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Rule 497
File No. 33-59692
RYDEX SERIES TRUST PROSPECTUS
RYDEX INSTITUTIONAL
MONEY MARKET FUND
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852
(800) 820-0888 (301) 468-8520
INVESTMENT OBJECTIVE AND POLICIES
The Rydex Institutional Money Market Fund (the "Fund") is a
diversified series of the Rydex Series Trust, an open-end
management investment company (the "Trust"). The investment
objectives of the Fund are security of principal, high current
income, and liquidity consistent with preservation of capital.
In attempting to achieve its objectives, the Fund will invest
primarily in money market instruments which are issued or
guaranteed, as to principal and interest, by the U.S.
Government, its agencies or instrumentalities, as well as in
repurchase agreements secured by such securities and in bank
money market instruments and commercial paper. The Fund is
part of the Rydex Group of Funds, which is designed for
professional money managers and knowledgeable investors who
intend to invest in the Rydex Group of Funds as part of an
asset-allocation or market-timing investment strategy.
The securities of the Fund are not deposits or obligations of
any bank, and are not endorsed or guaranteed by any bank, and
an investment in the Fund is neither insured nor guaranteed by
the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other agency of the U.S. Government. The Fund
seeks to maintain a constant $1.00 net asset value per share,
although this cannot be assured.
ADDITIONAL INFORMATION
Investors should read this Prospectus and retain it for future
reference. This Prospectus is designed to set forth concisely
the information an investor should know before investing in
the Fund. A Statement of Additional Information, dated June
1, 1996, containing additional information about the Fund and
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the Trust has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. A copy of
this Statement of Additional Information is available, without
charge, upon request to the Trust at the address above or by
telephoning the Trust at the telephone numbers above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June 1, 1996.
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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
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.55%
12b-1 Fees 0.25%
Other Expenses:
Administrative Fees 0.20%
Additional Expenses 0.15%*
Total Fund Operating Expenses** 1.15%
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* Additional expenses are based on estimated amounts for
the current fiscal year.
** The Fund's investment adviser has guaranteed that the
ratio of expenses, including investment management fees,
to average net assets shall not exceed 1.20%. Any
expenses in excess of this amount will be absorbed by the
adviser.
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:
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1 YEAR 3 YEARS
$11 $33
The same level of expenses would be incurred if the investment
were held throughout the period indicated.
The preceding table is provided to assist the investor in
understanding the various costs and expenses which may be
borne directly or indirectly by an investor in the Fund. The
percentages shown above are based on the estimate by the
Fund's investment adviser of the expenses to be incurred by
the Fund during the Fund's current fiscal year. The five-
percent assumed annual return is for comparison purposes only.
The actual return for the Fund in future periods may be more
or less depending on market conditions, and the actual
expenses an investor incurs in future periods may be more or
less than those shown above and will depend on the amount
invested and on the actual growth rate of the Fund. For a
more complete discussion of the fees connected with an
investment in the Fund, including any fees that may be charged
by securities dealers, banks, and other financial institutions
in connection with wire transfers, and the services to be
provided to the Fund, see "How to Invest in the Fund,"
"Management of the Fund," and "Distribution Plan" in this
Prospectus.
THE RYDEX FUNDS
The Trust is an open-end management investment company, and
currently is composed of eight 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, and The Rydex U.S. Government 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 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.
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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 of shares of a Rydex Fund
other than the Fund for shares of the Fund, certain minimum
investment levels are maintained (see "Exchanges"). 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 OBJECTIVES AND POLICIES
General
The investment objectives of the Fund are security of
principal, high current income, and liquidity consistent with
preservation of capital. Although there is no assurance that
the Fund's objectives will be achieved, the Fund will seek to
achieve its objectives by investing primarily in money market
instruments which are issued or guaranteed, as to principal
and interest, by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"), as well as
in repurchase agreements secured by U.S. Government Securities
and in bank money market instruments and commercial paper. An
investment in the Fund is neither insured nor guaranteed by
the U.S. Government. The Fund seeks to maintain a constant
$1.00 net asset value per share, although this cannot be
assured.
The Fund will invest in short-term U.S. Government Securities,
including U.S. Treasury bills, U.S. Treasury notes, and U.S.
Treasury bonds that mature within one year. All securities
purchased by the Fund are held by the Trust's custodian bank.
U.S. Treasury securities are backed by the full faith and
credit of the U.S. Government. Repurchase agreements invested
in the Fund are fully collateralized by U.S. Government
Securities, but the value of the underlying collateral may be
affected by sharp fluctuations in short-term interest rates.
The investment objectives of the Fund are fundamental and may
not be changed without the approval of at least a majority of
the shareholders, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"). All other investment
policies of the Fund not specified as fundamental may be
changed without the approval of shareholders.
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The Fund will maintain a dollar-weighted average portfolio
maturity of 90 days or less. All securities in which the Fund
invests will have remaining maturities of 397 days or less on
the date of purchase, will be denominated in U.S. dollars, and
will have been determined to be of high quality by nationally-
recognized statistical rating organizations ("NSROs") or
determined to be of comparable quality if not so rated.
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government include
a variety of U.S. Treasury securities, which differ only in
their interest rates, maturities, and dates of issuance. U.S.
Treasury bills have initial maturities of one year or less.
U.S. Treasury notes have initial maturities of one to ten
years, and U.S. Treasury bonds generally have initial
maturities of greater than ten years at the date of issuance.
U.S. Treasury securities are backed by the full faith and
credit of the United States. Yields on short-, intermediate-,
and long-term U.S. Government Securities are dependent on a
variety of factors, including the general conditions of the
money and bond markets, the size of a particular offering, and
the maturity of the obligation. Debt securities with longer
maturities tend to produce higher yields and are generally
subject to potentially greater capital appreciation and
depreciation than obligations with shorter maturities and
lower yields. The market value of U.S. Government Securities
generally varies inversely with changes in market interest
rates. An increase in interest rates, therefore, would
generally reduce the market value of the Fund s portfolio
investments in U.S. Government Securities, while a decline in
interest rates would generally increase the market value of
the Fund s portfolio investments in these securities.
Certain U.S. Government Securities are issued or guaranteed by
agencies or instrumentalities of the U.S. Government
including, but not limited to, obligations of U.S. Government
agencies or instrumentalities such as the Federal National
Mortgage Association, the Government National Mortgage
Association, the Small Business Administration, the Export-
Import Bank, the Federal Farm Credit Administration, the
Federal Home Loan Banks, Banks for Cooperatives (including the
Central Bank for Cooperatives), the Federal Land Banks, the
Federal Intermediate Credit Banks, the Tennessee Valley
Authority, the Export-Import Bank of the United States, the
Commodity Credit Corporation, the Federal Financing Bank, the
Student Loan Marketing Association, and the National Credit
Union Administration.
Some obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government are backed by the
full faith and credit of the U.S. Treasury. Such agencies and
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instrumentalities may borrow funds from the U.S. Treasury.
However, no assurances can be given that the U.S. Government
will provide such financial support to the obligations of the
other U.S. Government agencies or instrumentalities in which
the Fund invests, since the U.S. Government is not obligated
to do so. These other agencies and instrumentalities are
supported by either the issuer s right to borrow, under
certain circumstances, an amount limited to a specific line of
credit from the U.S. Treasury, the discretionary authority of
the U.S. Government to purchase certain obligations of an
agency or instrumentality, or the credit of the agency or
instrumentality itself.
The Fund may also invest in securities which are not backed by
the full faith and credit of the United States. In these
instances, such obligations may be supported by the right of
the issuer to borrow from the U.S. Treasury, while still
others are supported only by the credit of the
instrumentality. Securities not backed by the full faith and
credit of the United States may be backed, in part, by a line
of credit with the U.S. Treasury (such as securities of the
Federal National Mortgage Association), or the Fund must look
to the agency issuing or guaranteeing the obligation for
ultimate repayment (such as securities of the Federal Farm
Credit System), in which case the Fund may not be able to
assert a claim against the United States itself in the event
the agency or instrumentality does not meet its commitments.
U.S. Government Securities may be purchased at a discount.
Such securities, when held to maturity or retired, may include
an element of capital gain. Capital losses may be realized
when such securities purchased at a premium are held to
maturity or are called or redeemed at a price lower than their
purchase price. Capital gains or losses also may be realized
upon the sale of securities.
The Fund also may invest in securities that take the form of
participation interests in, and may be evidenced by deposit or
safekeeping receipts for, any of the foregoing securities.
Participation interests are pro rata interests in U.S.
Government Securities such as interests in pools of mortgages
sold by the Government National Mortgage Association;
instruments evidencing deposit or safekeeping are documentary
receipts for such original securities held in custody by
others.
Repurchase Agreements
The Fund may also invest in repurchase agreements secured by
U.S. Government Securities. Under a repurchase agreement, the
Fund purchases a debt security and simultaneously agrees to
sell the security back to the seller at a mutually agreed-upon
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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. The Fund's investment adviser will monitor the
creditworthiness of each of the firms which is a party to a
repurchase agreement with the Fund. In the event of a default
or bankruptcy by the seller, the Fund will liquidate those
securities (whose market value, including accrued interest,
must be at least equal to 100% of the dollar amount invested
by the Fund in each repurchase agreement) held under the
applicable repurchase agreement, which securities constitute
collateral for the seller s obligation to pay. However,
liquidation could involve costs or delays and, to the extent
proceeds from the sales of these securities were less than the
agreed-upon repurchase price, the Fund would suffer a loss.
The Fund also may experience difficulties and incur certain
costs in exercising its rights to the collateral and may lose
the interest the Fund expected to receive under the repurchase
agreement. Repurchase agreements usually are for short
periods, such as one week or less, but may be longer. It is
the current policy of the Fund to treat repurchase agreements
that do not mature within seven days as illiquid for the
purposes of the Fund's investment policies.
The Fund will not enter into repurchase agreements of more
than seven days duration if more than 10% of the market value
of the Fund's net assets would be so invested together with
any other investment the Fund may hold for which market
quotations are not readily available.
Other Investment Policies and Risk Considerations
Bank Money Market Instruments. The Fund also may purchase
bank money market instruments, including certificates of
deposit, time deposits, bankers' acceptances, and other short-
term obligations issued by U.S. banks which are members of the
Federal Reserve System. Certificates of deposit are
negotiable certificates evidencing the obligation of a bank to
repay funds deposited with the bank for a specified period of
time. Time deposits are non-negotiable deposits maintained in
a banking institution for a specified period of time (in no
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event longer than seven days) at a stated interest rate. Time
deposits which may be held by the Fund will not benefit from
insurance from the Bank Insurance Fund or the Savings
Association Insurance Fund administered by the Federal Deposit
Insurance Corporation. Investments in time deposits and
certificates of deposits are limited to domestic banks that
have total assets in excess of one billion dollars. Bankers'
acceptances are credit instruments evidencing the obligation
of a bank to a draft drawn on the bank by a customer of the
bank. These credit instruments reflect the obligation both of
the bank and of the drawer to pay the face amount of the
instrument upon maturity. Other short-term bank obligations
in which the Fund may invest include uninsured, direct
obligations of a bank that bear fixed, floating, or variable
interest rates.
Commercial Paper. The Fund also may invest in commercial
paper, including corporate notes. These instruments are
short-term obligations issued by banks and corporations that
have maturities ranging from two to 270 days. Each commercial
paper instrument may be backed only by the credit of the
issuer or may be backed by some form of credit enhancement,
typically in the form of a guarantee by a commercial bank.
Investments in commercial paper and other short-term
promissory notes issued by corporations (including variable
and floating rate instruments) must be rated at the time of
purchase "A-2" or better by Standard & Poor's Ratings Group
("S&P"), "Prime-2" or better by Moody's Investors Service,
Inc. ("Moody's"), "F-2" or better by Fitch Investors Service,
Inc. ("Fitch"), "Duff 2" or better by Duff & Phelps Credit
Rating Co. ("Duff"), or "A2" or better by IBCA, Inc., or, if
not rated by S&P, Moody's, Fitch, Duff, or IBCA, Inc., must be
determined by PADCO Advisors, Inc. (the "Advisor"), the
Trust's investment adviser, to be of comparable quality
pursuant to guidelines approved by the trustees of the Trust
(the "Trustees"). Please refer to Appendix A to this
Prospectus for more detailed information concerning commercial
paper ratings.
The Fund also may make limited investments in guaranteed
investment contracts ("GICs") issued by United States
insurance companies. The Fund will purchase a GIC only when
the Advisor has determined, under guidelines established by
the Trustees of the Trust, that the GIC presents minimal
credit risks to the Fund and is of comparable quality to
instruments that are rated "high quality" by certain
nationally-recognized statistical rating organizations.
When-Issued and Delayed Delivery Securities. The Fund may
purchase securities on a when-issued or delayed delivery basis
(i.e., delivery and payment can take place a month or more
after the date of the transaction). These securities are
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subject to market fluctuation and no interest accrues to the
purchaser during this period. At the time the Fund makes the
commitment to purchase securities on a when-issued or delayed
delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in
determining its net asset value. The Fund will not purchase
securities on a when-issued or delayed delivery basis if, as a
result, more than 10% of the Fund's net assets would be so
invested. The Fund will maintain, in a segregated account,
cash, U.S. Government Securities, or other liquid, high-grade
debt obligations having a value equal to or greater than the
Fund's purchase commitments.
Portfolio Transactions
When selecting broker-dealers to execute portfolio
transactions, the Advisor considers many factors, including
the size of the broker-dealer s "spread," the size and
difficulty of the order, the nature of the market for the
security, the willingness of the broker-dealer to position,
and the reliability, financial condition, general execution
and operational capabilities of the broker-dealer.
HOW TO INVEST IN THE FUND
The minimum initial investment in the Fund for all shareholder
accounts, including retirement plan accounts, is $2,000,000.
The Trust, at its discretion, may accept lesser amounts than
these minimum initial investments in certain circumstances.
There is no minimum amount for subsequent investments.
The shares of the Fund are offered at the daily public
offering price, which is the net asset value per share (see
"Determination of Net Asset Value") next computed after
receipt of the investor s order. No sales charges are imposed
on initial or subsequent investments. The Trust reserves the
right to reject or refuse, at the Trust s discretion, any
order for the purchase of the Fund s shares in whole or in
part. There is no minimum amount for subsequent investments.
Investments in the Fund may be made (i) through securities
dealers who have the responsibility to transmit orders
promptly and who may charge a processing fee or (ii) directly
with the Trust by bank wire transfer as follows:
By Bank Wire Transfer: Request a wire transfer to:
Star Bank, N.A.
Routing Number: 0420-00013
For Account of Rydex Series Trust
Account Number: 48038-9030
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Your Name
Your Account Number or, if a new
account, Federal Tax I.D. Number
(e.g., Social Security Number)
After instructing your bank to transfer money by wire, please
call the Trust and inform the Trust as to the amount you have
transferred and the name of the bank sending the transfer.
Your bank may charge a fee for such services. If the purchase
is canceled because your wire transfer is not received, you
may be liable for any loss that the Trust may incur.
Shares of the Fund are sold at a price based on the net asset
value next calculated after receipt of a purchase order in
good form, as described below. If a purchase order is
received by the Fund at or prior to 1:00 P.M., Eastern Time,
on any business day, the purchase of Fund shares is executed
at the offering price determined as of 1:00 P.M., Eastern
Time, that day. If the purchase order is received after 1:00
P.M., Eastern Time, the purchase of Fund shares will be
effected on the next business day. (See "Procedures for
Redemptions and Exchanges.")
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.
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The proceeds of non-telephone redemptions will be sent
directly to the investor s address of record. If the investor
requests payment of redemptions to a third party or to a
location other than the investor s address of record or a bank
account specified in the investor s account application, this
request must be in writing and the investor s signature must
be guaranteed by a commercial bank; a broker, dealer,
municipal securities dealer, municipal securities broker,
government securities dealer, or government securities broker;
a credit union; a national securities exchange, registered
securities association, or clearing agency; or a savings
association.
The Fund will redeem its shares at a redemption price equal to
the net asset value of the shares as next computed following
the receipt of a request for redemption. There is no
redemption charge. Payment for the redemption price will be
made within seven days after the Trust s receipt of the
request for redemption.
With respect to the Fund, the right of redemption may be
suspended, or the date of payment postponed: (i) for any
period during which the Federal Reserve Bank of New York (the
"New York Fed"), 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 Securities and Exchange Commission (the
"Commission"), by order, may permit for protection of the
Fund s investors. On any day that the New York Fed, the
Kansas City Fed, or 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
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respective net asset values next determined of the shares
involved. An exchange of other Rydex Fund shares for shares
of the Fund is subject to the $2,000,000 minimum investment in
the Fund. The Trust currently is composed of eight 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
(the "Money Market Fund"), and the Rydex Institutional Money
Market Fund (the series described in this Prospectus); other
separate Rydex Funds may be added in the future. Exchanges
may be made by letter or by telephone subject to the
procedures set forth below.
To implement an exchange, shareholders should provide the
following information: account name, account number, taxpayer
identification number, number of or percentage of shares or
dollar value of shares to be exchanged, and the names of the
Rydex Funds involved in the exchange transaction. Exchanges
may be made only if such exchanges are between identically
registered accounts. Shareholders contemplating such an
exchange for shares of a Rydex Fund not described in this
Prospectus should obtain and review the prospectus of the
Rydex Fund to which the investment is to be transferred. The
exchange privilege is available only in states where the
exchange legally may be made and may be modified or
discontinued at any time. Shares of the Money Market Fund
received in an exchange for shares of the OTC Fund or the
Metals Fund are issued on the third business day following the
day on which the Rydex Fund receives the exchange request.
PROCEDURES FOR REDEMPTIONS AND EXCHANGES
Written requests for redemptions and exchanges should be sent
to Rydex Series Trust, 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852, and should be signed by the record
owner or owners. Telephone redemption and exchange requests
with respect to the Rydex 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.
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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 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 period indicated above. If the primary exchange or
market on which the Rydex Fund transacts business closes
early, the above cut-off time will be 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.
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 are open for business at 1:00 P.M., Eastern
Time. Currently, the New York Fed, the Kansas City Fed, and
the NYSE are closed on weekends, and the following holiday
closings have been scheduled for 1996: (i) New Year's Day,
Martin Luther King Jr.'s Birthday, Washington's Birthday, Good
Friday, Memorial Day, July Fourth, Labor Day, Columbus Day,
Thanksgiving Day, and Christmas Day; and (ii) the preceding
Friday when any of those holidays falls on a Saturday or the
subsequent Monday when any one of those holidays falls on a
Sunday. To the extent that portfolio securities of the Fund
are traded in other markets on days when the New York Fed, the
Kansas City Fed, or the NYSE is closed, the Fund's net asset
value may be affected on days when investors do not have
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access to the Fund to purchase or redeem shares. Although the
Trust expects the same holiday schedule to be observed in the
future, the New York Fed, the Kansas City Fed, or the NYSE may
modify its holiday schedule at any time. The net asset value
of the Fund serves as the basis for the purchase and
redemption price of the Fund's shares.
The Fund will utilize the amortized cost method in valuing its
portfolio securities, which method involves valuing a security
at its cost adjusted by a constant amortization to maturity of
any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the
instrument. The purpose of this method of calculation is to
facilitate the maintenance of a constant net asset value per
share for the Fund of $1.00. However, there is no assurance
that the $1.00 net asset value will be maintained. For
further information regarding the amortized cost method for
valuing the Fund s portfolio securities, see "Determination of
Net Asset Value" in the Statement of Additional Information.
TAX-SHELTERED RETIREMENT PLANS
Tax-sheltered retirement plans of the following types will be
available to investors:
Individual Retirement Accounts (IRAs)
Keogh Accounts - Defined Contribution
Plans (Profit-Sharing Plans)
Keogh Accounts - Money Purchase Plans
Pension Plans)
Internal Revenue Code Section 403(b)
Plans
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.
<PAGE> - 15 -
<PAGE>
The Fund ordinarily (i) declares dividends of net investment
income (and net short-term capital gains, if any) for shares
of the Fund on a daily basis and (ii) distributes such
dividends to shareholders of the Fund on a monthly basis. The
Trustees, however, may revise this dividend and distribution
policy of the Fund, postpone the payment of dividends
thereunder, or take any other action necessary with respect
thereto in order to facilitate, to the extent possible, the
maintenance by the Fund of a constant net asset value per
share of $1.00.
TAXES
The U.S. Internal Revenue Code of 1986, as amended (the
"Code"), provides that each investment portfolio of a series
investment company is to be treated as a separate corporation.
Accordingly, the Fund will seek to qualify for treatment as a
regulated investment company (a "RIC") under Subchapter M of
the Code. So long as the Fund qualifies as a RIC, 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.
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
<PAGE> - 16 -
<PAGE>
tax rates of up to 39.6%, whether or not such dividends and
distributions are reinvested in shares of the Fund or are
received in cash.
Ordinary dividends paid to corporate or individual residents
of foreign countries generally are subject to a 30%
withholding tax. The rate of withholding tax may be reduced
if the United States has an income tax treaty with the foreign
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
Investment Adviser
The Trust is provided investment advice and management
services by PADCO Advisors, Inc., a Maryland corporation with
offices at 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852 (the "Advisor"). The Advisor was incorporated
in the State of Maryland on February 5, 1993. Albert P.
Viragh, Jr., the Chairman of the Board and the President of
the Advisor, owns a controlling interest in the Advisor. The
portfolio manager of the Fund is Michael P. Byrum. Prior to
joining the PADCO Advisors, Inc. organization in July 1993,
Mr. Byrum worked for one year as an investor representative
with Money Management Associates ("MMA"), a Maryland-based
registered investment adviser. Mr. Byrum s responsibilities
at MMA included brokerage solicitation and investor relations.
Mr. Byrum received his bachelor s degree in Business
Administration from Miami University, of Oxford, Ohio, in
1992.
<PAGE> - 17 -
<PAGE>
Under an investment advisory agreement between the Trust and
the Advisor, dated May 14, 1993, and amended on November 2,
1993, and also amended on December 13, 1994 and March 8, 1996,
the Fund pays the Advisor a fee at an annualized rate of 0.55%
of the average daily net assets of the Fund.
The Advisor manages the investment and the reinvestment of the
assets of the Fund, in accordance with the investment
objectives, policies, and limitations of the Fund, subject to
the general supervision and control of the Trustees and the
officers of the Trust. The Advisor bears all costs associated
with providing these advisory services and the expenses of the
Trustees who are affiliated persons of the Advisor. The
Advisor, from its own resources, including profits from
advisory fees received from the Fund, provided such fees are
legitimate and not excessive, also may make payments to
broker-dealers and other financial institutions for their
expenses in connection with the distribution of Fund shares,
which payments, to the extent made by the Advisor, may be in
addition to those payments made pursuant to a plan of
distribution for the Fund adopted by the Trust pursuant to
Rule 12b-1 under the 1940 Act (the "Distribution Plan"). See
"Distribution Plan."
Servicer
General administrative, shareholder, dividend disbursement,
transfer agent, and registrar services are provided to the
Trust and the Fund by PADCO Service Company, Inc., 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852 (the
"Servicer"), subject to the general supervision and control of
the Trustees and the officers of the Trust, pursuant to a
service agreement between the Trust and the Servicer, dated
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
<PAGE> - 18 -
<PAGE>
expenses that are directly related to the services provided by
the Servicer to the Trust; the Fund reimburses the Servicer
for all fees and expenses incurred by the Servicer which are
not directly related to the services the Servicer provides to
the Fund under the service agreement.
Distributor
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., 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852 (the "Distributor"), subject to the
general supervision and control of the Trustees and the
officers of the Trust. Under the Distribution Plan, dated
March 8, 1996, the Fund reimburses the Distributor for a
portion of the Distributor's costs incurred in distributing
the shares of the Fund at an annualized rate not to exceed
0.25% of the average daily net assets of the Fund. See
"Distribution Plan."
Costs and Expenses
The Fund bears all expenses of its operations other than those
assumed by the Advisor, the Servicer, or the Distributor.
Fund expenses include: the management fee; the servicing fee
(including administrative, transfer agent, and shareholder
servicing fees); payments to be made by the Fund to the
Distributor under the Distribution Plan; custodian and
accounting fees and expenses; legal and auditing fees;
securities valuation expenses; fidelity bonds and other
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 agreed to limit the operating expenses of the
Fund so that the ratio of expenses, including investment
management fees, to average net assets on an annual basis for
the Fund shall not exceed 1.20%. Any expenses incurred by the
Fund in excess of this amount will be absorbed by the Advisor.
<PAGE> - 19 -
<PAGE>
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 quarterly 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
quarter 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.
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
<PAGE> - 20 -
<PAGE>
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 current "yield"
and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future
performance. The "yield" of the Fund refers to the income
generated by an investment in the Fund over a seven-day period
(which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is
calculated similarly, but, when annualized, the income earned
by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed
reinvestment. A description of the respective methods by
which the yield and effective yield of the Fund are calculated
is contained in the Statement of Additional Information under
"Information on Computation of Yield."
Since yield fluctuates, yield data cannot necessarily be used
to compare an investment in the Fund s shares with bank
deposits, savings accounts, and similar investment
alternatives which often provide an agreed or guaranteed fixed
yield for a stated period of time. Shareholders of the Fund
should remember that yield generally is a function of the kind
and quality of the instrument held in portfolio, portfolio
maturity, operating expenses, and market conditions.
GENERAL INFORMATION ABOUT THE TRUST
Organization and Description of Shares of Beneficial Interest
The Trust is a registered open-end investment company under
the 1940 Act. The Trust was organized as a Delaware business
trust on February 10, 1993, and has present authorized capital
of unlimited shares of beneficial interest of no par value
which may be issued in more than one class. Currently, the
<PAGE> - 21 -
<PAGE>
Trust has issued shares of eight 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, and The
Rydex Institutional Money Market Fund. Other separate classes
may be added in the future.
All shares of the Rydex Funds are freely transferable. The
Rydex Fund shares do not have preemptive rights or cumulative
voting rights, and none of the shares have any preference to
conversion, exchange, dividends, retirements, liquidation,
redemption, or any other feature. Rydex Fund shares have
equal voting rights, except that, in a matter affecting a
particular series in the Trust, only shares of that series may
be entitled to vote on the matter. Shareholder inquiries can
be made by telephone (at 800-820-0888 or 301-468-8520) or by
mail (to 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852).
Under the Delaware General Corporation Law, a registered
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 shares.
Trustees and Officers
<PAGE> - 22 -
<PAGE>
The Trust has a Board of Trustees which is responsible for the
general supervision of the Trust s business. The day-to-day
operations of the Trust are the responsibility of the Trust s
officers.
Auditors
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey
08540, are the auditors of and the independent public
accountants for the Trust and 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> - 23 -
<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
industry is well-established and the issuer has a strong
<PAGE> A-1
<PAGE>
position within the industry; and (6) the reliability and
quality of management are unquestioned. The relative strength
or weakness of the above factors determine whether the
issuer's commercial paper is rated "A-1," "A-2," or "A-3."
A-1 -- This designation rating indicates that the degree of
safety regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus (+) sign
designation.
A-2 -- The capacity for timely payment on issues with this
designation rating is strong; however, the relative degree of
safety is not as high as for issues designated "A-1."
Fitch Investors Service, Inc.
Commercial paper rated by Fitch Investors Service, Inc.
("Fitch"), reflects Fitch's current appraisal of the degree of
assurance of timely payment of such debt. An appraisal
results in the rating of an issuer's paper as "F-1," "F-2,"
"F-3," or "F-4."
F-1 -- This designation rating indicates that the
commercial paper is regarded as having the strongest degree of
assurance for timely payment.
F-2 -- Commercial paper issues assigned this designation
rating reflect an assurance of timely payment only slightly
less in degree than those issues rated "F-1."
Duff and Phelps Credit Rating Co.
Short-term ratings by Duff & Phelps Credit Rating Co.
("Duff") are consistent with the rating criteria utilized by
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.
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
<PAGE> A-2
<PAGE>
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
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
<PAGE> A-3
<PAGE>
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 enablethe clarification of issues raised.
IBCA's Rating Committees meet at regular intervals to
review all ratings and to ensure that individual ratings are
assigned consistently for institutions in all the countries
covered. Following these committee meetings, IBCA ratings are
issued directly to subscribers. At the same time, the company
is informed of the ratings as a matter of courtesy, but not
for discussion.
A1+ -- This designation rating indicates obligations
supported by the highest capacity for timely repayment.
A1 -- This designation rating indicates obligations
supported by a very strong capacity for timely repayment.
A2 -- This designation rating indicates obligations
supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
<PAGE> A-4
<PAGE>
RYDEX INSTITUTIONAL
MONEY MARKET FUND
THE RYDEX SERIES TRUST
PROSPECTUS
June 1, 1996
Table of Contents
Page
Fee Table . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Rydex Funds . . . . . . . . . . . . . . . . . . . . . . 4
Investment Objectives and Policies . . . . . . . . . . . . 4
How to Invest in the Fund . . . . . . . . . . . . . . . . 7
Redeeming an Investment (Withdrawals) . . . . . . . . . . . 8
Exchanges . . . . . . . . . . . . . . . . . . . . . . . . 8
Procedures for Redemptions and Exchanges . . . . . . . . . 9
Determination of Net Asset Value . . . . . . . . . . . . . 10
Tax-Sheltered Retirement Plans . . . . . . . . . . . . . . 10
Dividends and Distributions . . . . . . . . . . . . . . . 10
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Management of the Trust . . . . . . . . . . . . . . . . . . 11
Distribution Plan . . . . . . . . . . . . . . . . . . . . . 13
Performance Information . . . . . . . . . . . . . . . . . . 14
General Information About the Trust . . . . . . . . . . . . 14
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
<PAGE>
RYDEX SERIES TRUST
RYDEX INSTITUTIONAL MONEY MARKET FUND
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852
(800) 820-0888 (301) 468-8520
STATEMENT OF ADDITIONAL INFORMATION
The Rydex Institutional Money Market Fund (the "Fund") is a
diversified series of the Rydex Series Trust, an open-end
management investment company (the "Trust"). The investment
objectives of the Fund are security of principal, high current
income, and liquidity consistent with preservation of capital.
In attempting to achieve its objectives, the Fund will invest
primarily in money market instruments which are issued or
guaranteed, as to principal and interest, by the U.S.
Government, its agencies or instrumentalities, as well as in
repurchase agreements secured by such securities and in bank
money market instruments and commercial paper. The Fund is
part of the Rydex Group of Funds, which is designed for
professional money managers and knowledgeable investors who
intend to invest in the Rydex Group of Funds as part of an
asset-allocation or market-timing investment strategy.
The securities of the Fund are not deposits or obligations of
any bank, and are not endorsed or guaranteed by any bank, and
an investment in the Fund is neither insured nor guaranteed by
the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other agency of the U.S. Government. The Fund
seeks to maintain a constant $1.00 net asset value per share,
although this cannot be assured.
This Statement of Additional Information is not a prospectus.
It should be read in conjunction with the Fund's Prospectus,
dated June 1, 1996. A copy of the Fund's Prospectus may be
obtained without charge by writing or telephoning the Fund.
The date of this Statement of Additional Information is June
1, 1996.
<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
The Rydex Funds . . . . . . . . . . . . . . . . . . . . . . 3
Investment Policies and Techniques . . . . . . . . . . . . 3
Investment Restrictions . . . . . . . . . . . . . . . . . . 5
Portfolio Transactions . . . . . . . . . . . . . . . . . . 6
Management of the Trust . . . . . . . . . . . . . . . . . . 7
Distribution Plan . . . . . . . . . . . . . . . . . . . . . 9
Determination of Net Asset Value . . . . . . . . . . . . . 11
Information on Computation of Yield . . . . . . . . . . . . 13
Dividends, Distributions, and Taxes . . . . . . . . . . . . 13
Auditors and Custodian . . . . . . . . . . . . . . . . . . 15
Financial Statements . . . . . . . . . . . . . . . . . . . 15
<PAGE> 2
<PAGE>
THE RYDEX FUNDS
The Trust is an open-end management investment company, and
currently is composed of eight separate series, including The
Rydex Institutional Money Market Fund, The Nova Fund, The Ursa
Fund, The Rydex OTC Fund, The Rydex Precious Metals Fund, The
Rydex U.S. Government Bond Fund, The Juno Fund, and The Rydex
U.S. Government 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 of shares of a
Rydex Fund other than the Rydex Institutional Money Market
Fund 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 Rydex
Institutional Money Market Fund are available, without
charge, upon request to the Trust at 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852, or by telephoning the
Trust at (800) 820-0888 or (301) 468-8520.
INVESTMENT POLICIES AND TECHNIQUES
General
Reference is made to the sections entitled "Investment
Objectives and Policies" in the Fund's Prospectus for a
discussion of the investment objectives and policies of the
Fund. In addition, set forth below is further information
relating to the Fund. Portfolio management is provided to the
Fund by the Trust's investment adviser, PADCO Advisors, Inc.,
a Maryland corporation with offices at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852 (the
"Advisor").
The investment strategies of the Fund discussed below, and as
discussed in the Fund's Prospectus, may be used by the Fund
if, in the opinion of the Advisor, these strategies will be
advantageous to the Fund. The Fund is free to reduce or
eliminate the Fund's activity in any of those areas without
changing the Fund's fundamental investment policies. There is
no assurance that any of these strategies or any other
strategies and methods of investment available to the Fund
will result in the achievement of the Fund's objectives.
U.S. Government Securities
The Fund invests primarily in money market instruments which
are issued or guaranteed, as to principal and interest, by the
<PAGE> 3
<PAGE>
U.S. Government, its agencies or instrumentalities ("U.S.
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
so obligated by law. U.S. Treasury notes and bonds typically
pay coupon interest semi-annually and repay the principal at
maturity. The Fund will invest in U.S. Government Securities
only when the Advisor is satisfied that the credit risk with
respect to the issuer is minimal.
Repurchase Agreements
As discussed in the Fund's Prospectus, the Fund may enter into
repurchase agreements with financial institutions. The Fund
follows certain procedures designed to minimize the risks
inherent in such agreements. These procedures include
effecting repurchase transactions only with large, well-
capitalized and well-established financial institutions whose
condition will be continually monitored by the Advisor. In
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 net assets.
The Fund's investments in repurchase agreements may, at times,
be substantial when, in the view of the Advisor, liquidity or
other considerations so warrant.
<PAGE> 4
<PAGE>
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 cash equivalents or other portfolio
securities equal in value to commitments for such when-issued
or delayed delivery securities. The Fund does not believe
that the Fund's net asset value or income will be adversely
affected by the Fund's purchase of securities on a when-issued
or delayed delivery basis.
The foregoing strategies, and those discussed in the Fund's
Prospectus under the heading "Investment Objectives and
Policies," may subject the Fund to the effects of interest
rate fluctuations to a greater extent than would occur if such
strategies were not used. While these strategies may be used
by the Fund if, in the opinion of the Advisor 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.
Illiquid Securities
While the Fund does not anticipate doing so, the Fund may
purchase illiquid securities, including securities that are
not readily marketable, in an amount up to 10% of its net
assets. The Fund will adhere to a more restrictive limitation
on the Fund's investment in illiquid securities as required by
<PAGE> 5
<PAGE>
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 Securities
and Exchange Commission staff, illiquid securities also are
considered to include, among other securities, purchased over-
the-counter options, certain cover for over-the-counter
options, repurchase agreements with maturities in excess of
seven days, and certain securities whose disposition is
restricted under the Federal securities laws. The Fund may
not be able to sell illiquid securities when the Advisor
considers it desirable to do so or may have to sell such
securities at a price that is lower than the price that could
be obtained if the securities were more liquid. In addition,
the sale of illiquid securities also may require more time and
may result in higher dealer discounts and other selling
expenses than does the sale of securities that are not
illiquid. Illiquid securities also may be more difficult to
value due to the unavailability of reliable market quotations
for such securities, and investment in illiquid securities may
have an adverse impact on net asset value.
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. Borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes and then only in
<PAGE> 6
<PAGE>
amounts not in excess of 5% of the value of its total
assets from a bank or (ii) in an amount up to one-third
of the value of its total assets, including the amount
borrowed, in order to meet redemption requests without
immediately selling portfolio instruments. This
provision is not for investment leverage but solely to
facilitate management of the portfolio by enabling the
Fund to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or
disadvantageous.
2. Mortgage, pledge, or hypothecate its assets except to
secure permitted borrowings. In those cases, the Fund
may mortgage, pledge, or hypothecate assets having a
market value not exceeding the lesser of the dollar
amounts borrowed or 15% of the value of total assets at
the time of the borrowing.
3. Issue senior securities, except as permitted by its
investment objectives and policies.
4. Write or purchase put or call options.
5. Underwrite the securities of another issuer.
6. Purchase, hold, or deal in real estate or oil and gas
interests, although the Fund may purchase and sell
securities that are secured by real estate or interests
therein and may purchase mortgage-related securities and
may hold and sell real estate acquired for the Fund as a
result of the ownership of securities.
7. Make loans to others except through the purchase of
qualified debt obligations, loans of portfolio securities
and entry into repurchase agreements.
8. Make short sales of portfolio securities or purchase any
portfolio securities on margin, except for such short-
term credits as are necessary for the clearance of
transactions.
9. Invest in securities of other investment companies,
except as they may be acquired as part of a merger,
consolidation, acquisition of assets or plan of
reorganization.
10. Lend its portfolio securities in excess of 15% of its
total assets. Any loans of portfolio securities will be
made according to guidelines established by the trustees
of the Trust, including maintenance of cash collateral of
the borrower equal at all times to the current market
value of the securities loaned.
<PAGE> 7
<PAGE>
The Fund has no present intention to borrow money or pledge
assets in excess of 5% of the value of its net assets. Except
with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or
decrease in percentage resulting from any change in value or
net assets will not result in a violation of such restriction.
PORTFOLIO TRANSACTIONS
Subject to the general supervision by the trustees of the
Trust (the "Trustees"), and in conformity with the 1940 Act,
the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder, the Advisor is responsible for
decisions to buy and sell securities for each of the Rydex
Funds (including the Fund) and the selection of brokers and
dealers to effect the transactions. In seeking to implement
the Fund's policies, the Advisor effects transactions with
those brokers and dealers who the Advisor believes provide the
most favorable prices and are capable of providing efficient
executions.
The Advisor may serve as an investment manager to a number of
clients, including other investment companies. It is the
practice of the Advisor to cause purchase and sale
transactions to be allocated among the Rydex Funds and others
whose assets the Advisor manages in such manner as the Advisor
deems equitable. The main factors considered by the Advisor
in making such allocations among the Rydex Funds and other
client accounts of the Advisor are the respective investment
objectives, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for
investment, the size of investment commitments generally held,
and the opinions of the person(s) responsible, if any, for
managing the portfolios of the Rydex Funds and the other
client accounts.
Purchases and sales of U.S. Government Securities are normally
transacted through issuers, underwriters, or major dealers in
U.S. Government Securities acting as principals. Such
transactions are made on a net basis and do not involve
payment of brokerage commissions. The cost of securities
purchased from an underwriter usually includes a commission
paid by the issuer to the underwriters; transactions with
dealers normally reflect the spread between bid and asked
prices.
Portfolio turnover rate is defined as the value of the
securities purchased or securities sold, excluding all
securities whose maturities at time of acquisition were one
<PAGE> 8
<PAGE>
year or less, divided by the average monthly value of such
securities owned during the year. Based on this definition,
it is anticipated that the Fund's policy of investing in
government securities with remaining maturities of less than
one year will not result in a quantifiable portfolio turnover
rate. However, because of the short-term nature of the Fund's
portfolio securities, it is anticipated that the number of
purchases and sales or maturities of such securities will be
substantial. Nevertheless, as brokerage commissions are not
normally charged on purchases and sales of such securities,
the large number of these transactions does not have an
adverse effect upon the net yield and net asset value of the
shares of the Fund.
MANAGEMENT OF THE TRUST
The Trustees are responsible for the general supervision of
the Trust's business. The day-to-day operations of the Trust
are the responsibilities of the Trust's officers. The names
and addresses (and ages) of the Trustees and the officers of
the Trust and the officers of the Advisor, together with
information as to their principal business occupations during
the past five years, are set forth below. Fees and expenses
for non-interested Trustees will be paid by the Trust.
Trustees
*Albert P. Viragh, Jr. (54)
Chairman of the Board of Trustees and President of the
Trust; Chairman of the Board, President, and Treasurer of
PADCO Advisors, Inc., Advisor 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; 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 (50)
Trustee of the Trust; 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.
<PAGE> 9
<PAGE>
J. Kenneth Dalton (54)
Trustee of the Trust; 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 (51)
Trustee of the Trust; President, Arrow Limousine, 1963 to
present. Address: 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.
Officers
Timothy P. Hagan (52)
Treasurer and Vice President of the Trust; Employee of
PADCO Service Company, Inc., 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 (37)
Secretary of the Trust; Vice President of PADCO Advisors,
Inc., 1994 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 (25)
Assistant Secretary of the Trust; Employee of PADCO
Advisors, Inc., 1993 to present; 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> 10
<PAGE>
The Advisor, which has its office at 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852, provides the Fund with
investment advisory services. The Advisor was incorporated in
the State of Maryland on February 5, 1993. Albert P. Viragh,
Jr., the Chairman of the Board of Trustees and the President
of the Advisor, owns a controlling interest in the Advisor.
Under an investment advisory agreement with the Advisor, dated
May 14, 1993, and amended on November 2, 1993, December 13,
1994, and March 8, 1996, the Advisor serves as the investment
adviser for each series of the Trust and provides investment
advice to the Funds and oversees the day-to-day operations of
the Funds, subject to direction and control by the Trustees
and the officers of the Trust. The Trust currently is
composed of eight 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, and the Rydex Institutional
Money Market Fund; other separate series may be added in the
future. As of the December 31, 1995, net Trust assets under
management of the Advisor were approximately $550 million.
Pursuant to the advisory agreement, the Fund pays the Advisor
a fee at an annual rate based on 0.55% of the net assets of
the Fund. The Advisor manages the investment and the
reinvestment of the assets of the Fund, in accordance with the
Fund's investment objectives, policies, and limitations,
subject to the general supervision and control of the officers
of the Trust and the Trustees. The Advisor bears all costs
associated with providing these advisory services. The
Advisor, from its own resources, including profits from
advisory fees received from the Fund, provided such fees are
legitimate and not excessive, may make payments to broker-
dealers and other financial institutions for their expenses in
connection with the distribution of Fund shares, and otherwise
currently pays all distribution costs for Fund shares.
General administrative, shareholder, dividend disbursement,
transfer agent, and registrar services are provided to the
Trust and the Fund by PADCO Service Company, Inc., 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852
(the "Servicer"), subject to the general supervision and
control of the Trustees and the officers of the Trust,
pursuant to a service agreement between the Trust and the
Servicer, dated September 19, 1995 and as amended on March 8,
1996. 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
<PAGE> 11
<PAGE>
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.
The Fund bears all expenses of its operations other than those
assumed by the Advisor or the Servicer. Fund expenses
include: the management fee; the servicing fee (including
administrative, transfer agent, and shareholder servicing
fees); custodian and accounting fees and expenses; legal and
auditing fees; fidelity bonds and other insurance premiums;
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
eight 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, 1995,
is set forth in the table below:
<TABLE>
<CAPTION>
<PAGE> 12
<PAGE>
Pension or
Name of Person, Aggregate Retirement Benefits
Position Compensation from Accrued as Part of
the Trust** the Trust s Expenses
______________ ________________ ____________________
<S> <C> <C>
Albert P. Viragh, Jr.* $0 $0
Chairman and President
Corey A. Colehour $3,000 $0
Trustee
J. Kenneth Dalton $0 $0
Trustee
Roger Somers $3,000 $0
Trustee
Estimated Annual
Name of Person, Benefit upon
Position Retirement
________________ __________________
<S> <C>
Albert P. Viragh, Jr.* $0
Chairman and President
Corey A. Colehour $0
Trustee
J. Kenneth Dalton $0
Trustee
Roger Somers $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 $3,000 in aggregate
compensation by the Trust during the fiscal year ended
June 30, 1995.
As of the date of this Statement of Additional Information, no
person, other than the Advisor, was a record owner or, to the
<PAGE> 13
<PAGE>
knowledge of the Trust, beneficial owner of 5% or more of the
shares of the Fund.
DISTRIBUTION PLAN
Pursuant to the Trust's plan of distribution for the Fund
adopted by the Trust pursuant to Rule 12b-1 under the 1940 Act
(the "Distribution Plan"), the Fund will pay PADCO Financial
Services, Inc. (the "Distributor"), quarterly at a rate not to
exceed 0.25% of the average daily net assets of the Fund
during that quarter 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 quarter. No such payments, however,
will be made to any Recipient in any quarter if the aggregate
net asset value of all Fund shares held by the Recipient or
its customers at the end of such quarter, taken without regard
to the minimum holding period, does not exceed a minimum
amount. The minimum holding period and minimum level of
holdings, if any, will be determined from time to time by a
majority of the Trustees of the Trust who are not "interested
persons" of the Trust, as defined in the 1940 Act, and who
have no direct or indirect financial interest in the operation
of the Distribution Plan or any agreements related to the
Distribution Plan (the "Rule 12b-1 Trustees"). The services
to be provided by the Recipients may 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 quarterly
(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
<PAGE> 14
<PAGE>
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
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
<PAGE> 15
<PAGE>
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") are open for business at 1:00 P.M., Eastern Time.
Currently, the New York Fed, the Kansas City Fed, and the NYSE
are closed on weekends, and the following holiday closings
have been scheduled for 1996: (i) New Year's Day, Martin
Luther King Jr.'s Birthday, Washington's Birthday, Good
Friday, Memorial Day, July Fourth, Labor Day, Columbus Day,
Thanksgiving Day, and Christmas Day; and (ii) the preceding
Friday when any of those holidays falls on a Saturday or the
subsequent Monday when any one of those holidays falls on a
Sunday. To the extent that portfolio securities of the Fund
are traded in other markets on days when the New York Fed, the
Kansas City Fed, or the NYSE is closed, the Fund's net asset
value may be affected on days when investors do not have
access to the Fund to purchase or redeem shares. Although the
Trust expects the same holiday schedule to be observed in the
future, the New York Fed, the Kansas City Fed, or the NYSE may
modify its holiday schedule at any time. The net asset value
of the Fund serves as the basis for the purchase and
redemption price of the Fund's shares.
The Fund will utilize the amortized cost method in valuing its
portfolio securities for purposes of determining the net asset
value of the shares of the Fund. The Fund will utilize the
amortized cost method in valuing its portfolio securities even
though the portfolio securities may increase or decrease in
market value, generally, in connection with changes in
interest rates. The amortized cost method of valuation
involves valuing a security at its cost adjusted by a constant
amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the
market value of the instrument.
The Fund's use of the amortized cost method to value its
portfolio securities and the maintenance of the per share net
asset value of $1.00 is permitted pursuant to Rule 2a-7 under
the 1940 Act (the "Rule"), and is conditioned on the Fund's
compliance with various conditions including: (a) the Trustees
are obligated, as a particular responsibility within the
overall duty of care owed to the Fund's shareholders, to
establish written procedures reasonably designed, taking into
account current market conditions and the Fund's investment
<PAGE> 16
<PAGE>
objectives, to stabilize the net asset value per share as
computed for the purpose of distribution and redemption at
$1.00 per share; (b) the procedures should provide for (i) the
calculation, at such intervals as the Trustees determine are
appropriate and as are reasonable in light of current market
conditions, of the deviation, if any, between net asset value
per share using amortized cost to value portfolio securities
and net asset value per share based upon available market
quotations with respect to such portfolio securities; (ii) the
periodic review by the Trustees of the amount of deviation as
well as methods used to calculate the amount of deviation; and
(iii) the maintenance of written records of the procedures,
the Trustees' considerations made pursuant to the procedures
and any actions taken upon such considerations; (c) the
Trustees should consider what steps should be taken, if any,
in the event of a difference of more than 1/2 of 1% between
the two methods of valuation; and (d) the Trustees should take
such action as the Trustees deem appropriate (such as
shortening the average portfolio maturity, realizing gains or
losses, or, as provided by the Declaration of Trust, reducing
the number of the outstanding shares of the Fund) to eliminate
or reduce to the extent reasonably practicable material
dilution or other unfair results to investors or existing
shareholders. Any reduction of outstanding shares will be
effected by having each shareholder proportionately contribute
to the Fund's capital the shares necessary to eliminate or
reduce the material dilution or other unfair results to
investors or existing shareholders. Each shareholder will be
deemed to have agreed to such a contribution in these
circumstances by investment in the Fund.
The Rule further requires that the Fund limits its investments
to U.S. dollar-denominated instruments which the Trustees
determine present minimal credit risks and which are Eligible
Securities (as defined below). The Rule also requires the
Fund to maintain a dollar-weighted average portfolio maturity
(not more than 90 days) appropriate to the Fund's objective of
maintaining a stable net asset value of $1.00 per share and
precludes the purchase of any instrument with a remaining
maturity of more than thirteen months. Should the disposition
of a portfolio security result in a dollar-weighted average
portfolio maturity of more than 90 days, the Fund would be
required to invest its available cash in such a manner as to
reduce such maturity to 90 days or less as soon as reasonably
practicable.
An Eligible Security is defined in the Rule to mean a security
which: (a) has a remaining maturity of thirteen months or
less; (b) either (i) is rated in the two highest short-term
rating categories by any two nationally-recognized statistical
rating organizations ("NSROs") that have issued a short-term
rating with respect to the security or class of debt
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obligations of the issuer, or (ii) if only one NSRO has issued
a short-term rating with respect to the security, then by that
NSRO; (c) was a long-term security at the time of issuance
whose issuer has outstanding a short-term debt obligation
which is comparable in priority and security and has a rating
as specified in clause (b) above; or (d) if no rating is
assigned by any NSRO as provided in clauses (b) and (c) above,
the unrated security is determined by the Trustees to be of
comparable quality to any such rated security.
As permitted by the Rule, the Trustees have delegated to the
Fund's Advisor, subject to the Trustees' oversight pursuant to
guidelines and procedures adopted by the Trustees, the
authority to determine which securities present minimal credit
risks and which unrated securities (and securities that are
rated only by a single NSRO) are comparable in quality to
rated securities. The Advisor will, under the supervision of
the Trustees, cause the Fund to dispose of any security as
soon as practicable if the security is no longer of high
quality, unless the Trustees determine that this action would
not be in the best interest of the Fund.
If the Trustees determine that it is no longer in the best
interests of the Fund and its shareholders to maintain a
stable price of $1.00 per share, or if the Trustees believe
that maintaining such price no longer reflects a market-based
net asset value per share, the Trustees have the right to
change from an amortized cost basis of valuation to valuation
based on market quotations. The Fund will notify shareholders
of any such change.
The Fund will manage its portfolio in an effort to maintain a
constant $1.00 per share price, but the Fund cannot assure
that the value of the Fund's shares will never deviate from
this price. Since dividends from net investment income (and
net short-term capital gains, if any) are declared and accrued
on a daily basis, the net asset value per share, under
ordinary circumstances, is likely to remain constant.
Otherwise, realized and unrealized gains and losses will not
be distributed on a daily basis but will be reflected in the
Fund's net asset value. The amounts of such gains and losses
will be considered by the Trustees in determining the action
to be taken to maintain the Fund's $1.00 per share net asset
value. Such action may include distribution at any time of
part or all of the then-accumulated undistributed net realized
capital gains, or reduction or elimination of daily dividends
by an amount equal to part or all of the then-accumulated net
realized capital losses. However, if realized losses should
exceed the sum of net investment income plus realized gains on
any day, the net asset value per share on that day might
decline below $1.00 per share. In such circumstances, the
Fund may reduce or eliminate the payment of daily dividends
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for a period of time in an effort to restore the Fund's $1.00
per share net asset value. A decline in prices of securities
could result in significant unrealized depreciation on a mark-
to-market basis. Under these circumstances the Fund may
reduce or eliminate the payment of dividends, and utilize a
net asset value per share as determined by using available
market quotations, or reduce the number of its shares
outstanding.
Illiquid securities, securities for which reliable quotations
or pricing services are not readily available, and all other
assets will be valued at their respective fair value as
determined in good faith by, or under procedures established
by, the Trustees, which procedures may include the delegation
of certain responsibilities regarding valuation to the Advisor
or the officers of the Trust. The officers of the Trust
report, as necessary, to the Trustees regarding portfolio
valuation determination. The Trustees, from time to time,
will review these methods of valuation and will recommend
changes which may be necessary to assure that the investments
of the Funds are valued at fair value.
INFORMATION ON COMPUTATION OF YIELD
The Fund's annualized current yield, as may be quoted from
time to time in advertisements and other communications to
shareholders and potential investors, is computed by
determining, for a stated seven-day period, the net change,
exclusive of capital changes and including the value of
additional shares purchased with dividends and any dividends
declared therefrom (which reflect deductions of all expenses
of the Fund such as management fees), in the value of a
hypothetical pre-existing account having a balance of one
share at the beginning of the period, and dividing the
difference by the value of the account at the beginning of the
base period to obtain the base period return, and then
multiplying the base period return by (365/7).
The Fund's annualized effective yield, as may be quoted from
time to time in advertisements and other communications to
shareholders and potential investors, is computed by
determining (for the same stated seven-day period as the
current yield), the net change, exclusive of capital changes
and including the value of additional shares purchased with
dividends and any dividends declared therefrom (which reflect
deductions of all expenses of the Fund such as management
fees), in the value of a hypothetical pre-existing account
having a balance of one share at the beginning of the period,
and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return,
and then compounding the base period return by adding 1,
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raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
The yields quoted in any advertisement or other communication
should not be considered a representation of the yields of the
Fund in the future since the yield is not fixed. Actual
yields will depend not only on the type, quality, and
maturities of the investments held by Fund and changes in
interest rates on such investments, but also on changes in the
Fund's expenses during the period.
Yield information may be useful in reviewing the performance
of the Fund and for providing a basis for comparison with
other investment alternatives. However, unlike bank deposits
or other investments which typically pay a fixed yield for a
stated period of time, the Fund's yield fluctuates.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
Dividends and Distributions. As discussed in the Fund's
Prospectus, the Fund intends to declare dividends daily from
net investment income (and net short-term capital gains, if
any) and distribute such dividends monthly. Net income, for
dividend purposes, includes accrued interest and amortization
of original issue and market discount, plus or minus any
short-term gains or losses realized on sales of portfolio
securities, less the amortization of market premium and the
estimated expenses of the Fund. Net income will be calculated
immediately prior to the determination of net asset value per
share of the Fund.
The Trustees may revise the dividend policy, or postpone the
payment of dividends, if the Fund should have or anticipate
any large unexpected expense, loss, or fluctuation in net
assets which, in the opinion of the Trustees, might have a
significant adverse effect on shareholders. On occasion, in
order to maintain a constant $1.00 per share net asset value,
the Trustees may direct that the number of outstanding shares
be reduced in each shareholder's account. Such reduction may
result in taxable income to a shareholder in excess of the net
increase (i.e., dividends, less such reduction), if any, in
the shareholder's account for a period of time. Furthermore,
such reduction may be realized as a capital loss when the
shares are liquidated.
Regulated Investment Company Status. The Fund intends to
qualify as a regulated investment company (a "RIC") under
Subchapter M of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"). As a RIC, the Fund would not be subject
to Federal income taxes on the net investment income and
capital gains that the Fund distributes to the Fund's
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shareholders. The distribution of net investment income and
gains distributions are taxable to the shareholder as ordinary distributions
cash or in additional shares. Distributions capital gains will be taxable to
Fund shareholders regardless in may be subject to state and local taxes.of
whether the shareholder elects to receive these
Shareholders will be subject to Federal income tax on
capital gains. Interest and realized net short-term capitaldividends paid
from interest income derived from taxable
securities and on distributions of realized net short-term
dividend income regardless of whether the shareholder receives
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return to an investor from an investment in
the Fund.corporate income taxes on the Fund would directly reduce thea
vailable to corporations.rather than dividends, none of such distributions
will be qualification is that the Fund must receive at least 90% of
eligible for the Federal dividends received deduction
(including, for this purpose, net realized short-term capitalCode.
Provided that the Fund (i) is a RIC and (ii)
to the extent the Fund's net investment income and the Fund'sgains), the
Fund will not be liable for Federal income taxesdistributes at least 90% of
the Fund's net investment incomeThe Fund will seek to qualify for treatment
as a RIC under the
least 98% of its income. One of several requirements for RICundistributed
income, the Fund generally must distribute atto the Fund's shareholders.
To avoid an excise tax on itsFund's income is expected to be derived
entirely from interest
net realized short-term capital gains, if any, are distributedsuch
distributions in additional shares or in cash. Since the
the Fund's gross income each year from dividends, interest,
other income derived with respect to the Fund's investments in
stock, securities, and foreign currencies (the "90% Test").
will not qualify as a RIC for that year. If the Fund fails to
a corporate income tax liability on all of the Fund's taxabletaxable
year, or for any subsequent taxable year, the Fundthe Fund does not
satisfy the 30% Test for the Fund's firstincome for that year is
derived from gains on the sale ofIn addition, under the Code, the Fund
will not qualify as a
securities held less than three months (the "30% Test"). IfRIC for any
taxable year if more than 30% of the Fund's gross
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 incurqualify as a
RIC for any taxable year, the Fund would be taxedpayments with respect to
securities loans, gains from the sale
income whether or not distributed. The imposition ofor other
disposition of securities or foreign currencies, or
In the event of a failure by the Fund to qualify as a RIC, the
Fund's distributions, to the extent such distributions are
derived from the Fund's current or accumulated earnings and
profits, would constitute dividends that would be taxable to
the shareholders of the Fund as ordinary income and would be
eligible for the dividends-received deduction for corporate
shareholders.
If the Fund were to fail to qualify as a RIC for one or more
taxable years, the Fund could then qualify (or requalify) as a
RIC for a subsequent taxable year only if the Fund had
distributed to the Fund's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the
interest charge mentioned below, if applicable) attributable
to such period. The Fund might also be required to pay to the
U.S. Internal Revenue Service (the "IRS") interest on 50% of
such accumulated earnings and profits. In addition, pursuant
to the Code and an interpretative notice issued by the IRS, if
the Fund should fail to qualify as a RIC and should thereafter
seek to requalify as a RIC, the Fund may be subject to tax on
the excess (if any) of the fair market of the Fund's assets
over the Fund's basis in such assets, as of the day
immediately before the first taxable year for which the Fund
seeks to requalify as a RIC.
If the Fund determines that the Fund will not qualify as a RIC
under Subchapter M of the Code, the Fund will establish
procedures to reflect the anticipated tax liability in the
Fund's net asset value.
Back-Up Withholding. The Fund is required to withhold and
remit to the U.S. Treasury 31% of (i) reportable taxable
dividends and distributions and (ii) the proceeds of any
redemptions of Fund shares with respect to any shareholder who
is not exempt from withholding and who fails to furnish the
Trust with a correct taxpayer identification number, who fails
to report fully dividend or interest income, or who fails to
certify to the Trust that the shareholder has provided a
correct taxpayer identification number and that the
shareholder is not subject to withholding. (An individual's
taxpayer identification number is the individual's social
security number.) The 31% "back-up withholding tax" is not an
additional tax and may be credited against a taxpayer's
regular Federal income tax liability.
Other Issues. 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.
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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.
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.
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