personnel and equipment and
supplies to perform such services in conformity with
the Controlling Documents and such other reasonable
standards of performance as the Trust may from time
to time specify, and otherwise in an accurate,
timely, and efficient manner.
The first paragraph of Section 4 of the Service Agreement
is amended to delete that portion of the language of that
Section referring to Schedule IV of the Agreement, and shall
read as follows:
A s consideration for the services provided
hereunder, the Trust will pay the Servicer a fee on
the last day of each month in which this Agreement
is in effect, at the following annual rates based on
the average daily net assets (the "Assets") of each
of the Trust's series for such month:
Schedule IV to the Service Agreement is deleted in its
entirety, effective September 25, 1996.
Amendment to Grant Authority to the Servicer to Engage Sub-
Servicers. The following amendment is made to the Service
Agreement between the Trust and the Servicer, and are hereby
incorporated into and made a part of the Service Agreement:
Paragraphs 11 through 16 are redesignated 12 through 17,
respectively.
A new paragraph 11 is added and shall read as follows:
11. Authority to Engage Sub-Servicers.
In providing the services and assuming the
obligations set forth herein, the Servicer
may, at its expense, employ one or more
sub-servicers, or may enter into such
service agreements as the Servicer deems
appropriate in connection with the
performance of the Servicer s duties and
obligations hereunder. Reference herein
to the duties and responsibilities of the
<PAGE> 2<PAGE>
Servicer shall include any sub-servicer
employed by the to the extent that the
Servicer shall delegate such duties and
responsibilities to such sub-servicer.
Amendment to Include the Rydex High Yield Fund Under This
Agreement. The following Amendment is made to Section 4 of
the Service Agreement between the Trust and the Servicer, and
is hereby incorporated into and made a part of the Service
Agreement:
Section 4 of the Service Agreement is amended,
effective September 25, 1996, to read as follows:
"As consideration for the services
provided hereunder, the Trust will pay the
Servicer a fee on the last day of each
month in which this Agreement is in
effect, at the following annual rates
based on the average daily net assets (the
"Assets") of each of the Trust's series
for such month:
The Nova Fund
0.25% of Assets
The Rydex U.S. Government Money Market
Fund
0.20% of Assets
The Rydex Precious Metals Fund
0.20% of Assets
The Ursa Fund
0.25% of Assets
The Rydex U.S. Government Bond Fund
0.20% of Assets
The Rydex OTC Fund
0.20% of Assets
The Juno Fund
0.25% of Assets
The Rydex Institutional Money Market Fund
<PAGE> 3<PAGE>
0.20% of Assets
The Rydex High Yield Fund
0.20% of Assets
In the event that this Agreement commences
on a date other than on the beginning of
any calendar month, or if this Agreement
terminates on a date other than the end of
any calendar month, the fees payable
hereunder by the Trust shall be
proportionately reduced according to the
number of days during such month that
services were not rendered hereunder by
the Servicer."
In witness whereof, the parties hereto have caused this
Amendment to be executed in their names and on their behalf
and through their duly-authorized officers as of the 25th day
of September, 1996.
RYDEX SERIES TRUST
/s/ Albert P. Viragh, Jr.
By: Albert P. Viragh, Jr.
Title: President
PADCO SERVICE COMPANY, INC.
/s/ Albert P. Viragh, Jr.
By: Albert P. Viragh, Jr.
Title: President
<PAGE> 4<PAGE>
Amended and Restated
Service Agreement
Between Rydex Series Trust
and PADCO Service Company, Inc.,
Dated September 25, 1996
PAGE
<PAGE>
AMENDED AND RESTATED
SERVICE AGREEMENT
THIS AMENDED AND RESTATED SERVICE AGREEMENT (the
"Agreement"), dated as of September 25, 1996, is entered into
by and between RYDEX SERIES TRUST, a Delaware business trust
(the "Trust"), and PADCO SERVICE COMPANY, INC., a Maryland
corporation (the "Servicer").
W I T N E S S E T H:
WHEREAS, the Trust is an investment company registered
under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the Servicer is registered as a transfer agent
under the Securities Exchange Act of 1934, as amended; and
WHEREAS, the Trust wishes to have the Servicer perform
general administrative, shareholder, dividend disbursement,
transfer agent, and registrar and other services for the Trust
and to act in such capacity in the manner set forth in this
Agreement, and the Servicer is willing to act in such capacity
in accordance with the provisions of this Agreement.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants herein contained, and for other good and
valuable consideration, the receipt, sufficiency, and adequacy
o f which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree and promise as follows:
1. Services To Be Provided.<PAGE>
In consideration of the compensation to be paid by the
Trust to the Servicer pursuant to Section 4 of this Agreement,
the Servicer will:
a. Manage, supervise, and conduct the affairs and
business of the Trust and matters incidental thereto. In the
performance of its duties, the Servicer will comply with the
Trust's Prospectus and its Statement of Additional
Information, as the same may be amended from time to time, all
as delivered to the Servicer (collectively, the "Controlling
Documents"). The Servicer will also use its best efforts to
safeguard and promote the welfare of the Trust and to comply
with other policies which the Board of Trustees of the Trust
(the "Board") may from time to time specify. The Servicer
will furnish or provide to the Trust general administrative
services as the Trust may reasonably require in the conduct of
its affairs and business, including, without limitation, the
services described on Schedule I attached hereto.
b. Provide the Trust with all required shareholder
a n d dividend disbursement services, including, without
limitation, those services described on Schedule II, attached
hereto. The Servicer will maintain sufficient trained
personnel and equipment and supplies to perform such services
in conformity with the Controlling Documents and such other
reasonable standards of performance as the Trust may from time
to time specify, and otherwise in an accurate, timely, and
efficient manner.
<PAGE> 2<PAGE>
c. Provide the Trust with all required stock transfer
agent and registrar services, including, without limitation,
those services described on Schedule III attached hereto. The
Servicer will maintain sufficient trained personnel and
equipment and supplies to perform such services in conformity
with the Controlling Documents and such other reasonable
standards of performance as the Trust may from time to time
specify, and otherwise in an accurate, timely, and efficient
manner.
2. Obligations of the Trust.
The Trust will have the following obligations under
this Agreement:
a. The Trust shall keep the Servicer continuously and
fully informed as to the composition of the Trust's investment
portfolio and the nature of all of the Trust's assets and
liabilities, and shall cause the investment managers of the
Trust's series to cooperate with the Servicer in all matters
so as to enable the Servicer to perform the Servicer's
functions under this Agreement.
b. The Trust shall furnish the Servicer with any
materials or information which the Servicer may reasonably
request to enable the Servicer to perform the Servicer's
functions under this Agreement.
c. The Trust shall turn over to the Servicer the
accounts and records previously maintained by or for the
<PAGE> 3<PAGE>
Trust. The Servicer shall be entitled to rely exclusively on
the completeness and correctness of the accounts and records
turned over to the Servicer by the Trust; provided, that such
reliance is made in good faith, and the Trust shall indemnify
and hold the Servicer harmless of and from any and all
e x penses (including, without limitation, attorneys' and
accountants' fees), damages, claims, suits, liabilities,
actions, demands, and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy, or other
deficiency of such accounts and records or in connection with
the failure of the Trust to provide any portion of such
accounts and records or to provide any information to the
Servicer necessary or appropriate to perform the Servicer's
f u n ctions hereunder; and provided, further, that such
accounts, records, and other information shall belong to the
Trust and be considered confidential, and shall not be
disclosed to other than Federal and state regulators without
permission from the Trust.
3. Payment of Fees and Expenses.
a. The Servicer will pay all of the fees and expenses
incurred by the Servicer in providing the Trust with the
services and facilities described in this Agreement, except as
otherwise provided herein.
b. N o twithstanding any other provision of this
Agreement, the Trust will pay, or reimburse the Servicer for
<PAGE> 4<PAGE>
the payment of, all fees and expenses incurred by the Servicer
not directly related to the Servicer's providing the Trust
with the services and facilities described in this Agreement,
including, but not limited to, the following described fees
a n d expenses of the Trust (hereinafter called "Direct
Expenses") whether or not billed to the Trust, the Servicer,
or any related entity:
(i) f e es and expenses relating to investment
advisory services;
(ii) fees and expenses of custodian and depositories
and banking services fees and costs;
(iii) fees and expenses of outside legal
counsel and any legal counsel directly
employed by the Trust;
(iv) fees and expenses of independent auditors and
i n c o me tax preparation and expenses of
o b t aining quotations for the purpose of
calculating the value of the Trust's assets;
(v) fees and expenses of consultants;
(vi) interest charges;
(vii) all Federal, state, and local taxes
(including, without limitation, stamp,
excise, income, and franchise taxes);
(viii) costs of stock certificates and other
expenses of issuing and redeeming shares
of the Trust ("Shares");
(ix) c o s t s incidental to or associated with
shareholder meetings;
(x) fees and expenses of registering or qualifying
s h ares for sale under Federal and state
securities laws;
(xi) costs (including postage) of printing and
m a iling prospectuses, confirmations, proxy
statements, and other reports and notices to
shareholders and to governmental agencies;
<PAGE> 5<PAGE>
(xii) premiums on all insurance and bonds and
other expenses of fidelity and liability
i n surance and bonding covering the
Trust;
(xiii) fees and expenses of the disinterested
Trustees and expenses incidental to the
meetings of the Board;
(xiv) fees and expenses paid to any securities
pricing organization;
(xv) dues and expenses associated with membership in
the Investment Company Institute and the Mutual
Fund Education Alliance;
(xvi) costs for incoming telephone WATS lines;
and
(xvii) organizational costs.
4. Compensation.
As consideration for the services provided hereunder, the
Trust will pay the Servicer a fee on the last day of each
month in which this Agreement is in effect, at the following
annual rates based on the average daily net assets (the
"Assets") of each of the Trust's series for such month:
The Nova Fund
0.25% of Assets
The Rydex U.S. Government Money Market Fund
0.20% of Assets
The Rydex Precious Metals Fund
0.20% of Assets
<PAGE> 6<PAGE>
The Ursa Fund
0.25% of Assets
The Rydex U.S. Government Bond Fund
0.20% of Assets
The Rydex OTC Fund
0.20% of Assets
The Juno Fund
0.25% of Assets
The Rydex Institutional Money Market Fund
0.20% of Assets
The Rydex High Yield Fund
0.20% of Assets
In the event that this Agreement commences on a date
other than on the beginning of any calendar month, or if this
Agreement terminates on a date other than the end of any
calendar month, the fees payable hereunder by the Trust shall
be proportionately reduced according to the number of days
during such month that services were not rendered hereunder by
the Servicer.
<PAGE> 7<PAGE>
5. Reports to the Board of Trustees.
The Servicer will consult with the Board at such times as
the Board reasonably requests with respect to the services
provided hereunder, and the Servicer will cause its officers
to attend such meetings with the Board, and to furnish such
oral or written reports to the Board, as the Board may
reasonably request. In addition, the Servicer agrees to
provide to the Board such reports and other information as the
Board may reasonably request in order to enable the Board to
perform a review of the Servicer's performance under this
Agreement.
6. Term of Agreement.
This Agreement is effective on the date hereof. This
Agreement will remain in full force and effect until September
19, 1996, unless terminated earlier in accordance with its
terms, and thereafter from year to year; provided, that: (a)
such continuance is approved by (i) either a vote of the
majority of the Trustees or a vote of a "majority of the
outstanding voting securities" (as defined in the 1940 Act) of
the Trust and (ii) a majority of the Trustees who are not
"interested persons" (as defined at Section 2(a)(19) of the
1940 Act); and (b) the following findings are made by a
majority of the Trustees who are not "interested persons" (as
defined at Section 2(a)(19) of the 1940 Act): (i) that this
Agreement is in the best interests of the Trust; (ii) that the
<PAGE> 8<PAGE>
services to be performed pursuant to this Agreement are
services required for the operation of the Trust; (iii) that
the Servicer can provide services the nature and quality of
which are at least equal to those provided by others offering
the same or similar services; and (iv) that the fees for such
services are fair and reasonable in light of the usual and
customary charges made by others for services of the same
nature and quality.
7. Termination.
This Agreement may be terminated, without the payment of
any penalty, by either party hereto upon at least sixty (60)
days' written notice to the other party. Any termination by
the Trust will be pursuant to a vote of a majority of the
Trustees.
8. Standard of Care.
a. Except as provided by law, the Servicer will be
under no liability or obligation to anyone with respect to any
failure on the part of the Board or any investment manager to
perform any of their obligations under the Controlling
Documents, or for any error or omission whatsoever on the part
of the Board or any investment manager.
b. The Servicer will not be liable for any error of
judgment or mistake of law or for any loss caused by the Trust
in connection with the matters to which this Agreement
<PAGE> 9<PAGE>
relates; provided, however, that the Servicer has acted in the
premises with the care, skill, prudence, and diligence under
the circumstances then prevailing that a prudent man acting in
like capacity and familiar with such matters would use in the
conduct of any enterprise of a like character and with like
aims, and in accordance with such other requirements of law;
provided, further, however, that nothing in this Agreement
will protect the Servicer against any liability to the Trust
to which the Servicer would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the
performance of the Servicer's duties hereunder or by reason of
t h e S ervicer's reckless disregard of the Servicer's
obligations and duties hereunder.
9. Other Activities of the Servicer.
Subject to the provisions of Section 5 of this Agreement,
with respect to advance notice of the Servicer's taking on of
new clients or ventures of material significance, nothing
herein contained will limit or restrict the right of the
Servicer to engage in any other business or to render services
of any kind to any other corporation, firm, individual, or
association.
10. Scope of Authority.
a. Shares purchased by the Servicer on behalf of
shareholders of the Trust ("Shareholders") will be registered
<PAGE> 10<PAGE>
with the Servicer, as the Trust's transfer agent, in the
Servicer's name or in the name of the Servicer's nominee. The
Shareholder will be the beneficial owner of Shares purchased
and held by the Servicer in accordance with the Shareholder's
instructions and the Shareholder may exercise all rights of a
Shareholder of the Trust.
b. Neither the Servicer nor any of the Servicer's
officers, employees, agents, or assigns are authorized to make
any representations concerning the Trust or the Shares, except
for those representations contained in the Trust's then-
current prospectus for such Shares, copies of which will be
supplied by the Trust to the Servicer, or in such supplemental
literature or advertising as may be authorized by the Trust in
writing.
11. Authority to Engage Sub-Servicers.
In providing the services and assuming the obligations
set forth herein, the Servicer may, at the sole expense of the
Servicer, employ one or more sub-servicers, or may enter into
such service agreements as the Servicer deems appropriate in
connection with the performance of the Servicer s duties and
obligations hereunder. Reference herein to the duties and
responsibilities of the Servicer shall include the duties and
responsibilities of any sub-servicers employed by the Servicer
to the extent that the Servicer shall delegate such duties and
responsibilities to such sub-servicer.
<PAGE> 11<PAGE>
12. Indemnification.
a. The Trust shall indemnify the Servicer and hold the
Servicer harmless from and against all actions, suits, and
claims, whether groundless or otherwise, arising directly or
indirectly our of or in connection with the Servicer's
performance under this Agreement and from and against any and
a l l l osses, damages, costs, charges, attorneys' and
a c c ountant's fees, payments, expenses, and liabilities
incurred by the Servicer in connection with any such action,
suit, or claim unless caused by the Servicer's breach of this
Agreement, negligence, or willful misconduct. The Servicer
shall not be under any obligation to prosecute or to defend
any action, suit, or claim arising out of or in connection
with the Servicer's performance under this Agreement, which,
in the opinion of the Servicer's counsel, may involve the
Servicer in expense or liability, and the Trust shall, so
often as reasonably requested, furnish the Servicer with
satisfactory indemnity against such expense or liability, and
upon request of the Servicer, the Trust shall assume the
entire defense of any action, suit, or claim subject to the
foregoing indemnity; provided, however, that the Servicer
shall give the Trust notice of any such action, suit, or claim
brought against the Servicer.
b. The Servicer shall indemnify the Trust and hold the
Trust harmless from all claims and liabilities (including
reasonable attorneys' and accountants' expenses) incurred or
<PAGE> 12<PAGE>
assessed against the Trust arising from the Servicer's
negligence, wilful misconduct, or breach of this Agreement.
13. Notices.
a. Communications to the Servicer from the Trust or the
Board shall be addressed to:
Rydex Series Trust
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
Attention: President
b. Communications from the Servicer to the Trust
shall be addressed to:
PADCO Service Company, Inc.
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
Attention: President
c. In the event of a change of address, communications
will be addressed to such new address as designated in a
written notice from the Trust or the Servicer, as the case may
be. All communications addressed in the above manner and by
registered mail or delivered by hand will be sufficient under
this Agreement.
14. Law Governing.
This Agreement is governed by the laws of the State of
Maryland (without reference to such state's conflict of law
rules).
<PAGE> 13<PAGE>
15. Counterparts.
This Agreement may be executed in counterparts, each of
which shall be deemed an original, but which together shall
constitute one and the same instrument.
16. Binding Effect and Assignment.
This Agreement shall be binding upon the parties hereto
a n d their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the
Trust without the written consent of the Servicer, or by the
Servicer without the written consent of the Trust, in each
case authorized or approved by a resolution of the Trust's
Trustees.
<PAGE> 14<PAGE>
17. Amendment, Modification, and Waiver.
No term or provision of this Agreement may be amended,
modified, or waived without the affirmative vote or action by
written consent of the Servicer and the Trust effected in
accordance with the 1940 Act and Section 6 of this Agreement.
IN WITNESS WHEREOF, the Servicer and the Trust have
executed this Agreement as of the date first written above.
RYDEX SERIES TRUST
By: /s/ Albert P. Viragh, Jr.
Name: Albert P. Viragh, Jr.
Title: President
PADCO SERVICE COMPANY, INC.
By: /s/ Albert P. Viragh, Jr.
Name: Albert P. Viragh, Jr.
Title: President
<PAGE> 15<PAGE>
Schedule I
General Administrative Services
The Servicer agrees to provide the Trust with all
required general administrative services, including, without
limitation, the following:
1. Office space, equipment, and personnel.
2. Clerical and general back office services.
3. Bookkeeping, internal accounting, secretarial,
and other general administrative services.
4. P r eparation of all reports, prospectuses,
statements of additional information, proxy
statements, and all other materials required to
be filed or furnished by the Trust under
Federal and state securities laws.
5. Maintaining ledgers and determining net asset
values.
I-1<PAGE>
Schedule II
Shareholder and Dividend Disbursement Services
The Servicer agrees to provide the Trust and the
Shareholders with all required shareholder and dividend
disbursement services ("Services"), including, without
limitation, the following:
1. The Servicer shall provide the following services to the
Shareholders of the Trust:
a. A g g regating and processing purchases and
redemption requests for Trust Shares from
Shareholders.
b. Processing dividend payments from the Trust on
behalf of Shareholders.
c. Providing information periodically to
Shareholders showing their positions in Shares.
d. Arranging for bank wires.
e. Responding to Shareholder inquiries relating to
the services performed by the Servicer.
f. Providing subaccounting with respect to Shares
beneficially owned by Shareholders.
g. As required by law, forwarding shareholder
communications from the Trust (such as proxies,
shareholder reports, annual and semi-annual
f i n ancial statements, and dividend,
disbursement, and tax notices) to Shareholders.
h. Providing such other similar services as the
Trust may reasonably request to the extent the
Servicer is permitted to do so under applicable
statues, rules, or regulations.
i. Provide to Shareholders a schedule of any fees
that the Servicer may charge directly to the
Shareholders for such Services.
2. The Servicer shall also provide the following additional
Services:
a. Maintain all records required by law relating
to transactions in Shares and, upon request by
the Trust, promptly make such of these records
available to the Trust as the Trust may
II-1<PAGE>
reasonably request in connection with the
operations of the Trust.
b. Promptly notify the Trust if the Servicer
experiences any difficulty in maintaining the
records described in this Schedule II to the
Agreement in an accurate and complete manner.
c. Furnish the Trust or any designee of the Trust
("Designee") with such information relating to
the Servicer's performance under this Agreement
as the Trust or the Designee may reasonably
r e quest (including, without limitation,
periodic certifications confirming the
provision to Shareholders of the Services
described herein), and shall otherwise
cooperate with the Trust and the Trust's
Designees (including, without limitation, any
auditors designated by the Trust), in
connection with the preparation of reports to
the Board of Trustees concerning this Agreement
and the monies paid or payable by the Trust
pursuant hereto, as well as any other reports
or filings that may be required by law.
II-2<PAGE>
Schedule III
Transfer Agent and Registrar Services
The Servicer agrees to provide the Trust with all
required transfer agent and registrar services, including,
without limitation, the following:
1. Maintaining all shareholder accounts, including
processing of new accounts.
2. Posting address changes and other file maintenance
for shareholder accounts.
3. Posting all transactions to the shareholder file,
including:
- Direct purchases
- Wire order purchases
- Direct redemptions
- Wire order redemptions
- Draft redemptions
- Direct exchanges
- Transfers
4. Quality control reviewing of every transaction
b e f o r e the mailing of confirmations, checks, and/or
certificates to shareholders.
5. Issuing all checks and shipping and replacing lost
checks.
6. Mailing confirmations, checks, and/or certificates
resulting from transaction requests of shareholders.
7. Performing other mailings, including:
- Semi-annual and annual reports
- I.R.S. Form 1099/year-end shareholder reporting
- Systematic withdrawal plan payments
- Daily confirmations
8. Answering all service-related telephone inquiries
from shareholders, including:
- G e neral and policy inquiries (research and
resolve problems)
- Trust yield inquiries
- T a k ing shareholder processing requests and
account maintenance changes by telephone
- Submitting pending requests to correspondence
III-1<PAGE>
- Monitoring online statistical performance of
shares
- Developing reports on telephone activity
III-2<PAGE>
III-3<PAGE>
Exhibit (9)(d)
Portfolio Accounting Services Agreement
Between Rydex Series Trust and
PADCO Service Company, Inc.
PAGE
<PAGE>
ACCOUNTING SERVICES AGREEMENT
between
RYDEX SERIES TRUST
and
PADCO SERVICE COMPANY, INC.
This Agreement, dated the twenty-fifth day of September,
1996, made by and between the RYDEX SERIES TRUST (the
"Trust"), a business trust established under the laws of the
State of Delaware on February 10, 1993, and organized as an
open-end management investment company, and PADCO Service
Company, Inc. (the "Agent"), a company incorporated under the
laws of the State of Maryland on October 6, 1993.
W I T N E S S E T H:
WHEREAS, the Trust is registered with the Securities and
E x c hange Commission (the "Commission") as an open-end
management investment company pursuant to the provisions of
the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Agent is registered with the Commission as a
transfer agent under the Securities Exchange Act of 1934, as
amended;
WHEREAS, the Agreement and Declaration of Trust of the
Trust (the Trust Declaration ) authorizes the Trustees of the
Trust to create an unlimited number of series of shares of the
Trust;
WHEREAS, the Board of Trustees of the Trust , pursuant to
Article IV, Section 4.01(o), "Board of Trustees; Powers," of
the Trust Declaration, have created the following series of
shares of the Trust: The Nova Fund, The Ursa Fund, The OTC
Fund, The Precious Metals Fund, The Juno Fund, The U.S.
Government Bond Fund, The U.S. Government Money Market Fund,
The Rydex Institutional Money Market Fund, and The Rydex High
Yield Fund (collectively, the "Rydex Funds");
WHEREAS, the Trust desires to appoint the Agent as the
Trust's Accounting Services Agent and as the Accounting
Services Agent for each of the Rydex Funds and desires to have
the Agent, as said Accounting Services Agent, to perform
certain accounting and recordkeeping functions required of a
duly-registered investment company; to file certain financial
reports; to maintain and preserve certain books, accounts, and
records as the basis for such reports; and to perform certain
daily functions in connection with such accounts and records;
and
PAGE
<PAGE>
WHEREAS, the Agent is willing to perform such functions
upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, and for other good and
valuable consideration, the receipt, sufficiency, and adequacy
o f which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree and promise as follows:
1. Accounts and Records of the Trust
a. The Trust shall provide to the Agent the necessary
and appropriate documents, information, instructions,
accounts, and records maintained or to be maintained by or for
the Trust. The Agent shall be entitled to rely exclusively on
the completeness and correctness of the accounts and records
provided to the Agent by the Trust; provided, that such
reliance is made in good faith, and the Trust shall indemnify
and hold the Agent harmless of and from any and all expenses
(including, without limitation, attorneys' and accountants
fees), damages, claims, suits, liabilities, actions, demands,
and losses whatsoever arising out of or in connection with any
error, omission, inaccuracy, or other deficiency of such
accounts and records or in connection with the failure of the
Trust to provide any portion of such accounts and records or
t o provide any information to the Agent necessary or
appropriate to perform the Agent's functions hereunder.
b. Accounts, records, and other information shall
belong to the Trust and shall be considered confidential.
Accounts, records, and other information will not be disclosed
to other than Federal and state regulators without permission
from the Trust.
<PAGE> 2<PAGE>
2. Maintenance of Accounts and Records of the Trust
a. The Agent shall examine and review the Trust's
existing accounts, records, pertinent documents, and systems
in order to determine or recommend how such accounts, records,
documents, and systems shall be maintained.
b. Upon receipt of necessary and appropriate
information, instructions, accounts, records, and documents
from the Trust, the Agent shall maintain and keep current and
accurate the following books, accounts, records, journals, or
other records of original entry, relating to the business of
the Trust and each of the Rydex Funds and necessary or
a p propriate for compliance with applicable regulations,
including Rule 31a-1 and Rule 31a-2 of the 1940 Act, and as
may be mutually agreed to between the Trust and the Agent:
(1) Cash Receipts
(2) Cash Disbursements
(3) Dividend Record
(4) Purchase and Sales of Portfolio Securities
(5) Subscription and Redemption Journals
(6) Security Ledger
(7) Broker Ledger
(8) General Ledger
(9) Daily Expense Accruals
(10) Daily Interest Accruals
(11) S e curities and Monies borrowed or loaned and
collateral therefor
(12) Trial Balances
c. Unless appropriate information necessary to perform
the above functions is furnished to the Agent in a timely
manner, the Agent shall incur no liability to the Trust or any
other person. The Agent shall promptly notify the Trust in
writing of any discrepancy, error or non-compliance in items
(1) through (12) in Section 2(b), above, of which the Agent
has knowledge.
d. It shall be the responsibility of the Trust promptly
to furnish the Agent with the declaration, record, and payment
dates and amounts of any dividends or income and any other
special actions taken concerning the portfolio securities of
each of the Rydex Funds.
e. The Agent shall maintain all accounts and records
mentioned above as required by regulation and as agreed upon
between the Trust and the Agent.
3. Accounting Entries and Confirmations
<PAGE> 3<PAGE>
Upon receipt by the Agent of written or oral instructions
from the Trust, the Agent shall make proper accounting entries
in accordance with Generally Accepted Accounting Principles
and regulations of the Commission. The Trust shall direct
that each broker-dealer, or other person through whom a
transaction has occurred, shall send a confirmation thereof to
the Agent. The Agent shall verify this confirmation against
the written or oral instructions when received from the Trust
and forward the confirmation to the Trust's custodian (the
"Custodian"). The Agent shall promptly notify the Trust of
any discrepancy between the confirmation and the Trust's
written instructions when received from the Trust but shall
incur no responsibility or liability for such discrepancy.
The Trust shall cause any necessary corrections to be made and
shall advise the Agent and the Custodian accordingly.
4. Calculation of Net Asset Value
a. The Agent shall calculate the Trust s net asset
value for each of the Rydex Funds in accordance with the
Trust's currently-effective prospectuses, once daily.
b. The Agent shall prepare and maintain a daily
evaluation of securities for which market quotations are
available by the Agent's use of Bloomberg and ILX quotation
s e r vices; all other securities shall be evaluated in
accordance with the Trust's written instructions, and the
Agent shall have no responsibility or liability for the
accuracy of the information supplied by the Trust or provided
in the written instructions.
c. The Trust assumes all responsibility for computation
o f "amortized cost," valuation of securities, and all
valuations not ascertainable solely by mechanical procedures.
5. Statements From Custodian
At the end of each month, the Agent shall obtain from the
C u s t odian a monthly statement of cash and portfolio
transactions, which shall be reconciled with the Agent's
accounts and records maintained for the Trust. The Agent
shall report any discrepancies to the Custodian, and shall
report any unreconciled items to the Separate Account.
6. Daily and Periodic Reports
The Agent shall supply daily and periodic reports to the
Trust, as required by law or regulation, and as requested by
the Trust and agreed upon by the Agent.
7. Reports and Confirmations to the Trust s Transfer Agent
<PAGE> 4<PAGE>
a. The Trust shall report and confirm to the Trust s
transfer agent the (the "Transfer Agent") purchases and
redemptions for each of the Rydex Funds of which the Trust is
aware. The Agent shall obtain from the Transfer Agent daily
reports of Share purchases, redemptions, and total Shares
outstanding for each of the Rydex Funds.
b. The Agent shall reconcile outstanding Shares for
each of the Rydex Funds with the Transfer Agent periodically
and certify at least monthly to the Trust the reconciled Share
balance outstanding for each of the Rydex Funds.
8. Review of Accounts and Records of the Trust
The accounts and records of the Trust maintained by the
Agent shall be the property of the Trust, and shall be made
available to the Trust, within a reasonable period of time,
upon demand. The Agent shall assist the Trust's independent
auditors, and, upon approval of the Trust, or upon demand by
any governmental or quasi-governmental entity, assist any such
entity in any requested review of the Trust's accounts and
records, but shall be reimbursed for all expenses and employee
time invested in any such review outside of routine and normal
periodic reviews. Upon receipt from the Trust of the
necessary information, the Agent shall supply the necessary
data for the Trust's completion of any necessary tax returns,
questionnaires, periodic reports to shareholders, and such
other reports and information requests as the Trust and the
Agent shall agree upon from time to time.
9. Uniform Procedures
The Agent and the Trust, from time to time, may adopt
uniform or standard procedures, and the Agent may conclusively
assume that any procedure approved by the Trust, or directed
b y the Trust, does not conflict with or violate any
requirements of the Trust's prospectuses, the Trust By-laws,
or other governing documents of the Trust, or any rule or
regulation of any regulatory body or governmental agency. The
Trust shall be responsible to notify the Agent of any changes
in the Trust s By-laws or in regulations or rules which might
necessitate changes in the Agent's procedures.
10. Reliance
The Agent may rely upon the advice of the Trust and upon
statements of the Trust s accountants and other persons
believed by the Agent in good faith to be expert in matters
upon which such persons are consulted, and the Agent shall not
be liable for any actions taken in good faith upon such
statements.
<PAGE> 5<PAGE>
11. Indemnification and Liability
a. The Agent shall not be liable for any action taken
in good faith reliance upon any authorized oral instructions,
any written instructions, any certified copy of any resolution
of the Trustees of the Trust, or any other document reasonably
believed by the Agent to be genuine and to have been executed
or signed by the proper person or persons. The Trust will
send written instructions to confirm oral instructions, and
the Agent will compare the written instructions against the
oral instructions previously furnished. The Agent will inform
the Trust promptly of any noted discrepancy.
b. The Agent shall not be held to have notice of any
change or lack of authority of any officer, employee, or agent
of the Trust until receipt of written notification thereof by
the Trust.
c. The Trust shall indemnify the Agent and hold the
Agent harmless from and against all actions, suits, and
claims, whether groundless or otherwise, arising directly or
i n d irectly out of or in connection with the Agent's
performance under this Agreement and from and against any and
a l l l osses, damages, costs, charges, attorneys' and
a c c ountant's fees, payments, expenses, and liabilities
incurred by the Agent in connection with any such action,
suit, or claim unless caused by the Agent's breach of this
Agreement, negligence, or willful misconduct. The Trust shall
not be liable under this indemnification provision with
respect to any claim made against the Agent unless the Agent
shall have notified the Trust in writing within a reasonable
time after the summons or other first legal process giving
information of the nature of the claim shall have been served
upon the Agent (or after the Agent shall have received notice
of such service on any designated agent), but failure to
notify the Trust of any such claim shall not relieve the Trust
from any liability which the Trust may have to the Agent
against whom such action is brought otherwise than on account
of this indemnification provision. In case any such action is
brought against the Agent, the Trust shall be entitled to
participate, at its own expense, in the defense of such
action. The Trust also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named
in the action. After notice from the Trust to such party of
the Trust s election to assume the defense thereof, the Agent
shall bear the fees and expenses of any additional counsel
retained by the Agent, and the Agent will not be liable to
such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable
costs of investigation. The Agent will promptly notify the
Trust of the commencement of any litigation or proceedings
<PAGE> 6<PAGE>
against the Agent in connection with the Shares or the
operations of the Rydex Funds.
d. The Agent shall indemnify the Trust and hold the
Trust harmless from all actions, suits, damages, claims,
d e m ands, losses, and liabilities (including reasonable
attorneys' and accountants' fees and expenses) incurred or
assessed against the Trust arising directly or indirectly from
the Agent's negligence, wilful misconduct, or breach of this
Agreement. The Agent shall not be liable under this
indemnification provision with respect to any claim made
against the Trust unless the Trust shall have notified the
Agent in writing within a reasonable time after the summons or
other first legal process giving information of the nature of
the claim shall have been served upon the Trust (or after the
Trust shall have received notice of such service on any
designated agent), but failure to notify the Agent of any such
claim shall not relieve the Agent from any liability which it
may have to the Trust against whom such action is brought
otherwise than on account of this indemnification provision.
In case any such action is brought against the Trust, the
Agent shall be entitled to participate, at its own expense, in
the defense of such action. The Agent also shall be entitled
to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Agent to
such party of the Agent's election to assume the defense
thereof, the Trust shall bear the fees and expenses of any
additional counsel retained by the Trust, and the Agent will
not be liable to such party under this Agreement for any legal
o r other expenses subsequently incurred by such party
independently in connection with the defense thereof other
than reasonable costs of investigation. The Trust will
p r omptly notify the Agent of the commencement of any
litigation or proceedings against the Trust in connection with
the Shares or the operations of the Rydex Funds.
e. The shareholders, Trustees, officers, employees, and
agents of the Trust shall not be personally bound by or liable
hereunder, nor shall resort be had to such person's private
property for the satisfaction of any obligation or claim
hereunder as provided for in the Trust s By-Laws.
12. Compensation
The Trust agrees to pay the Agent compensation for its
services and to reimburse the Agent for expenses, as set forth
in Schedule A attached hereto, or as shall be set forth in
amendments to such Schedule approved by the Trust and the
Agent.
<PAGE> 7<PAGE>
13. Days of Business
Nothing contained in this Agreement is intended to or
shall require the Agent, in any capacity hereunder, to perform
any functions or duties on any holiday or other day of special
observance on which the New York Stock Exchange is closed.
Functions or duties normally scheduled to be performed on such
days shall be performed on, and as of, the next business day
on which the New York Stock Exchange is open for business.
14. Term of Agreement
This Agreement is effective on the date hereof. This
Agreement shall remain in full force and effect until
September 25, 1997, unless terminated earlier in accordance
with its terms, and thereafter from year to year; provided,
that: (a) such continuance is approved by (i) either a vote
of the majority of the Trustees or a vote of a "majority of
the outstanding voting securities" (as defined at Section
2(a)(42) of the 1940 Act) of the Trust and (ii) a majority of
the Trustees who are not "interested persons" (as defined at
Section 2(a)(19) of the 1940 Act); and (b) the following
findings are made by a majority of the Trustees who are not
"interested persons" (as defined at Section 2(a)(19) of the
1940 Act): (i) that this Agreement is in the best interests
of the Trust; (ii) that the services to be performed pursuant
to this Agreement are services required for the operation of
the Trust; (iii) that the Agent can provide services the
nature and quality of which are at least equal to those
provided by others offering the same or similar services; and
(iv) that the fees for such services are fair and reasonable
in light of the usual and customary charges made by others for
services of the same nature and quality.
15. Termination
This Agreement may be terminated, without the payment of
any penalty, by either party hereto upon at least ninety (90)
days' written notice to the other party. Any termination by
the Trust will be pursuant to a vote of a majority of the
Trustees.
<PAGE> 8<PAGE>
16. Notices
a. Communications to the Agent shall be addressed to:
PADCO Service Company, Inc.
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
Attention: President
b. Communications to the Trust shall be addressed to:
Rydex Series Trust
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
Attention: President
c. In the event of a change of address, communications
will be addressed to such new address as designated in a
written notice from the Trust or the Agent, as the case may
be. All communications addressed in the above manner and by
registered mail or delivered by hand will be sufficient under
this Agreement.
17. Governing Law
This Agreement is governed by the laws of the State of
Maryland (without reference to such state's conflict of law
rules).
18. Counterparts
This Agreement may be executed in counterparts, each of
which shall be deemed an original, but which together shall
constitute one and the same instrument.
<PAGE> 9<PAGE>
19. Binding Effect and Assignment
This Agreement shall be binding upon the parties hereto
a n d their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the
Trust without the written consent of the Agent, or by the
Agent without the written consent of the Trust, in each case
authorized or approved by a resolution of the Trustees of the
Trust.
20. Amendment, Modification, and Waiver
No term or provision of this Agreement may be amended,
modified, or waived without the affirmative vote or action by
written consent of the Agent and the Trust effected in
accordance with the provisions of the 1940 Act, and the rules
thereunder, and Section 14 of this Agreement.
IN WITNESS WHEREOF, the Agent and the Trust have executed
this Agreement as of the date first written above.
RYDEX SERIES TRUST
By: /s/ Albert P. Viragh Jr.
Albert P. Viragh, Jr.
President
PADCO SERVICE COMPANY, INC.
By: /s/ Albert P. Viragh, Jr.
Albert P. Viragh, Jr.
President
<PAGE> 10<PAGE>
SCHEDULE A
PADCO SERVICE COMPANY, INC.
FEE SCHEDULE FOR ACCOUNTING SERVICES
RYDEX SERIES TRUST - Each Separate Rydex Fund
A. MINIMUM ANNUAL FEE - (Based upon average net assets -
payable monthly) shall be the greater of:
First Year - $7,500
Second Year - $15,000
Third and Subsequent Years - $20,000
or
Basis Point Fee
10 Basis Points on first $30 million of assets
5 Basis Points on next $20 million of assets
3 Basis Points on next $50 million of assets
2 Basis Points on assets over $100 million
B. I n addition, all out-of-pocket expenses shall be
separately charged, shall include but not be limited to:
printed forms, postage, overnight mail and telephone
expense.
C. PADCO Service Company, Inc. warrants that the above rates
of compensation are guaranteed for a two-year period. At
that time, the Trust acknowledges that the Agent has the
right to revise the Agent's compensation schedule.<PAGE>
<PAGE> 12<PAGE>
Exhibit (9)(e)
Fidelity Bond Allocation Agreement
Among Rydex Series Trust, PADCO Advisors, Inc.,
The Rydex Advisor Variable Annuity Account,
PADCO Advisors II, Inc., and
PADCO Service Company, Inc.
PAGE
<PAGE>
Amendment to
FIDELITY BOND ALLOCATION AGREEMENT
among
RYDEX SERIES TRUST,
PADCO ADVISORS, INC.,
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT,
PADCO ADVISORS II, INC.,
and
PADCO SERVICE COMPANY, INC.
The following Amendment is made to the first paragraph of
the Preamble to the Fidelity Bond Allocation Agreement, dated
June 26, 1996, among Rydex Series Trust, PADCO Advisors, Inc.,
Rydex Advisor Variable Annuity Account, PADCO Advisors II,
Inc., and PADCO Service Company, Inc. (the "Allocation
Agreement"), and is hereby incorporated into and made a part
of the Allocation Agreement:
The first two paragraphs to the Preamble to the
Allocation Agreement are amended, effective
September 26, 1996, to read as follows:
ALLOCATION AGREEMENT (the "Agreement"),
is made as of this 26th day of June, 1996,
by and among:
R Y DEX SERIES TRUST (the "Trust"), a
registered investment company organized as
a Delaware business trust on March 9,
1993, with its principal place of business
at 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852, on behalf of
the Trust and the Trust's series of THE
NOVA FUND, THE URSA FUND, THE RYDEX OTC
FUND, THE RYDEX PRECIOUS METALS FUND, THE
RYDEX U.S. GOVERNMENT BOND FUND, THE JUNO
FUND, THE RYDEX U.S. GOVERNMENT MONEY
MARKET FUND, THE RYDEX INSTITUTIONAL MONEY
MARKET FUND, and THE RYDEX HIGH YIELD
FUND, and all future registered investment
companies which are named insureds under a
joint fidelity bond as described below and
for which PADCO Advisors, Inc. acts as
PAGE
<PAGE>
investment adviser and for which PADCO
Service Company, Inc. acts as transfer
agent and shareholder servicing agent (the
above-referenced entities hereinafter are
collectively referred to as the "Rydex
Funds");
In witness whereof, the parties hereto have caused these
Amendments to be executed in their names and on their behalf
and through their duly-authorized officers as of the 26th day
of September, 1996.
ATTEST: RYDEX SERIES TRUST
By:/s/ Robert M. Steele By: /s/ Albert P. Viragh,
Jr.
Name: Robert M. Steele Albert P. Viragh, Jr.
Title: Vice President President
ATTEST: RYDEX SERIES TRUST on behalf of
the RYDEX FUNDS of RYDEX
SERIES
TRUST
By:/s/ Robert M. Steele By: /s/ Albert P. Viragh,
Jr.
Name: Robert M. Steele Albert P.Viragh, Jr.
Title: Vice President President
<PAGE> 2<PAGE>
ATTEST: PADCO ADVISORS, INC.
By:/s/ Amanda C. Viragh By: /s/ Albert P. Viragh, Jr.
Name: Amanda C. Viragh Albert P.Viragh, Jr.
Title: Secretary President
ATTEST: RYDEX ADVISOR VARIABLE
ANNUITY ACCOUNT
By:/s/ Robert M. Steele By: / s / L. Gregory
Gloeckner.
Name: Robert M. Steele L. Gregory Gloeckner
Title: Vice President Vice President
ATTEST: RYDEX ADVISOR VARIABLE ANNUITY
ACCOUNT on behalf of the
SUBACCOUNTS of RYDEX ADVISOR
VARIABLE ANNUITY ACCOUNT
By:/s/ Robert M. Steele By: /s/ L. Gregory Gloeckner
Name: Robert M. Steele L. Gregory Gloeckner
Title: Vice President Vice President
ATTEST: PADCO ADVISORS II, INC.
By:/s/ Amanda C. Viragh By: /s/ Albert P. Viragh, Jr.
Name: Amanda C. Viragh Albert P.Viragh, Jr.
Title: Secretary President
ATTEST: PADCO SERVICE COMPANY, INC.
By:/s/ Amanda C. Viragh By: /s/ Albert P. Viragh, Jr.
Name: Amanda C. Viragh Albert P.Viragh, Jr.
Title: Secretary President
<PAGE> 3<PAGE>
Fidelity Bond Allocation Agreement
Among Rydex Series Trust,
PADCO Advisors, Inc.,
The Rydex Advisor Variable Annuity Account,
PADCO Advisors II, Inc.,
and
PADCO Service Company, Inc.
Dated June 26, 1996<PAGE>
THIS ALLOCATION AGREEMENT (the "Agreement"), is made as of
this 26th day of June, 1996, by and among:
R Y D E X SERIES TRUST (the "Trust"), a registered
investment company organized as a Delaware business
trust on March 9, 1993, with its principal place of
b u siness at 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852, on behalf of the Trust and
the Trust's series of THE NOVA FUND, THE URSA FUND, THE
RYDEX OTC FUND, THE RYDEX PRECIOUS METALS FUND, THE
RYDEX U.S. GOVERNMENT BOND FUND, THE JUNO FUND, THE
RYDEX U.S. GOVERNMENT MONEY MARKET FUND, and THE RYDEX
I N S TITUTIONAL MONEY MARKET FUND, and all future
registered investment companies which are named insureds
under a joint fidelity bond as described below and for
which PADCO Advisors, Inc. acts as investment adviser
and for which PADCO Service Company, Inc. acts as
transfer agent and shareholder servicing agent (the
above-referenced entities hereinafter are collectively
referred to as the "Rydex Funds");
P A D C O ADVISORS, INC. ("PADCO I"), a registered
investment adviser incorporated under the laws of the
State of Maryland on February 5, 1993, with its
principal place of business at 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852;
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT (the "Separate
Account"), a registered investment company established
as a managed separate account of Great American Reserve
Insurance Company ("Great American Reserve") under the
laws of the State of Texas on April 15, 1996, with its
principal place of business at 11815 North Pennsylvania
Street, Carmel, Indiana 46032, and with offices at 6116
Executive Boulevard, Rockville, Maryland 20852, on
b e half of the Separate Account and the Separate
Account's subaccounts of THE NOVA SUBACCOUNT, THE URSA
SUBACCOUNT, THE OTC SUBACCOUNT, THE PRECIOUS METALS
SUBACCOUNT, THE U.S. GOVERNMENT BOND SUBACCOUNT, THE
JUNO SUBACCOUNT, THE MONEY MARKET I SUBACCOUNT, and THE
MONEY MARKET II SUBACCOUNT, and all future registered
investment companies which are named insureds under a
joint fidelity bond as described below and for which
PADCO Advisors II, Inc. acts as investment adviser and
for which PADCO Service Company, Inc. acts as Subaccount
asset allocation administration servicer (the above-
referenced subaccounts of the Separate Account
h e r einafter are collectively referred to as the
"Subaccounts");
PADCO ADVISORS II, INC. ("PADCO II"), a registered
investment adviser incorporated under the laws of the
State of Maryland on July 5, 1994, with its principal<PAGE>
p l a c e of business at 6116 Executive Boulevard,
Rockville, Maryland 20852; and
P A D CO SERVICE COMPANY, INC. (the "Servicer"), a
registered transfer agent incorporated under the laws of
the State of Maryland on October 6, 1993, with its
principal place of business at 6116 Executive Boulevard,
Rockville, Maryland 20852.
This Agreement is entered into by the aforementioned parties
(collectively, the "Joint Insureds") under the following
circumstances:
W I T N E S S E T H
WHEREAS, Section 17(g), "Transactions of Certain Affiliated
Persons and Underwriters," of the Investment Company Act of
1 9 40, as amended (the "1940 Act"), provides that the
Securities and Exchange Commission (the "Commission") is
a u t horized to require that officers and employees of
registered investment companies be bonded against larceny and
embezzlement, and the Commission, under Rule 17g-1, "Bonding
of Officers and Employees of Registered Management Investment
Companies," under the 1940 Act, has promulgated rules and
regulations dealing with this subject;
WHEREAS, the Trust, the Rydex Funds, PADCO I, the Separate
Account, the Subaccounts, PADCO II, and the Servicer, are
named or will be named as joint insureds under the terms of a
certain bond or policy of insurance which insures against
larceny and embezzlement of officers and employees (the
"Fidelity Bond"), a copy of which Fidelity Bond is attached
hereto as Exhibit A;
WHEREAS, the trustees of the Trust (the "Trustees"),
including a majority of the Trustees who are not "interested
persons" of the Trust, as that term is defined in Section
2(a)(19) of the 1940 Act, and the managers of the Separate
Account (the "Managers"), including a majority of the Managers
who are not "interested persons" of the Separate Account, as
that term is defined in Section 2(a)(19) of the 1940 Act, and
have considered all relevant factors, including, but not
limited to, the number of the parties named as "joint
insureds" under the joint Fidelity Bond, the nature of the
business activities of such Joint Insureds, the amount of the
joint insured bond, the amount of the premium for such bond,
and the ratable allocation of the premium among all parties
named as insureds under the joint Fidelity Bond, and have
determined that the share of the premium allocated to each of
the Rydex Funds and to each of the New Subaccounts is less
than the premium each such Rydex Fund and each such New
Subaccount, respectively, would have had to pay if each such
<PAGE> - 2 -<PAGE>
Rydex Fund and each such New Subaccount had provided and
maintained a single insured bond, as required pursuant to
paragraph (e) of Rule 17g-1, and also have determined that it
would be in the best interests of (1) the Trust and the Rydex
Funds and (2) the Separate Account and the Subaccounts for (1)
the Trust and the Rydex Funds and (2) the Separate Account and
the Subaccounts, respectively, to be included as covered joint
insureds under the joint insured Fidelity Bond, pursuant to
the requirements of Rule 17g-1 under the 1940 Act;
WHEREAS, a majority of the Trustees of the Trust who are
not "interested persons," as that term is defined in Section
2(a)(19) of the 1940 Act, and a majority of the Managers of
the Separate Account who are not "interested persons," as that
term is defined in Section 2(a)(19) of the 1940 Act, each has
given due consideration to all factors relevant to the form,
amount, and apportionment of premiums and recoveries on such
joint insured Fidelity Bond and such Managers have approved
the term and amount of the Fidelity Bond, the portions of the
premium payable by each of the Rydex Funds, the Subaccounts,
PADCO I, PADCO II, and the Servicer, and the manner in which
recovery of said Fidelity Bond, if any, shall be shared by and
among the parties hereto as set forth; and
WHEREAS, the Trust, the Rydex Funds, PADCO I, the Separate
Account, the Subaccounts, PADCO II, and the Servicer now
desire to enter into the agreement required by Rule 17g-l(f)
under the 1940 Act to establish the manner in which recovery
on said Fidelity Bond, if any, shall be shared.
NOW, THEREFORE, IT IS HEREBY AGREED by and among the
parties as follows:
1. Payment of Premiums
PADCO I shall pay eight percent (8%), PADCO II shall pay
eight percent (8%), the Servicer shall pay four percent (4%),
and the Rydex Funds and the Subaccounts shall pay eighty
percent (80%) of the premium payable under the Fidelity Bond.
Each of the Rydex Funds and the Subaccounts shall pay that
percentage of said amount of the premium due under the
Fidelity Bond which is derived by a fraction, (i) the
denominator of which is the total net assets of all the Rydex
Funds and Subaccounts combined, and (ii) the numerator of
which is the total net assets of each such Rydex Fund or each
such Subaccount individually.
Each of the Rydex Funds, PADCO I, each of the Subaccounts,
PADCO II, and the Servicer agree that the appropriateness of
the allocation of said premium will be determined jointly by
PADCO I and PADCO II (collectively, the "Advisors") on a
monthly basis, subject to approval by both the Trustees and
<PAGE> - 3 -<PAGE>
the Managers of both the Fidelity Bond and this Allocation
Agreement no less often than annually.
2. Allocation of Recoveries
(a) If more than one of the parties hereto is damaged in
a single loss for which recovery is received under the
Fidelity Bond, each such party shall receive that portion of
the recovery which represents the loss sustained by that
party, unless the recovery is inadequate to indemnify fully
such party sustaining a loss.
(b) If the recovery is inadequate to indemnify fully
each such party sustaining a loss, then the recovery shall be
allocated among such parties as follows:
(i) Each such party sustaining a loss shall be allocated
an amount equal to the lesser of that party's actual loss or
the minimum amount of bond which would be required to be
m a intained by such party under a single insured bond
(determined as of the time of the loss) in accordance with the
provisions of Rule 17g-l(d)(1) under the 1940 Act.
(ii) The remaining portion of the proceeds shall be
allocated to each such party sustaining a loss not fully
covered by the allocation under subparagraph 2(b)(i), above,
in the proportion that each such party's last payment of
premium bears to the sum of the last such premium payments of
all such parties. If such allocation would result in any
party which had sustained a loss receiving a portion of the
recovery in excess of the loss actually sustained, such excess
portion shall be allocated among the other parties whose
losses would not be fully indemnified. The allocation shall
bear the same proportion as each such party's last payment of
premium bears to the sum of the last premium payments of all
parties entitled to receive a share of the excess. Any
allocation in excess of a loss actually sustained by any such
party shall be reallocated in the same manner.
3. Obligation to Maintain Minimum Coverage
(a) Each of the Rydex Funds and each of the Subaccounts
represents and warrants to each of the other parties hereto
that the minimum amount of coverage required of each such
Rydex Fund and each such Subaccount, respectively, shall be
determined as of the date hereof pursuant to the schedule set
forth in paragraph (d)(1) of Rule 17g-1 under the 1940 Act.
The parties hereto agree that the Advisors will determine
jointly, no less than at the end of each calendar quarter, the
minimum amount of coverage which would be required of each of
the Rydex Funds and each of the Subaccounts by Rule 17g-
<PAGE> - 4 -<PAGE>
1(d)(1) if a determination with respect to the adequacy of the
coverage were currently being made.
(b) In the event that the total amount of the minimum
coverages thus determined exceeds the amount of coverage of
the then-effective Fidelity Bond, the Trustees and the
Managers will be notified and will determine whether it is
necessary or appropriate to increase the total amount of
coverage of the Fidelity Bond to an amount not less than the
total amount of such minimums, or to secure such excess
coverage for one or more of the parties hereto, which, when
added to the total coverage of the Fidelity Bond, will equal
an amount of such minimums.
(c) Unless either or both the Trust and the Separate
Account elects to terminate this Agreement (pursuant to
Paragraph 4, below) and the Trust's and the Separate Account's
respective participation in a joint-insured bond, each Rydex
Fund and each Subaccount agrees to pay the Rydex Fund's and
the Subaccount's respective fair portion of the new or
additional premium (taking into account all of the then-
existing circumstances).
4. Prior Agreements; Termination
T h is Agreement shall supersede all prior agreements
relating to an allocation of premium on any joint insured bond
and shall apply to the present Fidelity Bond coverage and any
renewal or replacement thereof. This Agreement shall continue
until terminated by any party hereto upon the giving of not
less than sixty (60) days notice to the other parties hereto
in writing.
5. Law Governing
This Agreement is governed by the laws of the State of
Maryland (without reference to such state's conflict of law
rules).
6. Counterparts
This Agreement may be executed in counterparts, each of
which shall be deemed an original, but which together shall
constitute one and the same instrument.
7. Amendment, Modification, and Waiver
No term or provision of this Agreement may be amended,
modified, or waived without the affirmative vote or action by
written consent of each of the parties hereto.
<PAGE> - 5 -<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused these
presents to be duly executed by their duly-authorized officers
as of the date first above written.
ATTEST: RYDEX SERIES TRUST
By: /s/ Timothy P. Hagan By: /s/ Albert P. Viragh, Jr.
Name: Timothy P. Hagan Albert P. Viragh, Jr.
Title: Vice President President
ATTEST: RYDEX SERIES TRUST on behalf of
the RYDEX FUNDS of RYDEX
SERIES
TRUST
By: /s/ Timothy P. Hagan By: /s/ Albert P. Viragh,
Jr.Name: Timothy P. Hagan Albert P. Viragh, Jr.
Title: Vice President President
ATTEST: PADCO ADVISORS, INC.
By: /s/ Timothy P. Hagan By: /s/ Albert P. Viragh, Jr.
Name: Timothy P. Hagan Albert P. Viragh, Jr.
Title: Vice President President
ATTEST: RYDEX ADVISOR VARIABLE
ANNUITY ACCOUNT
By: /s/ Timothy P. Hagan By: /s/ L. Gregory Gloeckner
Name: Timothy P. Hagan L. Gregory Gloeckner
Title: Vice President Vice President
<PAGE> - 6 -<PAGE>
ATTEST: RYDEX ADVISOR VARIABLE ANNUITY
ACCOUNT on behalf of the
SUBACCOUNTS of RYDEX ADVISOR
VARIABLE ANNUITY ACCOUNT
By: /s/ Timothy P. Hagan By: /s/ L. Gregory Gloeckner
Name: Timothy P. Hagan L. Gregory Gloeckner
Title: Vice President Vice President
ATTEST: PADCO ADVISORS II, INC.
By: /s/ Amanda C. Viragh By: /s/ Albert P. Viragh, Jr.
Name: Amanda C. Viragh Albert P. Viragh, Jr.
Title: Secretary President
ATTEST: PADCO SERVICE COMPANY, INC.
By: /s/ Amanda C. Viragh By: /s/ Albert P. Viragh, Jr.
Name: Amanda C. Viragh Albert P. Viragh, Jr.
Title: Secretary President
<PAGE> - 7 -<PAGE>
Exhibit (10)
Opinion and Consent of
Jorden Burt Berenson Klingensmith & Suarez,
counsel to Rydex Series Trust
PAGE
<PAGE>
JORDEN BURT BERENSON & JOHNSON LLP
Suite 400 East
1025 Thomas Jefferson Street, N.W.
Washington, D. C. 20007-0805
(202) 965-8100
Telecopier (202) 965-8104
October 28, 1996
Rydex Series Trust
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
Ladies and Gentlemen:
T h is opinion is furnished in connection with the
registration under the Securities Act of 1933, as amended, of
shares ("Shares") of the following separate series of Rydex
Series Trust (the Trust ) that will be offered and sold by
the Trust: The Nova Fund, The Ursa Fund, The Rydex OTC Fund,
The Rydex Precious Metals Fund, The Rydex U.S. Government Bond
Fund, The Juno Fund, The Rydex High Yield Fund, The Rydex U.S.
Government Money Market Fund, and The Rydex Institutional
Money Market Fund.
I n rendering our opinion, we have examined such
documents, records, and matters of law as we deemed necessary
for purposes of this opinion. We have assumed the genuineness
of all signatures of all parties, the authenticity of all
documents submitted as originals, the correctness of all
copies, and the correctness of all facts set forth in the
certificates delivered to us and the correctness of all
written or oral statements made to us.
Based upon and subject to the foregoing, it is our
opinion that the Shares that will be issued by the Trust when
sold will be legally issued, fully paid, and nonassessable.
Our opinion is rendered solely in connection with the
Registration Statement on Form N-1A under which the Shares
will be registered and may not be relied upon for any other
purposes without our written consent. We hereby consent to
the use of this opinion as an exhibit to such Registration
Statement.
PAGE
<PAGE>
Sincerely,
/S/ JORDEN BURT BERENSON & JOHNSON LLP
JORDEN BURT BERENSON & JOHNSON LLP
PAGE
<PAGE>
Exhibit (11)
Consent of Deloitte & Touche LLP,
independent auditors for
Rydex Series Trust
PAGE
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS CONSENT
Rydex Series Trust
We consent to the incorporation by reference in this Post-
Effective Amendment to the Trust s Registration Statement of
our report dated August 20, 1996 appearing in the Annual
Report - June 30, 1996 and to the reference to us under the
caption Financial Highlights appearing in the Prospectus,
which also is a part of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Princeton, New Jersey
October 25, 1996
PAGE
<PAGE>
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