PAGE
<PAGE>
RULE 497(c)
FILE NO. 33-59692
RYDEX SERIES TRUST PROSPECTUS
THE RYDEX HIGH YIELD FUND
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852
(800) 820-0888 (301) 468-8520
INVESTMENT OBJECTIVE AND POLICIES
The Rydex High Yield Fund (the "Fund") is a diversified series
of the Rydex Series Trust, an open-end management investment
company (the "Trust"). The investment objective of the Fund
is to seek to provide investment returns that correspond to
the performance of a benchmark for high yield fixed income
securities. The Fund s current benchmark is the Merrill Lynch
High Yield Master Index (the MLHY Index ). To achieve its
objective, the Fund will invest in securities included in the
MLHY Index. In addition, the Fund may invest in debt
obligations and other securities that are expected to perform
in a manner that will assist the Fund s performance to track
closely the investment performance of the MLHY Index. See
Other Investment Policies. The Fund will invest primarily
in below investment grade corporate bonds, commonly known as
junk bonds. Investments of this type are subject to greater
risks, including default risks, than those found in higher
rated securities. Purchasers should carefully assess the
risks associated with an investment in the Fund. See Special
Risk Factors.
ADDITIONAL INFORMATION
The Fund is part of the Rydex Group of Funds, which is
designed for professional money managers and knowledgeable
investors who intend to invest in the Rydex Group of Funds as
part of an asset-allocation or market-timing investment
strategy. The Fund alone does not constitute a balanced
investment plan. The nature of the Fund generally will result
in significant portfolio turnover which would likely cause
higher expenses and additional costs and increase the risk
that the Fund will not qualify as a regulated investment
company under the Federal tax laws. Sales of the Fund shares
are made, without sales charges, at the Fund s per share net
asset value.
Investors should read this Prospectus and retain it for future
reference. This Prospectus is designed to set forth concisely
the information an investor should know before investing in
the Fund. A Statement of Additional Information, dated<PAGE>
December 1, 1996, containing additional information about the
Fund and the Trust has been filed with the Securities and
Exchange Commission and is incorporated herein by reference.
A copy of that Statement of Additional Information is
available, without charge, upon request to the Trust at the
address above or by telephoning the Trust at the telephone
numbers above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December 1, 1996, as
supplemented January 2, 1997.
<PAGE> - 3 -<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY 3
FEES AND EXPENSES OF THE FUND 4
THE RYDEX FUNDS 5
INVESTMENT OBJECTIVE AND POLICIES 5
SPECIAL RISK FACTORS 7
PORTFOLIO TRANSACTIONS AND BROKERAGE 10
HOW TO INVEST IN THE FUND 10
REDEEMING AN INVESTMENT (WITHDRAWALS) 11
EXCHANGES 11
PROCEDURES FOR REDEMPTIONS AND EXCHANGES 12
DETERMINATION OF NET ASSET VALUE 12
TAX-SHELTERED RETIREMENT PLANS 13
TRANSACTION CHARGES 13
DIVIDENDS AND DISTRIBUTIONS 13
TAXES 13
MANAGEMENT OF THE TRUST 15
DISTRIBUTION PLAN 17
PERFORMANCE INFORMATION 17
GENERAL INFORMATION ABOUT THE TRUST 18
APPENDIX A 19
<PAGE> - 4 -<PAGE>
PROSPECTUS SUMMARY
The Fund
The Rydex High Yield Fund (the "Fund") is a diversified series
of the Rydex Series Trust, an open-end management investment
company (the "Trust") that currently is comprised of nine
separate series, including the Fund (collectively, the Rydex
Funds ). The investment objective of the Fund is to seek to
provide investment returns that correspond to the performance
of a benchmark for high yield fixed income securities. The
Fund s current benchmark is the Merrill Lynch High Yield
Master Index (the MLHY Index ). To achieve its objective,
the Fund will invest in securities included in the MLHY Index.
In addition, the Fund may invest in debt obligations and other
securities that are expected to perform in a manner that will
assist the Fund s performance to correspond to the investment
performance of the MLHY Index. (See The Rydex Funds,
Investment Objective and Policies, and Other Investment
Policies. ) While the Fund does not expect that the returns
over a year will deviate adversely from the performance of the
Fund s current benchmark by more than ten percent, certain
factors may affect the Fund s ability to achieve this
correlation, and there is no assurance that the Fund will
achieve its investment objective. See Tracking Error under
Special Risk Factors for a discussion of these factors.
Special Risk Considerations
The Fund will invest primarily in below investment grade
corporate bonds, commonly known as junk bonds. Investments
of this type are subject to greater risks, including default
risks and market risks, than those found in higher rated
securities. Below investment grade securities are of poorer
quality, may have speculative characteristics, and may present
elements of danger with respect to principal or interest.
Purchasers should carefully assess the risks associated with
an investment in the Fund. (See Special Risk Factors. )
The Fund is part of the Rydex Group of Funds, which is
designed for professional money managers and knowledgeable
investors who intend to invest in the Rydex Group of Funds as
part of an asset-allocation or market-timing investment
strategy. The Fund alone does not constitute a balanced
investment plan. The nature of the Fund generally will result
in significant portfolio turnover which would likely cause
higher expenses and additional costs and increase the risk
that the Fund will not qualify as a regulated investment
company under the Federal tax laws. (See Special Risk
Factors. )
Investment Advisor, Sub-Advisor, and Servicer
The Fund s investment adviser is PADCO Advisors, Inc., a
Maryland corporation with offices at 6116 Executive Boulevard,
<PAGE> - 5 -<PAGE>
Suite 400, Rockville, Maryland 20852 (the "Advisor"). The
Fund pays the Advisor an investment management fee of 0.75% of
the average daily net assets of the Fund. Pursuant to a sub-
advisory agreement between the Advisor and Loomis, Sayles &
Company, L.P. (the Sub-Advisor ), the Advisor pays the Sub-
Advisor 0.375% of the average daily net assets of the Fund for
providing portfolio management services to the Fund. PADCO
Service Company, Inc. (the "Servicer"), provides the Fund with
general administrative, transfer agent, shareholder, and
registrar services for a fee of 0.20% of the average daily net
assets of the Fund. (See Management of the Trust. )
Purchases, Redemptions, and Exchanges
Shares of the Fund may be purchased and redeemed, without any
respective sales or redemption charge, at the net asset value
per share of the Fund next determined. Shares of the Fund may
be exchanged at any time for shares of any other available
Rydex Fund, without any charge, on the basis of the relative
net asset values next computed (subject to compliance with
applicable minimum investment requirements). Because of the
administrative expense of handling small accounts, any request
for a redemption by an investor whose account balance is (a)
below the currently-applicable minimum investment, or (b)
would be below that minimum as a result of the redemption,
will be treated as a request by the investor for a complete
redemption of that account. For shareholders who have engaged
a registered investment adviser with discretionary authority
over the shareholder s account, the minimum initial investment
in the Fund currently is $15,000; for all other shareholder
accounts, the minimum initial investment in the Fund currently
is $25,000. These minimums also apply to retirement plan
accounts. The Trust reserves the right to modify its minimum
investment requirements. (See "How To Invest In the Fund,"
"Redeeming An Investment (Withdrawals)," and "Exchanges.")
<PAGE> - 6 -<PAGE>
FEES AND EXPENSES OF THE FUND
The following table illustrates all expenses and fees that a
shareholder of the Fund will incur:
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
<S> <C>
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested
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 0.75%
12b-1 Fees 0.25%
Other Expenses:
Administrative Fees 0.20%
Additional Expenses 0.15%*
Total Fund Operating Expenses 1.35%**
</TABLE>
_____________________
* Additional expenses are based on estimated amounts for
the current fiscal year.
** Retirement plans are charged an annual $15.00 maintenance
fee. See Tax-Sheltered Retirement Plans.
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:
<PAGE> - 7 -<PAGE>
1 YEAR 3 YEARS
$13.75 $42.76
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 Investment In the Fund,
Management of the Trust, and Distribution Plan in this
Prospectus.
THE RYDEX FUNDS
The Trust is an open-end management investment company, and
currently is composed of nine separate series, including the
Fund, The Nova Fund, The Ursa Fund, The Rydex OTC Fund, The
Rydex Precious Metals Fund, The Rydex U.S. Government Bond
Fund, The Juno Fund, The Rydex U.S. Government Money Market
Fund, and the Institutional Money Market Fund (collectively,
the "Rydex Funds"); other separate Rydex Funds may be added in
the future. The Rydex Funds are principally designed for
professional money managers and investors who intend to follow
an asset-allocation or market-timing investment strategy.
Except for the Institutional Money Market Fund and the Rydex
U.S. Government Money Market Fund, each Rydex Fund is intended
to provide investment exposure with respect to a particular
segment of the securities markets. These Rydex Funds seek
investment results that correspond over time to a specified
benchmark. The Rydex Funds may be used independently or in
combination with each other as part of an overall investment
strategy.
Shares of any Rydex Fund may be exchanged, without any charge,
for shares of any other Rydex Fund on the basis of the
respective net asset values of the shares involved; provided,
t h at, in connection with exchanges for shares of the
<PAGE> - 8 -<PAGE>
Institutional Money Market Fund, certain minimum investment
levels are maintained. The Trust reserves the right to modify
its minimum investment requirements (see "Exchanges"). Copies
of the separate Prospectuses and Statements of Additional
Information for the Rydex Funds other than the Fund are
available, without charge, upon request to the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at (800) 820-0888 or (301) 468-8520.
The Trust reserves the right to restrict exchanges out of the
Fund if necessary to preserve the Fund s tax status.
INVESTMENT OBJECTIVE AND POLICIES
General
The investment objective of the Fund is to seek to provide
investment returns that correspond to the performance of a
benchmark for high yield fixed income securities. The Fund s
current benchmark is the MLHY Index. Although there is no
assurance that the Fund's objective will be achieved, the Fund
will seek to achieve its objective by investing primarily in a
variety of long-term, intermediate-term, and short-term below
i n vestment grade corporate bonds (including convertible
issues) commonly known as junk bonds and low-rated preferred
securities. The Fund will invest in securities included in
the MLHY Index, and may also invest in United States dollar-
denominated bonds issued by foreign-based companies which may
be issued in the United States or on a global basis.
The investment objective of the Fund is fundamental and may
not be changed without the approval of a majority of the
shareholders, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"). All other investment
policies of the Fund not specified as fundamental, including
the benchmark index for high yield fixed income securities,
may be changed without the approval of shareholders. The
trustees of the Trust (the Trustees ) may consider changing
the Fund s benchmark (to the extent permitted) if, for
example, the current benchmark becomes unavailable; the
Trustees believe the current benchmark no longer serves the
investment needs of a majority of shareholders or another
benchmark better serves their needs; or the financial or
economic environment makes it difficult for the Fund s
investment results to correspond sufficiently to its current
benchmark. If believed appropriate, the Trustees may specify
a benchmark for the Fund that is "leveraged" or proprietary.
Of course, there can be no assurance that the Fund will
achieve its objective.
<PAGE> - 9 -<PAGE>
High Yield Corporate Bonds
The corporate bonds primarily purchased by the Fund will be
rated in below investment grade categories by Moody s
Investors Service, Inc. ( Moody s ) or Standard & Poor s
Ratings Group ( Standard & Poor s ) ( Ba or lower by Moody s,
BB or lower by Standard and Poor s). The Fund does not
invest in securities rated lower than Caa by Moody s or
CCC by Standard & Poor s; these ratings are applied to
issues which are predominantly speculative and may be in
default or as to which there may be present elements of danger
with respect to principal or interest. The Fund does not
invest in issues which are in default. The Fund may invest in
unrated securities when the Sub-Advisor believes that the
financial condition of the issuer or the protection afforded
by the terms of the securities limits risk to a level similar
to that of securities eligible for purchase by the Fund rated
in below investment grade categories by Moody s or Standard &
Poor s (between Ba and Caa ratings by Moody s and between
BB and CCC ratings by Standard & Poor s). If the
investment rating of a high yield corporate security in which
the Fund is invested is downgraded to below Caa by Moody s
or CCC by Standard & Poor s, the Fund will sell the
downgraded security as soon as practicable and when the Sub-
Advisor considers it desirable to do so. See Appendix A to
this Prospectus for a specific description of each corporate
bond rating category.
The securities in which the Fund invests offer a wide range of
maturities (from less than one year to thirty years) and
yields. These securities include short-term bonds or notes
(maturing in less than three years), intermediate-term bonds
or notes (maturing in three to ten years), and long-term bonds
(maturing in more than ten years). While there are no
limitations on the average maturity of the securities held by
t h e Fund, the Fund s average portfolio maturity will
ordinarily be comparable to that of its benchmark. As of July
30, 1996, the average years-to-maturity of the MLHY Index was
approximately nine years.
Repurchase Agreements
The Fund may also invest in repurchase agreements secured by
U.S. Government Securities. Under a repurchase agreement, the
Fund purchases a debt security and simultaneously agrees to
sell the security back to the seller at a mutually agreed-upon
future price (thereby determining the yield during the
purchaser's holding period) and date, normally one day or a
few days later. The resale price is greater than the purchase
price, reflecting an agreed-upon market interest rate during
the purchaser s holding period. While the maturities of the
underlying securities in repurchase transactions may be more
<PAGE> - 10 -<PAGE>
than one year, the term of each repurchase agreement will
always be less than one year. The Fund will enter into
repurchase agreements only with member banks of the Federal
R e s erve System or primary dealers of U.S. Government
Securities.
The Advisor will monitor the creditworthiness of each firm
which is a party to a repurchase agreement with the Fund. In
the event of a default or bankruptcy by the seller, the Fund
will liquidate those securities (whose market value, including
accrued interest, must be at least equal to 100% of the dollar
amount invested by the Fund in each repurchase agreement) held
under the applicable repurchase agreement, which securities
constitute collateral for the seller s obligation to pay.
However, liquidation could involve costs or delays and, to the
extent proceeds from the sales of these securities were less
than the agreed-upon repurchase price, the Fund would suffer a
loss. The Fund also may experience difficulties and incur
certain costs in exercising its rights to the collateral and
may lose the interest the Fund expected to receive under the
repurchase agreement. Repurchase agreements usually are for
short periods, such as one week or less, but may be longer.
It is the current policy of the Fund to treat repurchase
agreements that do not mature within seven days as illiquid
for the purposes of the Fund's investment policies.
The Fund will not enter into repurchase agreements of more
than seven days duration if more than 15% of the market value
of the Fund's net assets would be so invested together with
any other investment the Fund may hold for which market
quotations are not readily available.
When-Issued and Delayed Delivery Securities
The Fund may purchase securities on a when-issued or delayed
delivery basis (i.e., delivery and payment can take place a
month or more after the date of the transaction). These
securities are subject to market fluctuation and no interest
accrues to the purchaser during this period. At the time the
Fund makes the commitment to purchase securities on a when-
issued or delayed delivery basis, the Fund will record the
transaction and thereafter reflect the value, each day, of
such security in determining its net asset value. The Fund
will not purchase securities on a when-issued or delayed
delivery basis if, as a result, more than 10% of the Fund's
net assets would be so invested. The Fund will maintain, in a
segregated account, cash or liquid securities having a value
equal to or greater than the Fund's purchase commitments.
Short Sales
<PAGE> - 11 -<PAGE>
The Fund also may engage in short sales transactions under
which the Fund sells a security it does not own in order to
facilitate the management of the Fund s portfolio by enabling
the Fund to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or
disadvantageous. To complete such a transaction, the Fund
must borrow the security to make delivery to the buyer. The
Fund then is obligated to replace the security borrowed by
purchasing the security at the market price at the time of
replacement. The price at such time may be more or less than
the price at which the security was sold by the Fund. Until
the security is replaced, the Fund is required to pay to the
lender amounts equal to any dividends or interest which accrue
during the period of the loan. To borrow the security, the
Fund also may be required to pay a premium, which would
increase the cost of the security sold. The proceeds of the
short sale will be retained by the broker, to the extent
necessary to meet the margin requirements, until the short
position is closed out.
Until the Fund closes its short position or replaces the
borrowed security, the Fund will: (a) maintain a segregated
account containing cash, equity securities, or debt securities
of any grade, including non-investment grade debt securities,
which securities will be liquid and marked to the market
daily, and at such a level that (i) the amount deposited in
the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold
short and (ii) the amount deposited in the segregated account
plus the amount deposited with the broker as collateral will
not be less than the market value of the security at the time
the security was sold short; or (b) otherwise cover the Fund s
short position.
Other Investment Policies
W h en the Sub-Advisor determines that market conditions
warrant, the Fund may temporarily invest all or part of the
Fund s assets in cash or cash equivalents, which include, but
are not limited to, short-term money market instruments, U.S.
Government securities, repurchase agreements secured by U.S.
Government securities, commercial paper, and bank money market
instruments, including certificates of deposit, time deposits,
bankers acceptances, and other short-term obligations issued
by United States banks which are members of the Federal
Reserve System. To meet its objective, the Fund may also:
invest in common stocks, rights, or other equity securities,
including preferred and convertible securities; purchase and
sell futures contracts, index futures contracts, and options
thereon; and purchase and sell options on securities and index
options. The Fund also may borrow money and lend portfolio
securities to brokers, dealers, and financial institutions.
<PAGE> - 12 -<PAGE>
The Fund, however, does not presently intend to invest more
than 5% of the Fund s net assets in any of these instruments
or practices. A more-detailed explanation of these investment
practices, including the risks associated with each practice,
is included in the Statement of Additional Information.
Merrill Lynch High Yield Master Index
The MLHY Index is a market capitalization-weighted index
comprised of domestic and foreign high yield corporate bonds,
each with at least $50 million par amount outstanding and more
than one year to maturity (foreign corporate bonds are issued
by foreign corporations, denominated in United States dollars,
and underwritten by United States syndicates for delivery in
the United States). Interest and price return for each
corporate bond included in the MLHY Index are calculated daily
based on accrued schedule and trader pricing. The investment
ratings for the corporate bonds included in the MLHY Index
range from Baa by Moody s or BBB by Standard and Poor s
to C by Moody s or C by Standard & Poor s (the Fund,
however, does not invest in securities rated lower than Caa
by Moody s or CCC by Standard & Poor s). Bonds rated as
being in default ( Daa by Moody s or DDD by Standard and
Poor s), as well as deferred interest bonds and pay-in-kind
bonds, are not included in the MLHY Index. Split-rated issues
(i.e., bonds rated investment grade by one rating agency and
high yield by another rating agency) are included in the MLHY
Index based on the bond s corresponding composite rating.
Prices for the bonds included in the MLHY Index are taken as
of 3:00 P.M., Eastern Time, and only those bonds for which
accurate pricing is available are included in the index. The
index was created in 1984.
SPECIAL RISK FACTORS
Credit and Market Risks
All securities, including those purchased by the Fund, are
subject to some degree of credit risk and market risk.
Credit risk refers to the ability of an issuer of a debt
security to pay its principal and interest, and to the
earnings stability and overall financial soundness of an
issuer of an equity security. Market risk refers to the
volatility of a security s price in response to changes in
conditions in securities markets in general, and, particularly
in the case of debt securities, to changes in the overall
level of interest rates. An increase in interest rates will
tend to reduce the market values of debt securities, whereas a
decline in interest rates will tend to increase their values.
High Yield Securities
<PAGE> - 13 -<PAGE>
The Fund presently intends to invest at least 80% of its net
assets in high yield corporate bonds. Both credit and market
risks are increased by the Fund s investment in debt
securities rated below the top four grades by Standard &
Poor s or Moody s and comparable unrated debt securities.
Below investment grade bonds by Moody s (categories Ba, B,
Caa ) are of poorer quality and may have speculative
characteristics. Bonds rated Caa may be in default or there
may be present elements of danger with respect to principal or
interest. Below investment grade bonds rated by Standard &
Poor s (categories BB, B, CCC ) include those which are
regarded, on balance, as predominantly speculative with
respect to the issuer s capacity to pay interest and repay
principal in accordance with their terms; BB indicates the
lowest degree of speculation and CCC indicates a high degree
of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse
conditions.
The share price and yield of the Fund may be expected to
fluctuate more than in the case of mutual funds that invest in
h i gher quality, shorter term securities. Moreover, a
significant economic downturn or major increase in interest
rates may result in issuers of below investment grade
securities experiencing increased financial stress, which
c o uld adversely affect their ability to service their
principal, interest, and dividend obligations, meet projected
business goals, and obtain additional financing. In this
regard, it should be noted that while the market for high
yield corporate bonds has been in existence for many years and
from time to time has experienced economic downturns in recent
years, this market has involved a significant increase in the
use of high yield corporate debt securities to fund highly
leveraged corporate acquisitions and restructurings. Past
experience may not, therefore, provide an accurate indication
o f future performance of the high yield bond market,
p a rticularly during periods of economic recession.
Furthermore, expenses incurred to recover an investment by the
Fund in a defaulted security may adversely affect the Fund s
net asset value. Finally, the secondary market for high yield
securities may be less liquid than the market for higher
quality securities. The reduced liquidity of the secondary
market for high yield securities may adversely affect the
market price of, and the ability of the Fund to value,
particular securities at certain times, thereby making it
difficult to make specific valuation determinations.
While the Fund attempts to provide investment returns that
correspond to a benchmark for high yield fixed income
securities (currently the MLHY Index), there is no assurance
that it will be able to do so. The Fund will not purchase all
<PAGE> - 14 -<PAGE>
o f the securities that comprise its benchmark index.
Accordingly, changes in the value of the Fund s shares may not
exactly correspond to changes in the benchmark index.
Illiquid Securities
T h e Fund may purchase illiquid securities, including
securities that are not readily marketable and securities that
are not registered ( restricted securities ) under the
Securities Act of 1933, as amended (the 1933 Act ), but which
can be offered and sold to qualified institutional buyers
under Rule 144A under the 1933 Act. The Fund will not invest
more than 15% of the Fund s net assets in illiquid securities.
The Fund will adhere to a more restrictive limitation on the
Fund s investment in illiquid securities as required by the
securities laws of those jurisdictions where shares of the
Fund are registered for sale. The term "illiquid securities"
for this purpose means securities that cannot be disposed of
within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the
securities. Under the current guidelines of the staff of the
Securities and Exchange Commission (the Commission ),
illiquid securities also are considered to include, among
other securities, purchased over-the-counter options, certain
cover for over-the-counter options, repurchase agreements with
maturities in excess of seven days, and certain securities
whose disposition is restricted under the Federal securities
laws. The Fund may not be able to sell illiquid securities
when the Sub-Advisor considers it desirable to do so or may
have to sell such securities at a price that is lower than the
price that could be obtained if the securities were more
liquid. In addition, the sale of illiquid securities also may
require more time and may result in higher dealer discounts
and other selling expenses than does the sale of securities
that are not illiquid. Illiquid securities also may be more
difficult to value due to the unavailability of reliable
market quotations for such securities, and investment in
illiquid securities may have an adverse impact on net asset
value.
Institutional markets for restricted securities have developed
as a result of the promulgation of Rule 144A under the 1933
Act, which provides a safe harbor from 1933 Act registration
requirements for qualifying sales to institutional investors.
When Rule 144A restricted securities present an attractive
investment opportunity and otherwise meet selection criteria,
the Fund may make such investments. Whether or not such
securities are illiquid depends on the market that exists
for the particular security. The Commission staff has taken
the position that the liquidity of Rule 144A restricted
securities is a question of fact for a board of trustees to
determine, such determination to be based on a consideration
<PAGE> - 15 -<PAGE>
of the readily-available trading markets and the review of any
contractual restrictions. The staff also has acknowledged
that, while a board of trustees retains ultimate
responsibility, the trustees may delegate this function to an
investment adviser and/or a sub-adviser. The Trustees have
delegated this responsibility for determining the liquidity of
Rule 144A restricted securities which may be invested in by
the Fund to the Advisor and the Sub-Advisor. It is not
possible to predict with assurance exactly how the market for
Rule 144A restricted securities or any other security will
develop. A security which when purchased enjoyed a fair
degree of marketability may subsequently become illiquid and,
accordingly, a security which was deemed to be liquid at the
time of acquisition may subsequently become illiquid. In such
event, appropriate remedies will be considered to minimize the
effect on the Fund s liquidity.
Portfolio Turnover
The Trust anticipates that investors in the Fund, as part of
an asset-allocation or market-timing investment strategy, will
frequently redeem shares of the Fund, as well as exchange
their shares of the Fund for shares in other Rydex Funds
p u r s u ant to the exchange policy of the Trust (see
"Exchanges"), which would cause the Fund to experience high
portfolio turnover. Because the Fund's portfolio turnover
r a te to a great extent will depend on the purchase,
redemption, and exchange activity of its investors, it is very
difficult to estimate what the Fund's actual turnover rate
generally will be. Pursuant to the formula prescribed by the
Commission, the portfolio turnover rate for the Fund is
calculated without regard to securities, including options and
futures contracts, having a maturity of less than one year.
Significant portfolio turnover will tend to increase the
realization by the Fund of gains (or losses) on securities
that have been held by the Fund for less than three months.
Any such realized gains on securities that have been held by
the Fund for less than three months, and other factors related
to large cash flows into and out of the Fund, will increase
the risk that, in any given year, the Fund may fail to qualify
as a regulated investment company under Subchapter M of the
U.S. Internal Revenue Code of 1986, as amended (the "Code")
(see "Taxes"). If the Fund should so fail to qualify under
the Code, the Fund's net investment income and net capital
gain would become subject to Federal income tax at corporate
rates. The imposition of such taxes would directly reduce the
return to an investor from an investment in the Fund. In
addition, a higher portfolio turnover rate would likely
involve correspondingly greater brokerage commissions and
other expenses which would be borne by the Fund. Furthermore,
<PAGE> - 16 -<PAGE>
the Fund's portfolio turnover level may adversely affect the
ability of the Fund to achieve its investment objective.
Tracking Error
While the Fund does not expect that the returns over a year
will deviate adversely from the performance of the Fund s
benchmark by more than ten percent, several factors may affect
its ability to achieve this correlation. Among those factors
are: (1) Fund expenses, including dealer spreads (which may
be increased by high portfolio turnover); (2) less than all of
the securities in the benchmark being held by the Fund and
securities not included in the benchmark being held by the
Fund; (3) bid-ask spreads (the effect of which may be
i n c reased by portfolio turnover); (4) the Fund holds
instruments traded in a market that has become illiquid or
disrupted; (5) Fund share prices being rounded to the nearest
cent; (6) changes to the benchmark index that are not
disseminated in advance; or (7) the need to conform the Fund s
portfolio holdings to comply with investment restrictions or
policies or regulatory or tax law requirements.
Aggressive Investment Techniques
While the Fund normally will invest substantially all of its
assets in high yield corporate bonds, it has reserved the
right to, and may, from time to time, engage in certain
aggressive investment techniques which may include engaging in
transactions in futures contracts and options on securities,
securities indexes, and futures contracts (which instruments
are commonly known as derivatives ). Participation in the
options or futures markets by the Fund involves distinct
investment risks and transaction costs. Risks inherent in the
use of options, futures contracts, and options on futures
contracts include: (1) adverse changes in the value of such
instruments; (2) imperfect correlation between the price of
o p tions and futures contracts and options thereon and
movements in the price of the underlying securities, index, or
futures contracts; (3) the fact that the skills needed to use
these strategies are different from those needed to select
portfolio securities; (4) the possible absence of a liquid
secondary market for any particular instrument at any time;
and (5) the possible need to defer closing out certain
positions to avoid adverse tax consequences. (For further
i n f ormation regarding these investment techniques, see
"Investment Policies and Techniques in the Statement of
Additional Information.)
PORTFOLIO TRANSACTIONS AND BROKERAGE
<PAGE> - 17 -<PAGE>
W h en selecting broker-dealers to execute portfolio
t r a n sactions, the Sub-Advisor considers many factors,
including the size of the broker-dealer s "spread," the size
and difficulty of the order, the nature of the market for the
security, the willingness of the broker-dealer to position,
the reliability, financial condition, general execution, and
o p erational capabilities of the broker-dealer, and the
research, statistical, and economic data furnished by the
broker-dealer to the Sub-Advisor. The Sub-Advisor uses these
s e rvices in connection with all of the Sub-Advisor s
investment activities, including other investment accounts the
Sub-Advisor advises. Conversely, brokers or dealers which
supply research may be selected for execution of transactions
for such other accounts, while the data may be used by the
Sub-Advisor in providing investment advisory services to the
Fund.
HOW TO INVEST IN THE FUND
For shareholders who have engaged a registered investment
adviser with discretionary authority over the shareholder s
account, the minimum initial investment in the Fund is
$15,000. For all other shareholder accounts ("Self-Directed
Accounts"), the minimum initial investment in the Fund is
$25,000. These minimums also apply to retirement plan
accounts. The Trust, at its discretion, may accept lesser
amounts in certain circumstances.
The shares of 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 in the Fund. 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 in the Fund.
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 mail or by bank wire transfer as follows:
By Mail: Fill out an application and make out a check payable
to "Rydex Series Trust." Mail the check along with the
application to:
Rydex Series Trust
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
<PAGE> - 18 -<PAGE>
By Bank Wire Transfer: Request a wire transfer to:
Star Bank, N.A.
Routing Number: 0420-00013
For Account of Rydex Series Trust
Account Number: 48038-9030
Your Name
Your Account Number or, if a new
account, Federal Tax I.D. Number
(e.g., Social Security Number)
After instructing your bank to transfer money by wire, please
call the Trust and inform the Trust as to the amount you have
transferred and the name of the bank sending the transfer.
Your bank may charge a fee for such services. If the purchase
is canceled because your wire transfer is not received, you
may be liable for any loss that the Trust may incur.
Shares of the Fund are sold at a price based on the net asset
value next calculated after receipt of a purchase order in
good form, as described below. If a purchase order is
received by the Fund at or prior to 2:15 P.M., Eastern Time,
on any business day, the purchase of Fund shares is executed
at the offering price determined as of 3:00 P.M., Eastern
Time, that day. If the purchase order is received after 2:15
P.M., Eastern Time, the purchase of Fund shares will be
effected on the next business day. (See "Procedures for
Redemptions and Exchanges. )
I n the interest of economy and convenience, physical
certificates representing the Fund s shares are not issued.
Shares of the Fund are recorded on a register by the Trust s
transfer agent.
REDEEMING AN INVESTMENT (WITHDRAWALS)
An investor may withdraw all or any portion of his investment
by redeeming Fund shares at the next-determined net asset
value per share after receipt of the order. Redemptions may
be made by letter or by telephone subject to the procedures
set forth below. The privilege to initiate redemption
transactions by telephone will be made available to Fund
shareholders automatically. Telephone redemptions will be
sent only to the address of record of the redeeming investor
or to bank accounts specified by the redeeming investor in his
account application. The Trust charges $15 for each wire
transfer of redemption proceeds; this charge may be waived at
the discretion of the Trust. If any investor purchases shares
of the Fund by check, the purchaser may not wire out any
proceeds of a redemption of such shares for the 30 calendar
days following the purchase.
<PAGE> - 19 -<PAGE>
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. For investments that have been made
by check, payment on withdrawal requests may be delayed until
the Trust s transfer agent is reasonably satisfied that the
purchase payment has been collected by the Trust (which may
require up to 10 business days). An investor may avoid a
delay in receiving redemption proceeds by purchasing shares
with a certified check.
Because of the administrative expense of handling small
accounts, any request for a redemption by an investor whose
account balance is (a) below the currently-applicable minimum
investment, or (b) would be below that minimum as a result of
the redemption, will be treated as a request by the investor
for a complete redemption of that account. The Trust reserves
the right to modify its minimum investment requirements.
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 New York Stock Exchange (the "NYSE"), the
Chicago Mercantile Exchange (the CME ), or the Chicago Board
of Trade (the CBOT ), as appropriate, is closed (other than
customary weekend or holiday closings) or trading on the NYSE,
the CME, or the CBOT, as appropriate, is restricted; (ii) for
any period during which an emergency exists so that disposal
of the Fund s investments or the determination of its net
asset value is not reasonably practicable; or (iii) for such
other periods as the Commission, by order, may permit for
protection of the Fund s investors. On any day that the New
York 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
<PAGE> - 20 -<PAGE>
orders must be received. (See "Determination of Net Asset
Value.")
EXCHANGES
Shares of any Rydex Fund may be exchanged, without any charge,
for shares of any other Rydex Fund on the basis of the
respective net asset values next determined of the shares
involved; provided that, in connection with exchanges for
shares of a Rydex Fund, certain minimum investment levels are
maintained. The Trust reserves the right to modify its
minimum investment requirements. Exchanges with respect to
Self-Directed Accounts must be for the lesser of $1,000 or
100% of the account value for the Rydex Fund from which the
transfer is to be made. The Trust currently is composed of
nine separate series, The Nova Fund, The Ursa Fund, The Rydex
OTC Fund (the "OTC Fund"), The Rydex Precious Metals Fund (the
"Metals Fund"), The Rydex U.S. Government Bond Fund (the "Bond
Fund"), The Juno Fund, The Rydex U.S. Government Money Market
Fund (the Money Market Fund ), The Rydex Institutional Money
Market Fund, and The Rydex High Yield Fund (the series
described in this Prospectus); other separate Rydex Funds may
be added in the future. Exchanges may be made by letter or by
telephone subject to the procedures set forth below. An
exchange into the Rydex Institutional Money Market Fund is
permitted only if that Rydex Fund s minimum investment of $2
million is satisfied.
To implement an exchange, shareholders should provide the
following information: account name, account number, taxpayer
identification number, number of or percentage of shares or
dollar value of shares to be exchanged, and the names of the
Rydex Funds involved in the exchange transaction. Exchanges
may be made only if such exchanges are between identically
registered accounts. Shareholders contemplating such an
exchange for shares of a Rydex Fund not described in this
Prospectus should obtain and review the prospectus of the
Rydex Fund to which the investment is to be transferred. The
exchange privilege is available only in states where the
e x change legally may be made and may be modified or
discontinued at any time. Shares of the Money Market Fund
received in an exchange for shares of the OTC Fund, the Metals
Fund, or the High Yield Fund are issued on the third business
day following the day on which the Rydex Fund receives the
exchange request.
<PAGE> - 21 -<PAGE>
PROCEDURES FOR REDEMPTIONS AND EXCHANGES
Written requests for redemptions and exchanges should be sent
to Rydex Series Trust, 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852, and should be signed by the record
owner or owners. Telephone redemption and exchange requests
with respect to the Rydex Funds may be made by calling (800)
820-0888 or (301) 468-8520, on any day the Trust is open for
business. Such requests may be made only between 8:30 A.M.,
Eastern Time, and the times indicated below (all times are
Eastern Time). For exchanges, the earlier of the times
indicated below for the Rydex Funds whose shares are being
exchanged applies.
The Nova, Ursa, and Rydex OTC Funds . 3:45 P.M.
The Rydex Precious Metals Fund . . . 3:30 P.M.
The Rydex U.S. Government Bond
and Juno Funds . . . . . . . . . . 2:45 P.M.
The Rydex High Yield Fund . . . . . . 2:15 P.M.
Telephone redemption and exchange orders will be accepted only
during the periods indicated above. If the primary exchange
or market on which the Rydex Fund transacts business closes
early, the above cut-off time will be approximately fifteen
minutes (thirty minutes, in the case of the Metals Fund, and
forty-five minutes in the case of the High Yield Fund) prior
to the close of such exchange or market. Telephone redemption
and exchange privileges may be terminated or modified by the
Trust at any time.
When acting on instructions believed to be genuine, the Trust
will not be liable for any loss resulting from a fraudulent
telephone transaction request and the investor would bear the
risk of any such loss. The Trust will employ reasonable
procedures to confirm that telephone instructions are genuine;
and if the Trust does not employ such procedures, then the
Trust may be liable for any losses due to unauthorized or
f r a u dulent instructions. The Trust follows specific
procedures for transactions initiated by telephone, including,
among others, requiring some form of personal identification
prior to acting upon instructions received by telephone,
providing written confirmation not later than five business
days after such transactions, and/or tape recording of
telephone instructions. Investors also should be aware that
telephone redemptions or exchanges may be difficult to
implement in a timely manner during periods of drastic
economic or market changes. If such conditions occur,
redemption or exchange orders can be made by mail.
<PAGE> - 22 -<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund's shares is determined each
day on which both the NYSE and the New York Fed are open at
3:00 P.M., Eastern Time. Currently, the NYSE and the New York
Fed are closed on weekends, and the following holiday closings
have been scheduled for 1997: (i) New Year's Day, Martin
Luther King Jr.'s Birthday, Washington's Birthday, Good
Friday, Memorial Day, July Fourth, Labor Day, Columbus Day,
Thanksgiving Day, and Christmas Day; and (ii) the preceding
Friday when any of those holidays falls on a Saturday or the
subsequent Monday when any one of those holidays falls on a
Sunday. To the extent that portfolio securities of the Fund
are traded in other markets on days when the NYSE or the New
York Fed is closed, the Fund's net asset value may be affected
on days when investors do not have access to the Fund to
purchase or redeem shares. Although the Trust expects the
same holiday schedule to be observed in the future, the NYSE
and the New York Fed each may modify its holiday schedule at
any time. The net asset value of the Fund serves as the basis
for the purchase and redemption price of the Fund's shares.
The Fund s net asset value per share is calculated by dividing
the market value of the Fund s securities plus the values of
its other assets (including dividends and interest accrued but
not collected), less all liabilities (including accrued
expenses), by the number of outstanding shares of the Fund.
If market quotations are not readily available, a security
will be valued at fair value by the Board of Trustees or by
the Sub-Advisor using methods established or ratified by the
Board of Trustees. Debt securities with remaining maturities
of 60 days or less at the time of purchase will be valued at
amortized cost, absent unusual circumstances, so long as the
Board of Trustees believes that valuation method results in a
fair value for such securities.
TAX-SHELTERED RETIREMENT PLANS
Tax-sheltered retirement plans of the following types will be
available to investors:
Individual Retirement Accounts (IRAs)
Keogh Accounts - Defined Contribution
Plans (Profit-Sharing Plans)
Keogh Accounts - Money Purchase Plans
Pension Plans)
Internal Revenue Code Section 403(b)
Plans
Retirement plans are charged an annual $15.00 maintenance fee.
Additional information regarding these accounts, including the
<PAGE> - 23 -<PAGE>
annual maintenance fee, may be obtained by contacting the
Trust.
TRANSACTION CHARGES
In addition to charges described elsewhere in this Prospectus,
the Trust also may make a charge of $25 for items returned for
insufficient or uncollectible funds.
DIVIDENDS AND DISTRIBUTIONS
All income dividends and capital gains distributions of the
Fund automatically will be reinvested in additional shares of
the Fund at the net asset value calculated on the ex-dividend
date, unless an investor has requested otherwise from the
Trust in writing. Dividends and distributions of the Fund are
taxable to the shareholders of the Fund, as discussed below
under "Taxes," whether such dividends and distributions are
reinvested in additional shares of the Fund or are received in
cash. Statements of account will be sent to the Fund
shareholders at least quarterly.
The Fund intends (i) to declare dividends of ordinary income
for shares of the Fund on a daily basis, and to distribute
such dividends to shareholders of the Fund on a monthly basis,
and (ii) to distribute annually any long-term capital gains to
the shareholders of the Fund. The Trustees, however, may
declare a special distribution for the Fund if the Trustees
believe that such a distribution would be in the best interest
of the Fund s shareholders.
TAXES
The U.S. Internal Revenue Code of 1986, as amended (the
"Code"), provides that each investment portfolio of a series
investment company is to be treated as a separate corporation.
Accordingly, the Fund will seek to qualify for treatment as a
regulated investment company (a "RIC") under Subchapter M of
the Code. So long as the Fund qualifies as a RIC and
satisfies the distribution requirements under the Code for any
taxable year, the Fund itself will not be subject to income
t a x on the ordinary income and capital gains it has
distributed to its shareholders for that year.
To qualify as a RIC under the Code, the Fund must satisfy
certain requirements, including the requirements that the Fund
<PAGE> - 24 -<PAGE>
receive at least 90% of the Fund s gross income each year from
dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of securities
or foreign currencies, or other income derived with respect to
the Fund s investments in stock, securities, and foreign
currencies (the "90% Test"), and that the Fund derive less
than 30% of the Fund s gross income from the sale or other
disposition of any of the following instruments which have
been held for less than three months (the "30% Test"): (i)
stock or securities; (ii) certain options, futures, or forward
contracts; or (iii) foreign currencies (or certain options,
futures, or forward contracts on such foreign currencies).
Provided that the Fund (i) is a RIC and (ii) distributes at
least 90% of the Fund s net investment income (including, for
this purpose, net realized short-term capital gains), the Fund
itself will not be subject to Federal income taxes to the
extent the Fund s net investment income and the Fund s net
realized short-term capital gains, if any, are distributed to
the shareholders of that Fund. To avoid an excise tax on its
undistributed income, the Fund generally must distribute at
least 98% of its income, including its net long-term capital
gains.
Satisfaction of the 90% Test will impose limitations on the
investment strategies that may be pursued by the Fund. In
addition, because of the anticipated frequency of redemptions
and exchanges of the shares of the Fund, the Fund will have
greater difficulty than other mutual funds in satisfying the
30% Test. The Trust expects that investors in the Fund, as
part of their market-timing investment strategy, are likely to
redeem or exchange their shares in the Fund frequently to take
advantage of anticipated changes in market conditions. Such
redemptions or exchanges are likely to require the Fund to
sell securities to meet the Fund s payment obligations. The
larger the volume of such redemptions or exchanges, the more
difficult it will be for the Fund to satisfy the 30% Test. To
minimize the risk of failing the 30% Test, the Fund intends to
s a tisfy obligations in connection with redemptions and
exchanges first by using available cash and by selling
securities that have been held for at least three months or as
to which there will be a loss or the smallest gain or by using
borrowing facilities. If the Fund also must sell securities
that have been held for less than three months, then, to the
extent possible, the Fund will seek to conduct such sales in a
manner that will allow such sales to qualify for a special
provision in the Code that excludes from the 30% Test any
gains resulting from sales made as a result of "abnormal
redemptions." To the reduce the risk of failing the 30% Test,
the Fund also may engage in other investment techniques,
including engaging in transactions in futures contracts and
options on futures contracts and indexes on an unrestricted
basis (subject to the investment policies of the Fund and
<PAGE> - 25 -<PAGE>
Commission regulations). Notwithstanding these actions, there
can be no assurance that the Fund will be able to satisfy the
30% Test. For additional information concerning this special
Code provision, see "Dividends, Distributions, and Taxes" in
the Statement of Additional Information.
If the Trust determines that the Fund will not qualify as a
RIC under Subchapter M of the Internal Revenue Code, the Trust
will establish procedures for the Fund to reflect the
anticipated tax liability in the Fund s net asset value. To
the extent that management of the Fund determines that Federal
income taxes will more likely than not be payable by the Fund
with respect to the Fund s current tax year, the Fund intends
to make a good-faith estimate of the potential tax liability
of the Fund and to make an accrual for tax expenses.
Thereafter, the Fund would make a daily determination whether
it is appropriate for the Fund to continue to accrue for a tax
expense and, if so, to make a good-faith estimate of the
Fund s potential tax liability. Any amount by which the
accrual is reduced, or the entire amount of the accrual if the
Fund determines that the accrual is no longer appropriate,
will be reclassified as income to the Fund.
Under current law, dividends derived from interest and
dividends received by the Fund, together with distributions of
any short-term capital gains, if any, are taxable to the
shareholders of the Fund, as ordinary income at Federal income
tax rates of up to 39.6%, whether or not such dividends and
distributions are reinvested in shares of the Fund or are
received in cash.
Under current law, distributions of net long-term gains, if
any, realized by the Fund and designated as capital gains
distributions will be taxed to the shareholders of the Fund as
long-term capital gains regardless of the length of time the
shares of the Fund have been held. Currently, long-term
capital gains of individual investors are taxed at rates of up
to 28%. Statements as to the Federal tax status of
shareholders dividends and distributions will be mailed
annually. Shareholders should consult their tax advisors
concerning the tax status of the Fund s dividends in their own
states and localities.
Ordinary dividends paid to corporate or individual residents
o f foreign countries generally are subject to a 30%
withholding tax. The rate of withholding tax may be reduced
if the United States has an income tax treaty with the foreign
c o u n try where the recipient resides. Capital gains
distributions received by foreign investors should, in most
cases, be exempt from U.S. tax. A foreign investor will be
required to provide the Fund with supporting documentation in
<PAGE> - 26 -<PAGE>
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 advisers
regarding specific questions as to Federal, state, or local
taxes.
MANAGEMENT OF THE TRUST
The Advisor
The Trust is provided investment management services by PADCO
Advisors, Inc. (the Advisor ), a Maryland corporation with
offices at 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852. The Advisor was incorporated in the State of
Maryland on February 5, 1993. Albert P. Viragh, Jr., the
Chairman of the Board and the President of the Advisor, owns a
controlling interest in the Advisor.
Under an investment advisory agreement between the Trust and
the Advisor, dated May 14, 1993, and as most-recently amended
on September 25, 1996, the Fund pays the Advisor a fee at an
annualized rate of 0.75% of the average daily net assets of
the Fund. The Advisor is responsible for the management of
the investment and the reinvestment of the assets of the Fund,
in accordance with the investment objective, policies, and
l i m itations of the Fund, and subject to the general
supervision and control of the Trustees and the officers of
the Trust. The Advisor bears all costs associated with
providing these advisory services and the expenses of the
Trustees who are affiliated persons of the Advisor. In
providing these advisory services, the Advisor, at its own
expense, has been authorized by the Trustees to employ a sub-
adviser and to enter into such service agreements as the
Advisor deems appropriate in connection with the management of
the Fund. The Advisor, from its own resources, including
profits from advisory fees received from the Fund, provided
such fees are legitimate and not excessive, also may make
payments to broker-dealers and other financial institutions
<PAGE> - 27 -<PAGE>
for their expenses in connection with the distribution of Fund
shares, which payments, to the extent made by the Advisor, may
be in addition to those payments made pursuant to a plan of
distribution for the Fund adopted by the Trust pursuant to
Rule 12b-1 under the 1940 Act (the "Distribution Plan"). See
"Distribution Plan."
The Sub-Advisor
Loomis, Sayles & Company, L.P. (the Sub-Advisor ), is the
sub-adviser of the Fund. As such, the Sub-Advisor is
responsible for daily managing the investment and reinvestment
of assets of the Fund, subject generally to review and
supervision of the Advisor and the Trustees. The Sub-Advisor
bears all expenses in connection with the performance of its
services, such as compensating and furnishing office space for
its officers and employees connected with the investment and
economic research, trading, and investment management of the
Fund.
The Sub-Advisor is a Delaware limited partnership, registered
as an investment adviser with the Commission, with offices at
2001 Pennsylvania Avenue, N.W., Suite 200, Washington, D. C.
20016. The Sub-Advisor s principal business address is One
Financial Center, Boston, Massachusetts 02111. Founded in
1926, the Sub-Advisor is one of the country's oldest and
largest investment firms. The Sub-Advisor's general partner
is indirectly owned by New England Investment Companies, L.P.,
a publicly-traded limited partnership whose general partner is
a wholly-owned subsidiary of Metropolitan Life Insurance
Company. The portfolio managers of the Fund are Steven J.
Doherty and Stephanie S. Lord. Mr. Doherty is a Vice
President of the Sub-Advisor. From 1986 to 1996, Mr. Doherty
was the portfolio manager of Howard Hughes Medical Institute
in Chevy Chase, Maryland. From 1982 to 1986, Mr. Doherty was
an Assistant Vice President and the portfolio manager of the
National Bank of Washington in Washington, D. C. Mr. Doherty
earned his Chartered Financial Analyst designation in 1990,
received his Master of Business Administration in Finance and
Investments from The George Washington University, Washington,
D. C., in 1986, and received his bachelor's degree in Business
A d m i nistration from The George Washington University,
Washington, D. C., in 1982. Ms. Lord has been a Vice
President of the Sub-Advisor since 1987. Ms. Lord earned her
Chartered Financial Analyst designation in 1991, and received
her bachelor's degree in Business Administration from The
University of Iowa, Iowa City, Iowa, in 1987.
Under an investment sub-advisory agreement between the Advisor
and the Sub-Advisor, dated September 25, 1996, which sub-
advisory agreement has been approved by the Trustees, the
<PAGE> - 28 -<PAGE>
Advisor pays the Sub-Advisor a fee at an annualized rate of
0.375% of the average daily net assets of the Fund.
The Servicer
General administrative, shareholder, dividend disbursement,
transfer agent, and registrar services are provided to the
Trust and the Fund by PADCO Service Company, Inc. (the
Servicer ), 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852, subject to the general supervision and control
of the Trustees and the officers of the Trust, pursuant to a
service agreement between the Trust and the Servicer, dated
September 19, 1995, and as most recently amended on September
25, 1996. Under this service agreement, the Fund pays the
Servicer a fee at an annualized rate of 0.20% of the average
daily net assets of the Fund.
The Servicer provides the Trust and the Fund with all required
g e n eral administrative services, including, without
limitation, office space, equipment, and personnel; clerical
and general back office services; bookkeeping, internal
accounting, and secretarial services; the determination of net
asset values; and the preparation and filing of all reports,
registration statements, proxy statements, and all other
materials required to be filed or furnished by the Trust and
the Fund under Federal and state securities laws. The
Servicer also maintains the shareholder account records for
t h e T r ust and the Fund, distributes dividends and
distributions payable by the Fund, and produces statements
with respect to account activity for the Fund and the
shareholders of the Fund. The Servicer pays all fees and
expenses that are directly related to the services provided by
the Servicer to the Trust; the Fund reimburses the Servicer
for all fees and expenses incurred by the Servicer which are
not directly related to the services the Servicer provides to
the Fund under the service agreement.
The Distributor
Pursuant to the Distribution Plan for the Fund adopted by the
Trust pursuant to Rule 12b-1 under the 1940 Act, the Fund is
provided certain distribution services by PADCO Financial
Services, Inc. (the Distributor ), 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852, subject to the general
supervision and control of the Trustees and the officers of
the Trust. Under the Distribution Plan, dated September 25,
1996, the Fund reimburses the Distributor for a portion of the
Distributor's costs incurred in distributing the shares of the
Fund at an annualized rate not to exceed 0.25% of the average
daily net assets of the Fund. See "Distribution Plan."
Costs and Expenses
<PAGE> - 29 -<PAGE>
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
D i stributor under the Distribution Plan; custodian and
accounting fees and expenses; legal and auditing fees;
securities valuation expenses; fidelity bonds and other
i n surance premiums; expenses of preparing and printing
prospectuses, confirmations, proxy statements, and shareholder
reports and notices; registration fees and expenses; proxy and
annual meeting expenses, if any) (to the extent that these
expenses are not covered by payments made by the Fund under
the Distribution Plan); all Federal, state, and local taxes
(including, without limitation, stamp, excise, income, and
franchise taxes); organizational costs; and non-interested
Trustees fees and expenses.
The Advisor has advanced the organizational expenses of the
Fund. These costs, which are approximately $40,000, will be
reimbursed by the Fund, and the Fund will amortize these costs
over a five-year period from the date the Fund commences
operations.
DISTRIBUTION PLAN
The Trust finances activities which are primarily intended to
result in the sale of Fund shares and has adopted the
Distribution Plan for the Fund pursuant to Rule 12b-1 under
the 1940 Act. The Trust's Distribution Plan for the Fund
provides that the Fund will pay the Distributor monthly up to
a maximum of 0.25% per annum of the Fund's daily net assets
for expenses actually incurred by the Distributor during that
month in the distribution and promotion of the Fund's shares,
including the printing of certain reports used for sales
purposes, expenses for preparation and printing of sales
literature, and related expenses, including any maintenance,
distribution, or service fees paid to securities dealers or
brokers, administrators, investment advisers, institutions,
i n c l u ding 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
<PAGE> - 30 -<PAGE>
functions. The Distributor intends to engage banks only to
perform such functions. Changes in Federal or state statutes
and regulations pertaining to the permissible activities of
banks and their affiliates or subsidiaries, as well as further
judicial or administrative decisions or interpretations,
however, could prevent a bank from continuing to perform all
or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what
actions, if any, would be necessary to continue to provide
such efficient and effective shareholder services. In such
event, changes in the operation of the Fund might occur,
including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is
not expected that shareholders of the Fund would suffer any
adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed
herein, and banks and other financial institutions may be
required to register as dealers pursuant to state law.
The Fund may execute portfolio transactions with, and purchase
securities issued by, depository institutions that receive
payments under the Distribution Plan. No preference for the
instruments of such depository institutions will be shown in
the selection of investments. For further information
regarding the Distribution Plan, see "Distribution Plan" in
the Statement of Additional Information.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its past investment
performance. Any such advertisement would include at least
the average annual total return quotations for one, five, and
ten-year periods, or for the life of the Fund. Other total
return quotations (e.g., aggregate or average total returns
over other time periods for the Fund) and the Fund s current
yield (as described below) may also be included. No
adjustments to total returns or to current yields are made to
reflect any income taxes payable by shareholders on dividends
and distributions paid by the Fund. Total return and current
yield data are based upon the Fund s past investment
performance and are not intended to indicate its future
investment performance. A more-detailed description of the
method by which the Fund s total returns and current yields
are calculated is included in the Fund s Statement of
A d d i t ional Information under Calculation of Return
Quotations and Information on Computation of Yield.
The Fund s total return for a particular period represents the
increase (or decrease) in the value of a hypothetical
investment in the Fund from the beginning to the end of the
<PAGE> - 31 -<PAGE>
period. Total return is calculated by subtracting the value
of the initial investment from the ending value and showing
the difference as a percentage of the initial investment,
assuming all income dividends or capital gains distributions
during the period are reinvested in shares of the Fund.
The Fund s current yield is determined by analyzing its net
income per share for a thirty-day (or one-month) period
(identified in the advertisement), and dividing by the maximum
offering price per share on the last day of the period. A
bond equivalent annualization method is used to reflect a
semi-annual compounding.
The Fund s yield is not fixed and will fluctuate in response
to prevailing interest rates and the market value of portfolio
securities and as a function of the type of securities it
owns, its average portfolio maturity, and its expenses. Yield
quotations should be considered relative to changes in the net
asset value of the Fund s shares, its investment policies, and
the risks of investing in its shares. The investment return
and principal value of an investment in the Fund will
fluctuate so that an investor s shares, when redeemed, may be
worth more or less than their original cost.
GENERAL INFORMATION ABOUT THE TRUST
Organization and Description of Shares of Beneficial Interest
The Trust is a registered open-end investment company under
the 1940 Act. The Trust was organized as a Delaware business
trust on February 10, 1993, and has present authorized capital
of unlimited shares of beneficial interest of no par value
which may be issued in more than one class. Currently, the
Trust has issued shares of nine separate classes: The Nova
Fund, The Ursa Fund, The Rydex OTC Fund, The Rydex Precious
Metals Fund, The Rydex U.S. Government Bond Fund, The Juno
Fund, The Rydex U.S. Government Money Market Fund, The Rydex
Institutional Money Market Fund, and The Rydex High Yield
Fund. Other separate classes may be added in the future.
All shares of the Rydex Funds are freely transferable. The
Rydex Fund shares do not have preemptive rights or cumulative
voting rights, and none of the shares have any preference to
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).
<PAGE> - 32 -<PAGE>
Under the Delaware General Corporation Law, a registered
i n vestment company is not required to hold an annual
shareholders meeting if the 1940 Act does not require such a
meeting. Generally, there will not be annual meetings of
Trust shareholders. Trust shareholders may remove Trustees of
the Trust from office by votes cast at a meeting of Trust
s h areholders or by written consent. If requested by
shareholders of at least 10% of the outstanding shares of the
Trust, the Trust will call a meeting of Trust shareholders for
the purpose of voting upon the question of removal of a
T r ustee or Trustees of the Trust and will assist in
communications with other Trust shareholders.
Unlike the stockholder of a corporation, shareholders of a
business trust such as the Trust could be held personally
liable, under certain circumstances, for the obligations of
the business trust. The Trust s Declaration of Trust,
however, disclaims liability of the shareholders of the Trust,
the Trustees, or the officers of the Trust for acts or
obligations of the Trust which are binding only on the assets
and property of the Trust. The Declaration of Trust provides
for indemnification out of Trust property for all loss and
expense of any Trust shareholder held personally liable for
the obligations of the Trust. The risk of a Trust shareholder
incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust itself would
not be able to meet the Trust s obligations and this risk,
thus, should be considered remote.
As of the date of this Prospectus, no officer or Trustee of
the Trust owned any of the Fund s shares.
Trustees and Officers
The Trust has a Board of Trustees which is responsible for the
general supervision of the Trust s business. The day-to-day
operations of the Trust are the responsibility of the Trust s
officers.
Auditors
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,
<PAGE> - 33 -<PAGE>
425 Walnut Street, Cincinnati, Ohio 45202, serves as
custodian for the Trust and the Fund. Under the terms of this
c u s t ody agreement, the Custodian holds the portfolio
securities of the Fund and keeps all necessary related
accounts and records.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, OR IN THE STATEMENT OF ADDITIONAL
INFORMATION INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR
PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE TRUST IN ANY JURISDICTION
IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE> - 34 -<PAGE>
APPENDIX A
Bond Ratings
Below is a description of Standard & Poor s Ratings Group
( Standard & Poor s ) and Moody s Investors Service, Inc.
( Moody s ) bond rating categories. The Fund normally invests
in bonds rated BB or lower by Standard & Poor s and/or Ba
or lower by Moody s.
Standard & Poor s Ratings
Group Corporate Bond Ratings
AAA -- This is the highest rating assigned by Standard &
Poor s to a debt obligation and indicates an extremely strong
capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from
AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay
principal and interest, although they are somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than bonds in higher rated categories.
BBB -- Bonds rated BBB are regarded as having an
adequate capability to pay principal and interest. Whereas
they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay principal and interest
for bonds in this category than for bonds in higher rated
categories.
BB -- Bonds rated BB have less near-term vulnerability to
default than other speculative issues. However, they face
major ongoing uncertainties or exposure to adverse business,
f i nancial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments.
B -- Bonds rated B have a greater vulnerability to
default but currently have the capacity to meet interest
p a y ments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal.
CCC -- Bonds rated CCC have a currently identifiable
vulnerability to default and are dependent upon favorable
business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event
<PAGE> - 35 -<PAGE>
of adverse business, financial, or economic conditions, they
are not likely to have the capacity to pay interest and repay
principal.
Moody s Investors Service, Inc.
Corporate Bond Ratings
Aaa -- Bonds rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as gilt-edged. Interest
payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds rated Aa are judged to be of high quality by
all standards. Together with the Aaa group, they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protections may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long term risk appear
somewhat larger than in Aaa securities.
A -- Bonds rated A possess many favorable investment
attributes, and are to be considered as upper medium grade
obligations. Factors giving security principal and interest
are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds rated Baa are considered as medium grade
obligations (i.e., they are neither highly protected nor
poorly secured). Interest payments and principal security
appear adequate for the present but certain protective
e l e ments may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds rated Ba are judged to have speculative
elements. Their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or maintenance of other terms of the contract over
any longer period of time may be small.
<PAGE> - 36 -<PAGE>
Caa -- Bonds rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
<PAGE> - 37 -<PAGE>
