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As Filed With The Securities And Exchange Commission On
September 11, 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. 26 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 (X)
Amendment No. 27 (X)
RYDEX SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
6116 Executive Boulevard, 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
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:
It is proposed that this filing will become effective (check
appropriate box):
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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
X 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.
The 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.
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RYDEX SERIES TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
This post-effective amendment shall not supersede or affect
this Registration Statement as this Registration Statement
applies to 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 Institutional Money Market 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; Fee
Table
3. Condensed Financial
Information Not Applicable
4. General Description of The Rydex Funds;
Registrant Investment Objectives
and Policies; General
Information About the Trust
5. Management of the Fund Management of the Trust
6. Capital Stock and Other Dividends and
Securities Distributions; Taxes;
General Information About
the Trust
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7. Purchase of Securities How to Invest in the
Being Offered Fund; 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
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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
and History The Rydex Funds
13. Investment Objectives and Investment Policies and
Policies Techniques; Investment
Restrictions
14. Management of the Registrant Management of the Trust
15. Control Persons and Principal Management of the Trust
Holder of 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
onComputation of Yield
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23. Financial Statements Financial Statements
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N-1A Location in
Item No. Registration Statement
Part C: Other Information
24. Financial Statements and Financial Statements
Exhibits and Exhibits
25. Persons Controlled By or Under Persons Controlled By or
Common Control Under Common Control
26. Number of Holders of Securities Number of Holders of
Shares of Beneficial
Interest
27. Indemnification Indemnification
28. Business and Other Connections Business and Other
of Investment Adviser Connections of Investment
Adviser
29. Principal Underwriters Principal Underwriter
30. Location of Accounts Location of Accounts
and Records and Records
31. Management Services Management Services
32. Undertakings Undertakings
33. Signatures Signatures
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PART A
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RYDEX SERIES TRUST PROSPECTUS
RYDEX HIGH YIELD FUND
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852
(800) 820-0888 (301) 468-8520
INVESTMENT OBJECTIVE AND POLICIES
The Rydex High Yield Fund (the Fund ) is a diversified series
of the Rydex Series Trust, an open-end management investment
company (the Trust ). The investment objective of the Fund
is to seek to provide investment returns that correspond to a
benchmark for high yield fixed income securities. The Fund s
current benchmark is the Merrill Lynch High Yield Master
IndexTM (the MLHY Index ). The Fund s secondary investment
objective is to seek high current income and capital
appreciation. To achieve its objectives, the Fund will
invest in securities included in the MLHY Index. In addition,
the Fund may invest in securities that are expected to perform
in a manner that will assist the Fund s performance to track
closely the investment performance of the MLHY Index. The
Fund will invest primarily in below investment grade corporate
bonds, commonly known as junk bonds. Investments of this
type are subject to greater risks, including default risks,
than those found in higher rated securities. Purchasers
should carefully assess the risks associated with an
investment in the Fund. See Special Risk Factors.
ADDITIONAL INFORMATION
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 Fund alone does not constitute a balanced
investment plan. The nature of the Fund 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. Sales of the Fund shares
are made, without sales charges, at the Fund s per share net
asset value.
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
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the Fund. A Statement of Additional Information, dated
________________, 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 that 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 ________________, 1996.
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PROSPECTUS SUMMARY
The Fund
The Rydex High Yield Fund (the Fund ) is a diversified series
of the Rydex Series Trust, an open-end management investment
company (the Trust ) that currently is comprised of nine
separate series, including the Fund (collectively, the Rydex
Funds ). The investment objective of the Fund is to seek to
provide investment returns that correspond to a benchmark for
high yield fixed income securities. The Fund s current
benchmark is the Merrill Lynch High Yield Master IndexTM (the
MLHY Index ). The Fund s secondary investment objective is
to seek high current income and capital appreciation. To
achieve its objective, the Fund will invest in securities
included in the MLHY Index. In addition, the Fund may invest
in securities that are expected to perform in a manner that
will assist the Fund s performance to track closely the
investment performance of the MLHY Index. (See The Rydex
Funds and Investment Objectives and Policies .) While the
Fund does not expect that the returns over a year will deviate
adversely from its current benchmark by more than ten percent,
certain factors may affect the Fund s ability to achieve this
correlation, and there is no assurance that the Fund will
achieve its investment objectives. See Tracking Error under
Special Risk Factors for a discussion of these factors.
Special Risk Considerations
The Fund will invest primarily in below investment grade
corporate bonds, commonly known as junk bonds. Investments
of this type are subject to greater risks, including default
risks and market risks, than those found in higher rated
securities. Below investment grade securities are of poorer
quality, may have speculative characteristics, and may present
elements of danger with respect to principal or interest.
Purchasers should carefully assess the risks associated with
an investment in the Fund. (See Special Risk Factors. )
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 Fund alone does not constitute a balanced
investment plan. The nature of the Fund 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. (See Special Risk
Factors. )
Investment Advisor, Sub-Advisor, and Servicer
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The Fund s investment adviser is PADCO Advisors, Inc., a
Maryland corporation with offices at 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852 (the Advisor ). The
Fund pays the Advisor an investment management fee of 0.75% of
the average daily net assets of the Fund. Pursuant to a sub-
advisory agreement between the Advisor and Loomis, Sayles &
Company, L.P. (the Sub-Advisor ), the Advisor pays the Sub-
Advisor 0.375% of the average daily net assets of the Fund for
providing portfolio management services to the Fund. PADCO
Service Company, Inc. (the Servicer ), provides the Fund with
general administrative, transfer agent, shareholder, and
registrar services for a fee of 0.20% of the average daily net
assets of the Fund. (See Management of the Trust. )
Purchases, Redemptions, and Exchanges
Shares of the 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 the Fund may
be exchanged at any time for shares of any other available
Rydex Fund, without any charge, on the basis of the relative
net asset values next computed (subject to compliance with
applicable minimum investment requirements). 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 initial investment in total value in the
Trust due to redemptions, after providing 60 days written
notice to the investor. In addition, any request 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. )
FEE TABLE
The following table illustrates all expenses and fees that a
shareholder of the Fund will incur:
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested
Dividends None
Deferred Sales Load None
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Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.75%*
12b-1 Fees 0.25%
Other Expenses:
Administrative Fees 0.20%
Additional Expenses 0.15%**
Total Fund Operating Expenses 1.35%
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* The management fee is higher than the management fee paid
by most other investment companies.
** Additional expenses are based on estimated amounts for
the current fiscal year.
Example
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
$ $
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
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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 Investment In the Fund and
Management of the Trust in this Prospectus.
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 the Institutional Money Market 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 Institutional Money Market 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 the
Institutional Money Market Fund, certain minimum investment
levels are maintained (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. The Trust reserves
the right to restrict exchanges out of the Fund if necessary
to preserve the Fund s tax status.
INVESTMENT OBJECTIVES AND POLICIES
General
The investment objective of the Fund is to seek to provide
investment returns that correspond to a benchmark for high
yield fixed income securities. The Fund s current benchmark
is the MLHY Index. The Fund s secondary investment objective
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is to seek high current income and capital appreciation.
Although there is no assurance that the Fund s objective will
be achieved, the Fund will seek to achieve its objectives by
investing primarily in a variety of long-term, intermediate-
term, and short-term below investment grade corporate bonds
(including convertible issues) commonly known as junk bonds
and low-rated preferred securities. The Fund may also invest
in United States dollar-denominated bonds issued by foreign-
owned companies, provided that these bonds are included in the
MLHY Index.
The Fund may also invest in U.S. Government securities, bank
certificates of deposit, repurchase agreements, and, when
consistent with the Fund s objectives, common stocks, rights,
or other equity securities. The Fund may also purchase and
sell futures contracts, index futures contracts, and options
thereon, and also may purchase and sell options on securities
and index options, to meet its objectives. The Fund may
temporarily invest a portion of its assets in cash items.
The investment objective and secondary objective of the Fund
each is 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, including the benchmark index for
high yield fixed income securities, may be changed without the
approval of shareholders. The trustees of the Trust (the
Trustees ) may consider changing the Fund s benchmark (to
the extent permitted) if, for example, the current benchmark
is 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 sufficiently
to its current benchmark. If believed appropriate, the
Trustees may specify a benchmark for the Fund that is
leveraged or proprietary.
High Yield Corporate Bonds
The corporate bonds primarily purchased by the Fund will be
rated in below investment grade categories by Moody s
Investors Service, Inc. ( Moody s ) or Standard & Poor s
Ratings Group ( Standard & Poor s ) ( Ba or lower by Moody s,
BB or lower by Standard and Poor s). The Fund does not
invest in securities rated lower than Caa by Moody s or
CCC by Standard & Poor s; these ratings are applied to
issues which are predominantly speculative and may be in
default or as to which there may be present elements of danger
with respect to principal or interest. The Fund does not
invest in issues which are in default. The Fund may invest in
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unrated securities when the Sub-Advisor believes that the
financial condition of the issuer or the protection afforded
by the terms of the securities limits risk to a level similar
to that of securities eligible for purchase by the Fund rated
in below investment grade categories by Moody s or Standard &
Poor s (between Ba and Caa ratings by Moody s and between
BB and CCC ratings by Standard & Poor s). See Appendix A
to this Prospectus for a specific description of each
corporate bond rating category.
The securities in which the Fund invests offer a wide range of
maturities (from less than one year to thirty years) and
yields. These securities include short-term bonds or notes
(maturing in less than three years), intermediate-term bonds
or notes (maturing in three to ten years), and long-term bonds
(maturing in more than ten years). While there are no
limitations on the average maturity of the securities held by
the Fund, the Fund s average portfolio maturity will
ordinarily be comparable to that of its benchmark. As of July
30, 1996, the average years-to-maturity of the MLHY Index was
approximately nine years.
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
Reserve System or primary dealers of U.S. Government
Securities.
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
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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.
Other Investments
The Fund also may purchase bank money market instruments,
including certificates of deposit, time deposits, bankers
acceptances, other short-term obligations issued by U.S. banks
which are members of the Federal Reserve System, and
commercial paper, including corporate notes.
Portfolio Transactions and Brokerage
When selecting broker-dealers to execute portfolio
transactions, the Sub-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.
SPECIAL RISK FACTORS
Credit and Market Risks
All securities, including those purchased by the Fund, are
subject to some degree of credit risk and market risk.
Credit risk refers to the ability of an issuer of a debt
security to pay its principal and interest, and to the
earnings stability and overall financial soundness of an
issuer of an equity security. Market risk refers to the
volatility of a security s price in response to changes in
conditions in securities markets in general, and, particularly
in the case of debt securities, to changes in the overall
level of interest rates. An increase in interest rates will
tend to reduce the market values of debt securities, whereas a
decline in interest rates will tend to increase their values.
High Yield Securities
Both credit and market risks are increased by the Fund s
investment in debt securities rated below the top four grades
by Standard & Poor s or Moody s and comparable unrated debt
securities. Below investment grade bonds by Moody s
(categories Ba, B, Caa ) are of poorer quality and may
have speculative characteristics. Bonds rated Caa may be in
default or there may be present elements of danger with
respect to principal or interest. Below investment grade
bonds rated by Standard & Poor s (categories BB, B, CCC )
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include those which are regarded, on balance, as predominantly
speculative with respect to the issuer s capacity to pay
interest and repay principal in accordance with their terms;
BB indicates the lowest degree of speculation and CCC
indicates a high degree of speculation. While such bonds will
likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures
to adverse conditions.
The share price and yield of the Fund may be expected to
fluctuate more than in the case of mutual funds that invest in
higher quality, shorter term securities. Moreover, a
significant economic downturn or major increase in interest
rates may result in issuers of below investment grade
securities experiencing increased financial stress, which
could adversely affect their ability to service their
principal, interest, and dividend obligations, meet projected
business goals, and obtain additional financing. In this
regard, it should be noted that while the market for high
yield corporate bonds has been in existence for many years and
from time to time has experienced economic downturns in recent
years, this market has involved a significant increase in the
use of high yield corporate debt securities to fund highly
leveraged corporate acquisitions and restructurings. Past
experience may not, therefore, provide an accurate indication
of future performance of the high yield bond market,
particularly during periods of economic recession.
Furthermore, expenses incurred to recover an investment by the
Fund in a defaulted security may adversely affect the Fund s
net asset value. Finally, the secondary market for high yield
securities may be less liquid than the market for higher
quality securities. The reduced liquidity of the secondary
market for high yield securities may adversely affect the
market price of, and the ability of the Fund to value,
particular securities at certain times, thereby making it
difficult to make specific valuation determinations.
While the Fund attempts to provide investment returns that
correspond to a benchmark for high yield fixed income
securities (currently the MLHY Index), there is no assurance
that it will be able to do so. The Fund will not purchase all
of the securities that comprise its benchmark index.
Accordingly, changes in the value of the Fund s shares may not
exactly correspond to changes in the benchmark index.
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
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qualified institutional buyers under Rule 144A under the
1933 Act. The Fund will not invest more than 15% of the
Fund s net assets in illiquid securities. The 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-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 Sub-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 otherwise 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 and/or a sub-adviser. The Trustees have
delegated this responsibility for determining the liquidity of
Rule 144A restricted securities which may be invested in by
the Fund to the Advisor and the Sub-Advisor. It is not
possible to predict with assurance exactly how the market for
Rule 144A restricted securities or any other security will
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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
The Trust anticipates that investors in the Fund, as part of
an asset-allocation or market-timing investment strategy, will
frequently redeem shares of the Fund, as well as exchange
their shares of the Fund for shares in other Rydex Funds
pursuant to the exchange policy of the Trust (see
Exchanges ), which would cause the Fund to experience high
portfolio turnover. Because the Fund s portfolio turnover
rate to a great extent will depend on the purchase,
redemption, and exchange activity of its investors, it is very
difficult to estimate what the Fund s actual turnover rate
generally will be. Pursuant to the formula prescribed by the
Commission, the portfolio turnover rate for the Fund is
calculated without regard to securities, including options and
futures contracts, having a maturity of less than one year.
Significant portfolio turnover will tend to increase the
realization by the 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
the 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 the 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 higher portfolio turnover rate would likely
involve correspondingly greater brokerage commissions and
other expenses which would be borne by the Fund. Furthermore,
the Fund s portfolio turnover level may adversely affect the
ability of the Fund to achieve its investment objective.
Tracking Error
While the Fund does not expect that the returns over a year
will deviate adversely from its benchmark by more than ten
percent, several factors may affect its ability to achieve
this correlation. Among those factors are: (1) Fund
expenses, including dealer spreads (which may be increased by
high portfolio turnover); (2) less than all of the securities
<PAGE> - 12 -
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in the benchmark being held by the Fund and securities not
included in the benchmark being held by the Fund; (3) bid-ask
spreads (the effect of which may be increased by portfolio
turnover); (4) the Fund holds instruments traded in a market
that has become illiquid or disrupted; (5) Fund share prices
being rounded to the nearest cent; (6) changes to the
benchmark index that are not disseminated in advance; or (7)
the need to conform the Fund s portfolio holdings to comply
with investment restrictions or policies or regulatory or tax
law requirements.
Repurchase Agreements
The Advisor will monitor the creditworthiness of each firm
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.
The Fund will not enter into repurchase agreements of more
than seven days duration if more than 15% 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.
Aggressive Investment Techniques
While the Fund normally will invest substantially all of its
assets in high yield corporate bonds, it has reserved the
right to, and may, from time to time, engage in certain
aggressive investment techniques which may include engaging in
transactions in futures contracts and options on securities,
securities indexes, and futures contracts. Participation in
the options or futures markets by the Fund involves investment
risks and transaction costs to which the Fund would not be
subject absent the use of these strategies. Risks inherent in
the use of options, futures contracts, and options on futures
contracts include: (1) adverse changes in the value of such
<PAGE> - 13 -
<PAGE>
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 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 closing out certain
positions to avoid adverse tax consequences. (For further
information regarding these investment techniques, see
Investment Policies and Techniques in the Statement of
Additional Information.)
HOW TO INVEST IN THE FUND
The minimum initial investment in the Fund for all shareholder
accounts, including retirement plan accounts, is $25,000. 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
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.
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.
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<PAGE>
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 2:15 P.M., Eastern Time,
on any business day, the purchase of Fund shares is executed
at the offering price determined as of 3:00 P.M., Eastern
Time, that day. If the purchase order is received after 2:15
P.M., Eastern Time, the purchase of Fund shares will be
effected on the next business day. (See Procedures for
Redemptions and Exchanges. )
In 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
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 the 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.
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
<PAGE> - 15 -
<PAGE>
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.
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, after providing 60 days
written notice to the investor. In addition, any request 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.
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 ), the Federal Reserve Bank of Kansas City (the
Kansas City 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 Commission, by order, may permit for protection
of the Fund s investors. On any day that the NYSE closes
early, the principal government securities markets close early
(such as on 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. 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 U.S. Government Money Market Fund,
<PAGE> - 16 -
<PAGE>
The Rydex Institutional Money Market Fund, and The Rydex High
Yield 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. An exchange into the Rydex
Institutional Money Market Fund is permitted only if that
Rydex Fund s minimum investment of $2 million is satisfied.
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
exchange legally may be made and may be modified or
discontinued at any time.
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 Fund 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 time 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 OTC Funds . . . . . . . . 3:45 P.M.
The Metals Fund . . . . . . . . . . . . . . . 3:30 P.M.
The Bond and Juno Funds . . . . . . . . . . . 2:45 P.M.
The High Yield Fund . . . . . . . . . . . . . 2:15 P.M.
The Rydex U.S. Government Money Market Fund . 1:00 P.M.
The Rydex Institutional Money Market Fund . . 1:00 P.M.
Telephone redemption and exchange orders will be accepted only
during the periods indicated above. If the primary exchange
or market on which the Rydex Fund transacts business closes
early, the above cut-off time will be fifteen minutes (thirty
minutes, in the case of the Metals 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.
<PAGE> - 17 -
<PAGE>
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
fraudulent 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 the NYSE and either the New York Fed or the
Kansas City Fed is open at 3:00 P.M., Eastern Time.
Currently, the NYSE is 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 NYSE, the New York Fed, or the Kansas City 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, the New York
Fed, and the Kansas City 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 s net asset value per share is
calculated by dividing the market value of the Fund s
securities plus the values of its other assets (including
dividends and interest accrued but not collected), less all
liabilities (including accrued expenses), 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 Sub-Advisor using methods
established or ratified by the Board of Trustees. Debt
securities with remaining maturities of 60 days or less at the
<PAGE> - 18 -
<PAGE>
time of purchase will be valued at amortized cost, absent
unusual circumstances, so long as the Board of Trustees
believes that valuation method results in a fair value for
such securities.
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
Additional 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 intends (i) to declare dividends of ordinary income
for shares of the Fund on a daily basis, and to distribute
such dividends to shareholders of the Fund on a monthly basis,
and (ii) to distribute annually any long-term capital gains to
the shareholders of the Fund. The Trustees, however, may
declare a special distribution for the Fund if the Trustees
believe that such a distribution would be in the best interest
of the Fund s shareholders.
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
<PAGE> - 19 -
<PAGE>
the Code. So long as the Fund qualifies as a RIC, the Fund
will not be liable for Federal income taxes to the extent the
Fund s earnings are distributed within the time periods
specified in the Code.
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
will not be liable for 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, including its net long-term capital
gains.
Satisfaction of the 90% Test will impose limitations on the
investment strategies that may be pursued by the Fund. In
addition, because of the anticipated frequency of redemptions
and exchanges of the shares of the Fund, the Fund will have
greater difficulty than other mutual funds in satisfying the
30% Test. The Trust expects that investors in the Fund, as
part of their market-timing investment strategy, are likely to
redeem or exchange their shares in the Fund frequently to take
advantage of anticipated changes in market conditions. Such
redemptions or exchanges are likely to require the 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, the Fund intends to
satisfy obligations in connection with redemptions and
exchanges first by using available cash 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 or by using
borrowing facilities. If the 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
<PAGE> - 20 -
<PAGE>
provision in the Code that excludes from the 30% Test any
gains resulting from sales made as a result of abnormal
redemptions. To the reduce the risk of failing the 30% Test,
the Fund also may engage in 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 Fund and
Commission regulations). Notwithstanding these actions, there
can be no assurance that the 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 the Fund will not qualify as a
RIC under Subchapter M of the Internal Revenue Code, the Trust
will establish procedures for the Fund to reflect the
anticipated tax liability in the Fund s net asset value. To
the extent that management of the 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
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 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.
Under current law, distributions of net long-term gains, if
any, realized by the Fund and designated as capital gains
distributions will be taxed to the shareholders of the Fund as
long-term capital gains regardless of the length of time the
shares of the 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 Fund s dividends in their own
states and localities.
Ordinary dividends paid to corporate or individual residents
of foreign countries generally are subject to a 30%
<PAGE> - 21 -
<PAGE>
withholding tax. The rate of withholding tax may be reduced
if the United States has an income tax treaty with the foreign
country 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 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
The Advisor
The Trust is provided investment management services by PADCO
Advisors, Inc. (the Advisor ), a Maryland corporation with
offices at 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852. 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.
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 0.75% of the average daily net assets of
the Fund. The management fee paid by the Fund is higher than
the management fee paid by most other investment companies.
The Advisor is responsible for the management of the
investment and the reinvestment of the assets of the Fund, in
accordance with the investment objectives, policies, and
limitations of the Fund, and 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. In
<PAGE> - 22 -
<PAGE>
providing these advisory services, the Advisor, at its own
expense, has been authorized by the Trustees to employ a sub-
adviser and to enter into such service agreements as the
Advisor deems appropriate in connection with the management of
the Fund. 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.
The Sub-Advisor
Loomis, Sayles & Company, L.P. (the Sub-Advisor ), is the
sub-adviser of the Fund. As such, the Sub-Advisor is
responsible for daily managing the investment and reinvestment
of assets of the Fund, subject generally to review and
supervision of the Advisor and the Trustees. The Sub-Advisor
bears all expenses in connection with the performance of its
services, such as compensating and furnishing office space for
its officers and employees connected with the investment and
economic research, trading, and investment management of the
Fund.
The Sub-Advisor is a Delaware limited partnership, registered
as an investment adviser with the Commission, with offices at
2001 Pennsylvania Avenue, N.W., Suite 200, Washington, D. C.
20016. The Sub-Advisor s principal business address is One
Financial Center, Boston, Massachusetts 02111. Founded in
1926, the Sub-Advisor is one of the country's oldest and
largest investment firms. The Sub-Advisor's general partner
is indirectly owned by New England Investment Companies, L.P.,
a publicly-traded limited partnership whose general partner is
a wholly-owned subsidiary of Metropolitan Life Insurance
Company. The portfolio managers of the Fund are Steven J.
Doherty and Stephanie S. Lord. Mr. Doherty is a Vice
President of the Sub-Advisor. From 1986 to 1996, Mr. Doherty
was the portfolio manager of Howard Hughes Medical Institute
in Chevy Chase, Maryland. From 1982 to 1986, Mr. Doherty was
an Assistant Vice President and the portfolio manager of the
National Bank of Washington in Washington, D. C. Mr. Doherty
earned his Chartered Financial Analyst designation in 1990,
received his Master of Business Administration in Finance and
Investments from The George Washington University, Washington,
D. C., in 1986, and received his bachelor's degree in Business
Administration from The George Washington University,
Washington, D. C., in 1982. Ms. Lord has been a Vice
President of the Sub-Advisor since 1987. Ms. Lord earned her
<PAGE> - 23 -
<PAGE>
Chartered Financial Analyst designation in 1991, and received
her bachelor's degree in Business Administration from The
University of Iowa, Iowa City, Iowa, in 1987.
Under an investment sub-advisory agreement between the Advisor
and the Sub-Advisor, dated , 1996, which sub-
advisory agreement has been approved by the Trustees, the
Advisor pays the Sub-Advisor a fee at an annualized rate of
0.375% of the average daily net assets of the Fund.
The Servicer
General administrative, shareholder, dividend disbursement,
transfer agent, and registrar services are provided to the
Trust and the Fund by PADCO Service Company, Inc. (the
Servicer ), 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852, 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. 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
general administrative services, including, without
limitation, office space, equipment, and personnel; clerical
and general back office services; bookkeeping, internal
accounting, and secretarial services; the determination of net
asset values; and the preparation and filing of all reports,
registration statements, proxy statements, and all other
materials required to be filed or furnished by the Trust and
the Fund under Federal and state securities laws. The
Servicer also maintains the shareholder account records for
the Trust 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.
The Distributor
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
Services, Inc. (the Distributor ), 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852, subject to the general
<PAGE> - 24 -
<PAGE>
supervision and control of the Trustees and the officers of
the Trust. Under the Distribution Plan, dated September 25,
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
insurance premiums; expenses of preparing and printing
prospectuses, confirmations, proxy statements, and shareholder
reports and notices; registration fees and expenses; proxy and
annual meeting expenses, if any) (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 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
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,
including bank trust departments, and other persons
( Recipients ) who have executed a distribution or service
agreement with the Distributor.
<PAGE> - 25 -
<PAGE>
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
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 past investment
performance. Any such advertisement would include at least
the average annual total return quotations for one, five, and
ten-year periods, or for the life of the Fund. Other total
return quotations (e.g., aggregate or average total returns
over other time periods for the Fund) and the Fund s current
yield (as described below) may also be included. No
adjustments to total returns or to current yields are made to
reflect any income taxes payable by shareholders on dividends
and distributions paid by the Fund. Total return and current
yield data are based upon the Fund s past investment
performance and are not intended to indicate its future
investment performance. A more-detailed description of the
<PAGE> - 26 -
<PAGE>
method by which the Fund s total returns and current yields
are calculated is included in the Fund s Statement of
Additional Information under Calculation of Return
Quotations and Information on Computation of Yield.
The Fund s total return 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
of the initial investment from the ending value and showing
the difference as a percentage of the initial investment,
assuming all income dividends or capital gains distributions
during the period are reinvested in shares of the Fund.
The Fund s current yield is determined by analyzing its net
income per share for a thirty-day (or one-month) period
(identified 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.
The 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 it
owns, its average portfolio maturity, and its expenses. Yield
quotations should be considered relative to changes in the net
asset value of the Fund s shares, its investment policies, and
the risks of investing in its shares. The investment return
and principal value of an investment in the Fund will
fluctuate so that an investor s shares, when redeemed, may be
worth more or less than their original cost.
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 U.S. Government Money Market Fund, The Rydex
Institutional Money Market Fund, and The Rydex High Yield
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
voting rights, and none of the shares have any preference to
<PAGE> - 27 -
<PAGE>
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
investment 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
shareholders or by written consent. If requested by
shareholders of at least 10% of the outstanding shares of the
Trust, the Trust will call a meeting of Trust shareholders for
the purpose of voting upon the question of removal of a
Trustee 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 s 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> - 28 -
<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
custody 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> - 29 -
<PAGE>
APPENDIX A
Bond Ratings
Below is a description of Standard & Poor s Ratings Group
( Standard & Poor s ) and Moody s Investors Service, Inc.
( Moody s ) bond rating categories. The Fund normally invests
in bonds rated BB or lower by Standard & Poor s and/or Ba
or lower by Moody s.
Standard & Poor s Ratings
Group Corporate Bond Ratings
AAA -- This is the highest rating assigned by Standard &
Poor s to a debt obligation and indicates an extremely strong
capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from
AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay
principal and interest, although they are somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than bonds in higher rated categories.
BBB -- Bonds rated BBB are regarded as having an
adequate capability to pay principal and interest. Whereas
they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay principal and interest
for bonds in this category than for bonds in higher rated
categories.
BB -- Bonds rated BB have less near-term vulnerability to
default than other speculative issues. However, they face
major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments.
B -- Bonds rated B have a greater vulnerability to
default but currently have the capacity to meet interest
payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal.
CCC -- Bonds rated CCC have a currently identifiable
vulnerability to default and are dependent upon favorable
business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event
<PAGE> - 30 -
<PAGE>
of adverse business, financial, or economic conditions, they
are not likely to have the capacity to pay interest and repay
principal.
Moody s Investors Service, Inc.
Corporate Bond Ratings
Aaa -- Bonds rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as gilt-edged. Interest
payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds rated Aa are judged to be of high quality by
all standards. Together with the Aaa group, they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protections may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long term risk appear
somewhat larger than in Aaa securities.
A -- Bonds rated A possess many favorable investment
attributes, and are to be considered as upper medium grade
obligations. Factors giving security principal and interest
are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds rated Baa are considered as medium grade
obligations (i.e., they are neither highly protected nor
poorly secured). Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds rated Ba are judged to have speculative
elements. Their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or maintenance of other terms of the contract over
any longer period of time may be small.
<PAGE> - 31 -
<PAGE>
Caa -- Bonds rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
<PAGE> - 32 -
<PAGE>
RYDEX HIGH YIELD FUND
THE RYDEX SERIES TRUST
PROSPECTUS
________________, 1996
Table of Contents
Page
Prospectus Summary
Fee Table
The Rydex Funds
Investment Objectives and Policies
Special Risk Factors
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>
<PAGE>
PART B
<PAGE>
<PAGE>
RYDEX SERIES TRUST
RYDEX HIGH YIELD FUND
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852
(800) 820-0888 (301) 468-8520
STATEMENT OF ADDITIONAL INFORMATION
The Rydex High Yield Fund (the Fund ) is a diversified series
of the Rydex Series Trust, an open-end management investment
company (the Trust ). The investment objective of the Fund is
to seek to provide investment returns that correspond to a
benchmark for high yield fixed income securities. The Fund s
current benchmark is the Merrill Lynch High Yield Master
Index (the MLHY Index ). The Fund s secondary investment
objective is to seek high current income and capital
appreciation. Although there is no assurance that the Fund s
objective will be achieved, the Fund will seek to achieve its
objectives by investing primarily in a variety of long-term,
intermediate-term, and short-term below investment grade
corporate bonds (including convertible issues) commonly known
as junk bonds and below investment grade preferred
securities. 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.
This Statement of Additional Information is not a prospectus.
It should be read in conjunction with the Fund s Prospectus,
dated ________________, 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
________________, 1996.
<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
The Rydex Fund . . . . . . . . . . . . . . . . . . . . . B-
Investment Policies and Techniques . . . . . . . . . . . B-
Investment Restrictions . . . . . . . . . . . . . . . . . B-
Portfolio Transactions and Brokerage . . . . . . . . . . B-
Management of the Trust . . . . . . . . . . . . . . . . . B-
Distribution Plan . . . . . . . . . . . . . . . . . . . . B-
Determination of Net Asset Value . . . . . . . . . . . . B-
Performance Information . . . . . . . . . . . . . . . . . B-
Calculation of Return Quotations . . . . . . . . . . . . B-
Information on Computation of Yield . . . . . . . . . . . B-
Dividends, Distributions, and Taxes . . . . . . . . . . . B-
Auditors and Custodian . . . . . . . . . . . . . . . . . B-
Financial Statements . . . . . . . . . . . . . . . . . . B-
Appendix A . . . . . . . . . . . . . . . . . . . . . . . B-
<PAGE> B-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 High Yield 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 The Rydex Institutional Money Market
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 the separate Prospectus and Statement 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 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. Investment management services are
provided to the Fund by the Trust s investment adviser, PADCO
Advisors, Inc. (the Advisor ), a Maryland corporation with
offices at 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852 and portfolio management services are provided
to the Fund by the Fund s sub-adviser, Loomis, Sayles &
Company, L. P. (the Sub-Advisor ), a Delaware limited
partnership with offices at 2001 Pennsylvania Avenue, N.W.,
Suite 200, Washington, D. C. 20016.
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 Sub-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.
Futures Contracts and Options Thereupon
<PAGE> B-3
<PAGE>
The Fund may purchase securities index futures contracts as a
substitute for a comparable market position in the underlying
securities.
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 securities 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
securities 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 securities in the index is
made. It is the practice of holders of other futures
contracts to close out their positions on or before the
expiration date by use of offsetting contract positions and
physical delivery is thereby avoided.
The Fund may purchase put or call options and write (sell) put
options on securities index futures contracts. When the 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 a
put or call option on a futures contract, the 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 the 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 call
options on futures contracts is potentially unlimited. The
Fund may engage in related closing transactions with respect
to options on futures contracts. The Fund 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, the 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 in the Prospectus.
The Fund 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
(the CFTC Regulations ), under which the Fund would be
excluded from the definition of a commodity pool operator.
<PAGE> B-4
<PAGE>
Under Section 4.5 of the CFTC Regulations, the 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 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 the Fund purchases or sells a securities index futures
contract, or sells an option thereon, the Fund covers its
position. To cover its position, the Fund may maintain with
its custodian bank (and mark-to-market on a daily basis) a
segregated account consisting of cash or liquid securities
that, when added to any amounts deposited with a futures
commission merchant as margin, are equal to the market value
of the futures contract or otherwise cover its position. If
the Fund continues to engage in the described securities
trading practices and properly segregates assets, the
segregated account will function as a practical limit on the
amount of leverage which the Fund may undertake and on the
potential increase in the speculative character of the Fund s
outstanding portfolio securities. Additionally, such
segregated accounts will generally assure the availability of
adequate funds to meet the obligations of the Fund arising
from such investment activities.
The 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 liquid
securities equal in value to the difference between the strike
price of the put and the price of the future. The Fund may
also cover its long position in a futures contract by taking a
short position in the instruments underlying the futures
contract, or by taking positions in instruments the prices of
which are expected to move relatively consistently with the
futures contract. The Fund may cover its short position in a
futures contract by taking a long position in the instruments
underlying the futures contract, or by taking positions in
instruments the prices of which are expected to move
relatively consistently with the futures contract.
<PAGE> B-5
<PAGE>
The 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 call, the Fund will maintain in a
segregated account cash or liquid securities equal in value
to the difference between the strike price of the call and the
price of the future. The 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. The Fund may cover its sale of a put option on a
futures contract by taking a short position in the underlying
futures contract at a price greater than or equal to the
strike price of the put option, or, if the short position in
the underlying futures contract is established at a price less
than the strike price of the written put, the Fund will
maintain in a segregated account cash or liquid securities
equal in value to the difference between the strike price of
the put and the price of the future. The 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 Fund intends 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
preventing prompt liquidation of futures positions and
potentially subjecting the Fund to substantial losses. If
trading is not possible, or the Fund determines not to close a
futures position in anticipation of adverse price movements,
the Fund will be required to make daily cash payments of
variation margin. The risk that the Fund will be unable to
close out a futures position will be minimized by entering
into such transactions on a national exchange with an active
and liquid secondary market.
Index Options Transactions
The Fund may write and purchase put and call options on
securities 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 in
the Prospectus.
<PAGE> B-6
<PAGE>
A securities index fluctuates with changes in the market
values of the securities included in the index. Options on
securities 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
securities 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. Unlike the options
on securities discussed below, all settlements of index
options transactions are in cash.
Some securities index options are based on a broad market
index such as the Standard & Poor s 500 Composite Stock Price
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 in the Prospectus.
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 the Fund may buy or sell; however, the
Sub-Advisor intends to comply with all limitations.
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 securities
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 security, whether the
Fund will realize a gain or loss from the purchase or writing
<PAGE> B-7
<PAGE>
of options on an index depends upon movements in the level of
securities prices in the securities 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
security. Whether the Fund will realize a profit or loss by
the use of options on securities indexes will depend on
movements in the direction of the securities 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 securities. The
Fund will not enter into an option position that exposes it 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 its custodian bank (and marks-to-
market on a daily basis) a segregated account consisting of
cash or liquid securities that, when added to the premiums
deposited with respect to the option, are equal to the market
value of the underlying securities index not otherwise
covered.
The Sub-Advisor may, but does not currently expect to, utilize
index options as a technique to leverage the portfolio of the
Fund. If the Sub-Advisor is correct in its assessment of the
future direction of securities prices, the share price of the
Fund will be enhanced. If the Sub-Advisor has the Fund take a
position in options and securities prices move in a direction
contrary to the Sub-Advisor s forecast, however, the Fund
would incur greater loss than it would have incurred without
the options position.
U.S. Government Securities
The Fund may invest in obligations of the U.S. Treasury or
obligations either issued or guaranteed, as to principal and
interest, by the U.S. Government, its agencies or
instrumentalities, including money market instruments ( U.S.
Government 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
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
<PAGE> B-8
<PAGE>
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 Sub-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
addition, the value of the collateral underlying the
repurchase agreement will always be at least equal to the
repurchase price, including any accrued interest earned on the
repurchase agreement. In the event of a default or bankruptcy
by a selling financial institution, the Fund will seek to
liquidate such collateral. 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 total
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
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
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. 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 liquid 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
<PAGE> B-9
<PAGE>
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 Sub-Advisor they 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
investment available to the Fund will result in the
achievement of its objectives.
Lending of Portfolio Securities
The Fund has no present intention of lending portfolio
securities, however the Fund reserves the right, subject to
the investment restrictions set forth below, to 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 of the Fund are on loan, the borrower will pay the
Fund any income accruing thereon, and the Fund may invest the
cash collateral in portfolio securities, thereby earning
additional income. The 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 Fund will not lend more than 33 %
of the value of the Fund s total assets. Loans of the Fund s
portfolio securities would be subject to termination by the
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 insures to the Fund and the Fund s shareholders. The
Fund may pay reasonable finders, borrowers, administrative,
and custodial fees in connection with a loan of the Fund s
portfolio securities.
Illiquid Securities
<PAGE> B-10
<PAGE>
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 15% of the
Fund s net assets in illiquid securities. The 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-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 otherwise 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 and/or a sub-adviser. The trustees of the
<PAGE> B-11
<PAGE>
Trust (the Trustees ) have delegated this responsibility for
determining the liquidity of Rule 144A restricted securities
which may be invested in by the Fund to the Advisor and the
Sub-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
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
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 the Fund s portfolio.
These restrictions provide that the Fund may not:
1. Lend any security or make any other loan if, as a
result, more than 33 % 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.
<PAGE> B-12
<PAGE>
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
securities in connection with transactions in
options, futures, options on futures, and other
similar investments, and except as otherwise
permitted herein and in Investment Restriction Nos.
5, 7, 8, and 9, 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
initial or variation margin arrangements with
respect to currency transactions, options, futures
contracts, including those relating to indexes, and
options on futures contracts or indexes.
6. Invest in commodities except that the Fund may
purchase and sell futures contracts, including those
relating to securities, currencies, indexes, and
options on futures contracts or indexes and
currencies underlying or related to any such futures
contracts, and purchase and sell currencies (and
options 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.
8. Borrow money, except the Fund may borrow money
(i) from a bank in an amount not in excess of 33 %
of the total value of the Fund s assets (including
<PAGE> B-13
<PAGE>
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.
9. 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. 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.
Furthermore, the Trustees have adopted additional investment
restrictions for the Fund. These restrictions are not
fundamental investment policies, but rather are operating
policies of the Fund, and may be changed by the Trustees
without Fund shareholder approval. 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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 Sub-Advisor is responsible for decisions to buy and sell
securities for the Fund and the selection of brokers and
dealers to effect the transactions. In seeking to implement
the Fund s policies, the Sub-Advisor effects transactions with
those brokers and dealers who the Sub-Advisor believes provide
the most favorable prices and are capable of providing
efficient executions.
The Sub-Advisor may serve as an investment manager to a number
of clients, including other investment companies. It is the
practice of the Sub-Advisor to cause purchase and sale
transactions to be allocated among the Fund and others whose
assets the Sub-Advisor manages in such manner as the Sub-
Advisor deems equitable. The main factors considered by the
Sub-Advisor in making such allocations among the Fund and
other client accounts of the Sub-Advisor are the respective
investment objectives, the relative size of portfolio holdings
<PAGE> B-14
<PAGE>
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 Fund and the other client
accounts. Purchases and sales of corporate debt securities
are normally transacted through major dealers acting as
principals. Such transactions are made on a net basis, do not
involve payment of brokerage commissions, and normally reflect
the spread between bid and asked prices.
In seeking to implement the Fund s policies, the Sub-Advisor
effects transactions with dealers who provide the most
favorable prices and are capable of providing efficient
executions. If such prices and executions are obtainable from
more than one dealer, the Sub-Advisor may give consideration
to placing portfolio transactions with dealers who also
furnish research and other services to the Fund or the Sub-
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.
The information and services received by the Sub-Advisor from
dealers may be of benefit to the Sub-Advisor in the management
of accounts of some of the Sub-Advisor s other clients and may
not in all cases benefit the 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 Sub-Advisor and thereby reduce the
Sub-Advisor s expenses, this information and these services
are of indeterminable value and the management fee paid to the
Sub-Advisor is not reduced by any amount that may be
attributable to the value of such information and services.
Portfolio turnover rate is defined as the value of the
securities purchased or securities sold, excluding all
securities whose maturities at time of acquisition were one
year or less, divided by the average monthly value of such
securities owned during the year. The Fund s portfolio
turnover rate is expected to be 500%.
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
<PAGE> B-15
<PAGE>
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
Company, 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
President 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,
1996 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.
<PAGE> B-16
<PAGE>
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
Director 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 Juno Fund (since 1995), 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.
<PAGE> B-17
<PAGE>
The Advisor, which has its office at 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852, provides the Fund with
investment management services. The Advisor was incorporated
in the State of Maryland on February 5, 1993. Albert P.
Viragh, Jr., the Chairman of the Board of Trustees and the
President of the Advisor, owns a controlling interest in the
Advisor.
The Fund bears all expenses of its operations other than those
assumed by [the Advisor, the Sub-Advisor, and 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; expenses of preparing and printing prospectuses,
confirmations, proxy statements, and shareholder reports and
notices; registration fees and expenses; proxy and annual
meeting expenses, if any; all Federal, state, and local taxes
(including, without limitation, stamp, excise, income, and
franchise taxes); organizational costs; non-interested
trustees fees and expenses; the costs and expenses of
redeeming shares of the Fund; fees and expenses paid to any
securities pricing organization; dues and expenses associated
with membership in any mutual fund organization; and costs for
incoming telephone WATTS lines. In addition, each of the 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.
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, Jr.* $0 $0 $0
Chairman and President
Corey A. Colehour $7,500 $0 $0
Trustee
J. Kenneth Dalton $4,500 $0 $0
Trustee
<PAGE> B-18
<PAGE>
Roger Somers $7,500 $0 $0
Trustee
</TABLE>
___________________________
* 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.
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.
The Advisory Agreement
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 oversees the day-to-day operations of the Fund (including
monitoring the performance of the Sub-Advisor, as discussed
below), 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 Institutional Money Market Fund,
and The Rydex High Yield Fund; other separate series may be
added in the future. As of ______________ 1996, net Trust
assets under management of the Advisor were approximately $900
million. Pursuant to the advisory agreement, the Fund pays
the Advisor a fee at an annual rate based on 0.75% of the net
assets of the Fund. The Advisor is responsible for the
management of the investment and the reinvestment of the
assets of the Fund, in accordance with the investment
objectives, policies, and limitations of the Fund, and
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. In
providing these advisory services, the Advisor, at its own
expense, has been authorized by the Trustees to employ a sub-
adviser and to enter into such service agreements as the
Advisor deems appropriate in connection with the management of
the Fund. 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
<PAGE> B-19
<PAGE>
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.
The Sub-Advisory Agreement
Loomis, Sayles & Company, L.P. (the Sub-Advisor ), is the
sub-adviser of the Fund. As such, the Sub-Advisor is
responsible for daily managing the investment and reinvestment
of assets of the Fund, subject generally to review and
supervision of the Advisor and the Trustees. The Sub-Advisor
bears all expenses in connection with the performance of its
services, such as compensating and furnishing office space for
its officers and employees connected with the investment and
economic research, trading, and investment management of the
Fund.
The Sub-Advisor is a Delaware limited partnership, registered
as an investment adviser with the Commission. The Sub-
Advisor s principal business address is One Financial Center,
Boston, Massachusetts 02111. Founded in 1926, the Sub-Advisor
is one of the country's oldest and largest investment firms.
The Sub-Advisor's general partner is indirectly owned by New
England Investment Companies, L.P., a publicly-traded limited
partnership whose general partner is a wholly-owned subsidiary
of Metropolitan Life Insurance Company. The portfolio
managers of the Fund are Steven J. Doherty and Stephanie S.
Lord. Mr. Doherty is a Vice President of the Sub-Advisor.
From 1986 to 1996, Mr. Doherty was the portfolio manager of
Howard Hughes Medical Institute in Chevy Chase, Maryland.
From 1982 to 1986, Mr. Doherty was an Assistant Vice President
and the portfolio manager of the National Bank of Washington
in Washington, D. C. Mr. Doherty earned his Chartered
Financial Analyst designation in 1990, received his Master of
Business Administration in Finance and Investments from The
George Washington University, Washington, D. C., in 1986, and
received his bachelor's degree in Business Administration from
The George Washington University, Washington, D. C., in 1982.
Ms. Lord has been a Vice President of the Sub-Advisor since
1987. Ms. Lord earned her Chartered Financial Analyst
designation in 1991, and received her bachelor's degree in
Business Administration from The University of Iowa, Iowa
City, Iowa, in 1987.
Under an investment sub-advisory agreement between the Advisor
and the Sub-Advisor, dated , 1996, which sub-
advisory agreement has been approved by the Trustees, the
Advisor pays the Sub-Advisor a fee at an annualized rate of
0.375% of the average daily net assets of the Fund.
<PAGE> B-20
<PAGE>
The Service Agreement
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 as further 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 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. Under the service agreement, the Servicer provides
the Fund with all required general administrative services,
including, without limitation, office space, equipment, and
personnel; clerical and general back office services;
bookkeeping, internal accounting, and secretarial services;
the determination of net asset values; and the preparation
and filing of all reports, registration statements, proxy
statements, and all other materials required to be filed or
furnished by the 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.
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, will pay certain securities dealers or
brokers, administrators, investment advisers, institutions,
including bank trust departments, and other persons
( Recipients ) amounts based on the average daily net asset
value of shares of the Fund owned by that Recipient or its
customers during that month. No such payments, however, will
<PAGE> B-21
<PAGE>
be made to any Recipient in any month if the aggregate net
asset value of all Fund shares held by the Recipient or its
customers at the end of such month, 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 include, 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 transactions, 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.
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
<PAGE> B-22
<PAGE>
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
terminate their respective distribution or service agreement
at any time upon written notice.
The 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.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund s shares is determined each
day on which the New York Stock Exchange (the NYSE ) and
either the Federal Reserve Bank of New York (the New York
Fed ) or the Federal Reserve Bank of Kansas City (the Kansas
City Fed ) is open for business at 3:00 P.M., Eastern Time.
Currently, the NYSE is 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 NYSE, the New York Fed, or the Kansas City 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
<PAGE> B-23
<PAGE>
schedule to be observed in the future, the NYSE, the New York
Fed, and the Kansas City 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.
PERFORMANCE INFORMATION
From time to time, the Fund may include its total return in
advertisements or reports to shareholders or prospective
shareholders. Quotations of average annual total return for
the 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 the Fund is calculated from two
factors: the amount of dividends earned by the Fund share and
by the increase or decrease in value of the Fund s share
price. See Calculation of Return Quotations.
Performance information for the Fund contained in reports to
shareholders or prospective shareholders, advertisements, and
other promotional literature may be compared to the record of
various unmanaged indexes. Performance information for the
Fund may be compared to its current benchmark, the MLHY Index
and to various other unmanaged indexes, including, but not
limited to, the Shearson Lehman Government (LT) Index.
Unmanaged indexes may assume reinvestment of dividends, but
generally do not reflect payments of brokerage commissions or
deductions for operating costs and other expenses of
investing, as do the total return calculations for the Fund.
In addition, the 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 performance
reports for the Fund will include those for high yield funds.
Since the assets in all mutual funds are always changing, the
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
class, as applicable, for the ranking in question.
Performance figures are based on historical results and are
not intended to indicate future performance.
<PAGE> B-24
<PAGE>
<PAGE> B-25
<PAGE>
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of the
Fund to that of other mutual 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 the 1, 5,
or 10 year
periods (or
fractional
portion thereof).
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
inception of the Fund. In calculating the ending redeemable
value, all dividends and distributions by the 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, the Fund also may include in such
advertising a total return figure that is not calculated
according to the formula set forth above in order to compare
<PAGE> B-26
<PAGE>
more accurately the performance of the Fund with other
measures of investment return. For example, in comparing the
total return of the Fund with data published by Lipper
Analytical Services, Inc., with the performance of the MLHY
Index or the Shearson Lehman Government (LT) Index, or with
the performance of another unmanaged index, the 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.
INFORMATION ON COMPUTATION OF YIELD
In addition to the total return quotations discussed above,
the Fund also may advertise its 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 Fund earned during the period by the maximum offering
price per 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.
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 Fund based on
the market value of the obligation (including actual accrued
interest) at the close of business on the last day of each
<PAGE> B-27
<PAGE>
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 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 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 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.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
Dividends and Distributions. As discussed in the Fund s
Prospectus, the Fund intends (i) to declare dividends of
ordinary income for shares of the Fund on a daily basis, and
to distribute such dividends to shareholders of the Fund on a
monthly basis, and (ii) to distribute annually any long-term
capital gains to the shareholders of the Fund. The Trustees,
however, may declare a special distribution for the Fund if
the Trustees believe that such a distribution would be in the
best interest of the Fund s shareholders. All such
distributions of the Fund normally automatically will be
invested without charge in additional shares of the Fund.
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 would not be subject
<PAGE> B-28
<PAGE>
to Federal income taxes on the net investment income and
capital gains that the Fund distributes to the Fund s
shareholders. The distribution of net investment income and
capital gains will be taxable to Fund shareholders regardless
of whether the shareholder elects to receive these
distributions in cash or in additional shares.
Distributions reported to Fund shareholders as long-term
capital gains shall be taxable as such, regardless of how long
the shareholder has owned the shares. Fund shareholders will
be notified annually by the Fund as to the Federal tax status
of all distributions made by the Fund. Distributions may be
subject to state and local taxes.
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 will not be liable for 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 ).
These requirements may also restrict the extent of the Fund s
activities in option and other portfolio transactions.
Specifically, the 30% Test will limit the extent to which the
Fund may: (i) sell securities held for less than three
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 the Fund in
futures contracts and options on securities indexes,
securities, and futures contracts.
The 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
<PAGE> B-29
<PAGE>
satisfy the 30% Test because of such frequent redemptions and
exchanges of shares, the Fund will seek to meet its
obligations in connection with redemptions and exchanges
without the realization of gains on the sales of securities,
options, futures or forward contracts, options on futures
contracts, 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 the 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 the Fund s objective to satisfy
the requirements of Section 851 of the Code, there can be no
assurance that the Fund s efforts to achieve that objective
will be successful.
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
<PAGE> B-30
<PAGE>
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 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.
When the 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 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 contractual 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
<PAGE> B-31
<PAGE>
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
date 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 the 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 the 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. The
Fund generally intends to sell pro rata the securities being
hedged, but it is unclear whether the securities and the
futures contracts would constitute substantially identical
property.
Transactions By the Fund. If a call option written by the
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 the 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 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 the 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
<PAGE> B-32
<PAGE>
option will be added to the basis of the securities or futures
contract so acquired.
The Fund in its operations also may utilize options on
securities indexes. Options on broadbased securities
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 the 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 the Fund involving nonequity options
on securities 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. The Fund will also have
available to it a number of elections under the Code
concerning the treatment of option transactions for tax
purposes. The 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.
The 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 the 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. 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
correct taxpayer identification number and that the
shareholder is not subject to withholding. (An individual s
taxpayer identification number is the individual s social
security number.) The 31% back-up withholding tax is not an
<PAGE> B-33
<PAGE>
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
the 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 the Fund. Star Bank, N.A., 425
Walnut Street, Cincinnati, Ohio 45202, acts as the Custodian
bank for the Trust and the Fund.
<PAGE> B-34
<PAGE>
FINANCIAL STATEMENTS
As of the date of this Statement of Additional Information,
the Fund has not commenced a public offering of its shares
and, therefore, the Fund has no assets and no financial
statements are presented with respect to the Fund.
<PAGE> B-35
<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
variation. 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
<PAGE> B-36
<PAGE>
industry is well-established and the issuer has a strong
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
money market participants. The ratings apply to all
obligations with maturities of under one year, including
commercial paper, the uninsured portion of certificates of
deposit, 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
liquidity, 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> B-37
<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.
Good Grade
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
<PAGE> B-38
<PAGE>
thorough knowledge of the laws and accounting practices that
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> B-39
<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: None.
In Part B: None.
In Part C: None.
(b) Exhibits
(1)(a) Certificate of Trust of Rydex Series Trust (the
Registrant or the Trust ).1/
(1)(b) Declaration of Trust of the Registrant.1/
(2) By-laws of Registrant.1/
(3) Not applicable.
(4) Specimen share certificate.1/
(5)(a) Investment Advisory Agreement between Registrant
and PADCO Advisors, Inc.6/
(5)(b) Sub-Advisory Agreement between PADCO Advisors,
Inc. and Loomis, Sayles & Company, L.P.6/
(6) Not applicable.
(7) Not applicable.
(8) Custody Agreement between Registrant and Star
Bank, N.A.3/
(9)(a) Trustees and Officers Indemnification and
Liability Insurance Policy.4/
(9)(b) Comprehensive Blanket Fidelity Bond Insurance
Policy.4/
(9)(c) Service Agreement between Registrant and PADCO
Service Company, Inc.4/
(9)(d) Fidelity Bond Allocation Agreement Among
Registrant, PADCO Advisors, Inc., The Rydex
Advisor Variable Annuity Account, PADCO Advisors
II, Inc., and PADCO Service Company, Inc.7/
(10) Opinion and Consent of Jorden Burt Berenson &
Klingensmith, counsel to the Registrant.2/
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15)(a) Plan of Distribution for The Rydex Institutional
Money Market Fund.5/
(15)(b) Plan of Distribution for The Rydex High Yield
Fund 6/
(15)(c) Forms of Shareholder Servicing Support
Agreements between PADCO Financial Services,
Inc. and Selling Recipients in connection with
<PAGE> C-1
<PAGE>
the Plan of Distribution for The Rydex
Institutional Money Market Fund.5/
(15)(d) Form of Shareholder Servicing Support Agreement
between PADCO Financial Services, Inc. and
Selling Recipients in connection with the Plan
of Distribution for The Rydex High Yield Fund. 6/
(16) Not applicable.
____________________________
1/ Incorporated herein by reference to Registration
Statement initially filed March 17, 1993.
2/ Incorporated herein by reference to Pre-Effective
Amendment No. 1 to this Registration Statement, filed May
21, 1993.
3/ Incorporated herein by reference to Post-Effective
Amendment No. 8 to this Registration Statement, filed
November 26, 1993.
4/ Incorporated herein by reference to Post-Effective
Amendment No. 24 to this Registration Statement, filed
October 27, 1995.
5/ Incorporated herein by reference to Post-Effective
Amendment No. 25 to this Registration Statement, filed on
March 1, 1996.
6/ Filed herewith.
7/ To be filed by amendment.
<PAGE> C-2
<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
State of and/or
Organization Controlled By the
and Relationship Controlling Person or
(If Any) to Other Basis of
Company the Registrant Common Control
-------------------- -------------------- -------------------
<C> <C> <C>
PADCO Advisors, Inc. a Maryland 80% of the voting
(the Advisor ) corporation, a securities of the
registered investment Advisor are owned by
adviser, and the Albert P. Viragh,
Registrant s Jr., the Chairman of
investment adviser 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 100% of the voting
Company, corporation, a securities of the
Inc. (the registered transfer Servicer are owned by
Servicer ) agent, and the Albert P. Viragh,
Registrant s Jr., the Chairman of
shareholder and the Board of
transfer agent Directors, the
servicer President, and the
Treasurer of the
Servicer
<PAGE> C-3
<PAGE>
Percentage of Voting
Securities Owned
State of and/or
Organization Controlled By the
and Relationship Controlling Person or
(If Any) to Other Basis of
Company the Registrant Common Control
-------------------- -------------------- -------------------
<C> <C> <C>
PADCO Financial a Maryland 100% of the voting
Services, corporation, a securities of the
Inc. (the registered broker- Distributor are owned
Distributor ) dealer, and the by Albert P. Viragh,
distributor of the Jr., the Chairman of
shares of The Rydex the Board of
Institutional Money Directors, the
Market Fund and The President, and the
Rydex High Yield Fund, Treasurer of the
each a series of the Distributor
Registrant
PADCO Advisors II, a Maryland corporation 100% of the voting
Inc. and a registered securities are owned
( PADCO II ) investment adviser by Albert P. Viragh,
(PADCO II is not Jr., the Chairman of
otherwise related to the Board of
the Registrant) Directors, the
President, and the
Treasurer of PADCO II
Rydex Advisor a managed separate the investment
Variable account of Great advisers for the
Annuity Account American Reserve Separate Account and
(the Separate Insurance Company, the Registrant are
Account ) which is organized under the common
under the laws of the control of Albert P.
State of Texas and is Viragh, Jr., the
advised by PADCO II Chairman of the Board
of Trustees,
President, and
Treasurer of the
Registrant
</TABLE>
ITEM 26. Number of Holders of Securities
The following information is given as of the date indicated:
<TABLE>
<CAPTION>
<PAGE> C-4
<PAGE>
Title of Class; Shares of Number of Record
Holders
Beneficial Interest, no par value as of August 31,
1996
--------------------------------- ----------------------
<S> <C>
The Nova Fund 1,320
The Rydex U.S. Government
Money Market Fund 4,283
The Rydex Precious Metals Fund 1,425
The Ursa Fund 3,620
The Rydex U.S. Government Bond Fund 161
The Rydex OTC Fund 899
The Juno Fund 659
The Rydex Institutional
Money Market Fund 10
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
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 holders which was the result of
any willful misfeasance, 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
<PAGE> C-5
<PAGE>
(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
Company, 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,
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.
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
currently serve as the principal underwriter for the
<PAGE> C-6
<PAGE>
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>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address* Underwriter Registrant
------------------ -------------- -------------
<S> <C> <C>
Albert P. Viragh, Jr. Director, Chairman of the
President, and Board of Trustees
Treasurer and President
Amanda C. Viragh Director none
Victor J. Edgar Chief Operating none
Officer and Chief
Financial Officer
Michael P. Byrum Secretary none
</TABLE>
* 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.
ITEM 30. Location of Accounts and Records
<PAGE> C-7
<PAGE>
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
There 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
proceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities being
registered, the Registrant, unless in the opinion of the
Registrant 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
by Section 16(c) of the Investment Company Act of 1940, as
amended.
<PAGE> C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant 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 9th day of
September, 1996
RYDEX SERIES TRUST
/s/ Albert P. Viragh, Jr.
Albert P. Viragh, Jr.
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement has been duly
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 September 9, 1996
Albert P. Viragh, Jr. Board of Trustees,
President, and
Trustee
/s/ Timothy P. Hagan Vice President, September 9, 1996
Timothy P. Hagan Principal Financial
Officer, and
Principal
Accounting Officer
Corey A. Colehour* Trustee September 9, 1996
Corey A. Colehour
J. Kenneth Dalton* Trustee September 9, 1996
J. Kenneth Dalton
Roger Somers* Trustee September 9, 1996
Roger Somers
*By: /s/ Albert P. Viragh, Jr.
Albert P. Viragh, Jr.
Attorney-in-Fact
<PAGE> S-1
<PAGE>
Exhibit (5)(a)
Investment Advisory Agreement
between Registrant 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:
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
daily net value of the respective Funds in
accordance with the following schedule:
The Nova Fund .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
<PAGE>
<PAGE>
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)
<PAGE> 2
<PAGE>
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 Zon 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.
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
amendments 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 obligations hereunder.
Reference herein to the duties and responsibilities of the
Manager shall include any sub-adviser employed by the Manager
to the extent 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 the 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 shall 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
_____________________________
By: Albert P. Viragh, Jr.
Title: President
PADCO ADVISORS, INC.
_____________________________
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>
<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
daily net value of the respective Funds in
accordance with the following schedule:
The Nova Fund 0 . 7 5 %
(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 . 9 0 %
(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 . 7 5 %
<PAGE>
<PAGE>
(75/100's of
one percent)
The Juno Fund 0 . 9 0 %
(90/100's of
one percent)
The Rydex Institutional
Money Market Fund 0.55% (55/100's of one
percent)
<PAGE> 2
<PAGE>
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.
Section 11 of the Contract is amended, effective March 8,
1996, to read as follows:
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
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
<PAGE> 3
<PAGE>
Attention: President
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> 4
<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>
<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
daily 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
<PAGE>
<PAGE>
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.
<PAGE> 2
<PAGE>
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: President
PADCO ADVISORS, INC.
/s/ Albert P. Viragh, Jr.
By: Albert P. Viragh, Jr.
Title: President
<PAGE> 3
<PAGE>
Amendment,
Dated November 2, 1993,
to
Investment Management Contract
Between Rydex Series Trust
and PADCO Advisors, Inc.,
Dated May 14, 1993
<PAGE>
<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
daily 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)
<PAGE>
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 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.
<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 2nd day
of November, 1993.
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>
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
Maryland corporation, with offices at 6116 Executive
Boulevard, 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
of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree and promise as follows:
<PAGE>
<PAGE>
Section 1. Investment Advisory Services
(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
additional 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,
and 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;
<PAGE> 2
<PAGE>
and
3. take such steps as are necessary to
implement the aforementioned investment
program 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
Fund 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
the 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,
governmental 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,
insurance, 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.
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
<PAGE> 4
<PAGE>
(a) The 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
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.
(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 Sub-Advisor
shall undertake and control the defense or settlement of any
such assessment, including the selection of counsel or other
professional Advisors; provided, that the selection of such
counsel and Advisors 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.
<PAGE> 5
<PAGE>
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
the 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
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
applicable 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.
<PAGE> 6
<PAGE>
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
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).
<PAGE> 7
<PAGE>
(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 jurisdiction
in which the Sub-Advisor is required 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
<PAGE> 8
<PAGE>
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:
_____________________, President
Loomis, Sayles & Company, L.P.
Suite 200
2001 Pennsylvania Avenue, N.W.
Washington, D. C. 20016
Tel. No. 202-_______________
Fax No. 202-_______________
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
<PAGE> 9
<PAGE>
This Agreement shall be subject to all applicable
provisions 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
collectively 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
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.
<PAGE> 10
<PAGE>
By: ___________________________
Albert P. Viragh,
President
PADCO Advisors, Inc.
LOOMIS, SAYLES & COMPANY, L.P.
By:___________________________
_____________, President
Loomis, Sayles & Company,
L.P.
Accepted and Agreed:
RYDEX SERIES TRUST
on behalf of THE RYDEX
HIGH YIELD FUND
By: _________________________________
Albert P. Viragh, Jr., President
Rydex Series Trust
<PAGE> 11
<PAGE>
Exhibit (15)(b)
Plan of Distribution for
The Rydex High Yield Fund
<PAGE>
<PAGE>
RYDEX SERIES TRUST
Rydex High Yield Fund
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
WHEREAS, Rydex Series Trust, a Delaware business trust
(the Trust ), presently engages, and intends to continue to
engage, in business as an open-end management investment
company and is registered as such under the Investment Company
Act of 1940, as amended (the Act );
WHEREAS, a majority of the Trustees of the Trust,
including a majority of those Trustees who are not interested
persons of the Trust, as defined in the Act (the non-
interested trustees ), and who have no direct or indirect
financial interest in the operation of the Plan of
Distribution Pursuant to Rule 12b-1 on behalf of the Rydex
High Yield Fund (the Fund ), as described herein (the
Plan ), or in any agreements related to the Plan (the Rule
12b-1 Trustees ), has determined, in the exercise of the
reasonable business judgment of the Trustees and in light of
the fiduciary duties of the Trustees under state law and under
the Act, that there is a reasonable likelihood that adoption
of the Plan will benefit the Fund and the shareholders of the
Fund;
WHEREAS, a majority of the Trustees of the Trust,
including a majority of the Rule 12b-1 Trustees, has approved
the Plan by votes cast in person at a meeting called for the
purpose of voting on the Plan; and
WHEREAS, expenditures under this Plan by the Fund are
primarily intended to result in the sale of shares of the Fund
within the meaning of paragraph (a)(2) of Rule 12b-1 under the
Act.
NOW, THEREFORE, the Trust hereby adopts this Plan, on
behalf of the Fund, in accordance with Rule 12b-1 under the
Act, under the following terms and conditions.
1. Definitions. The following terms used in this
Plan shall have the following meanings:
(a) Distributor shall mean PADCO Financial Services,
Inc., 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852, the Trust s principal underwriter and distributor.
(b) Recipient shall mean any broker or dealer,
administrator, investment adviser, institutions, including
bank trust departments, or other person that: (i) has rendered
assistance (whether direct, administrative, or both) in the
<PAGE>
<PAGE>
distribution of shares of the Fund; (ii) has furnished or will
furnish the Distributor with such information as the
Distributor has requested or may request to answer such
questions as may arise concerning the sale of shares of the
Fund; and (iii) has been selected by the Distributor to
receive payments under the Plan. Notwithstanding the
foregoing, a majority of the Rule 12b-1 Trustees may remove
any person or entity as a Recipient.
(c) Qualified Holdings shall mean, as to any
Recipient, all shares of the Fund owned beneficially or of
record by (i) such Recipient or (ii) such brokerage or other
customers, investment advisory or other clients, and/or
accounts as to which such Recipient is a fiduciary or
custodian or co-fiduciary or co-custodian (collectively, the
Customers ), but in no event shall any such shares be deemed
owned by more than one Recipient.
2. Reimbursement for Distribution Activities.
(a) The Trust shall reimburse the Distributor monthly
for distribution expenses incurred during that month in
promoting the sale of the Fund s shares at the rate not to
exceed 0.25% per annum of the Fund s average daily net assets
attributable to shares of the Fund that were sold by or
through Recipients. The Fund shall bear its own costs of
distribution and reimbursement shall be made from the assets
of the Fund the shares of which have been sold. In no event
will any other series of the Trust be liable for the
distribution expenses of the Fund. Such expenses shall be
calculated and accrued daily and paid within ten (10) days of
the end of each month. In no event shall such payments exceed
the Distributor s actual distribution expenses for that month.
The Distributor shall use such payments received from the Fund
in their entirety to reimburse itself for the Distributor s
direct distribution expenses, of the type contemplated herein
and reviewed from time to time by the Trustees of the Trust,
in promoting the sale of the Fund s shares, including, but not
limited to: (i) compensating Recipients for providing
distribution assistance and administrative support services
with respect to assets invested in the Fund, as described
below; (ii) costs of preparation, printing, and mailing or
other dissemination of sales literature, advertising, and
prospectuses (other than those furnished to current
shareholders of the Fund); and (iii) promotional and incentive
programs.
The distribution assistance and administrative support
services to be rendered by Recipients may include, but shall
not be limited to, the following: (i) distributing sales
literature and prospectuses, other than prospectuses furnished
to current shareholders; (ii) answering routine inquiries
<PAGE> 2
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concerning the Trust and the Fund; (iii) assisting in the
establishment and maintenance of Fund shareholder accounts and
in processing purchase and redemption transactions; (iv)
making the Trust s investment plans and dividend options
available; and (v) providing such other information and
services in connection with the distribution of shares of the
Fund as the Distributor or the Trust, on behalf of the Fund,
may reasonably request. It may be presumed that a Recipient
has provided such distribution assistance or administrative
support services if the Recipient has sufficient Qualified
Holdings of shares of the Fund to entitle the Recipient to
payments under the Plan. In the event that either the
Distributor or the Trustees of the Trust should have reason to
believe that, notwithstanding the level of Qualified Holdings,
a Recipient may not be rendering appropriate distribution
assistance or administrative support services in connection
with the sale of shares of the Fund, then the Distributor, at
the request of the Trustees, shall require the Recipient to
provide a written report or other information to verify that
said Recipient is providing appropriate services in this
regard.
It is recognized that the costs of distributing the
Fund s shares may exceed the reimbursements made under this
Plan by the Fund. In view of this, if and to the extent that
any investment management and administration fees paid by the
Fund might be considered as indirectly financing any activity
which is primarily intended to result in the sale of the
Fund s shares, the payment by the Fund of such fees hereby is
authorized under this Plan.
(b) The Distributor shall make payments to any Recipient
within forty-five (45) days of the end of each fiscal quarter
of the Trust, at an annualized rate not to exceed 0.25% of the
net asset value of Qualified Holdings owned beneficially or of
record by the Recipient or by the Recipient s Customers during
such quarter; provided, however, that no such payments shall
be made to any Recipient for any such quarter in which the
Recipient s Qualified Holdings do not equal or exceed, at the
end of such quarter, the asset minimum ( Minimum Qualified
Holdings ) to be set from time to time by the Distributor with
the approval of the Rule 12b-1 Trustees. Such payments to
Recipients may be made by the Trust s investment adviser from
the adviser s own resources (which may include profits derived
from the advisory fee the adviser receives from the Fund), or
by the Distributor from the Distributor s own resources.
A majority of the Rule 12b-1 Trustees, at any time, or
from time to time, may decrease and thereafter adjust the
percentage rate payable to the Distributor not to exceed the
rate set forth above, and direct the Distributor to increase
or decrease the Minimum Qualified Holdings and/or decrease and
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thereafter adjust the percentage rate being paid to any
Recipient not to exceed the rate set forth above. The
Distributor shall notify any and all Recipients of the Minimum
Qualified Holdings and the level of payment to such Recipient,
and shall provide each such Recipient with written notice
within thirty (30) days after any change in these
requirements. Inclusion of such change in a revised current
prospectus of the Fund shall be sufficient notice.
3. Quarterly Reports.
(a) Any agreement adopted pursuant to this Plan shall
require the Distributor to provide to the Trustees of the
Trust, and the Trustees shall review, at least quarterly, a
written report specifying in reasonable detail the amounts
expended pursuant to this Plan and the purposes for which such
expenditures were made.
(b) The Distributor shall inform the Trustees of the
Trust of commissions and account servicing fees to be paid by
the Distributor to Recipients which have agreements with the
Distributor.
4. Effectiveness; Continuation.
(a) This Plan shall not take effect until it has been
approved by a vote of at least a majority of the outstanding
voting securities (as defined in the Act) of the Fund.
(b) This Plan shall continue in effect until September
25, 1997, and from year to year thereafter; provided, that
such continuance is specifically approved at least annually by
a majority of the Trustees of the Trust and a majority of the
Rule 12b-1 Trustees by votes cast in person at a meeting
called for the purpose of voting on the Plan.
5. Termination.
This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by vote of a majority
of the outstanding voting securities of the Fund. The Plan
shall terminate automatically in the event of its assignment
(as defined in the Act).
6. Amendments.
This Plan may not be amended to increase materially the
amount of distribution expenses provided for in paragraph 2
hereof unless such amendment to this Plan shall be approved by
the vote of a majority of the outstanding voting securities of
the Fund (as defined in the Act). All material amendments
shall be approved by a majority of the Trustees of the Trust
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and a majority of the Rule 12b-1 Trustees by vote cast in
person at a meeting, called for the purpose of voting on such
amendment to this Plan.
7. Non-Interested Trustees.
While this Plan is in effect, the selection and
nomination of the non-interested trustees of the Trust shall
be committed to the discretion of such non-interested
trustees.
8. Records.
The Trust shall preserve copies of this Plan and any
related agreements and all reports made pursuant to this Plan
for a period of not less than six years from the date of this
Plan or such agreements or reports, as the case may be, and
for at least the first two years in an easily accessible
place.
9. Related Agreements.
Any agreement related to this Plan shall be in writing
and shall provide that: (a) the agreement may be terminated at
any time upon sixty (60) days written notice, without the
payment of any penalty, by vote of a majority of the Rule 12b-
1 Trustees, or by vote of a majority of the outstanding voting
securities of the Fund; (b) the agreement shall automatically
terminate in the event of the agreement s assignment (as
defined in the Act); and (c) the agreement shall continue in
effect for a period of more than one year from the date of the
agreement s execution or adoption only so long as such
continuance is specifically approved at least annually by a
majority of the Trustees of the Trust and a majority of the
Rule 12b-1 Trustees by votes cast in person at a meeting
called for the purpose of voting on such agreement.
IN WITNESS WHEREOF, the Trust, on behalf of the Fund, has
executed this Plan as of the day and year set forth below.
Date: September 25, 1996
Attest: RYDEX SERIES TRUST
___________________________ By:
________________________
Name: Name:
<PAGE> 5
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Title: Title
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Exhibit (15)(d)
Form of Shareholder Servicing Support Agreement
between
PADCO Financial Services, Inc.
and
Selling Recipients
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<PAGE>
PADCO Financial Services, Inc.
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
(301) 468-8520
SHAREHOLDER SERVICING SUPPORT AGREEMENT
Ladies and Gentlemen:
We are a party to a certain distribution agreement with
Rydex Series Trust (the Trust ), on behalf of the Rydex High
Yield Fund (the Fund ), a series of the Trust, under which
agreement we serve as exclusive agent for the Fund for the
sale of the Fund s shares of beneficial interest ( Shares ).
You have indicated that you wish to act as agent for your
customers in connection with the purchase, sale, and
redemption of Shares of the Fund as are qualified for sale in
the states in which you have branch offices. We agree to
honor your request, subject to the terms set forth below.
1. In all sales of Shares you shall act as agent for
your customers, and in no transaction shall you have any
authority to act as agent for the Fund or for us. You agree
to be responsible for opening, approving, and monitoring
customers accounts. You also agree to be responsible for any
and all credit that you may extend to your customers, to the
extent such extension of credit is permitted under applicable
rules and regulations, and for compliance with all regulatory
requirements respecting such extension of such credit. You
further agree to be responsible for safeguarding your
customers funds and securities. We will not have custody of
your customer s funds or securities.
2. The customers in question are, for all purposes,
your customers and not customers of PADCO Financial Services,
Inc. In receiving orders from your customers who purchase
Shares, PADCO Financial Services, Inc. is not soliciting such
customers, and has no responsibility for determining whether
Shares are suitable investments for such customers. This
responsibility is solely yours.
3. You will maintain all required books and records
with respect to your securities business, your customers and
their transactions. You acknowledge that the responsibility
for maintenance of such books and records is not the
responsibility of PADCO Financial Services, Inc.
4. It is hereby understood that in all cases in which
you place orders with the Trust for the purchase of Shares:
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(a) you are acting as agent for the customer; (b) the
transactions are without recourse against you by the
customer;(c) as between you and the customer, the customer
will have full beneficial ownership of the securities; (d)
each such transaction is initiated solely upon the order of
the customer; and (e) each such transaction is for the account
of the customer and not for your account.
5. You agree that you will fulfill any and all
regulatory requirements to supervise the activities of each of
your employees, representatives, and associated persons in a
manner reasonably designed to achieve compliance with
applicable securities and banking laws and regulations. You
further agree that responsibility for proper supervision shall
rest with you, and PADCO Financial Services, Inc. shall have
no responsibility in this regard.
6. Orders authorized by and received from you will be
accepted by the Trust only at the regular public offering
price applicable to each order, as established by the then-
current Prospectus of the Fund, subject to the discounts
defined in such Prospectus. Following receipt from you of any
order to purchase Shares for the account of a customer, the
Trust shall confirm such order to you in writing. You shall
be responsible for sending your customer a written
confirmation of the order with a copy of the Fund s current
Prospectus. You shall send the Trust a copy of such
confirmation. All orders are subject to acceptance or
rejection by the Trust in the Trust s sole discretion. Unless
other instructions have been given, you shall also be
responsible for preparing and mailing all periodic statements
of ownership to your customers and/or updates showing a
customer s account balance and integrating such statements
with those of other transactions and balances in the
customer s accounts serviced by you.
7. The offering Prospectus and this Agreement set forth
the terms applicable to sales of Shares of the Fund through
you and all other representations or documents are
subordinate. This Agreement is in all respects subject to
statements regarding the sale and repurchase or redemption of
shares made in the offering Prospectus of the Fund, which in
the event of any inconsistency between this Agreement and such
Prospectus, the Prospectus shall control.
8. Any sales charges and dealers concessions will be
as set forth in the current Prospectus of the Fund. On each
order for Shares of the Fund that is accepted by the Trust,
you will be entitled to receive the applicable commission as
set forth in the Prospectus. Any and all commissions or
concessions set forth in the Fund s Prospectus are subject to
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change without notice by the Trust and will comply with any
changes in regulatory requirements.
9. We are also authorized to pay you continuing service
fees with respect to the Shares of the Fund to compensate you
for providing certain services under this Agreement for your
clients such as processing purchase and redemption
transactions, establishing shareholder accounts, and providing
certain information and assistance with respect to the Fund,
provided you meet certain service-related criteria.
10. Where payment is due hereunder, we agree to send
payment for concessions and securities to your address as your
address appears on our records. You must notify us of address
changes and promptly negotiate such payments. Any such
payments that remain outstanding for twelve (12) months shall
be void and the obligation represented thereby shall be
extinguished.
11. Any order by you for the purchase of Shares of the
Fund from the Trust shall be accepted at the time when the
order is received by the Trust (or any clearinghouse agency
that the Trust may designate from time to time), and at the
offering and sale price next determined, unless rejected by
the Trust. In addition to the right to reject any order for
the purchase of Shares of the Fund, the Trust has reserved the
right to withhold Shares from sale temporarily or permanently.
The Trust will not accept any order from you which is placed
on a conditional basis or subject to any delay or contingency
prior to execution. The procedure relating to the handling of
orders shall be subject to instructions which the Trust shall
forward from time to time to you. The Shares of the Fund
purchased will be issued by the Trust only against receipt of
the purchase price, in collected clearing house funds subject
to deduction of all commissions on such sale (reallowance of
any commissions to which you are entitled on purchases at net
asset value will be paid through our direct purchase
commission system). Payment for Shares of the Fund ordered
from the Trust shall be in the form of a wire transfer to Star
Bank, N.A., the Fund s custodian (the Custodian ) at 425
Walnut Street, Cincinnati, Ohio 45202. Payment shall be made
within five (5) business days after the Trust s acceptance of
the order placed on behalf of your customer, or such shorter
time period as may be required by law. If payment for the
Shares purchased is not received within such time period, the
Trust reserves the right to cancel the sale or, at the Trust s
option, to sell the Shares to the Fund at the then-prevailing
net asset value. In this event, you agree to be responsible
for any loss, expense, liability, or damage, including loss of
profit suffered by the Trust and/or the Fund resulting from
your delay or failure to make payment as aforesaid.
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12. You are obliged to date and time stamp all orders
received by you and promptly transmit all orders to the Trust
in time to provide for processing at the price next determined
after receipt by you, in accordance with the Prospectus. You
are not to withhold placing with the Trust orders received
from any customers for the purchase of Shares so as to profit
yourself as a result of such withholding. You shall not
purchase Shares through the Trust except for the purpose of
covering purchase orders already received from your customers,
or, if permitted by applicable law, for your bona fide
investment.
13. You shall be solely responsible for the accuracy,
timeliness, and completeness of any orders transmitted by you
on behalf of your customers by wire or telephone for
purchases, exchanges, or redemptions, and shall indemnify and
hold the Trust harmless against all claims, damages,
liability, costs, and expenses (including attorneys fees and
costs of investigation) incurred by the Trust arising out of
or based upon your relationship with your customers through
your own actions or omissions, including, but not limited to,
any claims by your customers that you failed to transmit
properly their instructions, properly service their account,
or otherwise caused them injury.
14. If your customer s account is established without
your customer signing the application form, you represent that
the instructions relating to the registration (including the
customer s tax identification number) and selected options
furnished to the Trust (whether on the application form, in
some other document, or orally) are in accordance with the
customer s instructions, and you agree to indemnify the Trust,
the Trust s transfer agent, shareholder servicing agent, and
the Fund for any loss or liability resulting from acting upon
such instructions. The Trust agrees to hold harmless and
indemnify you for any loss or liability arising out of our
negligence in processing such instructions.
15. If any Share is repurchased by the Fund or is
tendered thereto for redemption within seven (7) business days
after confirmation by the Trust of the original purchase order
from you for such security you shall forthwith refund to the
Trust the full commissions paid to you on the original sale.
16. You shall not, if acting as principal, purchase any
Share of the Fund from a record holder at a price lower than
the net asset value next determined by or for the Fund s
Shares. You shall, however, be permitted to sell any Shares
for the account of a shareholder of the Fund at the net asset
value currently quoted by or for the Fund s Shares, and may
charge a fair service fee for handling the transaction
provided you disclose the fee to the record owner.
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17. We shall furnish you, without charge, reasonable
quantities of offering Prospectuses, with any supplements
currently in effect, and copies of current shareholder reports
of the Fund, and sales materials issued by us from time to
time. You shall deliver copies of current shareholder
reports, Prospectuses, and any supplements to those of your
customers whose Shares are held in book-entry form on the
books of the Fund. In the purchase of Shares of the Fund from
the Trust, you are entitled to rely only on the information
contained in the offering Prospectuses. You may not publish
any advertisement or distribute sales literature or other
written material to the public which makes reference to the
Trust, the Fund, or us (except material which we furnished to
you) without our prior written approval.
18. No person is authorized to make any representations
concerning Shares of the Fund except those contained in the
applicable current Prospectus and printed information
subsequently issued by the Trust, the Fund, or us as
information supplemental to such Prospectus. You agree that
you will not make Shares available to your customers except
under circumstances that will result in compliance with
applicable Federal and state securities and banking laws. You
further agree to indemnify and hold harmless the Trust, the
Fund, and us against any and all losses, claims, damages,
liabilities, expenses, or settlements to which the Trust, the
Fund, and/or we may become subject under any statute or
regulation insofar as such losses, claims, damages,
liabilities, expenses, or settlements are related to the
purchase or sale of Shares by your customers and arise out of
or are based upon your statements or representations to your
customers concerning the Shares (other than statements or
representations contained in the applicable current Prospectus
and printed information subsequently issued by the Trust, the
Fund, or us).
19. Shares sold hereunder shall be available in book-
entry form on the books of the Fund s transfer agent unless
other instructions have been given.
20. You shall make available Shares of the Fund only
through us. In no transaction (whether of purchase or sale)
shall you have any authority to act as agent for, partner of,
or participant in a joint venture with us or with the Trust or
the Fund or any other entity having either a shareholder
servicing support agreement or other agreement with us.
21. All sales will be made subject to our receipt of
Shares from the Fund. We reserve the right, in our
discretion, without notice, to modify, suspend, or withdraw
entirely the offering of any Shares and, upon notice, to
change the sales charge or discount or to modify, cancel, or
<PAGE> 5
<PAGE>
change the terms of this Agreement. You agree that any order
to purchase Shares of the Fund placed by you after any notice
of amendment to this Agreement has been sent to you shall
constitute your agreement to any such amendment.
22. Sales and exchanges of Shares may be made only in
those states and jurisdictions where Shares are registered or
qualified for sale to the public. We agree to advise you
currently of the identity of those states and jurisdictions in
which the Shares are registered or qualified for sale, and you
agree to indemnify us, the Trust, and/or the Fund for any
claim, liability, expense, or loss in any way arising out of
sale of Shares in any state or jurisdiction not identified by
us as a state or jurisdiction in which such Shares are so
registered or qualified. We agree to indemnify you for any
claim, liability, expense, or loss attributable to such Shares
not being registered or qualified if such state or
jurisdiction was identified by us as a state or jurisdiction
in which Shares are so registered or qualified.
23. We act solely as agent for the Trust and the Fund,
and are not responsible for qualifying the Fund or the Fund s
Shares for sale in any state or jurisdiction. We also are not
responsible for the issuance, form, validity, enforceability,
or value of Shares of the Fund.
24. You represent that you are (a) a properly registered
or licensed broker or dealer under applicable Federal and
state securities laws and regulations and a member in good
standing of the National Association of Securities Dealers,
Inc., or (b) a bank, as defined in Section 3(a)(6) of the
Securities Exchange Act of 1934 (the 1934 Act ) (or other
financial institution), and that you are not otherwise
required to register as a broker or dealer under the 1934 Act
or any state laws. You agree to notify us immediately in
writing if this representation ceases to be true. We
recognize that, in addition to applicable provisions of
Federal and state securities laws, you may be subject to the
provisions of the Glass-Steagall Act and other laws governing,
among other things, the conduct of activities by Federal and
state chartered and supervised financial institutions and
their affiliated organizations. Because you will be the only
entity having a direct relationship with the customer in
connection with securities purchases hereunder, you will be
responsible in that relationship for insuring compliance with
all laws and regulations, including those of all applicable
Federal and state regulatory authorities and bodies having
jurisdiction over you or your customers to the extent
applicable to securities purchases hereunder.
<PAGE> 6
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25. Either of us, upon request of the other party, shall
provide the other party with data or documents needed by the
requesting party to carry out all allocated functions herein.
26. Each of us shall cooperate with all appropriate
governmental or self regulatory authorities (including,
without limitation, the Securities and Exchange Commission,
the National Association of Securities Dealers, Inc., and
state securities regulators) and shall permit such authorities
reasonable access to books and records in connection with any
inspection, inquiry, or investigation relating to this
Agreement or the transactions contemplated thereby.
27. Either of us may cancel this Agreement at any time
by written notice to the other.
28. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule, or otherwise,
the remainder of the Agreement shall not be affected thereby.
29. All communications to us should be sent to the above
address. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
30. The names of your customers shall remain your sole
property and shall not be used by us for any purpose except
for servicing and information mailings in the normal course of
business to Fund shareholders.
31. We agree to compensate you for your services
provided under this Agreement within forty-five (45) days of
the end of each fiscal quarter of the Trust, at an annualized
rate not to exceed 0.___% of the net asset value of all Shares
of the Fund owned beneficially or of record by (i) you or (ii)
your investment advisory or other clients, and/or accounts as
to which you are a fiduciary or custodian or co-fiduciary or
co-custodian, during the quarter ( Qualified Holdings );
provided, however, that no payments shall be made to you for
any quarter in which your Qualified Holdings do not equal or
exceed, at the end of the quarter, the asset minimum Minimum
Qualified Holdings ), which Minimum Qualified Holdings shall
be set from time to time by us with the approval of the
Trustees of the Trust who are not interested persons of the
Trust, as defined in the Investment Company Act of 1940, and
who have no direct or indirect financial interest in the
operation of the distribution plan adopted by the Trust in
connection with the distribution of the Shares of the Fund by
us or in any agreements related to this distribution plan.
Execute this Agreement in duplicate and return one of the
duplicate originals to us for our file. This Agreement (i)
may be amended by notification from us and orders received
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following such notification shall be deemed to be an
acceptance of any such amendment and (ii) shall be construed
in accordance with the laws of the State of Maryland.
Accepted: Very truly yours,
__________________________ ________________________
Name of Selling Recipient
By:_______________________ By:______________________
Name:_____________________ Name:____________________
Title:____________________ Title:___________________
Address:__________________
__________________
__________________
__________________________
Date:_____________________
<PAGE> 8
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