<PAGE>
As Filed With The Securities And Exchange Commission On July
30, 1997.
File Nos. 33-59692 and 811-7584
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 28 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 (X)
Amendment No. 29 (X)
RYDEX SERIES TRUST
______________________________________________________________
(Exact Name of Registrant as Specified in Charter)
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
(Address of Principal Executive Offices) (Zip Code)
(301) 468-8520
(Registrant's Telephone Number, Including Area Code)
Albert P. Viragh, Jr.
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
(Name and Address of Agent for Service of Process)
Copies to:
James F. Jorden, Esq.
W. Randolph Thompson, Esq.
James Bernstein, Esq.
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D. C. 20007
Approximate Date of Commencement of the Proposed Public
Offering of the Securities:
It is proposed that this filing will become effective (check
appropriate box):
X immediately upon filing pursuant to paragraph (b) of rule
485
__ on (date) pursuant to paragraph (b)(1)(v) of rule 485
__ 60 days after filing pursuant to paragraph (a)(1) of rule
485
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__ on (date) pursuant to paragraph (a)(1) of rule 485
__ 75 days after filing pursuant to paragraph (a)(2) of rule
485
<PAGE>
__ on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
__ This post-effective amendment designates a new effective
date for a previously-filed post-effective amendment.
The Registrant has previously filed a declaration of
indefinite registration of its shares pursuant to Rule 24f-2
under the Investment Company Act of 1940. The Rule 24f-2
Notice for the Registrant's fiscal year ended March 31, 1997
was filed on May 30, 1997.
<PAGE>
RYDEX SERIES TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
N-1A Location in
Item No. Registration Statement
Part A: Information Required In Prospectus
1. Cover Page Outside Front Cover
Page of Prospectus
2. Synopsis Prospectus Summary;
Fees and Expenses of
the Funds; Tax-
Sheltered Retirement
Plans; Transaction
Charges
3. Condensed Financial Information Financial Highlights
of the Funds
4. General Description of The Rydex
Registrant Funds; Investment
Objectives
and Policies; Special
Risk Considerations;
Investment Techniques
and Other Investment
Policies; General
Information About
the Trust; Appendix A
5. Management of the Fund Management of the
Trust
5A. Management's Discussion of Fund Annual Report of the
Performance Trust; Performance
Information
6. Capital Stock and Other Dividends and
Securities Distributions; Taxes;
General Information
About the Trust
7. Purchase of Securities How to Invest in the
Being Offered Funds; Exchanges;
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Determination of Net
Asset Value;
Distribution Plan
8. Redemption or Repurchase Redeeming an
Investment
(Withdrawals);
Procedures for
Redemptions and
Exchanges
9. Legal Proceedings Not Applicable
<PAGE>
N-1A Location in
Item No. Registration Statement
Part B: Information Required In
Statement of Additional Information
10. Cover Page Outside Front Cover
Page of Statement
of Additional
Information
11. Table of Contents Table of Contents
12. General Information and History The Rydex Funds
13. Investment Objectives and Policies Investment Policies
and Techniques;
Investment
Restrictions
14. Management of the Registrant Management of the
Trust
15. Control Persons and Principal Management of
Holder of Securities the Trust; Principal
Holders of Securities
16. Investment Advisory and Management of the
Other Services Trust; Distribution
Plan; Auditors and
Custodian
17. Brokerage Allocation Investment Policies
and Techniques;
Portfolio Transactions
and Brokerage
18. Capital Stock and Other Not Applicable
Securities
19. Purchase, Redemption, and Pricing Not Applicable
of Securities Being Offered
20. Tax Status Dividends,
Distributions, and
Taxes
21. Underwriters Management of the
Trust; Distribution
Plan
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22. Calculation of Performance Data Performance
Information;
Calculation of Return
Quotations;
Information on
Computation of Yield
23. Financial Statements Financial Statements
<PAGE>
N-1A Location in
Item No. Registration Statement
Part C: Other Information
24. Financial Statements and Exhibits Financial Statements
and Exhibits
25. Persons Controlled By or Under Persons Controlled
Common Control By or Undery Common
Control
26. Number of Holders of Securities Number of Holders of
Shares of Beneficial
Interest
27. Indemnification Indemnification
28. Business and Other Connections Business and Other
of Investment Adviser Connections of
Investment Adviser
29. Principal Underwriters Principal Underwriter
30. Location of Accounts and Records Location of Accounts
and Records
31. Management Services Management Services
32. Undertakings Undertakings
33. Signatures Signatures
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PART A
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Combined Prospectus
of
The Nova Fund,
The Ursa Fund,
The Rydex OTC Fund,
The Rydex Precious Metals Fund,
The Rydex U.S. Government Bond Fund,
The Juno Fund,
and
The Rydex U.S. Government Money Market Fund
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[LOGO] RYDEX SERIES TRUST
PROSPECTUS
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
(800) 820-0888 (301) 468-8520
Rydex Series Trust (the "Trust") is a no-load mutual fund
complex with nine separate investment portfolios (the "Funds"
or "Rydex Funds"), seven of which Funds are described in this
Prospectus. The Funds are principally designed for
professional money managers and investors who intend to invest
in the Funds as part of an asset-allocation or market-timing
investment strategy. Sales are made, without sales charge, at
each Fund s per share net asset value.
Except for the Rydex U.S. Government Money Market Fund, each
Fund is intended to provide investment exposure with respect
to a particular segment of the securities markets. Each of
these Funds seeks investment results that correspond over time
to a specified benchmark. The Funds may be used independently
or in combination with each other as part of an overall
investment strategy. Additional Funds may be created from time
to time.
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The following are the Funds and their benchmarks:
FUND BENCHMARK
The Nova Fund 150% of the performance of the S&P 500
Composite Stock Price IndexTM
The Ursa Fund Inverse (opposite) of the S&P 500 Composite
Stock Price IndexTM
Rydex OTC Fund NASDAQ 100 IndexTM (NDX)
Rydex Precious Philadelphia Stock Exchange Gold/Silver
Metals Fund IndexTM (XAU)
Rydex U.S. 120% of the price movement of current Long
Government Bond Treasury Bond
Fund
The Juno Fund Inverse (opposite) of the price movement of
the current Long Treasury Bond
The Trust also offers The Rydex U.S. Government Money Market
Fund. This Fund seeks to provide security of principal, high
current income, and liquidity by investing primarily in money
market instruments which are issued or guaranteed, as to
principal and interest, by the U.S. Government, its agencies
or instrumentalities. The securities of the Rydex U.S.
Government Money Market Fund are not deposits or obligations
of any bank, and are not endorsed or guaranteed by any bank,
and an investment in this Fund is neither insured nor
guaranteed by the United States Government. The Rydex U.S.
Government Money Market Fund seeks to maintain a constant
$1.00 net asset value per share, although this cannot be
assured.
The Funds (other than the Rydex U.S. Government Money Market
Fund) may engage in certain aggressive investment techniques,
which include engaging in short sales and transactions in
options and futures contracts. The Nova Fund and the Rydex
U.S. Government Bond Fund may use the speculative technique
known as leverage to increase funds available for investment
(see "Other Investment Policies"). Investors in the Nova Fund
may experience substantial losses during sustained periods of
falling equity prices. Investors in the Ursa Fund and the Juno
Fund may experience substantial losses during sustained
periods of rising equity prices and rising bond prices,
respectively. Because of the inherent risks in any
investment, there can be no assurance that any Fund s
investment objective will be achieved.
None of the Funds alone constitutes a balanced investment
plan, and certain of the Funds involve special risks not
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traditionally associated with investment companies. The
nature of the Funds generally will result in significant
portfolio turnover which would likely cause higher expenses
and additional costs and increase the risk that a Fund will
not qualify as a regulated investment company under the
Federal tax laws. The Trust is not intended for investors
whose principal objective is current income or preservation of
capital and may not be a suitable investment for persons who
intend to follow an "invest and hold" strategy. See "Special
Risk Considerations."
ADDITIONAL INFORMATION
The Trust also offers the Rydex Institutional Money Market
Fund and the Rydex High Yield Fund, each of which series of
the Trust is described in a separate prospectus.
Investors should read this Prospectus and retain it for future
reference. This Prospectus is designed to set forth concisely
the information an investor should know about the Trust before
investing. A Statement of Additional Information, dated
August 1, 1997, containing additional information about the
Trust has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. A copy of
this Statement of Additional Information is available, without
charge, upon request to the Trust at the address above or by
telephoning the Trust at the telephone numbers above. The
Securities and Exchange Commission also maintains a Web site
("http://www.sec.gov") that contains this Statement of
Additional Information, material incorporated by reference,
and other information regarding registrants that file
electronically with the Securities and Exchange Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 1, 1997.
3
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TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY. . . . . . . . . . . . . . . . . . . 4
FEES AND EXPENSES OF THE FUNDS . . . . . . . . . . . . 7
FINANCIAL HIGHLIGHTS OF THE FUNDS . . . . . . . . . . . 9
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . 16
SPECIAL RISK CONSIDERATIONS .. . . . . . . . . . . . . 20
INVESTMENT TECHNIQUES AND OTHER
INVESTMENT POLICIES . . . . . . . . . . . . . . . . . 22
PORTFOLIO TRANSACTIONS AND BROKERAGE. . . . . . . . . . 28
HOW TO INVEST IN THE FUNDS . . . . . . . . . . . . . . 28
REDEEMING AN INVESTMENT (WITHDRAWALS) . . . . . . . . . 29
EXCHANGES . . . . . . . . . . . . . . . . . . . . . . . 31
PROCEDURES FOR REDEMPTIONS AND
EXCHANGES . . . . . . . . . . . . . . . . . . . . . . 31
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . 32
TAX-SHELTERED RETIREMENT PLANS . . . . . . . . . . . . 33
TRANSACTION CHARGES . . . . . . . . . . . . . . . . . . 34
DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . . . . 34
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 34
MANAGEMENT OF THE TRUST . . . . . . . . . . . . . . . . 36
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . 38
GENERAL INFORMATION ABOUT THE TRUST . . . . . . . . . . 40
4
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PROSPECTUS SUMMARY
THE RYDEX FUNDS
Each Fund has its own distinct investment objective. There
is, of course, no guarantee that any Fund will achieve its
investment objective. The investment objectives of the Funds
are as follows:
The Nova Fund. The Nova Fund s investment objective is to
provide investment returns that correspond to 150% of the
performance of the Standard & Poor s 500 Composite Stock Price
IndexTM (the "S&P500 Index"). In attempting to achieve its
objective, the Nova Fund expects that a substantial portion of
its assets usually will be devoted to investment techniques
including certain transactions in stock index futures
contracts, options on stock index futures contracts, and
options on securities and stock indexes. In contrast to
returns on a mutual fund that seeks to approximate the return
of the S&P500 Index, the Nova Fund should increase gains
during periods when the prices of the securities in the S&P500
Index are rising and increase losses to investors during
periods when such prices are declining. Investors in the Nova
Fund could experience substantial losses during sustained
periods of falling equity prices.
The Ursa Fund. The Ursa Fund s investment objective is to
provide investment results that will inversely correlate to
the performance of the S&P500 Index. The Ursa Fund seeks to
achieve this inverse correlation result on each trading day.
If the Ursa Fund is successful in meeting this objective, the
net asset value on Ursa Fund shares will increase for each day
in direct proportion to any decreases in the level of the
S&P500 Index. Conversely, the net asset value on Ursa Fund
shares will decrease for each day in direct proportion to any
increases in the level of the S&P500 Index. In seeking to
achieve its objective, the Ursa Fund primarily engages in
short sales and certain transactions in stock index futures
contracts, options on stock index futures contracts, and
option on securities and stock indexes. The Ursa Fund
involves special risks not traditionally associated with
investment companies. Investors in the Ursa Fund may
experience substantial losses during sustained periods of
rising equity prices.
The Rydex OTC Fund. The investment objective of the Rydex
OTC Fund (the "OTC Fund") is to provide investment results
that correspond to a benchmark for over-the-counter
securities. The OTC Fund s current benchmark is the NASDAQ
100 IndexTM. The OTC Fund does not aim to hold all of the 100
securities included on the NASDAQ 100 IndexTM. Instead, the
OTC Fund intends to hold representative securities included in
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the NASDAQ 100 IndexTM or other instruments which are expected
to provide returns that correspond to those of the NASDAQ 100
IndexTM. The OTC Fund may engage in transactions on stock
index futures contracts, options on stock index futures
contracts, and options on securities and stock indexes.
The Rydex Precious Metals Fund. The investment objective of
the Rydex Precious Metals Fund (the "Metals Fund") is to
provide investment results that correspond to a benchmark
primarily for metals-related securities. The Metals Fund s
current benchmark is the Philadelphia Stock Exchange
Gold/Silver IndexTM (the "XAU Index"). To achieve its
objective, the Metals Fund invests in securities included in
the XAU Index. In addition, the Metals Fund may invest in
other securities that are expected to perform in a manner that
will assist the Metals Fund s performance to track closely the
XAU Index. The Metals Fund may invest in securities of
foreign issuers. These securities present certain risks not
present in domestic investments and expose the investor to
general market conditions which differ significantly from
those in the United States.
The Rydex U.S. Government Bond Fund. The investment
objective of the Rydex U.S. Government Bond Fund (the "Bond
Fund") is to provide investment results that correspond to a
benchmark for U.S. Government securities. The Bond Fund s
current benchmark is 120% of the price movement of the Current
Long Treasury Bond (the "Long Bond"), without consideration of
interest paid. In attempting to achieve its objective, the
Bond Fund invests primarily in obligations of the U.S.
Treasury or obligations either issued or guaranteed, as to
principal and interest, by agencies or instrumentalities of
the U.S. Government ("U.S. Government Securities"). The Bond
Fund may engage in transactions in futures contracts and
options on futures contracts on U.S. Treasury bonds. The Bond
Fund also may invest in U.S. Treasury zero coupon bonds.
The Juno Fund. The Juno Fund s investment objective is to
provide total return before expenses and costs that will
inversely correlate to the price movements of a benchmark for
U.S. Treasury debt instruments or futures contract on a
specified debt instrument. The Juno Fund seeks to achieve
this inverse correlation result on each trading day. The Long
Bond is the Juno Fund s current benchmark. In seeking its
objective, the Juno Fund will employ certain investment
techniques including engaging in short sales and transactions
in futures contracts and options thereon. If the Juno Fund is
successful in meeting its objective, the total return on its
shares before expenses and costs will increase for each day
proportionally to any decreases in the price of the Long Bond.
Conversely, the total return on its shares before expenses and
cost will decrease for each day proportionally to any
6
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increases in the price of the Long Bond. Investors in the
Juno Fund may experience substantial losses during periods of
falling interest rates/rising bond prices.
The Rydex U.S. Government Money Market Fund. The investment
objective of the Rydex U.S. Government Money Market Fund (the
"Money Market Fund") is to provide security of principal, high
current income, and liquidity. To achieve its objective, the
Money Market Fund invests primarily in money market
instruments which are issued or guaranteed, as to principal
and interest, by the U.S. Government, its agencies or
instrumentalities, as well as in repurchase agreements
collateralized fully by U.S. Government Securities.
A discussion of each Fund s investment objective(s) and
policies is provided below under "Investment Objectives and
Policies" and "Investment Techniques and Other Investment
Policies." The Trust also offers shares in the Rydex High
Yield Fund and the Rydex Institutional Money Market Fund, each
of which series of the Trust is described in a separate
prospectus.
SPECIAL RISK CONSIDERATIONS
The Trust expects that a substantial portion of the assets of
the Funds will be derived from professional money managers and
investors who intend to invest in the Funds as part of an
asset-allocation or market-timing investment strategy. These
investors are likely to redeem or exchange their Fund shares
frequently to take advantage of anticipated changes in market
conditions. The strategies employed by investors in the Funds
may result in considerable assets moving in and out of the
Funds. Consequently, the Trust expects that the Funds will
generally experience significant portfolio turnover, which
will likely cause higher expenses and additional costs and
increase the risk that the Fund will not qualify as a
"regulated investment company" under the Federal tax laws and
may also adversely affect the ability of the Fund to meet its
investment objective. For further information concerning the
portfolio turnover of the Funds and the Federal tax treatment
of the Funds, see "Investment Objectives and Policies" and
"Taxes" in this Prospectus and "Investment Policies and
Techniques" and "Dividends, Distributions, and Taxes" in the
Statement of Additional Information.
While the Funds do not expect that the returns over a year
will deviate adversely from their respective current
benchmarks by more than ten percent, certain factors may
affect their ability to achieve this correlation. See
"Special Risk Considerations" for a discussion of these
factors.
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The Funds (other than the Money Market Fund) may engage in
certain aggressive investment techniques, which may include
engaging in short sales and transactions in futures contracts
and options on securities, stock indexes, and futures
contracts. As discussed more fully under "Investment
Objectives and Policies" and "Investment Techniques and Other
Investment Policies," these techniques are specialized and
involve risks that are not traditionally associated with
investment companies.
PURCHASES, REDEMPTIONS, AND EXCHANGES OF TRUST SHARES
The shares of each Fund may be purchased and redeemed, with no
sales or redemption charge, at the net asset value per share
of the Fund next determined. For shareholders who have
engaged a registered investment adviser with discretionary
authority over the shareholder s account, the minimum initial
investment in the Rydex Funds currently is $15,000; for all
other shareholder accounts, the minimum initial investment in
the Rydex Funds currently is $25,000. These minimums also
apply to retirement plan accounts. Shares of any available
Fund described in this Prospectus may be exchanged at any time
for shares of any other available Fund, with no charge, on the
basis of the relative net asset values next computed (subject
to compliance with applicable minimum investment
requirements). The Trust reserves the right to modify its
minimum investment requirements. Shareholders will be
informed of any increase in the minimum investment
requirements by a letter accompanying a new prospectus or a
prospectus supplement, in which the new minimum is disclosed.
Any time that you request a partial redemption of your Trust
shares, please be aware of the currently-applicable minimum
investment, because, as described below, there are
circumstances under which your entire account may be closed
if, as a result of your request, your account balance falls
below the currently-applicable minimum investment in the
Trust. A redemption from a tax-qualified retirement plan may
have adverse tax consequences and a shareholder contemplating
such a redemption should consult his or her own tax adviser.
Other shareholders should consider the tax consequences of any
redemption.
Because of the administrative expense of handling small
accounts, any request for a redemption (including pursuant to
check writing privileges) by an investor whose account balance
is (a) below the currently-applicable minimum investment, or
(b) would be below that minimum as a result of the redemption,
will be treated as a request by the investor of a complete
redemption of that account. In addition, upon sixty days'
notice to a shareholder, the Trust may redeem an account whose
balance (due in whole or in part to redemptions since the time
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of last purchase) has fallen below the minimum investment
amount applicable at the time of the shareholder's most recent
purchase of Rydex Fund shares (unless the shareholder brings
his or her account value up to the currently applicable
minimum investment during that notice period). See "How To
Invest In the Funds," "Redeeming An Investment (Withdrawals),"
and "Exchanges."
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DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and any distributions of
net realized capital gains from each of the Funds will be
distributed as described under "Dividends and Distributions."
All such distributions of a Fund automatically will be
reinvested without charge in additional shares of the same
Fund unless otherwise specified by a shareholder.
INVESTMENT ADVISER AND SERVICER
The investment adviser of each Fund is PADCO Advisors, Inc.
(the "Advisor"). PADCO Service Company, Inc. (the "Servicer")
provides the Funds with general administrative, shareholder,
and registrar services. Both the Advisor and the Servicer are
located in Rockville, Maryland. See "Management of the
Trust."
TRANSFER AGENT AND CUSTODIAN
The Servicer also serves as the Trust s transfer and dividend
disbursement agent. Star Bank, N.A. serves as the custodian
of each Fund s securities and cash. See "Management of the
Trust."
10
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FEES AND EXPENSES OF THE FUNDS
The following table illustrates all expenses and fees that a
shareholder of each Fund will incur:
The Nova The Ursa
Fund Fund
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None None
Sales Load Imposed on Reinvested
Dividends None None
Deferred Sales Load None None
Redemption Fees None None
Exchange Fees None None
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Management Fees 0.75% 0.90%
12b-1 Fees None None
Other Expenses
Administrative Fees 0.25% 0.25%
Additional Expenses* 0.16% 0.19%
Total Other Expenses 0.41% 0.44%
Total Fund Operating Expenses** 1.16% 1.34%
* Additional expenses are based on amounts incurred during
the most-recent fiscal year end. The Trustees, on March
12, 1997, changed the Trust's fiscal year from June 30 to
March 31. The information in this row, therefore, reflects
nine months of financial activity (and has been
annualized).
** Retirement plans are charged an annual $15.00 maintenance
fee and a $15.00 per account liquidation fee. See "Tax-
Sheltered Retirement Plans."
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The The Rydex
Rydex Precious
OTC Fund Metals Fund
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None None
Sales Load Imposed on Reinvested None None
Dividends
Deferred Sales Load None None
Redemption Fees None None
Exchange Fees None None
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Management Fees 0.75% 0.75%
12b-1 Fees None None
Other Expenses
Administrative Fees 0.20% 0.20%
Additional Expenses* 0.32% 0.50%
Total Other Expenses 0.52% 0.70%
Total Fund Operating Expenses** 1.27% 1.45%
* Additional expenses are based on amounts incurred during
the most-recent fiscal year end. The Trustees, on March
12, 1997, changed the Trust's fiscal year from June 30 to
March 31. The information in this row, therefore, reflects
nine months of financial activity (and has been
annualized).
** Retirement plans are charged an annual $15.00 maintenance
fee and a $15.00 per account liquidation fee. See "Tax-
Sheltered Retirement Plans."
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The Rydex
The Rydex U.S.
U.S. The Government
Government Juno Money
Bond Fund Fund Market Fund
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None None None
Sales Load Imposed on Reinvested None None None
Dividends
Deferred Sales Load None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Management Fees 0.50% 0.90% 0.50%
12b-1 Fees None None None
Other Expenses
Administrative Fees 0.20% 0.25% 0.20%
Additional Expenses* 0.79% 0.43% 0.16%
Total Other Expenses 0.99% 0.68% 0.36%
Total Fund Operating Expenses** 1.49% 1.58% 0.86%
________________________________
* Additional expenses are based on amounts incurred during
the most-recent fiscal year end. The Trustees, on March
12, 1997, changed the Trust's fiscal year from June 30 to
March 31. The information in this row, therefore, reflects
nine months of financial activity (and has been
annualized).
** Retirement plans are charged an annual $15.00 maintenance
fee and a $15.00 per account liquidation fee. See "Tax-
Sheltered Retirement Plans."
13
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EXAMPLE
Assuming hypothetical investments of $1,000 in each of the
Funds, a five-percent annual return, and redemption at the end
of each time period, an investor in each of the Funds would
pay transaction and operating expenses at the end of each year
as follows:
<TABLE>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
The Nova Fund $11.81 $36.74 $63.53 $139.53
The Ursa Fund $13.64 $42.45 $73.39 $161.18
Rydex OTC Fund $12.93 $40.23 $69.55 $152.76
Rydex Precious Metals Fund $14.76 $45.93 $79.41 $174.42
Rydex U.S. Government
Bond Fund $15.17 $47.20 $81.60 $179.23
The Juno Fund $16.09 $50.05 $86.53 $190.05
Rydex U.S. Government
Money Market Fund $8.76 $27.24 $47.10 $103.45
</TABLE>
The same level of expenses would be incurred if the
investments were held throughout the period indicated.
The preceding table of fees and expenses is provided to assist
investors in understanding the various costs and expenses
which may be borne directly or indirectly by an investor in
each of the Funds. The percentages shown above are based on
actual expenses incurred by the Funds for the fiscal year
ended June 30, 1996. The five-percent assumed annual return is
for comparison purposes only. The actual return for a
particular Fund in future periods may be more or less
depending on market conditions, and the actual expenses an
investor incurs in future periods may be more or less than
those shown above and will depend on the amount invested and
on the actual growth rate of the particular Fund. For a more
complete discussion of the fees connected with an investment
in the Funds and the services provided to the Funds, see
"Management of the Trust" in this Prospectus and in the
Statement of Additional Information.
14
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUNDS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Rydex
Funds, for the periods identified, have been audited by
Deloitte & Touche LLP, independent certified public
accountants, whose report thereon appears in the Trust's 1997
Annual Report to Shareholders and is incorporated by reference
in the Statement of Additional Information. This information
should be read in conjunction with the financial statements
and related notes thereto included in the Statement of
Additional Information. As noted in the financial highlights
below, the Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31; the information set
forth below in these financial highlights under the columns
for the period ended March 31, 1997, therefore, reflects nine
months of financial activity for each of the Rydex Funds. A
copy of the Trust's 1997 Annual Report to Shareholders may be
obtained, without charge, by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
The Nova Fund
Period Year
Ended Ended
March 31, June 30,
1997* 1996
<S> <C> <C>
Per Share Operating Performance:+ $ 15.68 $11.81
Net Asset Value -- Beginning of
Period
Net Investment Income 0.35 0.56
Net Realized and Unrealized Gains
(Losses) on Securities 2.19 3.31
Net Increase (Decrease) in Net
Asset Value 2.54 3.87
Resulting from Operations
Dividends to Shareholders from 0.00 0.00
Net
Investment Income (0.33) 0.00
Distributions to Shareholders
from Net
Realized Capital Gain
Net Increase (Decrease) in Net 2.21 3.87
Asset Value
Net Asset Value -- End of Period $17.89 $15.68
Total Investment Return 20.92%*** 32.77%
15
<PAGE>
Ratios to Average Net Assets
Net Expenses 1.16%***++ 1.31%
Net Investment Income 2.69%*** 3.14%
Supplementary Data
Portfolio Turnover Rate****
Net Assets, End of Period (000's 0.00% 0.00%
omitted) $ 181,930 $224,541
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
++ The annualized ratio of gross expenses to average net
assets is 1.19%.
* The Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31.
** Commencement of Operations: July 12, 1993.
*** Annualized.
**** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year. The Nova Fund typically holds most of its
investments in options and futures contracts which are
deemed short-term securities.
16
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUNDS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Rydex
Funds, for the periods identified, have been audited by
Deloitte & Touche LLP, independent certified public
accountants, whose report thereon appears in the Trust's 1997
Annual Report to Shareholders and is incorporated by reference
in the Statement of Additional Information. This information
should be read in conjunction with the financial statements
and related notes thereto included in the Statement of
Additional Information. As noted in the financial highlights
below, the Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31; the information set
forth below in these financial highlights under the columns
for the period ended March 31, 1997, therefore, reflects nine
months of financial activity for each of the Rydex Funds. A
copy of the Trust's 1997 Annual Report to Shareholders may be
obtained, without charge, by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
The Nova Fund
Year Ended Period Ended
June 30, June 30,
1995 1994**
<S> <C> <C>
Per Share Operating Performance:+ $ 9.77 $ 10.01
Net Asset Value -- Beginning of Period
Net Investment Income 0.28 0.01
Net Realized and Unrealized Gains
(Losses) on Securities 2.88 (0.25)
Net Increase (Decrease) in Net Asset
Value 3.16 (0.24)
Resulting from Operations
Dividends to Shareholders from Net (0.29) 0.00
Investment Income
Distributions to Shareholders from Net (0.83) 0.00
Realized Capital Gain
Net Increase (Decrease) in Net Asset
Value 2.04 (0.24)
Net Asset Value -- End of Period $ 11.81 $ 9.77
Total Investment Return 32.65% (2.47)%
Ratios to Average Net Assets
Net Expenses 1.43% 1.73%***
Net Investment Income 2.62% 1.05%***
<PAGE>
Supplementary Data
Portfolio Turnover Rate****
Net Assets, End of Period (000's 0.00% 0.00%
omitted) $62,916 $ 77,914
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
++ The annualized ratio of gross expenses to average net
assets is 1.19%.
* The Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31.
** Commencement of Operations: July 12, 1993.
*** Annualized.
**** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year. The Nova Fund typically holds most of its
investments in options and futures contracts which are
deemed short-term securities.
17
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUNDS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Rydex
Funds, for the periods identified, have been audited by
Deloitte & Touche LLP, independent certified public
accountants, whose report thereon appears in the Trust's 1997
Annual Report to Shareholders and is incorporated by reference
in the Statement of Additional Information. This information
should be read in conjunction with the financial statements
and related notes thereto included in the Statement of
Additional Information. As noted in the financial highlights
below, the Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31; the information set
forth below in these financial highlights under the columns
for the period ended March 31, 1997, therefore, reflects nine
months of financial activity for each of the Rydex Funds. A
copy of the Trust's 1997 Annual Report to Shareholders may be
obtained, without charge, by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
The Ursa Fund
<S> <C> <C>
Per Share Operating Performance:+ Period
Net Asset Value -- Beginning of Period Ended Year Ended
March 31, June 30,
1997* 1996
Net Investment Income 0.17 0.30
Net Realized and Unrealized Gains
(Losses) on Securities (0.68) (1.54)
Net Increase (Decrease) in Net Asset
Value (0.51) (1.24)
Resulting from Operations
Dividends to Shareholders from Net (0.02) 0.00
Investment Income
Net Increase (Decrease) in Net Asset (0.53) (1.24)
Value
Net Asset Value -- End of Period $ 7.02 $ 7.55
Total Investment Return (8.98)%*** (14.11)%
Ratios to Average Net Assets
Net Expenses 1.34%***++ 1.39%
Net Investment Income 3.21%*** 3.38%
Supplementary Data
Portfolio Turnover Rate**** 0.00% 0.00%
Net Assets, End of Period (000's omitted) $582,288 $192,553
<PAGE>
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
++ The annualized ratio of gross expenses to average
net assets is 1.36%.
* The Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31.
** Commencement of Operations: January 7, 1994.
*** Annualized.
**** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year. The Ursa Fund typically holds most of its The Ursa
Fund typically holds most of its investments in options
and futures contracts which are deemed short-term
securities.
18
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUNDS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Rydex
Funds, for the periods identified, have been audited by
Deloitte & Touche LLP, independent certified public
accountants, whose report thereon appears in the Trust's 1997
Annual Report to Shareholders and is incorporated by reference
in the Statement of Additional Information. This information
should be read in conjunction with the financial statements
and related notes thereto included in the Statement of
Additional Information. As noted in the financial highlights
below, the Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31; the information set
forth below in these financial highlights under the columns
for the period ended March 31, 1997, therefore, reflects nine
months of financial activity for each of the Rydex Funds. A
copy of the Trust's 1997 Annual Report to Shareholders may be
obtained, without charge, by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
The Ursa Fund
<S> <C> <C>
Period
Year Ended Ended
June 30, 1995 June 30, 1994**
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period $ 10.54 $ 10.00
Net Investment Income 0.35 0.01
Net Realized and Unrealized Gains
(Losses) on Securities (1.78) 0.53
Net Increase (Decrease) in Net Asset Value
Resulting from Operations (1.43) 0.54
Dividends to Shareholders from Net
Investment Income (0.32) 0.00
Net Increase (Decrease) in Net Asset Value (1.75) 0.54
Net Asset Value -- End of Period $ 8.79 $ 10.54
Total Investment Return (14.08)% 10.89%
Ratios to Average Net Assets
Net Expenses 1.39% 1.67%***
Net Investment Income 3.50% 1.43%***
Supplementary Data
Portfolio Turnover Rate**** 0.00% 0.00%
Net Assets, End of Period (000's omitted) $127,629 $110,899
</TABLE>
<PAGE>
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
++ The annualized ratio of gross expenses to average net
assets is 1.36%.
* The Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31.
** Commencement of Operations: January 7, 1994.
*** Annualized.
**** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year. The Ursa Fund typically holds most of its
investments in options and futures contracts which are
deemed short-term securities.
19
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUNDS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Rydex
Funds, for the periods identified, have been audited by
Deloitte & Touche LLP, independent certified public
accountants, whose report thereon appears in the Trust's 1997
Annual Report to Shareholders and is incorporated by reference
in the Statement of Additional Information. This information
should be read in conjunction with the financial statements
and related notes thereto included in the Statement of
Additional Information. As noted in the financial highlights
below, the Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31; the information set
forth below in these financial highlights under the columns
for the period ended March 31, 1997, therefore, reflects nine
months of financial activity for each of the Rydex Funds. A
copy of the Trust's 1997 Annual Report to Shareholders may be
obtained, without charge, by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
The Rydex OTC Fund
Period Year Ended
Ended June 30,
March 31, 1997* 1996
<S> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period $ 15.16 $ 12.22
Net Investment Income 0.01 0.06
Net Realized and Unrealized Gains
(Losses) on Securities 2.84 3.24
Net Increase (Decrease) in Net
Asset Value Resulting from 2.85 3.30
Operations
Dividends to Shareholders from Net
Investment Income (0.07) 0.00
Distributions to Shareholders from
Net Realized Capital Gain (0.01) (0.36)
Net Increase (Decrease) in Net
Asset Value 2.77 2.94
Net Asset Value -- End of Period $ 17.93 $ 15.16
Total Investment Return 24.77%*** 26.44%
Ratios to Average Net Assets
Net Expenses 1.27%***++ 1.33%
Net Investment Income 0.08%*** 0.44%
<PAGE>
Supplementary Data
Portfolio Turnover Rate**** 1,140.35% 2,578.56%
Net Assets, End of Period (000's
omitted) $ 52,278 $ 48,716
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
++ The annualized ratio of gross expenses to average
net assets is 1.27%.
* The Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31.
** Commencement of Operations: February 14, 1994.
*** Annualized.
**** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year.
20
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUNDS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Rydex
Funds, for the periods identified, have been audited by
Deloitte & Touche LLP, independent certified public
accountants, whose report thereon appears in the Trust's 1997
Annual Report to Shareholders and is incorporated by reference
in the Statement of Additional Information. This information
should be read in conjunction with the financial statements
and related notes thereto included in the Statement of
Additional Information. As noted in the financial highlights
below, the Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31; the information set
forth below in these financial highlights under the columns
for the period ended March 31, 1997, therefore, reflects nine
months of financial activity for each of the Rydex Funds. A
copy of the Trust's 1997 Annual Report to Shareholders may be
obtained, without charge, by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
The Rydex OTC Fund
<S> <C> <C>
Year Period Ended
Ended June 30, 1994**
June 30, 1995
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period
$ 8.76 $ 10.00
Net Investment Income 0.14 0.01
Net Realized and Unrealized Gains
(Losses) on Securities 4.17 (1.25)
Net Increase (Decrease) in Net
Asset Value Resulting from 4.31 (1.24)
Operations
Dividends to Shareholders from Net
Investment Income (0.12) 0.00
Distributions to Shareholders from
Net Realized Capital Gain (0.73) 0.00
Net Increase (Decrease) in Net
Asset Value 3.46 (1.24)
Net Asset Value -- End of Period $ 12.22 $ 8.76
Total Investment Return 49.00% (30.17)%
Ratios to Average Net Assets
Net Expenses 1.41% 1.97%***
Net Investment Income 1.34% 1.69%***
21
<PAGE>
Supplementary Data
Portfolio Turnover Rate**** 2,241.00% 1,171.00%
Net Assets, End of Period \
(000's omitted) $ 61,948 $ 30,695
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
++ The annualized ratio of gross expenses to average net
assets is 1.27%.
* The Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31.
** Commencement of Operations: February 14, 1994.
*** Annualized.
**** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year.
22
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUNDS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Rydex
Funds, for the periods identified, have been audited by
Deloitte & Touche LLP, independent certified public
accountants, whose report thereon appears in the Trust's 1997
Annual Report to Shareholders and is incorporated by reference
in the Statement of Additional Information. This information
should be read in conjunction with the financial statements
and related notes thereto included in the Statement of
Additional Information. As noted in the financial highlights
below, the Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31; the information set
forth below in these financial highlights under the columns
for the period ended March 31, 1997, therefore, reflects nine
months of financial activity for each of the Rydex Funds. A
copy of the Trust's 1997 Annual Report to Shareholders may be
obtained, without charge, by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
The Rydex Precious Metals Fund
Period Ended Year
March Ended
31,1997* June 30,1996
<S> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period $ 9.05 $ 8.73
Net Investment Income 0.00 0.00
Net Realized and Unrealized Gains
(Losses) on Securities (1.41) 0.32
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations (1.41) 0.32
Dividends to Shareholders from Net
Investment Income 0.00 0.00
Net Increase (Decrease) in Net
Asset Value (1.41) 0.32
Net Asset Value -- End of Period $ 7.64 $ 9.05
Total Investment Return (20.77)%*** 3.67%
Ratios to Average Net Assets
Net Expenses 1.45%***++ 1.33%
Net Investment Income 0.00%*** (0.01)%
Supplementary Data
Portfolio Turnover Rate**** 743.33% 1,036.37%
Average Commission Rate Paid***** 0.0101 0.0151
Net Assets, End of Period (000's omitted) $ 23,680 $ 36,574
</TABLE>
<PAGE>
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
++ The annualized ratio of gross expenses to average net
assets is 1.49%.
* The Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31.
** Commencement of Operations: December 1, 1993.
*** Annualized.
**** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year.
*****For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission rate
per share for purchases and sales on equity securities.
23
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUNDS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Rydex
Funds, for the periods identified, have been audited by
Deloitte & Touche LLP, independent certified public
accountants, whose report thereon appears in the Trust's 1997
Annual Report to Shareholders and is incorporated by reference
in the Statement of Additional Information. This information
should be read in conjunction with the financial statements
and related notes thereto included in the Statement of
Additional Information. As noted in the financial highlights
below, the Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31; the information set
forth below in these financial highlights under the columns
for the period ended March 31, 1997, therefore, reflects nine
months of financial activity for each of the Rydex Funds. A
copy of the Trust's 1997 Annual Report to Shareholders may be
obtained, without charge, by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
The Rydex Precious Metals Fund
Period Ended
Year Ended June 30,
June 30, 1995 1994**
<S> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period $ 8.29 $ 10.00
Net Investment Income 0.10 0.01
Net Realized and Unrealized Gains
(Losses) on Securities 0.43 (1.72)
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations 0.53 (1.71)
Dividends to Shareholders from Net
Investment Income (0.09) 0.00
Net Increase (Decrease) in Net
Asset Value 0.44 (1.71)
Net Asset Value -- End of Period $ 8.73 $ 8.29
Total Investment Return 6.21% (29.27)%
Ratios to Average Net Assets
Net Expenses 1.38% 2.06%***
Net Investment Income 1.15% 1.23%***
Supplementary Data
Portfolio Turnover Rate**** 1,765.00% 2,728.00%
Average Commission Rate Paid***** -- --
Net Assets, End of Period (000's $ 40,861 $ 1,526
omitted)
<PAGE>
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
++ The annualized ratio of gross expenses to average net
assets is 1.49%.
* The Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31.
** Commencement of Operations: December 1, 1993.
*** Annualized.
**** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year.
*****For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission rate
per share for purchases and sales on equity securities.
24
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUNDS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Rydex
Funds, for the periods identified, have been audited by
Deloitte & Touche LLP, independent certified public
accountants, whose report thereon appears in the Trust's 1997
Annual Report to Shareholders and is incorporated by reference
in the Statement of Additional Information. This information
should be read in conjunction with the financial statements
and related notes thereto included in the Statement of
Additional Information. As noted in the financial highlights
below, the Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31; the information set
forth below in these financial highlights under the columns
for the period ended March 31, 1997, therefore, reflects nine
months of financial activity for each of the Rydex Funds. A
copy of the Trust's 1997 Annual Report to Shareholders may be
obtained, without charge, by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
The Rydex U.S. Government
Bond Fund
Year
Period Ended Ended
March 31,1997* June 30,1996
<S> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period $ 8.97 $ 9.55
Net Investment Income 0.34 0.46
Net Realized and Unrealized Gains
(Losses) on Securities (0.45) (0.45)
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations (0.11) 0.01
Dividends to Shareholders from
Net Investment Income (0.34) (0.46)
Distributions to Shareholders from
Net Realized Capital Gain 0.00 (0.13)
Net Increase (Decrease) in Net
Asset Value (0.45) (0.58)
Net Asset Value -- End of Period $ 8.52 $ 8.97
Total Investment Return (0.46)%*** (1.48)%
Ratios to Average Net Assets
Net Expenses 1.49%***++ 1.26%
Net Investment Income 5.06%*** 4.73%
Supplementary Data
Portfolio Turnover Rate**** 962.17% 780.30%
<PAGE>
Net Assets, End of Period (000's omitted) $ 3,302 $ 18,331
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
++ The annualized ratio of gross expenses to average net
assets is 1.51%.
* The Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31.
** Commencement of Operations: January 3, 1994.
*** Annualized.
**** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year.
25
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUNDS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Rydex
Funds, for the periods identified, have been audited by
Deloitte & Touche LLP, independent certified public
accountants, whose report thereon appears in the Trust's 1997
Annual Report to Shareholders and is incorporated by reference
in the Statement of Additional Information. This information
should be read in conjunction with the financial statements
and related notes thereto included in the Statement of
Additional Information. As noted in the financial highlights
below, the Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31; the information set
forth below in these financial highlights under the columns
for the period ended March 31, 1997, therefore, reflects nine
months of financial activity for each of the Rydex Funds. A
copy of the Trust's 1997 Annual Report to Shareholders may be
obtained, without charge, by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
The Rydex U.S. Government
Bond Fund
Year Period
Ended Ended
June 30, 1995 June 30, 1994**
<S> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period $ 8.24 $ 10.00
Net Investment Income 0.39 0.02
Net Realized and Unrealized Gains
(Losses) on Securities 1.17 (1.76)
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations 1.56 (1.74)
Dividends to Shareholders from
Net Investment Income (0.25) (0.02)
Distributions to Shareholders from
Net Realized Capital Gain 0.00 0.00
Net Increase (Decrease) in Net
Asset Value 1.31 (1.76)
Net Asset Value -- End of Period $ 9.55 $ 8.24
Total Investment Return 18.97% (32.63)%
Ratios to Average Net Assets
Net Expenses 2.26% 3.05%***
Net Investment Income 4.64% 3.39%***
26
<PAGE>
Supplementary Data
Portfolio Turnover Rate**** 3,452.59% 1,290.00%
Net Assets, End of Period
(000's omitted) $ 2,592 $ 1,564
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
++ The annualized ratio of gross expenses to average net
assets is 1.51%.
* The Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31.
** Commencement of Operations: January 3, 1994.
*** Annualized.
**** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year.
27
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUNDS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Rydex
Funds, for the periods identified, have been audited by
Deloitte & Touche LLP, independent certified public
accountants, whose report thereon appears in the Trust's 1997
Annual Report to Shareholders and is incorporated by reference
in the Statement of Additional Information. This information
should be read in conjunction with the financial statements
and related notes thereto included in the Statement of
Additional Information. As noted in the financial highlights
below, the Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31; the information set
forth below in these financial highlights under the columns
for the period ended March 31, 1997, therefore, reflects nine
months of financial activity for each of the Rydex Funds. A
copy of the Trust's 1997 Annual Report to Shareholders may be
obtained, without charge, by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
The Juno Fund
Period Period Period
Ended Year Ended
March Ended Period
31,1997* June 30,1996 June 30,1995**
<S> <C> <C> <C>
Per Share Operating Performance:+ $9.47 $ $9.08 $10.00
Net Asset Value -- Beginning of
Period
Net Investment Income 0.25 0.34 0.14
Net Realized and Unrealized
Gains 0.00 0.05 (1.06)
(Losses) on Securities
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations 0.25 0.39 (0.92)
Dividends to Shareholders from
Net Investment Income (0.03) 0.00 0.00
Net Increase (Decrease) in Net
Asset Value 0.22 0.39 (0.92)
Net Asset Value -- End of Period $ 9.69 $ 9.47 $ 9.08
Total Investment Return 3.75%*** 4.30% (9.20)%
Ratios to Average Net Assets
Net Expenses 1.58%***++ 1.64% 1.50%***
Net Investment Income 3.51% 3.63% 1.32%***
Supplementary Data
Portfolio Turnover Rate**** 0.00% 0.00% 0.00%
Net Assets, End of Period
<PAGE>
(000's omitted) $ 32,577 $ 18,860 $4,301
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
++ The annualized ratio of gross expenses to average net
assets is 1.60%.
* The Trustees, on March 12, 1997, changed the Trust's
28
<PAGE>
fiscal year end from June 30 to March 31.
** Commencement of Operations: March 3, 1995.
*** Annualized.
**** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year. The Juno Fund typically holds most of its
investments in options and futures contracts which are
deemed short-term securities.
29
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUNDS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Rydex
Funds, for the periods identified, have been audited by
Deloitte & Touche LLP, independent certified public
accountants, whose report thereon appears in the Trust's 1997
Annual Report to Shareholders and is incorporated by reference
in the Statement of Additional Information. This information
should be read in conjunction with the financial statements
and related notes thereto included in the Statement of
Additional Information. As noted in the financial highlights
below, the Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31; the information set
forth below in these financial highlights under the columns
for the period ended March 31, 1997, therefore, reflects nine
months of financial activity for each of the Rydex Funds. A
copy of the Trust's 1997 Annual Report to Shareholders may be
obtained, without charge, by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
The Rydex U.S. Government Money
Market Fund
Period Ended Year Ended
March 31, June 30,
1997* 1996
<S> <C> <C>
Per Share Operating Performance:+ $ 1.00 $ 1.00
Net Asset Value -- Beginning of Period
Net Investment Income 0.03 0.04
Net Realized and Unrealized Gains
on Securities 0.00 0.00
Net Increase in Net Asset Value
Resulting from Operations 0.03 0.04
Dividends to Shareholders from Net
Investment Income (0.03) (0.04)
Net Increase in Net Asset Value 0.00 0.00
Net Asset Value End of Period $ 1.00 $ 1.00
Total Investment Return 4.39%*** 4.60%
Ratios to Average Net Assets
Net Expenses 0.86%***++ 0.99%
Net Investment Income 4.06%*** 4.18%
Supplementary Data
Portfolio Turnover Rate **** 0.00% 0.00%
Net Assets, End of Period (000's
omitted) $ 283,553 $ 153,925
</TABLE>
+ The per share data of the Financial Highlights table is
<PAGE>
calculated using the daily shares outstanding average for
the year.
++ The annualized ratio of gross expenses to average net
assets is 0.86%.
* The Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31.
** Commencement of Operations: December 3, 1993.
*** Annualized.
**** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year.
30
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUNDS
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Rydex
Funds, for the periods identified, have been audited by
Deloitte & Touche LLP, independent certified public
accountants, whose report thereon appears in the Trust's 1997
Annual Report to Shareholders and is incorporated by reference
in the Statement of Additional Information. This information
should be read in conjunction with the financial statements
and related notes thereto included in the Statement of
Additional Information. As noted in the financial highlights
below, the Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31; the information set
forth below in these financial highlights under the columns
for the period ended March 31, 1997, therefore, reflects nine
months of financial activity for each of the Rydex Funds. A
copy of the Trust's 1997 Annual Report to Shareholders may be
obtained, without charge, by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
The Rydex U.S. Government Money
Market Fund
Year Ended Period Ended
June30, June 30,
1995 1994**
<S> <C> <C>
Per Share Operating Performance:+ $ 1.00 $ 1.00
Net Asset Value -- Beginning of
Period
Net Investment Income 0.04 0.01
Net Realized and Unrealized Gains
on Securities 0.00 0.00
Net Increase in Net Asset Value
Resulting from Operations 0.04 0.01
Dividends to Shareholders from Net
Investment Income (0.04) (0.01)
Net Increase in Net Asset Value 0.00 0.00
Net Asset Value End of Period $ 1.00 $ 1.00
Total Investment Return 4.43% 2.47%
Ratios to Average Net Assets
Net Expenses 0.89% 1.16%***
Net Investment Income 4.23% 2.34%***
Supplementary Data
Portfolio Turnover Rate **** 0.00% 0.00%
Net Assets, End of Period (000's
omitted) $ 284,198 $ 88,107
</TABLE>
<PAGE>
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the year.
++ The annualized ratio of gross expenses to average net
assets is 0.86%.
* The Trustees, on March 12, 1997, changed the Trust's
fiscal year end from June 30 to March 31.
** Commencement of Operations: December 3, 1993.
*** Annualized.
**** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year.
31
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
General
The Funds are principally designed for professional money
managers and investors who intend to follow an asset-
allocation or market-timing investment strategy. Except for
the Money Market Fund, each Fund is intended to provide
investment exposure with respect to a particular segment of
the securities markets. These Funds seek investment results
that correspond over time to a specified benchmark. The Funds
may be used independently or in combination with each other as
part of an overall investment strategy. Additional Funds may
be created from time to time.
Fundamental securities analysis is not generally used by the
Advisor in seeking to correlate with the respective
benchmarks. Rather, the Advisor primarily uses statistical
and quantitative analysis to determine the investments the
Fund makes and techniques it employs. While the Advisor
attempts to minimize any "tracking error" (that statistical
measure of the difference between the investment results of a
Fund and the performance of its benchmark), certain factors
will tend to cause the Fund's investment results to vary from
a perfect correlation to its benchmark. The Funds, however,
do not expect that their total returns will vary adversely
from their respective current benchmarks by more than ten
percent over a year. See "Special Risk Considerations." It
is the policy of these Funds to pursue their investment
objectives regardless of market conditions, to remain nearly
fully invested and not to take defensive positions.
The investment objectives (including the benchmarks of the
Nova and Ursa Funds) and certain investment restrictions of
the Funds are fundamental policies and may not be changed
without the affirmative vote of at least the majority of the
outstanding shares of that Fund, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). All other
investment policies of the Funds not specified as fundamental
(including the benchmarks of the Funds other than Nova and
Ursa Funds) may be changed by the trustees of the Trust (the
"Trustees") without the approval of shareholders.
The Trustees may consider changing a Fund s benchmark (to the
extent permitted) if, for example, the current benchmark
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 a Fund
32
<PAGE>
that is "leveraged" or proprietary. Of course, there can be
no assurance that a Fund will achieve its objective.
The Nova Fund
The investment objective of the Nova Fund is to provide
investment returns that correspond to 150% of the performance
of the S&P500 Index. In attempting to achieve its objective,
the Nova Fund expects that a substantial portion of its assets
usually will be devoted to employing certain investment
techniques. These techniques include engaging in certain
transactions in stock index futures contracts, options on
stock index futures contracts, and options on securities and
stock indexes. Under the techniques in which the Nova Fund
engages, the Nova Fund will generally incur a loss if the
price of the underlying security or index decreases between
the date of the employment of the technique and the date on
which the Nova Fund terminates the position. The amount of
any gain or loss on an investment technique may be affected by
any premium or amounts in lieu of dividends or interest income
the Nova Fund pays or receives as the result of the
transaction. The Nova Fund may also invest in shares of
individual securities which are expected to track the Nova
Fund s benchmark.
In contrast to returns on a mutual fund that seeks to
approximate the return of the S&P500 Index, the Nova Fund
should increase gains to investors during periods when the
prices of the securities in the S&P500 Index are rising and
increase losses to investors during periods when they are
declining. Investors in the Nova Fund could experience
substantial losses during sustained periods of falling equity
prices.
The Ursa Fund
The Ursa Fund is designed to allow shareholders to hedge an
existing portfolio of securities or mutual fund shares or to
speculate on anticipated decreases in the S&P500 Index. The
Ursa Fund's investment objective is to provide investment
results that will inversely correlate to the performance of
the S&P500 Index. The Ursa Fund seeks to achieve this inverse
correlation result on each trading day. While a close
correlation can be achieved on any single trading day, over
time the cumulative percentage increase or decrease in the net
asset value of the shares of the Ursa Fund may diverge
significantly from the cumulative percentage decrease or
increase in the S&P500 Index due to a compounding effect.
If the Ursa Fund achieved a perfect inverse correlation for
any single trading day, the net asset value of the shares of
the Ursa Fund would increase for that day in direct proportion
33
<PAGE>
to any decrease in the level of the S&P500 Index. Conversely,
the net asset value of the shares of the Ursa Fund would
decrease for that day in direct proportion to any increase in
the level of the S&P500 Index for that day. For example, if
the S&P500 Index were to decrease by 1% by the close of
business on a particular trading day, investors in the Ursa
Fund would experience a gain in net asset value of
approximately 1% for that day. Conversely, if the S&P500
Index were to increase by 1% by the close of business on a
particular trading day, investors in the Ursa Fund would
experience a loss in net asset value of approximately 1% for
that day.
Even if there is a perfect inverse correlation between the
Ursa Fund and the S&P500 Index on a daily basis, however, the
symmetry between the changes in the S&P500 Index and the
changes in the value of shares in the Ursa Fund can be
significantly altered over time by a compounding effect.
Thus, if the Ursa Fund achieved a perfect inverse correlation
with the S&P500 Index on every trading day over an extended
period, and if there were a significant decrease in the level
of the S&P500 Index during that period, there would be a
compounding effect with the result that the net asset value of
the shares of the Ursa Fund for that period should generally
increase by a percentage that is somewhat greater than the
percentage of decrease in the level of the S&P500 Index.
Conversely, if a perfect inverse correlation were maintained
over an extended period and if there were a significant
increase in the level of the S&P500 Index over that period,
then there would be a compounding effect with the result that
the net asset value of the shares of the Ursa Fund for that
period should generally decrease by a percentage that is
somewhat less than the percentage increase in the level of the
S&P500 Index for that period.
The Ursa Fund intends to pursue its investment objective
regardless of market conditions and does not intend to take
defensive positions in anticipation of rising equity prices.
Consequently, investors in the Ursa Fund may experience
substantial losses during sustained periods of rising equity
prices.
In pursuing its investment objective, the Ursa Fund generally
does not invest in traditional securities, such as common
stock of operating companies. Rather, the Ursa Fund employs
certain investment techniques, including engaging in short
sales and in certain transactions in stock index futures
contracts, options on stock index futures contracts, and
options on securities and stock indexes. Under these
techniques, the Ursa Fund will generally incur a loss if the
price of the underlying security or index increases between
the date of the employment of the technique and the date on
34
<PAGE>
which the Ursa Fund terminates the position. The Ursa Fund
will generally realize a gain if the underlying security or
index declines in price between those dates. This result is
the opposite of what one would expect from a cash purchase of
a long position in a security. The amount of any gain or loss
on an investment technique may be affected by any premium or
amounts in lieu of dividends or interest that the Ursa Fund
pays or receives as the result of the transaction.
The Rydex OTC Fund
The investment objective of the OTC Fund is to provide
investment results that correspond to a benchmark for over-
the-counter securities. The OTC Fund's current benchmark is
the NASDAQ 100 Index.
The OTC Fund does not aim to hold all of the 100 securities
included in the NASDAQ 100 Index. Instead, the OTC Fund
intends to hold representative securities included in the
NASDAQ 100 Index or other instruments which the Advisor
believes will provide returns that correspond to those of the
NASDAQ 100 Index. The OTC Fund may engage in transactions
on stock index futures contracts, options on stock index
futures contracts, and options on securities and stock
indexes.
Companies whose securities are traded on the over-the-counter
("OTC") markets may include smaller market-capitalization or
newer companies than those listed on the New York Stock
Exchange (the "NYSE") or the American Stock Exchange (the
"AMEX"). OTC companies may have limited product lines, or
relatively new products or services, and may lack established
markets, depth of experienced management, or financial
resources and the ability to generate funds. The securities
of these companies also may have limited marketability and may
be more volatile in price than securities of larger-
capitalized or more well-known companies. Among the reasons
for the greater price volatility of securities of certain
smaller OTC companies are the less certain growth prospects of
comparably smaller firms, and the greater sensitivity of
smaller-capitalized companies to changing economic conditions
than larger-capitalized, exchange-traded securities.
Conversely, because many of these OTC securities may be
overlooked by investors and undervalued in the marketplace,
there may be potential for significant capital appreciation.
The Rydex Precious Metals Fund
The investment objective of the Metals Fund is to provide
investment results that correspond to a benchmark primarily
for metals-related securities. The Metals Fund s current
benchmark is the XAU Index.
35
<PAGE>
Metals-related investments are considered speculative and are
influenced by a host of world-wide economic, financial, and
political factors. Historically, the prices of gold and
precious metals have been subject to wide price movements
caused by political as well as economic factors, and,
accordingly, prices of equity securities of companies involved
in the precious metals-related industry have been volatile.
Such fluctuation and volatility may be due to changes in
inflation or in expectations regarding inflation in various
countries, the availability of supplies of such precious
metals and minerals, changes in industrial and commercial
demand, metal and mineral sales by governments, central banks,
or international agencies, investment speculation, monetary
and other economic policies of various governments, and
governmental restrictions on the private ownership of certain
precious metals and minerals. Such price volatility in
precious metals prices will have a similar effect on the
Metals Fund's share prices. The Fund may invest in other
securities that are expected to perform in a manner that will
assist the Metals Fund s performance to closely track the XAU
Index.
The Metals Fund may invest in securities of foreign issuers.
These securities present certain risks not present in domestic
investments and expose the investor to general market
conditions which differ significantly from those in the United
States. Securities of foreign issuers may be affected by the
strength of foreign currencies relative to the U.S. dollar or
by political or economic developments in foreign countries.
Foreign companies may not be subject to accounting standards
or governmental regulations comparable to those that affect
United States companies, and there may be less public
information about the operations of foreign companies.
Foreign securities also may be subject to foreign government
taxes that could reduce the yield on such securities.
The Rydex U.S. Government Bond Fund
The investment objective of the Bond Fund is to provide
investment results that correspond to a benchmark for U.S.
Government Securities. The Bond Fund s current benchmark is
120% of the price movement of the Long Bond, without
consideration of interest paid.
In attempting to achieve this objective, the Bond Fund invests
primarily in U.S. Government Securities. U.S. Government
Securities are obligations of the U.S. Treasury or obligations
either issued or guaranteed, as to principal and interest, by
agencies or instrumentalities of the U.S. Government. The
Bond Fund may engage in transactions in futures contracts and
options on futures contracts on U.S. Treasury bonds. The Bond
Fund also may invest in U.S. Treasury zero coupon bonds.
While U.S. Government Securities provide substantial
36
<PAGE>
protection against credit risk, investment in those securities
do not protect investors against price changes due to changing
interest rate levels and, as such, the share price of the Bond
Fund is not guaranteed and will fluctuate over time.
Accordingly, the return of the Bond Fund should move inversely
with movements in prevailing interest rates on the Long Bond.
The Fund intends to adjust its portfolio each time the Long
Bond is issued (currently twice yearly) in an attempt to track
the price movement of the newly-issued Long Bond. See "The
Benchmarks."
The Juno Fund
The Juno Fund is designed to allow investors to hedge an
existing portfolio of securities or mutual fund shares against
general increases in interest rates or to speculate on
anticipated decreases in the price of the Long Bond. The Juno
Fund s investment objective is to provide total return before
expenses and costs that will inversely correlate to the price
movements of a benchmark debt instrument or futures contract
on a specified debt instrument. The Long Bond has been
designated as the Juno Fund s current benchmark.
In attempting to achieve its objective, the Fund intends to
devote its assets primarily to employing certain investment
techniques. The investment techniques that may be employed by
the Fund include engaging in short sales on U.S. Treasury
bonds and engaging in transactions in futures contracts on
U.S. Treasury bonds and options on such contracts to produce
synthetic short positions. These techniques are highly
specialized and involve certain risks not traditionally
associated with investment companies. Under these techniques,
the Fund will generally incur a loss if the price of the
underlying security or futures contract increases between the
date of the employment of the technique and the date on which
the Fund terminates the position. The Fund will generally
realize a gain if the underlying security or futures contract
declines in price between those dates. This result is the
opposite of what one would expect from a cash purchase of a
long position in a security.
The Juno Fund seeks to achieve this inverse correlation result
on each trading day. While a close correlation can be
achieved on any single trading day, over time the cumulative
percentage increase or decrease in the Juno Fund's total
return before expenses and costs may diverge significantly
from the cumulative percentage decrease or increase in the
price of the Long Bond due to a compounding effect. If the
Juno Fund achieved a perfect inverse correlation for any
single trading day, the Juno Fund's total return before
expenses and costs would increase for that day in direct
proportion to any decrease in the price of the Long Bond.
Conversely, the Juno Fund's total return before expenses and
37
<PAGE>
costs would decrease for that day in direct proportion to any
increase in the price of the Long Bond for that day. For
example, if the price of the Long Bond were to decrease by 1%
by the close of business on a particular trading day,
investors in the Juno Fund would experience a gain in total
return before expenses and costs of approximately 1% for that
day. Conversely, if the price of the Long Bond were to
increase by 1% by the close of business on a particular
trading day, investors in the Juno Fund would experience a
loss in total return before expenses and costs of
approximately 1% for that day.
Even if there is a perfect inverse correlation between the
Juno Fund's total return before expenses and costs and the
price of the Long Bond on a daily basis, however, the symmetry
between the changes in the price of the Long Bond and the
changes in the Juno Fund's total return can be significantly
altered over time by a compounding effect. Thus, if the Juno
Fund achieved a perfect inverse correlation with the price of
the Long Bond on every trading day over an extended period,
and if there were a significant decrease in the price of the
Long Bond during that period, there would be a compounding
effect with the result that the Juno Fund's total return
before expenses and costs for that period should generally
increase by a percentage that is somewhat greater than the
percentage of decrease in the price of the Long Bond.
Conversely, if a perfect inverse correlation were maintained
over an extended period and if there were a significant
increase in the price of the Long Bond over that period, then
there would be a compounding effect with the result that the
Juno Fund's total return before expenses and costs for that
period should generally decrease by a percentage that is
somewhat less than the percentage increase in the price of the
Long Bond for that period.
For purposes of determining the Juno Fund's total return
before expenses and costs, costs include the Juno Fund s
"carrying cost" in maintaining short positions. When entering
an actual or synthetic short position on the Long Bond, the
Juno Fund must effectively pay interest equal to interest
accrued on the underlying U.S. Treasury bond. The difference,
if any, between the interest effectively paid by the Juno Fund
on its short positions and any interest earned by the Juno
Fund on its assets is the Juno Fund s carrying cost.
The interest rate on a U.S. Treasury bond is set at the time
the particular bond is issued and does not change for the
maturity of the bond so that the interest paid on the bond is
constant throughout the life of the bond. The price at which
a previously-issued U.S. Treasury bond can be bought and sold
in the open market, however, does change. The market value of
U.S. Treasury bonds rises when interest rates in general
38
<PAGE>
decrease and falls when interest rates in general increase.
Accordingly, if the Juno Fund is successful in meeting its
investment objective, the Fund s total return should rise with
increases in interest rates and fall with decreases in
interest rates.
The Rydex U.S. Government Money
Market Fund
The investment objectives of the Money Market Fund are
security of principal, high current income, and liquidity.
The Money Market Fund seeks to achieve its objectives by
investing in U.S. Government Securities, including money
market instruments which are issued or guaranteed, as to
principal and interest, by the U.S. Government, its agencies
or instrumentalities, as well as in repurchase agreements
collateralized fully by U.S. Government Securities. An
investment in the Money Market Fund is neither insured nor
guaranteed by the U.S. Government. The Money Market Fund
seeks to maintain a constant $1.00 net asset value per share,
although this cannot be assured.
The Money Market Fund may invest in securities that take the
form of participation interests in, and may be evidenced by
deposit or safekeeping receipts for, any of the foregoing
securities. Participation interests are pro rata interests in
U.S. Government Securities; and instruments evidencing deposit
or safekeeping are documentary receipts for such original
securities held in custody by others.
The Benchmarks
The S&P500 Index (SPX). Standard & Poor's Corporation
("S&P") chooses the 500 stocks comprising the S&P500 Index on
the basis of market values and industry diversification. Most
of the stocks in the S&P500 Index are issued by the 500
largest companies, in terms of the aggregate market value of
their outstanding stock, and such companies are generally
listed on the NYSE. Additional stocks that are not among the
500 largest market value stocks are included in the S&P500
Index for diversification purposes. S&P will not be a sponsor
of, or in any other way affiliated with, the Funds.
The NASDAQ 100 IndexTM (NDX). The NASDAQ 100 IndexTM is a
capitalization-weighted index composed of 100 of the largest
non-financial securities listed on the NASDAQ Stock Market.
The index was created in 1985.
The XAU Index. The XAU Index is a capitalization-weighted
index featuring eleven widely-held securities in the gold and
silver mining and production industry or companies investing
in such mining and production companies. The XAU Index was
set to an initial value of 100 in January 1979. The following
39
<PAGE>
issuers are currently included in the XAU Index: ASA Limited;
Barrick Gold Corp.; Battle Mountain Gold Co.; Echo Bay Mines
Limited; Hecla Mining Co.; Homestake Mining Co.; Newmont
Mining Corp.; Placer Dome Inc.; Pegasus Gold, Inc.; TVX Gold,
Inc.; and Coeur D'Alene Mines Corp. While the majority of
these companies are based in North America, they generally
have operations in countries based outside North America.
The Long Bond. The Long Bond is the U.S. Treasury bond with
the longest maturity. Currently, the longest maturity of a
U.S. Treasury bond is 30 years. At this time, the 30-year
U.S. Treasury bond is issued twice yearly. In the future, the
U.S. Treasury may change the number of times each year that
the Long Bond is issued.
SPECIAL RISK CONSIDERATIONS
Shareholders should consider the special factors discussed
below that are associated with the investment policies of the
Funds in determining the appropriateness of investing in the
Funds.
Portfolio Turnover
The Trust anticipates that investors in the Funds, as part of
an asset-allocation or market-timing investment strategy, will
frequently redeem shares of a particular Fund, as well as
exchange their shares of a particular Fund for shares in other
Funds pursuant to the exchange policy of the Trust (see
"Exchanges"), which would cause that Fund to experience high
portfolio turnover. Because each Fund's portfolio turnover
rate to a great extent will depend on the purchase,
redemption, and exchange activity of the Fund's investors, it
is very difficult to estimate what the Fund's actual turnover
rate generally will be. Pursuant to the formula prescribed by
the Securities and Exchange Commission (the "Commission"), the
portfolio turnover rate for each Fund is calculated without
regard to securities, including options and futures contracts,
having a maturity of less than one year. The Nova Fund, the
Ursa Fund, and the Juno Fund typically hold most of their
investments in short-term options and futures contracts,
which, therefore, are excluded for purposes of computing
portfolio turnover. See "Financial Highlights of the Funds"
and "Taxes."
Significant portfolio turnover will tend to increase the
realization by a Fund of gains (or losses) on securities that
have been held by the Fund for less than three months. Any
such realized gains on securities that have been held by a
Fund for less than three months, and other factors related to
large cash flows into and out of the Fund, will increase the
risk that, in any given year, the Fund may fail to qualify as
40
<PAGE>
a regulated investment company under Subchapter M of the U.S.
Internal Revenue Code of 1986, as amended (the "Code") (see
"Taxes"). If a Fund should so fail to qualify under the Code,
the Fund's net investment income and net capital gain would
become subject to Federal income tax at corporate rates. The
imposition of such taxes would directly reduce the return to
an investor from an investment in the Fund. In addition, a
higher portfolio turnover rate would likely involve
correspondingly greater brokerage commissions and other
expenses which would be borne by the Fund. Furthermore, a
Fund's portfolio turnover level may adversely affect the
ability of the Fund to achieve its investment objective.
Tracking Error
While the Funds do not expect that the returns over a year
will deviate adversely from their respective benchmarks by
more than ten percent, several factors may affect their
ability to achieve this correlation. Among these factors are:
(1) Fund expenses, including brokerage (which may be increased
by high portfolio turnover); (2) less than all of the
securities in the benchmark being held by a Fund and
securities not included in the benchmark being held by a Fund;
(3) an imperfect correlation between the performance of
instruments held by a Fund, such as futures contracts and
options, and the performance of the underlying securities in
the cash market; (4) bid-ask spreads (the effect of which may
be increased by portfolio turnover); (5) a Fund holds
instruments traded in a market that has become illiquid or
disrupted; (6) Fund share prices being rounded to the nearest
cent; (7) changes to the benchmark index that are not
disseminated in advance; (8) the need to conform a Fund s
portfolio holdings to comply with investment restrictions or
policies or regulatory or tax law requirements; or (9) market
movements that run counter to a leveraged Fund's investments
(which will cause divergence between the Fund and its
benchmark over time due to the mathematical effects of
leveraging). For further information regarding these factors,
see "Tracking Error" in the Statement of Additional
Information.
Aggressive Investment Techniques
Each of the Funds (other than the Money Market Fund) may
engage in certain aggressive investment techniques which may
include engaging in short sales and transactions in futures
contracts and options on securities, securities indexes, and
futures contracts. The Trust expects that the Nova Fund, the
Ursa Fund, and the Juno Fund will primarily use these
techniques in seeking to achieve their objectives and that a
significant portion (up to 100%) of the assets of these Funds
will be held in cash or liquid securities in a segregated
account by these Funds as "cover" for these investment
techniques.
41
<PAGE>
Participation in the options or futures markets by a Fund
involves distinct investment risks and transaction costs.
Risks inherent in the use of options, futures contracts, and
options on futures contracts include: (1) adverse changes in
the value of such instruments; (2) imperfect correlation
between the price of options and futures contracts and options
thereon and movements in the price of the underlying
securities, index, or futures contracts; (3) the fact that the
skills needed to use these strategies are different from those
needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular
instrument at any time; and (5) the possible need to defer
closing out certain positions to avoid adverse tax
consequences. For further information regarding these
investment techniques, see "Investment Techniques and Other
Investment Policies."
Early NASDAQ Closings
The normal close of trading of securities listed on the
National Association of Securities Dealers Automated
Quotations (the "NASDAQ"), which is operated by the National
Association of Securities Dealers, Inc. (the "NASD"), is 4:00
P.M. While an infrequent occurrence, the NASD has closed
trading on the NASDAQ as much as 15 minutes prior to the
normal close because of computer systems failures. Early
closing of the NASDAQ may result in a Fund being unable to
sell (or buy) OTC securities traded on the NASDAQ on that day.
If the NASDAQ closes prior to the close of business on a day
when one or more of the Funds needs to execute a high volume
of trades late in a trading day, a Fund, in particular the OTC
Fund, might incur substantial trading losses.
INVESTMENT TECHNIQUES AND OTHER
INVESTMENT POLICIES
Futures Contracts and Options Thereupon
The Nova Fund and the OTC Fund may purchase stock index
futures contracts as a substitute for a comparable market
position in the underlying securities. The Ursa Fund may sell
stock index futures contracts. The Bond Fund may purchase
futures contracts on U.S. Government Securities as a
substitute for a comparable market position in the cash
market. The Juno Fund may sell futures contracts on U.S.
Government Securities. The principal trading markets for
S&P500 index futures contracts and U.S. Treasury bond futures
contracts are the Chicago Mercantile Exchange (the "CME") and
the Chicago Board of Trade (the "CBOT"), respectively.
A futures contract obligates the seller to deliver (and the
purchaser to take delivery of) the specified commodity on the
expiration date of the contract. A stock index futures
contract obligates the seller to deliver (and the purchaser to
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take) an amount of cash equal to a specific dollar amount
times the difference between the value of a specific stock
index at the close of the last trading day of the contract and
the price at which the agreement is made. No physical
delivery of the underlying stocks in the index is made.
The Nova Fund and the OTC Fund may purchase call options and
write (sell) put options, and the Ursa Fund may purchase put
options and write call options, on stock index futures
contracts. The Bond Fund may purchase call options and write
put options on U.S. Government Securities futures contracts
and the Juno Fund may write call options and purchase put
options on futures contracts on U.S. Government Securities.
When a Fund purchases a put or call option on a futures
contract, the Fund pays a premium for the right to sell or
purchase the underlying futures contract for a specified price
upon exercise at any time during the option period. By
writing (selling) a put or call option on a futures contract,
a Fund receives a premium in return for granting to the
purchaser of the option the right to sell to or buy from the
Fund the underlying futures contract for a specified price
upon exercise at any time during the option period.
Whether a Fund realizes a gain or loss from futures activities
depends generally upon movements in the underlying commodity.
The extent of the Fund s loss from an unhedged short position
in futures contracts or from writing (selling) call options on
futures contracts is potentially unlimited. The Funds may
engage in related closing transactions with respect to options
on futures contracts. The Funds will only engage in
transactions in futures contracts and options thereupon that
are traded on a United States exchange or board of trade. In
addition to the uses set forth hereunder, each Fund may also
engage in futures and futures options transactions in order to
hedge or limit the exposure of its position, to create a
synthetic money market position, and for certain other tax-
related purposes. See "Taxes."
The Funds may purchase and sell futures contracts, index
futures contracts, and options thereon only to the extent that
such activities would be consistent with the requirements of
Section 4.5 of the regulations under the Commodity Exchange
Act promulgated by the Commodity Futures Trading Commission
(the "CFTC Regulations"), under which each of these Funds
would be excluded from the definition of a "commodity pool
operator." Under Section 4.5 of the CFTC Regulations, a Fund
may engage in futures transactions, either for "bona fide
hedging" purposes, as this term is defined in the CFTC
Regulations, or for non-hedging purposes to the extent that
the aggregate initial margins and option premiums required to
establish such non-hedging positions do not exceed 5% of the
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liquidation value of the Fund s portfolio. In the case of an
option on futures contracts that is "in-the-money" at the time
of purchase (i.e., the amount by which the exercise price of
the put option exceeds the current market value of the
underlying security or the amount by which the current market
value of the underlying security exceeds the exercise price of
the call option), the in-the-money amount may be excluded in
calculating this 5% limitation.
When a Fund purchases or sells a stock index futures contract,
or sells an option thereon, the Fund "covers" its position.
To cover its position, a Fund may maintain with its custodian
bank (and mark-to-market on a daily basis) a segregated
account consisting of cash or liquid securities that, when
added to any amounts deposited with a futures commission
merchant as margin, are equal to the market value of the
futures contract or otherwise "cover" its position. If the
Fund continues to engage in the described securities trading
practices and properly segregates assets, the segregated
account will function as a practical limit on the amount of
leverage which the Fund may undertake and on the potential
increase in the speculative character of the Fund s
outstanding portfolio securities. Additionally, such
segregated accounts will generally assure the availability of
adequate funds to meet the obligations of the Fund arising
from such investment activities.
A Fund may cover its long position in a futures contract by
purchasing a put option on the same futures contract with a
strike price (i.e., an exercise price) as high or higher than
the price of the futures contract, or, if the strike price of
the put is less than the price of the futures contract, the
Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike
price of the put and the price of the future. A Fund may also
cover its long position in a futures contract by taking a
short position in the instruments underlying the futures
contract, or by taking positions in instruments the prices of
which are expected to move relatively consistently with the
futures contract. A Fund may cover its short position in a
futures contract by taking a long position in the instruments
underlying the futures contract, or by taking positions in
instruments the prices of which are expected to move
relatively consistently with the futures contract.
A Fund may cover its sale of a call option on a futures
contract by taking a long position in the underlying futures
contract at a price less than or equal to the strike price of
the call option, or, if the long position in the underlying
futures contract is established at a price greater than the
strike price of the written (sold) call, the Fund will
maintain in a segregated account cash or liquid securities
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equal in value to the difference between the strike price of
the call and the price of the future. A Fund may also cover
its sale of a call option by taking positions in instruments
the prices of which are expected to move relatively
consistently with the call option. A Fund may cover its sale
of a put option on a futures contract by taking a short
position in the underlying futures contract at a price greater
than or equal to the strike price of the put option, or, if
the short position in the underlying futures contract is
established at a price less than the strike price of the
written put, the Fund will maintain in a segregated account
cash or liquid securities equal in value to the difference
between the strike price of the put and the price of the
future. A Fund may also cover its sale of a put option by
taking positions in instruments the prices of which are
expected to move relatively consistently with the put option.
Although the Funds intend to sell futures contracts only if
there is an active market for such contracts, no assurance can
be given that a liquid market will exist for any particular
contract at any particular time. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no
trades may be made that day at a price beyond that limit or
trading may be suspended for specified periods during the day.
Futures contract prices could move to the limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and
potentially subjecting a Fund to substantial losses. If
trading is not possible, or a Fund determines not to close a
futures position in anticipation of adverse price movements,
the Fund will be required to make daily cash payments of
variation margin. The risk that the Fund will be unable to
close out a futures position will be minimized by entering
into such transactions on a national exchange with an active
and liquid secondary market.
Index Options Transactions
The Nova Fund, the OTC Fund, and the Metals Fund may purchase
call options and write (sell) put options, and the Ursa Fund
may purchase put options and write call options, on stock
indexes. All of the Funds may write and purchase put and call
options on stock indexes in order to hedge or limit the
exposure of their positions, to create synthetic money market
positions, and for certain other tax-related purposes. See
"Taxes."
A stock index fluctuates with changes in the market values of
the stocks included in the index. Options on stock indexes
give the holder the right to receive an amount of cash upon
exercise of the option. Receipt of this cash amount will
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depend upon the closing level of the stock index upon which
the option is based being greater than (in the case of a call)
or less than (in the case of a put) the exercise price of the
option. The amount of cash received, if any, will be the
difference between the closing price of the index and the
exercise price of the option, multiplied by a specified dollar
multiple. The writer (seller) of the option is obligated, in
return for the premiums received from the purchaser of the
option, to make delivery of this amount to the purchaser.
Unlike the options on securities discussed below, all
settlements of index options transactions are in cash.
Some stock index options are based on a broad market index
such as the S&P 500 Index, the NYSE Composite Index, or the
AMEX Major Market Index, or on a narrower index such as the
Philadelphia Stock Exchange Over-the-Counter Index. Options
currently are traded on the Chicago Board Options Exchange
(the "CBOE"), the AMEX, and other exchanges ("Exchanges").
Purchased over-the-counter options and the cover for written
over-the-counter options will be subject to the respective
Fund s 15% limitation on investment in illiquid securities.
See "Illiquid Securities."
Each of the Exchanges has established limitations governing
the maximum number of call or put options on the same index
which may be bought or written (sold) by a single investor,
whether acting alone or in concert with others (regardless of
whether such options are written on the same or different
Exchanges or are held or written on one or more accounts or
through one or more brokers). Under these limitations, option
positions of all investment companies advised by the same
investment adviser are combined for purposes of these limits.
Pursuant to these limitations, an Exchange may order the
liquidation of positions and may impose other sanctions or
restrictions. These position limits may restrict the number
of listed options which a Fund may buy or sell; however, the
Advisor intends to comply with all limitations.
Index options are subject to substantial risks, including the
risk of imperfect correlation between the option price and the
value of the underlying securities comprising the stock index
selected and the risk that there might not be a liquid
secondary market for the option. Because the value of an
index option depends upon movements in the level of the index
rather than the price of a particular stock, whether a Fund
will realize a gain or loss from the purchase or writing
(sale) of options on an index depends upon movements in the
level of stock prices in the stock market generally or, in the
case of certain indexes, in an industry or market segment,
rather than upon movements in the price of a particular stock.
Whether a Fund will realize a profit or loss by the use of
options on stock indexes will depend on movements in the
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direction of the stock market generally or of a particular
industry or market segment. This requires different skills
and techniques than are required for predicting changes in the
price of individual stocks. A Fund will not enter into an
option position that exposes the Fund to an obligation to
another party, unless the Fund either (i) owns an offsetting
position in securities or other options and/or (ii) maintains
with the Fund s custodian bank (and marks-to-market on a daily
basis) a segregated account consisting of cash or liquid
securities that, when added to the premiums deposited with
respect to the option, are equal to the market value of the
underlying stock index not otherwise covered.
Options on Securities
The Nova Fund, the OTC Fund, and Metals Fund may buy call
options and write (sell) put options on securities, and the
Ursa Fund may buy put options and write call options on
securities. By buying a call option, a Fund has the right, in
return for a premium paid during the term of the option, to
buy the securities underlying the option at the exercise
price. By writing (selling) a call option and receiving a
premium, a Fund becomes obligated during the term of the
option to deliver the securities underlying the option at the
exercise price if the option is exercised. By buying a put
option, a Fund has the right, in return for a premium paid
during the term of the option, to sell the securities
underlying the option at the exercise price. By writing a put
option, a Fund becomes obligated during the term of the option
to purchase the securities underlying the option at the
exercise price. Options on securities written (sold) by the
Funds will be conducted on recognized securities exchanges.
When writing (selling) call options on securities, a Fund may
cover its position by owning the underlying security on which
the option is written. Alternatively, the Fund may cover its
position by owning a call option on the underlying security,
on a share for share basis, which is deliverable under the
option contract at a price no higher than the exercise price
of the call option written by the Fund or, if higher, by
owning such call option and depositing and maintaining in a
segregated account cash or liquid securities equal in value to
the difference between the two exercise prices. In addition,
a Fund may cover its position by depositing and maintaining in
a segregated account cash or liquid securities equal in value
to the exercise price of the call option written by the Fund.
When a Fund writes (sells) a put option, the Fund will have
and maintain on deposit with its custodian bank cash or liquid
securities having a value equal to the exercise value of the
option. The principal reason for a Fund to write (sell) call
options on stocks held by the Fund is to attempt to realize,
through the receipt of premiums, a greater return than would
be realized on the underlying securities alone.
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If a Fund that writes (sells) an option wishes to terminate
the Fund s obligation, the Fund may effect a "closing purchase
transaction." The Fund accomplishes this by buying an option
of the same series as the option previously written by the
Fund. The effect of the purchase is that the writer s
position will be canceled by the Options Clearing Corporation.
However, a writer (seller) may not effect a closing purchase
transaction after the writer has been notified of the exercise
of an option. Likewise, a Fund which is the holder of an
option may liquidate its position by effecting a "closing sale
transaction." The Fund accomplishes this by selling an option
of the same series as the option previously purchased by the
Fund. There is no guarantee that either a closing purchase or
a closing sale transaction can be effected. If any call or
put option is not exercised or sold, the option will become
worthless on its expiration date.
A Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put option previously
written (sold) by the Fund if the premium, plus commission
costs, paid by the Fund to purchase the call or put option to
close the transaction is less (or greater) than the premium,
less commission costs, received by the Fund on the sale of the
call or the put option. The Fund also will realize a gain if
a call or put option which the Fund has written lapses
unexercised, because the Fund would retain the premium.
A Fund will realize a gain (or a loss) on a closing sale
transaction with respect to a call or a put option previously
purchased by the Fund if the premium, less commission costs,
received by the Fund on the sale of the call or the put option
to close the transaction is greater (or less) than the
premium, plus commission costs, paid by the Fund to purchase
the call or the put option. If a put or a call option which
the Fund has purchased expires out-of-the-money, the option
will become worthless on the expiration date, and the Fund
will realize a loss in the amount of the premium paid, plus
commission costs.
Although certain securities exchanges attempt to provide
continuously liquid markets in which holders and writers of
options can close out their positions at any time prior to the
expiration of the option, no assurance can be given that a
market will exist at all times for all outstanding options
purchased or sold by a Fund. If an options market were to
become unavailable, the Fund would be unable to realize its
profits or limit its losses until the Fund could exercise
options it holds, and the Fund would remain obligated until
options it wrote were exercised or expired.
Because option premiums paid or received by a Fund are small
in relation to the market value of the investments underlying
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the options, buying and selling put and call options can be
more speculative than investing directly in common stocks.
Short Sales
The Ursa Fund and the Juno Fund also may engage in short sales
transactions under which the Fund sells a security it does not
own. To complete such a transaction, the Fund must borrow the
security to make delivery to the buyer. The Fund then is
obligated to replace the security borrowed by purchasing the
security at the market price at the time of replacement. The
price at such time may be more or less than the price at which
the security was sold by the Fund. Until the security is
replaced, the Fund is required to pay to the lender amounts
equal to any dividends or interest which accrue during the
period of the loan. To borrow the security, the Fund also may
be required to pay a premium, which would increase the cost of
the security sold. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet the
margin requirements, until the short position is closed out.
Until the Ursa Fund or Juno Fund closes its short position or
replaces the borrowed security, the Fund will: (a) maintain a
segregated account containing cash or liquid securities at
such a level that (i) the amount deposited in the account plus
the amount deposited with the broker as collateral will equal
the current value of the security sold short and (ii) the
amount deposited in the segregated account plus the amount
deposited with the broker as collateral will not be less than
the market value of the security at the time the security was
sold short; or (b) otherwise cover the Fund s short position.
The Nova Fund, the OTC Fund, and the Metals Fund each may
engage in short sales if, at the time of the short sale, the
Fund owns or has the right to acquire an equal amount of the
security being sold at no additional cost ("selling against
the box"). These Funds may make a short sale when the Fund
wants to sell the security the Fund owns at a current
attractive price, but also wishes to defer recognition of a
gain or loss for Federal income tax purposes and for purposes
of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code.
U.S. Government Securities
The Bond Fund and the Money Market Fund may invest in U.S.
Government Securities in pursuit of their investment
objectives. The Funds, except for the Money Market Fund, may
invest in U.S. Government Securities as "cover" for the
investment techniques these Funds employ as part of a cash
reserve or for liquidity purposes.
Yields on short-, intermediate-, and long-term U.S. Government
Securities are dependent on a variety of factors, including
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the general conditions of the money and bond markets, the size
of a particular offering, and the maturity of the obligation.
Debt securities with longer maturities tend to produce higher
yields and are generally subject to potentially greater
capital appreciation and depreciation than obligations with
shorter maturities and lower yields. The market value of U.S.
Government Securities generally varies inversely with changes
in market interest rates. An increase in interest rates,
therefore, would generally reduce the market value of a Fund s
portfolio investments in U.S. Government Securities, while a
decline in interest rates would generally increase the market
value of a Fund s portfolio investments in these securities.
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
instrumentalities may borrow funds from the U.S. Treasury.
However, no assurances can be given that the U.S. Government
will provide such financial support to the obligations of the
other U.S. Government agencies or instrumentalities in which a
Fund invests, since the U.S. Government is not obligated to do
so. These other agencies and instrumentalities are supported
by either the issuer s right to borrow, under certain
circumstances, an amount limited to a specific line of credit
from the U.S. Treasury, the discretionary authority of the
U.S. Government to purchase certain obligations of an agency
or instrumentality, or the credit of the agency or
instrumentality itself.
U.S. Government Securities may be purchased at a discount.
Such securities, when held to maturity or retired, may include
an element of capital gain. Capital losses may be realized
when such securities purchased at a premium are held to
maturity or are called or redeemed at a price lower than their
purchase price. Capital gains or losses also may be realized
upon the sale of securities.
Repurchase Agreements
U.S. Government Securities include repurchase agreements
secured by U.S. Government Securities. Under a repurchase
agreement, a Fund purchases a debt security and simultaneously
agrees to sell the security back to the seller at a mutually
agreed-upon future price and date, normally one day or a few
days later. The resale price is greater than the purchase
price, reflecting an agreed-upon market interest rate during
the purchaser s holding period. While the maturities of the
underlying securities in repurchase transactions may be more
than one year, the term of each repurchase agreement will
always be less than one year. A Fund will enter into
repurchase agreements only with member banks of the Federal
Reserve System or primary dealers of U.S. Government
Securities. The Advisor will monitor the creditworthiness of
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each of the firms which is a party to a repurchase agreement
with any of the Funds. In the event of a default or
bankruptcy by the seller, the Fund will liquidate those
securities (whose market value, including accrued interest,
must be at least equal to 100% of the dollar amount invested
by the Fund in each repurchase agreement) held under the
applicable repurchase agreement, which securities constitute
collateral for the seller s obligation to pay. However,
liquidation could involve costs or delays and, to the extent
proceeds from the sales of these securities were less than the
agreed-upon repurchase price, the Fund would suffer a loss. A
Fund also may experience difficulties and incur certain costs
in exercising its rights to the collateral and may lose the
interest the Fund expected to receive under the repurchase
agreement. Repurchase agreements usually are for short
periods, such as one week or less, but may be longer. It is
the current policy of the Funds to treat repurchase agreements
that do not mature within seven days as illiquid for the
purposes of their investment policies.
Illiquid Securities
While none of the Funds anticipates doing so, each Fund may
purchase illiquid securities, including securities that are
not readily marketable and securities that are not registered
("restricted securities") under the Securities Act of 1933, as
amended (the "1933 Act"), but which can be offered and sold to
"qualified institutional buyers" under Rule 144A under the
1933 Act. A Fund will not invest more than 15% (10% with
respect to the Money Market Fund) of the Fund s net assets in
illiquid securities. Each Fund will adhere to a more
restrictive limitation on the Fund s investment in illiquid
securities as required by the securities laws of those
jurisdictions where shares of the Fund are registered for
sale. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at
which the Fund has valued the securities. Under the current
guidelines of the Commission staff, illiquid securities also
are considered to include, among other securities, purchased
over-the-counter options, certain cover for over-the-counter
options, repurchase agreements with maturities in excess of
seven days, and certain securities whose disposition is
restricted under the Federal securities laws. The Fund may
not be able to sell illiquid securities when the Advisor
considers it desirable to do so or may have to sell such
securities at a price that is lower than the price that could
be obtained if the securities were more liquid. In addition,
the sale of illiquid securities also may require more time and
may result in higher dealer discounts and other selling
expenses than does the sale of securities that are not
illiquid. Illiquid securities also may be more difficult to
value due to the unavailability of reliable market quotations
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for such securities, and investment in illiquid securities may
have an adverse impact on net asset value.
Cash Reserve
As a cash reserve or for liquidity purposes, each Fund may
temporarily invest all or part of the Fund s assets in cash or
cash equivalents, which include, but are not limited to,
short-term money market instruments, U.S. Government
Securities, certificates of deposit, bankers' acceptances, or
repurchase agreements secured by U.S. Government Securities.
Other Investment Policies
The Funds also may engage in certain other investment
practices described below, however none of the Funds presently
intends to invest more than 5% of the Fund's net assets in any
of these practices. Each of the Funds may purchase securities
on a when-issued or delayed-delivery basis, and also may lend
portfolio securities to brokers, dealers, and financial
institutions. Each Fund may borrow money, and the Nova and
Bond Funds also may borrow money for investment purposes.
Each Fund (other than the Bond Fund and the Money Market Fund)
may invest in the securities of other investment companies to
the extent permitted by Section 12(d)(1) of the 1940 Act or by
the conditions of any exemptive order relating to that section
that may be obtained by the Trust. In addition, each Fund
(including both the Bond Fund and the Money Market Fund) may
invest in securities of investment companies acquired as part
of a merger, consolidation, acquisition of assets, or plan of
reorganization. In addition, the Bond and Juno Funds also may
invest in U.S. Treasury zero coupon securities, while each of
the Ursa, Juno, and Money Market Funds also may use reverse
repurchase agreements as part of that Fund's investment
strategies. A more-detailed explanation of these investment
practices, including the risks associated with each practice,
is included in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND
BROKERAGE
The Advisor determines which securities to purchase and sell
for each Fund, selects brokers and dealers to effect the
transactions, and negotiates commissions. The Advisor expects
that the Funds may execute brokerage or other agency
transactions through registered broker-dealers, for a
commission, in conformity with the 1940 Act, the Securities
Exchange Act of 1934, as amended, and the rules and
regulations thereunder. In placing orders for portfolio
transactions, the Advisor s policy is to obtain the most
favorable price and efficient execution available. Brokerage
commissions are normally paid on exchange-traded securities
transactions and on options and futures transactions, as well
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as on common stock transactions. In order to obtain the
brokerage and research services described below, a higher
commission may sometimes be paid. The ability to receive
research services, however, may be a factor in the selection
of one dealer acting as a principal over another.
When selecting broker-dealers to execute portfolio
transactions, the Advisor considers many factors including the
rate of commission or size of the broker-dealer s "spread,"
the size and difficulty of the order, the nature of the market
for the security, the willingness of the broker-dealer to
position, the reliability, financial condition, general
execution and operational capabilities of the broker-dealer,
and the research, statistical and economic data furnished by
the broker-dealer to the Advisor. The Advisor uses these
services in connection with all of the Advisor s investment
activities, including other investment accounts the Advisor
advises. Conversely, brokers or dealers which supply research
may be selected for execution of transactions for such other
accounts, while the data may be used by the Advisor in
providing investment advisory services to the Funds.
HOW TO INVEST IN THE FUNDS
For shareholders who have engaged a registered investment
adviser with discretionary authority over the shareholder s
account, the minimum initial investment in the Rydex Funds is
$15,000. For all other shareholder accounts ("Self-Directed
Accounts"), the minimum initial investment in the Rydex Funds
is $25,000. These minimums also apply to retirement plan
accounts. The Trust, at its discretion, may accept lesser
amounts in certain circumstances. The shares of each Fund are
offered at the daily public offering price, which is the net
asset value per share (see "Determination of Net Asset Value")
next computed after receipt of the investor s order. No sales
charges are imposed on initial or subsequent investments in a
Fund. The Trust reserves the right to reject or refuse, at
the Trust s discretion, any order for the purchase of a Fund s
shares in whole or in part. There is no minimum amount for
subsequent investments in a Fund. The Trust reserves the
right to modify its minimum investment requirements.
Shareholders will be informed of any increase in the minimum
investment requirements by a letter accompanying a new
prospectus or a prospectus supplement, in which the new
minimum is disclosed.
Investments in the Funds may be made (i) through securities
dealers who have the responsibility to transmit orders
promptly and who may charge a processing fee or (ii) directly
with the Trust by mail or by bank wire transfer as follows:
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By Mail: Fill out an application and make out a check payable
to "Rydex Series Trust." Mail the check, along with the
application, to:
Rydex Series Trust
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
By Bank Wire Transfer: First, fill out an application and fax
the completed application, along with a request for a
shareholder account number, to the Trust at (301) 468-8585.
Then, request that your bank wire transfer the purchase amount
to our custodian, Star Bank, N.A., along with the following
instructions:
Star Bank, N.A.
Routing Number: 0420-00013
For Account of Rydex Series Trust
Trust Account Number: 48038-9030
Your Name
Your Shareholder Account Number
After instructing your bank to transfer money by wire, you
must call the Trust and inform the Trust as to the amount that
you have transferred and the name of the bank sending the
transfer in order to obtain same-day pricing or credit. 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 Rydex Funds 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. Initial applications and
investments, as well as subsequent investments, in the Rydex
Funds made by mail must be received in good form at the Trust,
on any business day, at or prior to 2:00 P.M., Eastern Time,
in order to be processed for that day's pricing or credit.
Wire transfers for both initial investments (which must be
preceded by a faxed application) and subsequent investments in
the Rydex Funds must be received in good form at the Trust, on
any business day, by the cut-off times for redemption and
exchange requests indicated below under Procedures For
Redemptions and Exchanges in order to be processed for that
day's pricing or credit. An initial application that is faxed
to the Trust does not constitute a purchase order until the
application has been processed and correct payment by check or
wire transfer has been received by the Trust.
If no Rydex Fund allocation is indicated either on (i) an
application received by the Trust for an initial purchase
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order or (ii) on the check or the wire transfer instructions
for subsequent purchase orders, then the purchase amount for
that order automatically will be deposited into the Rydex U.S.
Government Money Market Fund.
In the interest of economy and convenience, physical
certificates representing a Fund s shares are not issued.
Shares of each Fund are recorded on a register by the Trust s
transfer agent.
REDEEMING AN INVESTMENT
(WITHDRAWALS)
General
An investor may withdraw all or any portion of his investment
by redeeming Fund shares at the next-determined net asset
value per share after receipt of the order. Redemptions may
be made by letter or by telephone subject to the procedures
set forth below. The privilege to initiate redemption
transactions by telephone will be made available to Fund
shareholders automatically. Telephone redemptions will be
sent only to the address of record of the redeeming investor
or to bank accounts specified by the redeeming investor in his
account application. The Trust charges $15 for each wire
transfer of redemption proceeds; this charge may be waived at
the discretion of the Trust. If any investor purchases shares
of a Fund by check, the purchaser may not wire out any
proceeds of a redemption of such shares for the 30 calendar
days following the purchase.
The proceeds of non-telephone redemptions will be sent
directly to the investor s address of record. If the investor
requests payment of redemptions to a third party or to a
location other than the investor s address of record or a bank
account specified in the investor s account application, this
request must be in writing and the investor s signature must
be guaranteed by a commercial bank; a broker, dealer,
municipal securities dealer, municipal securities broker,
government securities dealer, or government securities broker;
a credit union; a national securities exchange, registered
securities association, or clearing agency; or a savings
association.
Each Fund will redeem its shares at a redemption price equal
to the net asset value of the shares as next computed
following the receipt of a request for redemption. There is
no redemption charge. Payment for the redemption price will
be made within seven days after the Trust s receipt of the
request for redemption. For investments that have been made
by check, payment on withdrawal requests may be delayed until
the Trust s transfer agent is reasonably satisfied that the
purchase payment has been collected by the Trust (which may
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require up to 10 business days). An investor may avoid a
delay in receiving redemption proceeds by purchasing shares
with a certified check.
With respect to each Fund, the right of redemption may be
suspended, or the date of payment postponed: (i) for any
period during which the NYSE, the Federal Reserve Bank of New
York (the "New York Fed"), the NASDAQ, the CME, or the CBOT,
as appropriate, is closed (other than customary weekend or
holiday closings) or trading on the NYSE, the NASDAQ, the CME,
or the CBOT, as appropriate, is restricted; (ii) for any
period during which an emergency exists so that disposal of
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
and corporate bond markets close early (such as on days in
advance of holidays generally observed by participants in
these markets), or as permitted by the 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.")
Any time that you request a partial redemption of your Trust
shares, please be aware of the currently-applicable minimum
investment, because, as described below, there are
circumstances under which your entire account may be closed
if, as a result of your request, your account balance falls
below the currently-applicable minimum investment in the
Trust. A redemption from a tax-qualified retirement plan may
have adverse tax consequences and a shareholder contemplating
such a redemption should consult his or her own tax adviser.
Other shareholders should consider the tax consequences of any
redemption.
Because of the administrative expense of handling small
accounts, any request for a redemption (including pursuant to
check writing privileges) by an investor whose account balance
is (a) below the currently-applicable minimum investment, or
(b) would be below that minimum as a result of the redemption,
will be treated as a request by the investor of a complete
redemption of that account. In addition, upon sixty days'
notice to a shareholder, the Trust may redeem an account whose
balance (due in whole or in part to redemptions since the time
of last purchase) has fallen below the minimum investment
amount applicable at the time of the shareholder's most recent
purchase of Rydex Fund shares (unless the shareholder brings
his or her account value up to the currently applicable
minimum investment during that notice period).
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Draft Checks
With respect to shares of the Money Market Fund, investors may
elect to redeem such shares by draft check (minimum check -
$500) made payable to the order of any person or institution.
Upon the Trust s receipt of a completed signature card,
investors will be supplied with draft checks which are drawn
on the Money Market Fund s account and are paid through the
Money Market Fund s custodian, Star Bank, N.A. The Trust
reserves the right to change or suspend this checking service.
There is a $25 charge for each stop payment request on the
draft checks. Investors are subject to the same rules and
regulations that the banks apply to checking accounts. An
investor's Money Market Fund account may not be closed by
draft check.
EXCHANGES
Shares of any Rydex Fund may be exchanged, without any charge,
for shares of any other Rydex Fund on the basis of the
respective net asset values of the shares involved. Exchanges
with respect to Self-Directed Accounts must be for at least
the lesser of $1,000 or 100% of the account value for both the
Rydex Fund from which the transfer is to be made and each
Rydex Fund into which the transfer is to be made. The Trust
currently is composed of nine separate Rydex Funds, seven of
which Funds, The Nova Fund, The Ursa Fund, The Rydex OTC Fund
(the "OTC Fund"), The Rydex Precious Metals Fund (the "Metals
Fund"), The Rydex U.S. Government Bond Fund, The Juno Fund,
and The Rydex U.S. Government Money Market Fund (the "Money
Market Fund"), are described in this Prospectus. The eighth
and ninth series of the Trust, The Rydex High Yield Fund (the
"High Yield Fund") and The Rydex Institutional Money Market
Fund (the "Institutional Fund"), are each described in a
separate prospectus; other separate Rydex Funds may be added
in the future. The minimum initial investment in the
Institutional Fund for all shareholder accounts, including
retirement plan accounts, is $2,000,000, and an exchange into
the Institutional Fund is permitted only if the Institutional
Fund's minimum investment of $2,000,000 is satisfied.
Exchanges may be made by letter or by telephone subject to the
procedures set forth below.
To implement an exchange, shareholders should provide the
following information: account name, account number or
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
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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, 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.
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. With proper authorization, telephone and
electronic redemption and transfer requests are also
permitted. 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. Redemption and exchange requests may be made only
between 8:30 A.M., Eastern Time, and the times indicated below
(all times are Eastern Time). For exchanges, the earlier of
the times indicated below for the Funds whose shares are being
exchanged applies.
The Nova, Ursa, and Rydex
OTC Funds . . . . . . . . . 3:45 P.M.
The Rydex Precious Metals
Fund . . . . . . . . . . . 3:30 P.M.
The Rydex U.S. Government
Bond and Juno Funds . . . . . 2:45 P.M.
The Rydex High Yield Fund . . . 2:15 P.M.
Telephone and electronic redemption and exchange orders will
be accepted only during the period indicated above. If the
primary exchange or market on which a Fund transacts business
closes early, the above cut-off time will be approximately
fifteen minutes (thirty minutes, in the case of the Precious
Metals Fund, and forty-five minutes in the case of the High
Yield Fund) prior to the close of such exchange or market.
Telephone and electronic 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 or electronic transaction request and the investor
would bear the risk of any such loss. The Trust will employ
reasonable procedures to confirm that telephone and electronic
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
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telephone or electronic medium, including, among others,
requiring some form of personal identification or password
prior to acting upon instructions received by telephone or
electronic medium, providing written confirmation not later
than five business days after such transactions, and/or tape
recording of telephone and electronic instructions. Investors
also should be aware that telephone and electronic redemptions
or exchanges may be difficult to implement in a timely manner
during periods of drastic economic or market changes. If such
conditions occur, redemption or exchange orders can be made by
mail.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Nova Fund, the Ursa
Fund, the Metals Fund, and the OTC Fund is determined each day
on which the NYSE is open for business as of the close of
normal trading on the NYSE (currently 4:00 P.M., Eastern
Time). The net asset value of the shares of the High Yield
Fund, the Money Market Fund, and the Institutional Fund is
determined each day on which both the NYSE and the New York
Fed are open for business. Currently, the NYSE and the New
York Fed are closed on weekends, and the following holiday
closings have been scheduled for 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 of these holidays falls on a
Sunday. The High Yield Fund determines its net asset value at
3:00 P.M., Eastern Time, and the Money Market Fund and the
Institutional Fund each determines its net asset value at 1:00
P.M., Eastern Time, on such days. The net asset value of the
shares of the Bond Fund and the Juno Fund is determined each
day on which the CBOT is open for trading futures contracts on
U.S. Treasury bonds as of the close of normal trading on the
CBOT (normally 3:00 P.M., Eastern Time). Currently, the CBOT
is closed on weekends and on the following holidays: (i) New
Year s Day, Martin Luther King, Jr. Day, President s Day,
Memorial Day, July Fourth, Labor Day, Columbus Day, Veterans
Day, Thanksgiving Day, and Christmas Day; and (ii) the
preceding Friday when any one of those holidays falls on a
Saturday or the subsequent Monday when any one of those
holidays falls on a Sunday. To the extent that portfolio
securities of a Fund are traded in other markets on days when
the Fund's principal trading market(s) is closed, the Fund's
net asset value may be affected on days when investors do not
have access to the Fund to purchase or redeem shares.
Although the Trust expects the same holiday schedules to be
observed in the future, the NYSE, the CBOT, and the New York
Fed each may modify its holiday schedule at any time.
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The net asset value of a Fund serves as the basis for the
purchase and redemption price of that Fund s shares. The net
asset value per share of a Fund is calculated by dividing the
market value of the Fund's securities plus the values of its
other assets, less all liabilities, by the number of
outstanding shares of the Fund. If market quotations are not
readily available, a security will be valued at fair value by
the Board of Trustees or by the Advisor using methods
established or ratified by the Board of Trustees.
The Money Market Fund will utilize the amortized cost method
in valuing that Fund s portfolio securities, which method
involves valuing a security at its cost adjusted by a constant
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 Money Market Fund of $1.00.
However, there is no assurance that the $1.00 net asset value
will be maintained. For further information regarding the
amortized cost method for valuing the Money Market Fund s
portfolio securities, see "Determination of Net Asset Value"
in the Statement of Additional Information.
For purposes of determining net asset value per share of a
Fund, options and futures contracts will be valued 15 minutes
after the 4:00 P.M., Eastern Time, close of trading on the
NYSE, except that U.S. Treasury bond options and futures
contracts traded on the CBOT will be valued at 3:00 P.M.,
Eastern Time, the close of trading of that exchange. Options
on securities and indices purchased by a Fund generally are
valued at their last bid price in the case of exchange-traded
options or, in the case of options traded in the OTC market,
the average of the last bid price as obtained from two or more
dealers unless there is only one dealer, in which case that
dealer s price is used. The value of a futures contract
equals the unrealized gain or loss on the contract that is
determined by marking the contract to the current settlement
price for a like contract acquired on the day on which the
futures contract is being valued. The value of options on
futures contracts is determined based upon the current
settlement price for a like option acquired on the day on
which the option is being valued. A settlement price may not
be used for the foregoing purposes if the market makes a limit
move with respect to a particular commodity.
On days when the CBOT is closed during its usual business
hours, but the shares of the Bond Fund or Juno Fund have been
purchased, redeemed, and/or exchanged, the portfolio
securities held by the Bond Fund or Juno Fund which are traded
on the CBOT are valued at the earlier of (i) the time of the
execution of the last trade of the day for the Bond Fund or
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Juno Fund in those CBOT-traded portfolio securities and (ii)
the time of the close of the CBOT Evening Session. On days
when the CBOT is closed during its usual business hours and
there is no need for the Bond Fund or Juno Fund to execute
trades on the CBOT, the value of the CBOT-traded portfolio
securities held by the Bond Fund or Juno Fund will be the mean
of the bid and asked prices for those CBOT-traded portfolio
securities at the open of the CBOT Evening Session.
OTC securities held by a Fund shall be valued at the last
sales price or, if no sales price is reported, the mean of the
last bid and asked price is used. The portfolio securities of
a Fund that are listed on national exchanges or foreign stock
exchanges are taken at the last sales price of such securities
on such exchange; if no sales price is reported, the mean of
the last bid and asked price is used. For valuation purposes,
all assets and liabilities initially expressed in foreign
currency values will be converted into U.S. dollar values at
the mean between the bid and the offered quotations of such
currencies against U.S. dollars as last quoted by any
recognized dealer. If such quotations are not available, the
rate of exchange will be determined in good faith by the
Trustees. Dividend income and other distributions are
recorded on the ex-dividend date, except for certain dividends
from foreign securities which are recorded as soon as the
Trust is informed after the ex-dividend date.
lIliquid securities, securities for which reliable quotations
or pricing services are not readily available, and all other
assets will be valued at their respective fair value as
determined in good faith by, or under procedures established
by, the Trustees, which procedures may include the delegation
of certain responsibilities regarding valuation to the Advisor
or the officers of the Trust. The officers of the Trust
report, as necessary, to the Trustees regarding portfolio
valuation determination. The Trustees, from time to time,
will review these methods of valuation and will recommend
changes which may be necessary to assure that the investments
of the Funds are valued at fair value.
TAX-SHELTERED RETIREMENT PLANS
Tax-sheltered retirement plans of the following types will be
available to investors:
Individual Retirement Accounts (IRAs)
Keogh Accounts - Defined Contribution
Plans (Profit-Sharing Plans)
Keogh Accounts - Pension Plans
(Money Purchase Plans)
Internal Revenue Code Section 403(b)
Plans
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For retirement plan accounts that have engaged a registered
investment adviser with discretionary authority over the
retirement plan account with the Trust, the minimum initial
investment in the Rydex Funds is $15,000. For retirement plan
accounts that are Self-Directed Accounts, the minimum initial
investment in the Rydex Funds is $25,000.
Retirement plans are charged an annual $15.00 maintenance fee
and a $15.00 per account liquidation fee. Additional
information regarding these accounts, including the annual
maintenance fee, may be obtained by contacting the Trust.
TRANSACTION CHARGES
In addition to charges described elsewhere in this Prospectus,
the Trust also may make a charge of $25.00 for items returned
for insufficient or uncollectible funds.
DIVIDENDS AND DISTRIBUTIONS
General
All income dividends and capital gains distributions of each
Fund automatically will be reinvested in additional shares of
the Fund at the net asset value calculated on the ex-dividend
date, unless an investor has requested otherwise from the
Trust in writing. Dividends and distributions of a Fund are
taxable to the shareholders of the Fund, as discussed below
under "Taxes," whether such dividends and distributions are
reinvested in additional shares of the Fund or are received in
cash. Statements of account will be sent to the Fund
shareholders at least quarterly.
The Nova Fund; The Ursa Fund; The Rydex OTC Fund; The Rydex
Precious Metals Fund; The Juno Fund
The Nova Fund, the Ursa Fund, the OTC Fund, the Metals Fund,
and the Juno Fund each intend to distribute annually any net
investment income and net realized capital gains to
shareholders. The Trustees, however, may declare a special
distribution for any of these Funds if the Trustees believe
that such a distribution would be in the best interests of the
shareholders of that Fund.
The Rydex U.S. Government Bond Fund
The Bond Fund intends (i) to declare dividends of ordinary
income for shares of the Bond Fund on a daily basis, and to
distribute these dividends to shareholders of the Bond Fund on
a monthly basis, and (ii) to distribute annually any long-term
capital gains to the shareholders of the Bond Fund. The
Trustees, however, may declare a special distribution for the
Bond Fund if the Trustees believe that such a distribution
would be in the best interests of shareholders of the Bond
Fund.
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The Rydex U.S. Government Money Market Fund
The Money Market Fund ordinarily (i) declares dividends of net
investment income (and net short-term capital gains, if any)
for shares of the Money Market Fund on a daily basis and (ii)
distributes these dividends to shareholders of the Money
Market Fund on a monthly basis. The Trustees, however, may
revise this dividend and distribution policy of the Money
Market Fund, postpone the payment of dividends thereunder, or
take any other action necessary with respect thereto in order
to facilitate, to the extent possible, the maintenance by the
Money Market Fund of a constant net asset value per share of
$1.00, or if the Trustees otherwise believe that such a
revised policy would be in the best interests of the
shareholders of the Money Market Fund.
TAXES
The Internal Revenue Code provides that each investment
portfolio of a series investment company is to be treated as a
separate corporation. Accordingly, each of the Funds will
seek to qualify for treatment as a regulated investment
company (a "RIC") under Subchapter M of the Code. Because of
the nature of the investment strategies and the expected
turnover of the portfolios of the Funds, there can be no
assurance that a Fund will qualify for such treatment. If a
Fund qualifies as a RIC and satisfies the distribution
requirements under the Code for any taxable year, the Fund
itself will not be subject to income tax on the ordinary
income and capital gains it has distributed to its
shareholders for that year.
To qualify as a RIC under the Code, a Fund must satisfy
certain requirements, including the requirements that the Fund
receive at least 90% of the Fund s gross income each year from
dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of securities
or foreign currencies, or other income derived with respect to
the Fund s investments in stock, securities, and foreign
currencies (the "90% Test"), and that the Fund derive less
than 30% of the Fund s gross income from the sale or other
disposition of any of the following instruments which have
been held for less than three months (the "30% Test"): (i)
stock or securities; (ii) certain options, futures, or forward
contracts; or (iii) foreign currencies (or certain options,
futures, or forward contracts on such foreign currencies).
Provided that a Fund (i) is a RIC and (ii) distributes at
least 90% of the Fund s net investment income (including, for
this purpose, net realized short-term capital gains), the Fund
itself will not be subject to Federal income taxes to the
extent the Fund s net investment income and the Fund s net
realized long- and short-term capital gains, if any, are
distributed to the shareholders of that Fund. To avoid an
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excise tax on its undistributed income, each 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 any of the Funds,
and in particular by the Metals Fund. Income from investments
in precious metals and minerals will not be qualifying income
for purposes of the 90% Test. Therefore, the Metals Fund will
seek to limit its investment transactions in precious metals
and minerals so as to avoid a violation of the 90% Test.
In addition, because of the anticipated frequency of
redemptions and exchanges of the shares of the Funds, each of
the Funds, other than the Money Market Fund, will have greater
difficulty than other mutual funds in satisfying the 30% Test.
The Trust expects that investors in the Funds, as part of
their market-timing investment strategy, are likely to redeem
or exchange their shares in the Funds frequently to take
advantage of anticipated changes in market conditions. Such
redemptions or exchanges are likely to require a Fund to sell
securities to meet the Fund s payment obligations. The larger
the volume of such redemptions or exchanges, the more
difficult it will be for the Fund to satisfy the 30% Test. To
minimize the risk of failing the 30% Test, each of the Funds
intends to satisfy obligations in connection with redemptions
and exchanges first by using available cash or borrowing
facilities and by selling securities that have been held for
at least three months or as to which there will be a loss or
the smallest gain. If a Fund also must sell securities that
have been held for less than three months, then, to the extent
possible, the Fund will seek to conduct such sales in a manner
that will allow such sales to qualify for a special provision
in the Code that excludes from the 30% Test any gains
resulting from sales made as a result of "abnormal
redemptions." To the reduce the risk of failing the 30% Test,
the Funds (other than the Money Market Fund) also may engage
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 Funds and Commission regulations).
Notwithstanding these actions, there can be no assurance that
a Fund will be able to satisfy the 30% Test. For additional
information concerning this special Code provision, see
"Dividends, Distributions, and Taxes" in the Statement of
Additional Information.
If the Trust determines that a Fund will not qualify as a RIC
under Subchapter M of the Internal Revenue Code, the Trust
will establish procedures for that Fund to reflect the
anticipated tax liability in the Fund s net asset value. To
the extent that management of a Fund determines that Federal
53
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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 a Fund, together with distributions of
any short-term capital gains, if any, are taxable to the
shareholders of the Fund, as ordinary income at Federal income
tax rates of up to 39.6%, whether or not such dividends and
distributions are reinvested in shares of such Fund or are
received in cash.
Under current law, distributions of net long-term gains, if
any, realized by a Fund and designated as capital gains
distributions will be taxed to the shareholders of that Fund
as long-term capital gains regardless of the length of time
the shares of that Fund have been held. Currently, long-term
capital gains of individual investors are taxed at rates of up
to 28%. Statements as to the Federal tax status of
shareholders dividends and distributions will be mailed
annually. Shareholders should consult their tax advisors
concerning the tax status of the Funds dividends in their own
states and localities.
Ordinary dividends paid to corporate or individual residents
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 Trust is required to withhold taxes at the rate of 31% on
dividends, capital gains distributions, and redemptions.
Shareholders who are non-resident aliens may be subject to a
withholding tax on dividends earned.
MANAGEMENT OF THE TRUST
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Investment Adviser
The Trust is provided investment advice and management
services by PADCO Advisors, Inc., a Maryland corporation with
offices at 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852 (the "Advisor"). The Advisor was incorporated
in the State of Maryland on February 5, 1993. Albert P.
Viragh, Jr., the Chairman of the Board and the President of
the Advisor, owns a controlling interest in the Advisor. From
1985 until the incorporation of the Advisor, Mr. Viragh was a
Vice President of Money Management Associates ("MMA"), a
Maryland-based registered investment adviser. From 1992 to
June 1993, Mr. Viragh was the portfolio manager of The
Rushmore Nova Portfolio, a series of The Rushmore Fund, Inc.,
an investment company managed by MMA. From 1989 to 1992, Mr.
Viragh was the Vice President of Sales and Marketing for The
Rushmore Fund, Inc. Mr. Viragh received his bachelor s degree
in Business Administration from Spring Hill College, of
Mobile, Alabama, in 1964.
The portfolio manager of the Ursa Fund and the OTC Fund is
Michael P. Byrum, who is the Advisor's senior portfolio
manager. Prior to joining the Advisor in July 1993, Mr. Byrum
worked for one year as an investor representative with MMA.
Mr. Byrum s responsibilities at MMA included brokerage
solicitation and investor relations. Mr. Byrum received his
bachelor s degree in Business Administration from Miami
University, at Oxford, Ohio, in 1992.
The portfolio manager for the Nova Fund and the Juno Fund is
Thomas Michael, who joined the Advisor in March 1994. From
1992 to February 1994, Mr. Michael was a financial markets
analyst at Cedar Street Investment Management Co., of Chicago,
Illinois, an institutional consulting firm specializing in
developing hedging and speculative strategies in stock index
futures contracts and U.S. Treasury bond futures contracts.
From 1989 to 1991, Mr. Michael was the Director of Research
for Chronometrics, Inc., of Chicago, Illinois, a registered
commodity trading advisor and was responsible for managing the
firm s proprietary, on-line trading model for twelve financial
futures contracts. Mr. Michael received his bachelor of arts
degree in Geology from Colgate University, at Hamilton, New
York, in 1974.
The portfolio manager of the Metals Fund is T. Daniel
Gillespie, who joined the Advisor in January 1997. From July
1994 to January 1997, Mr. Gillespie was a portfolio manager
for GIT Investment Funds, a registered investment company in
Arlington, Virginia, where Mr. Gillespie managed over $160
million in equity, bond, and money market mutual fund assets.
From 1991 to 1994, Mr. Gillespie worked as a portfolio manager
for The Rushmore Funds, Inc., in Bethesda, Maryland, a
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registered investment company, where Mr. Gillespie managed
over $900 million in mutual fund assets. From 1988 to 1991,
Mr. Gillespie worked as an account executive and stock broker
for Wheat First Securities, of Bethesda, Maryland, where Mr.
Gillespie managed portfolios for individual investors. From
1986 to 1988, Mr. Gillespie worked as an account executive and
stock broker with Smith Barney, Inc., of Washington, D. C. Mr.
Gillespie received his bachelor of arts degree in Accounting
from the University of Maryland, at College Park, Maryland, in
1980, and received a masters degree in Business Administration
from Averett College, at Danville, Virginia, in 1997.
The portfolio manager of the Bond Fund is Anne H. Ruff, who
joined the Advisor in August 1996. From 1989 to 1995, Ms.
Ruff worked as a portfolio manager for United Services Life
Insurance Company ("USLICO"), in Arlington, Virginia, where
Ms. Ruff managed $2.5 billion in fixed-income portfolios.
From 1985 to 1989, Ms. Ruff worked as an assistant portfolio
manager/securities analyst for USLICO. From 1979 to 1985, Ms.
Ruff worked as a bank investment officer for First Union Corp.
(formerly, First American Bank of Virginia) in McLean,
Virginia, where Ms. Ruff managed the bank's federal funds and
investment portfolio operations. Ms. Ruff received her
bachelor of arts degree in French and Economics from Mary
Grove College, at Detroit, Michigan, in 1966.
Under an investment advisory agreement between the Trust and
the Advisor, dated May 14, 1993, and as most recently amended
on September 25, 1996, the Funds each pay the Advisor a fee at
an annualized rate, based on the average daily net assets for
each respective Fund, of 0.75% for the Nova Fund, the OTC
Fund, and the Metals Fund, 0.90% for the Ursa Fund and the
Juno Fund, and 0.50% for the Bond Fund and the Money Market
Fund.
The Advisor manages the investment and the reinvestment of the
assets of each of the Funds, in accordance with the investment
objectives, policies, and limitations of the Fund, subject to
the general supervision and control of the Trustees and the
officers of the Trust. The Advisor bears all costs associated
with providing these advisory services and the expenses of the
Trustees who are affiliated persons of the Advisor. The
Advisor, from its own resources, including profits from
advisory fees received from the Funds, provided such fees are
legitimate and not excessive, also may make payments to
broker-dealers and other financial institutions for their
expenses in connection with the distribution of Fund shares,
and otherwise currently pays all distribution costs for Fund
shares, except for expenses in connection with the
distribution of shares of the Institutional Fund and the High
Yield Fund that are paid by these two Rydex Funds in
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<PAGE>
accordance with distribution plans adopted by these Rydex
Funds pursuant to Rule 12b-1 under the 1940 Act.
Servicer
General administrative, shareholder, dividend disbursement,
transfer agent, and registrar services are provided to the
Trust and the Funds by PADCO Service Company, Inc., 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852 (the
"Servicer"), subject to the general supervision and control of
the Trustees and the officers of the Trust, pursuant to a
service agreement between the Trust and the Servicer, dated
September 19, 1995, and as most recently amended on
September 25, 1996. Under this service agreement, the Funds
each pay the Servicer a fee at an annualized rate, based on
the average daily net assets for each respective Fund, of
0.25% for the Nova Fund, Ursa Fund, and the Juno Fund and
0.20% for the other Funds.
The Servicer provides the Trust and the Funds with all
required general administrative services, including, without
limitation, office space, equipment, and personnel; clerical
and general back office services; bookkeeping, internal
accounting, and secretarial services; the determination of net
asset values; and the preparation and filing of all reports,
registration statements, proxy statements, and all other
materials required to be filed or furnished by the Trust and
the Funds under Federal and state securities laws. The
Servicer also maintains the shareholder account records for
the Trust and the Funds, distributes dividends and
distributions payable by the Funds, and produces statements
with respect to account activity for the Funds and their
shareholders. The Servicer pays all fees and expenses that
are directly related to the services provided by the Servicer
to the Trust; each Fund reimburses the Servicer for all fees
and expenses incurred by the Servicer which are not directly
related to the services the Servicer provides to the Fund
under the service agreement.
Costs and Expenses
Each Fund bears all expenses of its operations other than
those assumed by the Advisor or the Servicer. Fund expenses
include: the management fee; the servicing fee (including
administrative, transfer agent, and shareholder servicing
fees); custodian and accounting fees and expenses; legal and
auditing fees; securities valuation expenses; fidelity bonds
and other insurance premiums; expenses of preparing and
printing prospectuses, confirmations, proxy statements, and
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; and non-interested Trustees fees and
57
<PAGE>
expenses. For the nine-month period from July 1, 1996 through
March 31, 1997, the total expenses paid (on an annualized
basis) by the Nova Fund, the Ursa Fund, the OTC Fund, the
Metals Fund, the Bond Fund, the Juno Fund, and the Money
Market Fund were approximately 1.16%, 1.34%, 1.27%, 1.45%,
1.49%, 1.58%, and 0.86% of the respective Fund s average net
assets.
PERFORMANCE INFORMATION
Total Return Calculations
From time to time, each of the Funds (other than the Money
Market Fund) may advertise the total return of the Fund for
prior periods. Any such advertisement would include at least
average annual total return quotations for one, five, and ten-
year periods, or for the life of the Fund. Other total return
quotations, aggregate or average, over other time periods for
the Fund also may be included.
The total return of a Fund for a particular period represents
the increase (or decrease) in the value of a hypothetical
investment in the Fund from the beginning to the end of the
period. Total return is calculated by subtracting the value
of the initial investment from the ending value and showing
the difference as a percentage of the initial investment; this
calculation assumes that the initial investment is made at the
current net asset value and that all income dividends or
capital gains distributions during the period are reinvested
in shares of the Fund at net asset value. Total return is
based on historical earnings and asset value fluctuations and
is not intended to indicate future performance. No
adjustments are made to reflect any income taxes payable by
shareholders on dividends and distributions paid by the Fund.
Average annual total return quotations for periods of two or
more years are computed by finding the average annual
compounded rate of return over the period that would equal the
initial amount invested to the ending redeemable value. A
more-detailed description of the method by which the total
return of a Fund is calculated is contained in the Statement
of Additional Information under "Calculation of Return
Quotations."
Yield Calculations
In addition to total return information, the Bond Fund may
also advertise its current "yield." Yield figures are based
on historical earnings and are not intended to indicate future
performance. Yield is determined by analyzing the Bond Fund s
net income per share for a thirty-day (or one-month) period
(which period will be stated in the advertisement), and
dividing by the maximum offering price per share on the last
58
<PAGE>
day of the period. A "bond equivalent" annualization method
is used to reflect a semi-annual compounding.
For purposes of calculating yield quotations, net income is
determined by a standard formula prescribed by the Commission
to facilitate comparison with yields quoted by other
investment companies. Net income computed for this formula
differs from net income reported by the Bond Fund in
accordance with generally accepted accounting principles and
from net income computed for Federal income tax reporting
purposes. Thus, the yield computed for a period may be
greater or lesser than the Bond Fund s then-current dividend
rate.
The Bond Fund s yield is not fixed and will fluctuate in
response to prevailing interest rates and the market value of
portfolio securities, and as a function of the type of
securities owned by the Bond Fund, portfolio maturity, and the
Bond Fund s expenses.
Yield quotations should be considered relative to changes in
the net asset value of the Bond Fund s shares, the Bond Fund s
investment policies, and the risks of investing in shares of
the Bond Fund. The investment return and principal value of
an investment in the Bond Fund will fluctuate so that an
investor s shares, when redeemed, may be worth more or less
than the original cost of such shares.
From time to time, the Money Market Fund advertises its
"yield" and "effective yield." Both yield figures are based
on historical earnings and are not intended to indicate future
performance. The "yield" of the Money Market Fund refers to
the income generated by an investment in the Money Market Fund
over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that
week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when
annualized, the income earned by an investment in the Money
Market Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. A
description of the respective methods by which the yield of
the Bond Fund and the current and effective yields of the
Money Market Fund are calculated is contained in the Statement
of Additional Information under "Information on Computation of
Yield."
Since yield fluctuates, yield data cannot necessarily be used
to compare an investment in the Bond Fund s or the Money
Market Fund s shares with bank deposits, savings accounts, and
59
<PAGE>
similar investment alternatives which often provide an agreed
or guaranteed fixed yield for a stated period of time.
Shareholders of the Bond Fund and the Money Market Fund should
remember that yield generally is a function of the kind and
quality of the instrument held in portfolio, portfolio
maturity, operating expenses, and market conditions.
Comparisons of Investment Performance
In conjunction with performance reports, promotional
literature, and/or analyses of shareholder service for a Fund,
comparisons of the performance information of the Fund for a
given period to the performance of recognized, unmanaged
indexes for the same period may be made. Such indexes
include, but are not limited to, ones provided by Dow Jones &
Company, Standard & Poor s Corporation, Lipper Analytical
Services, Inc., Shearson Lehman Brothers, National Association
of Securities Dealers, Inc., The Frank Russell Company, Value
Line Investment Survey, the American Stock Exchange, the
Philadelphia Stock Exchange, Morgan Stanley Capital
International, Wilshire Associates, the Financial Times-Stock
Exchange, and the Nikkei Stock Average and Deutcher
Aktienindex, all of which are unmanaged market indicators.
Such comparisons can be a useful measure of the quality of a
Fund s investment performance. In particular, performance
information for the Nova Fund and the Ursa Fund may be
compared to various unmanaged indexes, including, but not
limited to, the S&P500 Index or the Dow Jones Industrial
Average; performance information for the OTC Fund may be
compared to various unmanaged indexes, including, but not
limited to its current benchmark, the NASDAQ 100 IndexTM;
performance information for the Metals Fund may be compared to
various unmanaged indexes, including, but not limited to its
current benchmark, the XAU Index; and performance information
for the Bond Fund and the Juno Fund may be compared to various
unmanaged indexes, including, but not limited to, the Shearson
Lehman Government (LT) Index.
In addition, rankings, ratings, and comparisons of investment
performance and/or assessments of the quality of shareholder
service appearing in publications such as Money, Forbes,
Kiplinger s Magazine, Personal Investor, Morningstar, Inc.,
and similar sources which utilize information compiled
(i) internally, (ii) by Lipper Analytical Services, Inc.
("Lipper"), or (iii) by other recognized analytical services,
may be used in sales literature. The total return of each
Fund (other than the Money Market Fund) also may be compared
to the performances of broad groups of comparable mutual funds
with similar investment goals, as such performance is tracked
and published by such independent organizations as Lipper and
CDA Investment Technologies, Inc., among others. The Lipper
ranking and comparison, which may be used by the Trust in
performance reports, will be drawn from the "Capital
60
<PAGE>
Appreciation Funds" grouping for each of the Nova Fund and the
Ursa Fund, from the "Small Company Growth Funds" grouping for
the OTC Fund, from the "Precious Metals Funds" grouping for
the Metals Fund, and from the "Bond Funds" grouping for the
Bond Fund and the Juno Fund. In addition, the broad-based
Lipper groupings may be used for comparison to any of the
Funds. Additional information concerning the comparison of
the investment performances of the Funds is contained in the
Statement of Additional Information under "Performance
Information."
Further information about the performance of the Funds will be
contained in the Trust s annual reports to shareholders, which
may be obtained without charge by writing to the Trust at the
address or telephoning the Trust at telephone number set forth
on the cover page of this Prospectus.
GENERAL INFORMATION ABOUT THE
TRUST
Organization and Description of Shares of Beneficial Interest
The Trust is a registered open-end investment company under
the 1940 Act. The Trust was organized as a Delaware business
trust on February 10, 1993, and has present authorized capital
of unlimited shares of beneficial interest of no par value
which may be issued in more than one class. Currently, the
Trust has issued shares of nine separate classes: The Nova
Fund, The Ursa Fund, The Rydex OTC Fund, The Rydex Precious
Metals Fund, The Rydex U.S. Government Bond Fund, The Juno
Fund, The Rydex High Yield Fund, The Rydex U.S. Government
Money Market Fund, and The Rydex Institutional Money Market
Fund. Other separate classes may be added in the future.
All shares of the Funds are freely transferable. The Fund
shares do not have preemptive rights or cumulative voting
rights, and none of the shares have any preference to
conversion, exchange, dividends, retirements, liquidation,
redemption, or any other feature. Fund shares have equal
voting rights, except that, in a matter affecting a particular
series in the Trust, only shares of that series may be
entitled to vote on the matter. Shareholder inquiries can be
made by telephone (at 800-820-0888 or 301-468-8520) or by mail
(to 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852).
Under the Delaware General Corporation Law, a registered
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
61
<PAGE>
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.
Classification of the Funds
Each of the Funds (other than the Money Market Fund) is a
"non-diversified" series of the Trust. A Fund is considered
"non-diversified" because a relatively-high percentage of the
Fund s assets may be invested in the securities of a limited
number of issuers, primarily within the same industry or
economic sector. That Fund s portfolio securities, therefore,
may be more susceptible to any single economic, political, or
regulatory occurrence than the portfolio securities of a
diversified investment company.
A Fund s classification as a "non-diversified" investment
company means that the proportion of the Fund s assets that
may be invested in the securities of a single issuer is not
limited by the 1940 Act. Each Fund, however, intends to seek
to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code, which requires that, at the end of
each quarter of the taxable year, (i) at least 50% of the
market value of the Fund s total assets (a diversified
investment company would be so limited with respect to 75% of
such market value) be invested in cash, U.S. Government
Securities, the securities of other regulated investment
companies, and other securities, with such securities of any
one issuer limited for the purposes of this calculation to an
amount not greater than 5% of the value of Fund s total assets
and 10% of the outstanding voting securities of any one
issuer, and (ii) not more than 25% of the value of the Fund s
total assets be invested in the securities of any one issuer
(other than U.S. Government Securities or the securities of
other regulated investment companies).
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Trustees and Officers
The Trust has a Board of Trustees which is responsible for the
general supervision of the Trust s business. The day-to-day
operations of the Trust are the responsibility of the Trust s
officers.
Auditors
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey
08540, are the auditors of and the independent public
accountants for the Trust and each of the Funds.
Custodian
Pursuant to a separate custody agreement entered into by the
Trust, Star Bank, N.A. (the "Custodian"), Star Bank Center,
425 Walnut Street, Cincinnati, Ohio 45202, serves as
custodian for the Trust and the Funds. Under the terms of
this custody agreement, the Custodian holds the portfolio
securities of each Fund and keeps all necessary related
accounts and records.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR
IN THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN
BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
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.
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Prospectus
of
The Rydex High Yield Fund
<PAGE>
[LOGO]
RYDEX SERIES TRUST
THE RYDEX HIGH YIELD FUND
PROSPECTUS
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 IndexTM (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
<PAGE>
the Fund. A Statement of Additional Information, dated August
1, 1997, 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. The
Securities and Exchange Commission also maintains a Web site
("http://www.sec.gov") that contains this Statement of
Additional Information, material incorporated by reference,
and other information regarding registrants that file
electronically with the Securities and Exchange Commission.
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 August 1, 1997.
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . 3
FEES AND EXPENSES OF THE FUND. . . . . . . . . . . 5
FINANCIAL HIGHLIGHTS OF THE FUND . . . . . . . . . 6
THE RYDEX FUNDS . . . . . . . . . . . . . . . . . .7
INVESTMENT OBJECTIVE AND POLICIES ... . . . . . . .7
SPECIAL RISK FACTORS . . . . . . . . . . . . . . ..9
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . .12
HOW TO INVEST IN THE FUND . . . . . . . . . . . . 12
REDEEMING AN INVESTMENT (WITHDRAWALS) .. . . . . .13
EXCHANGES . . . . . . . . . . . . . . . . . . . . 14
PROCEDURES FOR REDEMPTIONS AND EXCHANGES . . . . 15
DETERMINATION OF NET ASSET VALUE . . . . . . . . 15
TAX-SHELTERED RETIREMENT PLANS . . . . . . . . . .16
TRANSACTION CHARGES . . . . . . . . . . . . . . . 16
DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . 16
TAXES .. . . . . . . . . . . . . . . . . . . . . .17
MANAGEMENT OF THE TRUST . . . . . . . . . . . . . 18
DISTRIBUTION PLAN . . . . . . . . . . . . . . . . 20
PERFORMANCE INFORMATION . . . . . . . . . . . . . 21
GENERAL INFORMATION ABOUT THE TRUST . . . . . . 21
APPENDIX A . . . . . . . . . . . . . . . . . . . A-1
2
<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 IndexTM (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 Adviser, Sub-Adviser, and Servicer
The Fund's investment adviser is PADCO Advisors, Inc., a
Maryland corporation with offices at 6116 Executive Boulevard,
3
<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
The shares of the Fund may be purchased and redeemed, with no
sales or redemption charge, at the net asset value per share
of the Fund next determined. 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. Shares of the Fund may be exchanged
at any time for shares of any other available Rydex Fund, with
no charge, on the basis of the relative net asset values next
computed (subject to compliance with applicable minimum
investment requirements). The Trust reserves the right to
modify its minimum investment requirements. Shareholders will
be informed of any increase in the minimum investment
requirements by a letter accompanying a new prospectus or a
prospectus supplement, in which the new minimum is disclosed.
Any time that you request a partial redemption of your Trust
shares, please be aware of the currently-applicable minimum
investment, because, as described below, there are
circumstances under which your entire account may be closed
if, as a result of your request, your account balance falls
below the currently-applicable minimum investment in the
Trust. A redemption from a tax-qualified retirement plan may
have adverse tax consequences and a shareholder contemplating
such a redemption should consult his or her own tax adviser.
Other shareholders should consider the tax consequences of any
redemption.
Because of the administrative expense of handling small
accounts, any request for a redemption (including pursuant to
check writing privileges) by an investor whose account balance
(a) is below the currently-applicable minimum investment, or
(b) would be below that minimum as a result of the redemption,
will be treated as a request by the investor of a complete
redemption of that account. In addition, upon sixty days'
notice to a shareholder, the Trust may redeem an account whose
balance (due in whole or in part to redemptions since the time
4
<PAGE>
of last purchase) has fallen below the minimum investment
amount applicable at the time of the shareholder's most recent
purchase of Trust shares (unless the shareholder brings his or
her account value up to the currently applicable minimum
investment during that notice period). See "How To Invest In
the Fund," "Redeeming An Investment (Withdrawals)," and
"Exchanges."
5
<PAGE>
FEES AND EXPENSES OF THE FUND
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 0.75%
12b-1 Fees 0.25%
Other Expenses:
Administrative Fees 0.20%
Additional Expenses* 0.66%**
Total Other Expenses 0.86%
Total Fund Operating Expenses*** 1.86%
_____________________
* Additional expenses are based on amounts incurred for the
most-recent fiscal year end. The Trustees, on March 12,
1997, changed the Trust's fiscal year end from June 30 to
March 31. The Fund commenced operations on January 3,
1997. This information, therefore, reflects
approximately three months of financial activity (and has
been annualized).
** Retirement plans are charged an annual $15.00 maintenance
fee and a $15.00 per account liquidation fee. See "Tax-
Sheltered Retirement Plans."
*** The Fund's investment adviser, sub-adviser, and
administrator voluntarily waived investment management
fees, including sub-advisory fees, and certain
administrative fees for the period from January 3, 1997
(the commencement of operations) through March 31, 1997,
so that total Fund operating expenses for this period
6
<PAGE>
actually were 0.99% of the Fund's average net assets.
Had these fee expenses not been waived, total Fund
operating expenses for this period would have been 1.86%
of the Fund's average net assets.
Example
Assuming a hypothetical investment of $1,000, a five-percent
annual return, and redemption at the end of each time period,
an investor in the Fund would pay transaction and operating
expenses at the end of each year as follows:
1 YEAR 3 YEARS
$18.94 $58.92
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.
7
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUND
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Fund, for
the period ended March 31, 1997, have been audited by Deloitte
& Touche LLP, independent certified public accountants, whose
report thereon appears in the Trust's 1997 Annual Report to
Shareholders and is incorporated by reference in the Statement
of Additional Information. This information should be read in
conjunction with the financial statements and related notes
thereto included in the Statement of Additional Information.
As noted in the financial highlights below, the Fund commenced
operations on January 3, 1997, and the Trustees, on March 12,
1997, changed the Trust's fiscal year end from June 30 to
March 31; the information set forth below in these financial
highlights under the column for the period ended March 31,
1997, therefore, reflects approximately three months of
financial activity for the Fund. A copy of the Trust's 1997
Annual Report to Shareholders may be obtained, without charge,
by contacting the Trust at 6116 Executive Boulevard, Suite
400, Rockville, Maryland 20852, or by telephoning the Trust
at 800-820-0888 or 301-468-8520. The financial highlights
relating to the Fund for the period from April 1, 1997 to June
30, 1997 are unaudited.
8
<PAGE>
<TABLE>
<CAPTION>
April 1, 1997
Period Ended to June 30,
March 31, 1997* 1997
(UNAUDITED)
<S> <C> <C>
Per Share Operating Performance:+ $ 10.00 $ 9.81
Net Asset Value -- Beginning of Period
Net Investment Income 0.19 0.29
Net Realized and Unrealized Gains (Losses)
on Securities (0.36) 0.16
Net Increase (Decrease) in Net Asset Value
Resulting from Operations (0.17) 0.45
Dividends to Shareholders from Net
Investment Income ( 0.02) (0.29)
Distributions to Shareholders From Net 0.00 0.00
Realized Capital Gain
Net Increase (Decrease) in Net Asset Value (0.19) 0.16
Net Asset Value -- End of Period $ 9.81 $ 9.97
Total Investment Return** (0.12)% 6.89%
Ratios to Average Net Assets**
Net Expenses ++ 0.99%++ 0.76%
Net Investment Income 8.57% 3.80%
Supplementary Data
Portfolio Turnover Rate*** 763.11% 440.71%
Net Assets, End of Period
(000's omitted) $ 10,518 $ 24,923
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average
for the period.
++ The annualized ratio of gross expenses to average net
assets is 1.88% and 0.76% for the period ended March
31, 1997 and for the period from April 1, 1997 to June
1, 1997, respectively.
* Commencement of Operations: January 3, 1997. The
Trustees, on March 12, 1997, changed the Trust's fiscal
year end from June 30 to March 31.
** Annualized.
9
<PAGE>
*** Portfolio turnover ratio is calculated without regard
to short-term securities having a maturity of less than
one year.
10
<PAGE>
THE RYDEX FUNDS
The Trust is an open-end management investment company, and
currently is composed of nine separate series, including the
Fund, The Nova Fund, The Ursa Fund, The Rydex OTC Fund, The
Rydex Precious Metals Fund, The Rydex U.S. Government Bond
Fund, The Juno Fund, The Rydex U.S. Government Money Market
Fund, and the Institutional Money Market Fund (collectively,
the "Rydex Funds"); other separate Rydex Funds may be added in
the future. The Rydex Funds are principally designed for
professional money managers and investors who intend to follow
an asset-allocation or market-timing investment strategy.
Except for the Institutional Money Market Fund and the Rydex
U.S. Government Money Market Fund, each Rydex Fund is intended
to provide investment exposure with respect to a particular
segment of the securities markets. These Rydex Funds seek
investment results that correspond over time to a specified
benchmark. The Rydex Funds may be used independently or in
combination with each other as part of an overall investment
strategy.
Shares of any Rydex Fund may be exchanged, without any charge,
for shares of any other Rydex Fund on the basis of the
respective net asset values of the shares involved; provided,
that, in connection with exchanges for shares of the
Institutional Money Market Fund, certain minimum investment
levels are maintained. 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
investment 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-
11
<PAGE>
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.
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.
12
<PAGE>
The securities in which the Fund invests offer a wide range of
maturities (from less than one year to thirty years) and
yields. These securities include short-term bonds or notes
(maturing in less than three years), intermediate-term bonds
or notes (maturing in three to ten years), and long-term bonds
(maturing in more than ten years). While there are no
limitations on the average maturity of the securities held by
the Fund, the Fund's average portfolio maturity will
ordinarily be comparable to that of its benchmark. As of July
30, 1997, the average years-to-maturity of the MLHY Index was
approximately nine years.
Repurchase Agreements
The Fund may also invest in repurchase agreements secured by
U.S. Government Securities. Under a repurchase agreement, the
Fund purchases a debt security and simultaneously agrees to
sell the security back to the seller at a mutually agreed-upon
future price (thereby determining the yield during the
purchaser's holding period) and date, normally one day or a
few days later. The resale price is greater than the purchase
price, reflecting an agreed-upon market interest rate during
the purchaser s holding period. While the maturities of the
underlying securities in repurchase transactions may be more
than one year, the term of each repurchase agreement will
always be less than one year. The Fund will enter into
repurchase agreements only with member banks of the Federal
Reserve System or primary dealers of U.S. Government
Securities.
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
13
<PAGE>
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
The Fund also may engage in short sales transactions under
which the Fund sells a security it does not own. To complete
such a transaction, the Fund must borrow the security to make
delivery to the buyer. The Fund then is obligated to replace
the security borrowed by purchasing the security at the market
price at the time of replacement. The price at such time may
be more or less than the price at which the security was sold
by the Fund. Until the security is replaced, the Fund is
required to pay to the lender amounts equal to any dividends
or interest which accrue during the period of the loan. To
borrow the security, the Fund also may be required to pay a
premium, which would increase the cost of the security sold.
The proceeds of the short sale will be retained by the broker,
to the extent necessary to meet the margin requirements, until
the short position is closed out.
Until the Fund closes its short position or replaces the
borrowed security, the Fund will: (a) maintain a segregated
account containing cash or liquid securities which will be
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.
14
<PAGE>
Other Investment Policies
When 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.
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 IndexTM
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.
15
<PAGE>
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
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
higher quality, shorter term securities. Moreover, a
significant economic downturn or major increase in interest
rates may result in issuers of below investment grade
securities experiencing increased financial stress, which
could adversely affect their ability to service their
principal, interest, and dividend obligations, meet projected
business goals, and obtain additional financing. In this
regard, it should be noted that while the market for high
yield corporate bonds has been in existence for many years and
from time to time has experienced economic downturns in recent
years, this market has involved a significant increase in the
use of high yield corporate debt securities to fund highly
leveraged corporate acquisitions and restructurings. Past
experience may not, therefore, provide an accurate indication
16
<PAGE>
of future performance of the high yield bond market,
particularly during periods of economic recession.
Furthermore, expenses incurred to recover an investment by the
Fund in a defaulted security may adversely affect the Fund's
net asset value. Finally, the secondary market for high yield
securities may be less liquid than the market for higher
quality securities. The reduced liquidity of the secondary
market for high yield securities may adversely affect the
market price of, and the ability of the Fund to value,
particular securities at certain times, thereby making it
difficult to make specific valuation determinations.
While the Fund attempts to provide investment returns that
correspond to a benchmark for high yield fixed income
securities (currently the MLHY Index), there is no assurance
that it will be able to do so. The Fund will not purchase all
of the securities that comprise its benchmark index.
Accordingly, changes in the value of the Fund's shares may not
exactly correspond to changes in the benchmark index.
Illiquid Securities
The Fund may purchase illiquid securities, including
securities that are not readily marketable and securities that
are not registered ("restricted securities") under the
Securities Act of 1933, as amended (the "1933 Act"), but which
can be offered and sold to "qualified institutional buyers"
under Rule 144A under the 1933 Act. The Fund will not invest
more than 15% of the Fund s net assets in illiquid securities.
The Fund will adhere to a more restrictive limitation on the
Fund s investment in illiquid securities as required by the
securities laws of those jurisdictions where shares of the
Fund are registered for sale.
The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at
which the Fund has valued the securities. Under the current
guidelines of the staff of the Securities and Exchange
Commission (the "Commission"), illiquid securities also are
considered to include, among other securities, purchased over-
the-counter options, certain cover for over-the-counter
options, repurchase agreements with maturities in excess of
seven days, and certain securities whose disposition is
restricted under the Federal securities laws.
The Fund may not be able to sell illiquid securities when the
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
17
<PAGE>
selling expenses than does the sale of securities that are not
illiquid. Illiquid securities also may be more difficult to
value due to the unavailability of reliable market quotations
for such securities, and investment in illiquid securities may
have an adverse impact on net asset value.
Institutional markets for restricted securities have developed
as a result of the promulgation of Rule 144A under the 1933
Act, which provides a "safe harbor" from 1933 Act registration
requirements for qualifying sales to institutional investors.
When Rule 144A restricted securities present an attractive
investment opportunity and otherwise meet selection criteria,
the Fund may make such investments. Whether or not such
securities are "illiquid" depends on the market that exists
for the particular security. The Commission staff has taken
the position that the liquidity of Rule 144A restricted
securities is a question of fact for a board of trustees to
determine, such determination to be based on a consideration
of the readily-available trading markets and the review of any
contractual restrictions. The staff also has acknowledged
that, while a board of trustees retains ultimate
responsibility, the trustees may delegate this function to an
investment adviser and/or a sub-adviser. The Trustees have
delegated this responsibility for determining the liquidity of
Rule 144A restricted securities which may be invested in by
the Fund to the Advisor and the Sub-Advisor. It is not
possible to predict with assurance exactly how the market for
Rule 144A restricted securities or any other security will
develop. A security which when purchased enjoyed a fair
degree of marketability may subsequently become illiquid and,
accordingly, a security which was deemed to be liquid at the
time of acquisition may subsequently become illiquid. In such
event, appropriate remedies will be considered to minimize the
effect on the Fund's liquidity.
Portfolio Turnover
The Trust anticipates that investors in the Fund, as part of
an asset-allocation or market-timing investment strategy, will
frequently redeem shares of the Fund, as well as exchange
their shares of the Fund for shares in other Rydex Funds
pursuant to the exchange policy of the Trust (see
"Exchanges"), which would cause the Fund to experience high
portfolio turnover. Because the Fund's portfolio turnover
rate to a great extent will depend on the purchase,
redemption, and exchange activity of its investors, it is very
difficult to estimate what the Fund's actual turnover rate
generally will be. Pursuant to the formula prescribed by the
Commission, the portfolio turnover rate for the Fund is
calculated without regard to securities, including options and
18
<PAGE>
futures contracts, having a maturity of less than one year.
See "Financial Highlights of the Fund" and "Taxes."
Significant portfolio turnover will tend to increase the
realization by the Fund of gains (or losses) on securities
that have been held by the Fund for less than three months.
Any such realized gains on securities that have been held by
the Fund for less than three months, and other factors related
to large cash flows into and out of the Fund, will increase
the risk that, in any given year, the Fund may fail to qualify
as a regulated investment company under Subchapter M of the
U.S. Internal Revenue Code of 1986, as amended (the "Code")
(see "Taxes"). If the Fund should so fail to qualify under
the Code, the Fund's net investment income and net capital
gain would become subject to Federal income tax at corporate
rates. The imposition of such taxes would directly reduce the
return to an investor from an investment in the Fund. In
addition, a higher portfolio turnover rate would likely
involve correspondingly greater brokerage commissions and
other expenses which would be borne by the Fund. Furthermore,
the Fund's portfolio turnover level may adversely affect the
ability of the Fund to achieve its investment objective.
Tracking Error
While the Fund does not expect that the returns over a year
will deviate adversely from 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
increased by portfolio turnover); (4) the Fund holds
instruments traded in a market that has become illiquid or
disrupted; (5) Fund share prices being rounded to the nearest
cent; (6) changes to the benchmark index that are not
disseminated in advance; or (7) the need to conform the Fund s
portfolio holdings to comply with investment restrictions or
policies or regulatory or tax law requirements.
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
19
<PAGE>
investment risks and transaction costs. Risks inherent in the
use of options, futures contracts, and options on futures
contracts include: (1) adverse changes in the value of such
instruments; (2) imperfect correlation between the price of
options and futures contracts and options thereon and
movements in the price of the underlying securities, index, or
futures contracts; (3) the fact that the skills needed to use
these strategies are different from those needed to select
portfolio securities; (4) the possible absence of a liquid
secondary market for any particular instrument at any time;
and (5) the possible need to defer closing out certain
positions to avoid adverse tax consequences. (For further
information regarding these investment techniques, see
"Investment Policies and Techniques" in the Statement of
Additional Information.)
PORTFOLIO TRANSACTIONS
AND BROKERAGE
When selecting broker-dealers to execute portfolio
transactions, the Sub-Advisor considers many factors,
including the size of the broker-dealer s "spread," the size
and difficulty of the order, the nature of the market for the
security, the willingness of the broker-dealer to position,
the reliability, financial condition, general execution, and
operational capabilities of the broker-dealer, and the
research, statistical, and economic data furnished by the
broker-dealer to the Sub-Advisor. The Sub-Advisor uses these
services 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
20
<PAGE>
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. The Trust reserves the right to
modify its minimum investment requirements. Shareholders will
be informed of any increase in the minimum investment
requirements by a letter accompanying a new prospectus or a
prospectus supplement, in which the new minimum is disclosed.
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
By Bank Wire Transfer: First, fill out an application and fax
the completed application, along with a request for a
shareholder account number, to the Trust at (301) 468-8585.
Then, request that your bank wire transfer the purchase amount
to our custodian, Star Bank, N.A., along with the following
instructions:
Star Bank, N.A.
Routing Number: 0420-00013
For Account of Rydex Series Trust
Trust Account Number: 48038-9030
Your Name
Your Shareholder Account Number
After instructing your bank to transfer money by wire, you
must call the Trust and inform the Trust as to the amount that
you have transferred and the name of the bank sending the
transfer in order to obtain same-day pricing or credit. 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.
An initial application that is faxed to the Trust does not
constitute a purchase order until the application has been
processed and correct payment by check or wire transfer has
been received by the Trust. If no Rydex Fund allocation is
indicated either on (i) an application received by the Trust
for an initial purchase order or (ii) on the check or the wire
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transfer instructions for subsequent purchase orders, then the
purchase amount for that order automatically will be deposited
into the Rydex U.S. Government Money Market Fund.
Shares of the Rydex Funds 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. Initial applications and
investments, as well as subsequent investments, in the Rydex
Funds made by mail must be received in good form at the Trust,
on any business day, at or prior to 2:00 P.M., Eastern Time,
in order to be processed for that day's pricing or credit.
Wire transfers for both initial investments (which must be
preceded by a faxed application) and subsequent investments in
the Rydex Funds must be received in good form at the Trust, on
any business day, by the cut-off times for redemption and
exchange requests indicated below under Procedures For
Redemptions and Exchanges in order to be processed for that
day's pricing or credit. An initial application that is faxed
to the Trust does not constitute a purchase order until the
application has been processed and correct payment by check or
wire transfer has been received by the Trust.
If no Rydex Fund allocation is indicated either on (i) an
application received by the Trust for an initial purchase
order or (ii) on the check or the wire transfer instructions
for subsequent purchase orders, then the purchase amount for
that order automatically will be deposited into the Rydex U.S.
Government Money Market Fund.
In the interest of economy and convenience, physical
certificates representing the Fund s shares are not issued.
Shares of the Fund are recorded on a register by the Trust s
transfer agent.
REDEEMING AN INVESTMENT
(WITHDRAWALS)
An investor may withdraw all or any portion of his investment
by redeeming Fund shares at the next-determined net asset
value per share after receipt of the order. Redemptions may
be made by letter or by telephone subject to the procedures
set forth below. The privilege to initiate redemption
transactions by telephone will be made available to Fund
shareholders automatically. Telephone redemptions will be
sent only to the address of record of the redeeming investor
or to bank accounts specified by the redeeming investor in his
account application. The Trust charges $15 for each wire
transfer of redemption proceeds; this charge may be waived at
the discretion of the Trust. If any investor purchases shares
of the Fund by check, the purchaser may not wire out any
proceeds of a redemption of such shares for the 30 calendar
days following the purchase.
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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. For investments that have been made
by check, payment on withdrawal requests may be delayed until
the Trust's transfer agent is reasonably satisfied that the
purchase payment has been collected by the Trust (which may
require up to 10 business days). An investor may avoid a
delay in receiving redemption proceeds by purchasing shares
with a certified check.
With respect to 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 and corporate bond markets close early (such as on
days in advance of holidays generally observed by participants
in these markets), or as permitted by the 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.")
Any time that you request a partial redemption of your Trust
shares, please be aware of the currently-applicable minimum
investment, because, as described below, there are
circumstances under which your entire account may be closed
if, as a result of your request, your account balance falls
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below the currently-applicable minimum investment in the
Trust. A redemption from a tax-qualified retirement plan may
have adverse tax consequences and a shareholder contemplating
such a redemption should consult his or her own tax adviser.
Other shareholders should consider the tax consequences of any
redemption.
Because of the administrative expense of handling small
accounts, any request for a redemption (including pursuant to
check writing privileges) by an investor whose account balance
is (a) below the currently-applicable minimum investment, or
(b) would be below that minimum as a result of the redemption,
will be treated as a request by the investor of a complete
redemption of that account. In addition, upon sixty days'
notice to a shareholder, the Trust may redeem an account whose
balance (due in whole or in part to redemptions since the time
of last purchase) has fallen below the minimum investment
amount applicable at the time of the shareholder's most recent
purchase of Trust shares (unless the shareholder brings his or
her account value up to the currently applicable minimum
investment during that notice period).
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 both the Rydex Fund from which
the transfer is to be made and each Rydex Fund into 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 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 or
taxpayer identification number, number of or percentage of
shares or dollar value of shares to be exchanged, and the
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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 High Yield Fund, 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. With proper authorization, telephone and
electronic redemption and transfer requests are also
permitted. 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. Redemption and exchange 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 and electronic 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 and electronic 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
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<PAGE>
telephone or electronic transaction request and the investor
would bear the risk of any such loss. The Trust will employ
reasonable procedures to confirm that telephone and electronic
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 or electronic medium, including, among others,
requiring some form of personal identification or password
prior to acting upon instructions received by telephone or
electronic medium, providing written confirmation not later
than five business days after such transactions, and/or tape
recording of telephone and electronic instructions. Investors
also should be aware that telephone and electronic redemptions
or exchanges may be difficult to implement in a timely manner
during periods of drastic economic or market changes. If such
conditions occur, redemption or exchange orders can be made by
mail.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund's shares is determined each
day on which both the NYSE and the New York Fed are open 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
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<PAGE>
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 - Pension Plans
(Money Purchase Plans)
Internal Revenue Code Section 403(b)
Plans
For retirement plan accounts that have engaged a registered
investment adviser with discretionary authority over the
retirement plan account with the Trust, the minimum initial
investment in the Fund is $15,000. For retirement plan
accounts that are Self-Directed Accounts, the minimum initial
investment in the Fund is $25,000.
Retirement plans are charged an annual $15.00 maintenance fee
and a $15.00 per account liquidation fee. Additional
information regarding these accounts, including the annual
maintenance fee, may be obtained by contacting the Trust.
TRANSACTION CHARGES
In addition to charges described elsewhere in this Prospectus,
the Trust also may make a charge of $25.00 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
these dividends to shareholders of the Fund on a monthly
basis, and (ii) to distribute annually any long-term capital
27
<PAGE>
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. Effective on or after
September 1, 1997, the dividends payable by the Fund for any
one day will be payable to all of the shareholders of record
of the Fund on the third preceding business day and only to
these 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
tax on the ordinary income and capital gains it has
distributed to its shareholders for that year.
To qualify as a RIC under the Code, the Fund must satisfy
certain requirements, including the requirements that the Fund
receive at least 90% of the Fund s gross income each year from
dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of securities
or foreign currencies, or other income derived with respect to
the Fund s investments in stock, securities, and foreign
currencies (the "90% Test"), and that the Fund derive less
than 30% of the Fund s gross income from the sale or other
disposition of any of the following instruments which have
been held for less than three months (the "30% Test"): (i)
stock or securities; (ii) certain options, futures, or forward
contracts; or (iii) foreign currencies (or certain options,
futures, or forward contracts on such foreign currencies).
Provided that the Fund (i) is a RIC and (ii) distributes at
least 90% of the Fund s net investment income (including, for
this purpose, net realized short-term capital gains), the Fund
itself will not be subject to Federal income taxes to the
extent the Fund s net investment income and the Fund s net
realized short-term capital gains, if any, are distributed to
the shareholders of that Fund. To avoid an excise tax on its
undistributed income, the Fund generally must distribute at
least 98% of its income, 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
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<PAGE>
30% Test. The Trust expects that investors in the Fund, as
part of their market-timing investment strategy, are likely to
redeem or exchange their shares in the Fund frequently to take
advantage of anticipated changes in market conditions. Such
redemptions or exchanges are likely to require the Fund to
sell securities to meet the Fund s payment obligations. The
larger the volume of such redemptions or exchanges, the more
difficult it will be for the Fund to satisfy the 30% Test. To
minimize the risk of failing the 30% Test, the Fund intends to
satisfy obligations in connection with redemptions and
exchanges first by using available cash and by selling
securities that have been held for at least three months or as
to which there will be a loss or the smallest gain or by using
borrowing facilities. If the Fund also must sell securities
that have been held for less than three months, then, to the
extent possible, the Fund will seek to conduct such sales in a
manner that will allow such sales to qualify for a special
provision in the Code that excludes from the 30% Test any
gains resulting from sales made as a result of "abnormal
redemptions." To the reduce the risk of failing the 30% Test,
the Fund also may engage in other investment techniques,
including engaging in transactions in futures contracts and
options on futures contracts and indexes on an unrestricted
basis (subject to the investment policies of the Fund and
Commission regulations). Notwithstanding these actions, there
can be no assurance that the Fund will be able to satisfy the
30% Test. For additional information concerning this special
Code provision, see "Dividends, Distributions, and Taxes" in
the Statement of Additional Information.
If the Trust determines that the Fund will not qualify as a
RIC under Subchapter M of the Internal Revenue Code, the Trust
will establish procedures for the Fund to reflect the
anticipated tax liability in the Fund s net asset value. To
the extent that management of the Fund determines that Federal
income taxes will more likely than not be payable by the Fund
with respect to the Fund s current tax year, the Fund intends
to make a good-faith estimate of the potential tax liability
of the Fund and to make an accrual for tax expenses.
Thereafter, the Fund would make a daily determination whether
it is appropriate for the Fund to continue to accrue for a tax
expense and, if so, to make a good-faith estimate of the
Fund s potential tax liability. Any amount by which the
accrual is reduced, or the entire amount of the accrual if the
Fund determines that the accrual is no longer appropriate,
will be reclassified as income to the Fund.
Under current law, dividends derived from interest and
dividends received by the Fund, together with distributions of
any short-term capital gains, if any, are taxable to the
shareholders of the Fund, as ordinary income at Federal income
tax rates of up to 39.6%, whether or not such dividends and
29
<PAGE>
distributions are reinvested in shares of the Fund or are
received in cash.
Under current law, distributions of net long-term gains, if
any, realized by the Fund and designated as capital gains
distributions will be taxed to the shareholders of the Fund as
long-term capital gains regardless of the length of time the
shares of the Fund have been held. Currently, long-term
capital gains of individual investors are taxed at rates of up
to 28%. Statements as to the Federal tax status of
shareholders dividends and distributions will be mailed
annually. Shareholders should consult their tax advisors
concerning the tax status of the Fund s dividends in their own
states and localities.
Ordinary dividends paid to corporate or individual residents
of foreign countries generally are subject to a 30%
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 advisers
regarding specific questions as to Federal, state, or local
taxes.
30
<PAGE>
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
limitations of the Fund, and subject to the general
supervision and control of the Trustees and the officers of
the Trust. The Advisor bears all costs associated with
providing these advisory services and the expenses of the
Trustees who are affiliated persons of the Advisor. In
providing these advisory services, the Advisor, at its own
expense, has been authorized by the Trustees to employ a sub-
adviser and to enter into such service agreements as the
Advisor deems appropriate in connection with the management of
the Fund. The Advisor, from its own resources, including
profits from advisory fees received from the Fund, provided
such fees are legitimate and not excessive, also may make
payments to broker-dealers and other financial institutions
for their expenses in connection with the distribution of Fund
shares, which payments, to the extent made by the Advisor, may
be in addition to those payments made pursuant to a plan of
distribution for the Fund adopted by the Trust pursuant to
Rule 12b-1 under the 1940 Act (the "Distribution Plan"). See
"Distribution Plan."
The Sub-Advisor
Loomis, Sayles & Company, L.P. (the "Sub-Advisor"), is the
sub-adviser of the Fund. As such, the Sub-Advisor is
responsible for daily managing the investment and reinvestment
of assets of the Fund, subject generally to review and
supervision of the Advisor and the Trustees. The Sub-Advisor
bears all expenses in connection with the performance of its
services, such as compensating and furnishing office space for
its officers and employees connected with the investment and
economic research, trading, and investment management of the
Fund.
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<PAGE>
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, at
Washington, D. C., in 1986, and received his bachelor's degree
in Business Administration from The George Washington
University, at 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, at 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
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
general administrative services, including, without
32
<PAGE>
limitation, office space, equipment, and personnel; clerical
and general back office services; bookkeeping, internal
accounting, and secretarial services; the determination of net
asset values; and the preparation and filing of all reports,
registration statements, proxy statements, and all other
materials required to be filed or furnished by the Trust and
the Fund under Federal and state securities laws. The
Servicer also maintains the shareholder account records for
the Trust and the Fund, distributes dividends and
distributions payable by the Fund, and produces statements
with respect to account activity for the Fund and the
shareholders of the Fund. The Servicer pays all fees and
expenses that are directly related to the services provided by
the Servicer to the Trust; the Fund reimburses the Servicer
for all fees and expenses incurred by the Servicer which are
not directly related to the services the Servicer provides to
the Fund under the service agreement.
The Distributor
Pursuant to the Distribution Plan for the Fund adopted by the
Trust pursuant to Rule 12b-1 under the 1940 Act, the Fund is
provided certain distribution services by PADCO Financial
Services, Inc. (the "Distributor"), 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852, subject to the general
supervision and control of the Trustees and the officers of
the Trust. Under the Distribution Plan, dated September 25,
1996, the Fund reimburses the Distributor for a portion of the
Distributor's costs incurred in distributing the shares of the
Fund at an annualized rate not to exceed 0.25% of the average
daily net assets of the Fund. See "Distribution Plan."
Costs and Expenses
The Fund bears all expenses of its operations other than those
assumed by the Advisor, the Servicer, or the Distributor.
Fund expenses include: the management fee; the servicing fee
(including administrative, transfer agent, and shareholder
servicing fees); payments to be made by the Fund to the
Distributor under the Distribution Plan; custodian and
accounting fees and expenses; legal and auditing fees;
securities valuation expenses; fidelity bonds and other
insurance premiums; expenses of preparing and printing
prospectuses, confirmations, proxy statements, and shareholder
reports and notices; registration fees and expenses; proxy and
annual meeting expenses, if any) (to the extent that these
expenses are not covered by payments made by the Fund under
the Distribution Plan); all Federal, state, and local taxes
(including, without limitation, stamp, excise, income, and
franchise taxes); organizational costs; and non-interested
Trustees fees and expenses.
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<PAGE>
The Advisor, Sub-Advisor, and Servicer voluntarily waived
investment management fees, including sub-advisory fees, and
certain administrative fees for the period from January 3,
1997 (the commencement of operations) through March 31, 1997,
so that total Fund operating expenses for this period actually
were 0.99% of the Fund's average net assets. Had these fee
expenses not been waived, total Fund operating expenses for
this period would have been 1.86% of the Fund's average net
assets.
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 up to a
maximum of 0.25% per annum of the Fund's daily net assets for
expenses actually incurred by the Distributor during the same
twelve (12) month period, plus unreimbursed expenses incurred
prior to that twelve (12) month period 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. As of March 31, 1997, the Fund had net assets of
approximately $10.5 million and the Distributor did not have
any aggregated "uncovered distribution charges" for the Fund
(i.e. the expenses actually incurred by the Distributor less
amounts received by the Distributor pursuant to the
Distribution Plan).
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
34
<PAGE>
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
Additional Information under "Calculation of Return
Quotations" and "Information on Computation of Yield."
The Fund's total return for a particular period represents the
increase (or decrease) in the value of a hypothetical
investment in the Fund from the beginning to the end of the
period. Total return is calculated by subtracting the value
of the initial investment from the ending value and showing
the difference as a percentage of the initial investment,
35
<PAGE>
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).
Under the Delaware General Corporation Law, a registered
investment company is not required to hold an annual
36
<PAGE>
shareholders meeting if the 1940 Act does not require such a
meeting. Generally, there will not be annual meetings of
Trust shareholders. Trust shareholders may remove Trustees of
the Trust from office by votes cast at a meeting of Trust
shareholders or by written consent. If requested by
shareholders of at least 10% of the outstanding shares of the
Trust, the Trust will call a meeting of Trust shareholders for
the purpose of voting upon the question of removal of a
Trustee or Trustees of the Trust and will assist in
communications with other Trust shareholders.
Unlike the stockholder of a corporation, shareholders of a
business trust such as the Trust could be held personally
liable, under certain circumstances, for the obligations of
the business trust. The Trust s Declaration of Trust,
however, disclaims liability of the shareholders of the Trust,
the Trustees, or the officers of the Trust for acts or
obligations of the Trust which are binding only on the assets
and property of the Trust. The Declaration of Trust provides
for indemnification out of Trust property for all loss and
expense of any Trust shareholder held personally liable for
the obligations of the Trust. The risk of a Trust shareholder
incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust itself would
not be able to meet the Trust s obligations and this risk,
thus, should be considered remote.
As of the date of this Prospectus, no officer or Trustee of
the Trust owned any of the Fund's shares.
Trustees and Officers
The Trust has a Board of Trustees which is responsible for the
general supervision of the Trust s business. The day-to-day
operations of the Trust are the responsibility of the Trust s
officers.
Auditors
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.
37
<PAGE>
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.
38
<PAGE>
APPENDIX A
Bond Ratings
Below is a description of Standard & Poor's Ratings Group
("Standard & Poor's") and Moody's Investors Service, Inc.
("Moody's") bond rating categories. The Fund normally invests
in bonds rated "BB" or lower by Standard & Poor's and/or "Ba"
or lower by Moody's.
Standard & Poor's Ratings
Group Corporate Bond Ratings
AAA -- This is the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong
capacity to pay principal and interest.
AA -- Bonds rated "AA" also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from
"AAA" issues only in small degree.
A -- Bonds rated "A" have a strong capacity to pay
principal and interest, although they are somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than bonds in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an
adequate capability to pay principal and interest. Whereas
they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay principal and interest
for bonds in this category than for bonds in higher rated
categories.
BB -- Bonds rated "BB" have less near-term vulnerability to
default than other speculative issues. However, they face
major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments.
B -- Bonds rated "B" have a greater vulnerability to
default but currently have the capacity to meet interest
payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal.
CCC -- Bonds rated "CCC" have a currently identifiable
vulnerability to default and are dependent upon favorable
business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event
A-1
<PAGE>
of adverse business, financial, or economic conditions, they
are not likely to have the capacity to pay interest and repay
principal.
Moody's Investors Service, Inc.
Corporate Bond Ratings
Aaa -- Bonds rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt-edged." Interest
payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by
all standards. Together with the Aaa group, they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protections may
not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long term risk appear
somewhat larger than in "Aaa" securities.
A -- Bonds rated "A" possess many favorable investment
attributes, and are to be considered as upper medium grade
obligations. Factors giving security principal and interest
are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds rated "Baa" are considered as medium grade
obligations (i.e., they are neither highly protected nor
poorly secured). Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds rated "Ba" are judged to have speculative
elements. Their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or maintenance of other terms of the contract over
any longer period of time may be small.
A-2
<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.
A-3
<PAGE>
Prospectus
of
The Rydex Institutional Money Market Fund
<PAGE>
[LOGO]
RYDEX SERIES TRUST
RYDEX INSTITUTIONAL
MONEY MARKET FUND
PROSPECTUS
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 August
1, 1997, containing additional information about the Fund and
the Trust has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. A copy of
this Statement of Additional Information is available, without
charge, upon request to the Trust at the address above or by
telephoning the Trust at the telephone numbers above.
<PAGE>
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 August 1, 1997.
2
<PAGE>
TABLE OF CONTENTS
Page
FEES AND EXPENSES OF THE FUND...................3
FINANCIAL HIGHLIGHTS OF THE FUND................4
THE RYDEX FUNDS ................................5
INVESTMENT OBJECTIVES AND POLICIES..............5
HOW TO INVEST IN THE FUND.......................8
REDEEMING AN INVESTMENT (WITHDRAWALS)...........9
EXCHANGES ......................................9
PROCEDURES FOR REDEMPTIONS AND EXCHANGES.......10
DETERMINATION OF NET ASSET VALUE...............10
TAX-SHELTERED RETIREMENT PLANS ................11
DIVIDENDS AND DISTRIBUTIONS....................11
TAXES..........................................11
MANAGEMENT OF THE TRUST........................12
DISTRIBUTION PLAN..............................13
PERFORMANCE INFORMATION........................14
GENERAL INFORMATION ABOUT THE TRUST............14
APPENDIX A....................................A-1
3
<PAGE>
FEES AND EXPENSES OF THE FUND
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 None
Dividends
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Management Fees 0.55%
12b-1 Fees 0.25%
Other Expenses:
Administrative Fees 0.20%
Additional Expenses* 0.15%
Total Other Expenses 0.35%
1.15%
Total Fund Operating Expenses
* Additional expenses are based on amounts incurred for the
most-recent fiscal year end. The Trustees, on March 12,
1997, changed the Trust's fiscal year end from June 30 to
March 31. This information, therefore, reflects nine months
of financial activity (and has been annualized).
Example
Assuming a hypothetical investment of $1,000, a five-percent
annual return, and redemption at the end of each time period,
an investor in the Fund would pay transaction and operating
expenses at the end of each year as follows:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$11.71 $36.43 $62.98 $138.33
The same level of expenses would be incurred if the investment
were held throughout the period indicated.
4
<PAGE>
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. 5
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUND
(For a Share Outstanding Throughout Each Period)
The following financial highlights relating to the Fund, for
the period identified, have been audited by Deloitte & Touche
LLP, independent certified public accountants whose report
thereon appears in the Fund's 1997 Annual Report to
Shareholders and is incorporated by reference in the Statement
of Additional Information. This information should be read in
conjunction with the financial statements and related notes
thereto included in the Statement of Additional Information.
As noted in the financial highlights below, the Fund commenced
operations on July 11, 1996, and the Trustees on March 12,
1997, changed the Trust's fiscal year end from June 30 to
March 31; the information set forth below in these financial
highlights, therefore, reflects approximately nine months of
financial activity for the Fund. A copy of the Fund's 1997
Annual Report to Shareholders may be obtained, without charge,
by contacting the Trust at 6116 Executive Boulevard, Suite
400, Rockville, Maryland 20852, or by telephoning the Trust at
800-820-0888 or 301-468-8520.
<TABLE>
<CAPTION>
Period Ended
March 31, 1997*
<S> <C>
Per Share Operating Performance:+ $ 1.00
Net Asset Value -- Beginning of Period
Net Investment Income 0.03
Net Realized and Unrealized Gains (Losses)
on Securities 0.00
Net Increase (Decrease) in Net Asset Value
Resulting from Operations 0.03
Dividends to Shareholders from Net
Investment (0.03)
Income
Net Increase (Decrease) in Net Asset Value 0.00
Net Asset Value End of Period $ 1.00
Total Investment Return** 4.17%
Ratios to Average Net Assets**
Net Expenses 1.15%++
Net Investment Income 3.50%
Supplementary Data
Portfolio Turnover Rate*** 0.00%
Net Assets, End of Period (000's omitted) $110,316
6
<PAGE>
</TABLE>
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the period.
++ The annualized ratio of gross expenses to average net
assets is 1.15%.
* Commencement of Operations: July 11, 1996. The Trustees,
on March 12, 1997, changed the Trust's fiscal year from
June 30 to March 31.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year.
7
<PAGE>
THE RYDEX FUNDS
The Trust is an open-end management investment company, and
currently is composed of nine separate series, including the
Fund, The Nova Fund, The Ursa Fund, The Rydex OTC Fund, The
Rydex Precious Metals Fund, The Rydex U.S. Government Bond
Fund, The Juno Fund, The Rydex U.S. Government Money Market
Fund, and, the Rydex High Yield Fund (collectively, the "Rydex
Funds"); other separate Rydex Funds may be added in the
future. The Rydex Funds are principally designed for
professional money managers and investors who intend to follow
an asset-allocation or market-timing investment strategy.
Except for the Fund and the Rydex U.S. Government Money Market
Fund, each Rydex Fund is intended to provide investment
exposure with respect to a particular segment of the
securities markets. These Rydex Funds seek investment results
that correspond over time to a specified benchmark. The Rydex
Funds may be used independently or in combination with each
other as part of an overall investment strategy.
Shares of any Rydex Fund may be exchanged, without any charge,
for shares of any other Rydex Fund on the basis of the
respective net asset values of the shares involved; provided,
that, in connection with exchanges for shares of a Fund,
certain minimum investment levels are maintained. The Trust
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.
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.
8
<PAGE>
The Fund will invest in short-term U.S. Government Securities,
including U.S. Treasury bills, U.S. Treasury notes, and U.S.
Treasury bonds that mature within one year. All securities
purchased by the Fund are held by the Trust's custodian bank.
U.S. Treasury securities are backed by the full faith and
credit of the U.S. Government. Repurchase agreements invested
in the Fund are fully collateralized by U.S. Government
Securities, but the value of the underlying collateral may be
affected by sharp fluctuations in short-term interest rates.
The investment objectives of the Fund are fundamental and may
not be changed without the approval of at least a majority of
the shareholders, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"). All other investment
policies of the Fund not specified as fundamental may be
changed without the approval of shareholders.
The Fund will maintain a dollar-weighted average portfolio
maturity of 90 days or less. All securities in which the Fund
invests will have remaining maturities of 397 days or less on
the date of purchase, will be denominated in U.S. dollars, and
will have been determined to be of high quality by nationally-
recognized statistical rating organizations ("NSROs") or
determined to be of comparable quality if not so rated.
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government include
a variety of U.S. Treasury securities, which differ only in
their interest rates, maturities, and dates of issuance. U.S.
Treasury bills have initial maturities of one year or less.
U.S. Treasury notes have initial maturities of one to ten
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
9
<PAGE>
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
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.
10
<PAGE>
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
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.
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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
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
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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
subject to market fluctuation and no interest accrues to the
purchaser during this period. At the time the Fund makes the
commitment to purchase securities on a when-issued or delayed
delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in
determining its net asset value. The Fund will not purchase
securities on a when-issued or delayed delivery basis if, as a
result, more than 10% of the Fund's net assets would be so
invested. The Fund will maintain, in a segregated account,
cash or liquid securities having a value equal to or greater
than the Fund's purchase commitments.
Portfolio Transactions
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
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promptly and who may charge a processing fee or (ii) directly
with the Trust by bank wire transfer as follows:
By Bank Wire Transfer: First, fill out an application and fax
the completed application, along with a request for a
shareholder account number, to the Trust at (301) 468-8585.
Then, request that your bank wire transfer the purchase amount
to our custodian, Star Bank, N.A., along with the following
instructions:
Star Bank, N.A.
Routing Number: 0420-00013
For Account of Rydex Series Trust/
The Rydex Institutional Money Market Fund
Account Number: 48038-9030
Your Name
Your Account Number
After instructing your bank to transfer money by wire, you
must call the Trust and inform the Trust as to the amount you
have transferred and the name of the bank sending the transfer
in order to obtain same-day pricing or credit. 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 in good
form 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 in good form 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
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<PAGE>
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 proceeds of non-telephone redemptions will be sent
directly to the investor s address of record. If the investor
requests payment of redemptions to a third party or to a
location other than the investor s address of record or a bank
account specified in the investor s account application, this
request must be in writing and the investor s signature must
be guaranteed by a commercial bank; a broker, dealer,
municipal securities dealer, municipal securities broker,
government securities dealer, or government securities broker;
a credit union; a national securities exchange, registered
securities association, or clearing agency; or a savings
association.
The Fund will redeem its shares at a redemption price equal to
the net asset value of the shares as next computed following
the receipt of a request for redemption. There is no
redemption charge. Payment for the redemption price will be
made within seven days after the Trust s receipt of the
request for redemption.
With respect to the Fund, the right of redemption may be
suspended, or the date of payment postponed: (i) for any
period during which the Federal Reserve Bank of New York (the
"New York Fed") or the New York Stock Exchange (the "NYSE") is
closed (other than customary weekend or holiday closings) or
trading on the NYSE is restricted; (ii) for any period during
which an emergency exists so that disposal of the Fund s
investments or the determination of its net asset value is not
reasonably practicable; or (iii) for such other periods as the
Securities and Exchange Commission (the "Commission"), by
order, may permit for protection of the Fund s investors. On
any day that the New York Fed or the NYSE closes early, the
principal government securities and corporate bond markets
close early (such as on days in advance of holidays generally
observed by participants in these markets), or as permitted by
the Commission, the right is reserved to advance the time on
that day by which purchase and redemption orders must be
received. (See "Determination of Net Asset Value.")
EXCHANGES
Shares of any Rydex Fund may be exchanged, without any charge,
for shares of any other Rydex Fund on the basis of the
respective net asset values next determined of the shares
involved; provided that, in connection with exchanges for
shares of a Rydex Fund, certain minimum investment levels are
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<PAGE>
maintained. An exchange of other Rydex Fund shares for shares
of the Fund is permitted only if the $2,000,000 minimum
investment in the Fund is satisfied. The Trust reserves the
right to modify its minimum investment requirements. The
Trust currently is composed of nine separate series, The Nova
Fund, The Ursa Fund, The Rydex OTC Fund (the "OTC Fund"), The
Rydex Precious Metals Fund (the "Metals Fund"), The Rydex U.S.
Government Bond Fund (the "Bond Fund"), The Juno Fund, The
Rydex High Yield Fund (the "High Yield Fund"), The Rydex U.S.
Government Money Market Fund (the "Money Market Fund"), and
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 or
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 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.
16
<PAGE>
Telephone redemption and exchange orders will be accepted only
during the period indicated above. If the primary exchange or
market on which the Rydex Fund transacts business closes
early, the above cut-off time will be approximately fifteen
minutes (thirty minutes, in the case of the Metals Fund, and
forty-five minutes in the case of the High Yield Fund) prior
to the close of such exchange or market. Telephone redemption
and exchange privileges may be terminated or modified by the
Trust at any time.
When acting on instructions believed to be genuine, the Trust
will not be liable for any loss resulting from a fraudulent
telephone transaction request and the investor would bear the
risk of any such loss. The Trust will employ reasonable
procedures to confirm that telephone instructions are genuine;
and if the Trust does not employ such procedures, then the
Trust may be liable for any losses due to unauthorized or
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 both the NYSE and the New York Fed are open for
business at 1:00 P.M., Eastern Time. Currently, the NYSE and
the New York Fed are closed on weekends, and the following
holiday closings have been scheduled for 1996: (i) New Year's
Day, Martin Luther King Jr.'s Birthday, Washington's Birthday,
Good Friday, Memorial Day, July Fourth, Labor Day, Columbus
Day, Thanksgiving Day, and Christmas Day; and (ii) the
preceding Friday when any of those holidays falls on a
Saturday or the subsequent Monday when any one of those
holidays falls on a Sunday. To the extent that portfolio
securities of the Fund are traded in other markets on days
when the New York Fed or the NYSE is closed, the Fund's net
asset value may be affected on days when investors do not have
access to the Fund to purchase or redeem shares. Although the
Trust expects the same holiday schedule to be observed in the
future, the New York Fed and the NYSE each may modify its
holiday schedule at any time. The net asset value of the Fund
serves as the basis for the purchase and redemption price of
the Fund's shares.
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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 - Pension Plans
(Money Purchase Plans)
Internal Revenue Code Section 403(b)
Plans
Additional information regarding these accounts may be
obtained by contacting the Trust.
DIVIDENDS AND DISTRIBUTIONS
All income dividends and capital gains distributions of the
Fund automatically will be reinvested in additional shares of
the Fund at the net asset value calculated on the ex-dividend
date, unless an investor has requested otherwise from the
Trust in writing. Dividends and distributions of the Fund are
taxable to the shareholders of the Fund, as discussed below
under "Taxes," whether such dividends and distributions are
reinvested in additional shares of the Fund or are received in
cash. Statements of account will be sent to the Fund
shareholders at least quarterly.
The Fund 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 these
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, or if the Trustees otherwise believe that such
18
<PAGE>
a revised policy would be in the best interests of the
shareholders of the Fund.
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
tax on the ordinary income and capital gains it has
distributed to its shareholders for that year.
To qualify as a RIC under the Code, the Fund must satisfy
certain requirements, including the requirements that the Fund
receive at least 90% of the Fund s gross income each year from
dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of securities
or foreign currencies, or other income derived with respect to
the Fund s investments in stock, securities, and foreign
currencies (the "90% Test"), and that the Fund derive less
than 30% of the Fund s gross income from the sale or other
disposition of any of the following instruments which have
been held for less than three months (the "30% Test"): (i)
stock or securities; (ii) certain options, futures, or forward
contracts; or (iii) foreign currencies (or certain options,
futures, or forward contracts on such foreign currencies).
Provided that the Fund (i) is a RIC and (ii) distributes at
least 90% of the Fund s net investment income (including, for
this purpose, net realized short-term capital gains), the Fund
itself will not be subject to Federal income taxes to the
extent the Fund s net investment income and the Fund s net
realized short-term capital gains, if any, are distributed to
the shareholders of that Fund. To avoid an excise tax on its
undistributed income, the Fund generally must distribute at
least 98% of its income.
Under current law, dividends derived from interest and
dividends received by the Fund, together with distributions of
any short-term capital gains, if any, are taxable to the
shareholders of the Fund, as ordinary income at Federal income
tax rates of up to 39.6%, whether or not such dividends and
distributions are reinvested in shares of the Fund or are
received in cash.
Ordinary dividends paid to corporate or individual residents
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
19
<PAGE>
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 Anne H. Ruff, who joined
the Advisor in August 1996. From 1989 to 1995, Ms. Ruff
worked as a portfolio manager for United Services Life
Insurance Company ("USLICO"), in Arlington, Virginia, where
Ms. Ruff managed $2.5 billion in fixed-income portfolios.
From 1985 to 1989, Ms. Ruff worked as an assistant portfolio
manager/securities analyst for USLICO. From 1979 to 1985, Ms.
Ruff worked as a bank investment officer for First Union Corp.
(formerly, First American Bank of Virginia) in McLean,
Virginia, where Ms. Ruff managed the bank's federal funds and
investment portfolio operations. Ms. Ruff received her
bachelor of arts degree in French and Economics from Mary
Grove College, at Detroit, Michigan, in 1966.
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
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<PAGE>
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 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
general administrative services, including, without
limitation, office space, equipment, and personnel; clerical
and general back office services; bookkeeping, internal
accounting, and secretarial services; the determination of net
asset values; and the preparation and filing of all reports,
registration statements, proxy statements, and all other
materials required to be filed or furnished by the Trust and
the Fund under Federal and state securities laws. The
Servicer also maintains the shareholder account records for
the Trust and the Fund, distributes dividends and
distributions payable by the Fund, and produces statements
with respect to account activity for the Fund and the
shareholders of the Fund. The Servicer pays all fees and
expenses that are directly related to the services provided by
the Servicer to the Trust; the Fund reimburses the Servicer
for all fees and expenses incurred by the Servicer which are
21
<PAGE>
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. For the period from July 11,
1996 through March 31, 1997, the total expenses of the Fund
were 1.15% of the Fund's average net assets (annualized).
The Advisor has advanced the organizational expenses of the
Fund. These costs, which are approximately $40,000, will be
reimbursed by the Fund, and the Fund will amortize these costs
over a five-year period from the date the Fund commences
operations.
DISTRIBUTION PLAN
The Trust finances activities which are primarily intended to
result in the sale of Fund shares and has adopted the
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 up to a
maximum of 0.25% per annum of the Fund's daily net assets for
22
<PAGE>
expenses actually incurred by the Distributor during the same
twelve (12) month period, plus unreimbursed expenses incurred
prior to that twelve (12) month period 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. As of March 31, 1997, the Fund had total net
assets of approximately $110.3 million and the Distributor did
not have any aggregated "uncovered distribution charges" for
the Fund (i.e., the expenses actually incurred by the
Distributor less amounts received by the Distributor pursuant
to the Distribution Plan).
The Glass-Steagall Act generally prohibits Federal and state
chartered or supervised banks from engaging in the business of
underwriting, selling, or distributing securities. Although
the scope of this prohibition under the Glass-Steagall Act has
not been clearly defined by the courts or appropriate
regulatory agencies, the Distributor believes that the Glass-
Steagall Act should not preclude a bank from performing
shareholder support services or servicing and recordkeeping
functions. The Distributor intends to engage banks only to
perform such functions. Changes in Federal or state statutes
and regulations pertaining to the permissible activities of
banks and their affiliates or subsidiaries, as well as further
judicial or administrative decisions or interpretations,
however, could prevent a bank from continuing to perform all
or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what
actions, if any, would be necessary to continue to provide
such efficient and effective shareholder services. In such
event, changes in the operation of the Fund might occur,
including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is
not expected that shareholders of the Fund would suffer any
adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed
herein, and banks and other financial institutions may be
required to register as dealers pursuant to state law.
The Fund may execute portfolio transactions with, and purchase
securities issued by, depository institutions that receive
payments under the Distribution Plan. No preference for the
instruments of such depository institutions will be shown in
the selection of investments. For further information
23
<PAGE>
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
Trust has issued shares of nine separate classes: The Nova
Fund, The Ursa Fund, The Rydex OTC Fund, The Rydex Precious
Metals Fund, The Rydex U.S. Government Bond Fund, The Juno
Fund, The Rydex High Yield Fund, The Rydex U.S. Government
Money Market Fund, and The Rydex Institutional Money Market
Fund. Other separate classes may be added in the future.
All shares of the Rydex Funds are freely transferable. The
Rydex Fund shares do not have preemptive rights or cumulative
voting rights, and none of the shares have any preference to
conversion, exchange, dividends, retirements, liquidation,
24
<PAGE>
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
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.
25
<PAGE>
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.
26
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Commercial paper rated "Prime" by Moody's Investors
Service, Inc. ("Moody's"), is based upon Moody's evaluation of
many factors including: (1) the management of the issuer; (2)
the issuer's industry or industries and the speculative-type
risks which may be inherent in certain areas; (3) the issuer's
products in relation to competition and customer acceptance;
(4) liquidity; (5) amount and quality of long-term debt; (6)
trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist
with the issue; and (8) recognition by the management of
obligations which may be present or may arise as a result of
public interest questions and preparations to meet such
obligations. Relative differences in these factors determine
whether the issuer's commercial paper is rated "Prime-1,"
"Prime-2," or "Prime-3" by Moody's.
"Prime-1" indicates a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment capacity
will normally be evidenced by the following characteristics:
(1) leading market positions in well-established industries;
(2) high rates of return on funds employed; (3) conservative
capitalization structures with moderate reliance on debt and
ample asset protection; (4) broad margins in earnings coverage
of fixed financial charges and high internal cash generation;
and (5) well-established access to a range of financial
markets and assured sources of alternative liquidity.
"Prime-2" indicates a strong capacity for repayment of
short-term promissory obligations. This repayment capacity
normally will be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to
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
position within the industry; and (6) the reliability and
quality of management are unquestioned. The relative strength
A-1
<PAGE>
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 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
A-2
<PAGE>
plus) and "1-" (one minus) to assist investors in recognizing
those differences.
Duff 1+ -- This designation rating indicates the highest
certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
Duff 1 -- This designation rating indicates a very high
certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk
factors are minor.
Duff 1- -- This designation rating indicates a high
certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk
factors are very small.
Duff 2 -- This designation rating indicates a good
certainty of timely payment. Liquidity factors and company
fundamental are sound. Although ongoing funding needs may
enlarge total financing requirements, access capital markets
is good. Risk factors are small.
IBCA, Inc.
In addition to conducting a careful review of an
institution's reports and published figures, IBCA's analysts
regularly visit the companies for discussions with senior
management. These meetings are fundamental to the preparation
of individual reports and ratings. To keep abreast of any
changes that may affect assessments, analysts maintain contact
throughout the year with the management of the companies that
the analysts cover.
IBCA's analysts speak the languages of the countries that
the analysts cover, which is essential to maximize the value
of their meetings with management and to analyze properly a
company's written materials. IBCA's analysts also have a
thorough knowledge of the laws and accounting practices that
govern the operations and reporting of companies within the
various countries.
Often, in order to ensure a full understanding of their
position, companies entrust IBCA with confidential data.
While these data cannot be disclosed in reports, these data
are taken into account by IBCA when assigning IBCA's ratings.
Before dispatch to subscribers, a draft of the report is
submitted to each company to permit the correction of any
factual errors and to enable the clarification of issues
raised.
IBCA's Rating Committees meet at regular intervals to
review all ratings and to ensure that individual ratings are
A-3
<PAGE>
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.
A-4
<PAGE>
PART B
<PAGE>
Combined Statement of Additional Information
of
The Nova Fund,
The Ursa Fund,
The Rydex OTC Fund,
The Rydex Precious Metals Fund,
The Rydex U.S. Government Bond Fund,
The Juno Fund,
and
The Rydex U.S. Government Money Market Fund
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
RYDEX SERIES TRUST
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
(800) 820-0888
(301) 468-8520
The Rydex Series Trust (the "Trust") is a no-load mutual fund
with nine separate investment portfolios (the "Funds" or
"Rydex Funds"), seven of which Funds are described in this
Statement of Additional Information. The Funds are
principally designed for professional money managers and
investors who intend to invest in the Funds as part of an
asset-allocation or market-timing investment strategy. Sales
are made, without sales charge, at each Fund s per share net
asset value.
Except for the Rydex U.S. Government Money Market Fund, each
Fund is intended to provide investment exposure with respect
to a particular segment of the securities markets. Each of
these Funds seeks investment results that correspond over time
to a specified benchmark. The Funds may be used independently
or in combination with each other as part of an overall
investment strategy. Additional Funds may be created from time
to time.
The following are the Funds and their benchmarks:
FUND BENCHMARK
The Nova Fund 150% of the performance of the S&P 500
Composite Stock Price IndexTM
The Ursa Fund Inverse (opposite) of the S&P 500
Composite Stock Price IndexTM
Rydex OTC Fund NASDAQ 100 IndexTM (NDX)
Rydex Precious Philadelphia Stock Exchange Gold/Silver
Metals Fund IndexTM (XAU)
Rydex U.S. 120% of the price movement of current Long
Government Bond Treasury Bond
Fund
The Juno Fund Inverse (opposite) of the price movement
of the current Long Treasury Bond
The Trust also offers The Rydex U.S. Government Money Market
Fund. This Fund seeks to provide security of principal, high
current income, and liquidity by investing primarily in money
market instruments which are issued or guaranteed, as to
<PAGE>
principal and interest, by the U.S. Government, its agencies
or instrumentalities. The securities of the Rydex U.S.
Government Money Market Fund are not deposits or obligations
of any bank, and are not endorsed or guaranteed by any bank,
and an investment in this Fund is neither insured nor
guaranteed by the United States Government. The Rydex U.S.
Government Money Market Fund seeks to maintain a constant
$1.00 net asset value per share, although this cannot be
assured.
The Funds (other than the Rydex U.S. Government Money Market
Fund) may engage in certain aggressive investment techniques,
which include engaging in short sales and transactions in
options and futures contracts. The Nova Fund and the Rydex
U.S. Government Bond Fund also may use the speculative
technique known as leverage to increase funds available for
investment. See "Borrowing." Investors in the Nova Fund may
experience substantial losses during sustained periods of
falling equity prices, while investors in the Ursa Fund and
the Juno Fund may experience substantial losses during
sustained periods of rising equity prices and declining
interest rates respectively. Because of the inherent risks in
any investment, there can be no assurance that any Fund s
investment objective will be achieved.
None of the Funds alone constitutes a balanced investment
plan, and certain of the Funds involve special risks not
traditionally associated with investment companies. The
nature of the Funds generally will result in significant
portfolio turnover which would likely cause higher expenses
and additional costs and increase the risk that the Fund will
not qualify as a regulated investment company under the
Federal tax laws. The Trust is not intended for investors
whose principal objective is current income or preservation of
capital and may not be a suitable investment for persons who
intend to follow an "invest and hold" strategy. See "Special
Risk Considerations in the Trust s Prospectus.
The Trust also offers The Rydex Institutional Money Market
Fund and The Rydex High Yield Fund, each of which series of
the Trust is described in a separate prospectus and a separate
statement of additional information.
This Statement of Additional Information is not a prospectus.
It should be read in conjunction with the Trust's Prospectus,
dated August 1, 1997. A copy of the Trust s Prospectus is
available, without charge, upon request to the Trust at the
address above or by telephoning the Trust at the telephone
numbers above.
The date of this Statement of Additional Information is August
1, 1997.
2
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
THE RYDEX FUNDS................................4
INVESTMENT POLICIES AND TECHNIQUES ............4
INVESTMENT RESTRICTIONS.......................11
PORTFOLIO TRANSACTIONS AND BROKERAGE..........15
MANAGEMENT OF THE TRUST.......................16
PRINCIPAL HOLDERS OF SECURITIES...............21
DETERMINATION OF NET ASSET VALUE..............23
PERFORMANCE INFORMATION.......................25
CALCULATION OF RETURN QUOTATIONS..............26
INFORMATION ON COMPUTATION OF YIELD...........27
DIVIDENDS, DISTRIBUTIONS, AND TAXES ..........29
AUDITORS AND CUSTODIAN........................34
FINANCIAL STATEMENTS..........................34
3
<PAGE>
THE RYDEX FUNDS
The Trust is an open-end management investment company, and
currently is composed of nine separate series, including The
Nova Fund, The Ursa Fund, The Rydex OTC Fund, The Rydex
Precious Metals Fund, The Rydex U.S. Government Bond Fund, The
Juno Fund, The Rydex U.S. Government Money Market Fund, The
Rydex Institutional Money Market Fund, and The Rydex High
Yield Fund (collectively, the "Funds"); other separate Funds
may be added in the future. The Funds are principally
designed for professional money managers and investors who
intend to follow an asset-allocation or market-timing
investment strategy. Except for the Rydex U.S. Government
Money Market Fund and the Rydex Institutional Money Market
Fund, each Fund is intended to provide investment exposure
with respect to a particular segment of the securities
markets. These Funds seek investment results that correspond
over time to a specified benchmark. The Funds may be used
independently or in combination with each other as part of an
overall investment strategy.
Shares of any Fund may be exchanged, without any charge, for
shares of any other Fund on the basis of the respective net
asset values of the shares involved; provided, that, in
connection with exchanges for shares of the Fund, certain
minimum investment levels are maintained (see "Exchanges").
Copies of the separate Prospectus and Statement of Additional
Information for each of the Rydex High Yield Fund and the
Rydex Institutional Money Market Fund are available, without
charge, upon request to the Trust at 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852, or by telephoning the
Trust at (800) 820-0888 or (301) 468-8520.
INVESTMENT POLICIES AND TECHNIQUES
General
Reference is made to the sections entitled "Investment
Objectives and Policies" and "Investment Techniques and Other
Investment Policies" in the Trust's Prospectus for a
discussion of the investment objectives and policies of the
Funds. In addition, set forth below is further information
relating to the Funds. Portfolio management is provided to
each Fund by the Trust's investment adviser, PADCO Advisors,
Inc., a Maryland corporation with offices at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852 (the
"Advisor").
The investment strategies of the Funds discussed below, and as
discussed in the Trust's Prospectus, may be used by a Fund if,
in the opinion of the Advisor, these strategies will be
advantageous to the Fund. The Fund is free to reduce or
eliminate the Fund's activity in any of those areas without
4
<PAGE>
changing the Fund's fundamental investment policies. There is
no assurance that any of these strategies or any other
strategies and methods of investment available to a Fund will
result in the achievement of the Fund's objectives.
Options Transactions
Options on Securities. The Nova Fund, The Rydex OTC Fund
(the "OTC Fund"), and the Rydex Precious Metals Fund (the
"Metals Fund") may buy call options and write (sell) put
options on securities, and the Ursa Fund may buy put options
and write call options on securities for the purpose of
realizing the Fund's investment objective. By writing a call
option on securities, a Fund becomes obligated during the term
of the option to sell the securities underlying the option at
the exercise price if the option is exercised. By writing a
put option, a Fund becomes obligated during the term of the
option to purchase the securities underlying the option at the
exercise price if the option is exercised.
During the term of the option, the writer may be assigned an
exercise notice by the broker-dealer through whom the option
was sold. The exercise notice would require the writer to
deliver, in the case of a call, or take delivery of, in the
case of a put, the underlying security against payment of the
exercise price. This obligation terminates upon expiration of
the option, or at such earlier time that the writer effects a
closing purchase transaction by purchasing an option covering
the same underlying security and having the same exercise
price and expiration date as the one previously sold. Once an
option has been exercised, the writer may not execute a
closing purchase transaction. To secure the obligation to
deliver the underlying security in the case of a call option,
the writer of a call option is required to deposit in escrow
the underlying security or other assets in accordance with the
rules of the Options Clearing Corporation (the "OCC"), an
institution created to interpose itself between buyers and
sellers of options. The OCC assumes the other side of every
purchase and sale transaction on an exchange and, by doing so,
gives its guarantee to the transaction.
Options on Security Indexes. The Nova Fund, the OTC Fund,
and the Metals Fund may purchase call options and write put
options, and the Ursa Fund may purchase put options and write
call options, on stock indexes listed on national securities
exchanges or traded in the over-the-counter market as an
investment vehicle for the purpose of realizing the Fund's
investment objective.
Options on indexes are settled in cash, not in delivery of
securities. The exercising holder of an index option
receives, instead of a security, cash equal to the difference
5
<PAGE>
between the closing price of the securities index and the
exercise price of the option. When a Fund writes a covered
option on an index, the Fund will be required to deposit and
maintain with a custodian cash or liquid securities equal in
value to the aggregate exercise price of a put or call option
pursuant to the requirements and the rules of the applicable
exchange. If, at the close of business on any day, the market
value of the deposited securities falls below the contract
price, the Fund will deposit with the custodian cash or liquid
securities equal in value to the deficiency.
Foreign Securities
The Metals Fund may invest in issuers located outside the
United States. These purchases may be made by purchasing
American Depository Receipts ("ADRs"), "ordinary shares," or
"New York shares" in the United States. ADRs are dollar-
denominated receipts representing interests in the securities
of a foreign issuer, which securities may not necessarily be
denominated in the same currency as the securities into which
they may be converted. ADRs are receipts typically issued by
United States banks and trust companies which evidence
ownership of underlying securities issued by a foreign
corporation. Generally, ADRs in registered form are designed
for use in domestic securities markets and are traded on
exchanges or over-the-counter in the United States. Ordinary
shares are shares of foreign issuers that are traded abroad
and on a United States exchange. New York shares are shares
that a foreign issuer has allocated for trading in the United
States. ADRs, ordinary shares, and New York shares all may be
purchased with and sold for U.S. dollars, which protects the
Metals Fund from the foreign settlement risks described below.
Investing in foreign companies may involve risks not typically
associated with investing in United States companies. The
value of securities denominated in foreign currencies, and of
dividends from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S.
dollar. Foreign securities markets generally have less
trading volume and less liquidity than United States markets,
and prices in some foreign markets can be very volatile. Many
foreign countries lack uniform accounting and disclosure
standards comparable to those that apply to United States
companies, and it may be more difficult to obtain reliable
information regarding a foreign issuer's financial condition
and operations. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions, and
custodial fees, generally are higher than for United States
investments.
Investing in companies located abroad carries political and
economic risks distinct from those associated with investing
in the United States. Foreign investments may be affected by
6
<PAGE>
actions of foreign governments adverse to the interests of
United States investors, including the possibility of
expropriation or nationalization of assets, confiscatory
taxation, restrictions on United States investment, or on the
ability to repatriate assets or to convert currency into U.S.
dollars. There may be a greater possibility of default by
foreign governments or foreign-government sponsored
enterprises. Investments in foreign countries also involve a
risk of local political, economic, or social instability,
military action or unrest, or adverse diplomatic developments.
At the present time, there are five major producers and
processors of gold bullion and other precious metals and
minerals. In order of magnitude, these producers and
processors are: the Republic of South Africa, the former
republics of the former Soviet Union, Canada, the United
States, and Australia. Political and economic conditions in
several of these countries may have a direct effect on the
mining, distribution, and price of precious metals and
minerals, and on the sales of central bank gold holdings,
particularly in the case of South Africa and the former
republics of the former Soviet Union. South African mining
stocks represent a special risk in view of the history of
political unrest in that country. Besides that factor,
various government bodies such as the South African Ministry
of Mines and the Reserve Bank of South Africa exercise
regulatory authority over mining activity and the sale of
gold. The policies of these South African government bodies
in the future could be detrimental to the Metals Fund's
objectives.
U.S. Government Securities
The Rydex U. S. Government Bond Fund (the "Bond Fund") invests
primarily in U.S. Government Securities, and each of the other
Funds also may invest in U.S. Government Securities. The Juno
Fund may enter into short transactions on U.S. Government
Securities. Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S.
Treasury securities, which are backed by the full faith and
credit of the U.S. Treasury and which differ only in their
interest rates, maturities, and times of issuance. U.S.
Treasury bills have initial maturities of one year or less;
U.S. Treasury notes have initial maturities of one to ten
years; and U.S. Treasury bonds generally have initial
maturities of greater than ten years. Certain U.S. Government
Securities are issued or guaranteed by agencies or
instrumentalities of the U.S. Government including, but not
limited to, obligations of U.S. Government agencies or
instrumentalities such as the Federal National Mortgage
Association, the Government National Mortgage Association, the
Small Business Administration, the Federal Farm Credit
Administration, the Federal Home Loan Banks, Banks for
7
<PAGE>
Cooperatives (including the Central Bank for Cooperatives),
the Federal Land Banks, the Federal Intermediate Credit Banks,
the Tennessee Valley Authority, the Export-Import Bank of the
United States, the Commodity Credit Corporation, the Federal
Financing Bank, the Student Loan Marketing Association, and
the National Credit Union Administration.
Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, including, for example,
Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of
the U.S. Treasury. Other obligations issued by or guaranteed
by Federal agencies, such as those securities issued by the
Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase
certain obligations of the Federal agency, while other
obligations issued by or guaranteed by Federal agencies, such
as those of the Federal Home Loan Banks, are supported by the
right of the issuer to borrow from the U.S. Treasury. While
the U.S. Government provides financial support to such U.S.
Government-sponsored Federal agencies, no assurance can be
given that the U.S. Government will always do so, since the
U.S. Government is not so obligated by law. U.S. Treasury
notes and bonds typically pay coupon interest semi-annually
and repay the principal at maturity. The Bond Fund will
invest in such U.S. Government Securities only when the
Advisor is satisfied that the credit risk with respect to the
issuer is minimal.
Repurchase Agreements
As discussed in the Trust's Prospectus, each of the Funds may
enter into repurchase agreements with financial institutions.
The Funds each follow certain procedures designed to minimize
the risks inherent in such agreements. These procedures
include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions
whose condition will be continually monitored by the Advisor.
In addition, the value of the collateral underlying the
repurchase agreement will always be at least equal to the
repurchase price, including any accrued interest earned on the
repurchase agreement. In the event of a default or bankruptcy
by a selling financial institution, a Fund will seek to
liquidate such collateral. However, the exercising of each
Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from
any sale upon a default of the obligation to repurchase were
less than the repurchase price, the Fund could suffer a loss.
It is the current policy of each of the Funds, other than The
Rydex U.S. Government Money Market Fund (the "Money Market
Fund"), not to invest in repurchase agreements that do not
mature within seven days if any such investment, together with
any other illiquid assets held by the Fund, amounts to more
8
<PAGE>
than 15% (10% with respect to the Money Market Fund) of the
Fund's total assets. The investments of each of the Funds in
repurchase agreements, at times, may be substantial when, in
the view of the Advisor, liquidity or other considerations so
warrant.
Zero Coupon Bonds
The Bond Fund and the Juno Fund may invest in U.S. Treasury
zero-coupon bonds. These securities are U.S. Treasury bonds
which have been stripped of their unmatured interest coupons,
the coupons themselves, and receipts or certificates
representing interests in such stripped debt obligations and
coupons. Interest is not paid in cash during the term of
these securities, but is accrued and paid at maturity. Such
obligations have greater price volatility than coupon
obligations and other normal interest-paying securities, and
the value of zero coupon securities reacts more quickly to
changes in interest rates than do coupon bonds. Since
dividend income is accrued throughout the term of the zero
coupon obligation, but is not actually received until
maturity, the Fund may have to sell other securities to pay
said accrued dividends prior to maturity of the zero coupon
obligation. Unlike regular U.S. Treasury bonds which pay
semi-annual interest, U.S. Treasury zero coupon bonds do not
generate semi-annual coupon payments. Instead, zero coupon
bonds are purchased at a substantial discount from the
maturity value of such securities, the discount reflecting the
current value of the deferred interest; this discount is
amortized as interest income over the life of the security,
and is taxable even though there is no cash return until
maturity. Zero coupon U.S. Treasury issues originally were
created by government bond dealers who bought U.S. Treasury
bonds and issued receipts representing an ownership interest
in the interest coupons or in the principal portion of the
bonds. Subsequently, the U.S. Treasury began directly issuing
zero coupon bonds with the introduction of "Separate Trading
of Registered Interest and Principal of Securities" (or
"STRIPS"). While zero coupon bonds eliminate the reinvestment
risk of regular coupon issues, that is, the risk of
subsequently investing the periodic interest payments at a
lower rate than that of the security held, zero coupon bonds
fluctuate much more sharply than regular coupon-bearing bonds.
Thus, when interest rates rise, the value of zero coupon bonds
will decrease to a greater extent than will the value of
regular bonds having the same interest rate.
Reverse Repurchase Agreements
The Ursa Fund, the Juno Fund, and the Money Market Fund may
use reverse repurchase agreements as part of that Fund's
investment strategy. Reverse repurchase agreements involve
sales by a Fund of portfolio assets concurrently with an
agreement by the Fund to repurchase the same assets at a later
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date at a fixed price. Generally, the effect of such a
transaction is that the Fund can recover all or most of the
cash invested in the portfolio securities involved during the
term of the reverse repurchase agreement, while the Fund will
be able to keep the interest income associated with those
portfolio securities. Such transactions are advantageous only
if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of obtaining the cash
otherwise. Opportunities to achieve this advantage may not
always be available, and the Funds intend to use the reverse
repurchase technique only when this will be to the Fund's
advantage to do so. Each Fund will establish a segregated
account with the Trust's custodian bank in which the Fund will
maintain cash or cash equivalents or other portfolio
securities equal in value to the Fund's obligations in respect
of reverse repurchase agreements.
Borrowing
The Nova Fund and the Bond Fund may borrow money, including
borrowing for investment purposes. Borrowing for investment
is known as leveraging. Leveraging investments, by purchasing
securities with borrowed money, is a speculative technique
which increases investment risk, but also increases investment
opportunity. Since substantially all of a Fund s assets will
fluctuate in value, whereas the interest obligations on
borrowings may be fixed, the net asset value per share of the
Fund will increase more when the Fund s portfolio assets
increase in value and decrease more when the Fund s portfolio
assets decrease in value than would otherwise be the case.
Moreover, interest costs on borrowings may fluctuate with
changing market rates of interest and may partially offset or
exceed the returns on the borrowed funds. Under adverse
conditions, the Nova Fund and the Bond Fund might have to sell
portfolio securities to meet interest or principal payments at
a time investment considerations would not favor such sales.
The Nova Fund and the Bond Fund intend to use leverage during
periods when the Advisor believes that the respective Fund s
investment objective would be furthered.
Each Fund may borrow money to facilitate management of the
Fund s portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio instruments would
be inconvenient or disadvantageous. Such borrowing is not for
investment purposes and will be repaid by the borrowing Fund
promptly.
As required by the Investment Company Act of 1940, as amended
(the "1940 Act"), a Fund must maintain continuous asset
coverage (total assets, including assets acquired with
borrowed funds, less liabilities exclusive of borrowings) of
300% of all amounts borrowed. If, at any time, the value of
the Fund s assets should fail to meet this 300% coverage test,
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the Fund, within three days (not including Sundays and
holidays), will reduce the amount of the Fund s borrowings to
the extent necessary to meet this 300% coverage. Maintenance
of this percentage limitation may result in the sale of
portfolio securities at a time when investment considerations
otherwise indicate that it would be disadvantageous to do so.
In addition to the foregoing, the Funds are authorized to
borrow money from a bank as a temporary measure for
extraordinary or emergency purposes in amounts not in excess
of 5% of the value of the Fund s total assets. This borrowing
is not subject to the foregoing 300% asset coverage
requirement. The Funds are authorized to pledge portfolio
securities as the Advisor deems appropriate in connection with
any borrowings.
Lending of Portfolio Securities
Subject to the investment restrictions set forth below, each
of the Funds may lend portfolio securities to brokers,
dealers, and financial institutions, provided that cash equal
to at least 100% of the market value of the securities loaned
is deposited by the borrower with the Fund and is maintained
each business day in a segregated account pursuant to
applicable regulations. While such securities are on loan,
the borrower will pay the lending Fund any income accruing
thereon, and the Fund may invest the cash collateral in
portfolio securities, thereby earning additional income. A
Fund will not lend its portfolio securities if such loans are
not permitted by the laws or regulations of any state in which
the Fund's shares are qualified for sale, and the Funds will
not lend more than 33 % of the value of the Fund's total
assets, except that the Money Market Fund will not lend more
than 10% of the value of the Money Market Fund's total assets.
Loans would be subject to termination by the lending Fund on
four business days' notice, or by the borrower on one day's
notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the
borrowed securities which occurs during the term of the loan
inures to the lending Fund and that Fund's shareholders. A
lending Fund may pay reasonable finders, borrowers,
administrative, and custodial fees in connection with a loan.
When-Issued and Delayed-Delivery Securities
Each Fund, from time to time, in the ordinary course of
business, may purchase securities on a when-issued or delayed-
delivery basis (i.e., delivery and payment can take place
between a month and 120 days after the date of the
transaction). These securities are subject to market
fluctuation and no interest accrues to the purchaser during
this period. At the time a Fund makes the commitment to
purchase securities on a when-issued or delayed-delivery
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basis, the Fund will record the transaction and thereafter
reflect the value of the securities, each day, of such
security in determining the Fund's net asset value. A Fund
will not purchase securities on a when-issued or delayed-
delivery basis if, as a result, more than 15% (10% with
respect to the Money Market Fund) of the Fund s net assets
would be so invested. At the time of delivery of the
securities, the value of the securities may be more or less
than the purchase price. The Fund will also establish a
segregated account with the Fund's custodian bank in which the
Fund will maintain cash or liquid securities equal to or
greater in value than the Fund's purchase commitments for such
when-issued or delayed-delivery securities. The Trust does
not believe that a Fund's net asset value or income will be
adversely affected by the Fund's purchase of securities on a
when-issued or delayed delivery basis.
Investments in Other Investment Companies
The Funds (other than the Bond Fund and the Money Market Fund)
presently may invest in the securities of other investment
companies to the extent that such an investment would be
consistent with the requirements of Section 12(d)(1) of the
1940 Act. A Fund, therefore, may invest in the securities of
another investment company (the "acquired company") provided
that the Fund, immediately after such purchase or acquisition,
does not own in the aggregate: (i) more than 3% of the total
outstanding voting stock of the acquired company; (ii)
securities issued by the acquired company having an aggregate
value in excess of 5% of the value of the total assets of the
Fund; or (iii) securities issued by the acquired company and
all other investment companies (other than Treasury stock of
the Fund) having an aggregate value in excess of 10% of the
value of the total assets of the Fund. The Bond Fund and the
Money Market Fund may invest in the securities of other
investment companies only as part of a merger, reorganization,
or acquisition, subject to the requirements of the 1940 Act.
If a Fund invests in, and, thus, is a shareholder of, another
investment company, the Fund s shareholders will indirectly
bear the Fund s proportionate share of the fees and expenses
paid by such other investment company, including advisory
fees, in addition to both the management fees payable directly
by the Fund to the Fund s own investment adviser and the other
expenses that the Fund bears directly in connection with the
Fund s own operations.
The Trust and the Advisor have applied to the Securities and
Exchange Commission for an exemptive order that would permit
other investment companies to invest in the Funds as part of a
"fund of funds" arrangement (the "FOF Order"). Once the Trust
receives the FOF Order, and for as long as the FOF Order
remains effective (and subject to the FOF Order being modified
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in the future), none of the Funds (including both the Bond
Fund and the Money Market Fund) will invest in any securities
of investment companies, except as these securities may be
acquired as part of a merger, consolidation, acquisition of
assets, or plan of reorganization. There is no assurance that
the FOF Order will be issued.
The foregoing strategies, and those discussed in the Trust's
Prospectus under the heading "Investment Objectives and
Policies," may subject a Fund to the effects of interest rate
fluctuations to a greater extent than would occur if such
strategies were not used. While these strategies may be used
by a Fund if, in the opinion of the Advisor, these strategies
will be advantageous to the Fund, the Fund will be free to
reduce or eliminate its activity in any of those areas without
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 a Fund, either individually or in
combination. Furthermore, there is no assurance that any of
these strategies or any other strategies and methods of
investment available to a Fund will result in the achievement
of the Fund's objectives.
Illiquid Securities
While none of the Funds anticipates doing so, each Fund may
purchase illiquid securities, including securities that are
not readily marketable and securities that are not registered
("restricted securities") under the Securities Act of 1933, as
amended (the "1933 Act"), but which can be offered and sold to
"qualified institutional buyers" under Rule 144A under the
1933 Act. A Fund will not invest more than 15% (10% with
respect to the Money Market Fund) of the Fund's net assets in
illiquid securities. Each Fund will adhere to a more
restrictive limitation on the Fund's investment in illiquid
securities as required by the securities laws of those
jurisdictions where shares of the Fund are registered for
sale. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at
which the Fund has valued the securities. Under the current
guidelines of the staff of the Securities and Exchange
Commission (the "Commission"), illiquid securities also are
considered to include, among other securities, purchased over-
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
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<PAGE>
be obtained if the securities were more liquid. In addition,
the sale of illiquid securities also may require more time and
may result in higher dealer discounts and other selling
expenses than does the sale of securities that are not
illiquid. Illiquid securities also may be more difficult to
value due to the unavailability of reliable market quotations
for such securities, and investment in illiquid securities may
have an adverse impact on net asset value.
Institutional markets for restricted securities have developed
as a result of the promulgation of Rule 144A under the 1933
Act, which provides a "safe harbor" from 1933 Act registration
requirements for qualifying sales to institutional investors.
When Rule 144A restricted securities present an attractive
investment opportunity and other meet selection criteria, a
Fund may make such investments. Whether or not such
securities are "illiquid" depends on the market that exists
for the particular security. The Commission staff has taken
the position that the liquidity of Rule 144A restricted
securities is a question of fact for a board of trustees to
determine, such determination to be based on a consideration
of the readily-available trading markets and the review of any
contractual restrictions. The staff also has acknowledged
that, while a board of trustees retains ultimate
responsibility, the trustees may delegate this function to an
investment adviser. The trustees of the Trust (the
"Trustees") have delegated this responsibility for determining
the liquidity of Rule 144A restricted securities which may be
invested in by a Fund to the Advisor. It is not possible to
predict with assurance exactly how the market for Rule 144A
restricted securities or any other security will develop. A
security which when purchased enjoyed a fair degree of
marketability may subsequently become illiquid and,
accordingly, a security which was deemed to be liquid at the
time of acquisition may subsequently become illiquid. In such
event, appropriate remedies will be considered to minimize the
effect on the Fund's liquidity.
Portfolio Turnover
As discussed in the Trust's prospectus, the Trust anticipates
that investors in the Funds, as part of a market-timing or
asset allocation investment strategy, will frequently exchange
shares of the Funds for shares in other Funds pursuant to the
exchange policy of the Trust as well as frequently redeem
shares of the Funds (see "Exchanges" in the Trust's
Prospectus). The nature of the Funds has caused the Funds to
experience substantial portfolio turnover. Because each
Fund's portfolio turnover rate to a great extent will depend
on the purchase, redemption, and exchange activity of the
Fund's investors, it is very difficult to estimate what the
Fund's actual turnover rate will be in the future. However,
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<PAGE>
the Trust expects that the portfolio turnover experienced the
Funds will continue to be substantial.
"Portfolio Turnover Rate" is defined under the rules of the
Securities and Exchange Commission as the value of the
securities purchased or securities sold, excluding all
securities whose maturities at time of acquisition were one
year or less, divided by the average monthly value of such
securities owned during the year. Based on this definition,
instruments with remaining maturities of less than one year
are excluded from the calculation of portfolio turnover rate.
Instruments excluded from the calculation of portfolio
turnover generally would include the futures contracts and
option contracts in which the Funds invest since such
contracts generally have a remaining maturity of less than one
year. All instruments held by a Fund during a specified
period may have a remaining maturity of less than one year in
which case the portfolio turnover rate for that period, under
the definition, would be equal to zero. However, because of
the nature of Funds as described above, the actual portfolio
turnover of the Funds has been and it is anticipated that
their actual portfolio turnover in the future will be
unusually high.
Tracking Error
While the Funds do not expect that the returns over a year
will deviate adversely from their respective benchmarks by
more than ten percent, several factors may affect their
ability to achieve this correlation. Among these factors are:
(1) Fund expenses, including brokerage (which may be increased
by high portfolio turnover); (2) less than all of the
securities in the benchmark being held by a Fund and
securities not included in the benchmark being held by a Fund;
(3) an imperfect correlation between the performance of
instruments held by a Fund, such as futures contracts and
options, and the performance of the underlying securities in
the cash market; (4) bid-ask spreads (the effect of which may
be increased by portfolio turnover); (5) a Fund holds
instruments traded in a market that has become illiquid or
disrupted; (6) Fund share prices being rounded to the nearest
cent; (7) changes to the benchmark index that are not
disseminated in advance; (8) the need to conform a Fund s
portfolio holdings to comply with investment restrictions or
policies or regulatory or tax law requirements; or (9) market
movements that run counter to a leveraged Fund's investments
(which will cause divergence between the Fund and its
benchmark over time due to the mathematical effects of
leveraging). Market movements that run counter to a leveraged
Fund's investments will cause some divergence between the Fund
and its benchmark over time due to the mathematical effects of
leveraging. The magnitude of the divergence is dependent upon
the magnitude of the market movement, its duration, and the
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<PAGE>
degree to which the Fund is leveraged. The tracking error of
a leveraged Fund is generally small during a well-defined
uptrend or downtrend in the market. When measured from price
peak to price peak, across a market decline and subsequent
recovery, however, the deviation of the Fund from its
benchmark may be significant.
INVESTMENT RESTRICTIONS
As described in the section of the Trust's Prospectus entitled
"Investment Objectives and Policies," each of the Funds 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 1940 Act. The term "majority"
is defined in the 1940 Act as the lesser of: (i) 67% or more
of the shares of the series present at a meeting of
shareholders, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by
proxy; or (ii) more than 50% of the outstanding shares of the
series. (All policies of a Fund not specifically identified
in this Statement of Additional Information or the Trust's
Prospectus as fundamental may be changed without a vote of the
shareholders of the Fund.) For purposes of the following
limitations, all percentage limitations apply immediately
after a purchase or initial investment. Any subsequent change
in a particular percentage resulting from fluctuations in
value does not require the elimination of any security from a
Fund's portfolio.
The following restrictions are applicable to the Nova Fund,
the Ursa Fund, the OTC Fund, the Metals Fund, the Bond Fund,
and the Juno Fund:
A Fund shall not:
1. Lend any security or make any other loan if, as a
result, more than 33 % of the value of the Fund's
total assets would be lent to other parties, except
(i) through the purchase of a portion of an issue of
debt securities in accordance with the Fund's
investment objective, policies, and limitations, or
(ii) by engaging in repurchase agreements with
respect to portfolio securities, or (iii) through
the loans of portfolio securities provided the
borrower maintains collateral equal to at least 100%
of the value of the borrowed security and marked-to-
market daily.
2. Underwrite securities of any other issuer.
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3. Purchase, hold, or deal in real estate or oil and
gas interests, although the Fund may purchase and
sell securities that are secured by real estate or
interests therein and may purchase mortgage-related
securities and may hold and sell real estate
acquired for the Fund as a result of the ownership
of securities.
4. Issue any senior security (as such term is defined
in Section 18(f) of the 1940 Act) (including the
amount of senior securities issued but excluding
liabilities and indebtedness not constituting senior
securities), except that the Fund may issue senior
securities in connection with transactions in
options, futures, options on futures, and other
similar investments, and except as otherwise
permitted herein and in Investment Restriction Nos.
5, 7, 8, 9, 10, 11, 13, and 14, as applicable to the
Fund.
5. Pledge, mortgage, or hypothecate the Fund's assets,
except to the extent necessary to secure permitted
borrowings and to the extent related to the deposit
of assets in escrow in connection with (i) the
writing of covered put and call options, (ii) the
purchase of securities on a forward-commitment or
delayed-delivery basis, and (iii) collateral and
initial or variation margin arrangements with
respect to currency transactions, options, futures
contracts, including those relating to indexes, and
options on futures contracts or indexes.
The following restrictions are applicable to the Nova Fund,
the Ursa Fund, the OTC Fund, the Bond Fund, and the Juno Fund:
A Fund shall not:
6. Invest in commodities except that the Fund may
purchase and sell futures contracts, including those
relating to securities, currencies, indexes, and
options on futures contracts or indexes and
currencies underlying or related to any such futures
contracts, and purchase and sell currencies (and
options thereon) or securities on a forward-
commitment or delayed-delivery basis.
7. Invest 25% or more of the value of the Fund's total
assets in the securities of one or more issuers
conducting their principal business activities in
the same industry. This limitation does not apply
to investments or obligations of the U.S. Government
or any of its agencies or instrumentalities.
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<PAGE>
The following restriction is applicable to the Ursa Fund, the
OTC Fund, the Metals Fund, and the Money Market Fund:
A Fund shall not:
8. Borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes and then only in
amounts not in excess of 5% of the value of the
Fund's total assets from a bank or (ii) in an amount
up to one-third of the value of the Fund's total
assets, including the amount borrowed, in order to
meet redemption requests without immediately selling
portfolio instruments. This provision is not for
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.
The following restriction is applicable to the Nova Fund, the
OTC Fund, and the Metals Fund:
A Fund shall not:
9. Make short sales of portfolio securities or purchase
any portfolio securities on margin, except for such
short-term credits as are necessary for the
clearance of transactions. The deposit or payment
by the Fund of initial or variation margin in
connection with futures or options transactions is
not considered to be a securities purchase on
margin. The Fund may engage in short sales if, at
the time of the short sale, the Fund owns or has the
right to acquire an equal amount of the security
being sold at no additional cost ("selling against
the box").
The following restriction is applicable to the Nova Fund and
the Bond Fund:
A Fund shall not:
10. Borrow money, except the Fund may borrow money
(i) from a bank in an amount not in excess of 33 %
of the total value of the Fund's assets (including
the amount borrowed) less the Fund's liabilities
(not including the Fund's borrowings), and (ii) for
temporary purposes in an amount not in excess of 5%
of the total value of the Fund's assets.
The following restriction is applicable to the Ursa Fund and
the Juno Fund:
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A Fund shall not:
11. Make short sales of portfolio securities or maintain
a short position unless at all times when a short
position is open (i) the Fund maintains a segregated
account with the Fund's custodian to cover the short
position in accordance with the position of the
Securities and Exchange Commission or (ii) the Fund
owns an equal amount of such securities or
securities convertible into or exchangeable, without
payment of any further consideration, for securities
of the same issue as, and equal in amount to, the
securities sold short.
The following restrictions are applicable to the Metals Fund:
The Metals Fund shall not:
12. Purchase and sell commodities or commodities
contracts, but this shall not prevent the Metals
Fund from: (a) trading in futures contracts and
options on futures contracts; or (b) investing in
precious-metals and precious minerals.
13. Invest 25% or more of the value of the Metals Fund's
total assets in the securities of one or more
issuers conducting their principal business
activities in the same industry; except that the
Metals Fund will invest 25% or more of the value of
the Metals Fund's total assets in the securities in
the metals-related and minerals-related industries.
This limitation does not apply to investments or
obligations of the U.S. Government or any of its
agencies or instrumentalities.
The following restriction is applicable to the Bond Fund:
The Bond Fund shall not:
14. Make short sales of portfolio securities or purchase
any portfolio securities on margin, except for such
short-term credits as are necessary for the
clearance of transactions. The deposit or payment
by the Bond Fund of initial or variation margin in
connection with futures or options transactions is
not considered to be a securities purchase on
margin.
The following restrictions are applicable to the Money Market
Fund:
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The Money Market Fund shall not:
15. Make loans to others except through the purchase of
qualified debt obligations, loans of portfolio
securities and entry into repurchase agreements.
16. Lend the Money Market Fund's portfolio securities in
excess of 15% of the Money Market Fund's total
assets. Any loans of the Money Market Fund's
portfolio securities will be made according to
guidelines established by the Board of Trustees of
the Trust, including maintenance of cash collateral
of the borrower equal at all times to the current
market value of the securities loaned.
17. Issue senior securities, except as permitted by the
Money Market Fund's investment objectives and
policies.
18. Write or purchase put or call options.
19. Invest in securities of other investment companies,
except as these securities may be acquired as part
of a merger, consolidation, acquisition of assets,
or plan of reorganization.
20. Mortgage, pledge, or hypothecate the Money Market
Fund's assets except to secure permitted borrowings.
In those cases, the Money Market Fund may mortgage,
pledge, or hypothecate assets having a market value
not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets of the
Money Market Fund at the time of the borrowing.
21. Make short sales of portfolio securities or purchase
any portfolio securities on margin, except for such
short-term credits as are necessary for the
clearance of transactions.
The following restriction is applicable to the Juno Fund:
The Juno Fund shall not:
22. Borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes and then only in
amounts not in excess of 5% of the value of the
Fund's total assets from a bank or (ii) in an amount
up to one-third of the value of the Fund's total
assets, including the amount borrowed, in order to
meet redemption requests without immediately selling
portfolio instruments. This provision is not for
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<PAGE>
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. The Juno Fund shall not make
purchases while borrowing in excess of 5% of the
value of its total assets. For purposes of this
limitation, Fund assets invested in reverse
repurchase agreements are included in the amounts
borrowed.
Furthermore, the Trustees have adopted additional investment
restrictions for each Fund. These restrictions are not
fundamental investment policies, but rather are operating
policies of each Fund, as indicated, and may be changed by the
Trustees without Fund shareholder approval. With respect to
each of the Funds, except as otherwise indicated, these
additional investment restrictions adopted by the Trustees, to
date, are as follows:
1. The Fund will not invest in warrants.
2. The Fund will not invest in real estate limited
partnerships.
3. The Fund will not invest in mineral leases; except
that the Metals Fund may invest in mineral leases
although the Metals Fund does not presently intend
to invest in such leases.
In addition, none of the Funds presently intends:
1. To lend the Fund's assets. If, in the future, a
Fund does lend its assets, the Fund will adhere to
all limitations on the Fund's ability to lend its
assets as required by the securities laws of those
jurisdictions where shares of the Fund are
registered for sale.
2. To enter into currency transactions; except that the
Metals Fund may enter into currency transactions
although the Metals Fund does not presently intend
to enter into such transactions.
3. To purchase illiquid securities. If in the future,
a Fund does purchase illiquid securities, the Fund
will not invest more than 15% of its net assets in
illiquid securities; except that the Money Market
Fund will not invest more than 10% of its net assets
in illiquid securities. Each Fund will adhere to a
more restrictive limitation on the Fund's investment
in illiquid securities as required by the securities
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laws of those jurisdictions where shares of the Fund
are registered for sale.
4. To purchase and sell real property (including
limited partnership interests), to purchase and sell
securities that are secured by real estate or
interests therein, to purchase mortgage-related
securities, or to hold and sell real estate acquired
for the Fund as a result of the ownership of
securities.
If a percentage restriction is adhered to at the time of an
investment, a later increase or decrease in the investment's
percentage of the value of the Fund's total assets resulting
from a change in such values or assets will not constitute a
violation of the percentage restriction.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, the
Advisor is responsible for decisions to buy and sell
securities for each of the Funds, the selection of brokers and
dealers to effect the transactions, and the negotiation of
brokerage commissions, if any. The Advisor expects that the
Funds may execute brokerage or other agency transactions
through registered broker-dealers, for a commission, in
conformity with the 1940 Act, the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder
The Advisor may serve as an investment manager to a number of
clients, including other investment companies. It is the
practice of the Advisor to cause purchase and sale
transactions to be allocated among the Funds and others whose
assets the Advisor manages in such manner as the Advisor deems
equitable. The main factors considered by the Advisor in
making such allocations among the Funds and other client
accounts of the Advisor are the respective investment
objectives, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for
investment, the size of investment commitments generally held,
and the opinions of the person(s) responsible, if any, for
managing the portfolios of the Funds and the other client
accounts.
The policy of each Fund regarding purchases and sales of
securities for the Fund's portfolio is that primary
consideration will be given to obtaining the most favorable
prices and efficient executions of transactions. Consistent
with this policy, when securities transactions are effected on
a stock exchange, each Fund's policy is to pay commissions
which are considered fair and reasonable without necessarily
determining that the lowest possible commissions are paid in
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all circumstances. Each Fund believes that a requirement
always to seek the lowest possible commission cost could
impede effective portfolio management and preclude the Fund
and the Advisor from obtaining a high quality of brokerage and
research services. In seeking to determine the reasonableness
of brokerage commissions paid in any transaction, the Advisor
relies upon its experience and knowledge regarding commissions
generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from
the broker effecting the transaction. Such determinations are
necessarily subjective and imprecise, as in most cases an
exact dollar value for those services is not ascertainable.
Purchases and sales of U.S. Government securities are normally
transacted through issuers, underwriters or major dealers in
U.S. Government Securities acting as principals. Such
transactions are made on a net basis and do not involve
payment of brokerage commissions. The cost of securities
purchased from an underwriter usually includes a commission
paid by the issuer to the underwriters; transactions with
dealers normally reflect the spread between bid and asked
prices.
In seeking to implement a Fund's policies, the Advisor effects
transactions with those brokers and dealers who the Advisor
believes provide the most favorable prices and are capable of
providing efficient executions. If the Advisor believes such
prices and executions are obtainable from more than one broker
or dealer, the Advisor may give consideration to placing
portfolio transactions with those brokers and dealers who also
furnish research and other services to the Fund or the
Advisor. Such services may include, but are not limited to,
any one or more of the following: information as to the
availability of securities for purchase or sale; statistical
or factual information or opinions pertaining to investment;
wire services; and appraisals or evaluations of portfolio
securities. If the broker-dealer providing these additional
services is acting as a principal for its own account, no
commissions would be payable. If the broker-dealer is not a
principal, a higher commission may be justified, at the
determination of the Advisor, for the additional services.
The information and services received by the Advisor from
brokers and dealers may be of benefit to the Advisor in the
management of accounts of some of the Advisor's other clients
and may not in all cases benefit a Fund directly. While the
receipt of such information and services is useful in varying
degrees and would generally reduce the amount of research or
services otherwise performed by the Advisor and thereby reduce
the Advisor's expenses, this information and these services
are of indeterminable value and the management fee paid to the
23
<PAGE>
Advisor is not reduced by any amount that may be attributable
to the value of such information and services.
The Nova Fund, the Ursa Fund, the OTC Fund, the Metals Fund,
the Bond Fund, the Juno Fund, and the Money Market Fund
commenced operations on July 12, 1993, January 7, 1994,
February 14, 1994, December 1, 1993, January 3, 1994, March 3,
1995, and December 3, 1993, respectively. For the period from
the respective commencement of operations to June 30, 1994,
total brokerage commissions paid by the Nova Fund, the Ursa
Fund, the OTC Fund, the Metals Fund, the Bond Fund, and the
Money Market Fund amounted to $150,696, $197,412, $23,577,
$381,380, $6,324, and $0, respectively. For the period from
July 1, 1994 (or the respective commencement of operations, if
later) to June 30, 1995, total brokerage commissions paid by
the Nova Fund, the Ursa Fund, the OTC Fund, the Metals Fund,
the Bond Fund, the Juno Fund, and the Money Market Fund
amounted to $268,283, $494,223, $35,421, $550,858, $2,390,
$14,999, and $0, respectively. For the period from July 1,
1995 to June 30, 1996, total brokerage commissions paid by
the Nova Fund, the Ursa Fund, the OTC Fund, the Metals Fund,
the Bond Fund, The Juno Fund, and the Money Market Fund
amounted to $293,000, $669,000, $673,000, $35,000, $11,000,
$23,000, and $0, respectively. For the period July 1, 1996 to
March 31, 1997, total brokerage commissions paid by The Nova
Fund, The Ursa Fund, The OTC Fund, the Metals Fund, the Bond
Fund, the Juno Fund, and the Money Market Fund amounted to
$259,900, $236,053, $15,491, $276,434, $7,829, $24,387, and
$0, respectively.
MANAGEMENT OF THE TRUST
The Trustees are responsible for the general supervision of
the Trust's business. The day-to-day operations of the Trust
are the responsibilities of the Trust's officers. The names
and addresses (and ages) of the Trustees and the officers of
the Trust and the officers of the Advisor, together with
information as to their principal business occupations during
the past five years, are set forth below. Fees and expenses
for non-interested Trustees will be paid by the Trust.
Trustees
*Albert P. Viragh, Jr. (56)
Chairman of the Board of Trustees and President of the
Trust; Chairman of the Board, President, and Treasurer of
PADCO Advisors, Inc., investment adviser to the Trust,
1993 to present; Chairman of the Board, President, and
Treasurer of PADCO Service Company, Inc., shareholder and
transfer agent servicer to the Trust, 1993 to present;
Chairman of the Board of Managers of The Rydex Advisor
24
<PAGE>
Variable Annuity Account (the "Separate Account"), a
separate account of Great American Reserve Insurance
Company, 1996 to present; Chairman of the Board,
President, and Treasurer of PADCO Advisors II, Inc.,
investment adviser to the Separate Account, 1996 to
present; Chairman of the Board, President, and Treasurer
of PADCO Financial Services, Inc., a registered broker-
dealer firm and the distributor of the shares of the
Rydex Institutional Money Market Fund and the Rydex High
Yield Fund, each a series of the Trust, 1996 to present;
Vice President of Rushmore Investment Advisors Ltd., a
registered investment adviser, 1985 to 1993. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
Corey A. Colehour (51)
Trustee of the Trust; Manager of the Separate Account,
1996 to present; Senior Vice President of Marketing of
Schield Management Company, a registered investment
adviser, 1985 to present. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
J. Kenneth Dalton (57)
Trustee of the Trust; Manager of the Separate Account,
1996 to present; Mortgage Banking Consultant and
Investor, The Dalton Group, April 1995 to present;
President, CRAM Mortgage Group, Inc. 1966 to April 1995.
Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
Roger Somers (53)
Trustee of the Trust; Manager of the Separate Account,
1996 to present; President, Arrow Limousine, 1963 to
present. Address: 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.
Officers
Robert M. Steele (38)
Secretary and Vice President of the Trust; Vice President
of PADCO Advisors, Inc., investment adviser to the Trust,
1994 to present; Secretary and Vice President of the
Separate Account, 1996 to present; Vice President of
PADCO Advisors II, Inc., investment adviser to the
Separate Account, 1996 to present; Vice President of The
Boston Company, Inc., an institutional money management
firm, 1987 to 1994. Address: 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852.
25
<PAGE>
Carl G. Verboncoeur (44)
Vice President of Operations of the Trust; Vice President
of Operations of the Separate Account, 1997 to present;
Senior Vice President, Crestar Bank, 1995 to 1997; Senior
Vice President, Crestar Asset Management Company, a
registered investment adviser, 1993 to 1995; Vice
President Perpetual Savings Bank, 1987 to 1993. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
Michael P. Byrum (27)
Assistant Secretary of the Trust; Employee and senior
portfolio manager of PADCO Advisors, Inc., 1993 to
present; portfolio manager of The Rydex OTC Fund (since
1997) and The Rydex U.S. Government Bond Fund (since
1997), each a series of the Trust; Assistant Secretary of
the Separate Account, 1996 to present; Employee of PADCO
Advisors II, Inc., investment adviser to the Separate
Account; Investment Representative, Money Management
Associates, a registered investment adviser, 1992 to
1993; Student, Miami University, of Oxford, Ohio (B.A.,
Business Administration, 1992). Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
Victor J. Edgar (36)
Controller of the Trust; Controller of the Separate
Account, 1996 to the present; Controller of PADCO Service
Company, Inc., the shareholder and transfer agent
servicer for the Trust, 1994 to the present; Controller
of PADCO Financial Services, Inc., a registered broker-
dealer firm and the distributor of the shares of the
Rydex Institutional Money Market Fund and the Rydex High
Yield Fund, 1996 to present; Assistant Controller for The
Rushmore Group, a mutual fund complex, 1989 until 1994.
Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
Sothara Chin (31)
Compliance Officer of the Trust; Compliance Officer of
PADCO Advisors, Inc., investment adviser of the Trust,
1996 to the present; Compliance Officer of the Separate
Account, 1996 to present; Compliance Officer of PADCO
Advisors II, Inc., investment adviser to the Separate
Account, 1996 to present; Compliance Officer of PADCO
Service Company, Inc., the Trust's shareholder and
transfer agent servicer to the Trust, 1996 to present;
Compliance Officer of PADCO Financial Services, Inc., a
registered broker-dealer and the distributor of the
26
<PAGE>
shares of the Rydex Institutional Money Market Fund and
High Yield Fund, 1996 to present; Compliance Officer,
USLICO Corporation, an insurance company, 1990 to 1996.
Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
__________________________
* This Trustee is deemed to be an "interested person" of
the Trust, within the meaning of Section 2(a)(19) of the
1940 Act, inasmuch as this person is affiliated with the
Advisor, as described herein.
The Advisory Agreement
Under an investment advisory agreement with the Advisor, dated
May 14, 1993, and amended on November 2, 1993, and also
amended on December 13, 1994, March 8, 1996, and
September 25, 1996, the Advisor serves as the investment
adviser for each series of the Trust and provides investment
advice to the Funds and oversees the day-to-day operations of
the Funds, subject to direction and control by the Trustees
and the officers of the Trust. The Trust currently is
composed of nine separate series, the Nova Fund, the Ursa
Fund, the Rydex OTC Fund, the Rydex Precious Metals Fund, the
Rydex U.S. Government Bond Fund, the Juno Fund, the Rydex U.S.
Government Money Market Fund, the Rydex High Yield Fund, and
the Rydex Institutional Money Market Fund; other separate
series may be added in the future. As of March 31, 1997, net
Trust assets under management of the Advisor were
approximately $1.28 billion. Pursuant to the advisory
agreement with the Advisor, the Funds pay the Advisor the
following fees at an annual rate based on the average daily
net assets for each respective Fund, as set forth below:
The Nova Fund 0.75%
The Ursa Fund 0.90%
The Rydex OTC Fund 0.75%
The Rydex Precious Metals Fund 0.75%
The Rydex U.S. Government Bond Fund 0.50%
The Juno Fund 0.90%
The Rydex U.S. Government Money
Market Fund 0.50%
The Nova Fund, the Ursa Fund, the OTC Fund, the Metals Fund,
the Bond Fund, the Juno Fund, and the Money Market Fund
commenced operations on July 12, 1993, January 7, 1994,
February 14, 1994, December 1, 1993, January 3, 1994, March 3,
1995, and December 3, 1993, respectively. For the period from
the respective commencement of operations to June 30, 1994,
total management fees paid by the Nova Fund, the Ursa Fund,
the OTC Fund, the Metals Fund, the Bond Fund, and the Money
27
<PAGE>
Market Fund to the Advisor amounted to $158,834, $193,185,
$14,901, $16,816, $4,888, and $163,459, respectively. For the
period from July 1, 1994 (or the respective commencement of
operations, if later) to June 30, 1995, total management fees
paid by the Nova Fund, the Ursa Fund, the OTC Fund, the Metals
Fund, the Bond Fund, the Juno Fund, and the Money Market Fund
to the Advisor amounted to $411,286, $1,587,040, $361,659,
$221,309, $7,704, $29,837, and $727,027, respectively. For
the period from July 1, 1995 to June 30, 1996, total
management fees paid by the Nova Fund, the Ursa Fund, the OTC
Fund, the Metals Fund, the Bond Fund, the Juno Fund, and the
Money Market Fund to the Advisor amounted to $1,022,794,
$1,607,706, $541,443, $406,902, $97,820, $174,866, and
$891,864, respectively. For the period from July 1, 1996 to
March 31, 1997, total management fees expensed to the Advisor
by the Nova Fund, the Ursa Fund, the OTC Fund, the Metals
Fund, the Bond Fund, the Juno Fund, and the Money Market Fund
amounted to $1,812,740, $2,070,135, $775,607, $185,396,
$35,394, $130,573, and $671,957, respectively.
The Advisor reimbursed the Bond Fund $5,831 and $0 for the
fiscal years ended June 30, 1995 and 1996, respectively, and
reimbursed the Bond Fund $0 for the nine-month period ended
March 31, 1997.
The Advisor manages the investment and the reinvestment of the
assets of each of the Funds, in accordance with the investment
objectives, policies, and limitations of the Fund, subject to
the general supervision and control of the Trustees and the
officers of the Trust. The Advisor bears all costs associated
with providing these advisory services and the expenses of the
Trustees of the Trust who are affiliated with or interested
persons of the Advisor. The Advisor, from its own resources,
including profits from advisory fees received from the Funds,
provided such fees are legitimate and not excessive, may make
payments to broker-dealers and other financial institutions
for their expenses in connection with the distribution of Fund
shares, and otherwise currently pay all distribution costs for
Fund shares.
The Advisor, which has its office at 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852, was incorporated in the
State of Maryland on February 5, 1993. Albert P. Viragh, Jr.,
the Chairman of the Board of Trustees and the President of the
Advisor, owns a controlling interest in the Advisor.
The Service Agreement
General administrative, shareholder, dividend disbursement,
transfer agent, and registrar services are provided to the
Trust and the Funds by PADCO Service Company, Inc., 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852
28
<PAGE>
(the "Servicer"), subject to the general supervision and
control of the Trustees and the officers of the Trust,
pursuant to a service agreement between the Trust and the
Servicer, dated September 19, 1995, and amended on March 8,
1996 and also amended on September 25, 1996. The Servicer is
wholly-owned by Albert P. Viragh, Jr., who is the Chairman of
the Board and the President of the Trust and the sole
controlling person and majority owner of the Advisor.
Under this service agreement, the Funds pay the Servicer the
following fees at an annual rate based on the average daily
net assets for each respective Fund, as set forth below:
The Nova Fund 0.25%
The Ursa Fund 0.25%
The Rydex OTC Fund 0.20%
The Rydex Precious Metals Fund 0.20%
The Rydex U.S. Government Bond Fund 0.20%
The Juno Fund 0.25%
The Rydex U.S. Government Money
Market Fund 0.20%
For the period from the respective commencement of operations
to June 30, 1994, total service fees paid by the Nova Fund,
the Ursa Fund, the OTC Fund, the Metals Fund, the Bond Fund,
and the Money Market Fund to the Servicer amounted to $37,545,
$53,647, $3,973, $4,641, $1,955, and $65,383, respectively.
For the period from July 1, 1994 (or the respective
commencement of operations, if later) to June 30, 1995, total
service fees paid by the Nova Fund, the Ursa Fund, the OTC
Fund, the Metals Fund, the Bond Fund, the Juno Fund, and the
Money Market Fund to the Advisor amounted to $137,082,
$440,721, $96,637, $59,001, $3,333, $8,232, and $290,811,
respectively. For the period from July 1, 1995 to June 30,
1996, total service fees paid by the Nova Fund, the Ursa Fund,
the OTC Fund, the Metals Fund, the Bond Fund, the Juno Fund,
and the Money Market Fund to the Advisor amounted to $327,476,
$451,107, $123,358, $114,476, $37,793, $47,333, and $403,167,
respectively. For the period from July 1, 1996 to March 31,
1997, total service fees expensed by the Nova Fund, the Ursa
Fund, the OTC Fund, the Metals Fund, the Bond Fund, the Juno
Fund, and the Money Market Fund to the Servicer amounted to
$606,411, $575,038, $205,328, $49,439, $14,158, $36,374, and
$268,855, respectively.
Under the service agreement, the Servicer provides the Trust
and each Fund with all required general administrative
services, including, without limitation, office space,
equipment, and personnel; clerical and general back office
services; bookkeeping, internal accounting, and secretarial
services; the determination of net asset values; and the
preparation and filing of all reports, registration
29
<PAGE>
statements, proxy statements, and all other materials required
to be filed or furnished by the Trust and each Fund under
Federal and state securities laws. The Servicer also
maintains the shareholder account records for each Fund,
distributes dividends and distributions payable by each Fund,
and produces statements with respect to account activity for
each Fund and each Fund's shareholders. The Servicer pays all
fees and expenses that are directly related to the services
provided by the Servicer to each Fund; each Fund reimburses
the Servicer for all fees and expenses incurred by the
Servicer which are not directly related to the services the
Servicer provides to the Fund under the service agreement.
Costs and Expenses
Each Fund bears all expenses of its operations other than
those assumed by the Advisor or the Servicer. Fund expenses
include: the management fee; the servicing fee (including
administrative, transfer agent, and shareholder servicing
fees); custodian and accounting fees and expenses; legal and
auditing fees; securities valuation expenses; fidelity bonds
and other insurance premiums; expenses of preparing and
printing prospectuses, confirmations, proxy statements, and
shareholder reports and notices; registration fees and
expenses; proxy and annual meeting expenses, if any; all
Federal, state, and local taxes (including, without
limitation, stamp, excise, income, and franchise taxes);
organizational costs; non-interested Trustees' fees and
expenses; the costs and expenses of redeeming shares of the
Fund; fees and expenses paid to any securities pricing
organization; dues and expenses associated with membership in
any mutual fund organization; and costs for incoming telephone
WATTS lines. In addition, each of the Funds pays an equal
portion of the Trustee fees and expenses for attendance at
Trustee meetings for the Trustees of the Trust who are not
affiliated with or interested persons of the Advisor.
For the period from the respective commencement of operations
to June 30, 1994, the total expenses of Fund operations borne
by the Nova Fund, the Ursa Fund, the OTC Fund, the Metals
Fund, the Bond Fund, and the Money Market Fund to the Advisor
amounted to $376,156, $367,676, $44,250, $45,787, $30,901, and
$384,373, respectively. For the period from July 1, 1994 (or
the respective commencement of operations, if later) to June
30, 1995, the total expenses of Fund operations borne by the
Nova Fund, the Ursa Fund, the OTC Fund, the Metals Fund, the
Bond Fund, the Juno Fund, and the Money Market Fund to the
Advisor amounted to $785,175, $2,441,508, $680,241, $405,626,
$40,599, $51,932, and $1,290,628, respectively. For the
period from July 1, 1995 to June 30, 1996, the total expenses
of Fund operations borne by the Nova Fund, the Ursa Fund, the
OTC Fund, the Metals Fund, the Bond Fund, the Juno Fund, and
30
<PAGE>
the Money Market Fund to the Advisor amounted to $1,747,874,
$2,469,816, $916,004, $704,167, $236,172, $320,232, and
$1,758,657, respectively. For the nine-month period from July
1, 1996 to March 31, 1997, the total expenses of Fund
operations borne by the Nova Fund, the Ursa Fund, the OTC
Fund, the Metals Fund, the Bond Fund, the Juno Fund, and the
Money Market Fund to the Advisor amounted to $2,876,911,
$3,135,640, $1,315,489, $367,139, $108,501, $231,608, and
$1,240,180, respectively.
The aggregate compensation paid by the Trust to each of its
Trustees serving during the nine-month period ended March 31,
1997, is set forth in the table below:
<TABLE>
<CAPTION>
Aggregate Pension or Estimated Annual
Name of Compensation Retirement Benefits Benefit upon
Person, from the Trust Accrued as Part of Retirement
Position the Trust s
Expenses
<S> <C> <C> <C>
Albert P. Viragh, Jr.* $0 $0 $0
Chairman and President
Corey A. Colehour $4,500 $0 $0
Trustee
J. Kenneth Dalton $4,500 $0 $0
Trustee
Roger Somers $4,500 $0 $0
Trustee
</TABLE>
* Denotes an "interested person" of the Trust.
PRINCIPAL HOLDERS OF SECURITIES
As of July 8, 1997, the following persons were the only
persons who were record owners or, to the knowledge of the
Trust, beneficial owners of 5% or more of the shares of the
Funds.
31
<PAGE>
<TABLE>
<CAPTION>
Fund Name and Address Number of % Ownership
Shares
<S> <C> <C> <C>
Nova Fund National Financial 5,718,667.394 18.2%1/
Services Corp.
P.O. Box 3908
New York, NY 10008
Schwab & Company 5,496,759.612 17.5%1/
101 Montgomery Street
San Francisco, CA
94104
Nova Fund Donaldson Lufkin 2,933,277.105 9.3%1/
(continued) Jenrette
P.O. Box 2052
Jersey City, NJ 07303
First Trust Corp. 2,229,953.210 7.1%1/
P.O. Box 173736
Denver, CO 80217
Ursa Fund Schwab & Company 7,477,806.303 18.4%1/
101 Montgomery Street
San Francisco, CA
94104
National Financial 4,802,062.240 11.8%1/
Services Corp.
P.O. Box 3908
New York, NY 10008
Donaldson Lufkin 3,193,496.200 7.9%1/
Jenrette
P.O. Box 2052
Jersey City, NJ 07303
OTC Fund Schwab & Company 2,651,722.302 19.2%1/
101 Montgomery Street
San Francisco, CA
94104
First Trust Corp. 2,442,508.558 17.6%1/
P.O. Box 173736
Denver, CO 80217
32
<PAGE>
Fund Name and Address Number of % Ownership
Shares
Record Owner for:
Zweig/Avatar 709,923.790 5.1%2/
Advisors
900 Third Avenue
New York, NY 10022
Donaldson Lufkin 1,777,329.655 12.8%1/
Jenrette
P.O. Box 2052
Jersey City, NJ 07303
Precious First Trust Corp. 577,047.359 17.8%1/
Metals Fund P.O. Box 173736
Denver, CO 80217
Record Owner for:
Infinet Advisory, 577,047.359 17.8%2/
Inc.
3400 Croasdaile
Drive
Suite 208
Durham, NC 27205
33
<PAGE>
Fund Name and Address Number of % Ownership
Shares
Precious Donaldson Lufkin 169,375.117 5.2%1/
Metals Fund Jenrette
(continued) P.O. Box 2052
Jersey City, NJ 07303
U.S. Independent Trust 547,627.926 39.3%1/
Government Corporation
Bond Fund 15255 S. 94th Avenue
Suite 303
Orland Park, IL
60462-3897
First Trust Corp. 192,229.567 13.8%1/
P.O. Box 173736
Denver, CO 80217
Record Owner for:
Fairport Asset 138,098.827 9.9%2/
Management
830 Post Road East
Westport, CO 06880
Juno Fund Donaldson Lufkin 119,855.266 10.0%1/
Jenrette
P.O. Box 2052
Jersey City, NJ
07303
National Financial 117,617.767 9.8%1/
Services Corp.
P.O. Box 3908
New York, NY 10008
Schwab & Company 91,008.800 7.6%1/
101 Montgomery Street
San Francisco, CA
94104
</TABLE>
1/ Record owner only.
2/ Beneficial owner only.
As of the date of this Statement of Additional Information,
the Trustees and the officers of the Trust, as a group, owned,
of record and beneficially, less than 1.0% of the outstanding
shares of each Fund.
34
<PAGE>
DETERMINATION OF NET ASSET VALUE
The Money Market 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 Money
Market Fund. The Money Market Fund will utilize the amortized
cost method in valuing its portfolio securities even though
the portfolio securities may increase or decrease in market
value, generally, in connection with changes in interest
rates. The amortized cost method of valuation involves
valuing a security at its cost adjusted by a constant
amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the
market value of the instrument. While this method provides
certainty in valuation, this method may result in periods
during which value, as determined by amortized cost, is higher
or lower than the price the Money Market Fund would receive if
this Fund sold the instrument. During such periods, the yield
to investors in the Money Market Fund may differ somewhat from
that obtained in a similar company which uses mark-to-market
values for all its portfolio securities. For example, if the
use of amortized cost resulted in a lower (higher) aggregate
portfolio value on a particular day, a prospective investor in
the Money Market Fund would be able to obtain a somewhat
higher (lower) yield than would result from investment in such
a similar company and existing investors would receive less
(more) investment income. The purpose of this method of
calculation is to facilitate the maintenance of a constant net
asset value per share of $1.00.
The Money Market Fund's use of the amortized cost method to
value its portfolio securities and the maintenance of the per
share net asset value of $1.00 is permitted pursuant to Rule
2a-7 under the 1940 Act (the "Rule"), and is conditioned on
the Money Market Fund's compliance with various conditions
including: (a) the Board is obligated, as a particular
responsibility within the overall duty of care owed to the
Money Market Fund's shareholders, to establish written
procedures reasonably designed, taking into account current
market conditions and the Money Market Fund's investment
objectives, to stabilize the net asset value per share as
computed for the purpose of distribution and redemption at
$1.00 per share; (b) the procedures should provide for (i) the
calculation, at such intervals as the Trustees determine are
appropriate and as are reasonable in light of current market
conditions, of the deviation, if any, between net asset value
per share using amortized cost to value portfolio securities
and net asset value per share based upon available market
quotations with respect to such portfolio securities; (ii) the
periodic review by the Trustees of the amount of deviation as
well as methods used to calculate the amount of deviation; and
(iii) the maintenance of written records of the procedures,
35
<PAGE>
the Trustees considerations made pursuant to the procedures
and any actions taken upon such considerations; (c) the
Trustees should consider what steps should be taken, if any,
in the event of a difference of more than 1/2 of 1% between
the two methods of valuation; and (d) the Trustees should take
such action as the Trustees deem appropriate (such as
shortening the average portfolio maturity, realizing gains or
losses, or, as provided by the Trust's Declaration of Trust,
reducing the number of the outstanding shares of the Money
Market Fund) to eliminate or reduce to the extent reasonably
practicable material dilution or other unfair results to
investors or existing shareholders. Any reduction of the
outstanding shares of the Money Market Fund will be effected
by having each shareholder proportionately contribute to the
Money Market Fund's capital the shares necessary to eliminate
or reduce the material dilution or other unfair results to
investors or existing shareholders. Each Money Market Fund
shareholder will be deemed to have agreed to such contribution
in these circumstances by investment in the Money Market Fund.
The Rule further requires that the Money Market Fund limit its
investments to U.S. dollar-denominated instruments which the
Trustees determine present minimal credit risks and which are
Eligible Securities (as defined below). The Rule also
requires the Money Market Fund to maintain a dollar-weighted
average portfolio maturity (not more than ninety days)
appropriate to the Money Market Fund's objective of
maintaining a stable net asset value of $1.00 per share and
precludes the purchase of any instrument with a remaining
maturity of more than thirteen months. Should the disposition
of a portfolio security result in a dollar-weighted average
portfolio maturity of more than ninety days, the Money Market
Fund would be required to invest its available cash in such a
manner as to reduce such maturity to ninety days or less as
soon as reasonably practicable.
Generally, for purposes of the procedures adopted under the
Rule, the maturity of a portfolio instrument is deemed to be
the period remaining (calculated from the trade date or such
other date on which the Money Market Fund's interest in the
instrument is subject to market action) until the date noted
on the face of the instrument as the date on which the
principal amount must be paid, or, in the case of an
instrument called for redemption, the date on which the
redemption payment must be made.
A variable rate obligation that is subject to a demand feature
is deemed to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or
the period remaining until the principal amount can be
recovered through demand. A floating rate instrument that is
subject to a demand feature is deemed to have a maturity equal
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<PAGE>
to the period remaining until the principal amount can be
recovered through demand.
An Eligible Security is defined in the Rule to mean a security
which: (a) has a remaining maturity of thirteen months or
less; (b) either (i) is rated in the two highest short-term
rating categories by any two nationally-recognized statistical
rating organizations ("NSROs") that have issued a short-term
rating with respect to the security or class of debt
obligations of the issuer, or (ii) if only one NSRO has issued
a short-term rating with respect to the security, then by that
NSRO; (c) was a long-term security at the time of issuance
whose issuer has outstanding a short-term debt obligation
which is comparable in priority and security and has a rating
as specified in clause (b) above; or (d) if no rating is
assigned by any NSRO as provided in clauses (b) and (c) above,
the unrated security is determined by the Trustees to be of
comparable quality to any such rated security.
As permitted by the Rule, the Trustees have delegated to the
Advisor, subject to the Trustees' oversight pursuant to
guidelines and procedures adopted by the Trustees, the
authority to determine which securities present minimal credit
risks and which unrated securities are comparable in quality
to rated securities.
If the Trustees determine that it is no longer in the best
interests of the Money Market Fund and its shareholders to
maintain a stable price of $1.00 per share, or if the Trustees
believe that maintaining such price no longer reflects a
market-based net asset value per share, the Trustees have the
right to change from an amortized cost basis of valuation to
valuation based on market quotations. The Money Market Fund
will notify shareholders of any such change.
The Money Market Fund will manage its portfolio in an effort
to maintain a constant $1.00 per share price, but the Money
Market Fund cannot assure that the value of the shares of the
Money Market Fund will never deviate from this price. Since
dividends from net investment income (and net short-term
capital gains, if any) are declared and accrued on a daily
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
Money Market Fund's net asset value. The amounts of such
gains and losses will be considered by the Trustees in
determining the action to be taken to maintain the Money
Market Fund's $1.00 per share net asset value. Such action
may include distribution at any time of part or all of the
then-accumulated undistributed net realized capital gains, or
reduction or elimination of daily dividends by an amount equal
37
<PAGE>
to part or all of the then-accumulated net realized capital
losses. However, if realized losses should exceed the sum of
net investment income plus realized gains on any day, the net
asset value per share on that day might decline below $1.00
per share. In such circumstances, the Money Market Fund may
reduce or eliminate the payment of daily dividends for a
period of time in an effort to restore the Money Market Fund's
$1.00 per share net asset value. A decline in prices of
securities could result in significant unrealized depreciation
on a mark-to-market basis. Under these circumstances the
Money Market Fund may reduce or eliminate the payment of
dividends, and utilize a net asset value per share as
determined by using available market quotations, or reduce the
number of Money Market Fund shares outstanding.
PERFORMANCE INFORMATION
From time to time, each of the Funds (other than the Money
Market Fund) may include the Fund's total return in
advertisements or reports to shareholders or prospective
shareholders. Quotations of average annual total return for a
Fund will be expressed in terms of the average annual
compounded rate of return on a hypothetical investment in the
Fund over a period of at least one, five, and ten years (up to
the life of the Fund) (the ending date of the period will be
stated). Total return of a Fund is calculated from two
factors: the amount of dividends earned by each Fund share
and by the increase or decrease in value of the Fund's share
price. See "Calculation of Return Quotations."
Performance information for each of the Funds contained in
reports to shareholders or prospective shareholders,
advertisements, and other promotional literature may be
compared to the record of various unmanaged indexes.
Performance information for the Nova Fund, the Ursa Fund, and
the Metals Fund may be compared to various unmanaged indexes,
including, but not limited to, the S&P500 Index or the Dow
Jones Industrial Average. Performance information for the
Metals Fund also may be compared to its current benchmark, the
XAU Index. Performance information for the OTC Fund may be
compared to various unmanaged indexes, including, but not
limited to, its current benchmark, the NASDAQ 100 IndexTM, and
the NASDAQ Composite IndexTM. The NASDAQ Composite IndexTM
comparison may be provided to show how the OTC Fund's total
return compares to the record of a broad average of over-the-
counter stock prices over the same period. The OTC Fund has
the ability to invest in securities not included in the NASDAQ
100 IndexTM or the NASDAQ Composite IndexTM, and the OTC
Fund's investment portfolio may or may not be similar in
composition to NASDAQ 100 IndexTM or the NASDAQ Composite
IndexTM. The NASDAQ Composite IndexTM is based on the prices
of an unmanaged group of stocks and, unlike the OTC Fund's
38
<PAGE>
returns, the returns of the NASDAQ Composite IndexTM, and such
other unmanaged indexes, may assume the reinvestment of
dividends, but generally do not reflect payments of brokerage
commissions or deductions for operating costs and other
expenses of investing. Performance information for the Bond
Fund and the Juno Fund may be compared to various unmanaged
indexes, including, but not limited to, the Shearson Lehman
Government (LT) Index.
Such unmanaged indexes may assume the reinvestment of
dividends, but generally do not reflect deductions for
operating costs and expenses. In addition, a Fund's total
return may be compared to the performance of broad groups of
comparable mutual funds with similar investment goals, as such
performance is tracked and published by such independent
organizations as Lipper Analytical Services, Inc. ("Lipper"),
and CDA Investment Technologies, Inc., among others. When
Lipper's tracking results are used, the Fund will be compared
to Lipper's appropriate fund category, that is, by fund
objective and portfolio holdings. Accordingly, the Lipper
ranking and comparison, which may be used by the Trust in
performance reports, will be drawn from the "Capital
Appreciation Funds" grouping for each of the Nova Fund and the
Ursa Fund, from the "Small Company Growth Funds" grouping for
the OTC Fund, from the "Precious Metals Funds" grouping for
the Metals Fund, and from the "Bond Funds" grouping for the
Bond Fund and the Juno Fund. Rankings may be listed among one
or more of the asset-size classes as determined by Lipper.
Since the assets in all mutual funds are always changing, a
Fund may be ranked within one Lipper asset-size class at one
time and in another Lipper asset-size class at some other
time. Footnotes in advertisements and other marketing
literature will include the time period and Lipper asset-size
class, as applicable, for the ranking in question.
Performance figures are based on historical results and are
not intended to indicate future performance.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of a
Fund (other than the Money Market Fund) to that of other
mutual funds and to other relevant market indexes in
advertisements or in reports to shareholders, performance for
the Fund may be stated in terms of total return. Under the
rules of the Securities and Exchange Commission ("SEC Rules"),
39
<PAGE>
Funds advertising performance must include total return quotes
calculated according to the following formula:
P(1+T)n=ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years (1, 5, or 10); and
ERV = ending redeemable value of a hypothetical
$1,000 payment, made at the beginning of the
1, 5, or 10 year periods, at the end of the
1, 5, or 10 year periods (or fractional
portion thereof).
Under the foregoing formula, the time periods used in
advertising will be based on rolling calendar quarters,
updated to the last day of the most recent quarter prior to
submission of the advertising for publication, and will cover
1, 5, and 10 year periods or a shorter period dating from the
effectiveness of the Registration Statement of the Trust. In
calculating the ending redeemable value, all dividends and
distributions by a Fund are assumed to have been reinvested at
net asset value as described in the Trust's Prospectus on the
reinvestment dates during the period. Total return, or "T" in
the formula above, is computed by finding the average annual
compounded rates of return over the 1, 5, and 10 year periods
(or fractional portion thereof) that would equate the initial
amount invested to the ending redeemable value.
From time to time, each Fund, other than the Money Market
Fund, also may include in such advertising a total return
figure that is not calculated according to the formula set
forth above in order to compare more accurately the
performance of the Fund with other measures of investment
return. For example, in comparing the total return of a Fund
with data published by Lipper Analytical Services, Inc., or
with the performance of the S&P500 Index or the Dow Jones
Industrial Average for each of the Nova Fund and the Ursa
Fund, the NASDAQ 100 IndexTM for the OTC Fund, the XAU Index
for the Metals Fund, and the Lehman Government (LT) Index for
the Bond Fund and the Juno Fund, each respective Fund
calculates its aggregate total return for the specified
periods of time by assuming the investment of $10,000 in Fund
shares and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date.
Percentage increases are determined by subtracting the initial
value of the investment from the ending value and by dividing
the remainder by the beginning value. Such alternative total
40
<PAGE>
return information will be given no greater prominence in such
advertising than the information prescribed under SEC Rules.
For the one-year period ended June 30, 1997, and for the
period from the respective commencement of operations of the
Funds (see "Portfolio Transactions and Brokerage") to June 30,
1997, the average annual compounded rate of return of the
respective Funds (other than the Money Market Fund), assuming
the reinvestment of all dividends and distributions, was as
follows:
<TABLE>
<CAPTION>
For the Period
For the From The
One-Year Commencement
Period Ended Of Operations to
June 30, 1997 June 30, 1997
<S> <C> <C>
The Nova Fund 44.79% 25.82%
The Ursa Fund (19.89)% (12.71)%
The Rydex OTC Fund 43.57% 29.12%
The Rydex Precious Metals Fund (22.65)% (9.26)%
The Rydex U.S. Government Bond
Fund 6.69% 1.36%
The Juno Fund (0.58)% (2.56)%
</TABLE>
INFORMATION ON COMPUTATION OF YIELD
The Bond Fund. In addition to the total return quotations
discussed above, the Bond Fund also may advertise the Bond
Fund's yield based on a thirty-day (or one month) period ended
on the date of the most recent balance sheet included in the
Trust's Registration Statement, computed by dividing the net
investment income per share of the Bond Fund earned during the
period by the maximum offering price per Bond Fund share on
the last day of the period, according to the following
formula:
YIELD = 2[( a-b +1)6-1]
cd
Where: a = dividends and interest earned
during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends; and
41
<PAGE>
d = the maximum offering price per share on
the last day of the period.
Under this formula, interest earned on debt obligations for
purposes of "a" above, is calculated by (i) computing the
yield to maturity of each obligation held by the Bond Fund
based on the market value of the obligation (including actual
accrued interest) at the close of business on the last day of
each month, or, with respect to obligations purchased during
the month, the purchase price (plus actual accrued interest),
(ii) dividing that figure by 360 and multiplying the quotient
by the market value of the obligation (including actual
accrued interest as referred to above) to determine the
interest income on the obligation that is in the Bond Fund's
portfolio (assuming a month of thirty days), and (iii)
computing the total of the interest earned on all debt
obligations and all dividends accrued on all equity securities
during the thirty-day or one month period. In computing
dividends accrued, dividend income is recognized by accruing
1/360 of the stated dividend rate of a security each day that
the security is in the Bond Fund's portfolio. Undeclared
earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum
offering price calculation required pursuant to "d" above.
The Bond Fund from time to time may also advertise its yield
based on a thirty-day period ending on a date other than the
most recent balance sheet included in the Trust's Registration
Statement, computed in accordance with the yield formula
described above, as adjusted to conform with the differing
period for which the yield computation is based.
Any quotation of performance stated in terms of yield (whether
based on a thirty-day or one month period) will be given no
greater prominence than the information prescribed under SEC
Rules. In addition, all advertisements containing performance
data of any kind will include a legend disclosing that such
performance data represents past performance and that the
investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be
worth more or less than the original cost of such shares.
The Bond Fund's yield, as of March 31, 1997, based on a
thirty-day base period, was approximately 5.95%.
The Money Market Fund. The Money Market Fund's annualized
current yield, as may be quoted from time to time in
advertisements and other communications to shareholders and
potential investors, is computed by determining, for a stated
seven-day period, the net change, exclusive of capital changes
and including the value of additional shares purchased with
dividends and any dividends declared therefrom (which reflect
42
<PAGE>
deductions of all expenses of the Money Market Fund such as
management fees), in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the
period, and dividing the difference by the value of the
account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by
(365/7).
The Money Market 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 Money Market Fund
such as management fees), in the value of a hypothetical pre-
existing account having a balance of one share at the
beginning of the period, and dividing the difference by the
value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base
period return by adding 1, raising the sum to a power equal to
365 divided by 7, and subtracting 1 from the result.
The Money Market Fund's annualized effective yield and
annualized current yield, for the seven-day period ended March
31, 1997, were approximately 4.84% and 4.74%, respectively.
The yields quoted in any advertisement or other communication
should not be considered a representation of the yields of the
Money Market Fund in the future since the yield is not fixed.
Actual yields will depend not only on the type, quality, and
maturities of the investments held by the Money Market Fund
and changes in interest rates on such investments, but also on
changes in the Money Market Fund's expenses during the period.
Yield information may be useful in reviewing the performance
of the Money Market Fund and for providing a basis for
comparison with other investment alternatives. However,
unlike bank deposits or other investments which typically pay
a fixed yield for a stated period of time, the Money Market
Fund's yield fluctuates.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
Dividends and Distributions. Dividends from net investment
income and any distributions of net realized capital gains
from each of the Funds will be distributed as described in the
Trust's Prospectus under "Dividends and Distributions." All
such distributions of a Fund normally automatically will be
reinvested without charge in additional shares of the same
Fund.
43
<PAGE>
As discussed in the Trust's Prospectus, the Money Market 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 accretion 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 Money Market Fund. Net income will be calculated
immediately prior to the determination of net asset value per
share of the Money Market Fund.
The Trustees may revise the dividend policy, or postpone the
payment of dividends, if the Money Market Fund should have or
anticipate any large unexpected expense, loss, or fluctuation
in net assets which, in the opinion of the Trustees, might
have a significant adverse effect on shareholders of the Money
Market Fund. On occasion, in order to maintain a constant
$1.00 per share net asset value for the Money Market Fund, the
Trustees may direct that the number of outstanding shares of
the Money Market Fund be reduced in each shareholder's
account. Such reduction may result in taxable income to a
shareholder of the Money Market Fund in excess of the net
increase (i.e., dividends, less such reduction), if any, in
the shareholder's account for a period of time. Furthermore,
such reduction may be realized as a capital loss when the
shares are liquidated.
With respect to the investment by the Bond Fund in U.S.
Treasury zero coupon bonds, a portion of the difference
between the issue price of zero coupon securities and the face
value of such securities (the "original issue discount") is
considered to be income to the Bond Fund each year, even
though the Bond Fund will not receive cash interest payments
from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable
income of the Bond Fund which must be distributed to
shareholders of the Bond Fund in order to maintain the
qualification of the Bond Fund as a regulated investment
company (a "RIC") under Subchapter M of the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), as described
immediately below under "Regulated Investment Company Status,"
and to avoid Federal income tax at the level of the Bond Fund.
Shareholders of the Bond Fund will be subject to income tax on
such original issue discount, whether or not such shareholders
elect to receive their distributions in cash.
Regulated Investment Company Status. As a RIC, a Fund would
not be subject to Federal income taxes on the net investment
income and capital gains that the Fund distributes to the
Fund's shareholders. The distribution of net investment
income and capital gains will be taxable to Fund shareholders
44
<PAGE>
regardless of whether the shareholder elects to receive these
distributions in cash or in additional shares. Distributions
reported to Fund shareholders as long-term capital gains shall
be taxable as such, regardless of how long the shareholder has
owned the shares. Fund shareholders will be notified annually
by the Fund as to the Federal tax status of all distributions
made by the Fund. Distributions may be subject to state and
local taxes.
Shareholders of the Money Market Fund will be subject to
Federal income tax on dividends paid from interest income
derived from taxable securities and on distributions of
realized net short-term capital gains. Interest and realized
net short-term capital gains distributions are taxable to a
shareholder of the Money Market Fund as ordinary dividend
income regardless of whether the shareholder receives such
distributions in additional shares of the Money Market Fund or
in cash. Since the Money Market Fund's income is expected to
be derived entirely from interest rather than dividends, none
of such distributions will be eligible for the Federal
dividends received deduction available to corporations.
Each of the Funds will seek to qualify for treatment as a RIC
under the Code. Provided that a Fund (i) is a RIC and (ii)
distributes at least 90% of the Fund's net investment income
(including, for this purpose, net realized short-term capital
gains), the Fund itself will not be subject to Federal income
taxes to the extent the Fund's net investment income and the
Fund's net realized long- and short-term capital gains, if
any, are distributed to the Fund's shareholders. To avoid an
excise tax on its undistributed income, each Fund generally
must distribute at least 98% of its income, including its net
long-term capital gains. One of several requirements for RIC
qualification is that the Fund must receive at least 90% of
the Fund's gross income each year from dividends, interest,
payments with respect to securities loans, gains from the sale
or other disposition of securities or foreign currencies, or
other income derived with respect to the Fund's investments in
stock, securities, and foreign currencies (the "90% Test").
Income from investments in precious metals and in precious
minerals will not qualify as gross income from "securities"
for purposes of the 90% Test. The Metals Fund, therefore,
intends to restrict its investment in precious metals and in
precious minerals to avoid a violation of the 90% Test.
In addition, under the Code, a Fund will not qualify as a RIC
for any taxable year if more than 30% of the Fund's gross
income for that year is derived from gains on the sale of
securities held less than three months (the "30% Test").
These requirements may also restrict the extent of a Fund's
activities in option and other portfolio transactions.
Specifically, the 30% Test will limit the extent to which a
45
<PAGE>
Fund may: (i) sell securities held for less than three
months; (ii) write options which expire in less than three
months; and (iii) effect closing transactions with respect to
call or put options that have been written or purchased within
the preceding three months. Finally, as discussed below, this
30% Test requirement also may limit investments by a Fund in
futures contracts and options on stock indexes, securities,
and futures contracts.
Each of the Funds, other than the Money Market Fund, expects
to have greater difficulty than other mutual funds in
satisfying the 30% Test because of frequent redemptions and
exchanges of shares that are expected to occur as investors in
the Fund seek to take advantage of anticipated changes in
market conditions as a part of their market-timing investment
strategies. To minimize the risk that it will not satisfy the
30% Test because of such frequent redemptions and exchanges of
shares, each Fund will seek to meet that Fund's obligations in
connection with redemptions and exchanges without the
realization of gains on the sales of stock or securities,
options, futures or forward contracts, options on futures
contracts, or foreign currencies (or options, futures
contracts, or forward contracts on such foreign currencies).
In this regard, the Fund will seek (consistent with the Fund's
investment strategies) to use available cash, proceeds of
borrowing facilities, proceeds of the sale of stock or
securities, options, futures or forward contracts, options on
futures contracts, or foreign currencies (or options, futures
contracts, or forward contracts on such foreign currencies)
that have been held for three months or more, and the proceeds
of the sale of such assets that produce either no gain or the
smallest amount of such gain.
Section 851(h)(3) of the Code provides a special rule for
series mutual funds with respect to the 30% Test. Pursuant to
Section 851(h)(3), a RIC that is part of a series fund will
not fail the 30% Test as a result of sales made within five
days of "abnormal redemptions" if: (i) the sum of the
percentages for abnormal redemptions exceeds 30%; and (ii) the
RIC of which such fund is a part would meet the 30% Test if
all the funds of the investment company were treated as a
single corporation. Abnormal redemptions are defined as
redemptions which occur on any day when net redemptions exceed
one percent of net asset value. If abnormal redemptions
require a Fund to sell securities with a holding period of
less than three months, the Fund intends to make those sales
within five days of such redemptions so as to qualify for the
exclusion afforded by Section 851(h)(3) of the Code if it is
possible to do so. Despite each Fund's objective to satisfy
the requirements of Section 851 of the Code, there can be no
assurance that a Fund's efforts to achieve that objective will
be successful.
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<PAGE>
If a Fund does not satisfy the 30% Test for the Fund's first
taxable year, or for any subsequent taxable year, the Fund
will not qualify as a RIC for that year. If a Fund fails to
qualify as a RIC for any taxable year, the Fund would be taxed
in the same manner as an ordinary corporation. In that event,
the Fund would not be entitled to deduct the distributions
which the Fund had paid to shareholders and, thus, would incur
a corporate income tax liability on all of the Fund's taxable
income whether or not distributed. The imposition of
corporate income taxes on the Fund would directly reduce the
return to an investor from an investment in the Fund.
In the event of a failure by a Fund to qualify as a RIC, the
Fund's distributions, to the extent such distributions are
derived from the Fund's current or accumulated earnings and
profits, would constitute dividends that would be taxable to
the shareholders of the Fund as ordinary income and would be
eligible for the dividends received deduction for corporate
shareholders. This treatment would also apply to any portion
of the distributions that might have been treated in the
shareholder's hands as long-term capital gains, as discussed
below, had the Fund qualified as a RIC.
If a Fund were to fail to qualify as a RIC for one or more
taxable years, the Fund could then qualify (or requalify) as a
RIC for a subsequent taxable year only if the Fund had
distributed to the Fund's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the
interest charge mentioned below, if applicable) attributable
to such period. The Fund might also be required to pay to the
U.S. Internal Revenue Service (the "IRS") interest on 50% of
such accumulated earnings and profits. In addition, pursuant
to the Code and an interpretative notice issued by the IRS, if
the Fund should fail to qualify as a RIC and should thereafter
seek to requalify as a RIC, the Fund may be subject to tax on
the excess (if any) of the fair market of the Fund's assets
over the Fund's basis in such assets, as of the day
immediately before the first taxable year for which the Fund
seeks to requalify as a RIC.
If a Fund determines that the Fund will not qualify as a RIC
under Subchapter M of the Code, the Fund will establish
procedures to reflect the anticipated tax liability in the
Fund's net asset value.
When a Fund, other than the Money Market Fund, is required to
sell securities to meet significant redemptions or exchanges,
the Fund may enter into futures contracts as a hedge against
price changes in the securities to be sold. Gains realized by
the Fund upon closing out the Fund's position in these
contracts are subject to the 30% Test. Ordinarily, these
gains could not be offset by declines in the value of the
47
<PAGE>
hedged securities for purposes of the 30% Test. Section
851(g)(1) of the Code, however, provides that, in the case of
a "designated hedge," for purposes of the 30% Test, increases
and decreases in value (during the period of the hedge) of
positions which are part of the hedge are to be netted.
Section 851(g)(2) of the Code provides that a "designated
hedge" exists when: (i) the taxpayer's risk of loss with
respect to any position in property is reduced by reason of a
contractual obligation to sell substantially identical
property; and (ii) the taxpayer clearly identifies the
positions which are part of the hedge in the manner prescribed
in the IRS regulations.
IRS regulations have not yet been issued specifying how this
identification requirement can be satisfied. The legislative
history with respect to Section 851(g) states that, prior to
issuance of regulations, the identification requirement is
satisfied either by: (i) placing the positions that are part
of the hedge in a separate account that is maintained by a
broker, futures commission merchant ("FCM"), custodian, or
similar person, and that is designated as a hedging account,
provided that such person maintaining such account makes
notations identifying the hedged and hedging positions and the
date on which the hedge is established; or (ii) the
designation by such a broker, FCM, custodian, or similar
person of such positions as a hedge for purposes of these
provisions, provided that the RIC is provided with a written
confirmation stating the date that the hedge is established
and identifying the hedged and hedging positions.
When a Fund, other than the Money Market Fund, enters into
futures contracts to hedge against price changes of securities
to be sold, the Fund may identify such securities and
contracts as a hedge so as to qualify under Section 851(g)(1)
of the Code. There can be no assurances, however, that a Fund
(or the Fund's agents) will be able to comply with the
identification requirements that may be contained in future
IRS regulations. Moreover, the netting rule of Section
851(g)(1) is available only if the securities to be sold and
the property subject to the futures contracts constitute
"substantially identical" property. Each of the Funds, other
than the Money Market Fund, generally intends to sell pro rata
the securities being hedged, but it is unclear whether the
securities and the futures contracts would constitute
"substantially identical" property.
Special Considerations Applicable to The Rydex Precious Metals
Fund. In general, with respect to the Metals Fund, gains from
"foreign currencies" and from foreign currency options,
foreign currency futures, and forward foreign exchange
contracts ("forward contracts") relating to investments in
stock, securities, or foreign currencies will be qualifying
48
<PAGE>
income for purposes of determining whether the Metals Fund
qualifies as a RIC. It is currently unclear, however, who
will be treated as the issuer of a foreign currency instrument
or how foreign currency options, futures, or forward contracts
will be valued for purposes of the RIC diversification
requirements applicable to the Metals Fund.
Under Code Section 988, special rules are provided for certain
transactions in a foreign currency other than the taxpayer's
functional currency (i.e., unless certain special rules apply,
currencies other than the U.S. dollar). In general, foreign
currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts," and from
unlisted options will be treated as ordinary income or loss
under Code Section 988. Also, certain foreign exchange gains
derived with respect to foreign fixed-income securities are
also subject to Section 988 treatment. In general, Code
Section 988 gains or losses will increase or decrease the
amount of the Metals Fund's investment company taxable income
available to be distributed to shareholders as ordinary
income, rather than increasing or decreasing the amount of the
Metals Fund's net capital gain. Additionally, if Code Section
988 losses exceed other investment company taxable income
during a taxable year, the Metals Fund would not be able to
make any ordinary dividend distributions.
The Metals Fund may incur a liability for dividend withholding
tax as a result of the Metals Fund's investment in stock or
securities of foreign corporations. If, at any year end, more
than 50% of the assets of the Metals Fund are comprised of
stock or securities of foreign corporations, the Metals Fund
may elect to "pass through" to shareholders the amount of
foreign taxes paid by the Metals Fund. The Metals Fund will
make such an election only if the Metals Fund deems this to be
in the best interests of its shareholders. If the Metals Fund
does not qualify to make this election or does qualify, but
does not choose to do so, the imposition of such taxes would
directly reduce the return to an investor from an investment
in the Metals Fund.
Transactions By the Funds. If a call option written by a Fund
expires, the amount of the premium received by the Fund for
the option will be short-term or long-term capital gain to the
Fund depending on the Fund's holding period for the underlying
security or underlying futures contract. If such an option is
closed by a Fund, any gain or loss realized by the Fund as a
result of the closing purchase transaction will be short-term
or long-term capital gain or loss depending on the Fund's
holding period for the underlying security or underlying
futures contract. If the holder of a call option exercises
the holder's right under the option, any gain or loss realized
by the Fund upon the sale of the underlying security or
49
<PAGE>
underlying futures contract pursuant to such exercise will be
short-term or long-term capital gain or loss to the Fund
depending on the Fund's holding period for the underlying
security or underlying futures contract.
With respect to call options purchased by a Fund, the Fund
will realize short-term or long-term capital gain or loss if
such option is sold and will realize short-term or long-term
capital loss if the option is allowed to expire depending on
the Fund's holding period for the call option. If such a call
option is exercised, the amount paid by the Fund for the
option will be added to the basis of the stock or futures
contract so acquired.
A Fund has available to it a number of elections under the
Code concerning the treatment of option transactions for tax
purposes. A Fund will utilize the tax treatment that, in the
Fund's judgment, will be most favorable to a majority of
investors in the Fund. Taxation of these transactions will
vary according to the elections made by the Fund. These tax
considerations may have an impact on investment decisions made
by the Fund.
Each of the Nova Fund, the Ursa Fund, the OTC Fund, and the
Metals Fund in its operations also will utilize options on
stock indexes. Options on "broad based" stock indexes are
classified as "nonequity options" under the Code. Gains and
losses resulting from the expiration, exercise, or closing of
such nonequity options, as well as gains and losses resulting
from futures contract transactions, will be treated as long-
term capital gain or loss to the extent of 60% thereof and
short-term capital gain or loss to the extent of 40% thereof
(hereinafter, "blended gain or loss"). In addition, any
nonequity option and futures contract held by a Fund on the
last day of a fiscal year will be treated as sold for market
value on that date, and gain or loss recognized as a result of
such deemed sale will be blended gain or loss.
The trading strategies of each of the Nova Fund, the Ursa
Fund, the OTC Fund, and the Metals Fund involving nonequity
options on stock indexes may constitute "straddle"
transactions. "Straddles" may affect the taxation of such
instruments and may cause the postponement of recognition of
losses incurred in certain closing transactions. Each of
these four Funds will also have available to the Fund a number
of elections under the Code concerning the treatment of option
transactions for tax purposes. Each such Fund will utilize
the tax treatment that, in the Fund's judgment, will be most
favorable to a majority of investors in the Fund. Taxation of
these transactions will vary according to the elections made
by the Fund. These tax considerations may have an impact on
investment decisions made by the Fund.
50
<PAGE>
A Fund's transactions in options, under some circumstances,
could preclude the Fund's qualifying for the special tax
treatment available to investment companies meeting the
requirements of Subchapter M of the Code. However, it is the
intention of each Fund's portfolio management to limit gains
from such investments to less than 10% of the gross income of
the Fund during any fiscal year in order to maintain this
qualification.
Back-Up Withholding. Each Fund is required to withhold and
remit to the U.S. Treasury 31% of (i) reportable taxable
dividends and distributions and (ii) the proceeds of any
redemptions of Fund shares with respect to any shareholder who
is not exempt from withholding and who fails to furnish the
Trust with a correct taxpayer identification number, who fails
to report fully dividend or interest income, or who fails to
certify to the Trust that the shareholder has provided a
correct taxpayer identification number and that the
shareholder is not subject to withholding. (An individual's
taxpayer identification number is the individual's social
security number.) The 31% "back-up withholding tax" is not an
additional tax and may be credited against a taxpayer's
regular Federal income tax liability.
Other Issues. Each Fund may be subject to tax or taxes in
certain states where the Fund does business. Furthermore, in
those states which have income tax laws, the tax treatment of
a Fund and of Fund shareholders with respect to distributions
by the Fund may differ from Federal tax treatment.
Shareholders are urged to consult their own tax advisors
regarding the application of the provisions of tax law
described in this Statement of Additional Information in light
of the particular tax situations of the shareholders and
regarding specific questions as to Federal, state, or local
taxes.
AUDITORS AND CUSTODIAN
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey
08540, are the auditors and the independent certified public
accountants of the Trust and each of the Funds. Star Bank,
N.A., 425 Walnut Street, Cincinnati, Ohio 45202, acts as the
Custodian bank for the Trust and each of the Funds.
FINANCIAL STATEMENTS
The Trustees, on March 12, 1997, changed the Trust's fiscal
year end from June 30 to March 31. The Financial Statements
(audited) of the Trust, for the nine-month period ended March
31, 1997, are included in the Trust's 1997 Annual Report to
Shareholders, which was filed on Form N-30D with the
51
<PAGE>
Securities and Exchange Commission via EDGAR transmission on
June 3, 1997. A copy of these Financial Statements is included
immediately below. Copies of the Trust's Annual Report also
may be obtained without charge by contacting the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or
by telephoning the Trust at 800-820-0888 or 301-468-8520.
52
<PAGE>
Audited Financial Statements
for
Rydex Series Trust,
for the Nine-Month Period Ended March 31, 1997,
Including the Report of
Deloitte & Touche, LLP,
Independent Auditors for
Rydex Series Trust
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL REPORT, MARCH 31, 1997
RYDEX SERIES TRUST
6116 Executive Boulevard, Suite 400
Rockville, MD 20852
LOGO (301) 468-8520 (800) 820-0888
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
It is a pleasure to report that the Rydex Series Trust enjoyed another
successful year by providing our shareholders with consistently managed funds.
Each Fund performed well within the parameters of their objectives during this
period of market volatility. In addition, the total assets under management
increased from $693 million as of June 30, 1996 to $1.28 billion at the end of
March 1997, an increase of nearly 85%.
This Annual Report covers the previous nine months as a result of a decision
to change the Rydex Series Trust's fiscal year end from June 30 to March 31. In
the following paragraphs, we will describe the U.S. economic environment over
the past nine months. In the final section (Fund Strategy and Performance), we
will focus more closely on each Rydex Fund's performance in relation to its
benchmark.
FISCAL YEAR IN REVIEW
Fear of the mere possibility of inflation dominated the U.S. financial
markets during the fiscal year ending March 31, 1997. A benign economy with
virtually no inflation in sight was no match for the economic apparitions that
swayed the equity and debt markets over the reporting period.
The Consumer Price Index (see
adjacent chart), which is a common
measure of inflation, illustrates that
in general, prices have remained
relatively subdued over the past six
years. Currently inflation is running
at a restrained 2.8%. Improved
productivity, fueled by high
technology and competitive global
markets, has allowed the United States
to aim for faster growth without
triggering serious inflation. In
addition, the absence of any oil or
food shocks, federal budget
constraints, and falling trade
barriers are all factors that have
contributed to an economic environment
of steady growth and low inflation.
LOGO
Source: Bloomberg Financial Markets
<PAGE>
In the third and fourth quarter of 1996, economic data revealed moderate
growth, low inflation, and a strong dollar, with a recession nowhere in sight.
The U.S. Government reported that the federal budget deficit for the fiscal
year ending September 1996, was the lowest since 1981, while the U.S. jobless
rate was half that of industrialized Europe. Despite Federal Reserve Chairman
Alan Greenspan's ominous comments to Congress regarding a stock market that may
be overcome by "irrational exuberance", the equity markets reached new highs
during the last half of 1996.
In February of 1997, Chairman Greenspan once again provided congressional
testimony that caused uneasiness in the world's financial markets. His remarks
indicated that even though U.S. economic prospects "in general are quite
favorable" and that Fed officials expect inflation to remain subdued, the Fed
may take preemptive action against an increased risk of inflation by raising
interest rates. Such a move, he warned, could have an adverse impact on
corporate profits, and thus on stock prices, which may have been supported by a
wave of "excessive optimism." In reaction to his comments, the financial
markets fluctuated wildly.
On March 13, 1997, the U.S. Government reported robust retail sales figures
that were interpreted as a harbinger of future inflation due to a more heated
economy. This report sent stock and bond prices lower. A week later, on March
20, 1997, Chairman Greenspan reported that the "evidence is quite clear that
the current low level of inflation, given the relative tightness of the
economy, is close to unprecedented." He added, "the state of inflation at this
particular stage is clearly under control." These comments were seemingly
nullified on March 24, 1997, when the Federal Reserve Open Market Committee,
led by the enigmatic Greenspan, met and decided to tighten money market
conditions slightly by raising the fed funds target by 1/4 percentage point.
The tightening was viewed by the Fed as a prudent step that would provide
greater assurance of maintaining the current economic expansion by sustaining
the existing low inflation environment. It is the Federal Reserve Board's
conviction that low inflation is essential to realizing the economy's greatest
growth potential.
Concerns of further interest rate hikes and future lackluster earnings
reports caused several more sell offs. The first quarter of 1997 ended with the
last two trading days on the Dow Jones suffering the worst losses since the
crash of 1987. The S&P 500, the NASDAQ 100, and the XAU Index also endured big
declines, while the yield of the 30-year Treasury bond continued it's upward
trend by closing the quarter at 7.1%.
Has the bull market finally come to an end or is this just a large correction
and buying opportunity? Are further rate hikes in store and could this be the
end of a six-year economic expansion? Will this market volatility continue?
These are some of the questions that market participants will be pondering in
the months to come.
2
<PAGE>
Fund Strategy and Performance
The Nova Fund
Benchmark: 150% of the performance of the S & P 500 Composite Stock Price Index
Inception: July 12, 1993
To achieve its objective, Nova invested primarily in S & P 500 futures
contracts and call options on S & P 500 futures contracts. Nova was able to
outperform the S & P 500 Index and perform consistent with its benchmark by
using its call options and futures contracts to maintain 150% exposure to the
market. The S&P 500 index was up 12.90% for the period ending March 31, 1997.
Three quarters of that rise was due to 100 of the largest companies in the
index. As the market dropped precipitously in the first quarter of 1997, the
large caps once again led the way with concerns that first quarter earnings
might come up short.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year ended Since Inception (7-12-93)
3-31-97 to 3-31-97
- --------------------------------------------------------------------
<S> <C> <C>
Nova Fund 15.69% 98.86%
Standard & Poor's 500
Stock Index 12.90% 68.63%
- --------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The S & P 500 Stock Index
is an unmanaged stock index and, unlike the Fund, has no management fees or
other operating expenses to reduce its reported return. Returns are historical
and include changes in principal and reinvested dividends and capital gains.
3
<PAGE>
The Ursa Fund
Benchmark: Inverse (opposite) of the S & P 500 Composite Stock Price Index
Inception: January 7, 1994
To achieve its objective, Ursa sold S & P 500 futures contracts and purchased
put options on S & P 500 futures contracts. The Ursa Fund posted a -6.74% total
return for the period as a result of its short position in the S & P 500 Index.
This compared to a 12.90% return for the S & P 500. Ursa out-performed its
benchmark since it is able to earn interest on cash balances which it is
required to keep in order to cover its short positions.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year ended Since Inception (1-7-94)
3-31-97 to 3-31-97
- -------------------------------------------------------------------------------
<S> <C> <C>
Ursa Fund -6.74% -27.46%
Standard & Poor's 500 Stock Index 12.90% 61.12%
- -------------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The S & P 500 Stock Index
is an unmanaged stock index and, unlike the Fund, has no management fees or
other operating expenses to reduce its reported return. Returns are historical
and include changes in principal and reinvested dividends and capital gains.
4
<PAGE>
The Rydex OTC Fund
Benchmark: NASDAQ 100 Index (NDX)
Inception: February 14, 1994
Over-the-counter securities continued to perform well during the latest
fiscal year. The NASDAQ Composite Index, which represents the universe of all
OTC securities, was up 3.10% during the period. Although the technology laden
NASDAQ has declined in recent months, it still remains ahead of the Dow and
the S&P 500 when measured over the last ten years. The Fund performed in step
with the NASDAQ 100 by closely matching its investments to that of the index.
Generally, the Fund owned approximately eighty stocks representing roughly 95%
of the capitalization of the index.
LOGO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year ended Since Inception (2-14-94)
3-31-97 to 3-31-97
- ---------------------------------------------------------------------
<S> <C> <C>
OTC Fund 18.58% 95.69%
NASDAQ 100 Index 17.68% 96.75%
NASDAQ Composite Index 3.10% 55.54%
- ---------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The NASDAQ Composite Index
and the NASDAQ 100 Index are unmanaged stock indices and, unlike the Fund,
have no management fees or other operating expenses to reduce their reported
returns. Returns are historical and include changes in principal and
reinvested dividends and capital gains.
5
<PAGE>
The Rydex Precious Metals Fund
Benchmark: Philadelphia Stock Exchange Gold/Silver Index (XAU)
Inception: December 1, 1993
Gold prices fell to as low as $340 per ounce in recent weeks, down from a
high of $415 in early 1996. Recent negative factors include low inflation, a
strong dollar and fears of more gold sales by European Central Banks. The XAU
Index, which is comprised of mainly North American gold and silver mining and
production companies, had a distressed year. From June 28, 1996 to March 31,
1997, the XAU fell from 123.76 to 104.12 or 15.87%. The Rydex Precious Metals
Fund mimicked the performance of the XAU Index during the period due to a
similar weighting of stocks held by the fund as in the index.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year Since Inception (12-1-93)
ended 3-31-97 to 3-31-97
- ----------------------------------------------------------------------------
<S> <C> <C>
Precious Metals Fund -15.58% -22.95%
Philadelphia Stock Exchange
Gold/Silver Index -15.87% -13.85%
Standard & Poor's 500 Stock Index 12.90% 63.92%
- ----------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The S & P 500 Index and the
PSE Gold/Silver Index are unmanaged stock indexes and, unlike the Fund, have no
management fees or other operating expenses to reduce their reported returns.
Returns are historical and include changes in principal and reinvested
dividends and capital gains.
6
<PAGE>
The Rydex U. S. Government Bond Fund
Benchmark: 120% of the price movement of current Long Treasury Bond
Inception: January 3, 1994
The yield on the 30-year Treasury Bond for the nine months ending March 31,
1997 rose from 6.9% to 7.1% causing bond prices to fall. As a result of the
Fund's investment in the 30-year Bond, the Fund ended the period with a total
return of -.35%. In addition to purchasing Treasuries, the Fund purchased call
options on Treasury Bond futures to increase its exposure to 120% of the price
movement of the Treasury Bond.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year Since Inception (1-3-94)
ended 3-31-97 to 3-31-97
- ----------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Bond Fund -0.35% -2.09%
Price movement of 30 year Treasury
Bond -4.49% -13.78%
Lehman Brothers Long T-Bond Index 2.88% 17.76%
- ----------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The Lehman Brothers Long T-
Bond Index is an unmanaged bond index and, unlike the Fund, has no management
fees or other operating expenses to reduce its reported return. Returns are
historical and include changes in principal and reinvested dividends and
capital gains. The Price movement of the 30-year Treasury Bond represents a
cumulative percentage change in its closing price.
7
<PAGE>
The Juno Fund
Benchmark: Inverse (opposite) of the price movement of current Long Treasury
Bond
Inception: March 3, 1995
To achieve its objective, Juno attempts to approximate a 100% short position
in the Long Treasury Bond. During the fiscal year, the Fund sold Treasury Bond
Futures and bought puts on the Treasury Bond Futures traded on the Chicago
Board of Trade. Generally, the Treasury Bond Futures will have a high
correlation to the 30-year Treasury Bond. For the fiscal year, the price
movement on the 30-year Treasury Bond was down 4.49%, while Juno was up 2.81%.
Juno's under-performance was due to the fact that the bond futures did not
decline as much as the cash bond during the period.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year Since Inception (3-3-95)
ended 3-31-97 to 3-31-97
- -----------------------------------------------------------------------------
<S> <C> <C>
The Juno Fund 2.81% -2.64%
Price movement of 30 year Treasury
Bond -4.49% 1.27%
Lehman Brothers Long T-Bond Index 2.88% 20.07%
- -----------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The Lehman Brothers Long T-
Bond Index is an unmanaged bond index and, unlike the Fund, has no management
fees or other operating expenses to reduce its reported return. The Price
movement of the 30-year Treasury Bond represents a cumulative percentage change
in its closing price. Returns are historical and include changes in principal
and reinvested dividends and capital gains.
8
<PAGE>
The High Yield Fund
Benchmark: Merrill Lynch High Yield Master Index
Inception: January 3, 1997
To achieve its objective, the fund attempts to provide investment returns
that correspond to the Merrill Lynch High Yield Master Index. The fund invested
primarily in below investment grade corporate bonds, commonly known as "junk
bonds." Despite a rise in interest rates, the high yield market remains strong
as evidenced by default rates that have declined to only 1.5% in 1996. Since
the inception of the Fund, the slight decline in high yield bond prices has
been offset by the higher coupon interest paid by the issuers of the debt.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year ended Since Inception (1-3-97)
3-31-97 to 3-31-97
- -----------------------------------------------------------------------------
<S> <C> <C>
High Yield Fund -0.03% -0.03%
Merrill Lynch High Yield Master
Index 1.22% 1.22%
- -----------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The Merrill Lynch High
Yield Master Index is an unmanaged bond index and, unlike the Fund, has no
management fees or other operating expenses to reduce its reported return.
Returns are historical and include changes in principal and reinvested
dividends and capital gains.
9
<PAGE>
THE RYDEX U. S. GOVERNMENT MONEY MARKET FUND
The objective of the Rydex U. S. Government Money Market Fund is to provide
security of principal, high current income, and liquidity. To meet its
objective, the Fund invested in U. S. Government money market instruments,
keeping the Fund's average maturity to a minimum. The low average maturity
allowed the Fund to accommodate high turnover while participating in increases
in short term interest rates. For the fiscal year, the U. S. Government Money
Market Fund posted an average annual total return of 4.39%.
During the fiscal year ended March 31, 1997, shareholders redeemed
$3,597,262,046 from the Nova Fund. A portion of those proceeds received by
shareholders represent capital gain distributions in the amount of $10,923,030.
In addition, on December 4, 1996, the Nova and OTC Funds paid long-term capital
gain distributions of $6,012,731 and $57,883 respectively, to shareholders of
record on December 3, 1996. Finally, of the distributions paid by the U.S.
Government Bond Fund during the months of January, February, and March 1997,
$34,993 represent long-term capital gain distributions. This notification is to
meet certain IRS requirements.
IN SUMMARY
Fiscal Year 1997 provided an eventful and at times volatile market
environment for our shareholders. We are pleased with each Fund's performance
in light of this market volatility. In the upcoming years, Rydex will seek to
develop and implement more innovative products catering to the needs of
professional money managers and their clients. As always, if you need
information about our Funds or have questions, call us at (800) 820-0888 or
(301) 468-8520.
Sincerely,
LOGO
Albert P. (Skip) Viragh
Chairman of the Board
10
<PAGE>
RYDEX SERIES TRUST
NOVA
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- ------------
<S> <C> <C>
OPTIONS PURCHASED 61.5%
Call Options on:
S&P 500 Index Expiring May 1997 at 300 2,000 $ 91,482,000
S&P 500 Index Expiring June 1997 at 300 1,000 45,754,000
S&P 500 Index Expiring July 1997 at 300 1,145 52,418,100
S&P 500 Index Expiring July 1997 at 300 1,000 45,786,000
S&P 500 Futures Contracts Expiring June 1997 at 600 434 34,405,350
------------
Total Call Options (Cost $286,782,349) 269,845,450
------------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 37.4%
U.S. Treasury Bill 4.975% 4/03/97 $50,000,000 49,986,181
U.S. Treasury Bill 4.98% 4/17/97 15,000,000 14,966,800
U.S. Treasury Bill 5.22% 5/08/97 50,000,000 49,731,750
U.S. Treasury Bill 5.20% 6/26/97 50,000,000 49,378,889
------------
Total U.S. Treasury Obligations (Cost $164,063,620) 164,063,620
------------
REPURCHASE AGREEMENT 1.1%
Repurchase Agreement collateralized by U.S. Treasury
Obligations--6.25% 4/01/97 (Note 3) 4,900,000 4,900,000
------------
Total Investments 100% (Cost $455,745,969) $438,809,070
============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
11
<PAGE>
RYDEX SERIES TRUST
NOVA
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized Loss
Contracts (Note 1)
--------- ---------------
<S> <C> <C>
FUTURES CONTRACTS PURCHASED
S&P 500 Futures Contracts Expiring June 1997
(Underlying Face Amount at Market Value
$23,498,000) 62 $ (381,814)
============
<CAPTION>
Market
Value
(Note 1)
---------------
<S> <C> <C>
WRITTEN OPTIONS CONTRACTS
Call Options on:
S&P Index Expiring May 1997 at 315 2,000 88,506,000
S&P Index Expiring June 1997 at 315 1,000 44,270,000
S&P Index Expiring July 1997 at 315 1,000 44,318,000
------------
Total Call Options (Proceeds $184,676,444) $177,094,000
============
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
RYDEX SERIES TRUST
URSA
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- ------------
<S> <C> <C>
OPTIONS PURCHASED 66.0%
Put Options on:
S&P 500 Futures Contract Expiring June 1997 at 1000 100 $ 12,100,000
S&P 500 Futures Contract Expiring June 1997 at 1200 50 11,050,000
------------
Total Put Options (Cost $19,176,366) 23,150,000
------------
Call Options on:
S&P 500 Index Expiring April 1997 at 300 8000 365,792,000
S&P 500 Index Expiring May 1997 at 300 2000 91,482,000
S&P 500 Index Expiring June 1997 at 300 7000 320,338,000
S&P 500 Index Expiring July 1997 at 300 3000 137,358,000
------------
Total Call Options (Cost $930,533,500) 914,970,000
------------
Total Options Purchased (Cost $949,709,866) 938,120,000
------------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 26.8%
U.S. Treasury Bill 5.225% 4/17/97 $40,000,000 39,907,111
U.S. Treasury Bill 5.315% 4/17/97 40,000,000 39,905,511
U.S. Treasury Bill 5.275% 4/17/97 25,000,000 24,941,389
U.S. Treasury Bill 4.99% 5/08/97 3,000,000 2,984,614
U.S. Treasury Bill 4.965% 5/22/97 50,000,000 49,648,312
U.S. Treasury Bill 5.01% 5/29/97 100,000,000 99,192,833
U.S. Treasury Bill 5.19% 6/12/97 75,000,000 74,221,500
U.S. Treasury Bill 5.20% 6/26/97 50,000,000 49,378,889
------------
Total U.S. Treasury Obligations (Cost $380,180,159) $380,180,159
------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
RYDEX SERIES TRUST
URSA
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Amount
------------
<S> <C> <C>
REPURCHASE AGREEMENT 7.2%
Repurchase Agreement Collateralized by U.S.
Treasury Obligations--6.25% 4/01/97 (Note 3) $102,900,000 $ 102,900,000
--------------
Total Investments 100% (Cost $1,432,790,025) $1,421,200,159
==============
- ---------------------------------------------------------------------------
<CAPTION>
Unrealized Gain
Contracts (Note 1)
--------- ---------------
<S> <C> <C>
FUTURES CONTRACTS SOLD
S&P 500 Futures Contract Expiring June 1997
(Underlying Face Amount at Market Value
$516,198,000) 1362 $ 24,429,462
==============
<CAPTION>
Market
Value
Contracts (Note 1)
--------- ---------------
<S> <C> <C>
WRITTEN OPTIONS CONTRACTS
Call Options on:
S&P 500 Index Expiring April 1997 at 320 8,000 $ 349,848,000
S&P 500 Index Expiring May 1997 at 315 2,000 88,506,000
S&P 500 Index Expiring June 1997 at 315 7,000 309,978,000
S&P 500 Index Expiring July 1997 at 315 3,000 132,954,000
--------------
Total Call Options Written (Proceeds
$897,128,294) $ 881,286,000
==============
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
RYDEX SERIES TRUST
U.S. GOVERNMENT MONEY MARKET
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Face Amount (Note 1)
----------- ------------
<S> <C> <C>
FEDERAL AGENCY DISCOUNT NOTES 76.1%
Federal Farm Credit Administration 5.22% 4/08/97 $ 5,000,000 $ 4,994,925
Federal Farm Credit Administration 5.24% 4/15/97 10,000,000 9,979,622
Federal Farm Credit Administration 5.24% 4/18/97 7,000,000 6,982,679
Federal Farm Credit Administration 5.21% 4/24/97 10,000,000 9,966,714
Federal Farm Credit Administration 5.57% 5/21/97
Floating Rate 10,000,000 9,999,224
Federal Farm Credit Administration 5.25% 5/30/97 10,000,000 9,913,958
Federal Home Loan Mortgage Corp. 6.45% 4/01/97 20,000,000 20,000,000
Federal Home Loan Mortgage Corp. 5.23% 4/04/97 10,000,000 9,995,642
Federal Home Loan Mortgage Corp. 5.23% 4/10/97 10,000,000 9,986,925
Federal Home Loan Mortgage Corp. 5.36% 4/18/97 10,000,000 9,974,689
Federal Home Loan Mortgage Corp. 5.28% 5/02/97 10,000,000 9,954,533
Federal Home Loan Mortgage Corp. 5.24% 5/12/97 10,000,000 9,940,322
Federal Home Loan Mortgage Corp. 5.30% 6/04/97 10,000,000 9,905,778
Federal Home Loan Mortgage Corp. 5.27% 6/06/97 10,000,000 9,903,383
Federal National Mortgage Assoc. 5.24% 4/09/97 10,000,000 9,988,356
Federal National Mortgage Assoc. 5.23% 5/21/97 10,000,000 9,927,361
Federal National Mortgage Assoc. 5.24% 5/29/97 10,000,000 9,915,578
------------
Total Federal Agency Discount Notes (Cost
$171,329,689) 171,329,689
------------
REPURCHASE AGREEMENT 23.9%
Repurchase Agreement Collateralized by U.S. Treasury
Obligations--
6.25% 4/01/97 (Note 3) 53,700,000 53,700,000
------------
Total Investments 100% (Cost $225,029,689) $225,029,689
============
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
RYDEX SERIES TRUST
OVER-THE-COUNTER
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Shares (Note 1)
------ -----------
<S> <C> <C>
COMMON STOCKS 57.0%
Intel Corp. 68,377 $ 9,512,950
Microsoft Corp.* 99,990 9,167,833
Cisco Systems, Inc.* 57,641 2,773,973
Oracle Corp.* 55,046 2,122,692
MCI Communications, Corp. 47,710 1,699,669
Worldcom, Inc.* 76,715 1,687,730
Amgen, Inc.* 22,244 1,242,884
Dell Computer Corp.* 14,974 1,012,617
Sun Microsystems, Inc. * 31,786 917,821
Applied Materials, Inc.* 15,680 727,160
Tele-Communications, Inc. 50,679 608,148
Tellabs, Inc.* 16,386 591,944
Ascend Communications, Inc.* 12,572 512,309
Republic Industries, Inc.* 14,537 504,252
Parametric Technology Corp.* 11,136 502,512
3Com Corp.* 15,115 495,016
Costco, Companies, Inc.* 15,995 441,862
U.S. Robotics Corp.* 7,543 417,694
BMC Software, Inc.* 8,495 391,832
Oxford Health Plans, Inc.* 6,420 376,373
HBO & Company 7,894 374,965
Peoplesoft, Inc.* 8,853 354,120
Adaptec, Inc.* 9,462 338,267
Gateway 2000, Inc.* 6,439 329,999
Qualcomm, Inc.* 5,828 328,554
Altera Corp* 7,586 326,198
ADC Telecommunications Inc.* 11,314 304,064
Xilinx, Inc.* 6,042 294,548
Northwest Airline Corp.* 7,629 287,041
Novell, Inc.* 30,073 285,694
Linear Technology Corp. 6,356 281,253
Staples, Inc.* 13,968 281,106
Comcast Corp. Special Class A 16,483 278,151
Chiron Corp.* 14,175 264,009
Sigma Aldrich Corp. 8,142 251,384
Adobe Systems, Inc. 6,246 250,621
Nordstrom, Inc. 6,348 240,431
Nextel Communications, Inc.* 17,624 235,721
Paychex, Inc. 5,680 233,590
</TABLE>
* Non-Income Producing Securities
See Notes to Financial Statements.
<TABLE>
<CAPTION>
Market
Value
Shares (Note 1)
------ -----------
<S> <C> <C>
Biogen, Inc.* 6,163 $ 230,342
Compuware Corp.* 3,517 220,692
PACCAR, Inc. 3,280 218,940
DSC Communications Corp.* 10,327 216,222
Cascade Communications, Corp.* 7,940 209,418
Cintas Corp. 3,834 202,244
Stryker Corp. 8,068 200,692
Atmel Corp.* 8,359 200,094
Starbucks Corporation* 6,729 199,347
Fort Howard, Corp.* 6,235 194,064
Centocor, Inc.* 6,273 191,327
Informix Corp.* 12,468 188,579
Tyson Foods, Inc. 9,670 187,356
American Greetings, Corp. 5,791 184,950
McAfee Associates, Inc.* 4,077 180,407
Electronics for Imaging, Inc.* 4,493 179,158
American Power Conversion Corp.* 8,237 178,125
Apple Computer, Inc.* 9,236 168,557
Boston Chicken Inc.* 5,421 165,341
Biomet, Inc. 9,326 157,376
KLA Instruments, Corp.* 4,292 156,658
Worthington Industries, Inc 7,642 146,153
Genzyme Corp.* 6,356 143,010
General Nutrition Companies, Inc.* 6,963 141,001
Viking Office Products, Inc.* 7,207 139,636
McCormick & Co., Inc. 5,580 136,710
FORE Systems, Inc.* 8,949 134,235
Cracker Barrel Old Country Store, Inc. 5,065 132,323
Autodesk, Inc. 3,810 118,100
Electronics Arts, Inc.* 4,406 117,310
Fastenal Comp. 3,233 113,155
Healthcare COMPARE Corp.* 2,760 112,125
Intuit, Inc.* 3,853 89,582
Sybase, Inc.* 6,116 85,624
Adtran, Inc.* 3,222 80,550
Paging Network, Inc.* 8,444 68,608
Cirrus Logic, Inc.* 5,443 65,996
Glenayre Tech., Inc.* 5,251 51,854
-----------
Total Common Stocks (Cost $40,137,044) $47,152,848
-----------
</TABLE>
16
<PAGE>
RYDEX SERIES TRUST
OVER-THE-COUNTER
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- -----------
<S> <C> <C>
OPTIONS PURCHASED .0%
Call Option on:
NASDAQ 100 Expiring April 1997 at 900
(Cost $6,324) 31 $ 2,325
-----------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 29.9%
U.S. Treasury Bill 5.19% 6/12/97 (Cost $24,740,500) $25,000,000 24,740,500
-----------
REPURCHASE AGREEMENT 13.1%
Repurchase Agreement Collateralized by U.S. Treasury
Obligations--6.25% 4/01/97 (Note 3) 10,800,000 10,800,000
-----------
Total Investments 100% (Cost $75,683,868) $82,695,673
===========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
--------- --------
<S> <C> <C>
WRITTEN OPTIONS CONTRACTS
Put Options On:
NASDAQ 100 Expiring April 1997 at 900 (Proceeds $203,450) 31 $308,450
========
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
RYDEX SERIES TRUST
PRECIOUS METALS FUND
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Shares (Note1)
------- -----------
<S> <C> <C>
COMMON STOCKS 82.7%
Mining and Precious Metals Stocks
Barrick Gold Corp. 314,573 $ 7,471,109
Placer Dome, Inc. 210,354 3,812,666
Newmont Mining Corp. 87,261 3,381,373
Homestake Mining Co. 128,528 1,943,986
Santa Fe Pacific Gold Corp. 115,171 1,900,321
Battle Mountain Gold Co., Class A 197,094 1,305,748
TVX Gold, Inc.* 140,582 1,001,647
Echo Bay Mines, Ltd. 122,126 809,085
Getchell Gold Corp* 11,106 451,181
Pegasus Gold, Inc.* 36,018 292,646
ASA Limited 8,292 280,892
Hecla Mining Co.* 44,144 259,346
Agnico Eagle Mines, Ltd. 14,496 164,892
Trizec Hahn Corp. 6,443 144,162
Kinross Gold Corp.* 8,700 58,725
Freeport McMoran, Inc., Class A 1,887 55,431
Engelhard Corp. 2,438 51,198
Newmont Gold Corp. 1,100 44,137
Cambior, Inc. 2,908 39,258
Amax Gold, Inc.* 4,324 29,187
Anglo American Gold Investment Co., Ltd. 3,470 24,724
-----------
Total Common Stocks (Cost $23,784,737) $23,521,714
-----------
</TABLE>
* Non-Income Producing Securities
See Notes to Financial Statements.
18
<PAGE>
RYDEX SERIES TRUST
PRECIOUS METALS FUND
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- -----------
<S> <C> <C>
OPTIONS PURCHASED 0.1%
Call Option on:
XAU Index Expiring April 1997 at 90 (Cost $40,310) 20 $ 28,500
-----------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
REPURCHASE AGREEMENT 17.2%
Repurchase Agreement collateralized by U.S. Treasury
Obligations--6.25 4/01/97 (Note 3) $4,900,000 4,900,000
-----------
Total Investments 100% (Cost $28,725,047) $28,450,214
===========
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
RYDEX SERIES TRUST
U.S. GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Face Amount (Note 1)
----------- ----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 89.2%
U.S. Treasury Bond 6.625% due 02/15/2027 (Cost
$3,061,901) $3,205,000 $3,017,708
----------
<CAPTION>
Contracts
-----------
<S> <C> <C>
OPTIONS PURCHASED 2.0%
Call Options On:
U.S Treasury Bond Futures Contract Expiring June 1997
at 100
(Cost $78,271) 9 65,109
----------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
REPURCHASE AGREEMENT 8.8%
Repurchase Agreement collateralized by U.S. Treasury
Obligations--6.250% due 4/01/97 (Note 3) $ 300,000 300,000
----------
Total Investments 100% (Cost $3,440,172) $3,382,817
==========
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
RYDEX SERIES TRUST
JUNO
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- ---------------
<S> <C> <C>
OPTIONS PURCHASED 0.8 %
Put Options on:
U.S. Treasury Bond Futures Contracts Expiring June
1997 at 130 (Cost $181,380) 10 $ 227,812
-----------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 84.8%
U.S. Treasury Bill 5.20% 6/19/97 (Cost $24,714,722) $25,000,000 24,714,722
-----------
REPURCHASE AGREEMENT 14.4%
Repurchase Agreement collateralized by U.S. Trea-
sury Obligations--6.25% 4/01/97 (Note 3) 4,200,000 4,200,000
-----------
Total Investments 100% (Cost $29,096,102) $29,142,534
===========
- --------------------------------------------------------------------------------
<CAPTION>
Unrealized Gain
Contracts (Note 1)
----------- ---------------
<S> <C> <C>
FUTURES CONTRACTS SOLD
U.S. Treasury Bond Futures Contract Expiring June
1997 (Underlying Face Amount at Market Value
$27,876,875) 260 $ 652,603
===========
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
RYDEX SERIES TRUST
HIGH YIELD FUND
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Face Value
Amount (Note1)
-------- -----------
<S> <C> <C>
NON-CONVERTIBLE CORPORATE BONDS 98.9%
Toll Corporation 8.75% due 11/15/2006 $500,000 $ 515,000
Rogers Cablesystems, LTD 10.0% due 3/15/2005 475,000 491,625
Telefonica De Argentina SA 11.875% due 11/01/2004 400,000 452,000
Hovnanian K Enterprise 11.25% due 4/15/2002 425,000 444,125
AMF Group, Inc. 10.875% due 3/15/2006 400,000 424,000
Healthsouth Rehabilitation Corporation 9.50% due
4/01/2001 400,000 418,000
U.S. Air, Inc. 10.0% due 7/01/2003 400,000 403,500
Jones Intercable, Inc. 10.50% due 3/01/2008 350,000 379,750
Westminister Resources, LTD. 11.0% due 3/15/2007 350,000 346,500
Grupo Televisa, S.A. 11.875% due 5/15/2006 300,000 321,000
Smiths Food and Drug Centers 11.25% due 5/15/2007 275,000 301,125
Dominick's Finer Foods, Inc. 10.875% due 5/01/2005 275,000 295,625
Titan Wheel International, Inc. 8.75% due 4/01/2007 300,000 295,500
Northwest Airlines Corporation 8.70% due 3/15/2007 300,000 295,125
Hollinger International Publishing, Inc. 8.625% due
3/15/2005 300,000 291,000
Grand Union Company 12.0% due 9/01/2004 275,000 270,188
Rohr, Inc. 11.625% due 5/15/2003 250,000 268,750
YPF, SA Sociedad Anomina 8.0% due 2/15/2004 275,000 264,000
Brown Group, Inc. 9.50% due 10/15/2006 250,000 257,500
Borg-Warner Security CP 9.625% due 3/15/2007* 250,000 245,000
BankUnited Capital Trust 10.25% due 12/31/2026* 250,000 244,375
Century Communications 9.75% due 2/15/2002 200,000 201,000
Grand Casinos, Inc. 10.125% due 12/01/2003 200,000 196,500
Cliffs Drilling Company 10.25% due 5/15/2003 150,000 154,500
Chesapeake Energy Corporation 8.50% due 3/15/2012* 150,000 141,750
Kaufman and Broad Home Corporation 9.375% due 5/01/2003 140,000 140,700
Allbrighton Communications, Co. 9.75% due 11/30/2007 150,000 139,500
ACME Metals, Inc. 12.50% due 8/1/2002 125,000 132,500
Westpoint Stevens, Inc. 9.375% due 12/15/2005 130,000 130,000
Lenfest Communications, Inc. 8.375% due 11/01/2005 125,000 113,750
</TABLE>
* Issued Under Rule 144A.
See Notes to Financial Statements.
22
<PAGE>
RYDEX SERIES TRUST
HIGH YIELD FUND
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Face Value
Amount (Note1)
-------- -----------
<S> <C> <C>
NON-CONVERTIBLE CORPORATE BONDS (CONTINUED)
NL Industries, Inc. 11.75% due 10/15/2003 $100,000 $ 105,000
Noble Drilling Corporation 9.125% due 7/01/2006 100,000 105,000
American Standard 9.875% due 6/01/2001 100,000 104,000
Motors and Gears, Inc. 10.75% due 11/15/2006* 100,000 102,500
Comcast Corporation 9.375% due 5/15/2005 100,000 100,000
Weirton Steel Corporation 10.75% due 6/01/2005 100,000 100,000
Wilshire Financial Services Group, Inc. 13.0% due
1/01/2004 100,000 100,000
360 Communications Company 7.125% due 3/01/2003 100,000 97,636
Cleveland Electric Illuminating 7.375% due 6/01/2003 100,000 97,011
Transportacion Maritima Mex-Sp 10.0% due 11/15/2006 100,000 96,000
Dotmar, Inc. 9.50% due 8/01/2016 75,000 76,500
Fort Howard Corporation 8.25% due 2/01/2002 75,000 74,625
United Airlines, Inc. 9.75% due 8/15/2021 50,000 57,296
Dime Bancorp, Inc. 10.50% due 11/15/2005 50,000 53,750
Chiquita Brands International, Inc. 9.625% due 1/15/2004 50,000 50,750
Digital Equipment Corporation 8.625% due 11/01/2012 50,000 49,162
Cablevision Systems Corporation 9.875% due 5/15/2006 50,000 49,000
Tenet Healthcare Corporation 8.625% due 1/15/2007 50,000 48,750
Paging Network 8.875% due 2/01/2006 50,000 42,500
Gulf Canada Resources, LTD. 9.25% due 1/15/2004 25,000 25,750
Falcon Drilling Company 8.875% due 3/15/2003 25,000 25,250
Rogers Cantel, Inc. 9.375% due 6/01/2008 25,000 25,250
Exide Corporation 10.0% due 4/15/2005 25,000 25,000
-----------
Total Non Convertible Corporate Bonds (Cost $10,394,343) 10,184,618
-----------
<CAPTION>
Shares
--------
<S> <C> <C>
COMMON STOCKS 1.1%
Colonial Downs Holdings--CL A
Total Common Stocks (Cost $142,500) 15,000 110,625
-----------
Total Investments 100% (Cost $10,536,843) $10,295,243
===========
</TABLE>
* Issued Under Rule 144A.
See Notes to Financial Statements.
23
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Fund Ursa Fund Market Fund
------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
Securities at Value (Note 1)--See
Accompanying Schedules $ 438,809,070 $1,421,200,159 $225,029,689
Receivable for Securities Sold 3,587,090 0 0
Receivable for Futures Contracts
Settlement 0 10,824,067 0
Premium Receivable for Written
Options 45,628,379 136,885,137 0
Investment Income Receivable 851 17,865 66,655
Cash in Custodian Bank 1,534,564 1,585,341 0
Cash on Deposit with Broker 0 4,902,000 0
Receivable for Shares Purchased 6,414,030 50,065,095 71,949,632
Unamortized Organization Costs (Note
1) 44,593 29,002 15,670
Other Assets 35,164 31,632 19,387
------------- -------------- ------------
Total Assets 496,053,741 1,625,540,298 297,081,033
------------- -------------- ------------
LIABILITIES
Payable for Securities Purchased 47,101,100 141,303,300 0
Payable for Futures Contracts
Settlement 3,015,926 0 0
Written Options at Market Value 177,094,000 881,286,000 0
Payable for Shares Redeemed 86,606,344 20,312,982 13,193,742
Dividends Payable 0 0 66,402
Investment Advisory Fee Payable 213,155 256,299 89,755
Cash Balance Due at Custodian Bank 0 0 120,312
Transfer Agent Fee Payable 72,850 71,194 41,318
Other Liabilities 20,668 23,011 16,678
------------- -------------- ------------
Total Liabilities 314,124,043 1,043,252,786 13,528,207
------------- -------------- ------------
NET ASSETS $ 181,929,698 $ 582,287,512 $283,552,826
============= ============== ============
Shares Outstanding 10,168,541 82,961,214 283,553,279
============= ============== ============
Net Asset Value Per Share $17.89 $7.02 $1.00
====== ===== =====
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Over-the- Precious U.S.
Counter Metals Government High Yield
Fund Fund Bond Fund Juno Fund Fund
------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Securities at Value
(Note 1)--See
Accompanying Schedules $ 82,695,673 $28,450,214 $3,382,817 $29,142,534 $10,295,243
Receivable for
Securities Sold 54,285,578 6,608,531 0 0 1,688,127
Receivable for Futures
Contracts Settlement 0 0 0 44,147 0
Receivable from Advisor 0 0 9,821 0 9,018
Investment Income
Receivable 7,123 1,468 26,447 729 254,219
Cash in Custodian Bank 85,640 34,673 62,691 96,558 28,835
Cash on Deposit with
Broker 1,077,095 161,191 0 763,746 0
Receivable for Shares
Purchased 2,936,807 1,601,832 1,313,622 2,771,542 0
Unamortized
Organization Costs
(Note 1) 8,650 11,975 7,275 19,780 41,605
Other Assets 13,579 1,146 1,080 1,893 775
------------ ----------- ---------- ----------- -----------
Total Assets 141,110,145 36,871,030 4,803,753 32,840,929 12,317,822
------------ ----------- ---------- ----------- -----------
LIABILITIES
Payable for Securities
Purchased 26,999,194 797,298 451,154 0 54,499
Written Options at
Market Value 308,450 0 0 0 0
Payable for Shares
Redeemed 61,403,277 12,363,693 886,088 225,459 1,683,290
Dividends Payable 0 0 133,739 0 2,812
Investment Advisory Fee
Payable 60,885 10,175 4,232 21,625 0
Transfer Agent Fee
Payable 17,412 4,645 1,694 6,007 1,458
Organization Expense
Payable to Advisor 0 0 0 0 43,795
Other Liabilities 42,729 15,080 25,194 10,573 14,297
------------ ----------- ---------- ----------- -----------
Total Liabilities 88,831,947 13,190,891 1,502,101 263,664 1,800,151
------------ ----------- ---------- ----------- -----------
NET ASSETS $ 52,278,198 $23,680,139 $3,301,652 $32,577,265 $10,517,671
============ =========== ========== =========== ===========
Shares Outstanding 2,916,375 3,099,090 387,336 3,362,339 1,071,787
============ =========== ========== =========== ===========
Net Asset Value Per
Share $17.93 $7.64 $8.52 $9.69 $9.81
====== ===== ===== ===== =====
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Period Ended March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Fund Ursa Fund Market Fund
------------ ------------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 9,349,185 $ 10,454,328 $7,080,216
------------ ------------- ----------
Total Income 9,349,185 10,454,328 7,080,216
------------ ------------- ----------
EXPENSES
Advisory Fees (Note 4) 1,812,740 2,070,135 671,957
Transfer Agent Fees (Note 4) 606,411 575,038 268,855
Audit and Outside Services 74,791 71,771 44,813
Accounting Fees (Note 4) 80,757 78,563 60,841
Legal 93,036 109,715 64,866
Organizational Expenses 26,167 12,415 6,664
Registration Fees 38,662 46,120 40,026
Custodian Fees 58,097 57,786 7,343
Miscellaneous 86,250 114,097 74,815
------------ ------------- ----------
Total Expenses 2,876,911 3,135,640 1,240,180
Custodian Fees Paid Indirectly (Note
5) 54,497 54,099 3,537
------------ ------------- ----------
Net Expenses 2,822,414 3,081,541 1,236,643
------------ ------------- ----------
Net Investment Income 6,526,771 7,372,787 5,843,573
------------ ------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss) on:
Investment Securities 51,932,123 185,394,425 0
Written Options (28,858,102) (189,862,783) 0
Futures Contracts 16,491,572 (63,032,110) 0
------------ ------------- ----------
Total Net Realized Gain (Loss) 39,565,593 (67,500,468) 0
Net Change in Unrealized Appreciation
(Depreciation)
On Investments, Options and Futures
Contracts (12,688,383) 27,690,198 0
------------ ------------- ----------
Net Gain (Loss) on Investments 26,877,210 (39,810,270) 0
------------ ------------- ----------
Net Increase (Decrease) in Net Assets
from Operations $ 33,403,981 $ (32,437,483) $5,843,573
============ ============= ==========
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Period Ended March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Over-the- Precious U.S. High
Counter Metals Government Yield
Fund Fund Bond Fund Juno Fund Fund
----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 1,273,988 $ 151,322 $468,977 $ 740,291 $ 158,101
Dividends 125,692 206,863 0 0 0
----------- ----------- -------- ----------- ---------
Total Income 1,399,680 358,185 468,977 740,291 158,101
----------- ----------- -------- ----------- ---------
EXPENSES
Distribution Fees 0 0 0 0 4,432
Advisory Fees (Note 4) 775,607 185,396 35,394 130,573 8,131
Transfer Agent Fees
(Note 4) 205,328 49,439 14,158 36,374 2,168
Audit and Outside
Services 41,984 19,258 12,661 11,737 9,960
Accounting Fees (Note
4) 45,669 26,285 14,442 16,731 1,667
Legal 33,688 11,103 4,282 6,193 173
Organizational
Expenses 3,702 5,124 3,115 5,072 2,190
Registration Fees 16,698 10,356 11,937 13,895 116
Custodian Fees 117,702 23,531 5,651 5,724 2,323
Miscellaneous 75,111 36,647 6,861 5,309 0
----------- ----------- -------- ----------- ---------
Total Expenses 1,315,489 367,139 108,501 231,608 31,160
Custodian Fees Paid
Indirectly (Note 5) 1,442 1,709 1,866 2,124 315
Less Expenses
Reimbursed by
Investment Advisor 0 7,245 0 0 14,487
----------- ----------- -------- ----------- ---------
Net Expenses 1,314,047 358,185 106,635 229,484 16,358
----------- ----------- -------- ----------- ---------
Net Investment Income 85,633 0 362,342 510,807 141,743
----------- ----------- -------- ----------- ---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain
(Loss) on:
Investment Securities 18,582,010 (10,519,765) (364,110) (34,902) (95,444)
Written Options 52,685 5,751
Futures Contracts 0 0 211,629 (1,158,173) 0
----------- ----------- -------- ----------- ---------
Total Net Realized
Gain (Loss) 18,634,695 (10,514,014) (152,481) (1,193,075) (95,444)
Net Change in
Unrealized
Appreciation
(Depreciation)
on Investments,
Options and
Futures Contracts (676,120) 2,142,579 (254,243) 1,086,638 (241,600)
----------- ----------- -------- ----------- ---------
Net Gain (Loss) on
Investments 17,958,575 (8,371,435) (406,724) (106,437) (337,044)
----------- ----------- -------- ----------- ---------
Net Increase (Decrease)
in Net Assets from
Operations $18,044,208 ($8,371,435) ($44,382) $ 404,370 ($195,301)
=========== =========== ======== =========== =========
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nova Fund Ursa Fund
-------------------------- --------------------------
Period Ended Year Ended Period Ended Year Ended
March 31, June 30, March 31, June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
From Investment
Activities
Net Investment Income $ 6,526,771 $ 4,179,165 $ 7,372,787 $ 6,011,770
Net Realized Gain
(Loss) on Investments 39,565,593 22,094,745 (67,500,468) (36,517,831)
Net Change in
Unrealized
Appreciation
(Depreciation) of
Investments (12,688,383) 2,685,556 27,690,198 3,161,168
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets from
Operations 33,403,981 28,959,466 (32,437,483) (27,344,893)
------------ ------------ ------------ ------------
Distributions to
Shareholders
From Net Investment
Income (Note 1) 0 0 (752,816) 0
From Realized Gain on
Investments (6,012,731) 0 0 0
Net Increase (Decrease)
in Net Assets from
Shares Transactions
(Note 8) (70,002,669) 132,666,112 422,924,543 92,269,466
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets (42,611,419) 161,625,578 389,734,244 64,924,573
------------ ------------ ------------ ------------
NET ASSETS--Beginning of
Period 224,541,116 62,915,538 192,553,268 127,628,695
------------ ------------ ------------ ------------
NET ASSETS--End of
Period $181,929,697 $224,541,116 $582,287,512 $192,553,268
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Over-the-
Money Market Fund Counter Fund
---------------------------- ----------------------------
Period Ended Year Ended Period Ended Year Ended
March 31,1997 June 30,1996 March 31, 1997 June 30, 1996
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
From Investment
Activities
Net Investment Income $ 5,843,573 $ 7,459,832 $ 85,633 $ 304,516
Net Realized Gain on
Investments 0 467 18,634,695 7,408,632
Net Change in
Unrealized
Depreciation of
Investments 0 0 (676,120) (894,564)
------------ ------------- ------------ ------------
Net Increase in Net
Assets Resulting from
Operations 5,843,573 7,460,299 18,044,208 6,818,584
------------ ------------- ------------ ------------
Distributions to
Shareholders
From Net Investment
Income (Note 1) (5,799,436) (7,466,933) (522,552) 0
From Realized Gain on
Investments 0 (467) (57,883) (1,826,446)
Net Increase (Decrease)
in Net Assets Resulting
from Shares
Transactions (Note 8) 129,584,142 (130,266,747) (13,901,489) (18,223,812)
------------ ------------- ------------ ------------
Net Increase (Decrease)
in Net Assets 129,628,279 (130,273,848) 3,562,284 (13,231,674)
------------ ------------- ------------ ------------
NET ASSETS--Beginning of
Period 153,924,547 284,198,395 48,715,914 61,947,588
------------ ------------- ------------ ------------
NET ASSETS--End of
Period $283,552,826 $ 153,924,547 $ 52,278,198 $ 48,715,914
============ ============= ============ ============
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Precious Metals U.S. Government
Fund Bond Fund
---------------------------- ----------------------------
Period Ended Year Ended Period Ended Year Ended
March 31, 1997 June 30, 1996 March 31,1997 June 30, 1996
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
From Investment
Activities
Net Investment Income
(Loss) $ 0 $ (3,434) $ 362,342 $ 882,912
Net Realized Gain
(Loss) on Investments (10,514,014) 2,288,270 (152,481) (103,013)
Net Change in
Unrealized
Appreciation
(Depreciation) of
Investments 2,142,579 (6,585,369) (254,243) 188,414
------------ ----------- ------------ -----------
Net Increase (Decrease)
in Net Assets from
Operations (8,371,435) (4,300,533) (44,382) 968,313
------------ ----------- ------------ -----------
Distributions to
Shareholders
From Net Investment
Income (Note 1) 0 0 (362,881) (885,787)
From Realized Gain on
Investments 0 0 0 (243,678)
Net Increase (Decrease)
in Net Assets from
Shares Transactions
(Note 8) (4,521,996) 13,022 (14,622,230) 15,900,788
------------ ----------- ------------ -----------
Net Increase (Decrease)
in Net Assets (12,893,431) (4,287,511) (15,029,493) 15,739,636
------------ ----------- ------------ -----------
NET ASSETS--Beginning of
Period 36,573,570 40,861,081 18,331,145 2,591,509
------------ ----------- ------------ -----------
NET ASSETS--End of
Period $ 23,680,139 $36,573,570 $ 3,301,652 $18,331,145
============ =========== ============ ===========
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Yield
Juno Fund Fund
--------------------------- -------------
Period Ended Year Ended Period Ended
March 31,1997 June 30, 1996 March 31,1997
------------- ------------- -------------
<S> <C> <C> <C>
From Investment Activities
Net Investment Income $ 510,807 $ 710,596 $ 141,743
Net Realized Loss on Investments (1,193,075) (1,855,288) (95,444)
Net Change in Unrealized
Appreciation (Depreciation) of
Investments 1,086,638 (397,053) (241,600)
----------- ----------- -----------
Net Increase (Decrease) in Net
Assets from Operations 404,370 (1,541,745) (195,301)
----------- ----------- -----------
Distributions to Shareholders
From Net Investment Income (Note 1) (61,626) 0 (141,743)
Net Increase in Net Assets from
Shares Transactions (Note 8) 13,374,908 16,100,047 10,854,715
----------- ----------- -----------
Net Increase in Net Assets 13,717,652 14,558,302 10,517,671
----------- ----------- -----------
NET ASSETS--Beginning of Period 18,859,613 4,301,311 0
----------- ----------- -----------
NET ASSETS--End of Period $32,577,265 $18,859,613 $10,517,671
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nova Fund
-----------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 15.68 $ 11.81 $ 9.77 $ 10.01
-------- -------- ------- --------
Net Investment Income .35 .56 .28 .01
Net Realized and Unrealized Gains
(Losses) on Securities 2.19 3.31 2.88 (.25)
-------- -------- ------- --------
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations 2.54 3.87 3.16 (.24)
Dividends to Shareholders from Net
Investment Income .00 .00 (.29) .00
Distributions to Shareholders from
Net Realized Capital Gain (.33) .00 (.83) .00
-------- -------- ------- --------
Net Increase (Decrease) in Net
Asset Value 2.21 3.87 2.04 (.24)
-------- -------- ------- --------
NET ASSET VALUE--END OF PERIOD $ 17.89 $ 15.68 $ 11.81 $ 9.77
======== ======== ======= ========
TOTAL INVESTMENT RETURN 20.92%** 32.77% 32.65% (2.47)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.16%**++ 1.31% 1.43% 1.73%**
Net Investment Income 2.69%** 3.14% 2.62% 1.05%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0% 0% 0% 0%
Net Assets, End of Period (000's
omitted) $181,930 $224,541 $62,916 $ 77,914
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.19%.
*Commencement of Operations: July 12, 1993--Nova Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
32
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ursa Fund
--------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- --------- --------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 7.55 $ 8.79 $ 10.54 $ 10.00
-------- --------- --------- --------
Net Investment Income .17 .30 .35 .01
Net Realized and Unrealized
Gains (Losses) on Securities (.68) (1.54) (1.78) .53
-------- --------- --------- --------
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations (.51) (1.24) (1.43) .54
Dividends to Shareholders from
Net Investment Income (.02) .00 (.32) .00
-------- --------- --------- --------
Net Increase (Decrease) in Net
Asset Value (.53) (1.24) (1.75) .54
-------- --------- --------- --------
NET ASSET VALUE--END OF PERIOD $ 7.02 $ 7.55 $ 8.79 $ 10.54
======== ========= ========= ========
TOTAL INVESTMENT RETURN (8.98)%** (14.11)% (14.08)% 10.89%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.34%**++ 1.39% 1.39% 1.67%**
Net Investment Income 3.21%** 3.38% 3.50% 1.43%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0% 0% 0% 0%
Net Assets, End of Period
(000's omitted) $582,288 $ 192,553 $ 127,629 $110,899
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.36%.
* Commencement of Operations: January 7, 1994--Ursa Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova, Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
33
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Money Market Fund
------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------
Net Investment Income .03 .04 .04 .01
Net Realized and Unrealized Gains
on Securities .00 .00 .00 .00
-------- -------- -------- -------
Net Increase in Net Asset Value
Resulting from Operations .03 .04 .04 .01
Dividends to Shareholders from Net
Investment Income (.03) (.04) (.04) (.01)
-------- -------- -------- -------
Net Increase in Net Asset Value .00 .00 .00 .00
-------- -------- -------- -------
NET ASSET VALUE--END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== =======
TOTAL INVESTMENT RETURN 4.39%** 4.60% 4.43% 2.47%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.86%**++ 0.99% 0.89% 1.16%**
Net Investment Income 4.06%** 4.18% 4.23% 2.34%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0% 0% 0% 0%
Net Assets, End of Period (000's
omitted) $283,553 $153,925 $284,198 $88,107
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is .86%.
* Commencement of Operations: December 3, 1993--U.S. Government Money Market
Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
34
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Over-the-Counter Fund
------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 15.16 $ 12.22 $ 8.76 $ 10.00
-------- -------- -------- --------
Net Investment Income .01 .06 .14 .01
Net Realized and Unrealized Gains
(Losses) on Securities 2.84 3.24 4.17 (1.25)
-------- -------- -------- --------
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations 2.85 3.30 4.31 (1.24)
Dividends to Shareholders from
Net Investment Income (.07) .00 (.12) .00
Distributions to Shareholders
from Net Realized Capital Gain (.01) (.36) (.73) .00
-------- -------- -------- --------
Net Increase (Decrease) in Net
Asset Value 2.77 2.94 3.46 (1.24)
-------- -------- -------- --------
NET ASSET VALUE--END OF PERIOD $ 17.93 $ 15.16 $ 12.22 $ 8.76
======== ======== ======== ========
TOTAL INVESTMENT RETURN 24.77%** 26.44% 49.00% (30.17)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.27%**++ 1.33% 1.41% 1.97%**
Net Investment Income 0.08%** 0.44% 1.34% 1.69%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 1140.35% 2578.56% 2241.00% 1171.00%
Net Assets, End of Period (000's
omitted) $ 52,278 $ 48,716 $ 61,948 $ 30,695
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.27%.
* Commencement of Operations: February 14, 1994--Over-the-Counter Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and
Juno Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
35
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Precious Metals Fund
-----------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:+
NET ASSET VALUE--BEGINNING
OF PERIOD $ 9.05 $ 8.73 $ 8.29 $ 10.00
-------- ---------- ---------- ----------
Net Investment Income .00 .00 .10 .01
Net Realized and Unrealized
Gains (Losses) on
Securities (1.41) .32 .43 (1.72)
-------- ---------- ---------- ----------
Net Increase (Decrease) in
Net Asset Value Resulting
from Operations (1.41) .32 .53 (1.71)
Dividends to Shareholders
from Net Investment Income .00 .00 (.09) .00
-------- ---------- ---------- ----------
Net Increase (Decrease) in
Net Asset Value (1.41) .32 .44 (1.71)
-------- ---------- ---------- ----------
NET ASSET VALUE--END OF
PERIOD $ 7.64 $ 9.05 $ 8.73 $ 8.29
======== ========== ========== ==========
TOTAL INVESTMENT RETURN (20.77)%** 3.67% 6.21% (29.27)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.45%**++ 1.33% 1.38% 2.06%**
Net Investment Income 0.00%** (0.01)% 1.15% 1.23%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 743.33% 1,036.37% 1,765.00% 2,728.00%
Average Commission Rate
Paid**** .0101 0.0151 -- --
Net Assets, End of Period
(000's omitted) $ 23,680 $ 36,574 $ 40,861 $ 1,526
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.49%.
* Commencement of Operations: December 1, 1993--Precious Metals Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and
Juno Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
**** For fiscal years beginning on or after September 1, 1995, the fund is
required to disclose its average commission rate per share for purchases and
sales of equity securities.
See Notes to Financial Statements.
36
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Bond Fund
----------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 8.97 $ 9.55 $ 8.24 $ 10.00
-------- -------- ---------- ----------
Net Investment Income .34 .46 .39 .02
Net Realized and Unrealized
Gains (Losses) on Securities (.45) (.45) 1.17 (1.76)
-------- -------- ---------- ----------
Net Increase (Decrease) in
Net Asset Value Resulting
from Operations (.11) .01 1.56 (1.74)
Dividends to Shareholders
from Net Investment Income (.34) (.46) (.25) (.02)
Distributions to Shareholders
from Net Realized Capital
Gain .00 (.13) .00 .00
-------- -------- ---------- ----------
Net Increase (Decrease) in
Net Asset Value (.45) (.58) 1.31 (1.76)
-------- -------- ---------- ----------
NET ASSET VALUE--END OF PERIOD $ 8.52 $ 8.97 $ 9.55 $ 8.24
======== ======== ========== ==========
TOTAL INVESTMENT RETURN (0.46)%** (1.48)% 18.97% (32.63)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.49%**++ 1.26% 2.26% 3.05%**
Net Investment Income 5.06%** 4.73% 4.64% 3.39%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 962.17% 780.30% 3,452.59% 1,290.00%
Net Assets, End of Period
(000's omitted) $ 3,302 $ 18,331 $ 2,592 $ 1,564
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.51%.
* Commencement of Operations: January 3, 1994--U.S.Government Bond Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova, Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
37
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Juno Fund
------------------------------------
Period Year Period
Ended Ended Ended
March 31, June 30, June 30,
1997 1996 1995*
--------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD $ 9.47 $ 9.08 $ 10.00
------- ------- --------
Net Investment Income .25 .34 .14
Net Realized and Unrealized Gains
(Losses) on Securities .00 .05 (1.06)
------- ------- --------
Net Increase (Decrease) in Net Asset
Value Resulting from Operations .25 .39 (.92)
Dividends to Shareholders from Net
Investment Income (.03) .00 .00
------- ------- --------
Net Increase (Decrease) in Net Asset
Value .22 .39 (.92)
------- ------- --------
NET ASSET VALUE--END OF PERIOD $ 9.69 $ 9.47 $ 9.08
======= ======= ========
TOTAL INVESTMENT RETURN 3.75%** 4.30% (9.20)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.58%**++ 1.64% 1.50%**
Net Investment Income 3.51%** 3.63% 1.32%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0.00% 0.00% 0.00%
Net Assets, End of Period (000's omitted) $32,577 $18,860 $ 4,301
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.60%.
* Commencement of Operations: March 3, 1995--Juno Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and
Juno Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
38
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Yield
Fund*
--------------
Period
Ended
March 31, 1997
--------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD $ 10.00
--------
Net Investment Income .19
Net Realized and Unrealized Loss on Securities (.36)
--------
Net Decrease in Net Asset Value Resulting from Operations (.17)
Dividends to Shareholders from Net Investment Income (.02)
--------
Net Decrease in Net Asset Value (.19)
--------
NET ASSET VALUE--END OF PERIOD $ 9.81
========
TOTAL INVESTMENT RETURN** (0.12)%
RATIOS TO AVERAGE NET ASSETS**
Expenses .99%++
Net Investment Income 8.57%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 763.11%
Net Assets, End of Period (000's omitted) $ 10,518
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.88%.
* Commencement of Operations: January 3, 1997--High Yield Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova, Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
39
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Rydex Series Trust (the Trust) is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 as a non-
diversified, open-ended investment company. The Trust consists of nine separate
series, the Nova Fund, the Ursa Fund, the U.S. Government Money Market Fund,
the Over-the-Counter Fund, the Precious Metals Fund, the U.S. Government Bond
Fund, the Juno Fund, the Institutional Money Market Fund and the High Yield
Fund. The financial statements include eight of the separate series except the
Institutional Money Market Fund. The accompanying significant accounting
policies are in conformity with generally accepted accounting principles and
are consistently followed by the Trust.
The Trust changed its fiscal year end from June 30 to March 31. These
statements reflect nine months of financial activity.
A. Securities listed on an exchange are valued at the latest quoted sales
prices as of 4:00 P.M. on the valuation date. Securities not traded on an
exchange are valued at their last sales price. Listed options held by the Trust
are valued at their last bid price. Over-the-counter options held by the Trust
are valued using the average bid price obtained from one or more security
dealers. The value of futures contracts purchased and sold by the Trust are
accounted for using the unrealized gain or loss on the contracts that is
determined by marking the contracts to their current realized settlement
prices. Short term securities with less than sixty days to maturity are valued
at amortized cost, which approximates market. Security and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under direction of the Board of Trustees of the
Trust.
B. Securities transactions are recorded on the trade date (the date the order
to buy or sell is executed). Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recorded on the ex-dividend date. Interest income is accrued on a daily basis.
C. Net investment income is computed, and dividends are declared daily in the
U.S. Government Money Market Fund, the Institutional Money Market Fund, the
U.S. Government Bond Fund, and the High Yield Fund. Income dividends in these
funds are paid monthly. Dividends are reinvested in additional shares unless
shareholders request payment in cash. Generally, short-term capital gains are
distributed monthly in the U.S. Government Money Market Fund and the
Institutional Money Market Fund.
D. When the Trust engages in a short sale, an amount equal to the proceeds
received by the Trust is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked to market to reflect the market
value of the short sale. The Trust maintains a segregated account of securities
as collateral for the short sales. The Trust is exposed to market risk based on
the amount, if any, that the market value of the stock exceeds the market value
of the securities in the segregated account.
40
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
E. When the Trust writes (sells) an option, an amount equal to the premium
received is entered in the Trust's accounting records as an asset and
equivalent liability. The amount of the liability is subsequently marked to
market to reflect the current value of the option written. When an option
expires, or if the Trust enters into a closing purchase transaction, the Trust
realizes a gain (or loss if the cost of a closing purchase transaction exceeds
the premium received when the option was sold).
F. The Trust may purchase or sell stock index futures contracts and options on
such futures contracts. Futures contracts are contracts for delayed delivery of
securities at a specified future delivery date and at a specific price. Upon
entering into a contract, the Trust deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Trust agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and are
recorded by the Trust as unrealized gains or losses. When the contract is
closed, the Trust records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed.
G. Futures contracts and written options involve to varying degrees, elements
of market risk and risks in excess of the amount recognized in the Statements
of Assets and Liabilities. The face or contract amounts reflect the extent of
the involvement each fund has in the particular classes of instruments. Risks
may be caused by an imperfect correlation between movements in the price of the
instruments and the price of the underlying securities.
H. The Trust intends to comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and will distribute all net
investment income to its shareholders. Therefore, no Federal income tax
provision is required.
I. Costs incurred by the Trust in connection with its organization and
registration have been deferred and are being amortized on the straight-line
method over a five year period beginning on the date on which the Trust
commenced its investment activities.
J. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
41
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. OPERATING POLICIES
The Trust, which includes nine separate funds, utilizes futures contracts,
options, and options on futures contracts in order to meet the specific
investment objectives of the individual funds.
The Nova Fund, which is designed to provide total returns over time that are
superior to the Standard and Poor's 500 Composite Stock Price Index ("S&P 500")
invests primarily in futures on the S&P 500 index and options on those futures
in order to correlate its return with an amount approximately 150% of the
performance of the S&P 500. The Ursa Fund primarily sells futures contracts and
buys options on futures contracts in furtherance of its investment objective to
inversely correlate the S&P 500. The Precious Metals Fund seeks capital
appreciation. It buys primarily equity securities and purchases call options
and sells put options on the XAU Index. The Bond Fund strives to provide income
and capital appreciation. It purchases primarily long-term Treasury Bonds. It
also purchases futures contracts on U.S. Treasury Bonds and buys call options
on U.S. Treasury Bond futures as a substitute for a comparable market position
in the underlying U.S. Treasury Securities. The Juno Fund seeks to inversely
correlate with the price changes of the current Thirty Year Treasury Bond. To
meet this objective, Juno primarily buys put options on Treasury Bond futures
and sells Treasury Bond futures. The OTC Fund strives to provide investment
results before fees and expenses that closely correlate the total return of the
NASDAQ Composite Index. The fund invests in securities included in the NASDAQ
Composite and buys call options and sells put options on stock indexes. The
High Yield Fund, which correlates the MLHY Index does so by investing primarily
in long term, intermediate-term, and short term, below investment grade,
corporate bonds. In addition the Nova Fund, the Ursa Fund, the OTC Fund, and
the Precious Metals Fund all write options to further meet their investment
objectives.
The risks inherent in the use of options, futures contracts, and options on
futures contracts include 1) adverse changes in the value of such instruments;
2) imperfect correlation between the price of options and futures contracts and
options thereon and movements in the price of the underlying securities, index,
or futures contract; 3) the possible absences of a liquid secondary market for
any particular instrument at any time; and 4) the possible need to defer
closing out certain positions to avoid adverse tax consequences.
42
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. REPURCHASE AGREEMENTS
The Trust transfers uninvested cash balances into a single joint account, the
daily aggregate balance of which is invested in repurchase agreements
collateralized by Federal agency obligations. As of March 31,1997 the
repurchase agreements with Fuji Securities, Inc., PaineWebber, Inc., Smith
Barney, and Prudential Securities, in the joint account and the collateral
therefore was as follows:
<TABLE>
<CAPTION>
Security Type Range of rates Par Value Market Value
- ------------- -------------- ------------ ------------
<S> <C> <C> <C>
United States Treasury Bills.......... 6.25% $ 62,895,000 $ 60,000,000
United States Treasury Notes.......... 5.375%-9.25% $124,950,000 $127,043,534
United States Treasury Bond........... 8.5% $ 14,404,000 $ 16,756,189
</TABLE>
4. INVESTMENT ADVISORY, ACCOUNTING, AND TRANSFER AGENT SERVICES
Under the terms of an investment advisory contract, the Trust pays PADCO
Advisors, Inc. investment advisory fees calculated at an annual percentage rate
of one half of one percent (0.50%) of the average daily net assets of the U.S.
Government Money Market Fund and the U.S. Government Bond Fund; three-quarters
of one percent (0.75%) of the average daily net assets of the Nova Fund, the
Precious Metals Fund, the Over-the-Counter Fund, and the High Yield Fund; and
nine-tenths of one percent (0.90%) of the average daily net assets of the Ursa
Fund and the Juno Fund.
PADCO Service Company, Inc., a subsidiary of the investment advisor, provides
transfer agent service to the Trust at an annual rate of two-tenths of one
percent (0.20%) of the average daily net assets of the U.S. Government Money
Market Fund, U.S. Government Bond Fund, Precious Metals Fund, Over-the-Counter
Fund, and the High Yield Fund; and at annual rate of one-quarter of one percent
(0.25%) of the Nova Fund, the Ursa Fund, and the Juno Fund.
The Trust paid PADCO Service Co., Inc. $324,955 in accounting fees for the
above eight funds for the nine month period ended March 31, 1997.
43
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. ACCOUNTING FOR EXPENSES
The Trust has entered into an arrangement with its custodian whereby interest
earned on uninvested cash balances was used to offset a portion of the Trust's
expenses.
6. SECURITIES TRANSACTIONS
During the period ended March 31, 1997 purchases and sales of investment
securities were:
<TABLE>
<CAPTION>
U.S.
Government U.S.
Money Over-the- Precious Government
Nova Ursa Market Counter Metals Bond Juno High Yield
Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---------- -------------- ------------ ------------ ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases $0 $0 $0 $1,540,525,569 $250,054,682 $ 93,832,370 $0 $53,779,476
Sales $0 $0 $0 $1,557,547,271 $254,765,751 $106,868,172 $0 $43,147,175
</TABLE>
The transactions shown above exclude short term and temporary cash investments.
44
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. NET UNREALIZED APPRECIATION/DEPRECIATION OF SECURITIES
At March 31, 1997 unrealized appreciation (depreciation) and cost of investment
securities for Federal income tax purposes was:
<TABLE>
<CAPTION>
U.S.
Govern- U.S.
ment Govern-
Money Over-the- Precious ment High
Nova Ursa Market Counter Metals Bond Juno Yield
Fund Fund Fund Fund Fund Fund Fund Fund
------------ -------------- ------------ ------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Unrealized
Appreciation $ 7,582,445 $ 67,611,663 $ 0 $ 7,557,430 $ 1,033,764 $ 0 $ 699,035 $ 3,665
Gross Unrealized
(Depreciation) (17,318,714) (38,929,773) 0 (24,053,452) (12,875,480) (250,148) 0 (277,248)
------------ -------------- ------------ ------------ ------------ ---------- ----------- -----------
Net Unrealized
Appreciation
(Depreciation) $ (9,736,269) $ 28,681,890 $ 0 $(16,496,022) $(11,841,716) $ (250,148) $ 699,035 $ (273,583)
Cost of
Investments for
Federal Income
Tax Purposes $455,745,969 $1,432,790,025 $225,029,689 $99,086,695 $40,291,930 $3,632,965 $29,096,102 $10,568,826
</TABLE>
8. SHARE TRANSACTIONS
Transactions in shares for the period ended March 31, 1997 were:
<TABLE>
<CAPTION>
U.S. Govern- U.S.
ment Govern-
Money ment
Nova Ursa Market Over-the- Precious Bond Juno High
Fund Fund Fund Counter Fund Metals Fund Fund Fund Yield Fund
------------ ------------ -------------- ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares
Purchased 203,150,294 367,144,528 3,329,494,638 142,745,580 47,008,940 14,919,523 14,955,089 3,374,658
Dividend
Reinvestment 300,618 90,217 5,678,838 27,056 0 40,733 5,497 12,716
------------ ------------ -------------- ------------ ----------- ----------- ----------- ----------
Total
Purchased 203,450,912 367,234,745 3,335,173,476 142,772,636 47,008,940 14,960,256 14,960,586 3,387,374
Shares
Redeemed (207,604,225) (309,781,363) (3,205,603,845) (143,069,637) (47,949,316) (16,615,981) (13,589,740) (2,315,587)
------------ ------------ -------------- ------------ ----------- ----------- ----------- ----------
Net
Shares
Purchased
(Redeemed) (4,153,313) 57,453,382 129,569,631 (297,001) (940,376) (1,655,725) 1,370,846 1,071,787
============ ============ ============== ============ =========== =========== =========== ==========
</TABLE>
45
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Transactions in dollars for the period ended March 31, 1997 were:
<TABLE>
<CAPTION>
U.S.
Govern- U.S.
ment Govern-
Money Over-the- Precious ment
Nova Ursa Market Counter Metals Bond Juno
Fund Fund Fund Fund Fund Fund Fund
-------------- -------------- -------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares
Purchased $3,521,884,322 $2,638,202,998 $3,329,457,087 $2,553,497,726 $413,202,942 $134,338,078 $140,757,025
Purchased
through
Dividend
Reinvestment 5,375,055 626,105 5,730,900 507,026 0 373,468 49,308
-------------- -------------- -------------- -------------- ------------ ------------ ------------
Total
Purchased 3,527,259,377 2,638,829,103 3,335,187,987 2,554,004,752 413,202,942 134,711,546 140,806,333
Shares
Redeemed (3,597,262,046) (2,215,904,560) (3,205,603,845) (2,567,906,241) (417,724,938) (149,333,776) (127,431,425)
-------------- -------------- -------------- -------------- ------------ ------------ ------------
Net Shares
(Redeemed)
Purchased $ (70,002,669) $ 422,924,543 $ 129,584,142 $ (13,901,489) $ (4,521,996) $(14,622,230) $ 13,374,908
============== ============== ============== ============== ============ ============ ============
<CAPTION>
High
Yield
Fund
------------
<S> <C>
Shares
Purchased $33,888,522
Purchased
through
Dividend
Reinvestment 126,588
------------
Total
Purchased 34,015,110
Shares
Redeemed (23,160,395)
------------
Net Shares
(Redeemed)
Purchased $10,854,715
============
</TABLE>
Transactions in shares for the year ended June 30, 1996 were:
<TABLE>
<CAPTION>
U.S.
Government U.S.
Money Over-the- Precious Government
Nova Ursa Market Counter Metals Bond Juno
Fund Fund Fund Fund Fund Fund Fund
------------ ------------ -------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Purchased 188,794,994 276,476,043 4,139,232,212 168,346,003 87,901,045 19,714,470 25,594,613
Dividend Reinvestment 0 0 7,466,821 108,337 0 97,996 0
------------ ------------ -------------- ------------ ----------- ----------- -----------
Total Purchased 188,794,994 276,476,043 4,146,699,033 168,454,340 87,901,045 19,812,466 25,594,613
Shares Redeemed (179,799,246) (265,490,770) (4,276,965,783) (170,312,258) (88,544,497) (18,040,885) (24,076,731)
------------ ------------ -------------- ------------ ----------- ----------- -----------
Net Shares Purchased
(Redeemed) 8,995,748 10,985,273 (130,266,750) (1,857,918) (643,452) 1,771,581 1,517,882
============ ============ ============== ============ =========== =========== ===========
</TABLE>
46
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Transactions in dollars for the year ended June 30, 1996 were:
<TABLE>
<CAPTION>
U.S.
Government U.S.
Money Over-the- Precious Government
Nova Ursa Market Counter Metals Bond Juno
Fund Fund Fund Fund Fund Fund Fund
-------------- -------------- -------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Purchased $2,653,475,866 $2,245,867,707 $4,139,232,212 $2,261,882,356 $836,754,933 $189,414,530 $233,349,428
Purchased
through
Dividend
Reinvestment 0 0 7,466,821 1,413,792 0 879,023 0
-------------- -------------- -------------- -------------- ------------ ------------ ------------
Total Purchased 2,653,475,866 2,245,867,707 4,146,699,033 2,263,296,148 836,754,933 190,293,553 233,349,428
Shares Redeemed (2,520,809,754) (2,153,598,241) (4,276,965,780) (2,281,519,960) (836,741,911) (174,392,765) (217,249,381)
-------------- -------------- -------------- -------------- ------------ ------------ ------------
Net Shares
Purchased/
(Redeemed) $ 132,666,112 $ 92,269,466 $ (130,266,747) $ (18,223,812) $ 13,022 $ 15,900,788 $ 16,100,047
============== ============== ============== ============== ============ ============ ============
</TABLE>
9. OPTION CONTRACTS WRITTEN
During the period ended March 31, 1997 the Trust wrote the following contracts:
Call Options Written:
<TABLE>
<CAPTION>
Nova Fund Ursa Fund
---------------------- -------------------------
Number of Initial Number of Initial
Contracts Premiums Contracts Premiums
--------- ------------ --------- ---------------
<S> <C> <C> <C> <C>
Outstanding at Beginning of
Period 0 $ 0 6,000 $ 194,132,927
Options Written 7,222 274,895,042 38,800 1,765,889,584
Options Terminated (3,222) (90,218,598) (24,800) (1,062,894,217)
------ ------------ ------- ---------------
Outstanding at End of Pe-
riod 4,000 $184,676,444 20,000 $ 897,128,294
====== ============ ======= ===============
</TABLE>
Put Options Written:
<TABLE>
<CAPTION>
Precious Metals
Nova Fund Ursa Fund Over-the-Counter fund Fund
---------------------- ---------------------- --------------------- ------------------
Number of Initial Number of Initial Number of Initial Number of Initial
Contracts Premiums Contracts Premiums Contracts Premiums Contracts Premiums
--------- ------------ --------- ------------ --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of Period 0 $ 0 0 $ 0 37 $ 88,577 20 $ 9,189
Options Written 1,200 10,068,500 1,600 14,708,000 1,611 2,801,807 100 42,136
Options Terminated (1,200) (10,068,500) (1,600) (14,708,000) (1,617) (2,686,934) (120) (51,325)
------ ------------ ------ ------------ ------ ----------- ---- --------
Outstanding at End of
Period 0 $ 0 0 $ 0 31 $ 203,450 0 $ 0
====== ============ ====== ============ ====== =========== ==== ========
</TABLE>
47
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10. NET ASSETS
At March 31, 1997, net assets consisted of:
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Fund Ursa Fund Market Fund
------------ ------------- ------------
<S> <C> <C> <C>
Paid-In-Capital $179,428,969 $ 696,706,717 $283,515,523
Undistributed Net Investment Income 0 1,039,285 37,303
Accumulated Net Realized Gain (Loss)
on Investments 12,236,998 (144,140,380) 0
Net Unrealized Appreciation
(Depreciation) on Investments,
Options and Futures Contracts (9,736,269) 28,681,890 0
------------ ------------- ------------
Net Assets $181,929,698 $ 582,287,512 $283,552,826
============ ============= ============
</TABLE>
48
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Over-the- Precious U.S. High
Counter Metals Government Juno Yield
Fund Fund Bond Fund Fund Fund
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Paid-In-Capital $67,263,264 $43,566,617 $4,118,999 $36,461,968 $10,854,715
Undistributed Net
Investment Income 514,668 0 16,220 100,975 0
Distribution in Excess
of Net Investment
Income 0 (2,035) 0 0 0
Accumulated Net Realized
Loss on Investments (22,406,539) (19,609,610) (776,212) (4,684,713) (95,444)
Net Unrealized
Appreciation
(Depreciation) on
Investments, Options
and Futures Contracts 6,906,805 (274,833) (57,355) 699,035 (241,600)
----------- ----------- ---------- ----------- -----------
Net Assets $52,278,198 $23,680,139 $3,301,652 $32,577,265 $10,517,671
=========== =========== ========== =========== ===========
</TABLE>
* Realized capital gains differ for financial statement and tax purposes
primarily because of the timing of the recognition of post October 31 capital
losses.
11. LOSS CARRYFORWARD--FEDERAL INCOME TAX
At March 31, 1997, for federal income tax purposes, the following funds have
capital loss carryovers which may be applied against future net taxable
realized gains of each succeeding year until the earlier of its utilization or
its expiration.
<TABLE>
<CAPTION>
U.S.
Precious Government High
Expires Ursa Metals Bond Juno Yield
March 31 Fund Fund Fund Fund Fund
- -------- ----------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
2003 $ 6,618,786 $ 0 $ 0 $ 0 $ 0
2004 43,168,709 4,249,968 0 3,643,317 0
2005 50,012,823 709,440 539,594 106,438 63,461
</TABLE>
49
<PAGE>
RYDEX SERIES TRUST
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Shareholders and Board of Trustees,
Rydex Series Trust:
We have audited the statements of assets and liabilities, including the
schedules of investments, of the Nova, Ursa, U.S. Government Money Market,
Over-the-Counter, Precious Metals, U.S. Government Bond, Juno and High Yield
Funds (eight of the nine Funds) of Rydex Series Trust (the Trust) as of March
31, 1997, the related statements of operations, changes in net assets, and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of March 31, 1997 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position as of
March 31, 1997, the results of their operations, the changes in their net
assets, and the financial highlights for the periods presented in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 15, 1997
50
<PAGE>
The First Family of Funds
Designed for Professional
Money Managers
Nova Fund
Juno Fund
Ursa Fund
OTC Fund
High Yield Fund
Precious Metals Fund
U.S. Government Bond Fund
U.S. Government Money Market
RYDEX SERIES TRUST
6116 Executive Blvd., Suite 400
Rockville, MD 20852
(301) 468-8520 (800) 820-0888
[LOGO OF RYDEX APPEARS HERE]
ANNUAL REPORT
MARCH 31,1997
Nova Fund
Juno Fund
Ursa Fund
OTC Fund
High Yield Fund
Precious Metals Fund
U.S. Government Bond Fund
U.S. Government Money Market
<PAGE>
[LOGO OF RYDEX APPEARS HERE]
Institutional Money Market Fund
The First Family of Funds
Designed for Professional
Money Managers
ANNUAL REPORT
MARCH 31, 1997
RYDEX SERIES TRUST
6116 Executive Blvd., Suite 400
Rockville, MD 20852
(301) 468-8520 (800) 820-0888
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount (Note 1)
---------- ------------
<S> <C> <C>
COMMERCIAL PAPER 6.9%
American Express Credit Corporation 5.30% 4/14/97 $1,000,000 $ 998,086
Ford Motor Credit Company 5.34% 4/04/97 1,000,000 999,555
Ford Motor Credit Company 5.30% 4/10/97 1,000,000 998,675
General Electric Credit Corporation 5.28% 4/03/97 1,000,000 999,707
General Electric Credit Corporation 5.32% 4/03/97 1,000,000 999,704
General Motor Acceptance Corporation 5.31% 4/07/97 1,000,000 999,115
IBM Credit Corporation 5.25% 4/02/97 1,000,000 999,854
------------
Total Commercial Paper (Cost $6,994,696) 6,994,696
------------
FEDERAL AGENCY DISCOUNT NOTES 73.6%
Federal Farm Credit Administration 5.24% 4/29/97 1,000,000 995,924
Federal Home Loan Mortgage Corporation 5.48% 4/01/97 5,000,000 5,000,000
Federal Home Loan Mortgage Corporation 5.47% 4/02/97 15,000,000 14,997,721
Federal Home Loan Mortgage Corporation 5.55% 4/02/97 5,000,000 4,999,229
Federal Home Loan Mortgage Corporation 5.50% 4/03/97 5,000,000 4,998,472
Federal Home Loan Mortgage Corporation 5.50% 4/03/97 20,000,000 19,993,889
Federal Home Loan Mortgage Corporation 5.46% 4/04/97 10,000,000 9,995,450
Federal Home Loan Mortgage Corporation 5.24% 4/09/97 1,000,000 998,836
Federal Home Loan Mortgage Corporation 5.35% 4/15/97 1,000,000 997,919
Federal Home Loan Mortgage Corporation 5.28% 4/18/97 1,000,000 997,507
Federal National Mortgage Association 5.49% 4/10/97 10,000,000 9,986,275
Federal National Mortgage Association 5.45% 4/11/97 1,000,000 998,486
------------
Total Federal Agency Discount Notes (Cost $74,959,708) 74,959,708
------------
REPURCHASE AGREEMENT 19.5%
Repurchase Agreement collaterized by U.S. Treasury
Obligations 6.25% 4/01/97 (Cost $19,900,000) 19,900,000 19,900,000
------------
Total Investments 100% (Cost $101,854,404) $101,854,404
============
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Securities at Value (Note 1)--See Accompanying Schedule $101,854,404
Investment Income Receivable 4,173
Cash in Custodian Bank 36,088
Receivable for Shares Purchased 11,866,898
Unamortized Organization Costs (Note 1) 52,711
Other Assets 4,799
------------
Total Assets 113,819,073
------------
LIABILITIES
Distribution Fee Payable 23,146
Payable for Shares Redeemed 3,342,825
Investment Advisory Fee Payable 36,271
Transfer Agent Fee Payable 14,982
Organization Expense Payable to Advisor 60,819
Other Liabilities 25,087
------------
Total Liabilities 3,503,130
------------
NET ASSETS $110,315,943
============
Shares Outstanding 110,313,480
============
Net Asset Value Per Share $1.00
=====
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Period Ended March 31, 1997*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $1,771,126
----------
Total Income 1,771,126
----------
EXPENSES
Distribution Fees 83,673
Advisory Fees (Note 3) 183,504
Transfer Agent Fees (Note 3) 66,737
Audit and Outside Services 13,492
Accounting Fees (Note 3) 27,212
Legal 20,745
Organizational Expenses 8,109
Registration Fees 10,142
Custodian Fees 6,041
Miscellaneous 20,610
----------
Total Expenses 440,265
Custodian Fees Paid Indirectly (Note 4) 2,526
----------
Net Expenses 437,739
----------
NET INVESTMENT INCOME 1,333,387
----------
REALIZED GAIN ON INVESTMENTS
Net Realized Gain on:
Investment Securities 503
----------
Total Net Realized Gain 503
----------
Net Increase in Net Assets from Operations $1,333,890
==========
</TABLE>
* Commencement of Operations: July 11, 1996
See Notes to Financial Statements.
3
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Period Ended March 31, 1997*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
From Investment Activities
Net Investment Income $ 1,333,387
Net Realized Gain on Investments 503
------------
Net Increase in Net Assets Resulting from Operations 1,333,890
------------
Distributions to Shareholders
From Net Investment Income (Note 1) (1,330,924)
From Realized Gain on Investments (503)
Net Increase in Net Assets Resulting from Shares Transactions
(Note 5) 110,313,480
------------
Net Increase in Net Assets and Net Assets End of Period $110,315,943
============
</TABLE>
* Commencement of Operations: July 11, 1996.
See Notes to Financial Statements.
4
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Period Ended March 31, 1997*
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE--BEGINNING OF PERIOD+ $ 1.00
--------
Net Investment Income .03
Net Realized and Unrealized Gains on Securities .00
--------
Net Increase in Net Asset Value Resulting from Operations .03
Dividends to Shareholders from Net Investment Income (.03)
--------
Net Increase in Net Asset Value .00
--------
NET ASSET VALUE--END OF PERIOD $ 1.00
========
TOTAL INVESTMENT RETURN** 4.17%
RATIOS TO AVERAGE NET ASSETS **
Net Expenses 1.15%++
Net Investment Income 3.50%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0%
Net Assets, End of Period (000's omitted) $110,316
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.15%
* Commencement of Operations: July 11, 1996
** Annualized
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year.
See Notes to Financial Statements.
5
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Rydex Series Trust (the Trust) is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 as a non-
diversified, open-ended investment company. The Trust consists of nine
separate series, the Nova Fund, the Ursa Fund, the U.S. Government Money
Market Fund, the Over-the-Counter Fund, the Precious Metals Fund, the U.S.
Government Bond Fund, the Juno Fund, the Institutional Money Market Fund and
the High Yield Fund. The following significant accounting policies are in
conformity with generally accepted accounting principles and are consistently
followed by the Trust.
The Trust changed its fiscal year end from June 30 to March 31. These
statements reflect the financial activity of the Institutional Money Market
Fund for the period July 11, 1996 (Commencement of Operations) to March 31,
1997.
A. Short term securities with less than sixty days to maturity are valued at
amortized cost, which approximates market. Security and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under direction of the Board of Trustees of the
Trust.
B. Securities transactions are recorded on the trade date (the date the order
to buy or sell is executed). Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recorded on the ex-dividend date. Interest income is accrued on a daily basis.
C. Net investment income is computed, and dividends are declared daily. Income
dividends are paid monthly. Dividends are reinvested in additional shares
unless shareholders request payment in cash. Generally, short-term capital
gains are distributed monthly.
D. The Institutional Money Market Fund intends to comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies and
will distribute all net investment income to its shareholders. Therefore, no
Federal income tax provision is required.
E. Costs incurred by the Institutional Money Market Fund in connection with
its organization and registration have been deferred and are being amortized
on the straight-line method over a five year period beginning on the date on
which the Trust commenced its investment activities.
F. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
6
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. REPURCHASE AGREEMENTS
The Trust transfers uninvested cash balances into a single joint account, the
daily aggregate balance of which is invested in repurchase agreements
collateralized by Federal agency obligations. As of March 31, 1997 the
repurchase agreements with Fuji Securities, Inc., PaineWebber, Inc., Smith
Barney, Inc. and Prudential Securities in the joint account and the collateral
therefore was as follows:
<TABLE>
<CAPTION>
Security Type Range of rates Par Value Market Value
- ------------- -------------- ------------ ------------
<S> <C> <C> <C>
United States Treasury Bills 6.25% $ 62,895,000 $ 60,000,000
United States Treasury Notes 5.375%-9.25% $124,950,000 $127,043,534
United States Treasury Bond 8.5% $ 14,404,000 $ 16,756,189
</TABLE>
3. INVESTMENT ADVISORY AND TRANSFER AGENT SERVICES
Under the terms of an investment advisory contract, the Institutional Money
Market Fund pays PADCO Advisors, Inc. investment advisory fees calculated at
an annual percentage rate of fifty-five one hundredths of one percent (0.55%)
of the average daily net assets of the Institutional Money Market Fund.
PADCO Service Company, Inc., a subsidiary of the investment advisor, provides
transfer agent service to the Trust at an annual rate of two-tenths of one
percent (0.20%) of the average daily net assets of the Institutional Money
Market Fund.
The Institutional Money Market Fund paid PADCO Service Co., Inc. $27,212 in
accounting fees for the period ended March 31, 1997.
4. ACCOUNTING FOR EXPENSES
The Institutional Money Market Fund entered into an arrangement with its
custodian whereby interest earned on uninvested cash balances was used to
offset a portion of the Fund's expenses.
7
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
Transactions in shares for the period ended March 31,1997 were:
<TABLE>
<S> <C>
Shares Purchased 1,748,417,852
Dividend Reinvestment 1,179,631
---------------
Total Purchased 1,749,597,483
Shares Redeemed (1,639,284,003)
---------------
Net Shares Purchased 110,313,480
---------------
Transactions in dollars for the period ended March 31,1997
were:
Shares Purchased $ 1,748,417,852
Dividend Reinvestment 1,179,631
---------------
Total Purchased 1,749,597,483
Shares Redeemed (1,639,284,003)
---------------
Net Shares Purchased $ 110,313,480
===============
</TABLE>
6. NET ASSETS
At March 31, 1997, net assets consisted of:
<TABLE>
<S> <C>
Paid-In-Capital $ 110,313,480
Undistributed Net Investment Income 2,463
---------------
Net Assets $ 110,315,943
===============
</TABLE>
8
<PAGE>
RYDEX SERIES TRUST
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Shareholders and Board of Trustees,
Rydex Series Trust:
We have audited the statement of assets and liabilities, including the
schedule of investments, of the Institutional Money Market Fund (one of the
nine Funds) of Rydex Series Trust (the Trust) as of March 31, 1997, the
related statements of operations, changes in net assets, and the financial
highlights for the period July 11, 1996 (commencement of operations) to March
31, 1997. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of March 31, 1997 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position as of
March 31, 1997, the results of its operations, the changes in its net assets,
and the financial highlights for the period presented in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 15, 1997
9
<PAGE>
The First Family of Funds
Designed for Professional
Money Managers
Institutional Money Market Fund
RYDEX SERIES TRUST
6116 Executive Blvd., Suite 400
Rockville, MD 20852
(301) 468-8520 (800) 820-0888
[LOGO OF RYDEX APPEARS HERE]
ANNUAL REPORT
MARCH 31, 1997
Institutional Money Market Fund
54
<PAGE>
Statement of Additional Information
of
The Rydex High Yield Fund
<PAGE>
RYDEX SERIES TRUST
THE RYDEX HIGH YIELD FUND
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852
(800) 820-0888 (301) 468-8520
STATEMENT OF ADDITIONAL INFORMATION
The Rydex High Yield Fund (the "Fund") is a diversified series
of the Rydex Series Trust, an open-end management investment
company (the "Trust"). The investment objective of the Fund is
to seek to provide investment returns that correspond to the
performance of a benchmark for high yield fixed income
securities. The Fund's current benchmark is the Merrill Lynch
High Yield Master IndexTM (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 investment grade corporate bonds (including
convertible issues) commonly known as "junk bonds" and below
investment grade preferred securities. The Fund is part of
the Rydex Group of Funds, which is designed for professional
money managers and knowledgeable investors who intend to
invest in the Rydex Group of Funds as part of an asset-
allocation or market-timing investment strategy.
This Statement of Additional Information is not a prospectus.
It should be read in conjunction with the Fund's Prospectus,
dated August 1, 1997. 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 August
1, 1997.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
THE RYDEX FUNDS................................3
INVESTMENT POLICIES AND TECHNIQUES.............3
INVESTMENT RESTRICTIONS........................12
PORTFOLIO TRANSACTIONS AND BROKERAGE...........14
MANAGEMENT OF THE TRUST........................15
DISTRIBUTION PLAN..............................19
PRINCIPAL HOLDERS OF SECURITIES................21
DETERMINATION OF NET ASSET VALUE...............21
PERFORMANCE INFORMATION........................21
CALCULATION OF RETURN QUOTATIONS...............22
INFORMATION ON COMPUTATION OF YIELD............23
DIVIDENDS, DISTRIBUTIONS, AND TAXES............24
AUDITORS AND CUSTODIAN.........................27
FINANCIAL STATEMENTS...........................27
APPENDIX A.....................................28
2
<PAGE>
THE RYDEX FUNDS
The Trust is an open-end management investment company, and
currently is composed of nine separate series, including The
Rydex High Yield Fund, The Nova Fund, The Ursa Fund, The Rydex
OTC Fund, The Rydex Precious Metals Fund, The Rydex U.S.
Government Bond Fund, The Juno Fund, The Rydex U.S. Government
Money Market Fund, and The Rydex Institutional Money Market
Fund (collectively, the "Rydex Funds"); other separate Rydex
Funds may be added in the future. 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 Rydex U.S.
Government Money Market Fund and the Rydex Institutional Money
Market Fund, each Rydex Fund is intended to provide investment
exposure with respect to a particular segment of the
securities markets. These Rydex Funds seek investment results
that correspond over time to a specified benchmark. The Rydex
Funds may be used independently or in combination with each
other as part of an overall investment strategy.
Shares of any Rydex Fund may be exchanged, without any charge,
for shares of any other Rydex Fund on the basis of the
respective net asset values of the shares involved; provided,
that, in connection with exchanges for shares of the Rydex
Institutional Money Market Fund, certain minimum investment
levels are maintained. Copies of the separate Prospectuses
and Statements of Additional Information for the Rydex Funds
other than the Fund are available, without charge, upon
request to the Trust at 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852, or by telephoning the Trust at
(800) 820-0888 or (301) 468-8520.
INVESTMENT POLICIES AND TECHNIQUES
General
Reference is made to the sections entitled "Investment
Objective and Policies" in the Fund's Prospectus for a
discussion of the investment objective and policies of the
Fund. In addition, set forth below is further information
relating to the Fund. Investment management services are
provided to the Fund by the Trust's investment adviser, PADCO
Advisors, Inc. (the "Advisor"), a Maryland corporation with
offices at 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852 and portfolio management services are provided
to the Fund by the Fund's sub-adviser, Loomis, Sayles &
Company, L. P. (the "Sub-Advisor"), a Delaware limited
partnership with offices at 2001 Pennsylvania Avenue, N.W.,
Suite 200, Washington, D. C. 20016.
3
<PAGE>
The investment strategies of the Fund discussed below, and as
discussed in the Fund's Prospectus, may be used by the Fund
if, in the opinion of the Sub-Advisor, these strategies will
be advantageous to the Fund. The Fund is free to reduce or
eliminate the Fund's activity in any of those areas without
changing the Fund's fundamental investment policies. There is
no assurance that any of these strategies or any other
strategies and methods of investment available to the Fund
will result in the achievement of the Fund's objective.
Futures Contracts and Options Thereupon
The Fund may purchase securities index futures contracts as a
substitute for a comparable market position in the underlying
securities. The principal trading markets for Standard &
Poor's 500 Composite Stock Price IndexTM futures contracts and
U.S. Treasury bond futures contracts are the Chicago
Mercantile Exchange (the "CME") and the Chicago Board of Trade
(the "CBOT"), respectively.
A futures contract obligates the seller to deliver (and the
purchaser to take delivery of) the specified commodity on the
expiration date of the contract. A securities index futures
contract obligates the seller to deliver (and the purchaser to
take) an amount of cash equal to a specific dollar amount
times the difference between the value of a specific
securities index at the close of the last trading day of the
contract and the price at which the agreement is made. No
physical delivery of the underlying securities in the index is
made.
The Fund may purchase put or call options and write (sell) put
options on securities index futures contracts. When the Fund
purchases a put or call option on a futures contract, the Fund
pays a premium for the right to sell or purchase the
underlying futures contract for a specified price upon
exercise at any time during the option period. By writing
(selling) a put or call option on a futures contract, the Fund
receives a premium in return for granting to the purchaser of
the option the right to sell to or buy from the Fund the
underlying futures contract for a specified price upon
exercise at any time during the option period.
Whether the Fund realizes a gain or loss from futures
activities depends generally upon movements in the underlying
commodity. The extent of the Fund s loss from an unhedged
short position in futures contracts or from writing (selling)
call options on futures contracts is potentially unlimited.
The Fund may engage in related closing transactions with
respect to options on futures contracts. The Fund will only
engage in transactions in futures contracts and options
thereupon that are traded on a United States exchange or board
4
<PAGE>
of trade. In addition to the uses set forth hereunder, the
Fund may also engage in futures and futures options
transactions in order to hedge or limit the exposure of its
position to create a synthetic money market position, and for
certain other tax-related purposes. See "Taxes" in the
Prospectus.
The Fund may purchase and sell futures contracts, index
futures contracts, and options thereon only to the extent that
such activities would be consistent with the requirements of
Section 4.5 of the regulations under the Commodity Exchange
Act promulgated by the Commodity Futures Trading Commission
(the "CFTC Regulations"), under which the Fund would be
excluded from the definition of a "commodity pool operator."
Under Section 4.5 of the CFTC Regulations, the Fund may engage
in futures transactions, either for "bona fide hedging"
purposes, as this term is defined in the CFTC Regulations, or
for non-hedging purposes to the extent that the aggregate
initial margins and option premiums required to establish such
non-hedging positions do not exceed 5% of the liquidation
value of the Fund s portfolio. In the case of an option on
futures contracts that is "in-the-money" at the time of
purchase (i.e., the amount by which the exercise price of the
put option exceeds the current market value of the underlying
security or the amount by which the current market value of
the underlying security exceeds the exercise price of the call
option), the in-the-money amount may be excluded in
calculating this 5% limitation.
When the Fund purchases or sells a securities index futures
contract, or sells an option thereon, the Fund "covers" its
position. To cover its position, the Fund may maintain with
its custodian bank (and mark-to-market on a daily basis) a
segregated account consisting of cash or liquid securities
that, when added to any amounts deposited with a futures
commission merchant as margin, are equal to the market value
of the futures contract or otherwise "cover" its position. If
the Fund continues to engage in the described securities
trading practices and properly segregates assets, the
segregated account will function as a practical limit on the
amount of leverage which the Fund may undertake and on the
potential increase in the speculative character of the Fund s
outstanding portfolio securities. Additionally, such
segregated accounts will generally assure the availability of
adequate funds to meet the obligations of the Fund arising
from such investment activities.
The Fund may cover its long position in a futures contract by
purchasing a put option on the same futures contract with a
strike price (i.e., an exercise price) as high or higher than
the price of the futures contract, or, if the strike price of
5
<PAGE>
the put is less than the price of the futures contract, the
Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike
price of the put and the price of the future. The Fund may
also cover its long position in a futures contract by taking a
short position in the instruments underlying the futures
contract, or by taking positions in instruments the prices of
which are expected to move relatively consistently with the
futures contract. The Fund may cover its short position in a
futures contract by taking a long position in the instruments
underlying the futures contract, or by taking positions in
instruments the prices of which are expected to move
relatively consistently with the futures contract.
The Fund may cover its sale of a call option on a futures
contract by taking a long position in the underlying futures
contract at a price less than or equal to the strike price of
the call option, or, if the long position in the underlying
futures contract is established at a price greater than the
strike price of the written (sold) call, the Fund will
maintain in a segregated account cash or liquid securities
equal in value to the difference between the strike price of
the call and the price of the future. The Fund may also cover
its sale of a call option by taking positions in instruments
the prices of which are expected to move relatively
consistently with the call option. The Fund may cover its
sale of a put option on a futures contract by taking a short
position in the underlying futures contract at a price greater
than or equal to the strike price of the put option, or, if
the short position in the underlying futures contract is
established at a price less than the strike price of the
written put, the Fund will maintain in a segregated account
cash or liquid securities equal in value to the difference
between the strike price of the put and the price of the
future. The Fund may also cover its sale of a put option by
taking positions in instruments the prices of which are
expected to move relatively consistently with the put option.
Although the Fund intends to sell futures contracts only if
there is an active market for such contracts, no assurance can
be given that a liquid market will exist for any particular
contract at any particular time. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no
trades may be made that day at a price beyond that limit or
trading may be suspended for specified periods during the day.
Futures contract prices could move to the limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and
potentially subjecting the Fund to substantial losses. If
trading is not possible, or the Fund determines not to close a
6
<PAGE>
futures position in anticipation of adverse price movements,
the Fund will be required to make daily cash payments of
variation margin. The risk that the Fund will be unable to
close out a futures position will be minimized by entering
into such transactions on a national exchange with an active
and liquid secondary market.
Index Options Transactions
The Fund may write and purchase put and call options on
securities indexes in order to hedge or limit the exposure of
their positions, to create synthetic money market positions,
and for certain other tax-related purposes. See "Taxes" in
the Prospectus.
A securities index fluctuates with changes in the market
values of the securities included in the index. Options on
securities indexes give the holder the right to receive an
amount of cash upon exercise of the option. Receipt of this
cash amount will depend upon the closing level of the
securities index upon which the option is based being greater
than (in the case of a call) or less than (in the case of a
put) the exercise price of the option. The amount of cash
received, if any, will be the difference between the closing
price of the index and the exercise price of the option,
multiplied by a specified dollar multiple. The writer
(seller) of the option is obligated, in return for the
premiums received from the purchaser of the option, to make
delivery of this amount to the purchaser. Unlike the options
on securities discussed below, all settlements of index
options transactions are in cash.
Some securities index options are based on a broad market
index such as the Standard & Poor's 500 Composite Stock Price
IndexTM, the NYSE Composite IndexTM, or the AMEX Major Market
IndexTM, or on a narrower index such as the Philadelphia Stock
Exchange Over-the Counter IndexTM. Options currently are
traded on the Chicago Board Options Exchange (the "CBOE"), the
AMEX, and other exchanges ("Exchanges"). Purchased over-the-
counter options and the cover for written over-the-counter
options will be subject to the respective Fund s 15%
limitation on investment in illiquid securities. See
"Illiquid Securities" in the Prospectus.
Each of the Exchanges has established limitations governing
the maximum number of call or put options on the same index
which may be bought or written (sold) by a single investor,
whether acting alone or in concert with others (regardless of
whether such options are written on the same or different
Exchanges or are held or written on one or more accounts or
through one or more brokers). Under these limitations, option
positions of all investment companies advised by the same
7
<PAGE>
investment adviser are combined for purposes of these limits.
Pursuant to these limitations, an Exchange may order the
liquidation of positions and may impose other sanctions or
restrictions. These position limits may restrict the number
of listed options which the Fund may buy or sell; however, the
Sub-Advisor intends to comply with all limitations.
Index options are subject to substantial risks, including the
risk of imperfect correlation between the option price and the
value of the underlying securities comprising the securities
index selected and the risk that there might not be a liquid
secondary market for the option. Because the value of an
index option depends upon movements in the level of the index
rather than the price of a particular security, whether the
Fund will realize a gain or loss from the purchase or writing
(sale) of options on an index depends upon movements in the
level of securities prices in the securities market generally
or, in the case of certain indexes, in an industry or market
segment, rather than upon movements in the price of a
particular security. Whether the Fund will realize a profit
or loss by the use of options on securities indexes will
depend on movements in the direction of the securities market
generally or of a particular industry or market segment. This
requires different skills and techniques than are required for
predicting changes in the price of individual securities. The
Fund will not enter into an option position that exposes it to
an obligation to another party, unless the Fund either (i)
owns an offsetting position in securities or other options
and/or (ii) maintains with its custodian bank (and marks-to-
market on a daily basis) a segregated account consisting of
cash or liquid securities that, when added to the premiums
deposited with respect to the option, are equal to the market
value of the underlying securities index not otherwise
covered.
Foreign Securities
The Fund may invest in high yield bonds issued by foreign
corporations and denominated in United States dollars.
Investing in foreign companies may involve risks not typically
associated with investing in United States companies. While
not subject to certain risks to which securities denominated
in foreign currencies are subject (for example, the value of
foreign-denominated securities, and of dividends from such
securities, can change significantly when foreign currencies
strengthen or weaken relative to the United States dollar;
securities of foreign-based issuers generally have less
trading volume and less liquidity than securities of United
States issuers; and prices in some foreign markets can be very
volatile), investments in United States dollar-denominated
foreign securities are subject to unique risks. Many foreign
countries lack uniform accounting and disclosure standards
8
<PAGE>
comparable to those that apply to United States companies, and
it may be more difficult to obtain reliable information
regarding a foreign issuer's financial condition and
operations. Investing in companies located abroad carries
political and economic risks distinct from those associated
with investing in the United States. Foreign investments may
be affected by actions of foreign governments adverse to the
interests of United States investors, including the
possibility of expropriation or nationalization of assets,
confiscatory taxation, restrictions on United States
investment, or on the ability to repatriate assets or to
convert currency into U.S. dollars. There may be a greater
possibility of default by foreign governments or foreign-
government sponsored enterprises. Investments in foreign
countries also involve a risk of local political, economic, or
social instability, military action or unrest, or adverse
diplomatic developments.
U.S. Government Securities
The Fund may invest in obligations of the U.S. Treasury or
obligations either issued or guaranteed, as to principal and
interest, by the U.S. Government, its agencies or
instrumentalities, including money market instruments ("U.S.
Government Securities"). Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities
include U.S. Treasury securities, which are backed by the full
faith and credit of the U.S. Treasury and which differ only in
their interest rates, maturities, and times of issuance. U.S.
Treasury bills have initial maturities of one year or less;
U.S. Treasury notes have initial maturities of one to ten
years; and U.S. Treasury bonds generally have initial
maturities of greater than ten years. Certain U.S. Government
Securities are issued or guaranteed by agencies or
instrumentalities of the U.S. Government including, but not
limited to, obligations of U.S. Government agencies or
instrumentalities such as the Federal National Mortgage
Association, the Government National Mortgage Association, the
Small Business Administration, the Federal Farm Credit
Administration, the Federal Home Loan Banks, Banks for
Cooperatives (including the Central Bank for Cooperatives),
the Federal Land Banks, the Federal Intermediate Credit Banks,
the Tennessee Valley Authority, the Export-Import Bank of the
United States, the Commodity Credit Corporation, the Federal
Financing Bank, the Student Loan Marketing Association, and
the National Credit Union Administration.
Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, including, for example,
Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of
the U.S. Treasury. These agencies and instrumentalities may
9
<PAGE>
borrow funds from 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,
under certain circumstances, an amount limited to a specific
line of credit 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. These other agencies and
instrumentalities also are supported by the discretionary
authority of the U.S. Government to purchase certain
obligations of an agency or instrumentality or by the credit
of the agency or instrumentality itself. U.S. Treasury notes
and bonds typically pay coupon interest semi-annually and
repay the principal at maturity. The Fund will invest in U.S.
Government Securities only when the Sub-Advisor is satisfied
that the credit risk with respect to the issuer is minimal.
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.
U.S. Government Securities may be purchased at a discount.
Such securities, when held to maturity or retired, may include
an element of capital gain. Capital losses may be realized
when such securities purchased at a premium are held to
maturity or are called or redeemed at a price lower than their
purchase price. Capital gains or losses also may be realized
upon the sale of securities.
Repurchase Agreements
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
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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 Sub-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 agreed-upon repurchase price, the Fund could
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 are usually
for short periods, such as one week or less, but may be
longer. 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 15% of the Fund's net
assets. The Fund's investments in repurchase agreements may,
at times, be substantial when, in the view of the Sub-Advisor,
liquidity or other considerations so warrant.
When-Issued and Delayed Delivery Securities
As discussed in the Fund's Prospectus, the Fund, from time to
time, in the ordinary course of business, may purchase
securities on a when-issued or delayed delivery basis (i.e.,
delivery and payment can take place between a month and 120
days after the date of the transaction). 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 of the securities, each day, of
such security in determining the Fund's 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. At the time of delivery of
the securities, the value of the securities may be more or
less than the purchase price. The Fund will also establish a
segregated account with its custodian bank in which the Fund
will maintain cash or liquid securities equal to or greater in
value than the Fund's purchase 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.
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The foregoing strategies, and those discussed in the Fund's
Prospectus under the heading "Investment Objective and
Policies," may subject the Fund to the effects of interest
rate fluctuations to a greater extent than would occur if such
strategies were not used. While these strategies may be used
by the Fund if, in the opinion of the Sub-Advisor, these
strategies will be advantageous to the Fund, the Fund will be
free to reduce or eliminate its activity in any of those areas
without changing its fundamental investment policies. Certain
provisions of the Internal Revenue Code, related regulations,
and rulings of the Internal Revenue Service may also have the
effect of reducing the extent to which the previously-cited
techniques may be used by the Fund, either individually or in
combination. Furthermore, there is no assurance that any of
these strategies or any other strategies and methods of
investment available to the Fund will result in the
achievement of its objective.
Borrowing
The Fund may borrow money to facilitate management of the
Fund s portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio instruments would
be inconvenient or disadvantageous. Such borrowing is not for
investment purposes and will be repaid by the borrowing Fund
promptly.
As required by the Investment Company Act of 1940, as amended
(the "1940 Act"), the Fund must maintain continuous asset
coverage (total assets, including assets acquired with
borrowed funds, less liabilities exclusive of borrowings) of
300% of all amounts borrowed. If, at any time, the value of
the Fund s assets should fail to meet this 300% coverage test,
the Fund, within three days (not including Sundays and
holidays), will reduce the amount of the Fund s borrowings to
the extent necessary to meet this 300% coverage. Maintenance
of this percentage limitation may result in the sale of
portfolio securities at a time when investment considerations
otherwise indicate that it would be disadvantageous to do so.
In addition to the foregoing, the Fund is authorized to borrow
money from a bank as a temporary measure for extraordinary or
emergency purposes in amounts not in excess of 5% of the value
of the Fund s total assets. This borrowing is not subject to
the foregoing 300% asset coverage requirement. The Fund is
authorized to pledge portfolio securities as the Sub-Advisor
deems appropriate in connection with any borrowings.
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Lending of Portfolio Securities
The Fund has no present intention of lending portfolio
securities, however the Fund reserves the right, subject to
the investment restrictions set forth below, to lend portfolio
securities to brokers, dealers, and financial institutions;
provided, that cash equal to at least 100% of the market value
of the securities loaned is deposited by the borrower with the
Fund and is maintained each business day in a segregated
account pursuant to applicable regulations. While such
securities of the Fund are on loan, the borrower will pay the
Fund any income accruing thereon, and the Fund may invest the
cash collateral in portfolio securities, thereby earning
additional income. The Fund will not lend its portfolio
securities if such loans are not permitted by the laws or
regulations of any state in which the Fund's shares are
qualified for sale, and the Fund will not lend more than 33 %
of the value of the Fund's total assets. Loans of the Fund's
portfolio securities would be subject to termination by the
Fund on four business days' notice, or by the borrower on one
day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the
loan insures to the Fund and the Fund's shareholders. The
Fund may pay reasonable finders, borrowers, administrative,
and custodial fees in connection with a loan of the Fund's
portfolio securities.
Illiquid Securities
The Fund may purchase illiquid securities, including
securities that are not readily marketable and securities that
are not registered ("restricted securities") under the
Securities Act of 1933, as amended (the "1933 Act"), but which
can be offered and sold to "qualified institutional buyers"
under Rule 144A under the 1933 Act. The Fund will not invest
more than 15% of the Fund's net assets in illiquid securities.
The Fund will adhere to a more restrictive limitation on the
Fund's investment in illiquid securities as required by the
securities laws of those jurisdictions where shares of the
Fund are registered for sale. The term "illiquid securities"
for this purpose means securities that cannot be disposed of
within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the
securities. Under the current guidelines of the staff of the
Securities and Exchange Commission (the "Commission"),
illiquid securities also are considered to include, among
other securities, purchased over-the-counter options, certain
cover for over-the-counter options, repurchase agreements with
maturities in excess of seven days, and certain securities
13
<PAGE>
whose disposition is restricted under the Federal securities
laws. The Fund may not be able to sell illiquid securities
when the Sub-Advisor considers it desirable to do so or may
have to sell such securities at a price that is lower than the
price that could be obtained if the securities were more
liquid. In addition, the sale of illiquid securities also may
require more time and may result in higher dealer discounts
and other selling expenses than does the sale of securities
that are not illiquid. Illiquid securities also may be more
difficult to value due to the unavailability of reliable
market quotations for such securities, and investment in
illiquid securities may have an adverse impact on net asset
value.
Institutional markets for restricted securities have developed
as a result of the promulgation of Rule 144A under the 1933
Act, which provides a "safe harbor" from 1933 Act registration
requirements for qualifying sales to institutional investors.
When Rule 144A restricted securities present an attractive
investment opportunity and otherwise meet selection criteria,
the Fund may make such investments. Whether or not such
securities are "illiquid" depends on the market that exists
for the particular security. The Commission staff has taken
the position that the liquidity of Rule 144A restricted
securities is a question of fact for a board of trustees to
determine, such determination to be based on a consideration
of the readily-available trading markets and the review of any
contractual restrictions. The staff also has acknowledged
that, while a board of trustees retains ultimate
responsibility, the trustees may delegate this function to an
investment adviser and/or a sub-adviser. The trustees of the
Trust (the "Trustees") have delegated this responsibility for
determining the liquidity of Rule 144A restricted securities
which may be invested in by the Fund to the Advisor and the
Sub-Advisor. It is not possible to predict with assurance
exactly how the market for Rule 144A restricted securities or
any other security will develop. A security which when
purchased enjoyed a fair degree of marketability may
subsequently become illiquid and, accordingly, a security
which was deemed to be liquid at the time of acquisition may
subsequently become illiquid. In such event, appropriate
remedies will be considered to minimize the effect on the
Fund's liquidity.
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 short-
term, interest-bearing negotiable certificates evidencing the
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<PAGE>
obligation of a bank to repay funds deposited with the bank
for a specified period of time. Time deposits are non-
negotiable deposits maintained in a banking institution for a
specified period of time (in no event longer than seven days)
at a stated fixed interest rate for which a negotiable
certificate is not received. 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 time
draft drawn on the bank by a customer of the bank; most
acceptances have maturities of six months or less and are
traded in secondary markets prior to maturity. These credit
instruments reflect the obligation both of the bank (as a
guarantor) and of the drawer (as the payor) 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 and are usually
sold on a discount basis. 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
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<PAGE>
instruments that are rated "high quality" by certain
nationally-recognized statistical rating organizations.
Stocks and Other Equity Securities. Stocks and other equity
securities may include common stocks, fixed-rate preferred
stocks, bonds convertible into equity securities, warrants,
and rights. Common stocks, the most familiar type, represent
an equity (ownership) interest in a corporation. Although
equity securities have a history of long-term growth in value,
the prices of these securities fluctuate based on changes in a
company's financial condition and on overall market and
economic conditions. Smaller companies are especially
sensitive to these factors. Common stocks have a history of
long-term growth in value; however, stock prices fluctuate in
response to general market and economic conditions, as well as
to factors affecting individual companies. The Fund intends
to invest only in the common stock of companies believed by
the Sub-Advisor to have appreciation potential, and each
security held will be monitored to determine whether the
security is contributing to the Fund's investment objective.
Preferred stocks, like debt obligations, are generally fixed-
income securities. Preferred stocks have priority as to
income and generally as to assets of the issuer; however,
income usually is limited to a definitive percentage
regardless of the issuer's earnings, and preferred stock
usually has limited voting rights. Shareholder of preferred
stocks normally have the right to receive dividends at a fixed
rate when and as declared by the issuer's board of directors,
but do not participate in other amounts available for
distribution by the issuing corporation. Dividends on the
preferred stock may be cumulative, and all cumulative
dividends usually must be paid prior to common shareholders
receiving any dividends. Preferred stock dividends must be
paid before common stock dividends and, for that reason,
preferred stocks generally entail less risk than common
stocks. Upon liquidation, preferred stocks are entitled to a
specified liquidation preference, which generally is the same
as the par or stated value, and are senior in right of payment
to common stock. Preferred stocks, however, are equity
securities in the sense that these securities do not represent
a liability of the issuer and, therefore, do not offer as
great a degree of protection of capital or assurance of
continued income as investments in corporate debt securities.
In addition, preferred stocks are subordinated in right of
payment to all debt obligations and creditors of the issuer,
and convertible preferred stocks may be subordinated to other
preferred stock of the same issuer.
Warrants and stock rights are almost identical to call options
in their nature, use, and effect, except that warrants and
stock rights are issued by the issuer of the underlying
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<PAGE>
security, rather than an option writer, and generally have
longer expiration dates than call options. A right is a
privilege granted by a corporation to current common
shareholders, whereby these shareholders may purchase a
proportionate number of new shares, at a price that is lower
than current market prices, before the public is allowed to
purchase the shares. Because a warrant does not carry with it
the right to dividends or voting rights with respect to the
securities that the warrant holder is entitled to purchase,
and because a warrant does not represent any rights to the
assets of the issuer, a warrant may be considered more
speculative than certain other types of investments. In
addition, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to its
expiration date. The Fund will invest in only those warrants
or stock rights that are listed on the New York Stock Exchange
or American Stock Exchange.
The Fund also may invest in debt securities and preferred
stocks which are convertible into, or carry the right to
purchase, common stock or other equity securities
("convertible securities") when, in the opinion of the Sub-
Advisor, the convertible securities may be purchased at prices
favorable relative to the common stock itself. Convertible
securities have several unique investment characteristics,
such as (1) higher yields than common stocks, but lower yields
than comparable nonconvertible fixed income securities, (2) a
lesser degree of fluctuation in value than the underlying
stocks since convertible securities have fixed income
characteristics, and (3) the potential for capital
appreciation if the market price of the underlying common
stock increases. A convertible security might be subject to
redemption at the option of the issuer at a price established
in the convertible security's governing instrument. If a
convertible security held by the Fund is called for
redemption, the Fund might be required to permit the issuer to
redeem the security, convert the security into the underlying
common stock or sell the security to a third party.
The Sub-Advisor believes that the characteristics of
convertible securities make these securities suitable
investments for an investment company seeking investment
returns, including capital appreciation. These
characteristics include the potential for capital appreciation
if the value of the underlying common stock increases, the
relatively high yield received from dividends, and decreased
risks of decline in value, relative to the underlying common
stock due to their fixed income nature. In selecting
convertible securities for the Fund, the Sub-Advisor considers
the following factors: (1) the Sub-Advisor s own evaluation
of the basic underlying value of the assets and business of
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the issuers of the securities; (2) the interest or dividend
income generated by the securities; (3) the potential for
capital appreciation of the securities and the underlying
common stocks; (4) the prices of the securities relative to
the underlying common stocks; (5) whether the securities are
entitled to the benefits of sinking funds or other protective
conditions; (6) the existence of any anti-dilution protections
of the security; (7) the diversification of the Fund s
portfolio as to issuers; and (8) an investment rating of "Caa"
or higher by Moody's Investors Service, Inc. ("Moody's") or
"CCC" or higher by Standard & Poor's Ratings Group ("Standard
& Poor's."). Lower-rated and some non-rated convertible
securities are predominantly speculative with respect to the
issuer's capacity to repay principal and pay interest.
Investment in lower-rated and non-rated convertible securities
normally involves a greater degree of investment and credit
risk than does investment in convertible securities having
higher ratings. In addition, the market for non-rated
convertible securities usually is less broad than the market
for rated securities, which could affect the marketability of
the convertible securities. To the extent that the Fund holds
any lower-rated or non-rated convertible securities, the Fund
may be negatively affected by adverse economic developments,
increased volatility, or lack of liquidity.
Portfolio Turnover
As discussed in the Fund's prospectus, the Trust anticipates
that investors in the Fund, as part of a market-timing or
asset allocation investment strategy, will frequently exchange
shares of the Fund for shares in other Rydex Funds pursuant to
the exchange policy of the Trust as well as frequently redeem
shares of the Rydex Funds (see "Exchanges" in the Fund's
Prospectus). The nature of the Rydex Funds has caused the
Rydex Funds to experience substantial portfolio turnover.
Because each Rydex Fund's portfolio turnover rate to a great
extent will depend on the purchase, redemption, and exchange
activity of the Rydex Fund's investors, it is very difficult
to estimate what the Rydex Fund's actual turnover rate will be
in the future. However, the Trust expects that the portfolio
turnover experienced the Rydex Funds will continue to be
substantial.
"Portfolio Turnover Rate" is defined under the rules of the
Securities and Exchange Commission as the value of the
securities purchased or securities sold, excluding all
securities whose maturities at time of acquisition were one
year or less, divided by the average monthly value of such
securities owned during the year. Based on this definition,
instruments with remaining maturities of less than one year
are excluded from the calculation of portfolio turnover rate.
Instruments excluded from the calculation of portfolio
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turnover generally would include the futures contracts and
option contracts in which the Rydex Funds invest since such
contracts generally have a remaining maturity of less than one
year. All instruments held by a Rydex Fund during a specified
period may have a remaining maturity of less than one year in
which case the portfolio turnover rate for that period, under
the definition, would be equal to zero. However, because of
the nature of Rydex Funds as described above, the actual
portfolio turnover of the Rydex Funds has been and it is
anticipated that their actual portfolio turnover in the future
will be unusually high.
INVESTMENT RESTRICTIONS
As described in the section of the Fund's Prospectus entitled
"Investment Objective 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 1940 Act. The term "majority" is defined in
the 1940 Act as the lesser of: (i) 67% or more of the shares
of the series present at a meeting of shareholders, if the
holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy; or (ii) more than 50% of
the outstanding shares of the series. (All policies of the
Fund not specifically identified in this Statement of
Additional Information or the Fund's Prospectus as fundamental
may be changed without a vote of the shareholders of the
Fund.) For purposes of the following limitations, all
percentage limitations apply immediately after a purchase or
initial investment. Any subsequent change in a particular
percentage resulting from fluctuations in value does not
require the elimination of any security from the Fund's
portfolio.
These restrictions provide that the Fund may not:
1. Lend any security or make any other loan if, as a
result, more than 33 % of the value of the Fund's
total assets would be lent to other parties, except
(i) through the purchase of a portion of an issue of
debt securities in accordance with the Fund's
investment objective, policies, and limitations, or
(ii) by engaging in repurchase agreements with
respect to portfolio securities, or (iii) through
the loans of portfolio securities provided the
borrower maintains collateral equal to at least 100%
of the value of the borrowed security and marked-to-
market daily.
2. Underwrite securities of any other issuer.
3. Purchase, hold, or deal in real estate or oil and
gas interests, although the Fund may purchase and
sell securities that are secured by real estate or
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<PAGE>
interests therein and may purchase mortgage-related
securities and may hold and sell real estate
acquired for the Fund as a result of the ownership
of securities.
4. Issue any senior security (as such term is defined
in Section 18(f) of the 1940 Act) (including the
amount of senior securities issued but excluding
liabilities and indebtedness not constituting senior
securities), except that the Fund may issue senior
securities in connection with transactions in
options, futures, options on futures, and other
similar investments, and except as otherwise
permitted herein and in Investment Restriction Nos.
5, 7, 8, and 9, as applicable to the Fund.
5. Pledge, mortgage, or hypothecate the Fund's assets,
except to the extent necessary to secure permitted
borrowings and to the extent related to the deposit
of assets in escrow in connection with (i) the
writing of covered put and call options, (ii) the
purchase of securities on a forward-commitment or
delayed-delivery basis, and (iii) collateral and
initial or variation margin arrangements with
respect to currency transactions, options, futures
contracts, including those relating to indexes, and
options on futures contracts or indexes.
6. Invest in commodities except that the Fund may
purchase and sell futures contracts, including those
relating to securities, currencies, indexes, and
options on futures contracts or indexes and
currencies underlying or related to any such futures
contracts, and purchase and sell currencies (and
options thereon) or securities on a forward-
commitment or delayed-delivery basis.
7. Invest 25% or more of the value of the Fund's total
assets in the securities of one or more issuers
conducting their principal business activities in
the same industry. This limitation does not apply
to investments or obligations of the U.S. Government
or any of its agencies or instrumentalities.
8. Borrow money, except the Fund may borrow money
(i) from a bank in an amount not in excess of 33 %
of the total value of the Fund's assets (including
the amount borrowed) less the Fund's liabilities
(not including the Fund's borrowings), and (ii) for
temporary purposes in an amount not in excess of 5%
of the total value of the Fund's assets.
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9. Make short sales of portfolio securities or maintain
a short position unless at all times when a short
position is open (i) the Fund maintains a segregated
account with the Fund's custodian to cover the short
position in accordance with the position of the
Securities and Exchange Commission or (ii) the Fund
owns an equal amount of such securities or
securities convertible into or exchangeable, without
payment of any further consideration, for securities
of the same issue as, and equal in amount to, the
securities sold short.
Furthermore, the Trustees have adopted additional investment
restrictions for the Fund. These restrictions are not
fundamental investment policies, but rather are operating
policies of the Fund, and may be changed by the Trustees
without Fund shareholder approval. These additional
investment restrictions adopted by the Trustees, to date, are
as follows:
1. The Fund will not invest in warrants.
2. The Fund will not invest in real estate limited
partnerships.
3. The Fund will not invest in mineral leases.
The Trust and the Advisor have applied to the Securities and
Exchange Commission for an exemptive order that would permit
other investment companies to invest in the Rydex Funds as
part of a "fund of funds" arrangement (the "FOF Order"). Once
the Trust receives the FOF Order, and for as long as the FOF
Order remains effective (and subject to the FOF Order being
modified in the future), none of the Rydex Funds, including
the High Yield Fund, will invest in any securities of
investment companies, except as these securities may be
acquired as part of a merger, consolidation, acquisition of
assets, or plan of reorganization. There is no assurance that
the FOF Order will be issued.
If a percentage restriction is adhered to at the time of an
investment, a later increase or decrease in the investment's
percentage of the value of the Fund's total assets resulting
from a change in such values or assets will not constitute a
violation of the percentage restriction.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, and in
conformity with the 1940 Act, the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder,
the Sub-Advisor is responsible for decisions to buy and sell
21
<PAGE>
securities for the Fund and the selection of brokers and
dealers to effect the transactions. In seeking to implement
the Fund's policies, the Sub-Advisor effects transactions with
those brokers and dealers who the Sub-Advisor believes provide
the most favorable prices and are capable of providing
efficient executions. If such prices and executions are
obtainable from more than one dealer, the Sub-Advisor may give
consideration to placing portfolio transactions with dealers
who also furnish research and other services to the Fund or
the Sub-Advisor. Such services may include, but are not
limited to, any one or more of the following: information as
to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to
investment; wire services; and appraisals or evaluations of
portfolio securities.
The Sub-Advisor may serve as an investment manager to a number
of clients, including other investment companies. It is the
practice of the Sub-Advisor to cause purchase and sale
transactions to be allocated among the Fund and others whose
assets the Sub-Advisor manages in such manner as the Sub-
Advisor deems equitable. The main factors considered by the
Sub-Advisor in making such allocations among the Fund and
other client accounts of the Sub-Advisor are the respective
investment objectives, the relative size of portfolio holdings
of the same or comparable securities, the availability of cash
for investment, the size of investment commitments generally
held, and the opinions of the person(s) responsible, if any,
for managing the portfolios of the Fund and the other client
accounts. Purchases and sales of corporate debt securities
are normally transacted through major dealers acting as
principals. Such transactions are made on a net basis, do not
involve payment of brokerage commissions, and normally reflect
the spread between bid and asked prices.
The information and services received by the Sub-Advisor from
dealers may be of benefit to the Sub-Advisor in the management
of accounts of some of the Sub-Advisor's other clients and may
not in all cases benefit the Fund directly. While the receipt
of such information and services is useful in varying degrees
and would generally reduce the amount of research or services
otherwise performed by the Sub-Advisor and thereby reduce the
Sub-Advisor's expenses, this information and these services
are of indeterminable value and the management fee paid to the
Sub-Advisor is not reduced by any amount that may be
attributable to the value of such information and services.
The Fund commenced operations on January 3, 1997. For the
period from January 3, 1997 to March 31, 1997, total brokerage
commissions paid by the Fund amounted to $0.
22
<PAGE>
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. (56)
Chairman of the Board of Trustees and President of the
Trust; Chairman of the Board, President, and Treasurer of
PADCO Advisors, Inc., investment adviser to the Trust,
1993 to present; Chairman of the Board, President, and
Treasurer of PADCO Service Company, Inc., shareholder and
transfer agent servicer to the Trust, 1993 to present;
Chairman of the Board of Managers of the Rydex Advisor
Variable Annuity Account (the "Separate Account"), a
separate account of Great American Reserve Insurance
Company, 1996 to present; Chairman of the Board,
President, and Treasurer of PADCO Advisors II, Inc.,
investment adviser to the Separate Account, 1996 to
present; Chairman of the Board, President, and Treasurer
of PADCO Financial Services, Inc., a registered broker-
dealer firm and the distributor of the shares of the
Rydex High Yield Fund and the Rydex Institutional Money
Market Fund, each a series of the Trust. 1996 to
present; Vice President of Rushmore Investment Advisors
Ltd., a registered investment adviser, 1985 to 1993.
Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
Corey A. Colehour (51)
Trustee of the Trust; Manager of the Separate Account,
1996 to present; Senior Vice President of Marketing of
Schield Management Company, a registered investment
adviser, 1985 to present. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
J. Kenneth Dalton (57)
Trustee of the Trust; Manager of the Separate Account,
1996 to present; Mortgage Banking Consultant and
Investor, The Dalton Group, April 1995 to present;
President, CRAM Mortgage Group, Inc. 1966 to April 1995.
23
<PAGE>
Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
Roger Somers (53)
Trustee of the Trust; Manager of the Separate Account,
1996 to present; President, Arrow Limousine, 1963 to
present. Address: 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.
Officers
Robert M. Steele (38)
Secretary and Vice President of the Trust; Vice President
of PADCO Advisors, Inc., investment adviser to the Trust,
1994 to present; Secretary and Vice President of the
Separate Account, 1996 to present; Vice President of
PADCO Advisors II, Inc., investment adviser to the
Separate Account, 1996 to present; Vice President of The
Boston Company, Inc., an institutional money management
firm, 1987 to 1994. Address: 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852.
Carl G. Verboncoeur (44)
Vice President of Operations of the Trust; Vice President
of Operations of the Separate Account, 1997 to present;
Senior Vice President, Crestar Bank, 1995 to 1997; Senior
Vice President, Crestar Asset Management Company, a
registered investment adviser, 1993 to 1995; Vice
President Perpetual Savings Bank, 1987 to 1993. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
Michael P. Byrum (27)
Assistant Secretary of the Trust; Employee and senior
portfolio manager of PADCO Advisors, Inc., 1993 to
present; portfolio manager of The OTC Fund (since 1997)
and The Rydex U.S. Government Bond Fund each a series of
the Trust; Assistant Secretary of the Separate Account,
1996 to present; Employee of PADCO Advisors II, Inc.,
investment adviser to the Separate Account; Investment
Representative, Money Management Associates, a registered
investment adviser, 1992 to 1993; Student, Miami
University, of Oxford, Ohio (B.A., Business
Administration, 1992). Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
24
<PAGE>
Victor J. Edgar (36)
Controller of the Trust; Controller of the Separate
Account, 1996 to the present; Controller to PADCO Service
Company, Inc., the shareholder and transfer agent
servicer for the Trust, 1994 to the present; Controller
of PADCO Financial Services, Inc., for a registered
broker-dealer firm and distributor of the shares of the
Rydex Institutional Money Market Fund and the Rydex High
Yield Fund, 1996 to present; Assistant Controller for The
Rushmore Group, a mutual fund complex, 1989 until 1994.
Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
Sothara Chin (31)
Compliance Officer of the Trust; Compliance Officer of
PADCO Advisors, Inc., investment advisor of the Trust,
1996 to the present; Compliance Officer of the Separate
Account, 1996 to present; Compliance Officer of PADCO
Advisors II, Inc., investment adviser to the Separate
Account, 1996 to present; Compliance Officer of PADCO
Service Company, Inc., the Trust's shareholder and
transfer agent servicer, 1996 to present; Compliance
Officer of PADCO Financial Services, Inc. a registered
broker-dealer and the distributor of shares of the Rydex
Institutional Money Market Fund and the Rydex High Yield
Fund, 1996 to present; Compliance Officer, USLICO
Corporation, an insurance company, 1990 to 1996.
Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
_________________________
* This Trustee is deemed to be an "interested person" of
the Trust, within the meaning of Section 2(a)(19) of the
1940 Act, inasmuch as this person is affiliated with the
Advisor, as described herein.
The Advisory Agreement
Under an investment advisory agreement with the Advisor, dated
May 14, 1993, and amended on November 2, 1993, December 13,
1994, March 8, 1996, and September 25, 1996, the Advisor
serves as the investment adviser for each series of the Trust
and oversees the day-to-day operations of the Fund (including
monitoring the performance of the Sub-Advisor, as discussed
below), subject to direction and control by the Trustees and
the officers of the Trust. The Trust currently is composed of
nine separate series, The Nova Fund, The Ursa Fund, The Rydex
OTC Fund, The Rydex Precious Metals Fund, The Rydex U.S.
25
<PAGE>
Government Bond Fund, The Juno Fund, The Rydex U.S. Government
Money Market Fund, The Rydex Institutional Money Market Fund,
and The Rydex High Yield Fund; other separate series may be
added in the future. As of March 31, 1997, net Trust assets
under management of the Advisor were approximately $1.28
billion. Pursuant to the advisory agreement, the Fund pays
the Advisor a fee at an annual rate based on 0.75% of the net
assets of the Fund. The Fund commenced operations on January
3, 1997. For the period from January 3, 1997 to March 31,
1997, total management fees expensed by the Fund to the
Advisor amounted to $8,131.
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
limitations of the Fund, and subject to the general
supervision and control of the officers of the Trust and the
Trustees. The Advisor bears all costs associated with
providing these advisory services. In providing these
advisory services, the Advisor, at its own expense, has been
authorized by the Trustees to employ a sub-adviser and to
enter into such service agreements as the Advisor deems
appropriate in connection with the management of the Fund.
The Advisor, from its own resources, including profits from
advisory fees received from the Fund, provided such fees are
legitimate and not excessive, also may make payments to
broker-dealers and other financial institutions for their
expenses in connection with the distribution of Fund 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 Advisor, which has its office at 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852, was incorporated in the
State of Maryland on February 5, 1993. Albert P. Viragh, Jr.,
the Chairman of the Board of Trustees and the President of the
Advisor, owns a controlling interest in the Advisor.
The Sub-Advisory Agreement
Loomis, Sayles & Company, L.P. (the "Sub-Advisor"), is the
sub-adviser of the Fund. As such, the Sub-Advisor is
responsible for daily managing the investment and reinvestment
of assets of the Fund, subject generally to review and
supervision of the Advisor and the Trustees. The Sub-Advisor
bears all expenses in connection with the performance of its
services, such as compensating and furnishing office space for
its officers and employees connected with the investment and
economic research, trading, and investment management of the
Fund.
26
<PAGE>
The Sub-Advisor is a Delaware limited partnership, registered
as an investment adviser with the Commission. The Sub-
Advisor's principal business address is One Financial Center,
Boston, Massachusetts 02111. Founded in 1926, the Sub-Advisor
is one of the country's oldest and largest investment firms.
The Sub-Advisor's general partner is indirectly owned by New
England Investment Companies, L.P., a publicly-traded limited
partnership whose general partner is a wholly-owned subsidiary
of Metropolitan Life Insurance Company. The portfolio
managers of the Fund are Steven J. Doherty and Stephanie S.
Lord. Mr. Doherty is a Vice President of the Sub-Advisor.
From 1986 to 1996, Mr. Doherty was the portfolio manager of
Howard Hughes Medical Institute in Chevy Chase, Maryland.
From 1982 to 1986, Mr. Doherty was an Assistant Vice President
and the portfolio manager of the National Bank of Washington
in Washington, D. C. Mr. Doherty earned his Chartered
Financial Analyst designation in 1990, received his Master of
Business Administration in Finance and Investments from The
George Washington University, at Washington, D. C., in 1986,
and received his bachelor's degree in Business Administration
from The George Washington University, at 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,
at 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
Advisor pays the Sub-Advisor a fee at an annualized rate of
0.375% of the average daily net assets of the Fund. The Fund
commenced operations on January 3, 1997. For the period from
January 3, 1997 to March 31, 1997, total sub-advisory fees
expensed by the Advisor to the Sub-Advisor amounted to $4,066.
The Service Agreement
General administrative, shareholder, dividend disbursement,
transfer agent, and registrar services are provided to the
Trust and the Fund by PADCO Service Company, Inc., 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852
(the "Servicer"), subject to the general supervision and
control of the Trustees and the officers of the Trust,
pursuant to a service agreement between the Trust and the
Servicer, dated September 19, 1995, and as amended on March 8,
1996, and as further amended on September 25, 1996. The
Servicer is wholly-owned by Albert P. Viragh, Jr., who is the
Chairman of the Board and the President of the Trust and the
sole controlling person and majority owner of the Advisor.
27
<PAGE>
Under the service agreement with the Servicer, the Fund pays
the Servicer an annual fee based on 0.20% of the net assets of
the Fund. The Fund commenced operations on January 3, 1997.
For the period from January 3, 1997 to March 31, 1997, total
service fees expensed by the Fund to the Servicer amounted to
$2,168. Under the service agreement, the Servicer provides
the Fund with all required general administrative services,
including, without limitation, office space, equipment, and
personnel; clerical and general back office services;
bookkeeping, internal accounting, and secretarial services;
the determination of net asset values; and the preparation
and filing of all reports, registration statements, proxy
statements, and all other materials required to be filed or
furnished by the Fund under Federal and state securities laws.
The Servicer also maintains the shareholder account records
for the Fund, distributes dividends and distributions payable
by the Fund, and produces statements with respect to account
activity for the Fund and its shareholders. The Servicer pays
all fees and expenses that are directly related to the
services provided by the Servicer to the Fund; the Fund
reimburses the Servicer for all fees and expenses incurred by
the Servicer which are not directly related to the services
the Servicer provides to the Fund under the service agreement.
The Distribution Plan
Pursuant to the Distribution Plan for the Fund adopted by the
Trust pursuant to Rule 12b-1 under the 1940 Act, (the
"Distribution Plan") 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. For further information
concerning the Distribution Plan for the Fund, see
"Distribution Plan," below.
Costs and Expenses
The Fund bears all expenses of its operations other than those
assumed by the Advisor, the Sub-Advisor, and the Servicer.
Fund expenses include: the management fee; the servicing fee
(including administrative, transfer agent, and shareholder
servicing fees); payments to be made by the Fund to the
Distributor under the Distribution Plan; custodian and
accounting fees and expenses; legal and auditing fees;
fidelity bonds and other insurance premiums; expenses of
preparing and printing prospectuses, confirmations, proxy
28
<PAGE>
statements, and shareholder reports and notices; registration
fees and expenses; proxy and annual meeting expenses, if any;
all Federal, state, and local taxes (including, without
limitation, stamp, excise, income, and franchise taxes);
organizational costs; non-interested trustees' fees and
expenses; the costs and expenses of redeeming shares of the
Fund; fees and expenses paid to any securities pricing
organization; dues and expenses associated with membership in
any mutual fund organization; and costs for incoming telephone
WATTS lines. In addition, each of the nine Rydex Funds,
including the Fund, pays an equal portion of the Trustee fees
and expenses for attendance at Trustee meetings for the
Trustees of the Trust who are not affiliated with or
interested persons of the Advisor.
The Fund commenced operations on January 3, 1997. For the
period from January 3, 1997 to March 31, 1997, the total
expenses of Fund operations borne by the Fund, other than
those expenses assumed or reimbursed by the Advisor of the
Servicer, amounted to $31,160.
The aggregate compensation paid by the Trust to each of its
Trustees serving during the nine-month period ended March 31,
1997 is set forth in the table below:
<TABLE>
<CAPTION>
Aggregate Pension or Estimated
Name of Compensation Retirement Annual Benefit
Person, from the Trust Benefits Accrued upon
Position as Part of the Retirement
Trust s Expenses
<S> <C> <C> <C>
Albert P. Virah, Jr.* $0 $0 $0
Chairman and President
Corey A. Colehour $4,500 $0 $0
Trustee
J. Kenneth Dalton $4,500 $0 $0
Trustee
Roger Somers $4,500 $0 $0
Trustee
</TABLE>
__________________________
* Denotes an "interested person" of the Trust.
29
<PAGE>
DISTRIBUTION PLAN
Pursuant to the Trust's Distribution Plan for the Fund adopted
by the Trust pursuant to Rule 12b-1 under the 1940 Act, the
Fund will pay the Distributor, monthly at a rate not to exceed
0.25% of the average daily net assets of the Fund during that
month for expenses actually incurred in the distribution and
promotion of the Fund's shares, and the Distributor, in turn,
on a quarterly basis will pay certain securities dealers or
brokers, administrators, investment advisers, institutions,
including bank trust departments, and other persons
("Recipients") amounts based on the average daily net asset
value of shares of the Fund owned by that Recipient or its
customers during that month. No such payments, however, will
be made to any Recipient in any month if the aggregate net
asset value of all Fund shares held by the Recipient or its
customers at the end of such month, taken without regard to
the minimum holding period, does not exceed a minimum amount.
The minimum holding period and minimum level of holdings, if
any, will be determined from time to time by a majority of the
Trustees of the Trust who are not "interested persons" of the
Trust, as defined in the 1940 Act, and who have no direct or
indirect financial interest in the operation of the
Distribution Plan or any agreements related to the
Distribution Plan (the "Rule 12b-1 Trustees"). The services
to be provided by the Recipients may include, but are not
limited to, distributing sales literature, answering routine
customer inquiries regarding the Trust and the Fund, assisting
in establishing and maintaining shareholder accounts and
processing purchase and redemption transactions, making the
Trust's investment plans and shareholder services options
available and providing such other information and services as
the Distributor or the Trust may reasonably request from time
to time.
Pursuant to the Distribution Plan, the Distributor, in
addition to being reimbursed by the Fund for any payments to
Recipients, also will be entitled to reimbursement monthly (up
to the maximum of 0.25% per annum of the average net assets of
the Fund) for the Distributor's other expenses incurred in the
distribution and promotion of the Fund's shares, including,
but not limited to, the printing of certain reports used for
sales purposes, advertisements, expenses of preparation and
printing of sales literature, and other distribution related
expenses, including any distribution or service fees paid to
Recipients who have executed a distribution or service
agreement with the Distributor. The maximum amount which may
be paid to these Recipients by the Distributor (which will be
determined according to the services provided in assisting
investors with their accounts and/or shares sold) is 0.25% (on
an annual basis) of the Fund's average net assets owned by
those Recipients or by clients of those Recipients.
30
<PAGE>
For the period from January 3, 1997 to March 31, 1997, and
pursuant to the Distribution Plan, the total reimbursement
payments paid or payable by the Fund to the Distributor
amounted to $4,432, which constituted 0.25 of 1% of the Fund's
average daily net assets during this period. Of these
payments by the Fund to the Distributor under the Distribution
Plan, $0 was paid as compensation by the Distributor to
Recipients pursuant to agreements related to the Distribution
Plan, and $4,432 was spent on the printing of sales
literature, travel, entertainment, due diligence, and other
promotional expenses; none of these payments was spent on
advertising and marketing, the printing and mailing of
prospectuses for persons other than current shareholders of
the Fund, or as compensation to wholesalers of the Distributor
in respect of sales of shares of the Fund. In addition, for
the period from January 3, 1997 to March 31, 1997, the
Advisor, pursuant to agreements related to the Distribution
Plan, also made payments from its own resources to Recipients
aggregating $0. In the event that the Distributor is not
fully reimbursed for payments or expenses incurred by the
Distributor, these unreimbursed expenses under the
Distribution Plan will not be carried forward beyond December
31 of the year in which these expenses were incurred. As of
March 31, 1997, an aggregate of $1,582 of distribution
expenses, or 0.02% of the average daily net assets of the
Fund's shares (annualized), was not reimbursed or recovered by
the Distributor through the receipt of reimbursement payments
under the Distribution Plan.
On June 23, 1997, the Trustees, including a majority of the
Rule 12b-1 Trustees, approved certain non-material revisions
to the Distribution Plan. These revisions clarify that the
sum of the payments made by the Trust to the Distributor
pursuant to the Distribution Plan during any twelve (12)
month period ended December 31 cannot exceed the Distributor's
actual distribution expenses incurred during that same twelve
(12) month period.
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.
31
<PAGE>
The Trustees, therefore, felt that it will likely benefit the
Fund to have monies available for the direct distribution
activities of the Distributor in promoting the sale of the
Fund's shares. The Trustees, including the Rule 12b-1
Trustees, concluded, in the exercise of their reasonable
business judgment and in light of their fiduciary duties, that
there is a reasonable likelihood that the Distribution Plan
will benefit the Fund and its shareholders.
The Distribution Plan has been approved by the Trustees of the
Trust, including all of the Rule 12b-1 Trustees, and by the
Fund's initial shareholder. The Distribution Plan must be
renewed annually by the Trustees of the Trust, including by a
majority of the Rule 12b-1 Trustees, cast in person at a
meeting called for that purpose. The Distribution Plan and
any distribution or service agreement may be terminated at any
time, without any penalty, by the Trustees or by a vote of a
majority of the Fund's outstanding shares on sixty (60) days'
written notice. The Distributor or any Recipient also may
terminate their respective distribution or service agreement
at any time upon written notice.
The Distribution Plan and any distribution or service
agreement may not be amended to increase materially the amount
spent for distribution expenses or in any other material way
without approval by a majority of the Fund's outstanding
shares, and all material amendments to the Distribution Plan
or any distribution or service agreement shall be approved by
the Rule 12b-1 Trustees, cast in person at a meeting called
for the purpose of voting on any such amendment.
PRINCIPAL HOLDERS OF SECURITIES
As of July 8, 1997, the following persons were the only
persons who were record owners or, to the knowledge of the
Trust, beneficial owners of 5% or more of the shares of the
Fund:
32
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of Shares % Ownership
<S> <C> <C>
Stocktontrust 660,489.602 26.2%1/
Nominee Partnership
c/o Stockton Trust,
Inc.
3001 E. Camelback
Phoenix, AZ 85016
First Trust Corp. 159,090.149 6.3%1/
P.O Box 173736
Denver, CO 80217
RSBCO 129,349.501 5.1%1/
Trust Company of
Louisiana
P.O. Drawer 1410
Ruston, LA 71273
</TABLE>
___________________
1/ Record owner only.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund's shares is determined each
day on which both the New York Stock Exchange (the "NYSE") and
the Federal Reserve Bank of New York (the "New York Fed") are
open for business 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.
33
<PAGE>
PERFORMANCE INFORMATION
From time to time, the Fund may include its total return in
advertisements or reports to shareholders or prospective
shareholders. Quotations of average annual total return for
the Fund will be expressed in terms of the average annual
compounded rate of return on a hypothetical investment in the
Fund over a period of at least one, five, and ten years (up to
the life of the Fund) (the ending date of the period will be
stated). Total return of the Fund is calculated from two
factors: the amount of dividends earned by the Fund share and
by the increase or decrease in value of the Fund's share
price. See "Calculation of Return Quotations."
Performance information for the Fund contained in reports to
shareholders or prospective shareholders, advertisements, and
other promotional literature may be compared to the record of
various unmanaged indexes. Performance information for the
Fund may be compared to its current benchmark, the MLHY Index
and to various other unmanaged indexes, including, but not
limited to, the Shearson Lehman Government (LT) Index.
Unmanaged indexes may assume reinvestment of dividends, but
generally do not reflect payments of brokerage commissions or
deductions for operating costs and other expenses of
investing, as do the total return calculations for the Fund.
In addition, the Fund's total return may be compared to the
performance of broad groups of comparable mutual funds with
similar investment goals, as such performance is tracked and
published by such independent organizations as Lipper
Analytical Services, Inc. ("Lipper"), and CDA Investment
Technologies, Inc., among others. When Lipper's tracking
results are used, the Fund will be compared to Lipper's
appropriate fund category, that is, by fund objective and
portfolio holdings. Accordingly, the Lipper ranking and
comparison, which may be used by the Trust in performance
reports for the Fund will include those for high yield funds.
Since the assets in all mutual funds are always changing, the
Fund may be ranked within one Lipper asset-size class at one
time and in another Lipper asset-size class at some other
time. Footnotes in advertisements and other marketing
literature will include the time period and Lipper asset-size
class, as applicable, for the ranking in question.
Performance figures are based on historical results and are
not intended to indicate future performance.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of the
Fund to that of other mutual funds and to other relevant
market indexes in advertisements or in reports to
shareholders, performance for the Fund may be stated in terms
of total return. Under the rules of the Securities and
34
<PAGE>
Exchange Commission ("SEC Rules"), funds advertising
performance must include total return quotes calculated
according to the following formula:
P(1+T)n=ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years (1, 5, or 10); and
ERV = ending redeemable value of a
hypothetical $1,000 payment, made
at the beginning of the 1, 5, or 10
year periods, at the end of the 1,
5, or 10 year periods (or
fractional portion thereof).
Under the foregoing formula, the time periods used in
advertising will be based on rolling calendar quarters,
updated to the last day of the most recent quarter prior to
submission of the advertising for publication, and will cover
1, 5, and 10 year periods or a shorter period dating from the
respective commencement of operations of the Fund. In
calculating the ending redeemable value, all dividends and
distributions by the Fund are assumed to have been reinvested
at net asset value as described in the Trust's Prospectus on
the reinvestment dates during the period. Total return, or
"T" in the formula above, is computed by finding the average
annual compounded rates of return over the 1, 5, and 10 year
periods (or fractional portion thereof) that would equate the
initial amount invested to the ending redeemable value.
From time to time, the Fund also may include in such
advertising a total return figure that is not calculated
according to the formula set forth above in order to compare
more accurately the performance of the Fund with other
measures of investment return. For example, in comparing the
total return of the Fund with data published by Lipper
Analytical Services, Inc., with the performance of the MLHY
Index or the Shearson Lehman Government (LT) Index, or with
the performance of another unmanaged index, the Fund
calculates its aggregate total return for the specified
periods of time by assuming the investment of $10,000 in Fund
shares and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date.
Percentage increases are determined by subtracting the initial
value of the investment from the ending value and by dividing
the remainder by the beginning value. Such alternative total
35
<PAGE>
return information will be given no greater prominence in such
advertising than the information prescribed under SEC Rules.
For the period from January 3, 1997, when the Fund commenced
operations (see "Portfolio Transactions and Brokerage"), to
June 30, 1997, the average annual compounded rate of return,
on an annualized basis of the Fund, assuming the reinvestment
of all dividends and distributions, was approximately 7.19%.
INFORMATION ON COMPUTATION OF YIELD
In addition to the total return quotations discussed above,
the Fund also may advertise its yield based on a thirty-day
(or one month) period ended on the date of the most recent
balance sheet included in the Trust's Registration Statement,
computed by dividing the net investment income per share of
the Fund earned during the period by the maximum offering
price per Fund share on the last day of the period, according
to the following formula:
YIELD = 2[( a-b +1)6-1]
cd
Where: a = dividends and interest earned during
the period;
b = expenses accrued for the period
(net of reimbursements);
c = the average daily number of shares
outstanding during the period that
were entitled to receive
dividends; and
d = the maximum offering price per
share on the last day of the
period.
Under this formula, interest earned on debt obligations for
purposes of "a" above, is calculated by (i) computing the
yield to maturity of each obligation held by the Fund based on
the market value of the obligation (including actual accrued
interest) at the close of business on the last day of each
month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest), (ii)
dividing that figure by 360 and multiplying the quotient by
the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest
income on the obligation that is in the Fund's portfolio
(assuming a month of thirty days), and (iii) computing the
total of the interest earned on all debt obligations and all
dividends accrued on all equity securities during the thirty-
36
<PAGE>
day or one month period. In computing dividends accrued,
dividend income is recognized by accruing 1/360 of the stated
dividend rate of a security each day that the security is in
the Fund's portfolio. Undeclared earned income, computed in
accordance with generally accepted accounting principles, may
be subtracted from the maximum offering price calculation
required pursuant to "d" above.
The Fund from time to time may also advertise its yield based
on a thirty-day period ending on a date other than the most
recent balance sheet included in the Trust's Registration
Statement, computed in accordance with the yield formula
described above, as adjusted to conform with the differing
period for which the yield computation is based.
Any quotation of performance stated in terms of yield (whether
based on a thirty-day or one month period) will be given no
greater prominence than the information prescribed under SEC
Rules. In addition, all advertisements containing performance
data of any kind will include a legend disclosing that such
performance data represents past performance and that the
investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be
worth more or less than the original cost of such shares.
The Fund's yield, as of March 31, 1997, based on a thirty-day
base period, was approximately 8.18%.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
Dividends and Distributions. As discussed in the Fund's
Prospectus, the Fund intends (i) to declare dividends of
ordinary income for shares of the Fund on a daily basis, and
to distribute such dividends to shareholders of the Fund on a
monthly basis, and (ii) to distribute annually any long-term
capital gains to the shareholders of the Fund. The Trustees,
however, may declare a special distribution for the Fund if
the Trustees believe that such a distribution would be in the
best interest of the Fund's shareholders. All such
distributions of the Fund normally automatically will be
invested without charge in additional shares of the Fund.
Regulated Investment Company Status. The Fund intends to
qualify as a regulated investment company (a "RIC") under
Subchapter M of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"). As a RIC, the Fund would not be subject
to Federal income taxes on the net investment income and
capital gains that the Fund distributes to the Fund's
shareholders. The distribution of net investment income and
capital gains will be taxable to Fund shareholders regardless
of whether the shareholder elects to receive these
distributions in cash or in additional shares.
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<PAGE>
Distributions reported to Fund shareholders as long-term
capital gains shall be taxable as such, regardless of how long
the shareholder has owned the shares. Fund shareholders will
be notified annually by the Fund as to the Federal tax status
of all distributions made by the Fund. Distributions may be
subject to state and local taxes.
The Fund will seek to qualify for treatment as a RIC under the
Code. Provided that the Fund (i) is a RIC and (ii)
distributes at least 90% of the Fund's net investment income
(including, for this purpose, net realized short-term capital
gains), the Fund itself will not be subject to Federal income
taxes to the extent the Fund's net investment income and the
Fund's net realized short-term capital gains, if any, are
distributed to the Fund's shareholders. To avoid an excise
tax on its undistributed income, the Fund generally must
distribute at least 98% of its income. One of several
requirements for RIC qualification is that the Fund must
receive at least 90% of the Fund's gross income each year from
dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of securities
or foreign currencies, or other income derived with respect to
the Fund's investments in stock, securities, and foreign
currencies (the "90% Test").
In addition, under the Code, the Fund will not qualify as a
RIC for any taxable year if more than 30% of the Fund's gross
income for that year is derived from gains on the sale of
securities held less than three months (the "30% Test").
These requirements may also restrict the extent of the Fund's
activities in option and other portfolio transactions.
Specifically, the 30% Test will limit the extent to which the
Fund may: (i) sell securities held for less than three
months; (ii) write options which expire in less than three
months; and (iii) effect closing transactions with respect to
call or put options that have been written or purchased within
the preceding three months. Finally, as discussed below, this
30% Test requirement also may limit investments by the Fund in
futures contracts and options on securities indexes,
securities, and futures contracts.
The Fund expects to have greater difficulty than other mutual
funds in satisfying the 30% Test because of frequent
redemptions and exchanges of shares that are expected to occur
as investors in the Fund seek to take advantage of anticipated
changes in market conditions as a part of their market-timing
investment strategies. To minimize the risk that it will not
satisfy the 30% Test because of such frequent redemptions and
exchanges of shares, the Fund will seek to meet its
obligations in connection with redemptions and exchanges
without the realization of gains on the sales of securities,
options, futures or forward contracts, options on futures
38
<PAGE>
contracts, or foreign currencies (or options, futures
contracts, or forward contracts on such foreign currencies).
In this regard, the Fund will seek (consistent with the Fund's
investment strategies) to use available cash, proceeds of
borrowing facilities, proceeds of the sale of stock or
securities, options, futures or forward contracts, options on
futures contracts, or foreign currencies (or options, futures
contracts, or forward contracts on such foreign currencies)
that have been held for three months or more, and the proceeds
of the sale of such assets that produce either no gain or the
smallest amount of such gain.
Section 851(h)(3) of the Code provides a special rule for
series mutual funds with respect to the 30% Test. Pursuant to
Section 851(h)(3), a RIC that is part of a series fund will
not fail the 30% Test as a result of sales made within five
days of "abnormal redemptions" if: (i) the sum of the
percentages for abnormal redemptions exceeds 30%; and (ii) the
RIC of which such fund is a part would meet the 30% Test if
all the funds of the investment company were treated as a
single corporation. Abnormal redemptions are defined as
redemptions which occur on any day when net redemptions exceed
one percent of net asset value. If abnormal redemptions
require the Fund to sell securities with a holding period of
less than three months, the Fund intends to make those sales
within five days of such redemptions so as to qualify for the
exclusion afforded by Section 851(h)(3) of the Code if it is
possible to do so. Despite the Fund's objective to satisfy
the requirements of Section 851 of the Code, there can be no
assurance that the Fund's efforts to achieve that objective
will be successful.
If the Fund does not satisfy the 30% Test for the Fund's first
taxable year, or for any subsequent taxable year, the Fund
will not qualify as a RIC for that year. If the Fund fails to
qualify as a RIC for any taxable year, the Fund would be taxed
in the same manner as an ordinary corporation. In that event,
the Fund would not be entitled to deduct the distributions
which the Fund had paid to shareholders and, thus, would incur
a corporate income tax liability on all of the Fund's taxable
income whether or not distributed. The imposition of
corporate income taxes on the Fund would directly reduce the
return to an investor from an investment in the Fund.
In the event of a failure by the Fund to qualify as a RIC, the
Fund's distributions, to the extent such distributions are
derived from the Fund's current or accumulated earnings and
profits, would constitute dividends that would be taxable to
the shareholders of the Fund as ordinary income and would be
eligible for the dividends-received deduction for corporate
shareholders. This treatment would also apply to any portion
of the distributions that might have been treated in the
39
<PAGE>
shareholder's hands as long-term capital gains, as discussed
below, had the Fund qualified as a RIC.
If the Fund were to fail to qualify as a RIC for one or more
taxable years, the Fund could then qualify (or requalify) as a
RIC for a subsequent taxable year only if the Fund had
distributed to the Fund's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the
interest charge mentioned below, if applicable) attributable
to such period. The Fund might also be required to pay to the
U.S. Internal Revenue Service (the "IRS") interest on 50% of
such accumulated earnings and profits. In addition, pursuant
to the Code and an interpretative notice issued by the IRS, if
the Fund should fail to qualify as a RIC and should thereafter
seek to requalify as a RIC, the Fund may be subject to tax on
the excess (if any) of the fair market of the Fund's assets
over the Fund's basis in such assets, as of the day
immediately before the first taxable year for which the Fund
seeks to requalify as a RIC.
If the Fund determines that the Fund will not qualify as a RIC
under Subchapter M of the Code, the Fund will establish
procedures to reflect the anticipated tax liability in the
Fund's net asset value.
When the Fund is required to sell securities to meet
significant redemptions or exchanges, the Fund may enter into
futures contracts as a hedge against price changes in the
securities to be sold. Gains realized by the Fund upon
closing out the Fund's position in these contracts are subject
to the 30% Test. Ordinarily, these gains could not be offset
by declines in the value of the hedged securities for purposes
of the 30% Test. Section 851(g)(1) of the Code, however,
provides that, in the case of a "designated hedge," for
purposes of the 30% Test, increases and decreases in value
(during the period of the hedge) of positions which are part
of the hedge are to be netted. Section 851(g)(2) of the Code
provides that a "designated hedge" exists when: (i) the
taxpayer's risk of loss with respect to any position in
property is reduced by reason of a contractual obligation to
sell substantially identical property; and (ii) the taxpayer
clearly identifies the positions which are part of the hedge
in the manner prescribed in the IRS regulations.
IRS regulations have not yet been issued specifying how this
identification requirement can be satisfied. The legislative
history with respect to Section 851(g) states that, prior to
issuance of regulations, the identification requirement is
satisfied either by: (i) placing the positions that are part
of the hedge in a separate account that is maintained by a
broker, futures commission merchant ("FCM"), custodian, or
similar person, and that is designated as a hedging account,
40
<PAGE>
provided that such person maintaining such account makes
notations identifying the hedged and hedging positions and the
date on which the hedge is established; or (ii) the
designation by such a broker, FCM, custodian, or similar
person of such positions as a hedge for purposes of these
provisions, provided that the RIC is provided with a written
confirmation stating the date that the hedge is established
and identifying the hedged and hedging positions.
When the Fund enters into futures contracts to hedge against
price changes of securities to be sold, the Fund may identify
such securities and contracts as a hedge so as to qualify
under Section 851(g)(1) of the Code. There can be no
assurances, however, that the Fund (or the Fund's agents) will
be able to comply with the identification requirements that
may be contained in future IRS regulations. Moreover, the
netting rule of Section 851(g)(1) is available only if the
securities to be sold and the property subject to the futures
contracts constitute "substantially identical" property. The
Fund generally intends to sell pro rata the securities being
hedged, but it is unclear whether the securities and the
futures contracts would constitute "substantially identical"
property.
Transactions By the Fund. If a call option written by the
Fund expires, the amount of the premium received by the Fund
for the option will be short-term or long-term capital gain to
the Fund depending on the Fund's holding period for the
underlying security or underlying futures contract. If such
an option is closed by the Fund, any gain or loss realized by
the Fund as a result of the closing purchase transaction will
be short-term or long-term capital gain or loss depending on
the Fund's holding period for the underlying security or
underlying futures contract. If the holder of a call option
exercises the holder's right under the option, any gain or
loss realized by the Fund upon the sale of the underlying
security or underlying futures contract pursuant to such
exercise will be short-term or long-term capital gain or loss
to the Fund depending on the Fund's holding period for the
underlying security or underlying futures contract.
With respect to call options purchased by the Fund, the Fund
will realize short-term or long-term capital gain or loss if
such option is sold and will realize short-term or long-term
capital loss if the option is allowed to expire depending on
the Fund's holding period for the call option. If such a call
option is exercised, the amount paid by the Fund for the
option will be added to the basis of the securities or futures
contract so acquired.
The Fund in its operations also may utilize options on
securities indexes. Options on "broad based" securities
41
<PAGE>
indexes are classified as "nonequity options" under the Code.
Gains and losses resulting from the expiration, exercise, or
closing of such nonequity options, as well as gains and losses
resulting from futures contract transactions, will be treated
as long-term capital gain or loss to the extent of 60% thereof
and short-term capital gain or loss to the extent of 40%
thereof (hereinafter, "blended gain or loss"). In addition,
any nonequity option and futures contract held by the Fund on
the last day of a fiscal year will be treated as sold for
market value on that date, and gain or loss recognized as a
result of such deemed sale will be blended gain or loss.
The trading strategies of the Fund involving nonequity options
on securities indexes may constitute "straddle" transactions.
"Straddles" may affect the taxation of such instruments and
may cause the postponement of recognition of losses incurred
in certain closing transactions. The Fund will also have
available to it a number of elections under the Code
concerning the treatment of option transactions for tax
purposes. The Fund will utilize the tax treatment that, in
the Fund's judgment, will be most favorable to a majority of
investors in the Fund. Taxation of these transactions will
vary according to the elections made by the Fund. These tax
considerations may have an impact on investment decisions made
by the Fund.
The Fund's transactions in options, under some circumstances,
could preclude the Fund's qualifying for the special tax
treatment available to investment companies meeting the
requirements of Subchapter M of the Code. However, it is the
intention of the Fund's portfolio management to limit gains
from such investments to less than 10% of the gross income of
the Fund during any fiscal year in order to maintain this
qualification.
Back-Up Withholding. The Fund is required to withhold and
remit to the U.S. Treasury 31% of (i) reportable taxable
dividends and distributions and (ii) the proceeds of any
redemptions of Fund shares with respect to any shareholder who
is not exempt from withholding and who fails to furnish the
Trust with a correct taxpayer identification number, who fails
to report fully dividend or interest income, or who fails to
certify to the Trust that the shareholder has provided a
correct taxpayer identification number and that the
shareholder is not subject to withholding. (An individual's
taxpayer identification number is the individual's social
security number.) The 31% "back-up withholding tax" is not an
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
42
<PAGE>
those states which have income tax laws, the tax treatment of
the Fund and of Fund shareholders with respect to
distributions by the Fund may differ from Federal tax
treatment.
Shareholders are urged to consult their own tax advisors
regarding the application of the provisions of tax law
described in this Statement of Additional Information in light
of the particular tax situations of the shareholders and
regarding specific questions as to Federal, state, or local
taxes.
AUDITORS AND CUSTODIAN
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey
08540, are the auditors and the independent certified public
accountants of the Trust and the Fund. Star Bank, N.A., 425
Walnut Street, Cincinnati, Ohio 45202, acts as the Custodian
bank for the Trust and the Fund.
FINANCIAL STATEMENTS
The Trustees, on March 12, 1997, changed the Trust's fiscal
year end from June 30 to March 31. The Financial Statements
(audited) of the Fund, for the period from January 3, 1997
(the date the Fund commenced operations) to March 31, 1997,
are included in the Trust's 1997 Annual Report to
Shareholders, which was filed on Form N-30D with the
Securities and Exchange Commission via EDGAR transmission on
June 3, 1997. A copy of these Financial Statements is
included immediately below after Appendix A to this Statement
of Additional Information. Copies of the Trust's Annual
Report also may be obtained without charge by contacting the
Trust at 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852, or telephoning the Trust at 800-820-0888 or
301-468-8520. Unaudited financial statements for the Fund,
for the period from April 1, 1997 to June 30, 1997, also are
included herein.
43
<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
44
<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.
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<PAGE>
The distinguishing feature of Duff's short-term ratings
is the refinement of the traditional "1" category. The
majority of short-term debt issuers carry the highest rating,
yet quality differences exist within that tier. As a
consequence, Duff has incorporated gradations of "1+" (one
plus) and "1-" (one minus) to assist investors in recognizing
those differences.
Duff 1+ -- This designation rating indicates the highest
certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
Duff 1 -- This designation rating indicates a very high
certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk
factors are minor.
Duff 1- -- This designation rating indicates a high
certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk
factors are very small.
Good Grade
Duff 2 -- This designation rating indicates a good
certainty of timely payment. Liquidity factors and company
fundamental are sound. Although ongoing funding needs may
enlarge total financing requirements, access capital markets
is good. Risk factors are small.
IBCA, Inc.
In addition to conducting a careful review of an
institution's reports and published figures, IBCA's analysts
regularly visit the companies for discussions with senior
management. These meetings are fundamental to the preparation
of individual reports and ratings. To keep abreast of any
changes that may affect assessments, analysts maintain contact
throughout the year with the management of the companies that
the analysts cover.
IBCA's analysts speak the languages of the countries that
the analysts cover, which is essential to maximize the value
of their meetings with management and to analyze properly a
company's written materials. IBCA's analysts also have a
thorough knowledge of the laws and accounting practices that
govern the operations and reporting of companies within the
various countries.
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<PAGE>
Often, in order to ensure a full understanding of their
position, companies entrust IBCA with confidential data.
While these data cannot be disclosed in reports, these data
are taken into account by IBCA when assigning IBCA's ratings.
Before dispatch to subscribers, a draft of the report is
submitted to each company to permit the correction of any
factual errors and to enable the clarification of issues
raised.
IBCA's Rating Committees meet at regular intervals to
review all ratings and to ensure that individual ratings are
assigned consistently for institutions in all the countries
covered. Following these committee meetings, IBCA ratings are
issued directly to subscribers. At the same time, the company
is informed of the ratings as a matter of courtesy, but not
for discussion.
A1+ -- This designation rating indicates obligations
supported by the highest capacity for timely repayment.
A1 -- This designation rating indicates obligations
supported by a very strong capacity for timely repayment.
A2 -- This designation rating indicates obligations
supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
47
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Audited Financial Statements
for
The Rydex High Yield Fund, a series of
Rydex Series Trust,
for the Period from January 3, 1997
to March 31, 1997,
Including the Report of
Deloitte & Touche LLP,
Independent Auditors for
Rydex Series Trust
48
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL REPORT, MARCH 31, 1997
RYDEX SERIES TRUST
6116 Executive Boulevard, Suite 400
Rockville, MD 20852
LOGO (301) 468-8520 (800) 820-0888
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
It is a pleasure to report that the Rydex Series Trust enjoyed another
successful year by providing our shareholders with consistently managed funds.
Each Fund performed well within the parameters of their objectives during this
period of market volatility. In addition, the total assets under management
increased from $693 million as of June 30, 1996 to $1.28 billion at the end of
March 1997, an increase of nearly 85%.
This Annual Report covers the previous nine months as a result of a decision
to change the Rydex Series Trust's fiscal year end from June 30 to March 31. In
the following paragraphs, we will describe the U.S. economic environment over
the past nine months. In the final section (Fund Strategy and Performance), we
will focus more closely on each Rydex Fund's performance in relation to its
benchmark.
FISCAL YEAR IN REVIEW
Fear of the mere possibility of inflation dominated the U.S. financial
markets during the fiscal year ending March 31, 1997. A benign economy with
virtually no inflation in sight was no match for the economic apparitions that
swayed the equity and debt markets over the reporting period.
The Consumer Price Index (see
adjacent chart), which is a common
measure of inflation, illustrates that
in general, prices have remained
relatively subdued over the past six
years. Currently inflation is running
at a restrained 2.8%. Improved
productivity, fueled by high
technology and competitive global
markets, has allowed the United States
to aim for faster growth without
triggering serious inflation. In
addition, the absence of any oil or
food shocks, federal budget
constraints, and falling trade
barriers are all factors that have
contributed to an economic environment
of steady growth and low inflation.
LOGO
Source: Bloomberg Financial Markets
<PAGE>
In the third and fourth quarter of 1996, economic data revealed moderate
growth, low inflation, and a strong dollar, with a recession nowhere in sight.
The U.S. Government reported that the federal budget deficit for the fiscal
year ending September 1996, was the lowest since 1981, while the U.S. jobless
rate was half that of industrialized Europe. Despite Federal Reserve Chairman
Alan Greenspan's ominous comments to Congress regarding a stock market that may
be overcome by "irrational exuberance", the equity markets reached new highs
during the last half of 1996.
In February of 1997, Chairman Greenspan once again provided congressional
testimony that caused uneasiness in the world's financial markets. His remarks
indicated that even though U.S. economic prospects "in general are quite
favorable" and that Fed officials expect inflation to remain subdued, the Fed
may take preemptive action against an increased risk of inflation by raising
interest rates. Such a move, he warned, could have an adverse impact on
corporate profits, and thus on stock prices, which may have been supported by a
wave of "excessive optimism." In reaction to his comments, the financial
markets fluctuated wildly.
On March 13, 1997, the U.S. Government reported robust retail sales figures
that were interpreted as a harbinger of future inflation due to a more heated
economy. This report sent stock and bond prices lower. A week later, on March
20, 1997, Chairman Greenspan reported that the "evidence is quite clear that
the current low level of inflation, given the relative tightness of the
economy, is close to unprecedented." He added, "the state of inflation at this
particular stage is clearly under control." These comments were seemingly
nullified on March 24, 1997, when the Federal Reserve Open Market Committee,
led by the enigmatic Greenspan, met and decided to tighten money market
conditions slightly by raising the fed funds target by 1/4 percentage point.
The tightening was viewed by the Fed as a prudent step that would provide
greater assurance of maintaining the current economic expansion by sustaining
the existing low inflation environment. It is the Federal Reserve Board's
conviction that low inflation is essential to realizing the economy's greatest
growth potential.
Concerns of further interest rate hikes and future lackluster earnings
reports caused several more sell offs. The first quarter of 1997 ended with the
last two trading days on the Dow Jones suffering the worst losses since the
crash of 1987. The S&P 500, the NASDAQ 100, and the XAU Index also endured big
declines, while the yield of the 30-year Treasury bond continued it's upward
trend by closing the quarter at 7.1%.
Has the bull market finally come to an end or is this just a large correction
and buying opportunity? Are further rate hikes in store and could this be the
end of a six-year economic expansion? Will this market volatility continue?
These are some of the questions that market participants will be pondering in
the months to come.
2
<PAGE>
Fund Strategy and Performance
The Nova Fund
Benchmark: 150% of the performance of the S & P 500 Composite Stock Price Index
Inception: July 12, 1993
To achieve its objective, Nova invested primarily in S & P 500 futures
contracts and call options on S & P 500 futures contracts. Nova was able to
outperform the S & P 500 Index and perform consistent with its benchmark by
using its call options and futures contracts to maintain 150% exposure to the
market. The S&P 500 index was up 12.90% for the period ending March 31, 1997.
Three quarters of that rise was due to 100 of the largest companies in the
index. As the market dropped precipitously in the first quarter of 1997, the
large caps once again led the way with concerns that first quarter earnings
might come up short.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year ended Since Inception (7-12-93)
3-31-97 to 3-31-97
- --------------------------------------------------------------------
<S> <C> <C>
Nova Fund 15.69% 98.86%
Standard & Poor's 500
Stock Index 12.90% 68.63%
- --------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The S & P 500 Stock Index
is an unmanaged stock index and, unlike the Fund, has no management fees or
other operating expenses to reduce its reported return. Returns are historical
and include changes in principal and reinvested dividends and capital gains.
3
<PAGE>
The Ursa Fund
Benchmark: Inverse (opposite) of the S & P 500 Composite Stock Price Index
Inception: January 7, 1994
To achieve its objective, Ursa sold S & P 500 futures contracts and purchased
put options on S & P 500 futures contracts. The Ursa Fund posted a -6.74% total
return for the period as a result of its short position in the S & P 500 Index.
This compared to a 12.90% return for the S & P 500. Ursa out-performed its
benchmark since it is able to earn interest on cash balances which it is
required to keep in order to cover its short positions.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year ended Since Inception (1-7-94)
3-31-97 to 3-31-97
- -------------------------------------------------------------------------------
<S> <C> <C>
Ursa Fund -6.74% -27.46%
Standard & Poor's 500 Stock Index 12.90% 61.12%
- -------------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The S & P 500 Stock Index
is an unmanaged stock index and, unlike the Fund, has no management fees or
other operating expenses to reduce its reported return. Returns are historical
and include changes in principal and reinvested dividends and capital gains.
4
<PAGE>
The Rydex OTC Fund
Benchmark: NASDAQ 100 Index (NDX)
Inception: February 14, 1994
Over-the-counter securities continued to perform well during the latest
fiscal year. The NASDAQ Composite Index, which represents the universe of all
OTC securities, was up 3.10% during the period. Although the technology laden
NASDAQ has declined in recent months, it still remains ahead of the Dow and
the S&P 500 when measured over the last ten years. The Fund performed in step
with the NASDAQ 100 by closely matching its investments to that of the index.
Generally, the Fund owned approximately eighty stocks representing roughly 95%
of the capitalization of the index.
LOGO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year ended Since Inception (2-14-94)
3-31-97 to 3-31-97
- ---------------------------------------------------------------------
<S> <C> <C>
OTC Fund 18.58% 95.69%
NASDAQ 100 Index 17.68% 96.75%
NASDAQ Composite Index 3.10% 55.54%
- ---------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The NASDAQ Composite Index
and the NASDAQ 100 Index are unmanaged stock indices and, unlike the Fund,
have no management fees or other operating expenses to reduce their reported
returns. Returns are historical and include changes in principal and
reinvested dividends and capital gains.
5
<PAGE>
The Rydex Precious Metals Fund
Benchmark: Philadelphia Stock Exchange Gold/Silver Index (XAU)
Inception: December 1, 1993
Gold prices fell to as low as $340 per ounce in recent weeks, down from a
high of $415 in early 1996. Recent negative factors include low inflation, a
strong dollar and fears of more gold sales by European Central Banks. The XAU
Index, which is comprised of mainly North American gold and silver mining and
production companies, had a distressed year. From June 28, 1996 to March 31,
1997, the XAU fell from 123.76 to 104.12 or 15.87%. The Rydex Precious Metals
Fund mimicked the performance of the XAU Index during the period due to a
similar weighting of stocks held by the fund as in the index.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year Since Inception (12-1-93)
ended 3-31-97 to 3-31-97
- ----------------------------------------------------------------------------
<S> <C> <C>
Precious Metals Fund -15.58% -22.95%
Philadelphia Stock Exchange
Gold/Silver Index -15.87% -13.85%
Standard & Poor's 500 Stock Index 12.90% 63.92%
- ----------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The S & P 500 Index and the
PSE Gold/Silver Index are unmanaged stock indexes and, unlike the Fund, have no
management fees or other operating expenses to reduce their reported returns.
Returns are historical and include changes in principal and reinvested
dividends and capital gains.
6
<PAGE>
The Rydex U. S. Government Bond Fund
Benchmark: 120% of the price movement of current Long Treasury Bond
Inception: January 3, 1994
The yield on the 30-year Treasury Bond for the nine months ending March 31,
1997 rose from 6.9% to 7.1% causing bond prices to fall. As a result of the
Fund's investment in the 30-year Bond, the Fund ended the period with a total
return of -.35%. In addition to purchasing Treasuries, the Fund purchased call
options on Treasury Bond futures to increase its exposure to 120% of the price
movement of the Treasury Bond.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year Since Inception (1-3-94)
ended 3-31-97 to 3-31-97
- ----------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Bond Fund -0.35% -2.09%
Price movement of 30 year Treasury
Bond -4.49% -13.78%
Lehman Brothers Long T-Bond Index 2.88% 17.76%
- ----------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The Lehman Brothers Long T-
Bond Index is an unmanaged bond index and, unlike the Fund, has no management
fees or other operating expenses to reduce its reported return. Returns are
historical and include changes in principal and reinvested dividends and
capital gains. The Price movement of the 30-year Treasury Bond represents a
cumulative percentage change in its closing price.
7
<PAGE>
The Juno Fund
Benchmark: Inverse (opposite) of the price movement of current Long Treasury
Bond
Inception: March 3, 1995
To achieve its objective, Juno attempts to approximate a 100% short position
in the Long Treasury Bond. During the fiscal year, the Fund sold Treasury Bond
Futures and bought puts on the Treasury Bond Futures traded on the Chicago
Board of Trade. Generally, the Treasury Bond Futures will have a high
correlation to the 30-year Treasury Bond. For the fiscal year, the price
movement on the 30-year Treasury Bond was down 4.49%, while Juno was up 2.81%.
Juno's under-performance was due to the fact that the bond futures did not
decline as much as the cash bond during the period.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year Since Inception (3-3-95)
ended 3-31-97 to 3-31-97
- -----------------------------------------------------------------------------
<S> <C> <C>
The Juno Fund 2.81% -2.64%
Price movement of 30 year Treasury
Bond -4.49% 1.27%
Lehman Brothers Long T-Bond Index 2.88% 20.07%
- -----------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The Lehman Brothers Long T-
Bond Index is an unmanaged bond index and, unlike the Fund, has no management
fees or other operating expenses to reduce its reported return. The Price
movement of the 30-year Treasury Bond represents a cumulative percentage change
in its closing price. Returns are historical and include changes in principal
and reinvested dividends and capital gains.
8
<PAGE>
The High Yield Fund
Benchmark: Merrill Lynch High Yield Master Index
Inception: January 3, 1997
To achieve its objective, the fund attempts to provide investment returns
that correspond to the Merrill Lynch High Yield Master Index. The fund invested
primarily in below investment grade corporate bonds, commonly known as "junk
bonds." Despite a rise in interest rates, the high yield market remains strong
as evidenced by default rates that have declined to only 1.5% in 1996. Since
the inception of the Fund, the slight decline in high yield bond prices has
been offset by the higher coupon interest paid by the issuers of the debt.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year ended Since Inception (1-3-97)
3-31-97 to 3-31-97
- -----------------------------------------------------------------------------
<S> <C> <C>
High Yield Fund -0.03% -0.03%
Merrill Lynch High Yield Master
Index 1.22% 1.22%
- -----------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The Merrill Lynch High
Yield Master Index is an unmanaged bond index and, unlike the Fund, has no
management fees or other operating expenses to reduce its reported return.
Returns are historical and include changes in principal and reinvested
dividends and capital gains.
9
<PAGE>
THE RYDEX U. S. GOVERNMENT MONEY MARKET FUND
The objective of the Rydex U. S. Government Money Market Fund is to provide
security of principal, high current income, and liquidity. To meet its
objective, the Fund invested in U. S. Government money market instruments,
keeping the Fund's average maturity to a minimum. The low average maturity
allowed the Fund to accommodate high turnover while participating in increases
in short term interest rates. For the fiscal year, the U. S. Government Money
Market Fund posted an average annual total return of 4.39%.
During the fiscal year ended March 31, 1997, shareholders redeemed
$3,597,262,046 from the Nova Fund. A portion of those proceeds received by
shareholders represent capital gain distributions in the amount of $10,923,030.
In addition, on December 4, 1996, the Nova and OTC Funds paid long-term capital
gain distributions of $6,012,731 and $57,883 respectively, to shareholders of
record on December 3, 1996. Finally, of the distributions paid by the U.S.
Government Bond Fund during the months of January, February, and March 1997,
$34,993 represent long-term capital gain distributions. This notification is to
meet certain IRS requirements.
IN SUMMARY
Fiscal Year 1997 provided an eventful and at times volatile market
environment for our shareholders. We are pleased with each Fund's performance
in light of this market volatility. In the upcoming years, Rydex will seek to
develop and implement more innovative products catering to the needs of
professional money managers and their clients. As always, if you need
information about our Funds or have questions, call us at (800) 820-0888 or
(301) 468-8520.
Sincerely,
LOGO
Albert P. (Skip) Viragh
Chairman of the Board
10
<PAGE>
RYDEX SERIES TRUST
NOVA
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- ------------
<S> <C> <C>
OPTIONS PURCHASED 61.5%
Call Options on:
S&P 500 Index Expiring May 1997 at 300 2,000 $ 91,482,000
S&P 500 Index Expiring June 1997 at 300 1,000 45,754,000
S&P 500 Index Expiring July 1997 at 300 1,145 52,418,100
S&P 500 Index Expiring July 1997 at 300 1,000 45,786,000
S&P 500 Futures Contracts Expiring June 1997 at 600 434 34,405,350
------------
Total Call Options (Cost $286,782,349) 269,845,450
------------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 37.4%
U.S. Treasury Bill 4.975% 4/03/97 $50,000,000 49,986,181
U.S. Treasury Bill 4.98% 4/17/97 15,000,000 14,966,800
U.S. Treasury Bill 5.22% 5/08/97 50,000,000 49,731,750
U.S. Treasury Bill 5.20% 6/26/97 50,000,000 49,378,889
------------
Total U.S. Treasury Obligations (Cost $164,063,620) 164,063,620
------------
REPURCHASE AGREEMENT 1.1%
Repurchase Agreement collateralized by U.S. Treasury
Obligations--6.25% 4/01/97 (Note 3) 4,900,000 4,900,000
------------
Total Investments 100% (Cost $455,745,969) $438,809,070
============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
11
<PAGE>
RYDEX SERIES TRUST
NOVA
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized Loss
Contracts (Note 1)
--------- ---------------
<S> <C> <C>
FUTURES CONTRACTS PURCHASED
S&P 500 Futures Contracts Expiring June 1997
(Underlying Face Amount at Market Value
$23,498,000) 62 $ (381,814)
============
<CAPTION>
Market
Value
(Note 1)
---------------
<S> <C> <C>
WRITTEN OPTIONS CONTRACTS
Call Options on:
S&P Index Expiring May 1997 at 315 2,000 88,506,000
S&P Index Expiring June 1997 at 315 1,000 44,270,000
S&P Index Expiring July 1997 at 315 1,000 44,318,000
------------
Total Call Options (Proceeds $184,676,444) $177,094,000
============
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
RYDEX SERIES TRUST
URSA
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- ------------
<S> <C> <C>
OPTIONS PURCHASED 66.0%
Put Options on:
S&P 500 Futures Contract Expiring June 1997 at 1000 100 $ 12,100,000
S&P 500 Futures Contract Expiring June 1997 at 1200 50 11,050,000
------------
Total Put Options (Cost $19,176,366) 23,150,000
------------
Call Options on:
S&P 500 Index Expiring April 1997 at 300 8000 365,792,000
S&P 500 Index Expiring May 1997 at 300 2000 91,482,000
S&P 500 Index Expiring June 1997 at 300 7000 320,338,000
S&P 500 Index Expiring July 1997 at 300 3000 137,358,000
------------
Total Call Options (Cost $930,533,500) 914,970,000
------------
Total Options Purchased (Cost $949,709,866) 938,120,000
------------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 26.8%
U.S. Treasury Bill 5.225% 4/17/97 $40,000,000 39,907,111
U.S. Treasury Bill 5.315% 4/17/97 40,000,000 39,905,511
U.S. Treasury Bill 5.275% 4/17/97 25,000,000 24,941,389
U.S. Treasury Bill 4.99% 5/08/97 3,000,000 2,984,614
U.S. Treasury Bill 4.965% 5/22/97 50,000,000 49,648,312
U.S. Treasury Bill 5.01% 5/29/97 100,000,000 99,192,833
U.S. Treasury Bill 5.19% 6/12/97 75,000,000 74,221,500
U.S. Treasury Bill 5.20% 6/26/97 50,000,000 49,378,889
------------
Total U.S. Treasury Obligations (Cost $380,180,159) $380,180,159
------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
RYDEX SERIES TRUST
URSA
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Amount
------------
<S> <C> <C>
REPURCHASE AGREEMENT 7.2%
Repurchase Agreement Collateralized by U.S.
Treasury Obligations--6.25% 4/01/97 (Note 3) $102,900,000 $ 102,900,000
--------------
Total Investments 100% (Cost $1,432,790,025) $1,421,200,159
==============
- ---------------------------------------------------------------------------
<CAPTION>
Unrealized Gain
Contracts (Note 1)
--------- ---------------
<S> <C> <C>
FUTURES CONTRACTS SOLD
S&P 500 Futures Contract Expiring June 1997
(Underlying Face Amount at Market Value
$516,198,000) 1362 $ 24,429,462
==============
<CAPTION>
Market
Value
Contracts (Note 1)
--------- ---------------
<S> <C> <C>
WRITTEN OPTIONS CONTRACTS
Call Options on:
S&P 500 Index Expiring April 1997 at 320 8,000 $ 349,848,000
S&P 500 Index Expiring May 1997 at 315 2,000 88,506,000
S&P 500 Index Expiring June 1997 at 315 7,000 309,978,000
S&P 500 Index Expiring July 1997 at 315 3,000 132,954,000
--------------
Total Call Options Written (Proceeds
$897,128,294) $ 881,286,000
==============
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
RYDEX SERIES TRUST
U.S. GOVERNMENT MONEY MARKET
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Face Amount (Note 1)
----------- ------------
<S> <C> <C>
FEDERAL AGENCY DISCOUNT NOTES 76.1%
Federal Farm Credit Administration 5.22% 4/08/97 $ 5,000,000 $ 4,994,925
Federal Farm Credit Administration 5.24% 4/15/97 10,000,000 9,979,622
Federal Farm Credit Administration 5.24% 4/18/97 7,000,000 6,982,679
Federal Farm Credit Administration 5.21% 4/24/97 10,000,000 9,966,714
Federal Farm Credit Administration 5.57% 5/21/97
Floating Rate 10,000,000 9,999,224
Federal Farm Credit Administration 5.25% 5/30/97 10,000,000 9,913,958
Federal Home Loan Mortgage Corp. 6.45% 4/01/97 20,000,000 20,000,000
Federal Home Loan Mortgage Corp. 5.23% 4/04/97 10,000,000 9,995,642
Federal Home Loan Mortgage Corp. 5.23% 4/10/97 10,000,000 9,986,925
Federal Home Loan Mortgage Corp. 5.36% 4/18/97 10,000,000 9,974,689
Federal Home Loan Mortgage Corp. 5.28% 5/02/97 10,000,000 9,954,533
Federal Home Loan Mortgage Corp. 5.24% 5/12/97 10,000,000 9,940,322
Federal Home Loan Mortgage Corp. 5.30% 6/04/97 10,000,000 9,905,778
Federal Home Loan Mortgage Corp. 5.27% 6/06/97 10,000,000 9,903,383
Federal National Mortgage Assoc. 5.24% 4/09/97 10,000,000 9,988,356
Federal National Mortgage Assoc. 5.23% 5/21/97 10,000,000 9,927,361
Federal National Mortgage Assoc. 5.24% 5/29/97 10,000,000 9,915,578
------------
Total Federal Agency Discount Notes (Cost
$171,329,689) 171,329,689
------------
REPURCHASE AGREEMENT 23.9%
Repurchase Agreement Collateralized by U.S. Treasury
Obligations--
6.25% 4/01/97 (Note 3) 53,700,000 53,700,000
------------
Total Investments 100% (Cost $225,029,689) $225,029,689
============
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
RYDEX SERIES TRUST
OVER-THE-COUNTER
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Shares (Note 1)
------ -----------
<S> <C> <C>
COMMON STOCKS 57.0%
Intel Corp. 68,377 $ 9,512,950
Microsoft Corp.* 99,990 9,167,833
Cisco Systems, Inc.* 57,641 2,773,973
Oracle Corp.* 55,046 2,122,692
MCI Communications, Corp. 47,710 1,699,669
Worldcom, Inc.* 76,715 1,687,730
Amgen, Inc.* 22,244 1,242,884
Dell Computer Corp.* 14,974 1,012,617
Sun Microsystems, Inc. * 31,786 917,821
Applied Materials, Inc.* 15,680 727,160
Tele-Communications, Inc. 50,679 608,148
Tellabs, Inc.* 16,386 591,944
Ascend Communications, Inc.* 12,572 512,309
Republic Industries, Inc.* 14,537 504,252
Parametric Technology Corp.* 11,136 502,512
3Com Corp.* 15,115 495,016
Costco, Companies, Inc.* 15,995 441,862
U.S. Robotics Corp.* 7,543 417,694
BMC Software, Inc.* 8,495 391,832
Oxford Health Plans, Inc.* 6,420 376,373
HBO & Company 7,894 374,965
Peoplesoft, Inc.* 8,853 354,120
Adaptec, Inc.* 9,462 338,267
Gateway 2000, Inc.* 6,439 329,999
Qualcomm, Inc.* 5,828 328,554
Altera Corp* 7,586 326,198
ADC Telecommunications Inc.* 11,314 304,064
Xilinx, Inc.* 6,042 294,548
Northwest Airline Corp.* 7,629 287,041
Novell, Inc.* 30,073 285,694
Linear Technology Corp. 6,356 281,253
Staples, Inc.* 13,968 281,106
Comcast Corp. Special Class A 16,483 278,151
Chiron Corp.* 14,175 264,009
Sigma Aldrich Corp. 8,142 251,384
Adobe Systems, Inc. 6,246 250,621
Nordstrom, Inc. 6,348 240,431
Nextel Communications, Inc.* 17,624 235,721
Paychex, Inc. 5,680 233,590
</TABLE>
* Non-Income Producing Securities
See Notes to Financial Statements.
<TABLE>
<CAPTION>
Market
Value
Shares (Note 1)
------ -----------
<S> <C> <C>
Biogen, Inc.* 6,163 $ 230,342
Compuware Corp.* 3,517 220,692
PACCAR, Inc. 3,280 218,940
DSC Communications Corp.* 10,327 216,222
Cascade Communications, Corp.* 7,940 209,418
Cintas Corp. 3,834 202,244
Stryker Corp. 8,068 200,692
Atmel Corp.* 8,359 200,094
Starbucks Corporation* 6,729 199,347
Fort Howard, Corp.* 6,235 194,064
Centocor, Inc.* 6,273 191,327
Informix Corp.* 12,468 188,579
Tyson Foods, Inc. 9,670 187,356
American Greetings, Corp. 5,791 184,950
McAfee Associates, Inc.* 4,077 180,407
Electronics for Imaging, Inc.* 4,493 179,158
American Power Conversion Corp.* 8,237 178,125
Apple Computer, Inc.* 9,236 168,557
Boston Chicken Inc.* 5,421 165,341
Biomet, Inc. 9,326 157,376
KLA Instruments, Corp.* 4,292 156,658
Worthington Industries, Inc 7,642 146,153
Genzyme Corp.* 6,356 143,010
General Nutrition Companies, Inc.* 6,963 141,001
Viking Office Products, Inc.* 7,207 139,636
McCormick & Co., Inc. 5,580 136,710
FORE Systems, Inc.* 8,949 134,235
Cracker Barrel Old Country Store, Inc. 5,065 132,323
Autodesk, Inc. 3,810 118,100
Electronics Arts, Inc.* 4,406 117,310
Fastenal Comp. 3,233 113,155
Healthcare COMPARE Corp.* 2,760 112,125
Intuit, Inc.* 3,853 89,582
Sybase, Inc.* 6,116 85,624
Adtran, Inc.* 3,222 80,550
Paging Network, Inc.* 8,444 68,608
Cirrus Logic, Inc.* 5,443 65,996
Glenayre Tech., Inc.* 5,251 51,854
-----------
Total Common Stocks (Cost $40,137,044) $47,152,848
-----------
</TABLE>
16
<PAGE>
RYDEX SERIES TRUST
OVER-THE-COUNTER
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- -----------
<S> <C> <C>
OPTIONS PURCHASED .0%
Call Option on:
NASDAQ 100 Expiring April 1997 at 900
(Cost $6,324) 31 $ 2,325
-----------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 29.9%
U.S. Treasury Bill 5.19% 6/12/97 (Cost $24,740,500) $25,000,000 24,740,500
-----------
REPURCHASE AGREEMENT 13.1%
Repurchase Agreement Collateralized by U.S. Treasury
Obligations--6.25% 4/01/97 (Note 3) 10,800,000 10,800,000
-----------
Total Investments 100% (Cost $75,683,868) $82,695,673
===========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
--------- --------
<S> <C> <C>
WRITTEN OPTIONS CONTRACTS
Put Options On:
NASDAQ 100 Expiring April 1997 at 900 (Proceeds $203,450) 31 $308,450
========
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
RYDEX SERIES TRUST
PRECIOUS METALS FUND
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Shares (Note1)
------- -----------
<S> <C> <C>
COMMON STOCKS 82.7%
Mining and Precious Metals Stocks
Barrick Gold Corp. 314,573 $ 7,471,109
Placer Dome, Inc. 210,354 3,812,666
Newmont Mining Corp. 87,261 3,381,373
Homestake Mining Co. 128,528 1,943,986
Santa Fe Pacific Gold Corp. 115,171 1,900,321
Battle Mountain Gold Co., Class A 197,094 1,305,748
TVX Gold, Inc.* 140,582 1,001,647
Echo Bay Mines, Ltd. 122,126 809,085
Getchell Gold Corp* 11,106 451,181
Pegasus Gold, Inc.* 36,018 292,646
ASA Limited 8,292 280,892
Hecla Mining Co.* 44,144 259,346
Agnico Eagle Mines, Ltd. 14,496 164,892
Trizec Hahn Corp. 6,443 144,162
Kinross Gold Corp.* 8,700 58,725
Freeport McMoran, Inc., Class A 1,887 55,431
Engelhard Corp. 2,438 51,198
Newmont Gold Corp. 1,100 44,137
Cambior, Inc. 2,908 39,258
Amax Gold, Inc.* 4,324 29,187
Anglo American Gold Investment Co., Ltd. 3,470 24,724
-----------
Total Common Stocks (Cost $23,784,737) $23,521,714
-----------
</TABLE>
* Non-Income Producing Securities
See Notes to Financial Statements.
18
<PAGE>
RYDEX SERIES TRUST
PRECIOUS METALS FUND
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- -----------
<S> <C> <C>
OPTIONS PURCHASED 0.1%
Call Option on:
XAU Index Expiring April 1997 at 90 (Cost $40,310) 20 $ 28,500
-----------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
REPURCHASE AGREEMENT 17.2%
Repurchase Agreement collateralized by U.S. Treasury
Obligations--6.25 4/01/97 (Note 3) $4,900,000 4,900,000
-----------
Total Investments 100% (Cost $28,725,047) $28,450,214
===========
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
RYDEX SERIES TRUST
U.S. GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Face Amount (Note 1)
----------- ----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 89.2%
U.S. Treasury Bond 6.625% due 02/15/2027 (Cost
$3,061,901) $3,205,000 $3,017,708
----------
<CAPTION>
Contracts
-----------
<S> <C> <C>
OPTIONS PURCHASED 2.0%
Call Options On:
U.S Treasury Bond Futures Contract Expiring June 1997
at 100
(Cost $78,271) 9 65,109
----------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
REPURCHASE AGREEMENT 8.8%
Repurchase Agreement collateralized by U.S. Treasury
Obligations--6.250% due 4/01/97 (Note 3) $ 300,000 300,000
----------
Total Investments 100% (Cost $3,440,172) $3,382,817
==========
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
RYDEX SERIES TRUST
JUNO
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- ---------------
<S> <C> <C>
OPTIONS PURCHASED 0.8 %
Put Options on:
U.S. Treasury Bond Futures Contracts Expiring June
1997 at 130 (Cost $181,380) 10 $ 227,812
-----------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 84.8%
U.S. Treasury Bill 5.20% 6/19/97 (Cost $24,714,722) $25,000,000 24,714,722
-----------
REPURCHASE AGREEMENT 14.4%
Repurchase Agreement collateralized by U.S. Trea-
sury Obligations--6.25% 4/01/97 (Note 3) 4,200,000 4,200,000
-----------
Total Investments 100% (Cost $29,096,102) $29,142,534
===========
- --------------------------------------------------------------------------------
<CAPTION>
Unrealized Gain
Contracts (Note 1)
----------- ---------------
<S> <C> <C>
FUTURES CONTRACTS SOLD
U.S. Treasury Bond Futures Contract Expiring June
1997 (Underlying Face Amount at Market Value
$27,876,875) 260 $ 652,603
===========
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
RYDEX SERIES TRUST
HIGH YIELD FUND
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Face Value
Amount (Note1)
-------- -----------
<S> <C> <C>
NON-CONVERTIBLE CORPORATE BONDS 98.9%
Toll Corporation 8.75% due 11/15/2006 $500,000 $ 515,000
Rogers Cablesystems, LTD 10.0% due 3/15/2005 475,000 491,625
Telefonica De Argentina SA 11.875% due 11/01/2004 400,000 452,000
Hovnanian K Enterprise 11.25% due 4/15/2002 425,000 444,125
AMF Group, Inc. 10.875% due 3/15/2006 400,000 424,000
Healthsouth Rehabilitation Corporation 9.50% due
4/01/2001 400,000 418,000
U.S. Air, Inc. 10.0% due 7/01/2003 400,000 403,500
Jones Intercable, Inc. 10.50% due 3/01/2008 350,000 379,750
Westminister Resources, LTD. 11.0% due 3/15/2007 350,000 346,500
Grupo Televisa, S.A. 11.875% due 5/15/2006 300,000 321,000
Smiths Food and Drug Centers 11.25% due 5/15/2007 275,000 301,125
Dominick's Finer Foods, Inc. 10.875% due 5/01/2005 275,000 295,625
Titan Wheel International, Inc. 8.75% due 4/01/2007 300,000 295,500
Northwest Airlines Corporation 8.70% due 3/15/2007 300,000 295,125
Hollinger International Publishing, Inc. 8.625% due
3/15/2005 300,000 291,000
Grand Union Company 12.0% due 9/01/2004 275,000 270,188
Rohr, Inc. 11.625% due 5/15/2003 250,000 268,750
YPF, SA Sociedad Anomina 8.0% due 2/15/2004 275,000 264,000
Brown Group, Inc. 9.50% due 10/15/2006 250,000 257,500
Borg-Warner Security CP 9.625% due 3/15/2007* 250,000 245,000
BankUnited Capital Trust 10.25% due 12/31/2026* 250,000 244,375
Century Communications 9.75% due 2/15/2002 200,000 201,000
Grand Casinos, Inc. 10.125% due 12/01/2003 200,000 196,500
Cliffs Drilling Company 10.25% due 5/15/2003 150,000 154,500
Chesapeake Energy Corporation 8.50% due 3/15/2012* 150,000 141,750
Kaufman and Broad Home Corporation 9.375% due 5/01/2003 140,000 140,700
Allbrighton Communications, Co. 9.75% due 11/30/2007 150,000 139,500
ACME Metals, Inc. 12.50% due 8/1/2002 125,000 132,500
Westpoint Stevens, Inc. 9.375% due 12/15/2005 130,000 130,000
Lenfest Communications, Inc. 8.375% due 11/01/2005 125,000 113,750
</TABLE>
* Issued Under Rule 144A.
See Notes to Financial Statements.
22
<PAGE>
RYDEX SERIES TRUST
HIGH YIELD FUND
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Face Value
Amount (Note1)
-------- -----------
<S> <C> <C>
NON-CONVERTIBLE CORPORATE BONDS (CONTINUED)
NL Industries, Inc. 11.75% due 10/15/2003 $100,000 $ 105,000
Noble Drilling Corporation 9.125% due 7/01/2006 100,000 105,000
American Standard 9.875% due 6/01/2001 100,000 104,000
Motors and Gears, Inc. 10.75% due 11/15/2006* 100,000 102,500
Comcast Corporation 9.375% due 5/15/2005 100,000 100,000
Weirton Steel Corporation 10.75% due 6/01/2005 100,000 100,000
Wilshire Financial Services Group, Inc. 13.0% due
1/01/2004 100,000 100,000
360 Communications Company 7.125% due 3/01/2003 100,000 97,636
Cleveland Electric Illuminating 7.375% due 6/01/2003 100,000 97,011
Transportacion Maritima Mex-Sp 10.0% due 11/15/2006 100,000 96,000
Dotmar, Inc. 9.50% due 8/01/2016 75,000 76,500
Fort Howard Corporation 8.25% due 2/01/2002 75,000 74,625
United Airlines, Inc. 9.75% due 8/15/2021 50,000 57,296
Dime Bancorp, Inc. 10.50% due 11/15/2005 50,000 53,750
Chiquita Brands International, Inc. 9.625% due 1/15/2004 50,000 50,750
Digital Equipment Corporation 8.625% due 11/01/2012 50,000 49,162
Cablevision Systems Corporation 9.875% due 5/15/2006 50,000 49,000
Tenet Healthcare Corporation 8.625% due 1/15/2007 50,000 48,750
Paging Network 8.875% due 2/01/2006 50,000 42,500
Gulf Canada Resources, LTD. 9.25% due 1/15/2004 25,000 25,750
Falcon Drilling Company 8.875% due 3/15/2003 25,000 25,250
Rogers Cantel, Inc. 9.375% due 6/01/2008 25,000 25,250
Exide Corporation 10.0% due 4/15/2005 25,000 25,000
-----------
Total Non Convertible Corporate Bonds (Cost $10,394,343) 10,184,618
-----------
<CAPTION>
Shares
--------
<S> <C> <C>
COMMON STOCKS 1.1%
Colonial Downs Holdings--CL A
Total Common Stocks (Cost $142,500) 15,000 110,625
-----------
Total Investments 100% (Cost $10,536,843) $10,295,243
===========
</TABLE>
* Issued Under Rule 144A.
See Notes to Financial Statements.
23
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Fund Ursa Fund Market Fund
------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
Securities at Value (Note 1)--See
Accompanying Schedules $ 438,809,070 $1,421,200,159 $225,029,689
Receivable for Securities Sold 3,587,090 0 0
Receivable for Futures Contracts
Settlement 0 10,824,067 0
Premium Receivable for Written
Options 45,628,379 136,885,137 0
Investment Income Receivable 851 17,865 66,655
Cash in Custodian Bank 1,534,564 1,585,341 0
Cash on Deposit with Broker 0 4,902,000 0
Receivable for Shares Purchased 6,414,030 50,065,095 71,949,632
Unamortized Organization Costs (Note
1) 44,593 29,002 15,670
Other Assets 35,164 31,632 19,387
------------- -------------- ------------
Total Assets 496,053,741 1,625,540,298 297,081,033
------------- -------------- ------------
LIABILITIES
Payable for Securities Purchased 47,101,100 141,303,300 0
Payable for Futures Contracts
Settlement 3,015,926 0 0
Written Options at Market Value 177,094,000 881,286,000 0
Payable for Shares Redeemed 86,606,344 20,312,982 13,193,742
Dividends Payable 0 0 66,402
Investment Advisory Fee Payable 213,155 256,299 89,755
Cash Balance Due at Custodian Bank 0 0 120,312
Transfer Agent Fee Payable 72,850 71,194 41,318
Other Liabilities 20,668 23,011 16,678
------------- -------------- ------------
Total Liabilities 314,124,043 1,043,252,786 13,528,207
------------- -------------- ------------
NET ASSETS $ 181,929,698 $ 582,287,512 $283,552,826
============= ============== ============
Shares Outstanding 10,168,541 82,961,214 283,553,279
============= ============== ============
Net Asset Value Per Share $17.89 $7.02 $1.00
====== ===== =====
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Over-the- Precious U.S.
Counter Metals Government High Yield
Fund Fund Bond Fund Juno Fund Fund
------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Securities at Value
(Note 1)--See
Accompanying Schedules $ 82,695,673 $28,450,214 $3,382,817 $29,142,534 $10,295,243
Receivable for
Securities Sold 54,285,578 6,608,531 0 0 1,688,127
Receivable for Futures
Contracts Settlement 0 0 0 44,147 0
Receivable from Advisor 0 0 9,821 0 9,018
Investment Income
Receivable 7,123 1,468 26,447 729 254,219
Cash in Custodian Bank 85,640 34,673 62,691 96,558 28,835
Cash on Deposit with
Broker 1,077,095 161,191 0 763,746 0
Receivable for Shares
Purchased 2,936,807 1,601,832 1,313,622 2,771,542 0
Unamortized
Organization Costs
(Note 1) 8,650 11,975 7,275 19,780 41,605
Other Assets 13,579 1,146 1,080 1,893 775
------------ ----------- ---------- ----------- -----------
Total Assets 141,110,145 36,871,030 4,803,753 32,840,929 12,317,822
------------ ----------- ---------- ----------- -----------
LIABILITIES
Payable for Securities
Purchased 26,999,194 797,298 451,154 0 54,499
Written Options at
Market Value 308,450 0 0 0 0
Payable for Shares
Redeemed 61,403,277 12,363,693 886,088 225,459 1,683,290
Dividends Payable 0 0 133,739 0 2,812
Investment Advisory Fee
Payable 60,885 10,175 4,232 21,625 0
Transfer Agent Fee
Payable 17,412 4,645 1,694 6,007 1,458
Organization Expense
Payable to Advisor 0 0 0 0 43,795
Other Liabilities 42,729 15,080 25,194 10,573 14,297
------------ ----------- ---------- ----------- -----------
Total Liabilities 88,831,947 13,190,891 1,502,101 263,664 1,800,151
------------ ----------- ---------- ----------- -----------
NET ASSETS $ 52,278,198 $23,680,139 $3,301,652 $32,577,265 $10,517,671
============ =========== ========== =========== ===========
Shares Outstanding 2,916,375 3,099,090 387,336 3,362,339 1,071,787
============ =========== ========== =========== ===========
Net Asset Value Per
Share $17.93 $7.64 $8.52 $9.69 $9.81
====== ===== ===== ===== =====
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Period Ended March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Fund Ursa Fund Market Fund
------------ ------------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 9,349,185 $ 10,454,328 $7,080,216
------------ ------------- ----------
Total Income 9,349,185 10,454,328 7,080,216
------------ ------------- ----------
EXPENSES
Advisory Fees (Note 4) 1,812,740 2,070,135 671,957
Transfer Agent Fees (Note 4) 606,411 575,038 268,855
Audit and Outside Services 74,791 71,771 44,813
Accounting Fees (Note 4) 80,757 78,563 60,841
Legal 93,036 109,715 64,866
Organizational Expenses 26,167 12,415 6,664
Registration Fees 38,662 46,120 40,026
Custodian Fees 58,097 57,786 7,343
Miscellaneous 86,250 114,097 74,815
------------ ------------- ----------
Total Expenses 2,876,911 3,135,640 1,240,180
Custodian Fees Paid Indirectly (Note
5) 54,497 54,099 3,537
------------ ------------- ----------
Net Expenses 2,822,414 3,081,541 1,236,643
------------ ------------- ----------
Net Investment Income 6,526,771 7,372,787 5,843,573
------------ ------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss) on:
Investment Securities 51,932,123 185,394,425 0
Written Options (28,858,102) (189,862,783) 0
Futures Contracts 16,491,572 (63,032,110) 0
------------ ------------- ----------
Total Net Realized Gain (Loss) 39,565,593 (67,500,468) 0
Net Change in Unrealized Appreciation
(Depreciation)
On Investments, Options and Futures
Contracts (12,688,383) 27,690,198 0
------------ ------------- ----------
Net Gain (Loss) on Investments 26,877,210 (39,810,270) 0
------------ ------------- ----------
Net Increase (Decrease) in Net Assets
from Operations $ 33,403,981 $ (32,437,483) $5,843,573
============ ============= ==========
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Period Ended March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Over-the- Precious U.S. High
Counter Metals Government Yield
Fund Fund Bond Fund Juno Fund Fund
----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 1,273,988 $ 151,322 $468,977 $ 740,291 $ 158,101
Dividends 125,692 206,863 0 0 0
----------- ----------- -------- ----------- ---------
Total Income 1,399,680 358,185 468,977 740,291 158,101
----------- ----------- -------- ----------- ---------
EXPENSES
Distribution Fees 0 0 0 0 4,432
Advisory Fees (Note 4) 775,607 185,396 35,394 130,573 8,131
Transfer Agent Fees
(Note 4) 205,328 49,439 14,158 36,374 2,168
Audit and Outside
Services 41,984 19,258 12,661 11,737 9,960
Accounting Fees (Note
4) 45,669 26,285 14,442 16,731 1,667
Legal 33,688 11,103 4,282 6,193 173
Organizational
Expenses 3,702 5,124 3,115 5,072 2,190
Registration Fees 16,698 10,356 11,937 13,895 116
Custodian Fees 117,702 23,531 5,651 5,724 2,323
Miscellaneous 75,111 36,647 6,861 5,309 0
----------- ----------- -------- ----------- ---------
Total Expenses 1,315,489 367,139 108,501 231,608 31,160
Custodian Fees Paid
Indirectly (Note 5) 1,442 1,709 1,866 2,124 315
Less Expenses
Reimbursed by
Investment Advisor 0 7,245 0 0 14,487
----------- ----------- -------- ----------- ---------
Net Expenses 1,314,047 358,185 106,635 229,484 16,358
----------- ----------- -------- ----------- ---------
Net Investment Income 85,633 0 362,342 510,807 141,743
----------- ----------- -------- ----------- ---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain
(Loss) on:
Investment Securities 18,582,010 (10,519,765) (364,110) (34,902) (95,444)
Written Options 52,685 5,751
Futures Contracts 0 0 211,629 (1,158,173) 0
----------- ----------- -------- ----------- ---------
Total Net Realized
Gain (Loss) 18,634,695 (10,514,014) (152,481) (1,193,075) (95,444)
Net Change in
Unrealized
Appreciation
(Depreciation)
on Investments,
Options and
Futures Contracts (676,120) 2,142,579 (254,243) 1,086,638 (241,600)
----------- ----------- -------- ----------- ---------
Net Gain (Loss) on
Investments 17,958,575 (8,371,435) (406,724) (106,437) (337,044)
----------- ----------- -------- ----------- ---------
Net Increase (Decrease)
in Net Assets from
Operations $18,044,208 ($8,371,435) ($44,382) $ 404,370 ($195,301)
=========== =========== ======== =========== =========
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nova Fund Ursa Fund
-------------------------- --------------------------
Period Ended Year Ended Period Ended Year Ended
March 31, June 30, March 31, June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
From Investment
Activities
Net Investment Income $ 6,526,771 $ 4,179,165 $ 7,372,787 $ 6,011,770
Net Realized Gain
(Loss) on Investments 39,565,593 22,094,745 (67,500,468) (36,517,831)
Net Change in
Unrealized
Appreciation
(Depreciation) of
Investments (12,688,383) 2,685,556 27,690,198 3,161,168
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets from
Operations 33,403,981 28,959,466 (32,437,483) (27,344,893)
------------ ------------ ------------ ------------
Distributions to
Shareholders
From Net Investment
Income (Note 1) 0 0 (752,816) 0
From Realized Gain on
Investments (6,012,731) 0 0 0
Net Increase (Decrease)
in Net Assets from
Shares Transactions
(Note 8) (70,002,669) 132,666,112 422,924,543 92,269,466
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets (42,611,419) 161,625,578 389,734,244 64,924,573
------------ ------------ ------------ ------------
NET ASSETS--Beginning of
Period 224,541,116 62,915,538 192,553,268 127,628,695
------------ ------------ ------------ ------------
NET ASSETS--End of
Period $181,929,697 $224,541,116 $582,287,512 $192,553,268
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Over-the-
Money Market Fund Counter Fund
---------------------------- ----------------------------
Period Ended Year Ended Period Ended Year Ended
March 31,1997 June 30,1996 March 31, 1997 June 30, 1996
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
From Investment
Activities
Net Investment Income $ 5,843,573 $ 7,459,832 $ 85,633 $ 304,516
Net Realized Gain on
Investments 0 467 18,634,695 7,408,632
Net Change in
Unrealized
Depreciation of
Investments 0 0 (676,120) (894,564)
------------ ------------- ------------ ------------
Net Increase in Net
Assets Resulting from
Operations 5,843,573 7,460,299 18,044,208 6,818,584
------------ ------------- ------------ ------------
Distributions to
Shareholders
From Net Investment
Income (Note 1) (5,799,436) (7,466,933) (522,552) 0
From Realized Gain on
Investments 0 (467) (57,883) (1,826,446)
Net Increase (Decrease)
in Net Assets Resulting
from Shares
Transactions (Note 8) 129,584,142 (130,266,747) (13,901,489) (18,223,812)
------------ ------------- ------------ ------------
Net Increase (Decrease)
in Net Assets 129,628,279 (130,273,848) 3,562,284 (13,231,674)
------------ ------------- ------------ ------------
NET ASSETS--Beginning of
Period 153,924,547 284,198,395 48,715,914 61,947,588
------------ ------------- ------------ ------------
NET ASSETS--End of
Period $283,552,826 $ 153,924,547 $ 52,278,198 $ 48,715,914
============ ============= ============ ============
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Precious Metals U.S. Government
Fund Bond Fund
---------------------------- ----------------------------
Period Ended Year Ended Period Ended Year Ended
March 31, 1997 June 30, 1996 March 31,1997 June 30, 1996
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
From Investment
Activities
Net Investment Income
(Loss) $ 0 $ (3,434) $ 362,342 $ 882,912
Net Realized Gain
(Loss) on Investments (10,514,014) 2,288,270 (152,481) (103,013)
Net Change in
Unrealized
Appreciation
(Depreciation) of
Investments 2,142,579 (6,585,369) (254,243) 188,414
------------ ----------- ------------ -----------
Net Increase (Decrease)
in Net Assets from
Operations (8,371,435) (4,300,533) (44,382) 968,313
------------ ----------- ------------ -----------
Distributions to
Shareholders
From Net Investment
Income (Note 1) 0 0 (362,881) (885,787)
From Realized Gain on
Investments 0 0 0 (243,678)
Net Increase (Decrease)
in Net Assets from
Shares Transactions
(Note 8) (4,521,996) 13,022 (14,622,230) 15,900,788
------------ ----------- ------------ -----------
Net Increase (Decrease)
in Net Assets (12,893,431) (4,287,511) (15,029,493) 15,739,636
------------ ----------- ------------ -----------
NET ASSETS--Beginning of
Period 36,573,570 40,861,081 18,331,145 2,591,509
------------ ----------- ------------ -----------
NET ASSETS--End of
Period $ 23,680,139 $36,573,570 $ 3,301,652 $18,331,145
============ =========== ============ ===========
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Yield
Juno Fund Fund
--------------------------- -------------
Period Ended Year Ended Period Ended
March 31,1997 June 30, 1996 March 31,1997
------------- ------------- -------------
<S> <C> <C> <C>
From Investment Activities
Net Investment Income $ 510,807 $ 710,596 $ 141,743
Net Realized Loss on Investments (1,193,075) (1,855,288) (95,444)
Net Change in Unrealized
Appreciation (Depreciation) of
Investments 1,086,638 (397,053) (241,600)
----------- ----------- -----------
Net Increase (Decrease) in Net
Assets from Operations 404,370 (1,541,745) (195,301)
----------- ----------- -----------
Distributions to Shareholders
From Net Investment Income (Note 1) (61,626) 0 (141,743)
Net Increase in Net Assets from
Shares Transactions (Note 8) 13,374,908 16,100,047 10,854,715
----------- ----------- -----------
Net Increase in Net Assets 13,717,652 14,558,302 10,517,671
----------- ----------- -----------
NET ASSETS--Beginning of Period 18,859,613 4,301,311 0
----------- ----------- -----------
NET ASSETS--End of Period $32,577,265 $18,859,613 $10,517,671
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nova Fund
-----------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 15.68 $ 11.81 $ 9.77 $ 10.01
-------- -------- ------- --------
Net Investment Income .35 .56 .28 .01
Net Realized and Unrealized Gains
(Losses) on Securities 2.19 3.31 2.88 (.25)
-------- -------- ------- --------
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations 2.54 3.87 3.16 (.24)
Dividends to Shareholders from Net
Investment Income .00 .00 (.29) .00
Distributions to Shareholders from
Net Realized Capital Gain (.33) .00 (.83) .00
-------- -------- ------- --------
Net Increase (Decrease) in Net
Asset Value 2.21 3.87 2.04 (.24)
-------- -------- ------- --------
NET ASSET VALUE--END OF PERIOD $ 17.89 $ 15.68 $ 11.81 $ 9.77
======== ======== ======= ========
TOTAL INVESTMENT RETURN 20.92%** 32.77% 32.65% (2.47)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.16%**++ 1.31% 1.43% 1.73%**
Net Investment Income 2.69%** 3.14% 2.62% 1.05%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0% 0% 0% 0%
Net Assets, End of Period (000's
omitted) $181,930 $224,541 $62,916 $ 77,914
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.19%.
*Commencement of Operations: July 12, 1993--Nova Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
32
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ursa Fund
--------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- --------- --------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 7.55 $ 8.79 $ 10.54 $ 10.00
-------- --------- --------- --------
Net Investment Income .17 .30 .35 .01
Net Realized and Unrealized
Gains (Losses) on Securities (.68) (1.54) (1.78) .53
-------- --------- --------- --------
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations (.51) (1.24) (1.43) .54
Dividends to Shareholders from
Net Investment Income (.02) .00 (.32) .00
-------- --------- --------- --------
Net Increase (Decrease) in Net
Asset Value (.53) (1.24) (1.75) .54
-------- --------- --------- --------
NET ASSET VALUE--END OF PERIOD $ 7.02 $ 7.55 $ 8.79 $ 10.54
======== ========= ========= ========
TOTAL INVESTMENT RETURN (8.98)%** (14.11)% (14.08)% 10.89%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.34%**++ 1.39% 1.39% 1.67%**
Net Investment Income 3.21%** 3.38% 3.50% 1.43%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0% 0% 0% 0%
Net Assets, End of Period
(000's omitted) $582,288 $ 192,553 $ 127,629 $110,899
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.36%.
* Commencement of Operations: January 7, 1994--Ursa Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova, Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
33
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Money Market Fund
------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------
Net Investment Income .03 .04 .04 .01
Net Realized and Unrealized Gains
on Securities .00 .00 .00 .00
-------- -------- -------- -------
Net Increase in Net Asset Value
Resulting from Operations .03 .04 .04 .01
Dividends to Shareholders from Net
Investment Income (.03) (.04) (.04) (.01)
-------- -------- -------- -------
Net Increase in Net Asset Value .00 .00 .00 .00
-------- -------- -------- -------
NET ASSET VALUE--END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== =======
TOTAL INVESTMENT RETURN 4.39%** 4.60% 4.43% 2.47%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.86%**++ 0.99% 0.89% 1.16%**
Net Investment Income 4.06%** 4.18% 4.23% 2.34%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0% 0% 0% 0%
Net Assets, End of Period (000's
omitted) $283,553 $153,925 $284,198 $88,107
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is .86%.
* Commencement of Operations: December 3, 1993--U.S. Government Money Market
Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
34
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Over-the-Counter Fund
------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 15.16 $ 12.22 $ 8.76 $ 10.00
-------- -------- -------- --------
Net Investment Income .01 .06 .14 .01
Net Realized and Unrealized Gains
(Losses) on Securities 2.84 3.24 4.17 (1.25)
-------- -------- -------- --------
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations 2.85 3.30 4.31 (1.24)
Dividends to Shareholders from
Net Investment Income (.07) .00 (.12) .00
Distributions to Shareholders
from Net Realized Capital Gain (.01) (.36) (.73) .00
-------- -------- -------- --------
Net Increase (Decrease) in Net
Asset Value 2.77 2.94 3.46 (1.24)
-------- -------- -------- --------
NET ASSET VALUE--END OF PERIOD $ 17.93 $ 15.16 $ 12.22 $ 8.76
======== ======== ======== ========
TOTAL INVESTMENT RETURN 24.77%** 26.44% 49.00% (30.17)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.27%**++ 1.33% 1.41% 1.97%**
Net Investment Income 0.08%** 0.44% 1.34% 1.69%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 1140.35% 2578.56% 2241.00% 1171.00%
Net Assets, End of Period (000's
omitted) $ 52,278 $ 48,716 $ 61,948 $ 30,695
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.27%.
* Commencement of Operations: February 14, 1994--Over-the-Counter Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and
Juno Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
35
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Precious Metals Fund
-----------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:+
NET ASSET VALUE--BEGINNING
OF PERIOD $ 9.05 $ 8.73 $ 8.29 $ 10.00
-------- ---------- ---------- ----------
Net Investment Income .00 .00 .10 .01
Net Realized and Unrealized
Gains (Losses) on
Securities (1.41) .32 .43 (1.72)
-------- ---------- ---------- ----------
Net Increase (Decrease) in
Net Asset Value Resulting
from Operations (1.41) .32 .53 (1.71)
Dividends to Shareholders
from Net Investment Income .00 .00 (.09) .00
-------- ---------- ---------- ----------
Net Increase (Decrease) in
Net Asset Value (1.41) .32 .44 (1.71)
-------- ---------- ---------- ----------
NET ASSET VALUE--END OF
PERIOD $ 7.64 $ 9.05 $ 8.73 $ 8.29
======== ========== ========== ==========
TOTAL INVESTMENT RETURN (20.77)%** 3.67% 6.21% (29.27)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.45%**++ 1.33% 1.38% 2.06%**
Net Investment Income 0.00%** (0.01)% 1.15% 1.23%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 743.33% 1,036.37% 1,765.00% 2,728.00%
Average Commission Rate
Paid**** .0101 0.0151 -- --
Net Assets, End of Period
(000's omitted) $ 23,680 $ 36,574 $ 40,861 $ 1,526
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.49%.
* Commencement of Operations: December 1, 1993--Precious Metals Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and
Juno Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
**** For fiscal years beginning on or after September 1, 1995, the fund is
required to disclose its average commission rate per share for purchases and
sales of equity securities.
See Notes to Financial Statements.
36
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Bond Fund
----------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 8.97 $ 9.55 $ 8.24 $ 10.00
-------- -------- ---------- ----------
Net Investment Income .34 .46 .39 .02
Net Realized and Unrealized
Gains (Losses) on Securities (.45) (.45) 1.17 (1.76)
-------- -------- ---------- ----------
Net Increase (Decrease) in
Net Asset Value Resulting
from Operations (.11) .01 1.56 (1.74)
Dividends to Shareholders
from Net Investment Income (.34) (.46) (.25) (.02)
Distributions to Shareholders
from Net Realized Capital
Gain .00 (.13) .00 .00
-------- -------- ---------- ----------
Net Increase (Decrease) in
Net Asset Value (.45) (.58) 1.31 (1.76)
-------- -------- ---------- ----------
NET ASSET VALUE--END OF PERIOD $ 8.52 $ 8.97 $ 9.55 $ 8.24
======== ======== ========== ==========
TOTAL INVESTMENT RETURN (0.46)%** (1.48)% 18.97% (32.63)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.49%**++ 1.26% 2.26% 3.05%**
Net Investment Income 5.06%** 4.73% 4.64% 3.39%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 962.17% 780.30% 3,452.59% 1,290.00%
Net Assets, End of Period
(000's omitted) $ 3,302 $ 18,331 $ 2,592 $ 1,564
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.51%.
* Commencement of Operations: January 3, 1994--U.S.Government Bond Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova, Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
37
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Juno Fund
------------------------------------
Period Year Period
Ended Ended Ended
March 31, June 30, June 30,
1997 1996 1995*
--------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD $ 9.47 $ 9.08 $ 10.00
------- ------- --------
Net Investment Income .25 .34 .14
Net Realized and Unrealized Gains
(Losses) on Securities .00 .05 (1.06)
------- ------- --------
Net Increase (Decrease) in Net Asset
Value Resulting from Operations .25 .39 (.92)
Dividends to Shareholders from Net
Investment Income (.03) .00 .00
------- ------- --------
Net Increase (Decrease) in Net Asset
Value .22 .39 (.92)
------- ------- --------
NET ASSET VALUE--END OF PERIOD $ 9.69 $ 9.47 $ 9.08
======= ======= ========
TOTAL INVESTMENT RETURN 3.75%** 4.30% (9.20)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.58%**++ 1.64% 1.50%**
Net Investment Income 3.51%** 3.63% 1.32%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0.00% 0.00% 0.00%
Net Assets, End of Period (000's omitted) $32,577 $18,860 $ 4,301
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.60%.
* Commencement of Operations: March 3, 1995--Juno Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and
Juno Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
38
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Yield
Fund*
--------------
Period
Ended
March 31, 1997
--------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD $ 10.00
--------
Net Investment Income .19
Net Realized and Unrealized Loss on Securities (.36)
--------
Net Decrease in Net Asset Value Resulting from Operations (.17)
Dividends to Shareholders from Net Investment Income (.02)
--------
Net Decrease in Net Asset Value (.19)
--------
NET ASSET VALUE--END OF PERIOD $ 9.81
========
TOTAL INVESTMENT RETURN** (0.12)%
RATIOS TO AVERAGE NET ASSETS**
Expenses .99%++
Net Investment Income 8.57%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 763.11%
Net Assets, End of Period (000's omitted) $ 10,518
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.88%.
* Commencement of Operations: January 3, 1997--High Yield Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova, Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
39
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Rydex Series Trust (the Trust) is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 as a non-
diversified, open-ended investment company. The Trust consists of nine separate
series, the Nova Fund, the Ursa Fund, the U.S. Government Money Market Fund,
the Over-the-Counter Fund, the Precious Metals Fund, the U.S. Government Bond
Fund, the Juno Fund, the Institutional Money Market Fund and the High Yield
Fund. The financial statements include eight of the separate series except the
Institutional Money Market Fund. The accompanying significant accounting
policies are in conformity with generally accepted accounting principles and
are consistently followed by the Trust.
The Trust changed its fiscal year end from June 30 to March 31. These
statements reflect nine months of financial activity.
A. Securities listed on an exchange are valued at the latest quoted sales
prices as of 4:00 P.M. on the valuation date. Securities not traded on an
exchange are valued at their last sales price. Listed options held by the Trust
are valued at their last bid price. Over-the-counter options held by the Trust
are valued using the average bid price obtained from one or more security
dealers. The value of futures contracts purchased and sold by the Trust are
accounted for using the unrealized gain or loss on the contracts that is
determined by marking the contracts to their current realized settlement
prices. Short term securities with less than sixty days to maturity are valued
at amortized cost, which approximates market. Security and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under direction of the Board of Trustees of the
Trust.
B. Securities transactions are recorded on the trade date (the date the order
to buy or sell is executed). Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recorded on the ex-dividend date. Interest income is accrued on a daily basis.
C. Net investment income is computed, and dividends are declared daily in the
U.S. Government Money Market Fund, the Institutional Money Market Fund, the
U.S. Government Bond Fund, and the High Yield Fund. Income dividends in these
funds are paid monthly. Dividends are reinvested in additional shares unless
shareholders request payment in cash. Generally, short-term capital gains are
distributed monthly in the U.S. Government Money Market Fund and the
Institutional Money Market Fund.
D. When the Trust engages in a short sale, an amount equal to the proceeds
received by the Trust is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked to market to reflect the market
value of the short sale. The Trust maintains a segregated account of securities
as collateral for the short sales. The Trust is exposed to market risk based on
the amount, if any, that the market value of the stock exceeds the market value
of the securities in the segregated account.
40
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
E. When the Trust writes (sells) an option, an amount equal to the premium
received is entered in the Trust's accounting records as an asset and
equivalent liability. The amount of the liability is subsequently marked to
market to reflect the current value of the option written. When an option
expires, or if the Trust enters into a closing purchase transaction, the Trust
realizes a gain (or loss if the cost of a closing purchase transaction exceeds
the premium received when the option was sold).
F. The Trust may purchase or sell stock index futures contracts and options on
such futures contracts. Futures contracts are contracts for delayed delivery of
securities at a specified future delivery date and at a specific price. Upon
entering into a contract, the Trust deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Trust agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and are
recorded by the Trust as unrealized gains or losses. When the contract is
closed, the Trust records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed.
G. Futures contracts and written options involve to varying degrees, elements
of market risk and risks in excess of the amount recognized in the Statements
of Assets and Liabilities. The face or contract amounts reflect the extent of
the involvement each fund has in the particular classes of instruments. Risks
may be caused by an imperfect correlation between movements in the price of the
instruments and the price of the underlying securities.
H. The Trust intends to comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and will distribute all net
investment income to its shareholders. Therefore, no Federal income tax
provision is required.
I. Costs incurred by the Trust in connection with its organization and
registration have been deferred and are being amortized on the straight-line
method over a five year period beginning on the date on which the Trust
commenced its investment activities.
J. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
41
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. OPERATING POLICIES
The Trust, which includes nine separate funds, utilizes futures contracts,
options, and options on futures contracts in order to meet the specific
investment objectives of the individual funds.
The Nova Fund, which is designed to provide total returns over time that are
superior to the Standard and Poor's 500 Composite Stock Price Index ("S&P 500")
invests primarily in futures on the S&P 500 index and options on those futures
in order to correlate its return with an amount approximately 150% of the
performance of the S&P 500. The Ursa Fund primarily sells futures contracts and
buys options on futures contracts in furtherance of its investment objective to
inversely correlate the S&P 500. The Precious Metals Fund seeks capital
appreciation. It buys primarily equity securities and purchases call options
and sells put options on the XAU Index. The Bond Fund strives to provide income
and capital appreciation. It purchases primarily long-term Treasury Bonds. It
also purchases futures contracts on U.S. Treasury Bonds and buys call options
on U.S. Treasury Bond futures as a substitute for a comparable market position
in the underlying U.S. Treasury Securities. The Juno Fund seeks to inversely
correlate with the price changes of the current Thirty Year Treasury Bond. To
meet this objective, Juno primarily buys put options on Treasury Bond futures
and sells Treasury Bond futures. The OTC Fund strives to provide investment
results before fees and expenses that closely correlate the total return of the
NASDAQ Composite Index. The fund invests in securities included in the NASDAQ
Composite and buys call options and sells put options on stock indexes. The
High Yield Fund, which correlates the MLHY Index does so by investing primarily
in long term, intermediate-term, and short term, below investment grade,
corporate bonds. In addition the Nova Fund, the Ursa Fund, the OTC Fund, and
the Precious Metals Fund all write options to further meet their investment
objectives.
The risks inherent in the use of options, futures contracts, and options on
futures contracts include 1) adverse changes in the value of such instruments;
2) imperfect correlation between the price of options and futures contracts and
options thereon and movements in the price of the underlying securities, index,
or futures contract; 3) the possible absences of a liquid secondary market for
any particular instrument at any time; and 4) the possible need to defer
closing out certain positions to avoid adverse tax consequences.
42
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. REPURCHASE AGREEMENTS
The Trust transfers uninvested cash balances into a single joint account, the
daily aggregate balance of which is invested in repurchase agreements
collateralized by Federal agency obligations. As of March 31,1997 the
repurchase agreements with Fuji Securities, Inc., PaineWebber, Inc., Smith
Barney, and Prudential Securities, in the joint account and the collateral
therefore was as follows:
<TABLE>
<CAPTION>
Security Type Range of rates Par Value Market Value
- ------------- -------------- ------------ ------------
<S> <C> <C> <C>
United States Treasury Bills.......... 6.25% $ 62,895,000 $ 60,000,000
United States Treasury Notes.......... 5.375%-9.25% $124,950,000 $127,043,534
United States Treasury Bond........... 8.5% $ 14,404,000 $ 16,756,189
</TABLE>
4. INVESTMENT ADVISORY, ACCOUNTING, AND TRANSFER AGENT SERVICES
Under the terms of an investment advisory contract, the Trust pays PADCO
Advisors, Inc. investment advisory fees calculated at an annual percentage rate
of one half of one percent (0.50%) of the average daily net assets of the U.S.
Government Money Market Fund and the U.S. Government Bond Fund; three-quarters
of one percent (0.75%) of the average daily net assets of the Nova Fund, the
Precious Metals Fund, the Over-the-Counter Fund, and the High Yield Fund; and
nine-tenths of one percent (0.90%) of the average daily net assets of the Ursa
Fund and the Juno Fund.
PADCO Service Company, Inc., a subsidiary of the investment advisor, provides
transfer agent service to the Trust at an annual rate of two-tenths of one
percent (0.20%) of the average daily net assets of the U.S. Government Money
Market Fund, U.S. Government Bond Fund, Precious Metals Fund, Over-the-Counter
Fund, and the High Yield Fund; and at annual rate of one-quarter of one percent
(0.25%) of the Nova Fund, the Ursa Fund, and the Juno Fund.
The Trust paid PADCO Service Co., Inc. $324,955 in accounting fees for the
above eight funds for the nine month period ended March 31, 1997.
43
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. ACCOUNTING FOR EXPENSES
The Trust has entered into an arrangement with its custodian whereby interest
earned on uninvested cash balances was used to offset a portion of the Trust's
expenses.
6. SECURITIES TRANSACTIONS
During the period ended March 31, 1997 purchases and sales of investment
securities were:
<TABLE>
<CAPTION>
U.S.
Government U.S.
Money Over-the- Precious Government
Nova Ursa Market Counter Metals Bond Juno High Yield
Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---------- -------------- ------------ ------------ ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases $0 $0 $0 $1,540,525,569 $250,054,682 $ 93,832,370 $0 $53,779,476
Sales $0 $0 $0 $1,557,547,271 $254,765,751 $106,868,172 $0 $43,147,175
</TABLE>
The transactions shown above exclude short term and temporary cash investments.
44
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. NET UNREALIZED APPRECIATION/DEPRECIATION OF SECURITIES
At March 31, 1997 unrealized appreciation (depreciation) and cost of investment
securities for Federal income tax purposes was:
<TABLE>
<CAPTION>
U.S.
Govern- U.S.
ment Govern-
Money Over-the- Precious ment High
Nova Ursa Market Counter Metals Bond Juno Yield
Fund Fund Fund Fund Fund Fund Fund Fund
------------ -------------- ------------ ------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Unrealized
Appreciation $ 7,582,445 $ 67,611,663 $ 0 $ 7,557,430 $ 1,033,764 $ 0 $ 699,035 $ 3,665
Gross Unrealized
(Depreciation) (17,318,714) (38,929,773) 0 (24,053,452) (12,875,480) (250,148) 0 (277,248)
------------ -------------- ------------ ------------ ------------ ---------- ----------- -----------
Net Unrealized
Appreciation
(Depreciation) $ (9,736,269) $ 28,681,890 $ 0 $(16,496,022) $(11,841,716) $ (250,148) $ 699,035 $ (273,583)
Cost of
Investments for
Federal Income
Tax Purposes $455,745,969 $1,432,790,025 $225,029,689 $99,086,695 $40,291,930 $3,632,965 $29,096,102 $10,568,826
</TABLE>
8. SHARE TRANSACTIONS
Transactions in shares for the period ended March 31, 1997 were:
<TABLE>
<CAPTION>
U.S. Govern- U.S.
ment Govern-
Money ment
Nova Ursa Market Over-the- Precious Bond Juno High
Fund Fund Fund Counter Fund Metals Fund Fund Fund Yield Fund
------------ ------------ -------------- ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares
Purchased 203,150,294 367,144,528 3,329,494,638 142,745,580 47,008,940 14,919,523 14,955,089 3,374,658
Dividend
Reinvestment 300,618 90,217 5,678,838 27,056 0 40,733 5,497 12,716
------------ ------------ -------------- ------------ ----------- ----------- ----------- ----------
Total
Purchased 203,450,912 367,234,745 3,335,173,476 142,772,636 47,008,940 14,960,256 14,960,586 3,387,374
Shares
Redeemed (207,604,225) (309,781,363) (3,205,603,845) (143,069,637) (47,949,316) (16,615,981) (13,589,740) (2,315,587)
------------ ------------ -------------- ------------ ----------- ----------- ----------- ----------
Net
Shares
Purchased
(Redeemed) (4,153,313) 57,453,382 129,569,631 (297,001) (940,376) (1,655,725) 1,370,846 1,071,787
============ ============ ============== ============ =========== =========== =========== ==========
</TABLE>
45
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Transactions in dollars for the period ended March 31, 1997 were:
<TABLE>
<CAPTION>
U.S.
Govern- U.S.
ment Govern-
Money Over-the- Precious ment
Nova Ursa Market Counter Metals Bond Juno
Fund Fund Fund Fund Fund Fund Fund
-------------- -------------- -------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares
Purchased $3,521,884,322 $2,638,202,998 $3,329,457,087 $2,553,497,726 $413,202,942 $134,338,078 $140,757,025
Purchased
through
Dividend
Reinvestment 5,375,055 626,105 5,730,900 507,026 0 373,468 49,308
-------------- -------------- -------------- -------------- ------------ ------------ ------------
Total
Purchased 3,527,259,377 2,638,829,103 3,335,187,987 2,554,004,752 413,202,942 134,711,546 140,806,333
Shares
Redeemed (3,597,262,046) (2,215,904,560) (3,205,603,845) (2,567,906,241) (417,724,938) (149,333,776) (127,431,425)
-------------- -------------- -------------- -------------- ------------ ------------ ------------
Net Shares
(Redeemed)
Purchased $ (70,002,669) $ 422,924,543 $ 129,584,142 $ (13,901,489) $ (4,521,996) $(14,622,230) $ 13,374,908
============== ============== ============== ============== ============ ============ ============
<CAPTION>
High
Yield
Fund
------------
<S> <C>
Shares
Purchased $33,888,522
Purchased
through
Dividend
Reinvestment 126,588
------------
Total
Purchased 34,015,110
Shares
Redeemed (23,160,395)
------------
Net Shares
(Redeemed)
Purchased $10,854,715
============
</TABLE>
Transactions in shares for the year ended June 30, 1996 were:
<TABLE>
<CAPTION>
U.S.
Government U.S.
Money Over-the- Precious Government
Nova Ursa Market Counter Metals Bond Juno
Fund Fund Fund Fund Fund Fund Fund
------------ ------------ -------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Purchased 188,794,994 276,476,043 4,139,232,212 168,346,003 87,901,045 19,714,470 25,594,613
Dividend Reinvestment 0 0 7,466,821 108,337 0 97,996 0
------------ ------------ -------------- ------------ ----------- ----------- -----------
Total Purchased 188,794,994 276,476,043 4,146,699,033 168,454,340 87,901,045 19,812,466 25,594,613
Shares Redeemed (179,799,246) (265,490,770) (4,276,965,783) (170,312,258) (88,544,497) (18,040,885) (24,076,731)
------------ ------------ -------------- ------------ ----------- ----------- -----------
Net Shares Purchased
(Redeemed) 8,995,748 10,985,273 (130,266,750) (1,857,918) (643,452) 1,771,581 1,517,882
============ ============ ============== ============ =========== =========== ===========
</TABLE>
46
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Transactions in dollars for the year ended June 30, 1996 were:
<TABLE>
<CAPTION>
U.S.
Government U.S.
Money Over-the- Precious Government
Nova Ursa Market Counter Metals Bond Juno
Fund Fund Fund Fund Fund Fund Fund
-------------- -------------- -------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Purchased $2,653,475,866 $2,245,867,707 $4,139,232,212 $2,261,882,356 $836,754,933 $189,414,530 $233,349,428
Purchased
through
Dividend
Reinvestment 0 0 7,466,821 1,413,792 0 879,023 0
-------------- -------------- -------------- -------------- ------------ ------------ ------------
Total Purchased 2,653,475,866 2,245,867,707 4,146,699,033 2,263,296,148 836,754,933 190,293,553 233,349,428
Shares Redeemed (2,520,809,754) (2,153,598,241) (4,276,965,780) (2,281,519,960) (836,741,911) (174,392,765) (217,249,381)
-------------- -------------- -------------- -------------- ------------ ------------ ------------
Net Shares
Purchased/
(Redeemed) $ 132,666,112 $ 92,269,466 $ (130,266,747) $ (18,223,812) $ 13,022 $ 15,900,788 $ 16,100,047
============== ============== ============== ============== ============ ============ ============
</TABLE>
9. OPTION CONTRACTS WRITTEN
During the period ended March 31, 1997 the Trust wrote the following contracts:
Call Options Written:
<TABLE>
<CAPTION>
Nova Fund Ursa Fund
---------------------- -------------------------
Number of Initial Number of Initial
Contracts Premiums Contracts Premiums
--------- ------------ --------- ---------------
<S> <C> <C> <C> <C>
Outstanding at Beginning of
Period 0 $ 0 6,000 $ 194,132,927
Options Written 7,222 274,895,042 38,800 1,765,889,584
Options Terminated (3,222) (90,218,598) (24,800) (1,062,894,217)
------ ------------ ------- ---------------
Outstanding at End of Pe-
riod 4,000 $184,676,444 20,000 $ 897,128,294
====== ============ ======= ===============
</TABLE>
Put Options Written:
<TABLE>
<CAPTION>
Precious Metals
Nova Fund Ursa Fund Over-the-Counter fund Fund
---------------------- ---------------------- --------------------- ------------------
Number of Initial Number of Initial Number of Initial Number of Initial
Contracts Premiums Contracts Premiums Contracts Premiums Contracts Premiums
--------- ------------ --------- ------------ --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of Period 0 $ 0 0 $ 0 37 $ 88,577 20 $ 9,189
Options Written 1,200 10,068,500 1,600 14,708,000 1,611 2,801,807 100 42,136
Options Terminated (1,200) (10,068,500) (1,600) (14,708,000) (1,617) (2,686,934) (120) (51,325)
------ ------------ ------ ------------ ------ ----------- ---- --------
Outstanding at End of
Period 0 $ 0 0 $ 0 31 $ 203,450 0 $ 0
====== ============ ====== ============ ====== =========== ==== ========
</TABLE>
47
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10. NET ASSETS
At March 31, 1997, net assets consisted of:
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Fund Ursa Fund Market Fund
------------ ------------- ------------
<S> <C> <C> <C>
Paid-In-Capital $179,428,969 $ 696,706,717 $283,515,523
Undistributed Net Investment Income 0 1,039,285 37,303
Accumulated Net Realized Gain (Loss)
on Investments 12,236,998 (144,140,380) 0
Net Unrealized Appreciation
(Depreciation) on Investments,
Options and Futures Contracts (9,736,269) 28,681,890 0
------------ ------------- ------------
Net Assets $181,929,698 $ 582,287,512 $283,552,826
============ ============= ============
</TABLE>
48
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Over-the- Precious U.S. High
Counter Metals Government Juno Yield
Fund Fund Bond Fund Fund Fund
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Paid-In-Capital $67,263,264 $43,566,617 $4,118,999 $36,461,968 $10,854,715
Undistributed Net
Investment Income 514,668 0 16,220 100,975 0
Distribution in Excess
of Net Investment
Income 0 (2,035) 0 0 0
Accumulated Net Realized
Loss on Investments (22,406,539) (19,609,610) (776,212) (4,684,713) (95,444)
Net Unrealized
Appreciation
(Depreciation) on
Investments, Options
and Futures Contracts 6,906,805 (274,833) (57,355) 699,035 (241,600)
----------- ----------- ---------- ----------- -----------
Net Assets $52,278,198 $23,680,139 $3,301,652 $32,577,265 $10,517,671
=========== =========== ========== =========== ===========
</TABLE>
* Realized capital gains differ for financial statement and tax purposes
primarily because of the timing of the recognition of post October 31 capital
losses.
11. LOSS CARRYFORWARD--FEDERAL INCOME TAX
At March 31, 1997, for federal income tax purposes, the following funds have
capital loss carryovers which may be applied against future net taxable
realized gains of each succeeding year until the earlier of its utilization or
its expiration.
<TABLE>
<CAPTION>
U.S.
Precious Government High
Expires Ursa Metals Bond Juno Yield
March 31 Fund Fund Fund Fund Fund
- -------- ----------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
2003 $ 6,618,786 $ 0 $ 0 $ 0 $ 0
2004 43,168,709 4,249,968 0 3,643,317 0
2005 50,012,823 709,440 539,594 106,438 63,461
</TABLE>
49
<PAGE>
RYDEX SERIES TRUST
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Shareholders and Board of Trustees,
Rydex Series Trust:
We have audited the statements of assets and liabilities, including the
schedules of investments, of the Nova, Ursa, U.S. Government Money Market,
Over-the-Counter, Precious Metals, U.S. Government Bond, Juno and High Yield
Funds (eight of the nine Funds) of Rydex Series Trust (the Trust) as of March
31, 1997, the related statements of operations, changes in net assets, and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of March 31, 1997 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position as of
March 31, 1997, the results of their operations, the changes in their net
assets, and the financial highlights for the periods presented in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 15, 1997
50
<PAGE>
The First Family of Funds
Designed for Professional
Money Managers
Nova Fund
Juno Fund
Ursa Fund
OTC Fund
High Yield Fund
Precious Metals Fund
U.S. Government Bond Fund
U.S. Government Money Market
RYDEX SERIES TRUST
6116 Executive Blvd., Suite 400
Rockville, MD 20852
(301) 468-8520 (800) 820-0888
[LOGO OF RYDEX APPEARS HERE]
ANNUAL REPORT
MARCH 31,1997
Nova Fund
Juno Fund
Ursa Fund
OTC Fund
High Yield Fund
Precious Metals Fund
U.S. Government Bond Fund
U.S. Government Money Market
<PAGE>
[LOGO OF RYDEX APPEARS HERE]
Institutional Money Market Fund
The First Family of Funds
Designed for Professional
Money Managers
ANNUAL REPORT
MARCH 31, 1997
RYDEX SERIES TRUST
6116 Executive Blvd., Suite 400
Rockville, MD 20852
(301) 468-8520 (800) 820-0888
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount (Note 1)
---------- ------------
<S> <C> <C>
COMMERCIAL PAPER 6.9%
American Express Credit Corporation 5.30% 4/14/97 $1,000,000 $ 998,086
Ford Motor Credit Company 5.34% 4/04/97 1,000,000 999,555
Ford Motor Credit Company 5.30% 4/10/97 1,000,000 998,675
General Electric Credit Corporation 5.28% 4/03/97 1,000,000 999,707
General Electric Credit Corporation 5.32% 4/03/97 1,000,000 999,704
General Motor Acceptance Corporation 5.31% 4/07/97 1,000,000 999,115
IBM Credit Corporation 5.25% 4/02/97 1,000,000 999,854
------------
Total Commercial Paper (Cost $6,994,696) 6,994,696
------------
FEDERAL AGENCY DISCOUNT NOTES 73.6%
Federal Farm Credit Administration 5.24% 4/29/97 1,000,000 995,924
Federal Home Loan Mortgage Corporation 5.48% 4/01/97 5,000,000 5,000,000
Federal Home Loan Mortgage Corporation 5.47% 4/02/97 15,000,000 14,997,721
Federal Home Loan Mortgage Corporation 5.55% 4/02/97 5,000,000 4,999,229
Federal Home Loan Mortgage Corporation 5.50% 4/03/97 5,000,000 4,998,472
Federal Home Loan Mortgage Corporation 5.50% 4/03/97 20,000,000 19,993,889
Federal Home Loan Mortgage Corporation 5.46% 4/04/97 10,000,000 9,995,450
Federal Home Loan Mortgage Corporation 5.24% 4/09/97 1,000,000 998,836
Federal Home Loan Mortgage Corporation 5.35% 4/15/97 1,000,000 997,919
Federal Home Loan Mortgage Corporation 5.28% 4/18/97 1,000,000 997,507
Federal National Mortgage Association 5.49% 4/10/97 10,000,000 9,986,275
Federal National Mortgage Association 5.45% 4/11/97 1,000,000 998,486
------------
Total Federal Agency Discount Notes (Cost $74,959,708) 74,959,708
------------
REPURCHASE AGREEMENT 19.5%
Repurchase Agreement collaterized by U.S. Treasury
Obligations 6.25% 4/01/97 (Cost $19,900,000) 19,900,000 19,900,000
------------
Total Investments 100% (Cost $101,854,404) $101,854,404
============
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Securities at Value (Note 1)--See Accompanying Schedule $101,854,404
Investment Income Receivable 4,173
Cash in Custodian Bank 36,088
Receivable for Shares Purchased 11,866,898
Unamortized Organization Costs (Note 1) 52,711
Other Assets 4,799
------------
Total Assets 113,819,073
------------
LIABILITIES
Distribution Fee Payable 23,146
Payable for Shares Redeemed 3,342,825
Investment Advisory Fee Payable 36,271
Transfer Agent Fee Payable 14,982
Organization Expense Payable to Advisor 60,819
Other Liabilities 25,087
------------
Total Liabilities 3,503,130
------------
NET ASSETS $110,315,943
============
Shares Outstanding 110,313,480
============
Net Asset Value Per Share $1.00
=====
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Period Ended March 31, 1997*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $1,771,126
----------
Total Income 1,771,126
----------
EXPENSES
Distribution Fees 83,673
Advisory Fees (Note 3) 183,504
Transfer Agent Fees (Note 3) 66,737
Audit and Outside Services 13,492
Accounting Fees (Note 3) 27,212
Legal 20,745
Organizational Expenses 8,109
Registration Fees 10,142
Custodian Fees 6,041
Miscellaneous 20,610
----------
Total Expenses 440,265
Custodian Fees Paid Indirectly (Note 4) 2,526
----------
Net Expenses 437,739
----------
NET INVESTMENT INCOME 1,333,387
----------
REALIZED GAIN ON INVESTMENTS
Net Realized Gain on:
Investment Securities 503
----------
Total Net Realized Gain 503
----------
Net Increase in Net Assets from Operations $1,333,890
==========
</TABLE>
* Commencement of Operations: July 11, 1996
See Notes to Financial Statements.
3
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Period Ended March 31, 1997*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
From Investment Activities
Net Investment Income $ 1,333,387
Net Realized Gain on Investments 503
------------
Net Increase in Net Assets Resulting from Operations 1,333,890
------------
Distributions to Shareholders
From Net Investment Income (Note 1) (1,330,924)
From Realized Gain on Investments (503)
Net Increase in Net Assets Resulting from Shares Transactions
(Note 5) 110,313,480
------------
Net Increase in Net Assets and Net Assets End of Period $110,315,943
============
</TABLE>
* Commencement of Operations: July 11, 1996.
See Notes to Financial Statements.
4
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Period Ended March 31, 1997*
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE--BEGINNING OF PERIOD+ $ 1.00
--------
Net Investment Income .03
Net Realized and Unrealized Gains on Securities .00
--------
Net Increase in Net Asset Value Resulting from Operations .03
Dividends to Shareholders from Net Investment Income (.03)
--------
Net Increase in Net Asset Value .00
--------
NET ASSET VALUE--END OF PERIOD $ 1.00
========
TOTAL INVESTMENT RETURN** 4.17%
RATIOS TO AVERAGE NET ASSETS **
Net Expenses 1.15%++
Net Investment Income 3.50%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0%
Net Assets, End of Period (000's omitted) $110,316
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.15%
* Commencement of Operations: July 11, 1996
** Annualized
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year.
See Notes to Financial Statements.
5
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Rydex Series Trust (the Trust) is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 as a non-
diversified, open-ended investment company. The Trust consists of nine
separate series, the Nova Fund, the Ursa Fund, the U.S. Government Money
Market Fund, the Over-the-Counter Fund, the Precious Metals Fund, the U.S.
Government Bond Fund, the Juno Fund, the Institutional Money Market Fund and
the High Yield Fund. The following significant accounting policies are in
conformity with generally accepted accounting principles and are consistently
followed by the Trust.
The Trust changed its fiscal year end from June 30 to March 31. These
statements reflect the financial activity of the Institutional Money Market
Fund for the period July 11, 1996 (Commencement of Operations) to March 31,
1997.
A. Short term securities with less than sixty days to maturity are valued at
amortized cost, which approximates market. Security and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under direction of the Board of Trustees of the
Trust.
B. Securities transactions are recorded on the trade date (the date the order
to buy or sell is executed). Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recorded on the ex-dividend date. Interest income is accrued on a daily basis.
C. Net investment income is computed, and dividends are declared daily. Income
dividends are paid monthly. Dividends are reinvested in additional shares
unless shareholders request payment in cash. Generally, short-term capital
gains are distributed monthly.
D. The Institutional Money Market Fund intends to comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies and
will distribute all net investment income to its shareholders. Therefore, no
Federal income tax provision is required.
E. Costs incurred by the Institutional Money Market Fund in connection with
its organization and registration have been deferred and are being amortized
on the straight-line method over a five year period beginning on the date on
which the Trust commenced its investment activities.
F. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
6
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. REPURCHASE AGREEMENTS
The Trust transfers uninvested cash balances into a single joint account, the
daily aggregate balance of which is invested in repurchase agreements
collateralized by Federal agency obligations. As of March 31, 1997 the
repurchase agreements with Fuji Securities, Inc., PaineWebber, Inc., Smith
Barney, Inc. and Prudential Securities in the joint account and the collateral
therefore was as follows:
<TABLE>
<CAPTION>
Security Type Range of rates Par Value Market Value
- ------------- -------------- ------------ ------------
<S> <C> <C> <C>
United States Treasury Bills 6.25% $ 62,895,000 $ 60,000,000
United States Treasury Notes 5.375%-9.25% $124,950,000 $127,043,534
United States Treasury Bond 8.5% $ 14,404,000 $ 16,756,189
</TABLE>
3. INVESTMENT ADVISORY AND TRANSFER AGENT SERVICES
Under the terms of an investment advisory contract, the Institutional Money
Market Fund pays PADCO Advisors, Inc. investment advisory fees calculated at
an annual percentage rate of fifty-five one hundredths of one percent (0.55%)
of the average daily net assets of the Institutional Money Market Fund.
PADCO Service Company, Inc., a subsidiary of the investment advisor, provides
transfer agent service to the Trust at an annual rate of two-tenths of one
percent (0.20%) of the average daily net assets of the Institutional Money
Market Fund.
The Institutional Money Market Fund paid PADCO Service Co., Inc. $27,212 in
accounting fees for the period ended March 31, 1997.
4. ACCOUNTING FOR EXPENSES
The Institutional Money Market Fund entered into an arrangement with its
custodian whereby interest earned on uninvested cash balances was used to
offset a portion of the Fund's expenses.
7
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
Transactions in shares for the period ended March 31,1997 were:
<TABLE>
<S> <C>
Shares Purchased 1,748,417,852
Dividend Reinvestment 1,179,631
---------------
Total Purchased 1,749,597,483
Shares Redeemed (1,639,284,003)
---------------
Net Shares Purchased 110,313,480
---------------
Transactions in dollars for the period ended March 31,1997
were:
Shares Purchased $ 1,748,417,852
Dividend Reinvestment 1,179,631
---------------
Total Purchased 1,749,597,483
Shares Redeemed (1,639,284,003)
---------------
Net Shares Purchased $ 110,313,480
===============
</TABLE>
6. NET ASSETS
At March 31, 1997, net assets consisted of:
<TABLE>
<S> <C>
Paid-In-Capital $ 110,313,480
Undistributed Net Investment Income 2,463
---------------
Net Assets $ 110,315,943
===============
</TABLE>
8
<PAGE>
RYDEX SERIES TRUST
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Shareholders and Board of Trustees,
Rydex Series Trust:
We have audited the statement of assets and liabilities, including the
schedule of investments, of the Institutional Money Market Fund (one of the
nine Funds) of Rydex Series Trust (the Trust) as of March 31, 1997, the
related statements of operations, changes in net assets, and the financial
highlights for the period July 11, 1996 (commencement of operations) to March
31, 1997. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of March 31, 1997 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position as of
March 31, 1997, the results of its operations, the changes in its net assets,
and the financial highlights for the period presented in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 15, 1997
9
<PAGE>
The First Family of Funds
Designed for Professional
Money Managers
Institutional Money Market Fund
RYDEX SERIES TRUST
6116 Executive Blvd., Suite 400
Rockville, MD 20852
(301) 468-8520 (800) 820-0888
[LOGO OF RYDEX APPEARS HERE]
ANNUAL REPORT
MARCH 31, 1997
Institutional Money Market Fund
49
<PAGE>
Unaudited Financial Statements
for
The Rydex High Yield Fund, a series of
Rydex Series Trust,
for the Period from April 1, 1997
to June 30, 1997
<PAGE>
RYDEX SERIES TRUST
THE RYDEX HIGH YIELD FUND
SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
Face Market
Amount Value
NON-CONVERTIBLE CORPORATE BONDS (98.9%)
<S> <C> <C>
Coach USA Incorporated 9.375% due 7/01/2007 $750,000 $755,625
Arvin Capital 9.500% due 2/01/2027 600,000 624,000
NL Industries, Incorporated 11.75% due 10/15/2003 536,000 581,560
Grupo Televisa, S.A. 11.875% due 5/15/2006 500,000 571,250
Anvil Knitware 10.875% due 3/15/2007 550,000 569,250
Hovnanian K Enterprise 11.25% due 4/15/2002 500,000 526,875
Supermercados Norto 10.875% due 2/09/2004 500,000 522,500
AMC Entertainment Incorporated 9.500% due 3/15/2009 500,000 520,000
Petro Stopping 10.500% due 2/01/2007 492,000 515,370
Speciality Retailers 8.500% due 7/15/2005 500,000 508,750
Equimar Shipholding Limited 9.875% due 7/01/2007 500,000 506,250
Hayes Wheels International Incorporated 9.125% due 7/15/2007 500,000 500,625
Jacor Communications 8.750% due 6/15/2007 500,000 492,500
Pueblo Xtra International 9.500% due 8/01/2003 500,000 492,500
French Fragrances Incorporated 10.375% due 5/15/2007 450,000 468,000
D.R. Horton Incorporated 8.375% due 6/15/2004 450,000 453,960
Red Roof Inns Incorporated 9.625% due 12/15/2003 400,000 414,000
WR Carpenter No Amer 10.625% due 6/15/2007 400,000 411,520
Chemical Leaman Corporation 10.375% due 6/15/2005 400,000 408,000
DI Industries Incorporated 8.875% due 7/01/2007 400,000 398,500
Safelite Glass Corporation 9.875% due 12/15/2006 350,000 374,500
Dimon Incorporated 8.875% due 6/01/2006 350,000 370,125
ACME Metals, Incorporated 12.50% due 8/1/2002 325,000 355,875
Premier Parks 12.00% due 8/15/2003 300,000 334,890
Adelphia Communications Corporation 12.500% due 5/15/2002 300,000 318,000
Sun World International 11.250% due 4/15/2004 300,000 317,250
Rogers Cantel, Inc. 9.375% due 6/01/2008 300,000 316,500
Flores & Rucks 9.75% due 10/01/2006 300,000 313,500
US Home Corp Sr Note 9.750% due 6/15/2003 295,000 309,013
Chelsea GCA Realty, Inc. 7.75% due 1/26/2001 300,000 304,683
Bell & Howell Company 9.250% due 7/15/2000 355,000 366,094
1
<PAGE>
Face Market
Amount Value
NON-CONVERTIBLE CORPORATE BONDS (Continued)
U.S. Air, Inc. 10.0% due 7/01/2003 295,000 302,375
Falcon Building Products 9.500% due 6/15/2007 300,000 298,500
Chesapeake Energy Corporation 8.500% due 3/15/2012 300,000 279,750
Rohr, Incorporated 11.625% due 5/15/2003 250,000 278,750
Jones Intercable, Incorporated 10.50% due 3/01/2008 250,000 273,750
El Paso Electric Company 8.900% due 2/01/2006 250,000 266,033
Greyhound Lines 11.500% due 4/15/2007 250,000 265,000
Dotmar, Incorporated 9.50% due 8/01/2016 250,000 262,500
Roller Bearing Co America 9.625% due 6/15/2007 250,000 256,250
Pacalta Resources Limited 10.750% due 6/15/2004 250,000 253,750
Interpool Capital Tr 9.875% due 2/15/2027 250,000 252,500
Chevy Chase F.S.B. 9.250% due 12/01/2008 250,000 250,625
Time Warner Incorporated 7.480% due 1/15/2008 250,000 248,618
Lenfest Communications, Incorporated 8.375% due 11/01/2005 250,000 246,250
Motors and Gears, Inc. 10.75% due 11/15/2006 210,000 219,975
Dime Bancorp, Incorporated 10.50% due 11/15/2005 200,000 217,000
Cal Energy Company Incorporated 9.500% due 9/15/2006 200,000 213,086
Westminster Resources, LTD. 11.0% due 3/15/2007 200,000 209,000
Grand Casinos, Incorporated 10.125% due 12/01/2003 200,000 208,000
Navistar Financial Corporation 9.000% due 6/01/2002 200,000 205,760
Leiner Health Products 9.625% due 7/10/2007 200,000 204,000
Tenet Healthcare Corporation 8.625% due 1/15/2007 200,000 204,000
Energy Corporated of America 9.500% due 5/15/2007 200,000 202,000
Forcenergy Incorporated 8.500% due 2/15/2007 200,000 195,000
Sprint Spectrum L.P. 11.000% due 8/15/2006 150,000 166,125
Cliffs Drilling Company 10.25% due 5/15/2003 150,000 159,750
Bethlehem Steel Corporation 10.375% due 9/01/2003 150,000 156,000
Titan Wheel International, Incorporated 8.75% due 4/01/2007 150,000 153,000
Owens-Illinois Incorporated 7.850% due 5/15/2004 150,000 152,339
Century Communications Corporation 9.750% due 2/15/2002 125,000 130,314
Exide Corporation 10.0% due 4/15/2005 125,000 129,375
Smiths Food and Drug Centers 11.25% due 5/15/2007 100,000 117,000
Dominick's Finer Foods, Incorporated 10.875% due 5/01/2005 117,000 110,000
Ocwen Federal Bank FSB 12.000% due 6/15/2005 100,000 109,750
Grand Union Company 12.0% due 9/01/2004 150,000 109,500
AMF Group, Inc. 10.875% due 3/15/2006 100,000 108,000
MDC Holdings Senior 11.125% due 12/15/2003 100,000 108,000
Noble Drilling Corporation 9.125% due 7/01/2006 100,000 108,000
Rogers Cablesystems, LTD 10.0% due 3/15/2005 100,000 108,000
American Standard 9.875% due 6/01/2001 100,000 106,000
Healthsouth Rehabilitiation Corporation 9.50% due 4/01/2001 100,000 105,000
Weirton Steel Corporation 10.75% due 6/01/2005 100,000 105,000
McDermott Incorporated 9.375% due 3/15/2002 100,000 104,849
Vicap SA 11.375% due 5/15/2007 100,000 104,625
Pride Petro Services 9.375% due 5/01/2007 100,000 104,500
Westpoint Stevens, Incorporated 9.375% due 12/15/2005 100,000 104,500
2
<PAGE>
Face Market
Amount Value
NON-CONVERTIBLE CORPORATE BONDS (Continued)
La Quita Inns Incorporated 9.250% due 5/15/2003 100,000 103,750
Newport News Shipbuilding 8.625% due 12/01/2006 100,000 103,500
Petroleos Mexicanos 9.000% due 6/01/2007 100,000 102,000
Northwest Airlines Corporation 8.70% due 3/15/2007 100,000 101,900
Digital Equipment Corporation 8.625% due 11/01/2012 100,000 101,653
Transportacion Maritima Mex-Sp 10.0% due 11/15/2006 100,000 101,630
Barret Res Corporation 7.550% due 2/01/2007 100,000 101,500
Hollinger International Publishing, Incorporated 8.625%
due 3/15/2005 100,000 101,250
Wilshire Financial Services 13.0% due 1/01/2004 100,000 101,250
Granite Broadcasting Corporation 10.375% due 5/15/2005 100,000 101,000
360 Communications Company 7.125% due 3/01/2003 100,000 99,449
Bankunited Capital Trust 10.25% due 12/31/2026 100,000 99,250
Viacom Incorporated 6.750% due 1/15/2003 100,000 96,160
Manor Care Incorporated 9.500% due 11/15/2002 90,000 94,275
Kmart Corporation Debenture 8.375% due 7/01/2022 100,000 91,000
Gulf Canada Resources, LTD. 9.25% due 1/15/2004 75,000 78,563
Fort Howard Corporation 8.25% due 2/01/2002 75,000 78,375
Falcon Drilling Company 8.875% due 3/15/2003 75,000 75,937
Telefonica De Argentina SA 11.875% due 11/01/2004 50,000 59,750
Cablevision Systems Corporation 9.875% due 5/15/2006 50,000 53,250
Worldcom Incorporated 7.750% due 4/01/2007 50,000 51,134
AK Steel Corporation 9.125% due 12/15/2006 50,000 51,000
North Atlantic Trading 11.00% due 6/15/2004 50,000 51,000
CMS Energy Company Incorporated 8.125% due 5/15/2002 50,000 50,486
CONN LT & PWR - CAPM 7.875% due 6/01/2001 50,000 50,275
Borg-Warner Security CP 9.625% due 3/15/2007 50,000 50,250
Copene-Petroquimica do Nordeste 9.000% due 6/25/2007 50,000 49,750
Paging Network, Inc. 8.875% due 2/01/2006 50,000 45,500
Envirotest Systems S Corporation 9.625% due 4/01/2003 50,000 42,250
Westinghouse Electric 8.875% due 6/01/2001 40,000 41,876
NON-CONVERTIBLE CORPORATE BONDS (Continued)
Total Non-Convertible Corporate Bonds
(Cost $24,877,535) $25,124,027
3
<PAGE>
COMMON STOCKS (0.1%) Face Market
Amount Value
Maximus, Inc. $ 10,000 $180,000
Ocwen Asset Investment Corporation 5,000 101,250
Colonial Downs Holdings- CLA 15,000 97,500
Total Common Stocks (Cost $142,500) $ 378,750
REPURCHASE AGREEMENTS (13.0%)
Face Market
Amount Value
Repurchase Agreement Collateralized
by U.S. Treasury Obligations - 5.95% due
7/01/97 $ 600,000 $ 600,000
TOTAL INVESTMENTS (Cost $25,860,035) $26,102,777
</TABLE>
4
<PAGE>
RYDEX SERIES TRUST
THE RYDEX HIGH YIELD FUND
STATEMENT OF ASSETS AND LIABILITIES
(Unaudited)
June 30, 1997
<TABLE>
<S> <C>
ASSETS
Securities at Value--See $ 26,102,776
Accompanying Schedules 3,454,560
Receivable for Securities Purchased 13,000
Receivable for Fund Shares Sold 0
Receivable from Advisor 514,264
Investment Income Receivable 3,087
Cash in Custodian Bank 0
Cash on Deposit with Broker 0
Receivable for Shares Purchased 39,423
Unamortized Organization Costs 572
Other Assets
Total Assets $30,127,683
LIABILITIES
Payable for Securities Purchased 200,125
Liability for Shares Redeemed 4,825,720
Income Dividend Payable 94,485
Distribution Fee Payable 0
Investment Advisory Fee Payable 26,638
Transfer Agent Fee Payable 7,104
Organization Expense Payable to
Advisor 43,795
Other Liabilities 6,661
Total Liabilities 5,204,528
NET ASSETS $24,923,155
Shares Outstanding 2,638,282
Net Asset Per Share $9.45
</TABLE>
5
<PAGE>
RYDEX SERIES TRUST
THE RYDEX HIGH YIELD FUND
STATEMENT OF OPERATIONS
(Unaudited)
April 1, 1997 to June 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME $641,440
Interest 0
Dividends 3,733
Miscellaneous
645,173
Total Income
EXPENSES
12b-1 Distribution Fees 18,806
Advisory Fees 56,417
Transfer Agent Fees 15,045
Audit and Outside Services 166
Accounting Fees 4,341
Legal 475
Organizational Expenses 2,182
Registration Fees 4,590
Custodian Fees 5,880
Total Expenses 107,902
Custodian Fees Paid Indirectly 437
Less Expenses Reimbursed by
Investment Advisor 0
Net Expenses 107,465
Net Investment Income (Loss) $537,708
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on:
Investment Securities 86,526
Written Options
Futures Contracts
Securities Sold Short
Total Net Realized Gain (Loss) 86,526
Net Change in Unrealized Appreciation
(Depreciation) on Investments, Options
and Futures Contracts 484,342
Net Gain (Loss) on Investments 570,868
Net Increase (Decrease) in Net Assets
from Operations $1,108,576
</TABLE>
6
<PAGE>
RYDEX SERIES TRUST
THE RYDEX HIGH YIELD FUND
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
April 1, 1997 to June 30, 1997
<TABLE>
<S> <C>
From Investment Activities $ 537,708
Net Investment Income 86,526
Net Realized Gain on Investments
Net Change in Unrealized Appreciation 484,342
(Depreciation) of Investment
Net Increase (Decrease) in Net Asset 1,108,576
from Operations
Distributions to Shareholders (537,662)
From Net Investment Income 0
From Realized Gain on Investments
Net Increase in Net Assets from Shares 13,834,570
Transactions
14,405,484
Net Increase in Net Assets
10,517,671
NET ASSETS--Beginning of Period
$24,923,155
NET ASSETS--End of Period
</TABLE>
7
<PAGE>
RYDEX SERIES TRUST
THE RYDEX HIGH YIELD FUND
FINANCIAL HIGHLIGHTS
(Unaudited)
April 1, 1997 to June 30,1997
<TABLE>
<S> <C>
Per Share Operating Performance:+ $ 9.81
Net Asset Value -- Beginning of Period
Net Investment Income 0.29
Net Realized and Unrealized Gains on Securities 0.16
Net Increase in Net Asset Value Resulting from 0.45
Operations (0.29)
Dividends to Shareholders from Net Investment Income 0.0
Distributions to Shareholders from Net Realized
Capital Gain
Net Increase in Net Asset Value 0.16
Net Asset Value -- End of Period $ 9.97
Total Investment Return** 6.89%
Ratios to Average Net Assets**
Net Expenses 0.76%++
Net Investment Income 3.80%
Supplementary Data
Portfolio Turnover Rate*** 440.71%
Net Assets, End of Period (000's omitted) $ 24,923
</TABLE>
--------------------------
+ The per share data of the Financial Highlights table is
calculated using the daily shares outstanding average for
the period.
++ The annualized ratio of gross expenses to average net
assets is 0.76%.
* Commencement of Operations: January 3, 1997. The
Trustees, on March 12, 1997, changed the Trust's fiscal
year end from June 30 to March 31.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to
short-term securities having a maturity of less than one
year.
8
<PAGE>
Statement of Additional Information
of
The Rydex Institutional Money Market Fund
<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 August 1, 1997. 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 August
1, 1997.
<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.............................11
PRINCIPAL HOLDERS OF SECURITIES...............12
DETERMINATION OF NET ASSET VALUE..............13
INFORMATION ON COMPUTATION OF YIELD...........15
DIVIDENDS, DISTRIBUTIONS, AND TAXES.......... 16
AUDITORS AND CUSTODIAN....................... 17
FINANCIAL STATEMENTS..........................17
2
<PAGE>
THE RYDEX FUNDS
The Trust is an open-end management investment company, and
currently is composed of nine separate series, including The
Rydex Institutional Money Market Fund, The Nova Fund, The Ursa
Fund, The Rydex OTC Fund, The Rydex Precious Metals Fund, The
Rydex U.S. Government Bond Fund, The Juno Fund, The Rydex U.S.
Government Money Market Fund and The Rydex High Yield Fund
(collectively, the "Rydex Funds"); other separate Rydex Funds
may be added in the future. Shares of any Rydex Fund may be
exchanged, without any charge, for shares of any other Rydex
Fund on the basis of the respective net asset values of the
shares involved; provided, that, in connection with exchanges
for shares of the Rydex Institutional Money Market Fund,
certain minimum investment levels are maintained. Copies of
the separate Prospectuses and Statements 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
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
3
<PAGE>
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.
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
4
<PAGE>
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, these
strategies will be advantageous to the Fund, the Fund will be
free to reduce or eliminate its activity in any of those areas
without changing its fundamental investment policies. Certain
provisions of the Internal Revenue Code, related regulations,
and rulings of the Internal Revenue Service may also have the
effect of reducing the extent to which the previously-cited
techniques may be used by the Fund, either individually or in
combination. Furthermore, there is no assurance that any of
these strategies or any other strategies and methods of
investment available to the Fund will result in the
achievement of the Fund's objectives.
Illiquid Securities
While the Fund does not anticipate doing so, the Fund may
purchase illiquid securities, including securities that are
not readily marketable and securities that are not registered
("restricted securities") under the Securities Act of 1933, as
amended (the "1933 Act"), but which can be offered and sold to
"qualified institutional buyers" under Rule 144A under the
1933 Act. The Fund will not invest more than 10% of the
Fund's net assets in illiquid securities. The Fund will
adhere to a more restrictive limitation on the Fund's
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
5
<PAGE>
cover for over-the-counter options, repurchase agreements with
maturities in excess of seven days, and certain securities
whose disposition is restricted under the Federal securities
laws. The Fund may not be able to sell illiquid securities
when the Advisor considers it desirable to do so or may have
to sell such securities at a price that is lower than the
price that could be obtained if the securities were more
liquid. In addition, the sale of illiquid securities also may
require more time and may result in higher dealer discounts
and other selling expenses than does the sale of securities
that are not illiquid. Illiquid securities also may be more
difficult to value due to the unavailability of reliable
market quotations for such securities, and investment in
illiquid securities may have an adverse impact on net asset
value.
Institutional markets for restricted securities have developed
as a result of the promulgation of Rule 144A under the 1933
Act, which provides a "safe harbor" from 1933 Act registration
requirements for qualifying sales to institutional investors.
When Rule 144A restricted securities present an attractive
investment opportunity and other meet selection criteria, the
Fund may make such investments. Whether or not such
securities are "illiquid" depends on the market that exists
for the particular security. The Commission staff has taken
the position that the liquidity of Rule 144A restricted
securities is a question of fact for a board of trustees to
determine, such determination to be based on a consideration
of the readily-available trading markets and the review of any
contractual restrictions. The staff also has acknowledged
that, while a board of trustees retains ultimate
responsibility, the trustees may delegate this function to an
investment adviser. The trustees of the Trust (the "Trustees)
have delegated this responsibility for determining the
liquidity of Rule 144A restricted securities which may be
invested in by the Fund to the Advisor. It is not possible to
predict with assurance exactly how the market for Rule 144A
restricted securities or any other security will develop. A
security which when purchased enjoyed a fair degree of
marketability may subsequently become illiquid and,
accordingly, a security which was deemed to be liquid at the
time of acquisition may subsequently become illiquid. In such
event, appropriate remedies will be considered to minimize the
effect on the Fund's liquidity.
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
6
<PAGE>
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
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
<PAGE>
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.
The Fund has no present intention to borrow money or pledge
assets in excess of 5% of the value of its net assets. Except
with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or
decrease in percentage resulting from any change in value or
net assets will not result in a violation of such restriction.
PORTFOLIO TRANSACTIONS
Subject to the general supervision by the Trustees, and in
conformity with the 1940 Act, the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder,
the Advisor is responsible for decisions to buy and sell
securities for each of the Rydex Funds (including the Fund)
and the selection of brokers and dealers to effect the
transactions. In seeking to implement the Fund's policies,
the Advisor effects transactions with those brokers and
dealers who the Advisor believes provide the most favorable
prices and are capable of providing efficient executions.
The Advisor may serve as an investment manager to a number of
clients, including other investment companies. It is the
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,
8
<PAGE>
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
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 these securities,
the large number of these transactions does not have an
adverse effect upon the net yield and net asset value of the
shares of the Fund.
The Fund commenced operations on July 11, 1996. For the
period from the commencement of operations to March 31, 1997,
total brokerage commissions paid by the Fund amounted to $0.
MANAGEMENT OF THE TRUST
The Trustees are responsible for the general supervision of
the Trust's business. The day-to-day operations of the Trust
are the responsibilities of the Trust's officers. The names
and addresses (and ages) of the Trustees and the officers of
the Trust and the officers of the Advisor, together with
information as to their principal business occupations during
the past five years, are set forth below. Fees and expenses
for non-interested Trustees will be paid by the Trust.
Trustees
*Albert P. Viragh, Jr. (56)
9
<PAGE>
Chairman of the Board of Trustees and President of the
Trust; Chairman of the Board, President, and Treasurer of
PADCO Advisors, Inc., investment adviser to the Trust,
1993 to present; Chairman of the Board, President, and
Treasurer of PADCO Service Company, Inc., shareholder and
transfer agent servicer to the Trust, 1993 to present;
Chairman of the Board of Managers of the Rydex Advisor
Variable Annuity Account (the "Separate Account"), a
separate account of Great American Reserve Insurance
Company, 1996 to present; Chairman of the Board,
President, and Treasurer of PADCO Advisors II, Inc.,
investment adviser to the Separate Account, 1996 to
present; Chairman of the Board, President, and Treasurer
of PADCO Financial Services, Inc., a registered broker-
dealer firm and the distributor of the shares of the
Rydex Institutional Money Market Fund and the Rydex High
Yield Fund, each a series of the Trust, 1996 to present;
Vice President of Rushmore Investment Advisors Ltd., a
registered investment adviser, 1985 to 1993. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
Corey A. Colehour (51)
Trustee of the Trust; Manager of the Separate Account,
1996 to present; Senior Vice President of Marketing of
Schield Management Company, a registered investment
adviser, 1985 to present. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
J. Kenneth Dalton (57)
Trustee of the Trust; Manager of the Separate Account,
1996 to present; Mortgage Banking Consultant and
Investor, The Dalton Group, April 1995 to present;
President, CRAM Mortgage Group, Inc. 1966 to April 1995.
Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
Roger Somers (53)
Trustee of the Trust; Manager of the Separate Account,
1996 to present; President, Arrow Limousine, 1963 to
present. Address: 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.
10
<PAGE>
Officers
Robert M. Steele (38)
Secretary and Vice President of the Trust; Vice President
of PADCO Advisors, Inc., investment adviser to the Trust,
1994 to present; Secretary and Vice President of the
Separate Account, 1996 to present; Vice President of
PADCO Advisors II, Inc., investment adviser to the
Separate Account, 1996 to present; Vice President of The
Boston Company, Inc., an institutional money management
firm, 1987 to 1994. Address: 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852.
Carl G. Verboncoeur (44)
Vice President of Operations of the Trust; Vice President
of Operations of the Separate Account, 1997 to present;
Senior Vice President, Crestar Bank, 1995 to 1997; Senior
Vice President, Crestar Asset Management Company, a
registered investment adviser, 1993 to 1995; Vice
President Perpetual Savings Bank, 1987 to 1993. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
Michael P. Byrum (27)
Assistant Secretary of the Trust; Employee and senior
portfolio manager of PADCO Advisors, Inc., 1993 to
present; portfolio manager of The Ursa Fund (since 1996),
The Rydex Precious Metals Fund (since 1993), The Rydex
U.S. Government Money Market Fund (since 1993), and The
Rydex Institutional Money Market Fund (since 1996), each
a series of the Trust; Assistant Secretary of the
Separate Account, 1996 to present; Employee of PADCO
Advisors II, Inc., investment adviser to the Separate
Account; Investment Representative, Money Management
Associates, a registered investment adviser, 1992 to
1993; Student, Miami University, of Oxford, Ohio (B.A.,
Business Administration, 1992). Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
Victor J. Edgar (36)
Controller of the Trust; Controller of the Separate
Account, 1996 to the present; Controller to PADCO Service
Company, Inc., the shareholder and transfer agent
servicer for the Trust, 1994 to the present; Controller
of PADCO Financial Services, Inc., a registered broker-
dealer firm and the distributor of shares of the Rydex
Institutional Money Market Fund and the Rydex High Yield
Fund, 1996 to present; Assistant Controller for the
11
<PAGE>
Rushmore Group, a mutual fund complex, 1989 to 1994.
Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
Sothara Chin (31)
Compliance Officer of the Trust; Compliance Officer of
PADCO Advisors, Inc., investment advisor of the Trust,
1996 to present; Compliance Officer of the Separate
Account, 1996 to present; Compliance Officer of PADCO
Advisors II, Inc., investment adviser to the Separate
Account Compliance Officer of PADCO Service Company,
Inc., the Trust's shareholder and transfer agent
servicer, 1996 to present; Compliance Officer of PADCO
Financial Services, Inc., a registered broker-dealer and
distributor of shares of the Rydex Institutional Money
Market Fund and the Rydex High Yield Fund, 1996 to
present; Compliance Officer, USLICO, an insurance
company, 1990 to 1996. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
_________________________
* This Trustee is deemed to be an "interested person" of
the Trust, within the meaning of Section 2(a)(19) of the
1940 Act, inasmuch as this person is affiliated with the
Advisor, as described herein.
The Advisory Agreement
Under an investment advisory agreement with the Advisor,
dated May 14, 1993, and amended on November 2, 1993, December
13, 1994, March 8, 1996, and September 25, 1996, the Advisor
serves as the investment adviser for each series of the Trust
and provides investment advice to the Funds and oversees the
day-to-day operations of the Funds, subject to direction and
control by the Trustees and the officers of the Trust. The
Trust currently is composed of nine separate series, the Nova
Fund, the Ursa Fund, the Rydex OTC Fund, the Rydex Precious
Metals Fund, the Rydex U.S. Government Bond Fund, the Juno
Fund, The Rydex High Yield Fund, the Rydex U.S. Government
Money Market Fund, and the Rydex Institutional Money Market
Fund; other separate series may be added in the future. As of
March 31, 1997, net Trust assets under management of the
Advisor were approximately $1.28 billion, and as of March 31,
1997, net Fund assets under management of the Advisor were
approximately $110.8 million. Pursuant to the advisory
agreement, the Fund pays the Advisor a fee at an annual rate
based on 0.55% of the net assets of the Fund. The Fund
commenced operations on July 11, 1996. For the period from
July 11, 1996 to March 31, 1997, total management fees
expensed by the Fund to the Advisor amounted to $183,504.
12
<PAGE>
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.
The Advisor, which has its office at 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852, was incorporated in the
State of Maryland on February 5, 1993. Albert P. Viragh, Jr.,
the Chairman of the Board of Trustees and the President of the
Advisor, owns a controlling interest in the Advisor.
The Service Agreement
General administrative, shareholder, dividend disbursement,
transfer agent, and registrar services are provided to the
Trust and the Fund by PADCO Service Company, Inc., 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852
(the "Servicer"), subject to the general supervision and
control of the Trustees and the officers of the Trust,
pursuant to a service agreement between the Trust and the
Servicer, dated September 19, 1995 and as amended on March 8,
1996 and also amended on September 25, 1996. The Servicer is
wholly-owned by Albert P. Viragh, Jr., who is the Chairman of
the Board and the President of the Trust and the sole
controlling person and majority owner of the Advisor.
Under the service agreement with the Servicer, the Fund pays
the Servicer an annual fee based on 0.20% of the net assets of
the Fund. For the period from July 11, 1996 to March 31,
1997, total service fees expensed by the Fund to the Servicer
amounted to $66,737. Under the service agreement, the
Servicer provides the Fund with all required general
administrative services, including, without limitation, office
space, equipment, and personnel; clerical and general back
office services; bookkeeping, internal accounting, and
secretarial services; the determination of net asset values;
and the preparation and filing of all reports, registration
statements, proxy statements, and all other materials required
to be filed or furnished by the Fund under Federal and state
securities laws. The Servicer also maintains the shareholder
account records for the Fund, distributes dividends and
distributions payable by the Fund, and produces statements
with respect to account activity for the Fund and its
shareholders. The Servicer pays all fees and expenses that
13
<PAGE>
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 Distribution Plan
Pursuant to the Distribution Plan for the Fund adopted by the
Trust pursuant to Rule 12b-1 under the 1940 Act, (the
"Distribution Plan") 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 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. For further information concerning the
Distribution Plan for the Fund, see, "Distribution Plan,"
below.
Costs and Expenses
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); payments to be made by the Fund to the Distributor
under the Distribution Plan; custodian and accounting fees
and expenses; legal and auditing fees; fidelity bonds and
other insurance premiums; expenses of preparing and printing
prospectuses, confirmations, proxy statements, and shareholder
reports and notices; registration fees and expenses; proxy and
annual meeting expenses, if any; all Federal, state, and local
taxes (including, without limitation, stamp, excise, income,
and franchise taxes); organizational costs; non-interested
trustees' fees and expenses; the costs and expenses of
redeeming shares of the Fund; fees and expenses paid to any
securities pricing organization; dues and expenses associated
with membership in any mutual fund organization; and costs for
incoming telephone WATTS lines. In addition, each of the nine
Rydex Funds, including the Fund, pays an equal portion of the
Trustee fees and expenses for attendance at Trustee meetings
for the Trustees of the Trust who are not affiliated with or
interested persons of the Advisor.
For the period from the respective commencement of operations
to March 31, 1997, the total expenses of Fund operations borne
by the Fund, other than those expenses assumed or reimbursed
by the Advisor or the Servicer, amounted to $440,265.
14
<PAGE>
The aggregate compensation paid by the Trust to each of its
Trustees serving during the nine-month period ended March 31,
1997, is set forth in the table below:
15
<PAGE>
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Estimated Annual
Name of Person, Compensation Benefits Accrued Benefit upon
Position from the Trust as Part of the Retirement
Trust s Expenses
<S> <C> <C> <C>
Albert P. Viragh, Jr.* $0 $0 $0
Chairman and President
Corey A. Colehour $4,500 $0 $0
Trustee
J. Kenneth Dalton $4,500 $0 $0
Trustee
Roger Somers $4,500 $0 $0
Trustee
</TABLE>
___________________________
* Denotes an "interested person" of the Trust.
DISTRIBUTION PLAN
Pursuant to the Trust's Distribution Plan for the Fund adopted
by the Trust pursuant to Rule 12b-1 under the 1940 Act, the
Fund will pay the "Distributor, monthly at a rate not to
exceed 0.25% of the average daily net assets of the Fund
during that month for expenses actually incurred in the
distribution and promotion of the Fund's shares, and the
Distributor, in turn, on a quarterly basis will pay certain
securities dealers or brokers, administrators, investment
advisers, institutions, including bank trust departments, and
other persons ("Recipients") amounts based on the average
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
16
<PAGE>
shareholder accounts and processing purchase and redemption
transactions, making the Trust's investment plans and
shareholder services options available and providing such
other information and services as the Distributor or the Trust
may reasonably request from time to time.
Pursuant to the Distribution Plan, the Distributor, in
addition to being reimbursed by the Fund for any payments to
Recipients, also will be entitled to reimbursement monthly (up
to the maximum of 0.25% per annum of the average net assets of
the Fund) for the Distributor's other expenses incurred in the
distribution and promotion of the Fund's shares, including,
but not limited to, the printing of certain reports used for
sales purposes, advertisements, expenses of preparation and
printing of sales literature, and other distribution related
expenses, including any distribution or service fees paid to
Recipients who have executed a distribution or service
agreement with the Distributor. The maximum amount which may
be paid to these Recipients by the Distributor (which will be
determined according to the services provided in assisting
investors with their accounts and/or shares sold) is 0.25% (on
an annual basis) of the Fund's average net assets owned by
those Recipients or by clients of those Recipients.
For the period from July 11, 1996 to March 31, 1997, and
pursuant to the Distribution Plan, the total reimbursement
payments paid or payable by the Fund to the Distributor
amounted to $83,673, which constituted 0.25 of 1% of the
Fund's average daily net assets during this period. Of these
payments by the Fund to the Distributor under the Distribution
Plan, $52,930 was paid as compensation by the Distributor to
Recipients pursuant to agreements related to the Distribution
Plan, and $30,743 was spent on the printing of sales
literature, travel entertainment, due diligence, and other
promotional expenses; none of these payments was spent on
advertising and marketing, the printing and mailing of
prospectuses for persons other than current shareholders of
the Fund, or as compensation to wholesalers of the Distributor
in respect of sales of shares of the Fund. In addition, for
the period from July 11, 1996 to March 31, 1997, the Advisor,
pursuant to agreements related to the Distribution Plan, also
made payments from its own resources to Recipients aggregating
$28,425. In the event that the Distributor is not fully
reimbursed for payments or expenses incurred by the
Distributor, these unreimbursed expenses under the
Distribution Plan will not be carried forward beyond December
31 of the year in which these expenses were incurred. As of
March 31, 1997, an aggregate of $0 of distribution expenses,
or 0.00% of the average daily net assets of the Fund's shares
(annualized), was not reimbursed or recovered by the
Distributor through the receipt of reimbursement payments
under the Distribution Plan.
17
<PAGE>
On June 23, 1997, the Trustees, including a majority of the
Rule 12b-1 Trustees, approved certain non-material revisions
to the Distribution Plan. These revisions clarify that the
sum of the payments made by the Trust to the Distributor
pursuant to the Distribution Plan during any twelve (12)
month period ended December 31 cannot exceed the Distributor's
actual distribution expenses incurred during that same twelve
(12) month period.
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
or any distribution or service agreement shall be approved by
18
<PAGE>
the Rule 12b-1 Trustees, cast in person at a meeting called
for the purpose of voting on any such amendment.
PRINCIPAL HOLDERS OF SECURITIES
As of July 8, 1997, the following persons were the only
persons who were record owners or, to the knowledge of the
Trust, beneficial owners of 5% or more of the shares of the
Fund:
<TABLE>
<CAPTION>
Name and Address Number of Shares % Ownership
<S> <C> <C>
Centurion Trust Co. 38,509,544.900 41.1%1/
2525 East Camelback Road
Suite 640
Phoenix, AZ 85016
National Financial Services 27,850,363.030 29.7%1/
Corp.
P.O. Box 3908
New York, NY 10008
Trust Company of America 14,951,529.200 16.0%1/
7103 S. Revere Parkway
Denver, CO 80217
Record Owner for:
Coyle Asset Management 7,013,198.140 7.5%2/
P.O. Box 6503
Englewood, CO 80155
First Trust Corp. 6,685,320.894 7.1%1/
P.O. Box 173736
Denver, CO 80217
Independent Trust 5,219,964.630 5.6%1/
Corporation
15255 S. 94th Avenue
Suite 303
Orland Park, IL 60462-3897
</TABLE>
1/ Record owner only.
2/ Beneficial owner only.
19
<PAGE>
As of the date of this Statement of Additional Information,
the Trustees and the officers of the Trust, as a group, owned,
of record and beneficially, less than 1.0% of the outstanding
shares of the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund's shares is determined each
day on which both the New York Stock Exchange (the "NYSE") and
the Federal Reserve Bank of New York (the "New York Fed") are
open for business at 1:00 P.M., Eastern Time. Currently, the
NYSE and the New York Fed are closed on weekends, and the
following holiday closings have been scheduled for 1996: (i)
New Year's Day, Martin Luther King Jr.'s Birthday,
Washington's Birthday, Good Friday, Memorial Day, July Fourth,
Labor Day, Columbus Day, Thanksgiving Day, and Christmas Day;
and (ii) the preceding Friday when any of those holidays falls
on a Saturday or the subsequent Monday when any one of those
holidays falls on a Sunday. To the extent that portfolio
securities of the Fund are traded in other markets on days
when the NYSE or the New York Fed is closed, the Fund's net
asset value may be affected on days when investors do not have
access to the Fund to purchase or redeem shares. Although the
Trust expects the same holiday schedule to be observed in the
future, the NYSE and the New York Fed each may modify its
holiday schedule at any time. The net asset value of the Fund
serves as the basis for the purchase and redemption price of
the Fund's shares.
The Fund will utilize the amortized cost method in valuing its
portfolio securities for purposes of determining the net asset
value of the shares of the Fund. The Fund will utilize the
amortized cost method in valuing its portfolio securities even
though the portfolio securities may increase or decrease in
market value, generally, in connection with changes in
interest rates. The amortized cost method of valuation
involves valuing a security at its cost adjusted by a constant
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
objectives, to stabilize the net asset value per share as
computed for the purpose of distribution and redemption at
20
<PAGE>
$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 ninety 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 ninety days,
the Fund would be required to invest its available cash in
such a manner as to reduce such maturity to ninety days or
less as soon as reasonably practicable.
An Eligible Security is defined in the Rule to mean a security
which: (a) has a remaining maturity of thirteen months or
less; (b) either (i) is rated in the two highest short-term
rating categories by any two nationally-recognized statistical
rating organizations ("NSROs") that have issued a short-term
rating with respect to the security or class of debt
obligations of the issuer, or (ii) if only one NSRO has issued
a short-term rating with respect to the security, then by that
NSRO; (c) was a long-term security at the time of issuance
21
<PAGE>
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
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
22
<PAGE>
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,
raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
The Fund's annualized effective yield and annualized current
yield, for the seven-day period ended March 31, 1997, were
approximately 4.53% and 4.43%, respectively.
23
<PAGE>
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 itself would not be
subject to Federal income taxes on the net investment income
and capital gains that the Fund distributes to the Fund's
shareholders. The distribution of net investment income and
capital gains will be taxable to Fund shareholders regardless
of whether the shareholder elects to receive these
24
<PAGE>
distributions in cash or in additional shares. Distributions
may be subject to state and local taxes.
Shareholders will be subject to Federal income tax on
dividends paid from interest income derived from taxable
securities and on distributions of realized net short-term
capital gains. Interest and realized net short-term capital
gains distributions are taxable to the shareholder as ordinary
dividend income regardless of whether the shareholder receives
such distributions in additional shares or in cash. Since the
Fund's income is expected to be derived entirely from interest
rather than dividends, none of such distributions will be
eligible for the Federal dividends received deduction
available to corporations.
The Fund will seek to qualify for treatment as a RIC under the
Code. Provided that the Fund (i) is a RIC and (ii)
distributes at least 90% of the Fund's net investment income
(including, for this purpose, net realized short-term capital
gains), the Fund itself will not be subject to Federal income
taxes to the extent the Fund's net investment income and the
Fund's net realized short-term capital gains, if any, are
distributed to the Fund's shareholders. To avoid an excise
tax on its undistributed income, the Fund generally must
distribute at least 98% of its income. One of several
requirements for RIC qualification is that the Fund must
receive at least 90% of the Fund's gross income each year from
dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of securities
or foreign currencies, or other income derived with respect to
the Fund's investments in stock, securities, and foreign
currencies (the "90% Test").
In addition, under the Code, the Fund will not qualify as a
RIC for any taxable year if more than 30% of the Fund's gross
income for that year is derived from gains on the sale of
securities held less than three months (the "30% Test"). If
the Fund does not satisfy the 30% Test for the Fund's first
taxable year, or for any subsequent taxable year, the Fund
will not qualify as a RIC for that year. If the Fund fails to
qualify as a RIC for any taxable year, the Fund would be taxed
in the same manner as an ordinary corporation. In that event,
the Fund would not be entitled to deduct the distributions
which the Fund had paid to shareholders and, thus, would incur
a corporate income tax liability on all of the Fund's taxable
income whether or not distributed. The imposition of
corporate income taxes on the Fund would directly reduce the
return to an investor from an investment in the Fund.
In the event of a failure by the Fund to qualify as a RIC, the
Fund's distributions, to the extent such distributions are
derived from the Fund's current or accumulated earnings and
profits, would constitute dividends that would be taxable to
25
<PAGE>
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.
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
26
<PAGE>
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
The Trustees, on March 12, 1997, changed the Trust's fiscal
year end from June 30 to March 31. The Financial Statements
(audited) of the Fund, for the period from July 11, 1996 (the
date the Fund commenced operations) to March 31, 1997, are
included in the Fund's 1997 Annual Report to Shareholders,
which was filed on Form N-30D with the Securities and Exchange
Commission via EDGAR transmission on June 3, 1997. A copy of
these Financial Statements is included immediately below.
Copies of the Fund's Annual Report also may be obtained
without charge by contacting the Trust at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852, or
telephoning the Trust at 800-820-0888 or 301-468-8520.
27
<PAGE>
Audited Financial Statements
for
The Rydex Institutional Money Market Fund,
a series of
Rydex Series Trust,
for the Period from July 11, 1996
to March 31, 1997,
Including the Report of
Deloitte & Touche LLP,
Independent Auditors for
Rydex Series Trust
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL REPORT, MARCH 31, 1997
RYDEX SERIES TRUST
6116 Executive Boulevard, Suite 400
Rockville, MD 20852
LOGO (301) 468-8520 (800) 820-0888
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
It is a pleasure to report that the Rydex Series Trust enjoyed another
successful year by providing our shareholders with consistently managed funds.
Each Fund performed well within the parameters of their objectives during this
period of market volatility. In addition, the total assets under management
increased from $693 million as of June 30, 1996 to $1.28 billion at the end of
March 1997, an increase of nearly 85%.
This Annual Report covers the previous nine months as a result of a decision
to change the Rydex Series Trust's fiscal year end from June 30 to March 31. In
the following paragraphs, we will describe the U.S. economic environment over
the past nine months. In the final section (Fund Strategy and Performance), we
will focus more closely on each Rydex Fund's performance in relation to its
benchmark.
FISCAL YEAR IN REVIEW
Fear of the mere possibility of inflation dominated the U.S. financial
markets during the fiscal year ending March 31, 1997. A benign economy with
virtually no inflation in sight was no match for the economic apparitions that
swayed the equity and debt markets over the reporting period.
The Consumer Price Index (see
adjacent chart), which is a common
measure of inflation, illustrates that
in general, prices have remained
relatively subdued over the past six
years. Currently inflation is running
at a restrained 2.8%. Improved
productivity, fueled by high
technology and competitive global
markets, has allowed the United States
to aim for faster growth without
triggering serious inflation. In
addition, the absence of any oil or
food shocks, federal budget
constraints, and falling trade
barriers are all factors that have
contributed to an economic environment
of steady growth and low inflation.
LOGO
Source: Bloomberg Financial Markets
<PAGE>
In the third and fourth quarter of 1996, economic data revealed moderate
growth, low inflation, and a strong dollar, with a recession nowhere in sight.
The U.S. Government reported that the federal budget deficit for the fiscal
year ending September 1996, was the lowest since 1981, while the U.S. jobless
rate was half that of industrialized Europe. Despite Federal Reserve Chairman
Alan Greenspan's ominous comments to Congress regarding a stock market that may
be overcome by "irrational exuberance", the equity markets reached new highs
during the last half of 1996.
In February of 1997, Chairman Greenspan once again provided congressional
testimony that caused uneasiness in the world's financial markets. His remarks
indicated that even though U.S. economic prospects "in general are quite
favorable" and that Fed officials expect inflation to remain subdued, the Fed
may take preemptive action against an increased risk of inflation by raising
interest rates. Such a move, he warned, could have an adverse impact on
corporate profits, and thus on stock prices, which may have been supported by a
wave of "excessive optimism." In reaction to his comments, the financial
markets fluctuated wildly.
On March 13, 1997, the U.S. Government reported robust retail sales figures
that were interpreted as a harbinger of future inflation due to a more heated
economy. This report sent stock and bond prices lower. A week later, on March
20, 1997, Chairman Greenspan reported that the "evidence is quite clear that
the current low level of inflation, given the relative tightness of the
economy, is close to unprecedented." He added, "the state of inflation at this
particular stage is clearly under control." These comments were seemingly
nullified on March 24, 1997, when the Federal Reserve Open Market Committee,
led by the enigmatic Greenspan, met and decided to tighten money market
conditions slightly by raising the fed funds target by 1/4 percentage point.
The tightening was viewed by the Fed as a prudent step that would provide
greater assurance of maintaining the current economic expansion by sustaining
the existing low inflation environment. It is the Federal Reserve Board's
conviction that low inflation is essential to realizing the economy's greatest
growth potential.
Concerns of further interest rate hikes and future lackluster earnings
reports caused several more sell offs. The first quarter of 1997 ended with the
last two trading days on the Dow Jones suffering the worst losses since the
crash of 1987. The S&P 500, the NASDAQ 100, and the XAU Index also endured big
declines, while the yield of the 30-year Treasury bond continued it's upward
trend by closing the quarter at 7.1%.
Has the bull market finally come to an end or is this just a large correction
and buying opportunity? Are further rate hikes in store and could this be the
end of a six-year economic expansion? Will this market volatility continue?
These are some of the questions that market participants will be pondering in
the months to come.
2
<PAGE>
Fund Strategy and Performance
The Nova Fund
Benchmark: 150% of the performance of the S & P 500 Composite Stock Price Index
Inception: July 12, 1993
To achieve its objective, Nova invested primarily in S & P 500 futures
contracts and call options on S & P 500 futures contracts. Nova was able to
outperform the S & P 500 Index and perform consistent with its benchmark by
using its call options and futures contracts to maintain 150% exposure to the
market. The S&P 500 index was up 12.90% for the period ending March 31, 1997.
Three quarters of that rise was due to 100 of the largest companies in the
index. As the market dropped precipitously in the first quarter of 1997, the
large caps once again led the way with concerns that first quarter earnings
might come up short.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year ended Since Inception (7-12-93)
3-31-97 to 3-31-97
- --------------------------------------------------------------------
<S> <C> <C>
Nova Fund 15.69% 98.86%
Standard & Poor's 500
Stock Index 12.90% 68.63%
- --------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The S & P 500 Stock Index
is an unmanaged stock index and, unlike the Fund, has no management fees or
other operating expenses to reduce its reported return. Returns are historical
and include changes in principal and reinvested dividends and capital gains.
3
<PAGE>
The Ursa Fund
Benchmark: Inverse (opposite) of the S & P 500 Composite Stock Price Index
Inception: January 7, 1994
To achieve its objective, Ursa sold S & P 500 futures contracts and purchased
put options on S & P 500 futures contracts. The Ursa Fund posted a -6.74% total
return for the period as a result of its short position in the S & P 500 Index.
This compared to a 12.90% return for the S & P 500. Ursa out-performed its
benchmark since it is able to earn interest on cash balances which it is
required to keep in order to cover its short positions.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year ended Since Inception (1-7-94)
3-31-97 to 3-31-97
- -------------------------------------------------------------------------------
<S> <C> <C>
Ursa Fund -6.74% -27.46%
Standard & Poor's 500 Stock Index 12.90% 61.12%
- -------------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The S & P 500 Stock Index
is an unmanaged stock index and, unlike the Fund, has no management fees or
other operating expenses to reduce its reported return. Returns are historical
and include changes in principal and reinvested dividends and capital gains.
4
<PAGE>
The Rydex OTC Fund
Benchmark: NASDAQ 100 Index (NDX)
Inception: February 14, 1994
Over-the-counter securities continued to perform well during the latest
fiscal year. The NASDAQ Composite Index, which represents the universe of all
OTC securities, was up 3.10% during the period. Although the technology laden
NASDAQ has declined in recent months, it still remains ahead of the Dow and
the S&P 500 when measured over the last ten years. The Fund performed in step
with the NASDAQ 100 by closely matching its investments to that of the index.
Generally, the Fund owned approximately eighty stocks representing roughly 95%
of the capitalization of the index.
LOGO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year ended Since Inception (2-14-94)
3-31-97 to 3-31-97
- ---------------------------------------------------------------------
<S> <C> <C>
OTC Fund 18.58% 95.69%
NASDAQ 100 Index 17.68% 96.75%
NASDAQ Composite Index 3.10% 55.54%
- ---------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The NASDAQ Composite Index
and the NASDAQ 100 Index are unmanaged stock indices and, unlike the Fund,
have no management fees or other operating expenses to reduce their reported
returns. Returns are historical and include changes in principal and
reinvested dividends and capital gains.
5
<PAGE>
The Rydex Precious Metals Fund
Benchmark: Philadelphia Stock Exchange Gold/Silver Index (XAU)
Inception: December 1, 1993
Gold prices fell to as low as $340 per ounce in recent weeks, down from a
high of $415 in early 1996. Recent negative factors include low inflation, a
strong dollar and fears of more gold sales by European Central Banks. The XAU
Index, which is comprised of mainly North American gold and silver mining and
production companies, had a distressed year. From June 28, 1996 to March 31,
1997, the XAU fell from 123.76 to 104.12 or 15.87%. The Rydex Precious Metals
Fund mimicked the performance of the XAU Index during the period due to a
similar weighting of stocks held by the fund as in the index.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year Since Inception (12-1-93)
ended 3-31-97 to 3-31-97
- ----------------------------------------------------------------------------
<S> <C> <C>
Precious Metals Fund -15.58% -22.95%
Philadelphia Stock Exchange
Gold/Silver Index -15.87% -13.85%
Standard & Poor's 500 Stock Index 12.90% 63.92%
- ----------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The S & P 500 Index and the
PSE Gold/Silver Index are unmanaged stock indexes and, unlike the Fund, have no
management fees or other operating expenses to reduce their reported returns.
Returns are historical and include changes in principal and reinvested
dividends and capital gains.
6
<PAGE>
The Rydex U. S. Government Bond Fund
Benchmark: 120% of the price movement of current Long Treasury Bond
Inception: January 3, 1994
The yield on the 30-year Treasury Bond for the nine months ending March 31,
1997 rose from 6.9% to 7.1% causing bond prices to fall. As a result of the
Fund's investment in the 30-year Bond, the Fund ended the period with a total
return of -.35%. In addition to purchasing Treasuries, the Fund purchased call
options on Treasury Bond futures to increase its exposure to 120% of the price
movement of the Treasury Bond.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year Since Inception (1-3-94)
ended 3-31-97 to 3-31-97
- ----------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Bond Fund -0.35% -2.09%
Price movement of 30 year Treasury
Bond -4.49% -13.78%
Lehman Brothers Long T-Bond Index 2.88% 17.76%
- ----------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The Lehman Brothers Long T-
Bond Index is an unmanaged bond index and, unlike the Fund, has no management
fees or other operating expenses to reduce its reported return. Returns are
historical and include changes in principal and reinvested dividends and
capital gains. The Price movement of the 30-year Treasury Bond represents a
cumulative percentage change in its closing price.
7
<PAGE>
The Juno Fund
Benchmark: Inverse (opposite) of the price movement of current Long Treasury
Bond
Inception: March 3, 1995
To achieve its objective, Juno attempts to approximate a 100% short position
in the Long Treasury Bond. During the fiscal year, the Fund sold Treasury Bond
Futures and bought puts on the Treasury Bond Futures traded on the Chicago
Board of Trade. Generally, the Treasury Bond Futures will have a high
correlation to the 30-year Treasury Bond. For the fiscal year, the price
movement on the 30-year Treasury Bond was down 4.49%, while Juno was up 2.81%.
Juno's under-performance was due to the fact that the bond futures did not
decline as much as the cash bond during the period.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year Since Inception (3-3-95)
ended 3-31-97 to 3-31-97
- -----------------------------------------------------------------------------
<S> <C> <C>
The Juno Fund 2.81% -2.64%
Price movement of 30 year Treasury
Bond -4.49% 1.27%
Lehman Brothers Long T-Bond Index 2.88% 20.07%
- -----------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The Lehman Brothers Long T-
Bond Index is an unmanaged bond index and, unlike the Fund, has no management
fees or other operating expenses to reduce its reported return. The Price
movement of the 30-year Treasury Bond represents a cumulative percentage change
in its closing price. Returns are historical and include changes in principal
and reinvested dividends and capital gains.
8
<PAGE>
The High Yield Fund
Benchmark: Merrill Lynch High Yield Master Index
Inception: January 3, 1997
To achieve its objective, the fund attempts to provide investment returns
that correspond to the Merrill Lynch High Yield Master Index. The fund invested
primarily in below investment grade corporate bonds, commonly known as "junk
bonds." Despite a rise in interest rates, the high yield market remains strong
as evidenced by default rates that have declined to only 1.5% in 1996. Since
the inception of the Fund, the slight decline in high yield bond prices has
been offset by the higher coupon interest paid by the issuers of the debt.
LOGO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
------------
Fiscal Year ended Since Inception (1-3-97)
3-31-97 to 3-31-97
- -----------------------------------------------------------------------------
<S> <C> <C>
High Yield Fund -0.03% -0.03%
Merrill Lynch High Yield Master
Index 1.22% 1.22%
- -----------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. The Merrill Lynch High
Yield Master Index is an unmanaged bond index and, unlike the Fund, has no
management fees or other operating expenses to reduce its reported return.
Returns are historical and include changes in principal and reinvested
dividends and capital gains.
9
<PAGE>
THE RYDEX U. S. GOVERNMENT MONEY MARKET FUND
The objective of the Rydex U. S. Government Money Market Fund is to provide
security of principal, high current income, and liquidity. To meet its
objective, the Fund invested in U. S. Government money market instruments,
keeping the Fund's average maturity to a minimum. The low average maturity
allowed the Fund to accommodate high turnover while participating in increases
in short term interest rates. For the fiscal year, the U. S. Government Money
Market Fund posted an average annual total return of 4.39%.
During the fiscal year ended March 31, 1997, shareholders redeemed
$3,597,262,046 from the Nova Fund. A portion of those proceeds received by
shareholders represent capital gain distributions in the amount of $10,923,030.
In addition, on December 4, 1996, the Nova and OTC Funds paid long-term capital
gain distributions of $6,012,731 and $57,883 respectively, to shareholders of
record on December 3, 1996. Finally, of the distributions paid by the U.S.
Government Bond Fund during the months of January, February, and March 1997,
$34,993 represent long-term capital gain distributions. This notification is to
meet certain IRS requirements.
IN SUMMARY
Fiscal Year 1997 provided an eventful and at times volatile market
environment for our shareholders. We are pleased with each Fund's performance
in light of this market volatility. In the upcoming years, Rydex will seek to
develop and implement more innovative products catering to the needs of
professional money managers and their clients. As always, if you need
information about our Funds or have questions, call us at (800) 820-0888 or
(301) 468-8520.
Sincerely,
LOGO
Albert P. (Skip) Viragh
Chairman of the Board
10
<PAGE>
RYDEX SERIES TRUST
NOVA
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- ------------
<S> <C> <C>
OPTIONS PURCHASED 61.5%
Call Options on:
S&P 500 Index Expiring May 1997 at 300 2,000 $ 91,482,000
S&P 500 Index Expiring June 1997 at 300 1,000 45,754,000
S&P 500 Index Expiring July 1997 at 300 1,145 52,418,100
S&P 500 Index Expiring July 1997 at 300 1,000 45,786,000
S&P 500 Futures Contracts Expiring June 1997 at 600 434 34,405,350
------------
Total Call Options (Cost $286,782,349) 269,845,450
------------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 37.4%
U.S. Treasury Bill 4.975% 4/03/97 $50,000,000 49,986,181
U.S. Treasury Bill 4.98% 4/17/97 15,000,000 14,966,800
U.S. Treasury Bill 5.22% 5/08/97 50,000,000 49,731,750
U.S. Treasury Bill 5.20% 6/26/97 50,000,000 49,378,889
------------
Total U.S. Treasury Obligations (Cost $164,063,620) 164,063,620
------------
REPURCHASE AGREEMENT 1.1%
Repurchase Agreement collateralized by U.S. Treasury
Obligations--6.25% 4/01/97 (Note 3) 4,900,000 4,900,000
------------
Total Investments 100% (Cost $455,745,969) $438,809,070
============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
11
<PAGE>
RYDEX SERIES TRUST
NOVA
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized Loss
Contracts (Note 1)
--------- ---------------
<S> <C> <C>
FUTURES CONTRACTS PURCHASED
S&P 500 Futures Contracts Expiring June 1997
(Underlying Face Amount at Market Value
$23,498,000) 62 $ (381,814)
============
<CAPTION>
Market
Value
(Note 1)
---------------
<S> <C> <C>
WRITTEN OPTIONS CONTRACTS
Call Options on:
S&P Index Expiring May 1997 at 315 2,000 88,506,000
S&P Index Expiring June 1997 at 315 1,000 44,270,000
S&P Index Expiring July 1997 at 315 1,000 44,318,000
------------
Total Call Options (Proceeds $184,676,444) $177,094,000
============
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
RYDEX SERIES TRUST
URSA
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- ------------
<S> <C> <C>
OPTIONS PURCHASED 66.0%
Put Options on:
S&P 500 Futures Contract Expiring June 1997 at 1000 100 $ 12,100,000
S&P 500 Futures Contract Expiring June 1997 at 1200 50 11,050,000
------------
Total Put Options (Cost $19,176,366) 23,150,000
------------
Call Options on:
S&P 500 Index Expiring April 1997 at 300 8000 365,792,000
S&P 500 Index Expiring May 1997 at 300 2000 91,482,000
S&P 500 Index Expiring June 1997 at 300 7000 320,338,000
S&P 500 Index Expiring July 1997 at 300 3000 137,358,000
------------
Total Call Options (Cost $930,533,500) 914,970,000
------------
Total Options Purchased (Cost $949,709,866) 938,120,000
------------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 26.8%
U.S. Treasury Bill 5.225% 4/17/97 $40,000,000 39,907,111
U.S. Treasury Bill 5.315% 4/17/97 40,000,000 39,905,511
U.S. Treasury Bill 5.275% 4/17/97 25,000,000 24,941,389
U.S. Treasury Bill 4.99% 5/08/97 3,000,000 2,984,614
U.S. Treasury Bill 4.965% 5/22/97 50,000,000 49,648,312
U.S. Treasury Bill 5.01% 5/29/97 100,000,000 99,192,833
U.S. Treasury Bill 5.19% 6/12/97 75,000,000 74,221,500
U.S. Treasury Bill 5.20% 6/26/97 50,000,000 49,378,889
------------
Total U.S. Treasury Obligations (Cost $380,180,159) $380,180,159
------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
RYDEX SERIES TRUST
URSA
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Amount
------------
<S> <C> <C>
REPURCHASE AGREEMENT 7.2%
Repurchase Agreement Collateralized by U.S.
Treasury Obligations--6.25% 4/01/97 (Note 3) $102,900,000 $ 102,900,000
--------------
Total Investments 100% (Cost $1,432,790,025) $1,421,200,159
==============
- ---------------------------------------------------------------------------
<CAPTION>
Unrealized Gain
Contracts (Note 1)
--------- ---------------
<S> <C> <C>
FUTURES CONTRACTS SOLD
S&P 500 Futures Contract Expiring June 1997
(Underlying Face Amount at Market Value
$516,198,000) 1362 $ 24,429,462
==============
<CAPTION>
Market
Value
Contracts (Note 1)
--------- ---------------
<S> <C> <C>
WRITTEN OPTIONS CONTRACTS
Call Options on:
S&P 500 Index Expiring April 1997 at 320 8,000 $ 349,848,000
S&P 500 Index Expiring May 1997 at 315 2,000 88,506,000
S&P 500 Index Expiring June 1997 at 315 7,000 309,978,000
S&P 500 Index Expiring July 1997 at 315 3,000 132,954,000
--------------
Total Call Options Written (Proceeds
$897,128,294) $ 881,286,000
==============
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
RYDEX SERIES TRUST
U.S. GOVERNMENT MONEY MARKET
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Face Amount (Note 1)
----------- ------------
<S> <C> <C>
FEDERAL AGENCY DISCOUNT NOTES 76.1%
Federal Farm Credit Administration 5.22% 4/08/97 $ 5,000,000 $ 4,994,925
Federal Farm Credit Administration 5.24% 4/15/97 10,000,000 9,979,622
Federal Farm Credit Administration 5.24% 4/18/97 7,000,000 6,982,679
Federal Farm Credit Administration 5.21% 4/24/97 10,000,000 9,966,714
Federal Farm Credit Administration 5.57% 5/21/97
Floating Rate 10,000,000 9,999,224
Federal Farm Credit Administration 5.25% 5/30/97 10,000,000 9,913,958
Federal Home Loan Mortgage Corp. 6.45% 4/01/97 20,000,000 20,000,000
Federal Home Loan Mortgage Corp. 5.23% 4/04/97 10,000,000 9,995,642
Federal Home Loan Mortgage Corp. 5.23% 4/10/97 10,000,000 9,986,925
Federal Home Loan Mortgage Corp. 5.36% 4/18/97 10,000,000 9,974,689
Federal Home Loan Mortgage Corp. 5.28% 5/02/97 10,000,000 9,954,533
Federal Home Loan Mortgage Corp. 5.24% 5/12/97 10,000,000 9,940,322
Federal Home Loan Mortgage Corp. 5.30% 6/04/97 10,000,000 9,905,778
Federal Home Loan Mortgage Corp. 5.27% 6/06/97 10,000,000 9,903,383
Federal National Mortgage Assoc. 5.24% 4/09/97 10,000,000 9,988,356
Federal National Mortgage Assoc. 5.23% 5/21/97 10,000,000 9,927,361
Federal National Mortgage Assoc. 5.24% 5/29/97 10,000,000 9,915,578
------------
Total Federal Agency Discount Notes (Cost
$171,329,689) 171,329,689
------------
REPURCHASE AGREEMENT 23.9%
Repurchase Agreement Collateralized by U.S. Treasury
Obligations--
6.25% 4/01/97 (Note 3) 53,700,000 53,700,000
------------
Total Investments 100% (Cost $225,029,689) $225,029,689
============
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
RYDEX SERIES TRUST
OVER-THE-COUNTER
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Shares (Note 1)
------ -----------
<S> <C> <C>
COMMON STOCKS 57.0%
Intel Corp. 68,377 $ 9,512,950
Microsoft Corp.* 99,990 9,167,833
Cisco Systems, Inc.* 57,641 2,773,973
Oracle Corp.* 55,046 2,122,692
MCI Communications, Corp. 47,710 1,699,669
Worldcom, Inc.* 76,715 1,687,730
Amgen, Inc.* 22,244 1,242,884
Dell Computer Corp.* 14,974 1,012,617
Sun Microsystems, Inc. * 31,786 917,821
Applied Materials, Inc.* 15,680 727,160
Tele-Communications, Inc. 50,679 608,148
Tellabs, Inc.* 16,386 591,944
Ascend Communications, Inc.* 12,572 512,309
Republic Industries, Inc.* 14,537 504,252
Parametric Technology Corp.* 11,136 502,512
3Com Corp.* 15,115 495,016
Costco, Companies, Inc.* 15,995 441,862
U.S. Robotics Corp.* 7,543 417,694
BMC Software, Inc.* 8,495 391,832
Oxford Health Plans, Inc.* 6,420 376,373
HBO & Company 7,894 374,965
Peoplesoft, Inc.* 8,853 354,120
Adaptec, Inc.* 9,462 338,267
Gateway 2000, Inc.* 6,439 329,999
Qualcomm, Inc.* 5,828 328,554
Altera Corp* 7,586 326,198
ADC Telecommunications Inc.* 11,314 304,064
Xilinx, Inc.* 6,042 294,548
Northwest Airline Corp.* 7,629 287,041
Novell, Inc.* 30,073 285,694
Linear Technology Corp. 6,356 281,253
Staples, Inc.* 13,968 281,106
Comcast Corp. Special Class A 16,483 278,151
Chiron Corp.* 14,175 264,009
Sigma Aldrich Corp. 8,142 251,384
Adobe Systems, Inc. 6,246 250,621
Nordstrom, Inc. 6,348 240,431
Nextel Communications, Inc.* 17,624 235,721
Paychex, Inc. 5,680 233,590
</TABLE>
* Non-Income Producing Securities
See Notes to Financial Statements.
<TABLE>
<CAPTION>
Market
Value
Shares (Note 1)
------ -----------
<S> <C> <C>
Biogen, Inc.* 6,163 $ 230,342
Compuware Corp.* 3,517 220,692
PACCAR, Inc. 3,280 218,940
DSC Communications Corp.* 10,327 216,222
Cascade Communications, Corp.* 7,940 209,418
Cintas Corp. 3,834 202,244
Stryker Corp. 8,068 200,692
Atmel Corp.* 8,359 200,094
Starbucks Corporation* 6,729 199,347
Fort Howard, Corp.* 6,235 194,064
Centocor, Inc.* 6,273 191,327
Informix Corp.* 12,468 188,579
Tyson Foods, Inc. 9,670 187,356
American Greetings, Corp. 5,791 184,950
McAfee Associates, Inc.* 4,077 180,407
Electronics for Imaging, Inc.* 4,493 179,158
American Power Conversion Corp.* 8,237 178,125
Apple Computer, Inc.* 9,236 168,557
Boston Chicken Inc.* 5,421 165,341
Biomet, Inc. 9,326 157,376
KLA Instruments, Corp.* 4,292 156,658
Worthington Industries, Inc 7,642 146,153
Genzyme Corp.* 6,356 143,010
General Nutrition Companies, Inc.* 6,963 141,001
Viking Office Products, Inc.* 7,207 139,636
McCormick & Co., Inc. 5,580 136,710
FORE Systems, Inc.* 8,949 134,235
Cracker Barrel Old Country Store, Inc. 5,065 132,323
Autodesk, Inc. 3,810 118,100
Electronics Arts, Inc.* 4,406 117,310
Fastenal Comp. 3,233 113,155
Healthcare COMPARE Corp.* 2,760 112,125
Intuit, Inc.* 3,853 89,582
Sybase, Inc.* 6,116 85,624
Adtran, Inc.* 3,222 80,550
Paging Network, Inc.* 8,444 68,608
Cirrus Logic, Inc.* 5,443 65,996
Glenayre Tech., Inc.* 5,251 51,854
-----------
Total Common Stocks (Cost $40,137,044) $47,152,848
-----------
</TABLE>
16
<PAGE>
RYDEX SERIES TRUST
OVER-THE-COUNTER
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- -----------
<S> <C> <C>
OPTIONS PURCHASED .0%
Call Option on:
NASDAQ 100 Expiring April 1997 at 900
(Cost $6,324) 31 $ 2,325
-----------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 29.9%
U.S. Treasury Bill 5.19% 6/12/97 (Cost $24,740,500) $25,000,000 24,740,500
-----------
REPURCHASE AGREEMENT 13.1%
Repurchase Agreement Collateralized by U.S. Treasury
Obligations--6.25% 4/01/97 (Note 3) 10,800,000 10,800,000
-----------
Total Investments 100% (Cost $75,683,868) $82,695,673
===========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
--------- --------
<S> <C> <C>
WRITTEN OPTIONS CONTRACTS
Put Options On:
NASDAQ 100 Expiring April 1997 at 900 (Proceeds $203,450) 31 $308,450
========
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
RYDEX SERIES TRUST
PRECIOUS METALS FUND
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Shares (Note1)
------- -----------
<S> <C> <C>
COMMON STOCKS 82.7%
Mining and Precious Metals Stocks
Barrick Gold Corp. 314,573 $ 7,471,109
Placer Dome, Inc. 210,354 3,812,666
Newmont Mining Corp. 87,261 3,381,373
Homestake Mining Co. 128,528 1,943,986
Santa Fe Pacific Gold Corp. 115,171 1,900,321
Battle Mountain Gold Co., Class A 197,094 1,305,748
TVX Gold, Inc.* 140,582 1,001,647
Echo Bay Mines, Ltd. 122,126 809,085
Getchell Gold Corp* 11,106 451,181
Pegasus Gold, Inc.* 36,018 292,646
ASA Limited 8,292 280,892
Hecla Mining Co.* 44,144 259,346
Agnico Eagle Mines, Ltd. 14,496 164,892
Trizec Hahn Corp. 6,443 144,162
Kinross Gold Corp.* 8,700 58,725
Freeport McMoran, Inc., Class A 1,887 55,431
Engelhard Corp. 2,438 51,198
Newmont Gold Corp. 1,100 44,137
Cambior, Inc. 2,908 39,258
Amax Gold, Inc.* 4,324 29,187
Anglo American Gold Investment Co., Ltd. 3,470 24,724
-----------
Total Common Stocks (Cost $23,784,737) $23,521,714
-----------
</TABLE>
* Non-Income Producing Securities
See Notes to Financial Statements.
18
<PAGE>
RYDEX SERIES TRUST
PRECIOUS METALS FUND
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- -----------
<S> <C> <C>
OPTIONS PURCHASED 0.1%
Call Option on:
XAU Index Expiring April 1997 at 90 (Cost $40,310) 20 $ 28,500
-----------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
REPURCHASE AGREEMENT 17.2%
Repurchase Agreement collateralized by U.S. Treasury
Obligations--6.25 4/01/97 (Note 3) $4,900,000 4,900,000
-----------
Total Investments 100% (Cost $28,725,047) $28,450,214
===========
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
RYDEX SERIES TRUST
U.S. GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Face Amount (Note 1)
----------- ----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 89.2%
U.S. Treasury Bond 6.625% due 02/15/2027 (Cost
$3,061,901) $3,205,000 $3,017,708
----------
<CAPTION>
Contracts
-----------
<S> <C> <C>
OPTIONS PURCHASED 2.0%
Call Options On:
U.S Treasury Bond Futures Contract Expiring June 1997
at 100
(Cost $78,271) 9 65,109
----------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
REPURCHASE AGREEMENT 8.8%
Repurchase Agreement collateralized by U.S. Treasury
Obligations--6.250% due 4/01/97 (Note 3) $ 300,000 300,000
----------
Total Investments 100% (Cost $3,440,172) $3,382,817
==========
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
RYDEX SERIES TRUST
JUNO
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- ---------------
<S> <C> <C>
OPTIONS PURCHASED 0.8 %
Put Options on:
U.S. Treasury Bond Futures Contracts Expiring June
1997 at 130 (Cost $181,380) 10 $ 227,812
-----------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 84.8%
U.S. Treasury Bill 5.20% 6/19/97 (Cost $24,714,722) $25,000,000 24,714,722
-----------
REPURCHASE AGREEMENT 14.4%
Repurchase Agreement collateralized by U.S. Trea-
sury Obligations--6.25% 4/01/97 (Note 3) 4,200,000 4,200,000
-----------
Total Investments 100% (Cost $29,096,102) $29,142,534
===========
- --------------------------------------------------------------------------------
<CAPTION>
Unrealized Gain
Contracts (Note 1)
----------- ---------------
<S> <C> <C>
FUTURES CONTRACTS SOLD
U.S. Treasury Bond Futures Contract Expiring June
1997 (Underlying Face Amount at Market Value
$27,876,875) 260 $ 652,603
===========
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
RYDEX SERIES TRUST
HIGH YIELD FUND
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Face Value
Amount (Note1)
-------- -----------
<S> <C> <C>
NON-CONVERTIBLE CORPORATE BONDS 98.9%
Toll Corporation 8.75% due 11/15/2006 $500,000 $ 515,000
Rogers Cablesystems, LTD 10.0% due 3/15/2005 475,000 491,625
Telefonica De Argentina SA 11.875% due 11/01/2004 400,000 452,000
Hovnanian K Enterprise 11.25% due 4/15/2002 425,000 444,125
AMF Group, Inc. 10.875% due 3/15/2006 400,000 424,000
Healthsouth Rehabilitation Corporation 9.50% due
4/01/2001 400,000 418,000
U.S. Air, Inc. 10.0% due 7/01/2003 400,000 403,500
Jones Intercable, Inc. 10.50% due 3/01/2008 350,000 379,750
Westminister Resources, LTD. 11.0% due 3/15/2007 350,000 346,500
Grupo Televisa, S.A. 11.875% due 5/15/2006 300,000 321,000
Smiths Food and Drug Centers 11.25% due 5/15/2007 275,000 301,125
Dominick's Finer Foods, Inc. 10.875% due 5/01/2005 275,000 295,625
Titan Wheel International, Inc. 8.75% due 4/01/2007 300,000 295,500
Northwest Airlines Corporation 8.70% due 3/15/2007 300,000 295,125
Hollinger International Publishing, Inc. 8.625% due
3/15/2005 300,000 291,000
Grand Union Company 12.0% due 9/01/2004 275,000 270,188
Rohr, Inc. 11.625% due 5/15/2003 250,000 268,750
YPF, SA Sociedad Anomina 8.0% due 2/15/2004 275,000 264,000
Brown Group, Inc. 9.50% due 10/15/2006 250,000 257,500
Borg-Warner Security CP 9.625% due 3/15/2007* 250,000 245,000
BankUnited Capital Trust 10.25% due 12/31/2026* 250,000 244,375
Century Communications 9.75% due 2/15/2002 200,000 201,000
Grand Casinos, Inc. 10.125% due 12/01/2003 200,000 196,500
Cliffs Drilling Company 10.25% due 5/15/2003 150,000 154,500
Chesapeake Energy Corporation 8.50% due 3/15/2012* 150,000 141,750
Kaufman and Broad Home Corporation 9.375% due 5/01/2003 140,000 140,700
Allbrighton Communications, Co. 9.75% due 11/30/2007 150,000 139,500
ACME Metals, Inc. 12.50% due 8/1/2002 125,000 132,500
Westpoint Stevens, Inc. 9.375% due 12/15/2005 130,000 130,000
Lenfest Communications, Inc. 8.375% due 11/01/2005 125,000 113,750
</TABLE>
* Issued Under Rule 144A.
See Notes to Financial Statements.
22
<PAGE>
RYDEX SERIES TRUST
HIGH YIELD FUND
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Face Value
Amount (Note1)
-------- -----------
<S> <C> <C>
NON-CONVERTIBLE CORPORATE BONDS (CONTINUED)
NL Industries, Inc. 11.75% due 10/15/2003 $100,000 $ 105,000
Noble Drilling Corporation 9.125% due 7/01/2006 100,000 105,000
American Standard 9.875% due 6/01/2001 100,000 104,000
Motors and Gears, Inc. 10.75% due 11/15/2006* 100,000 102,500
Comcast Corporation 9.375% due 5/15/2005 100,000 100,000
Weirton Steel Corporation 10.75% due 6/01/2005 100,000 100,000
Wilshire Financial Services Group, Inc. 13.0% due
1/01/2004 100,000 100,000
360 Communications Company 7.125% due 3/01/2003 100,000 97,636
Cleveland Electric Illuminating 7.375% due 6/01/2003 100,000 97,011
Transportacion Maritima Mex-Sp 10.0% due 11/15/2006 100,000 96,000
Dotmar, Inc. 9.50% due 8/01/2016 75,000 76,500
Fort Howard Corporation 8.25% due 2/01/2002 75,000 74,625
United Airlines, Inc. 9.75% due 8/15/2021 50,000 57,296
Dime Bancorp, Inc. 10.50% due 11/15/2005 50,000 53,750
Chiquita Brands International, Inc. 9.625% due 1/15/2004 50,000 50,750
Digital Equipment Corporation 8.625% due 11/01/2012 50,000 49,162
Cablevision Systems Corporation 9.875% due 5/15/2006 50,000 49,000
Tenet Healthcare Corporation 8.625% due 1/15/2007 50,000 48,750
Paging Network 8.875% due 2/01/2006 50,000 42,500
Gulf Canada Resources, LTD. 9.25% due 1/15/2004 25,000 25,750
Falcon Drilling Company 8.875% due 3/15/2003 25,000 25,250
Rogers Cantel, Inc. 9.375% due 6/01/2008 25,000 25,250
Exide Corporation 10.0% due 4/15/2005 25,000 25,000
-----------
Total Non Convertible Corporate Bonds (Cost $10,394,343) 10,184,618
-----------
<CAPTION>
Shares
--------
<S> <C> <C>
COMMON STOCKS 1.1%
Colonial Downs Holdings--CL A
Total Common Stocks (Cost $142,500) 15,000 110,625
-----------
Total Investments 100% (Cost $10,536,843) $10,295,243
===========
</TABLE>
* Issued Under Rule 144A.
See Notes to Financial Statements.
23
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Fund Ursa Fund Market Fund
------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
Securities at Value (Note 1)--See
Accompanying Schedules $ 438,809,070 $1,421,200,159 $225,029,689
Receivable for Securities Sold 3,587,090 0 0
Receivable for Futures Contracts
Settlement 0 10,824,067 0
Premium Receivable for Written
Options 45,628,379 136,885,137 0
Investment Income Receivable 851 17,865 66,655
Cash in Custodian Bank 1,534,564 1,585,341 0
Cash on Deposit with Broker 0 4,902,000 0
Receivable for Shares Purchased 6,414,030 50,065,095 71,949,632
Unamortized Organization Costs (Note
1) 44,593 29,002 15,670
Other Assets 35,164 31,632 19,387
------------- -------------- ------------
Total Assets 496,053,741 1,625,540,298 297,081,033
------------- -------------- ------------
LIABILITIES
Payable for Securities Purchased 47,101,100 141,303,300 0
Payable for Futures Contracts
Settlement 3,015,926 0 0
Written Options at Market Value 177,094,000 881,286,000 0
Payable for Shares Redeemed 86,606,344 20,312,982 13,193,742
Dividends Payable 0 0 66,402
Investment Advisory Fee Payable 213,155 256,299 89,755
Cash Balance Due at Custodian Bank 0 0 120,312
Transfer Agent Fee Payable 72,850 71,194 41,318
Other Liabilities 20,668 23,011 16,678
------------- -------------- ------------
Total Liabilities 314,124,043 1,043,252,786 13,528,207
------------- -------------- ------------
NET ASSETS $ 181,929,698 $ 582,287,512 $283,552,826
============= ============== ============
Shares Outstanding 10,168,541 82,961,214 283,553,279
============= ============== ============
Net Asset Value Per Share $17.89 $7.02 $1.00
====== ===== =====
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Over-the- Precious U.S.
Counter Metals Government High Yield
Fund Fund Bond Fund Juno Fund Fund
------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Securities at Value
(Note 1)--See
Accompanying Schedules $ 82,695,673 $28,450,214 $3,382,817 $29,142,534 $10,295,243
Receivable for
Securities Sold 54,285,578 6,608,531 0 0 1,688,127
Receivable for Futures
Contracts Settlement 0 0 0 44,147 0
Receivable from Advisor 0 0 9,821 0 9,018
Investment Income
Receivable 7,123 1,468 26,447 729 254,219
Cash in Custodian Bank 85,640 34,673 62,691 96,558 28,835
Cash on Deposit with
Broker 1,077,095 161,191 0 763,746 0
Receivable for Shares
Purchased 2,936,807 1,601,832 1,313,622 2,771,542 0
Unamortized
Organization Costs
(Note 1) 8,650 11,975 7,275 19,780 41,605
Other Assets 13,579 1,146 1,080 1,893 775
------------ ----------- ---------- ----------- -----------
Total Assets 141,110,145 36,871,030 4,803,753 32,840,929 12,317,822
------------ ----------- ---------- ----------- -----------
LIABILITIES
Payable for Securities
Purchased 26,999,194 797,298 451,154 0 54,499
Written Options at
Market Value 308,450 0 0 0 0
Payable for Shares
Redeemed 61,403,277 12,363,693 886,088 225,459 1,683,290
Dividends Payable 0 0 133,739 0 2,812
Investment Advisory Fee
Payable 60,885 10,175 4,232 21,625 0
Transfer Agent Fee
Payable 17,412 4,645 1,694 6,007 1,458
Organization Expense
Payable to Advisor 0 0 0 0 43,795
Other Liabilities 42,729 15,080 25,194 10,573 14,297
------------ ----------- ---------- ----------- -----------
Total Liabilities 88,831,947 13,190,891 1,502,101 263,664 1,800,151
------------ ----------- ---------- ----------- -----------
NET ASSETS $ 52,278,198 $23,680,139 $3,301,652 $32,577,265 $10,517,671
============ =========== ========== =========== ===========
Shares Outstanding 2,916,375 3,099,090 387,336 3,362,339 1,071,787
============ =========== ========== =========== ===========
Net Asset Value Per
Share $17.93 $7.64 $8.52 $9.69 $9.81
====== ===== ===== ===== =====
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Period Ended March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Fund Ursa Fund Market Fund
------------ ------------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 9,349,185 $ 10,454,328 $7,080,216
------------ ------------- ----------
Total Income 9,349,185 10,454,328 7,080,216
------------ ------------- ----------
EXPENSES
Advisory Fees (Note 4) 1,812,740 2,070,135 671,957
Transfer Agent Fees (Note 4) 606,411 575,038 268,855
Audit and Outside Services 74,791 71,771 44,813
Accounting Fees (Note 4) 80,757 78,563 60,841
Legal 93,036 109,715 64,866
Organizational Expenses 26,167 12,415 6,664
Registration Fees 38,662 46,120 40,026
Custodian Fees 58,097 57,786 7,343
Miscellaneous 86,250 114,097 74,815
------------ ------------- ----------
Total Expenses 2,876,911 3,135,640 1,240,180
Custodian Fees Paid Indirectly (Note
5) 54,497 54,099 3,537
------------ ------------- ----------
Net Expenses 2,822,414 3,081,541 1,236,643
------------ ------------- ----------
Net Investment Income 6,526,771 7,372,787 5,843,573
------------ ------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss) on:
Investment Securities 51,932,123 185,394,425 0
Written Options (28,858,102) (189,862,783) 0
Futures Contracts 16,491,572 (63,032,110) 0
------------ ------------- ----------
Total Net Realized Gain (Loss) 39,565,593 (67,500,468) 0
Net Change in Unrealized Appreciation
(Depreciation)
On Investments, Options and Futures
Contracts (12,688,383) 27,690,198 0
------------ ------------- ----------
Net Gain (Loss) on Investments 26,877,210 (39,810,270) 0
------------ ------------- ----------
Net Increase (Decrease) in Net Assets
from Operations $ 33,403,981 $ (32,437,483) $5,843,573
============ ============= ==========
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Period Ended March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Over-the- Precious U.S. High
Counter Metals Government Yield
Fund Fund Bond Fund Juno Fund Fund
----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 1,273,988 $ 151,322 $468,977 $ 740,291 $ 158,101
Dividends 125,692 206,863 0 0 0
----------- ----------- -------- ----------- ---------
Total Income 1,399,680 358,185 468,977 740,291 158,101
----------- ----------- -------- ----------- ---------
EXPENSES
Distribution Fees 0 0 0 0 4,432
Advisory Fees (Note 4) 775,607 185,396 35,394 130,573 8,131
Transfer Agent Fees
(Note 4) 205,328 49,439 14,158 36,374 2,168
Audit and Outside
Services 41,984 19,258 12,661 11,737 9,960
Accounting Fees (Note
4) 45,669 26,285 14,442 16,731 1,667
Legal 33,688 11,103 4,282 6,193 173
Organizational
Expenses 3,702 5,124 3,115 5,072 2,190
Registration Fees 16,698 10,356 11,937 13,895 116
Custodian Fees 117,702 23,531 5,651 5,724 2,323
Miscellaneous 75,111 36,647 6,861 5,309 0
----------- ----------- -------- ----------- ---------
Total Expenses 1,315,489 367,139 108,501 231,608 31,160
Custodian Fees Paid
Indirectly (Note 5) 1,442 1,709 1,866 2,124 315
Less Expenses
Reimbursed by
Investment Advisor 0 7,245 0 0 14,487
----------- ----------- -------- ----------- ---------
Net Expenses 1,314,047 358,185 106,635 229,484 16,358
----------- ----------- -------- ----------- ---------
Net Investment Income 85,633 0 362,342 510,807 141,743
----------- ----------- -------- ----------- ---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain
(Loss) on:
Investment Securities 18,582,010 (10,519,765) (364,110) (34,902) (95,444)
Written Options 52,685 5,751
Futures Contracts 0 0 211,629 (1,158,173) 0
----------- ----------- -------- ----------- ---------
Total Net Realized
Gain (Loss) 18,634,695 (10,514,014) (152,481) (1,193,075) (95,444)
Net Change in
Unrealized
Appreciation
(Depreciation)
on Investments,
Options and
Futures Contracts (676,120) 2,142,579 (254,243) 1,086,638 (241,600)
----------- ----------- -------- ----------- ---------
Net Gain (Loss) on
Investments 17,958,575 (8,371,435) (406,724) (106,437) (337,044)
----------- ----------- -------- ----------- ---------
Net Increase (Decrease)
in Net Assets from
Operations $18,044,208 ($8,371,435) ($44,382) $ 404,370 ($195,301)
=========== =========== ======== =========== =========
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nova Fund Ursa Fund
-------------------------- --------------------------
Period Ended Year Ended Period Ended Year Ended
March 31, June 30, March 31, June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
From Investment
Activities
Net Investment Income $ 6,526,771 $ 4,179,165 $ 7,372,787 $ 6,011,770
Net Realized Gain
(Loss) on Investments 39,565,593 22,094,745 (67,500,468) (36,517,831)
Net Change in
Unrealized
Appreciation
(Depreciation) of
Investments (12,688,383) 2,685,556 27,690,198 3,161,168
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets from
Operations 33,403,981 28,959,466 (32,437,483) (27,344,893)
------------ ------------ ------------ ------------
Distributions to
Shareholders
From Net Investment
Income (Note 1) 0 0 (752,816) 0
From Realized Gain on
Investments (6,012,731) 0 0 0
Net Increase (Decrease)
in Net Assets from
Shares Transactions
(Note 8) (70,002,669) 132,666,112 422,924,543 92,269,466
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets (42,611,419) 161,625,578 389,734,244 64,924,573
------------ ------------ ------------ ------------
NET ASSETS--Beginning of
Period 224,541,116 62,915,538 192,553,268 127,628,695
------------ ------------ ------------ ------------
NET ASSETS--End of
Period $181,929,697 $224,541,116 $582,287,512 $192,553,268
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Over-the-
Money Market Fund Counter Fund
---------------------------- ----------------------------
Period Ended Year Ended Period Ended Year Ended
March 31,1997 June 30,1996 March 31, 1997 June 30, 1996
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
From Investment
Activities
Net Investment Income $ 5,843,573 $ 7,459,832 $ 85,633 $ 304,516
Net Realized Gain on
Investments 0 467 18,634,695 7,408,632
Net Change in
Unrealized
Depreciation of
Investments 0 0 (676,120) (894,564)
------------ ------------- ------------ ------------
Net Increase in Net
Assets Resulting from
Operations 5,843,573 7,460,299 18,044,208 6,818,584
------------ ------------- ------------ ------------
Distributions to
Shareholders
From Net Investment
Income (Note 1) (5,799,436) (7,466,933) (522,552) 0
From Realized Gain on
Investments 0 (467) (57,883) (1,826,446)
Net Increase (Decrease)
in Net Assets Resulting
from Shares
Transactions (Note 8) 129,584,142 (130,266,747) (13,901,489) (18,223,812)
------------ ------------- ------------ ------------
Net Increase (Decrease)
in Net Assets 129,628,279 (130,273,848) 3,562,284 (13,231,674)
------------ ------------- ------------ ------------
NET ASSETS--Beginning of
Period 153,924,547 284,198,395 48,715,914 61,947,588
------------ ------------- ------------ ------------
NET ASSETS--End of
Period $283,552,826 $ 153,924,547 $ 52,278,198 $ 48,715,914
============ ============= ============ ============
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Precious Metals U.S. Government
Fund Bond Fund
---------------------------- ----------------------------
Period Ended Year Ended Period Ended Year Ended
March 31, 1997 June 30, 1996 March 31,1997 June 30, 1996
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
From Investment
Activities
Net Investment Income
(Loss) $ 0 $ (3,434) $ 362,342 $ 882,912
Net Realized Gain
(Loss) on Investments (10,514,014) 2,288,270 (152,481) (103,013)
Net Change in
Unrealized
Appreciation
(Depreciation) of
Investments 2,142,579 (6,585,369) (254,243) 188,414
------------ ----------- ------------ -----------
Net Increase (Decrease)
in Net Assets from
Operations (8,371,435) (4,300,533) (44,382) 968,313
------------ ----------- ------------ -----------
Distributions to
Shareholders
From Net Investment
Income (Note 1) 0 0 (362,881) (885,787)
From Realized Gain on
Investments 0 0 0 (243,678)
Net Increase (Decrease)
in Net Assets from
Shares Transactions
(Note 8) (4,521,996) 13,022 (14,622,230) 15,900,788
------------ ----------- ------------ -----------
Net Increase (Decrease)
in Net Assets (12,893,431) (4,287,511) (15,029,493) 15,739,636
------------ ----------- ------------ -----------
NET ASSETS--Beginning of
Period 36,573,570 40,861,081 18,331,145 2,591,509
------------ ----------- ------------ -----------
NET ASSETS--End of
Period $ 23,680,139 $36,573,570 $ 3,301,652 $18,331,145
============ =========== ============ ===========
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
RYDEX SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Yield
Juno Fund Fund
--------------------------- -------------
Period Ended Year Ended Period Ended
March 31,1997 June 30, 1996 March 31,1997
------------- ------------- -------------
<S> <C> <C> <C>
From Investment Activities
Net Investment Income $ 510,807 $ 710,596 $ 141,743
Net Realized Loss on Investments (1,193,075) (1,855,288) (95,444)
Net Change in Unrealized
Appreciation (Depreciation) of
Investments 1,086,638 (397,053) (241,600)
----------- ----------- -----------
Net Increase (Decrease) in Net
Assets from Operations 404,370 (1,541,745) (195,301)
----------- ----------- -----------
Distributions to Shareholders
From Net Investment Income (Note 1) (61,626) 0 (141,743)
Net Increase in Net Assets from
Shares Transactions (Note 8) 13,374,908 16,100,047 10,854,715
----------- ----------- -----------
Net Increase in Net Assets 13,717,652 14,558,302 10,517,671
----------- ----------- -----------
NET ASSETS--Beginning of Period 18,859,613 4,301,311 0
----------- ----------- -----------
NET ASSETS--End of Period $32,577,265 $18,859,613 $10,517,671
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nova Fund
-----------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 15.68 $ 11.81 $ 9.77 $ 10.01
-------- -------- ------- --------
Net Investment Income .35 .56 .28 .01
Net Realized and Unrealized Gains
(Losses) on Securities 2.19 3.31 2.88 (.25)
-------- -------- ------- --------
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations 2.54 3.87 3.16 (.24)
Dividends to Shareholders from Net
Investment Income .00 .00 (.29) .00
Distributions to Shareholders from
Net Realized Capital Gain (.33) .00 (.83) .00
-------- -------- ------- --------
Net Increase (Decrease) in Net
Asset Value 2.21 3.87 2.04 (.24)
-------- -------- ------- --------
NET ASSET VALUE--END OF PERIOD $ 17.89 $ 15.68 $ 11.81 $ 9.77
======== ======== ======= ========
TOTAL INVESTMENT RETURN 20.92%** 32.77% 32.65% (2.47)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.16%**++ 1.31% 1.43% 1.73%**
Net Investment Income 2.69%** 3.14% 2.62% 1.05%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0% 0% 0% 0%
Net Assets, End of Period (000's
omitted) $181,930 $224,541 $62,916 $ 77,914
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.19%.
*Commencement of Operations: July 12, 1993--Nova Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
32
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ursa Fund
--------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- --------- --------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 7.55 $ 8.79 $ 10.54 $ 10.00
-------- --------- --------- --------
Net Investment Income .17 .30 .35 .01
Net Realized and Unrealized
Gains (Losses) on Securities (.68) (1.54) (1.78) .53
-------- --------- --------- --------
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations (.51) (1.24) (1.43) .54
Dividends to Shareholders from
Net Investment Income (.02) .00 (.32) .00
-------- --------- --------- --------
Net Increase (Decrease) in Net
Asset Value (.53) (1.24) (1.75) .54
-------- --------- --------- --------
NET ASSET VALUE--END OF PERIOD $ 7.02 $ 7.55 $ 8.79 $ 10.54
======== ========= ========= ========
TOTAL INVESTMENT RETURN (8.98)%** (14.11)% (14.08)% 10.89%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.34%**++ 1.39% 1.39% 1.67%**
Net Investment Income 3.21%** 3.38% 3.50% 1.43%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0% 0% 0% 0%
Net Assets, End of Period
(000's omitted) $582,288 $ 192,553 $ 127,629 $110,899
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.36%.
* Commencement of Operations: January 7, 1994--Ursa Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova, Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
33
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Money Market Fund
------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------
Net Investment Income .03 .04 .04 .01
Net Realized and Unrealized Gains
on Securities .00 .00 .00 .00
-------- -------- -------- -------
Net Increase in Net Asset Value
Resulting from Operations .03 .04 .04 .01
Dividends to Shareholders from Net
Investment Income (.03) (.04) (.04) (.01)
-------- -------- -------- -------
Net Increase in Net Asset Value .00 .00 .00 .00
-------- -------- -------- -------
NET ASSET VALUE--END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== =======
TOTAL INVESTMENT RETURN 4.39%** 4.60% 4.43% 2.47%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.86%**++ 0.99% 0.89% 1.16%**
Net Investment Income 4.06%** 4.18% 4.23% 2.34%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0% 0% 0% 0%
Net Assets, End of Period (000's
omitted) $283,553 $153,925 $284,198 $88,107
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is .86%.
* Commencement of Operations: December 3, 1993--U.S. Government Money Market
Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
34
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Over-the-Counter Fund
------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 15.16 $ 12.22 $ 8.76 $ 10.00
-------- -------- -------- --------
Net Investment Income .01 .06 .14 .01
Net Realized and Unrealized Gains
(Losses) on Securities 2.84 3.24 4.17 (1.25)
-------- -------- -------- --------
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations 2.85 3.30 4.31 (1.24)
Dividends to Shareholders from
Net Investment Income (.07) .00 (.12) .00
Distributions to Shareholders
from Net Realized Capital Gain (.01) (.36) (.73) .00
-------- -------- -------- --------
Net Increase (Decrease) in Net
Asset Value 2.77 2.94 3.46 (1.24)
-------- -------- -------- --------
NET ASSET VALUE--END OF PERIOD $ 17.93 $ 15.16 $ 12.22 $ 8.76
======== ======== ======== ========
TOTAL INVESTMENT RETURN 24.77%** 26.44% 49.00% (30.17)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.27%**++ 1.33% 1.41% 1.97%**
Net Investment Income 0.08%** 0.44% 1.34% 1.69%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 1140.35% 2578.56% 2241.00% 1171.00%
Net Assets, End of Period (000's
omitted) $ 52,278 $ 48,716 $ 61,948 $ 30,695
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.27%.
* Commencement of Operations: February 14, 1994--Over-the-Counter Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and
Juno Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
35
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Precious Metals Fund
-----------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:+
NET ASSET VALUE--BEGINNING
OF PERIOD $ 9.05 $ 8.73 $ 8.29 $ 10.00
-------- ---------- ---------- ----------
Net Investment Income .00 .00 .10 .01
Net Realized and Unrealized
Gains (Losses) on
Securities (1.41) .32 .43 (1.72)
-------- ---------- ---------- ----------
Net Increase (Decrease) in
Net Asset Value Resulting
from Operations (1.41) .32 .53 (1.71)
Dividends to Shareholders
from Net Investment Income .00 .00 (.09) .00
-------- ---------- ---------- ----------
Net Increase (Decrease) in
Net Asset Value (1.41) .32 .44 (1.71)
-------- ---------- ---------- ----------
NET ASSET VALUE--END OF
PERIOD $ 7.64 $ 9.05 $ 8.73 $ 8.29
======== ========== ========== ==========
TOTAL INVESTMENT RETURN (20.77)%** 3.67% 6.21% (29.27)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.45%**++ 1.33% 1.38% 2.06%**
Net Investment Income 0.00%** (0.01)% 1.15% 1.23%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 743.33% 1,036.37% 1,765.00% 2,728.00%
Average Commission Rate
Paid**** .0101 0.0151 -- --
Net Assets, End of Period
(000's omitted) $ 23,680 $ 36,574 $ 40,861 $ 1,526
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.49%.
* Commencement of Operations: December 1, 1993--Precious Metals Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and
Juno Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
**** For fiscal years beginning on or after September 1, 1995, the fund is
required to disclose its average commission rate per share for purchases and
sales of equity securities.
See Notes to Financial Statements.
36
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Bond Fund
----------------------------------------------
Period Year Year Period
Ended Ended Ended Ended
March 31, June 30, June 30, June 30,
1997 1996 1995 1994*
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF
PERIOD $ 8.97 $ 9.55 $ 8.24 $ 10.00
-------- -------- ---------- ----------
Net Investment Income .34 .46 .39 .02
Net Realized and Unrealized
Gains (Losses) on Securities (.45) (.45) 1.17 (1.76)
-------- -------- ---------- ----------
Net Increase (Decrease) in
Net Asset Value Resulting
from Operations (.11) .01 1.56 (1.74)
Dividends to Shareholders
from Net Investment Income (.34) (.46) (.25) (.02)
Distributions to Shareholders
from Net Realized Capital
Gain .00 (.13) .00 .00
-------- -------- ---------- ----------
Net Increase (Decrease) in
Net Asset Value (.45) (.58) 1.31 (1.76)
-------- -------- ---------- ----------
NET ASSET VALUE--END OF PERIOD $ 8.52 $ 8.97 $ 9.55 $ 8.24
======== ======== ========== ==========
TOTAL INVESTMENT RETURN (0.46)%** (1.48)% 18.97% (32.63)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.49%**++ 1.26% 2.26% 3.05%**
Net Investment Income 5.06%** 4.73% 4.64% 3.39%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 962.17% 780.30% 3,452.59% 1,290.00%
Net Assets, End of Period
(000's omitted) $ 3,302 $ 18,331 $ 2,592 $ 1,564
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.51%.
* Commencement of Operations: January 3, 1994--U.S.Government Bond Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova, Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
37
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Juno Fund
------------------------------------
Period Year Period
Ended Ended Ended
March 31, June 30, June 30,
1997 1996 1995*
--------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD $ 9.47 $ 9.08 $ 10.00
------- ------- --------
Net Investment Income .25 .34 .14
Net Realized and Unrealized Gains
(Losses) on Securities .00 .05 (1.06)
------- ------- --------
Net Increase (Decrease) in Net Asset
Value Resulting from Operations .25 .39 (.92)
Dividends to Shareholders from Net
Investment Income (.03) .00 .00
------- ------- --------
Net Increase (Decrease) in Net Asset
Value .22 .39 (.92)
------- ------- --------
NET ASSET VALUE--END OF PERIOD $ 9.69 $ 9.47 $ 9.08
======= ======= ========
TOTAL INVESTMENT RETURN 3.75%** 4.30% (9.20)%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.58%**++ 1.64% 1.50%**
Net Investment Income 3.51%** 3.63% 1.32%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0.00% 0.00% 0.00%
Net Assets, End of Period (000's omitted) $32,577 $18,860 $ 4,301
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.60%.
* Commencement of Operations: March 3, 1995--Juno Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova , Ursa, and
Juno Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
38
<PAGE>
RYDEX SERIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Yield
Fund*
--------------
Period
Ended
March 31, 1997
--------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD $ 10.00
--------
Net Investment Income .19
Net Realized and Unrealized Loss on Securities (.36)
--------
Net Decrease in Net Asset Value Resulting from Operations (.17)
Dividends to Shareholders from Net Investment Income (.02)
--------
Net Decrease in Net Asset Value (.19)
--------
NET ASSET VALUE--END OF PERIOD $ 9.81
========
TOTAL INVESTMENT RETURN** (0.12)%
RATIOS TO AVERAGE NET ASSETS**
Expenses .99%++
Net Investment Income 8.57%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 763.11%
Net Assets, End of Period (000's omitted) $ 10,518
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.88%.
* Commencement of Operations: January 3, 1997--High Yield Fund.
** Annualized.
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year. The Nova, Ursa, and Juno
Funds typically hold most of their investments in options and futures
contracts which are deemed short-term securities.
See Notes to Financial Statements.
39
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Rydex Series Trust (the Trust) is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 as a non-
diversified, open-ended investment company. The Trust consists of nine separate
series, the Nova Fund, the Ursa Fund, the U.S. Government Money Market Fund,
the Over-the-Counter Fund, the Precious Metals Fund, the U.S. Government Bond
Fund, the Juno Fund, the Institutional Money Market Fund and the High Yield
Fund. The financial statements include eight of the separate series except the
Institutional Money Market Fund. The accompanying significant accounting
policies are in conformity with generally accepted accounting principles and
are consistently followed by the Trust.
The Trust changed its fiscal year end from June 30 to March 31. These
statements reflect nine months of financial activity.
A. Securities listed on an exchange are valued at the latest quoted sales
prices as of 4:00 P.M. on the valuation date. Securities not traded on an
exchange are valued at their last sales price. Listed options held by the Trust
are valued at their last bid price. Over-the-counter options held by the Trust
are valued using the average bid price obtained from one or more security
dealers. The value of futures contracts purchased and sold by the Trust are
accounted for using the unrealized gain or loss on the contracts that is
determined by marking the contracts to their current realized settlement
prices. Short term securities with less than sixty days to maturity are valued
at amortized cost, which approximates market. Security and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under direction of the Board of Trustees of the
Trust.
B. Securities transactions are recorded on the trade date (the date the order
to buy or sell is executed). Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recorded on the ex-dividend date. Interest income is accrued on a daily basis.
C. Net investment income is computed, and dividends are declared daily in the
U.S. Government Money Market Fund, the Institutional Money Market Fund, the
U.S. Government Bond Fund, and the High Yield Fund. Income dividends in these
funds are paid monthly. Dividends are reinvested in additional shares unless
shareholders request payment in cash. Generally, short-term capital gains are
distributed monthly in the U.S. Government Money Market Fund and the
Institutional Money Market Fund.
D. When the Trust engages in a short sale, an amount equal to the proceeds
received by the Trust is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked to market to reflect the market
value of the short sale. The Trust maintains a segregated account of securities
as collateral for the short sales. The Trust is exposed to market risk based on
the amount, if any, that the market value of the stock exceeds the market value
of the securities in the segregated account.
40
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
E. When the Trust writes (sells) an option, an amount equal to the premium
received is entered in the Trust's accounting records as an asset and
equivalent liability. The amount of the liability is subsequently marked to
market to reflect the current value of the option written. When an option
expires, or if the Trust enters into a closing purchase transaction, the Trust
realizes a gain (or loss if the cost of a closing purchase transaction exceeds
the premium received when the option was sold).
F. The Trust may purchase or sell stock index futures contracts and options on
such futures contracts. Futures contracts are contracts for delayed delivery of
securities at a specified future delivery date and at a specific price. Upon
entering into a contract, the Trust deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Trust agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and are
recorded by the Trust as unrealized gains or losses. When the contract is
closed, the Trust records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed.
G. Futures contracts and written options involve to varying degrees, elements
of market risk and risks in excess of the amount recognized in the Statements
of Assets and Liabilities. The face or contract amounts reflect the extent of
the involvement each fund has in the particular classes of instruments. Risks
may be caused by an imperfect correlation between movements in the price of the
instruments and the price of the underlying securities.
H. The Trust intends to comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and will distribute all net
investment income to its shareholders. Therefore, no Federal income tax
provision is required.
I. Costs incurred by the Trust in connection with its organization and
registration have been deferred and are being amortized on the straight-line
method over a five year period beginning on the date on which the Trust
commenced its investment activities.
J. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
41
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. OPERATING POLICIES
The Trust, which includes nine separate funds, utilizes futures contracts,
options, and options on futures contracts in order to meet the specific
investment objectives of the individual funds.
The Nova Fund, which is designed to provide total returns over time that are
superior to the Standard and Poor's 500 Composite Stock Price Index ("S&P 500")
invests primarily in futures on the S&P 500 index and options on those futures
in order to correlate its return with an amount approximately 150% of the
performance of the S&P 500. The Ursa Fund primarily sells futures contracts and
buys options on futures contracts in furtherance of its investment objective to
inversely correlate the S&P 500. The Precious Metals Fund seeks capital
appreciation. It buys primarily equity securities and purchases call options
and sells put options on the XAU Index. The Bond Fund strives to provide income
and capital appreciation. It purchases primarily long-term Treasury Bonds. It
also purchases futures contracts on U.S. Treasury Bonds and buys call options
on U.S. Treasury Bond futures as a substitute for a comparable market position
in the underlying U.S. Treasury Securities. The Juno Fund seeks to inversely
correlate with the price changes of the current Thirty Year Treasury Bond. To
meet this objective, Juno primarily buys put options on Treasury Bond futures
and sells Treasury Bond futures. The OTC Fund strives to provide investment
results before fees and expenses that closely correlate the total return of the
NASDAQ Composite Index. The fund invests in securities included in the NASDAQ
Composite and buys call options and sells put options on stock indexes. The
High Yield Fund, which correlates the MLHY Index does so by investing primarily
in long term, intermediate-term, and short term, below investment grade,
corporate bonds. In addition the Nova Fund, the Ursa Fund, the OTC Fund, and
the Precious Metals Fund all write options to further meet their investment
objectives.
The risks inherent in the use of options, futures contracts, and options on
futures contracts include 1) adverse changes in the value of such instruments;
2) imperfect correlation between the price of options and futures contracts and
options thereon and movements in the price of the underlying securities, index,
or futures contract; 3) the possible absences of a liquid secondary market for
any particular instrument at any time; and 4) the possible need to defer
closing out certain positions to avoid adverse tax consequences.
42
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. REPURCHASE AGREEMENTS
The Trust transfers uninvested cash balances into a single joint account, the
daily aggregate balance of which is invested in repurchase agreements
collateralized by Federal agency obligations. As of March 31,1997 the
repurchase agreements with Fuji Securities, Inc., PaineWebber, Inc., Smith
Barney, and Prudential Securities, in the joint account and the collateral
therefore was as follows:
<TABLE>
<CAPTION>
Security Type Range of rates Par Value Market Value
- ------------- -------------- ------------ ------------
<S> <C> <C> <C>
United States Treasury Bills.......... 6.25% $ 62,895,000 $ 60,000,000
United States Treasury Notes.......... 5.375%-9.25% $124,950,000 $127,043,534
United States Treasury Bond........... 8.5% $ 14,404,000 $ 16,756,189
</TABLE>
4. INVESTMENT ADVISORY, ACCOUNTING, AND TRANSFER AGENT SERVICES
Under the terms of an investment advisory contract, the Trust pays PADCO
Advisors, Inc. investment advisory fees calculated at an annual percentage rate
of one half of one percent (0.50%) of the average daily net assets of the U.S.
Government Money Market Fund and the U.S. Government Bond Fund; three-quarters
of one percent (0.75%) of the average daily net assets of the Nova Fund, the
Precious Metals Fund, the Over-the-Counter Fund, and the High Yield Fund; and
nine-tenths of one percent (0.90%) of the average daily net assets of the Ursa
Fund and the Juno Fund.
PADCO Service Company, Inc., a subsidiary of the investment advisor, provides
transfer agent service to the Trust at an annual rate of two-tenths of one
percent (0.20%) of the average daily net assets of the U.S. Government Money
Market Fund, U.S. Government Bond Fund, Precious Metals Fund, Over-the-Counter
Fund, and the High Yield Fund; and at annual rate of one-quarter of one percent
(0.25%) of the Nova Fund, the Ursa Fund, and the Juno Fund.
The Trust paid PADCO Service Co., Inc. $324,955 in accounting fees for the
above eight funds for the nine month period ended March 31, 1997.
43
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. ACCOUNTING FOR EXPENSES
The Trust has entered into an arrangement with its custodian whereby interest
earned on uninvested cash balances was used to offset a portion of the Trust's
expenses.
6. SECURITIES TRANSACTIONS
During the period ended March 31, 1997 purchases and sales of investment
securities were:
<TABLE>
<CAPTION>
U.S.
Government U.S.
Money Over-the- Precious Government
Nova Ursa Market Counter Metals Bond Juno High Yield
Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---------- -------------- ------------ ------------ ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases $0 $0 $0 $1,540,525,569 $250,054,682 $ 93,832,370 $0 $53,779,476
Sales $0 $0 $0 $1,557,547,271 $254,765,751 $106,868,172 $0 $43,147,175
</TABLE>
The transactions shown above exclude short term and temporary cash investments.
44
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. NET UNREALIZED APPRECIATION/DEPRECIATION OF SECURITIES
At March 31, 1997 unrealized appreciation (depreciation) and cost of investment
securities for Federal income tax purposes was:
<TABLE>
<CAPTION>
U.S.
Govern- U.S.
ment Govern-
Money Over-the- Precious ment High
Nova Ursa Market Counter Metals Bond Juno Yield
Fund Fund Fund Fund Fund Fund Fund Fund
------------ -------------- ------------ ------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Unrealized
Appreciation $ 7,582,445 $ 67,611,663 $ 0 $ 7,557,430 $ 1,033,764 $ 0 $ 699,035 $ 3,665
Gross Unrealized
(Depreciation) (17,318,714) (38,929,773) 0 (24,053,452) (12,875,480) (250,148) 0 (277,248)
------------ -------------- ------------ ------------ ------------ ---------- ----------- -----------
Net Unrealized
Appreciation
(Depreciation) $ (9,736,269) $ 28,681,890 $ 0 $(16,496,022) $(11,841,716) $ (250,148) $ 699,035 $ (273,583)
Cost of
Investments for
Federal Income
Tax Purposes $455,745,969 $1,432,790,025 $225,029,689 $99,086,695 $40,291,930 $3,632,965 $29,096,102 $10,568,826
</TABLE>
8. SHARE TRANSACTIONS
Transactions in shares for the period ended March 31, 1997 were:
<TABLE>
<CAPTION>
U.S. Govern- U.S.
ment Govern-
Money ment
Nova Ursa Market Over-the- Precious Bond Juno High
Fund Fund Fund Counter Fund Metals Fund Fund Fund Yield Fund
------------ ------------ -------------- ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares
Purchased 203,150,294 367,144,528 3,329,494,638 142,745,580 47,008,940 14,919,523 14,955,089 3,374,658
Dividend
Reinvestment 300,618 90,217 5,678,838 27,056 0 40,733 5,497 12,716
------------ ------------ -------------- ------------ ----------- ----------- ----------- ----------
Total
Purchased 203,450,912 367,234,745 3,335,173,476 142,772,636 47,008,940 14,960,256 14,960,586 3,387,374
Shares
Redeemed (207,604,225) (309,781,363) (3,205,603,845) (143,069,637) (47,949,316) (16,615,981) (13,589,740) (2,315,587)
------------ ------------ -------------- ------------ ----------- ----------- ----------- ----------
Net
Shares
Purchased
(Redeemed) (4,153,313) 57,453,382 129,569,631 (297,001) (940,376) (1,655,725) 1,370,846 1,071,787
============ ============ ============== ============ =========== =========== =========== ==========
</TABLE>
45
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Transactions in dollars for the period ended March 31, 1997 were:
<TABLE>
<CAPTION>
U.S.
Govern- U.S.
ment Govern-
Money Over-the- Precious ment
Nova Ursa Market Counter Metals Bond Juno
Fund Fund Fund Fund Fund Fund Fund
-------------- -------------- -------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares
Purchased $3,521,884,322 $2,638,202,998 $3,329,457,087 $2,553,497,726 $413,202,942 $134,338,078 $140,757,025
Purchased
through
Dividend
Reinvestment 5,375,055 626,105 5,730,900 507,026 0 373,468 49,308
-------------- -------------- -------------- -------------- ------------ ------------ ------------
Total
Purchased 3,527,259,377 2,638,829,103 3,335,187,987 2,554,004,752 413,202,942 134,711,546 140,806,333
Shares
Redeemed (3,597,262,046) (2,215,904,560) (3,205,603,845) (2,567,906,241) (417,724,938) (149,333,776) (127,431,425)
-------------- -------------- -------------- -------------- ------------ ------------ ------------
Net Shares
(Redeemed)
Purchased $ (70,002,669) $ 422,924,543 $ 129,584,142 $ (13,901,489) $ (4,521,996) $(14,622,230) $ 13,374,908
============== ============== ============== ============== ============ ============ ============
<CAPTION>
High
Yield
Fund
------------
<S> <C>
Shares
Purchased $33,888,522
Purchased
through
Dividend
Reinvestment 126,588
------------
Total
Purchased 34,015,110
Shares
Redeemed (23,160,395)
------------
Net Shares
(Redeemed)
Purchased $10,854,715
============
</TABLE>
Transactions in shares for the year ended June 30, 1996 were:
<TABLE>
<CAPTION>
U.S.
Government U.S.
Money Over-the- Precious Government
Nova Ursa Market Counter Metals Bond Juno
Fund Fund Fund Fund Fund Fund Fund
------------ ------------ -------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Purchased 188,794,994 276,476,043 4,139,232,212 168,346,003 87,901,045 19,714,470 25,594,613
Dividend Reinvestment 0 0 7,466,821 108,337 0 97,996 0
------------ ------------ -------------- ------------ ----------- ----------- -----------
Total Purchased 188,794,994 276,476,043 4,146,699,033 168,454,340 87,901,045 19,812,466 25,594,613
Shares Redeemed (179,799,246) (265,490,770) (4,276,965,783) (170,312,258) (88,544,497) (18,040,885) (24,076,731)
------------ ------------ -------------- ------------ ----------- ----------- -----------
Net Shares Purchased
(Redeemed) 8,995,748 10,985,273 (130,266,750) (1,857,918) (643,452) 1,771,581 1,517,882
============ ============ ============== ============ =========== =========== ===========
</TABLE>
46
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Transactions in dollars for the year ended June 30, 1996 were:
<TABLE>
<CAPTION>
U.S.
Government U.S.
Money Over-the- Precious Government
Nova Ursa Market Counter Metals Bond Juno
Fund Fund Fund Fund Fund Fund Fund
-------------- -------------- -------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Purchased $2,653,475,866 $2,245,867,707 $4,139,232,212 $2,261,882,356 $836,754,933 $189,414,530 $233,349,428
Purchased
through
Dividend
Reinvestment 0 0 7,466,821 1,413,792 0 879,023 0
-------------- -------------- -------------- -------------- ------------ ------------ ------------
Total Purchased 2,653,475,866 2,245,867,707 4,146,699,033 2,263,296,148 836,754,933 190,293,553 233,349,428
Shares Redeemed (2,520,809,754) (2,153,598,241) (4,276,965,780) (2,281,519,960) (836,741,911) (174,392,765) (217,249,381)
-------------- -------------- -------------- -------------- ------------ ------------ ------------
Net Shares
Purchased/
(Redeemed) $ 132,666,112 $ 92,269,466 $ (130,266,747) $ (18,223,812) $ 13,022 $ 15,900,788 $ 16,100,047
============== ============== ============== ============== ============ ============ ============
</TABLE>
9. OPTION CONTRACTS WRITTEN
During the period ended March 31, 1997 the Trust wrote the following contracts:
Call Options Written:
<TABLE>
<CAPTION>
Nova Fund Ursa Fund
---------------------- -------------------------
Number of Initial Number of Initial
Contracts Premiums Contracts Premiums
--------- ------------ --------- ---------------
<S> <C> <C> <C> <C>
Outstanding at Beginning of
Period 0 $ 0 6,000 $ 194,132,927
Options Written 7,222 274,895,042 38,800 1,765,889,584
Options Terminated (3,222) (90,218,598) (24,800) (1,062,894,217)
------ ------------ ------- ---------------
Outstanding at End of Pe-
riod 4,000 $184,676,444 20,000 $ 897,128,294
====== ============ ======= ===============
</TABLE>
Put Options Written:
<TABLE>
<CAPTION>
Precious Metals
Nova Fund Ursa Fund Over-the-Counter fund Fund
---------------------- ---------------------- --------------------- ------------------
Number of Initial Number of Initial Number of Initial Number of Initial
Contracts Premiums Contracts Premiums Contracts Premiums Contracts Premiums
--------- ------------ --------- ------------ --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of Period 0 $ 0 0 $ 0 37 $ 88,577 20 $ 9,189
Options Written 1,200 10,068,500 1,600 14,708,000 1,611 2,801,807 100 42,136
Options Terminated (1,200) (10,068,500) (1,600) (14,708,000) (1,617) (2,686,934) (120) (51,325)
------ ------------ ------ ------------ ------ ----------- ---- --------
Outstanding at End of
Period 0 $ 0 0 $ 0 31 $ 203,450 0 $ 0
====== ============ ====== ============ ====== =========== ==== ========
</TABLE>
47
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10. NET ASSETS
At March 31, 1997, net assets consisted of:
<TABLE>
<CAPTION>
U.S.
Government
Money
Nova Fund Ursa Fund Market Fund
------------ ------------- ------------
<S> <C> <C> <C>
Paid-In-Capital $179,428,969 $ 696,706,717 $283,515,523
Undistributed Net Investment Income 0 1,039,285 37,303
Accumulated Net Realized Gain (Loss)
on Investments 12,236,998 (144,140,380) 0
Net Unrealized Appreciation
(Depreciation) on Investments,
Options and Futures Contracts (9,736,269) 28,681,890 0
------------ ------------- ------------
Net Assets $181,929,698 $ 582,287,512 $283,552,826
============ ============= ============
</TABLE>
48
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Over-the- Precious U.S. High
Counter Metals Government Juno Yield
Fund Fund Bond Fund Fund Fund
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Paid-In-Capital $67,263,264 $43,566,617 $4,118,999 $36,461,968 $10,854,715
Undistributed Net
Investment Income 514,668 0 16,220 100,975 0
Distribution in Excess
of Net Investment
Income 0 (2,035) 0 0 0
Accumulated Net Realized
Loss on Investments (22,406,539) (19,609,610) (776,212) (4,684,713) (95,444)
Net Unrealized
Appreciation
(Depreciation) on
Investments, Options
and Futures Contracts 6,906,805 (274,833) (57,355) 699,035 (241,600)
----------- ----------- ---------- ----------- -----------
Net Assets $52,278,198 $23,680,139 $3,301,652 $32,577,265 $10,517,671
=========== =========== ========== =========== ===========
</TABLE>
* Realized capital gains differ for financial statement and tax purposes
primarily because of the timing of the recognition of post October 31 capital
losses.
11. LOSS CARRYFORWARD--FEDERAL INCOME TAX
At March 31, 1997, for federal income tax purposes, the following funds have
capital loss carryovers which may be applied against future net taxable
realized gains of each succeeding year until the earlier of its utilization or
its expiration.
<TABLE>
<CAPTION>
U.S.
Precious Government High
Expires Ursa Metals Bond Juno Yield
March 31 Fund Fund Fund Fund Fund
- -------- ----------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
2003 $ 6,618,786 $ 0 $ 0 $ 0 $ 0
2004 43,168,709 4,249,968 0 3,643,317 0
2005 50,012,823 709,440 539,594 106,438 63,461
</TABLE>
49
<PAGE>
RYDEX SERIES TRUST
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Shareholders and Board of Trustees,
Rydex Series Trust:
We have audited the statements of assets and liabilities, including the
schedules of investments, of the Nova, Ursa, U.S. Government Money Market,
Over-the-Counter, Precious Metals, U.S. Government Bond, Juno and High Yield
Funds (eight of the nine Funds) of Rydex Series Trust (the Trust) as of March
31, 1997, the related statements of operations, changes in net assets, and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of March 31, 1997 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position as of
March 31, 1997, the results of their operations, the changes in their net
assets, and the financial highlights for the periods presented in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 15, 1997
50
<PAGE>
The First Family of Funds
Designed for Professional
Money Managers
Nova Fund
Juno Fund
Ursa Fund
OTC Fund
High Yield Fund
Precious Metals Fund
U.S. Government Bond Fund
U.S. Government Money Market
RYDEX SERIES TRUST
6116 Executive Blvd., Suite 400
Rockville, MD 20852
(301) 468-8520 (800) 820-0888
[LOGO OF RYDEX APPEARS HERE]
ANNUAL REPORT
MARCH 31,1997
Nova Fund
Juno Fund
Ursa Fund
OTC Fund
High Yield Fund
Precious Metals Fund
U.S. Government Bond Fund
U.S. Government Money Market
<PAGE>
[LOGO OF RYDEX APPEARS HERE]
Institutional Money Market Fund
The First Family of Funds
Designed for Professional
Money Managers
ANNUAL REPORT
MARCH 31, 1997
RYDEX SERIES TRUST
6116 Executive Blvd., Suite 400
Rockville, MD 20852
(301) 468-8520 (800) 820-0888
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount (Note 1)
---------- ------------
<S> <C> <C>
COMMERCIAL PAPER 6.9%
American Express Credit Corporation 5.30% 4/14/97 $1,000,000 $ 998,086
Ford Motor Credit Company 5.34% 4/04/97 1,000,000 999,555
Ford Motor Credit Company 5.30% 4/10/97 1,000,000 998,675
General Electric Credit Corporation 5.28% 4/03/97 1,000,000 999,707
General Electric Credit Corporation 5.32% 4/03/97 1,000,000 999,704
General Motor Acceptance Corporation 5.31% 4/07/97 1,000,000 999,115
IBM Credit Corporation 5.25% 4/02/97 1,000,000 999,854
------------
Total Commercial Paper (Cost $6,994,696) 6,994,696
------------
FEDERAL AGENCY DISCOUNT NOTES 73.6%
Federal Farm Credit Administration 5.24% 4/29/97 1,000,000 995,924
Federal Home Loan Mortgage Corporation 5.48% 4/01/97 5,000,000 5,000,000
Federal Home Loan Mortgage Corporation 5.47% 4/02/97 15,000,000 14,997,721
Federal Home Loan Mortgage Corporation 5.55% 4/02/97 5,000,000 4,999,229
Federal Home Loan Mortgage Corporation 5.50% 4/03/97 5,000,000 4,998,472
Federal Home Loan Mortgage Corporation 5.50% 4/03/97 20,000,000 19,993,889
Federal Home Loan Mortgage Corporation 5.46% 4/04/97 10,000,000 9,995,450
Federal Home Loan Mortgage Corporation 5.24% 4/09/97 1,000,000 998,836
Federal Home Loan Mortgage Corporation 5.35% 4/15/97 1,000,000 997,919
Federal Home Loan Mortgage Corporation 5.28% 4/18/97 1,000,000 997,507
Federal National Mortgage Association 5.49% 4/10/97 10,000,000 9,986,275
Federal National Mortgage Association 5.45% 4/11/97 1,000,000 998,486
------------
Total Federal Agency Discount Notes (Cost $74,959,708) 74,959,708
------------
REPURCHASE AGREEMENT 19.5%
Repurchase Agreement collaterized by U.S. Treasury
Obligations 6.25% 4/01/97 (Cost $19,900,000) 19,900,000 19,900,000
------------
Total Investments 100% (Cost $101,854,404) $101,854,404
============
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Securities at Value (Note 1)--See Accompanying Schedule $101,854,404
Investment Income Receivable 4,173
Cash in Custodian Bank 36,088
Receivable for Shares Purchased 11,866,898
Unamortized Organization Costs (Note 1) 52,711
Other Assets 4,799
------------
Total Assets 113,819,073
------------
LIABILITIES
Distribution Fee Payable 23,146
Payable for Shares Redeemed 3,342,825
Investment Advisory Fee Payable 36,271
Transfer Agent Fee Payable 14,982
Organization Expense Payable to Advisor 60,819
Other Liabilities 25,087
------------
Total Liabilities 3,503,130
------------
NET ASSETS $110,315,943
============
Shares Outstanding 110,313,480
============
Net Asset Value Per Share $1.00
=====
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Period Ended March 31, 1997*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $1,771,126
----------
Total Income 1,771,126
----------
EXPENSES
Distribution Fees 83,673
Advisory Fees (Note 3) 183,504
Transfer Agent Fees (Note 3) 66,737
Audit and Outside Services 13,492
Accounting Fees (Note 3) 27,212
Legal 20,745
Organizational Expenses 8,109
Registration Fees 10,142
Custodian Fees 6,041
Miscellaneous 20,610
----------
Total Expenses 440,265
Custodian Fees Paid Indirectly (Note 4) 2,526
----------
Net Expenses 437,739
----------
NET INVESTMENT INCOME 1,333,387
----------
REALIZED GAIN ON INVESTMENTS
Net Realized Gain on:
Investment Securities 503
----------
Total Net Realized Gain 503
----------
Net Increase in Net Assets from Operations $1,333,890
==========
</TABLE>
* Commencement of Operations: July 11, 1996
See Notes to Financial Statements.
3
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Period Ended March 31, 1997*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
From Investment Activities
Net Investment Income $ 1,333,387
Net Realized Gain on Investments 503
------------
Net Increase in Net Assets Resulting from Operations 1,333,890
------------
Distributions to Shareholders
From Net Investment Income (Note 1) (1,330,924)
From Realized Gain on Investments (503)
Net Increase in Net Assets Resulting from Shares Transactions
(Note 5) 110,313,480
------------
Net Increase in Net Assets and Net Assets End of Period $110,315,943
============
</TABLE>
* Commencement of Operations: July 11, 1996.
See Notes to Financial Statements.
4
<PAGE>
RYDEX SERIES TRUST
INSTITUTIONAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Period Ended March 31, 1997*
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE--BEGINNING OF PERIOD+ $ 1.00
--------
Net Investment Income .03
Net Realized and Unrealized Gains on Securities .00
--------
Net Increase in Net Asset Value Resulting from Operations .03
Dividends to Shareholders from Net Investment Income (.03)
--------
Net Increase in Net Asset Value .00
--------
NET ASSET VALUE--END OF PERIOD $ 1.00
========
TOTAL INVESTMENT RETURN** 4.17%
RATIOS TO AVERAGE NET ASSETS **
Net Expenses 1.15%++
Net Investment Income 3.50%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 0%
Net Assets, End of Period (000's omitted) $110,316
</TABLE>
+ The per share data of the Financial Highlights table is calculated using the
daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 1.15%
* Commencement of Operations: July 11, 1996
** Annualized
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year.
See Notes to Financial Statements.
5
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Rydex Series Trust (the Trust) is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 as a non-
diversified, open-ended investment company. The Trust consists of nine
separate series, the Nova Fund, the Ursa Fund, the U.S. Government Money
Market Fund, the Over-the-Counter Fund, the Precious Metals Fund, the U.S.
Government Bond Fund, the Juno Fund, the Institutional Money Market Fund and
the High Yield Fund. The following significant accounting policies are in
conformity with generally accepted accounting principles and are consistently
followed by the Trust.
The Trust changed its fiscal year end from June 30 to March 31. These
statements reflect the financial activity of the Institutional Money Market
Fund for the period July 11, 1996 (Commencement of Operations) to March 31,
1997.
A. Short term securities with less than sixty days to maturity are valued at
amortized cost, which approximates market. Security and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under direction of the Board of Trustees of the
Trust.
B. Securities transactions are recorded on the trade date (the date the order
to buy or sell is executed). Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recorded on the ex-dividend date. Interest income is accrued on a daily basis.
C. Net investment income is computed, and dividends are declared daily. Income
dividends are paid monthly. Dividends are reinvested in additional shares
unless shareholders request payment in cash. Generally, short-term capital
gains are distributed monthly.
D. The Institutional Money Market Fund intends to comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies and
will distribute all net investment income to its shareholders. Therefore, no
Federal income tax provision is required.
E. Costs incurred by the Institutional Money Market Fund in connection with
its organization and registration have been deferred and are being amortized
on the straight-line method over a five year period beginning on the date on
which the Trust commenced its investment activities.
F. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
6
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. REPURCHASE AGREEMENTS
The Trust transfers uninvested cash balances into a single joint account, the
daily aggregate balance of which is invested in repurchase agreements
collateralized by Federal agency obligations. As of March 31, 1997 the
repurchase agreements with Fuji Securities, Inc., PaineWebber, Inc., Smith
Barney, Inc. and Prudential Securities in the joint account and the collateral
therefore was as follows:
<TABLE>
<CAPTION>
Security Type Range of rates Par Value Market Value
- ------------- -------------- ------------ ------------
<S> <C> <C> <C>
United States Treasury Bills 6.25% $ 62,895,000 $ 60,000,000
United States Treasury Notes 5.375%-9.25% $124,950,000 $127,043,534
United States Treasury Bond 8.5% $ 14,404,000 $ 16,756,189
</TABLE>
3. INVESTMENT ADVISORY AND TRANSFER AGENT SERVICES
Under the terms of an investment advisory contract, the Institutional Money
Market Fund pays PADCO Advisors, Inc. investment advisory fees calculated at
an annual percentage rate of fifty-five one hundredths of one percent (0.55%)
of the average daily net assets of the Institutional Money Market Fund.
PADCO Service Company, Inc., a subsidiary of the investment advisor, provides
transfer agent service to the Trust at an annual rate of two-tenths of one
percent (0.20%) of the average daily net assets of the Institutional Money
Market Fund.
The Institutional Money Market Fund paid PADCO Service Co., Inc. $27,212 in
accounting fees for the period ended March 31, 1997.
4. ACCOUNTING FOR EXPENSES
The Institutional Money Market Fund entered into an arrangement with its
custodian whereby interest earned on uninvested cash balances was used to
offset a portion of the Fund's expenses.
7
<PAGE>
RYDEX SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
Transactions in shares for the period ended March 31,1997 were:
<TABLE>
<S> <C>
Shares Purchased 1,748,417,852
Dividend Reinvestment 1,179,631
---------------
Total Purchased 1,749,597,483
Shares Redeemed (1,639,284,003)
---------------
Net Shares Purchased 110,313,480
---------------
Transactions in dollars for the period ended March 31,1997
were:
Shares Purchased $ 1,748,417,852
Dividend Reinvestment 1,179,631
---------------
Total Purchased 1,749,597,483
Shares Redeemed (1,639,284,003)
---------------
Net Shares Purchased $ 110,313,480
===============
</TABLE>
6. NET ASSETS
At March 31, 1997, net assets consisted of:
<TABLE>
<S> <C>
Paid-In-Capital $ 110,313,480
Undistributed Net Investment Income 2,463
---------------
Net Assets $ 110,315,943
===============
</TABLE>
8
<PAGE>
RYDEX SERIES TRUST
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Shareholders and Board of Trustees,
Rydex Series Trust:
We have audited the statement of assets and liabilities, including the
schedule of investments, of the Institutional Money Market Fund (one of the
nine Funds) of Rydex Series Trust (the Trust) as of March 31, 1997, the
related statements of operations, changes in net assets, and the financial
highlights for the period July 11, 1996 (commencement of operations) to March
31, 1997. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of March 31, 1997 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position as of
March 31, 1997, the results of its operations, the changes in its net assets,
and the financial highlights for the period presented in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 15, 1997
9
<PAGE>
The First Family of Funds
Designed for Professional
Money Managers
Institutional Money Market Fund
RYDEX SERIES TRUST
6116 Executive Blvd., Suite 400
Rockville, MD 20852
(301) 468-8520 (800) 820-0888
[LOGO OF RYDEX APPEARS HERE]
ANNUAL REPORT
MARCH 31, 1997
Institutional Money Market Fund
<PAGE>
PART C
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
List all financial statements and exhibits filed as part of
the Registration Statement.
(a) Financial Statements:
In Part A: Audited Financial Highlights of The Nova Fund,
The Ursa Fund, The Rydex OTC Fund, The Rydex
Precious Metals Fund, The Rydex U.S. Government
Bond Fund, The Juno Fund, and The Rydex U.S.
Government Money Market Fund, each a series of
Rydex Series Trust (collectively, the "Rydex
Funds") for: (i) the periods from July 12,
1993, January 7, 1994, February 14, 1994,
December 1, 1993, January 3, 1994, March 3,
1995, and December 3, 1993, respectively (the
respective dates on which these Rydex Funds
commenced operations), to June 30, 1994, and to
June 30, 1995 (as appropriate); (ii) the
fiscal year ended June 30, 1996; and (iii) the
nine-month period ended March 31, 1997.
Audited Financial Highlights of The Rydex High
Yield Fund, a series of Rydex Series Trust, for
the period from January 3, 1997 (commencement
of operations) to March 31, 1997.
Audited Financial Highlights of The Rydex
Institutional Money Market Fund, a series of
Rydex Series Trust, for the period from July
11, 1996 (commencement of operations) to March
31, 1997.
In Part B: Audited Financial Statements of The Nova Fund,
The Ursa Fund, The Rydex OTC Fund, The Rydex
Precious Metals Fund, The Rydex U.S. Government
Bond Fund, The Juno Fund, and The Rydex U.S.
Government Money Market Fund, each a series of
Rydex Series Trust, for the nine-month period
ended March 31, 1997, including the Report of
Deloitte & Touche LLP, independent auditors for
Rydex Series Trust.
Audited Financial Statements of The Rydex High
Yield Fund, a series of Rydex Series Trust, for
the period from January 3, 1997 (commencement
of operations) to March 31, 1997, including the
<PAGE>
Report of Deloitte & Touche LLP, independent
auditors for Rydex Series Trust.
Audited Financial Statements of The Rydex
Institutional Money Market Fund, a series of
Rydex Series Trust, for the period from July
11, 1996 (commencement of operations) to March
31, 1997, including the Report of Deloitte &
Touche LLP, independent auditors for Rydex
Series Trust.
In Part C: None. C-2
<PAGE>
ITEM 24. Financial Statements and Exhibits (continued)
(b) Exhibits
(1)(a) Certificate of Trust of Rydex Series Trust (the
"Registrant" or the "Trust").4/
(1)(b) Declaration of Trust of the Registrant.4/
(2) By-laws of Registrant.4/
(3) Not applicable.
(4) Specimen share certificate.4/
(5)(a) Investment Advisory Agreement between Registrant
and PADCO Advisors, Inc.4/
(5)(b) Sub-Advisory Agreement between PADCO Advisors,
Inc. and Loomis, Sayles & Company, L.P.4/
(6) Not applicable.
(7) Not applicable.
(8) Custody Agreement between Registrant and Star
Bank, N.A.4/
(9)(a) Trustees and Officers Indemnification and
Liability Insurance Policy.1/
(9)(b) Comprehensive Blanket Fidelity Bond Insurance
Policy.1/
(9)(c) Service Agreement between Registrant and PADCO
Service Company, Inc.4/
(9)(d) Portfolio Accounting Services Agreement between
Registrant and PADCO Service Company, Inc.4/
(9)(e) Fidelity Bond Allocation Agreement Among
Registrant, PADCO Advisors, Inc., The Rydex
Advisor Variable Annuity Account, PADCO Advisors
II, Inc., and PADCO Service Company, Inc.4/
(9)(f) Amended and Restated Fidelity Bond Agreement
Among Registrant, PADCO Advisors, Inc., The Rydex
Advisor Variable Annuity Account, PADCO Advisors
II, Inc., PADCO Service Company, Inc., and PADCO
401(k) and Profit Sharing Plan.5/
(10) Opinion and Consent of Jorden Burt Berenson &
Johnson LLP, counsel to the Registrant.4
(11) Consent of Deloitte & Touche LLP, independent
auditors for the Registrant.5/
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15)(a) Plan of Distribution for The Rydex Institutional
Money Market Fund.5/
(15)(b) Plan of Distribution for The Rydex Institutional
Money Market Fund as revised, March 12, 1997.5/
(15)(c) Plan of Distribution for The Rydex Institutional
Money Market Fund as revised, June 23, 1997.5/
(15)(d) Plan of Distribution for The Rydex High Yield
Fund 3/
(15)(e) Plan of Distribution for The Rydex High Yield
Fund, as revised March 12, 1997.5/
C-3
<PAGE>
(15)(f) Plan of Distribution for The Rydex High Yield
Fund, as revised June 23, 1997.5/
(15)(g) Forms of Shareholder Servicing Support Agreements
between PADCO Financial Services, Inc. and
Selling Recipients in connection with the Plan of
Distribution for The Rydex Institutional Money
Market Fund.2/
(15)(h) Form of Shareholder Servicing Support Agreement
between PADCO Financial Services, Inc. and
Selling Recipients in connection with the Plan of
Distribution for The Rydex High Yield Fund.3/
(16) Schedule of Performance Quotations.5/
(17) Financial Data Schedules for Registrant.5/
(18) Not applicable.
____________________
1/ Incorporated herein by reference to Post-Effective
Amendment No. 24 to this Registration Statement, filed on
October 27, 1995.
2/ Incorporated herein by reference to Post-Effective
Amendment No. 25 to this Registration Statement, filed on
March 1, 1996.
3/ Incorporated herein by reference to Post-Effective
Amendment No. 26 to this Registration Statement, filed on
September 11, 1996.
4/ Incorporated herein by reference to Post-Effective
Amendment No. 27 to this Registration Statement, filed on
October 30, 1996.
5/ Filed herewith.
C-4
<PAGE>
ITEM 25. Persons Controlled By or Under Common Control With
Registrant
The following persons are directly or indirectly controlled by
or under the common control with the Registrant, a Delaware
business trust:
<TABLE>
<CAPTION>
Percentage of Voting
Securities Owned and/or
State of Controlled By the
Organization and Controlling Person or
Relationship(If Any) to Other Basis of
Company the Registrant Common Control
<S> <C> <C>
PADCO Advisors, Inc. a Maryland 80% of the voting
(the "Advisor") corporation, a securities of the
registered Advisor are owned by
investment adviser, Albert P. Viragh, Jr.,
and the the Chairman of the
Registrant's Board of Directors, the
investment adviser President, and the
Treasurer of the
Advisor, and 100% of
the voting securities
are controlled by
Albert P. Viragh, Jr.
PADCO Service Company, a Maryland 100% of the voting
Inc. (the corporation, a securities of the
"Servicer") registered transfer Servicer are owned by
agent, and the Albert P. Viragh, Jr.,
Registrant's the Chairman of the
shareholder and Board of Directors, the
transfer agent President, and the
servicer Treasurer of the
Servicer
PADCO Financial a Maryland 100% of the voting
Services, corporation, a securities of the
Inc. (the registered broker- Distributor are owned
"Distributor") dealer, and the by Albert P. Viragh,
distributor of the Jr., the Chairman of
shares of The Rydex the Board of Directors,
Institutional Money the President, and the
Market Fund and The Treasurer of the
Rydex High Yield Distributor
Fund, each a series
of the Registrant
C-5
<PAGE>
PADCO Advisors II, a Maryland 100% of the voting
Inc. corporation and a securities are owned by
("PADCO II") registered Albert P. Viragh, Jr.,
investment adviser the Chairman of the
(PADCO II is not Board of Directors, the
otherwise related President, and the
to the Registrant) Treasurer of PADCO II
Rydex Advisor Variable a managed separate the investment advisers
Annuity Account account of Great for the Separate
(the "Separate American Reserve Account and the
Account") Insurance Company, Registrant are under
which is organized the common control of
under the laws of Albert P. Viragh, Jr.,
the State of Texas the Chairman of the
and is advised by Board of Trustees,
PADCO II President, and
Treasurer of the
Registrant
</TABLE> C-6
<PAGE>
ITEM 26. Number of Holders of Securities
The following information is given as of the date indicated:
Title of Class; Shares of Number of Record Holders
Beneficial Interest, no par value as of July 17, 1997
The Nova Fund 4,806
The Rydex U.S. Government
Money Market Fund5, 150
The Rydex Precious Metals Fund 863
The Ursa Fund 3,555
The Rydex U.S. Government Bond
Fund 278
The Rydex OTC Fund 2,603
The Juno Fund 418
The Rydex Institutional Money
Market Fund 37
The Rydex High Yield Fund 368
ITEM 27. Indemnification
The Registrant is organized as a Delaware business trust and
is operated pursuant to a Declaration of Trust, dated as of
March 13, 1993 (the "Declaration of Trust"), that permits the
Registrant to indemnify its trustees and officers under
certain circumstances. Such indemnification, however, is
subject to the limitations imposed by the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended. The Declaration of Trust of the Registrant provides
that officers and trustees of the Trust shall be indemnified
by the Trust against liabilities and expenses of defense in
proceedings against them by reason of the fact that they each
serve as an officer or trustee of the Trust or as an officer
or trustee of another entity at the request of the entity.
This indemnification is subject to the following conditions:
(a) no trustee or officer of the Trust is
indemnified against any liability to the Trust
or its security holders which was the result of
any willful misfeasance, bad faith, gross
negligence, or reckless disregard of his
duties;
(b) officers and trustees of the Trust are
indemnified only for actions taken in good
faith which the officers and trustees believed
were in or not opposed to the best interests of
the Trust; and
(c) expenses of any suit or proceeding will be paid
in advance only if the persons who will benefit
C-7
<PAGE>
by such advance undertake to repay the expenses
unless it subsequently is determined that such
persons are entitled to indemnification.
The Declaration of Trust of the Registrant provides that if
indemnification is not ordered by a court, indemnification may
be authorized upon determination by shareholders, or by a
majority vote of a quorum of the trustees who were not parties
to the proceedings or, if this quorum is not obtainable, if
directed by a quorum of disinterested trustees, or by
independent legal counsel in a written opinion, that the
persons to be indemnified have met the applicable standard.
C-8
<PAGE>
ITEM 28. Business and Other Connections of Investment Adviser
Each of the directors of the Trust's investment adviser, PADCO
Advisors, Inc. (the "Advisor"), Albert P. Viragh, Jr., the
Chairman of the Board of Directors, President, and Treasurer
of the Advisor, and Amanda C. Viragh, the Secretary of the
Advisor, is an employee of the Advisor at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852. Albert P.
Viragh, Jr. also has served (and continues to serve) as: (i)
the Chairman of the Board of Trustees and the President of the
Trust since the Trust's organization as a Delaware business
trust on March 13, 1993; (ii) the Chairman of the Board of
Directors, the President, and the Treasurer of PADCO Service
Company, Inc. (the "Servicer"), the Trust's registered
transfer agent and shareholder servicer, since the
incorporation of the Servicer in the State of Maryland on
October 6, 1993; (iii) the Chairman of the Board of Directors,
the President, and the Treasurer of PADCO Advisors II, Inc.
("PADCO II"), a registered investment adviser, since the
incorporation of PADCO II in the State of Maryland on July 5,
1994; and (iv) the Chairman of the Board of Directors, the
President, and the Treasurer of PADCO Financial Services, Inc.
(the "Distributor"), the distributor of the shares of The
Rydex High Yield Fund and The Rydex Institutional Money Market
Fund, each a series of the Trust, since the incorporation of
the Distributor in the State of Maryland on March 21, 1996.
Amanda C. Viragh also has served (and continues to serve) as
the Secretary of the Advisor, the Servicer, and PADCO II, and
also as the Assistant Treasurer of the Servicer.
ITEM 29. Principal Underwriter
(a) PADCO Financial Services, Inc. serves as the principal
underwriter for the securities of (i) The Rydex
Institutional Money Market Fund and The Rydex High Yield
Fund, each a series of the Registrant, and (ii) The Rydex
Advisor Variable Annuity Account, a managed separate
account of Great American Reserve Insurance Company that
is a registered investment company advised by PADCO
Advisors II, Inc., but does not currently serve as the
principal underwriter for the securities of any other
investment company.
(b) The following information is furnished with respect to
the directors and officers of PADCO Financial Services,
Inc., the principal underwriter for The Rydex
Institutional Money Market Fund and The Rydex High Yield
Fund, each a series of the Registrant:
C-9
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with
Business Address* Positions and Offices
with Registrant Underwriter
<S> <C>
Albert P. Viragh, Jr. Director, Chairman of the
Board of Chairman of the
Board of Directors,
President, and Treasurer
Trustees and President
Amanda C. Viragh Director and Assistant
Treasurer none
Victor J. Edgar Chief Operating Officer and
Controller Chief Financial
Officer
Michael P. Byrum Secretary Assistant
Secretary
Sothara Chin Compliance Officer
Compliance Officer
</TABLE>
* The principal business address for each of the
aforementioned directors and officers of PADCO Financial
Services, Inc., is 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.
ITEM 30. Location of Accounts and Records
All accounts, books, and records required to be maintained and
preserved by Section 31(a) of the Investment Company Act of
1940, as amended, and Rules 31a-1 and 31a-2 thereunder, will
be kept by the Registrant at 6116 Executive Boulevard,
Rockville, Maryland 20852.
ITEM 31. Management Services
There are no management-related service contracts not
discussed in Parts A and B.
ITEM 32. Undertakings
(a) Insofar as indemnification for liability arising under
the Securities Act of 1933, as amended (the "1933 Act"),
may be permitted to trustees, officers, and controlling
persons of the Registrant pursuant to the foregoing
C-10
<PAGE>
provisions, or otherwise, the Registrant has been advised
that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy
as expressed in the 1933 Act and, therefore, is
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by
a trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit,
or proceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities
being registered, the Registrant, unless in the opinion
of the Registrant's counsel the matter has been settled
by controlling precedent, will submit to a court of
appropriate jurisdiction the question whether such
indemnification by the Registrant is against public
policy as expressed in the 1933 Act and will be governed
by the final adjudication of such issue.
(b) The Registrant undertakes that, if requested to do so by
the holders of at least 10% of its outstanding shares of
the Trust, the Registrant will call a meeting of
shareholders of the Trust for the purpose of voting upon
the question of the removal of a trustee or trustees of
the Registrant and to assist in communications with other
shareholders as required by Section 16(c) of the
Investment Company Act of 1940, as amended.
(c) The Registrant undertakes to furnish each person to whom
a prospectus is delivered a copy of the Trust's latest
annual report to shareholders upon request and without
charge.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies
that it meets all of the requirements for effectiveness of
this post-effective amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and
has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in
the City of Rockville in the State of Maryland on the 29th day
of July, 1997.
RYDEX SERIES TRUST
/s/Albert P. Viragh, Jr.
Albert P. Viragh, Jr.,
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/Albert P. Viragh, Jr. Chairman of the Board July 29, 1997
Albert P. Viragh, Jr. of Trustees, President,
and Trustee
/s/Victor J. Edgar Controller July 29, 1997
Victor J. Edgar
Corey A. Colehour* Trustee July 29, 1997
Corey A. Colehour
J. Kenneth Dalton* Trustee July 29, 1997
J. Kenneth Dalton
Roger Somers* Trustee July 29, 1997
Roger Somers
*By: /s/Albert P. Viragh, Jr.
-------------------------
Albert P. Viragh, Jr.
Attorney-in-Fact
</TABLE> S-1
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
<PAGE>
Exhibit
Number Description of Exhibit
(9)(f) Amended and Restated Fidelity Bond
Allocation Agreement Among Rydex Series
Trust, PADCO Advisors, Inc., The Rydex
Advisor Variable Annuity Account, PADCO
Advisors II, Inc., PADCO Service Company,
Inc., and PADCO 401(k) and Profit Sharing
Plan.
(11) Consent of Deloitte & Touche LLP,
independent auditors for Rydex Series
Trust.
(15)(a) Plan of Distribution for The Rydex
Institutional Money Market Fund, dated
March 8, 1996.
(15)(b) Plan of Distribution for The Rydex
Institutional Money Market Fund, as
revised March 12, 1997.
(15)(c) Plan of Distribution for The Rydex
Institutional Money Market Fund, as
further revised June 23, 1997.
(15)(e) Plan of Distribution for The Rydex High
Yield Fund, as revised March 12, 1997.
(15)(f) Plan of Distribution for The Rydex High
Yield Fund, as further revised June 23,
1997.
(15)(g) Forms of Shareholder Servicing Support
Agreements between PADCO Financial
Services, Inc. and Selling Recipients in
connection with Plan of Distribution for
The Rydex Institutional Money Market
Fund.
(16) Schedule of Performance Quotations.
(17) Financial Data Schedules for Rydex Series
Trust.
<PAGE>
<PAGE>
Exhibit (9)(f)
Amended and Restated
Fidelity Bond Allocation Agreement
Among
Rydex Series Trust,
PADCO Advisors, Inc.,
The Rydex Advisor Variable Annuity Account,
PADCO Advisors II, Inc.,
PADCO Service Company, Inc.,
and
The PADCO 401(k) and Profit Sharing Plan <PAGE>
<PAGE>
AMENDED AND RESTATED
ALLOCATION AGREEMENT
THIS ALLOCATION AGREEMENT (the "Agreement"), is made as
of this 23rd day of June, 1997, by and among:
RYDEX SERIES TRUST (the "Trust"), a registered
investment company organized as a Delaware business
trust on March 9, 1993, with its principal place of
business at 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852, on behalf of the Trust
and the Trust's series of THE NOVA FUND, THE URSA
FUND, THE RYDEX OTC FUND, THE RYDEX PRECIOUS METALS
FUND, THE RYDEX U.S. GOVERNMENT BOND FUND, THE JUNO
FUND, THE RYDEX U.S. GOVERNMENT MONEY MARKET FUND,
THE RYDEX INSTITUTIONAL MONEY MARKET FUND, and THE
RYDEX HIGH YIELD FUND, and all future registered
investment companies which are named insureds under
a joint fidelity bond, as described below, and for
which PADCO Advisors, Inc. acts as investment
adviser and for which PADCO Service Company, Inc.
acts as transfer agent and shareholder servicing
agent (the above-referenced entities hereinafter are
collectively referred to as the "Rydex Funds");
PADCO ADVISORS, INC. ("PADCO I"), a registered
investment adviser incorporated under the laws of
the State of Maryland on February 5, 1993, with its
principal place of business at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852;
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT (the
"Separate Account"), a registered investment company
established as a managed separate account of Great
American Reserve Insurance Company ("Great American
Reserve") under the laws of the State of Texas on
April 15, 1996, with its principal place of business
at 11815 North Pennsylvania Street, Carmel, Indiana
46032, and with offices at 6116 Executive Boulevard,
Rockville, Maryland 20852, on behalf of the Separate
Account and the Separate Account's subaccounts of
THE NOVA SUBACCOUNT, THE URSA SUBACCOUNT, THE OTC
SUBACCOUNT, THE PRECIOUS METALS SUBACCOUNT, THE U.S.
GOVERNMENT BOND SUBACCOUNT, THE JUNO SUBACCOUNT, THE
MONEY MARKET I SUBACCOUNT, and THE MONEY MARKET II
SUBACCOUNT, and all future registered investment
companies which are named insureds under a joint
fidelity bond as described below and for which PADCO
Advisors II, Inc. acts as investment adviser and for
which PADCO Service Company, Inc. acts as subaccount
asset allocation administration servicer (the above-
referenced subaccounts of the Separate Account
<PAGE>
<PAGE>
hereinafter are collectively referred to as the
"Rydex Subaccounts");
PADCO ADVISORS II, INC. ("PADCO II"), a registered
investment adviser incorporated under the laws of
the State of Maryland on July 5, 1994, with its
principal place of business at 6116 Executive
Boulevard, Rockville, Maryland 20852;
PADCO SERVICE COMPANY, INC. (the "Servicer"), a
registered transfer agent incorporated under the
laws of the State of Maryland on October 6, 1993,
with its principal place of business at 6116
Executive Boulevard, Rockville, Maryland 20852; and
PADCO 401(k) & PROFIT SHARING PLAN (the "PADCO
Plan"), an employee benefit welfare or pension
benefit plan established effective January 1, 1994,
subject to the supervision of the rules and
regulations promulgated by the Secretary of the
Department of Labor, that: (i) is a "qualified"
retirement plan, under the provisions of the U.S.
Internal Revenue Code of 1986, as amended; (ii) is
designed to reward eligible employees of PADCO I,
PADCO II, the Servicer, and PADCO Financial Services
Company, Inc., with retirement benefits and to serve
as a funding medium for the accumulation of assets;
(iii) is administered by PADCO I; and (iv) has
designated Albert P. Viragh, Jr., as the PADCO Plan
trustee.
This Agreement is entered into by the aforementioned parties
(collectively, the "Joint Insureds") under the following
circumstances:
W I T N E S S E T H
WHEREAS, Section 17(g), "Transactions of Certain
Affiliated Persons and Underwriters," of the Investment
Company Act of 1940, as amended (the "1940 Act"), provides
that the Securities and Exchange Commission (the "Commission")
is authorized to require that officers and employees of
registered investment companies be bonded against larceny and
embezzlement, and the Commission, under Rule 17g-1, "Bonding
of Officers and Employees of Registered Management Investment
Companies," under the 1940 Act, has promulgated rules and
regulations dealing with this subject;
WHEREAS, the Trust, the Rydex Funds, PADCO I, the
Separate Account, the Rydex Subaccounts, PADCO II, the
Servicer, and the PADCO Plan are named or will be named as
joint insureds under the terms of a certain bond or policy of
<PAGE>
<PAGE>
insurance which insures against larceny and embezzlement of
officers and employees (the "Fidelity Bond"), a copy of which
Fidelity Bond is attached hereto as Exhibit A;
WHEREAS, the trustees of the Trust (the "Trustees"),
including each of the Trustees who is not an "interested
person" of the Trust, as that term is defined in Section
2(a)(19) of the 1940 Act (the "Independent Trustees"), and the
managers of the Separate Account (the "Managers"), including
each of the Managers who is not an "interested person" of the
Separate Account (the "Independent Managers"), as that term is
defined in Section 2(a)(19) of the 1940 Act, have considered
all relevant factors, including, but not limited to, the
number of the parties named as "joint insureds" under the
joint Fidelity Bond, the nature of the business activities of
such Joint Insureds, the amount of the joint insured bond, the
amount of the premium for such bond, and the ratable
allocation of the premium among all parties named as insureds
under the joint Fidelity Bond, and have determined that the
share of the premium allocated to each of the Rydex Funds and
to each of the Rydex Subaccounts is less than the premium each
such Rydex Fund and each such Rydex Subaccount, respectively,
would have had to pay if each such Rydex Fund and each such
Rydex Subaccount had provided and maintained a single insured
bond, as required pursuant to paragraph (e) of Rule 17g-1, and
also have determined that it would be in the best interests of
(i) the Trust and the Rydex Funds and (ii) the Separate
Account and the Rydex Subaccounts for (i) the Trust and the
Rydex Funds and (ii) the Separate Account and the Rydex
Subaccounts, respectively, to be included as covered joint
insureds under the joint insured Fidelity Bond, pursuant to
the requirements of Rule 17g-1 under the 1940 Act;
WHEREAS, the Trustees of the Trust, including each of the
Independent Trustees, and the Managers, including each of the
Independent Managers, has given due consideration to all
factors relevant to the form, amount, and apportionment of
premiums and recoveries on such joint insured Fidelity Bond
and such Managers have approved the term and amount of the
Fidelity Bond, the portions of the premium payable by each of
the Rydex Funds, the Rydex Subaccounts, PADCO I, PADCO II, the
Servicer, and the PADCO Plan, and the manner in which recovery
of said Fidelity Bond, if any, shall be shared by and among
the parties hereto as set forth; and
WHEREAS, the Trust, the Rydex Funds, PADCO I, the
Separate Account, the Rydex Subaccounts, PADCO II, the
Servicer, and the PADCO Plan now desire to enter into the
agreement required by Rule 17g-l(f) under the 1940 Act to
establish the manner in which recovery on said Fidelity Bond,
if any, shall be shared.
<PAGE>
<PAGE>
NOW, THEREFORE, IT IS HEREBY AGREED by and among the
parties as follows:
1. Payment of Premiums
PADCO I shall pay twelve percent (12%), PADCO II shall
pay three percent (3%), the Servicer shall pay three percent
(3%), and the Rydex Funds and the Rydex Subaccounts shall pay
eighty percent (80%) of the premium payable under the Fidelity
Bond; and PADCO I also shall pay an additional two percent
(2%) of the premium payable under the Fidelity Bond, which
portion of this premium is attributable to the PADCO Plan,
which is administered by PADCO I. Each of the Rydex Funds and
the Rydex Subaccounts shall pay that percentage of said amount
of the premium due under the Fidelity Bond which is derived by
a fraction, (i) the denominator of which is the total net
assets of all the Rydex Funds and Rydex Subaccounts combined,
and (ii) the numerator of which is the total net assets of
each such Rydex Fund or each such Rydex Subaccount
individually.
Each of the Rydex Funds, PADCO I, each of the Rydex
Subaccounts, PADCO II, the Servicer, and the PADCO Plan, agree
that the appropriateness of the allocation of said premium
will be determined jointly by PADCO I and PADCO II
(collectively, the "Advisors") on a monthly basis, subject to
approval by both the Trustees and the Managers of both the
Fidelity Bond and this Allocation Agreement no less often than
annually.
2. Allocation of Recoveries
(a) If more than one of the parties hereto is damaged in
a single loss for which recovery is received under the
Fidelity Bond, each such party shall receive that portion of
the recovery which represents the loss sustained by that
party, unless the recovery is inadequate to indemnify fully
such party sustaining a loss.
(b) If the recovery is inadequate to indemnify fully
each such party sustaining a loss, then the recovery shall be
allocated among such parties as follows:
(i) Each such party sustaining a loss shall be
allocated an amount equal to the lesser of that party's actual
loss or the minimum amount of bond which would be required to
be maintained by such party under a single insured bond
(determined as of the time of the loss) in accordance with the
provisions of Rule 17g-l(d)(1) under the 1940 Act.
(ii) The remaining portion of the proceeds shall be
allocated to each such party sustaining a loss not fully
<PAGE>
<PAGE>
covered by the allocation under subparagraph 2(b)(i), above,
in the proportion that each such party's last payment of
premium bears to the sum of the last such premium payments of
all such parties. If such allocation would result in any
party which had sustained a loss receiving a portion of the
recovery in excess of the loss actually sustained, such excess
portion shall be allocated among the other parties whose
losses would not be fully indemnified. The allocation shall
bear the same proportion as each such party's last payment of
premium bears to the sum of the last premium payments of all
parties entitled to receive a share of the excess. Any
allocation in excess of a loss actually sustained by any such
party shall be reallocated in the same manner.
3. Obligation to Maintain Minimum Coverage
(a) Each of the Rydex Funds and each of the Rydex
Subaccounts represents and warrants to each of the other
parties hereto that the minimum amount of coverage required of
each such Rydex Fund and each such Rydex Subaccount,
respectively, shall be determined as of the date hereof
pursuant to the schedule set forth in paragraph (d)(1) of Rule
17g-1 under the 1940 Act. The parties hereto agree that the
Advisors will determine jointly, no less than at the end of
each calendar quarter, the minimum amount of coverage which
would be required of each of the Rydex Funds and each of the
Rydex Subaccounts by Rule 17g-1(d)(1) if a determination with
respect to the adequacy of the coverage were currently being
made.
(b) In the event that the total amount of the minimum
coverages thus determined exceeds the amount of coverage of
the then-effective Fidelity Bond, the Trustees and the
Managers will be notified and will determine whether it is
necessary or appropriate to increase the total amount of
coverage of the Fidelity Bond to an amount not less than the
total amount of such minimums, or to secure such excess
coverage for one or more of the parties hereto, which, when
added to the total coverage of the Fidelity Bond, will equal
an amount of such minimums.
(c) Unless either or both the Trust and the Separate
Account elects to terminate this Agreement (pursuant to
Paragraph 4, below) and the Trust's and the Separate Account's
respective participation in a joint-insured bond, each Rydex
Fund and each Rydex Subaccount agrees to pay the Rydex Fund's
and the Rydex Subaccount's respective fair portion of the new
or additional premium (taking into account all of the then-
existing circumstances).
4. Prior Agreements; Termination
<PAGE>
<PAGE>
This Agreement shall supersede all prior agreements
relating to an allocation of premium on any joint insured bond
and shall apply to the present Fidelity Bond coverage and any
renewal or replacement thereof. This Agreement shall continue
until terminated by any party hereto upon the giving of not
less than sixty (60) days notice to the other parties hereto
in writing.
5. Law Governing
This Agreement is governed by the laws of the State of
Maryland (without reference to such state's conflict of law
rules).
6. Counterparts
This Agreement may be executed in counterparts, each of
which shall be deemed an original, but which together shall
constitute one and the same instrument.
7. Amendment, Modification, and Waiver
No term or provision of this Agreement may be amended,
modified, or waived without the affirmative vote or action by
written consent of each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused these
presents to be duly executed by their duly-authorized officers
as of the date first above written.
ATTEST: RYDEX SERIES TRUST
By:/s/ Robert M. Steele By:/s/ Albert P. Viragh, Jr.
Robert M. Steele Albert P. Viragh, Jr.
Vice President President
ATTEST: RYDEX SERIES TRUST on behalf of
the RYDEX FUNDS of RYDEX SERIES
TRUST
By:/s/Robert M. Steele By:/s/ Albert P. Viragh, Jr.
Robert M. Steele Albert P. Viragh, Jr.
Vice President President
ATTEST: PADCO ADVISORS, INC.
<PAGE>
<PAGE>
By:/s/ Amanda C. Viragh By:/s/Albert P. Viragh, Jr.
Amanda C. Viragh Albert P. Viragh, Jr.
Secretary President
ATTEST: RYDEX ADVISOR VARIABLE
ANNUITY ACCOUNT
By:/s/ Robert M. Steele By:/s/ L. Gregory Gloeckner
Robert M. Steele L. Gregory Gloeckner
Vice President Vice President
ATTEST: RYDEX ADVISOR VARIABLE ANNUITY
ACCOUNT on behalf of the
RYDEX SUBACCOUNTS of RYDEX
ADVISOR VARIABLE ANNUITY
ACCOUNT
By:/s/ Robert M. Steele By:/s/ Gregory Gloeckner
Robert M. Steele L. Gregory Gloeckner
Vice President Vice President
ATTEST: PADCO ADVISORS II, INC.
By:/s/ Amanda C. Viragh By:/s/ Albert P. Viragh, Jr.
Amanda C. Viragh Albert P. Viragh, Jr.
Secretary President
ATTEST: PADCO SERVICE COMPANY, INC.
By:/s/ Amanda C. Viragh By:/s/ Albert P. Viragh, Jr.
Amanda C. Viragh Albert P. Viragh, Jr.
Secretary President
ATTEST: PADCO 401(k) & PROFIT
SHARING PLAN
By:/s/ Robert M. Steele By:/s/ Albert P. Viragh, Jr.
Robert M. Steele Albert P. Viragh, Jr.
Vice President PADCO Plan Trustee
PADCO Advisors, Inc.
PADCO Plan Administrator
<PAGE>
<PAGE>
<PAGE>
<PAGE>
Exhibit (11)
Consent of Deloitte & Touche LLP,
independent auditors for
Rydex Series Trust
<PAGE>
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS CONSENT
Rydex Series Trust
We consent to the incorporation by reference in this Post-
Effective Amendment to Rydex Series Trust's Registration
Statement of our report dated May 15, 1997, appearing in the
Trust's Report to Shareholders - March 31, 1997 and to the
reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Princeton, New Jersey
July 28, 1997
<PAGE>
<PAGE>
<PAGE>
<PAGE>
Exhibit (15)(a)
Plan of Distribution
for
The Rydex Institutional Money Market Fund,
dated March 8, 1996
<PAGE>
<PAGE>
RYDEX SERIES TRUST
Rydex Institutional Money Market Fund
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
WHEREAS, Rydex Series Trust, a Delaware business trust
(the "Trust"), presently engages, and intends to continue to
engage, in business as an open-end management investment
company and is registered as such under the Investment Company
Act of 1940, as amended (the "Act");
WHEREAS, a majority of the Trustees of the Trust,
including a majority of those Trustees who are not "interested
persons" of the Trust, as defined in the Act (the "non-
interested trustees"), and who have no direct or indirect
financial interest in the operation of the Plan of
Distribution Pursuant to Rule 12b-1 on behalf of the Rydex
Institutional Money Market Fund (the "Fund"), as described
herein (the "Plan"), or in any agreements related to the Plan
(the "Rule 12b-1 Trustees"), has determined, in the exercise
of the reasonable business judgment of the Trustees and in
light of the fiduciary duties of the Trustees under state law
and under the Act, that there is a reasonable likelihood that
adoption of the Plan will benefit the Fund and the
shareholders of the Fund;
WHEREAS, a majority of the Trustees of the Trust,
including a majority of the Rule 12b-1 Trustees, has approved
the Plan by votes cast in person at a meeting called for the
purpose of voting on the Plan; and
WHEREAS, expenditures under this Plan by the Fund are
primarily intended to result in the sale of shares of the Fund
within the meaning of paragraph (a)(2) of Rule 12b-1 under the
Act.
NOW, THEREFORE, the Trust hereby adopts this Plan, on
behalf of the Fund, in accordance with Rule 12b-1 under the
Act, under the following terms and conditions.
1. Definitions. The following terms used in this
Plan shall have the following meanings:
(a) "Distributor" shall mean PADCO Financial Services,
Inc., 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
(b) "Recipient" shall mean any broker or dealer,
administrator, investment adviser, institutions, including
bank trust departments, or other person that: (i) has rendered
assistance (whether direct, administrative, or both) in the
<PAGE>
distribution of shares of the Fund; (ii) has furnished or will
furnish the Trust's principal underwriter and distributor (the
"Distributor") with such information as the Distributor has
requested or may request to answer such questions as may arise
concerning the sale of shares of the Fund; and (iii) has been
selected by the Distributor to receive payments under the
Plan. Notwithstanding the foregoing, a majority of the Rule
12b-1 Trustees may remove any person or entity as a Recipient.
(c) "Qualified Holdings" shall mean, as to any
Recipient, all shares of the Fund owned beneficially or of
record by (i) such Recipient or (ii) such brokerage or other
customers, investment advisory or other clients, and/or
accounts as to which such Recipient is a fiduciary or
custodian or co-fiduciary or co-custodian (collectively, the
"Customers"), but in no event shall any such shares be deemed
owned by more than one Recipient.
2. Reimbursement for Distribution Activities.
(a) The Trust shall reimburse the Distributor monthly
for distribution expenses incurred during that month in
promoting the sale of the Fund's shares at the rate not to
exceed 0.25% per annum of the Fund's average daily net assets
attributable to shares of the Fund that were sold by or
through Recipients. The Fund shall bear its own costs of
distribution and reimbursement shall be made from the assets
of the Fund the shares of which have been sold. In no event
will any other series of the Trust be liable for the
distribution expenses of the Fund. Such expenses shall be
calculated and accrued daily and paid within ten (10) days of
the end of each month. In no event shall such payments exceed
the Distributor's actual distribution expenses for that month.
The Distributor shall use such payments received from the Fund
in their entirety to reimburse itself for the Distributor's
direct distribution expenses, of the type contemplated herein
and reviewed from time to time by the Trustees of the Trust,
in promoting the sale of the Fund's shares, including, but not
limited to: (i) compensating Recipients for providing
distribution assistance and administrative support services
with respect to assets invested in the Fund, as described
below; (ii) costs of preparation, printing, and mailing or
other dissemination of sales literature, advertising, and
prospectuses (other than those furnished to current
shareholders of the Fund); and (iii) promotional and incentive
programs.
The distribution assistance and administrative support
services to be rendered by Recipients may include, but shall
not be limited to, the following: (i) distributing sales
literature and prospectuses, other than prospectuses furnished
to current shareholders; (ii) answering routine inquiries
<PAGE>
<PAGE>
concerning the Trust and the Fund; (iii) assisting in the
establishment and maintenance of Fund shareholder accounts and
in processing purchase and redemption transactions; (iv)
making the Trust's investment plans and dividend options
available; and (v) providing such other information and
services in connection with the distribution of shares of the
Fund as the Distributor or the Trust, on behalf of the Fund,
may reasonably request. It may be presumed that a Recipient
has provided such distribution assistance or administrative
support services if the Recipient has sufficient Qualified
Holdings of shares of the Fund to entitle the Recipient to
payments under the Plan. In the event that either the
Distributor or the Trustees of the Trust should have reason to
believe that, notwithstanding the level of Qualified Holdings,
a Recipient may not be rendering appropriate distribution
assistance or administrative support services in connection
with the sale of shares of the Fund, then the Distributor, at
the request of the Trustees, shall require the Recipient to
provide a written report or other information to verify that
said Recipient is providing appropriate services in this
regard.
It is recognized that the costs of distributing the
Fund's shares may exceed the reimbursements made under this
Plan by the Fund. In view of this, if and to the extent that
any investment management and administration fees paid by the
Fund might be considered as indirectly financing any activity
which is primarily intended to result in the sale of the
Fund's shares, the payment by the Fund of such fees hereby is
authorized under this Plan.
(b) The Distributor shall make payments to any Recipient
within forty-five (45) days of the end of each fiscal quarter
of the Trust, at an annualized rate not to exceed 0.25% of the
net asset value of Qualified Holdings owned beneficially or of
record by the Recipient or by the Recipient's Customers during
such quarter; provided, however, that no such payments shall
be made to any Recipient for any such quarter in which the
Recipient's Qualified Holdings do not equal or exceed, at the
end of such quarter, the asset minimum ("Minimum Qualified
Holdings") to be set from time to time by the Distributor with
the approval of the Rule 12b-1 Trustees. Such payments to
Recipients may be made by the Trust's investment adviser from
the adviser's own resources (which may include profits derived
from the advisory fee the adviser receives from the Fund), or
by the Distributor from the Distributor's own resources.
A majority of the Rule 12b-1 Trustees, at any time, or
from time to time, may decrease and thereafter adjust the
percentage rate payable to the Distributor not to exceed the
rate set forth above, and direct the Distributor to increase
or decrease the Minimum Qualified Holdings and/or decrease and
<PAGE>
<PAGE>
thereafter adjust the percentage rate being paid to any
Recipient not to exceed the rate set forth above. The
Distributor shall notify any and all Recipients of the Minimum
Qualified Holdings and the level of payment to such Recipient,
and shall provide each such Recipient with written notice
within thirty (30) days after any change in these
requirements. Inclusion of such change in a revised current
prospectus of the Fund shall be sufficient notice.
3. Quarterly Reports.
(a) Any agreement adopted pursuant to this Plan shall
require the Distributor to provide to the Trustees of the
Trust, and the Trustees shall review, at least quarterly, a
written report specifying in reasonable detail the amounts
expended pursuant to this Plan and the purposes for which such
expenditures were made.
(b) The Distributor shall inform the Trustees of the
Trust of commissions and account servicing fees to be paid by
the Distributor to Recipients which have agreements with the
Distributor.
4. Effectiveness; Continuation.
(a) This Plan shall not take effect until it has been
approved by a vote of at least a majority of the outstanding
voting securities (as defined in the Act) of the Fund.
(b) This Plan shall continue in effect until March 8,
1997, and from year to year thereafter; provided, that such
continuance is specifically approved at least annually by a
majority of the Trustees of the Trust and a majority of the
Rule 12b-1 Trustees by votes cast in person at a meeting
called for the purpose of voting on the Plan.
5. Termination.
This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by vote of a majority
of the outstanding voting securities of the Fund. The Plan
shall terminate automatically in the event of its assignment
(as defined in the Act).
6. Amendments.
This Plan may not be amended to increase materially the
amount of distribution expenses provided for in paragraph 2
hereof unless such amendment to this Plan shall be approved by
the vote of a majority of the outstanding voting securities of
the Fund (as defined in the Act). All material amendments
shall be approved by a majority of the Trustees of the Trust
<PAGE>
<PAGE>
and a majority of the Rule 12b-1 Trustees by vote cast in
person at a meeting, called for the purpose of voting on such
amendment to this Plan.
7. Non-Interested Trustees.
While this Plan is in effect, the selection and
nomination of the non-interested trustees of the Trust shall
be committed to the discretion of such non-interested
trustees.
8. Records.
The Trust shall preserve copies of this Plan and any
related agreements and all reports made pursuant to this Plan
for a period of not less than six years from the date of this
Plan or such agreements or reports, as the case may be, and
for at least the first two years in an easily accessible
place. <PAGE>
<PAGE>
9. Related Agreements.
Any agreement related to this Plan shall be in writing
and shall provide that: (a) the agreement may be terminated at
any time upon sixty (60) days' written notice, without the
payment of any penalty, by vote of a majority of the Rule 12b-
1 Trustees, or by vote of a majority of the outstanding voting
securities of the Fund; (b) the agreement shall automatically
terminate in the event of the agreement's assignment (as
defined in the Act); and (c) the agreement shall continue in
effect for a period of more than one year from the date of the
agreement's execution or adoption only so long as such
continuance is specifically approved at least annually by a
majority of the Trustees of the Trust and a majority of the
Rule 12b-1 Trustees by votes cast in person at a meeting
called for the purpose of voting on such agreement.
IN WITNESS WHEREOF, the Trust, on behalf of the Fund, has
executed this Plan as of the day and year set forth below.
Date: March 8, 1996
Attest: RYDEX SERIES TRUST
By: /s/ Robert M. Steele By:/s/Albert P. Viragh, Jr.
Name: Robert M. Steele Name: Albert P. Viragh, Jr.
Title: Vice President Title:President
<PAGE>
<PAGE>
<PAGE>
<PAGE>
Exhibit (15)(b)
Plan of Distribution for
The Rydex Institutional Money Market Fund,
as revised March 12,1997 <PAGE>
<PAGE>
RYDEX SERIES TRUST
Rydex Institutional Money Market Fund
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
WHEREAS, Rydex Series Trust, a Delaware business trust
(the "Trust"), presently engages, and intends to continue to
engage, in business as an open-end management investment
company and is registered as such under the Investment Company
Act of 1940, as amended (the "Act");
WHEREAS, a majority of the Trustees of the Trust,
including a majority of those Trustees who are not "interested
persons" of the Trust, as defined in the Act (the "non-
interested trustees"), and who have no direct or indirect
financial interest in the operation of the Plan of
Distribution Pursuant to Rule 12b-1 on behalf of the Rydex
Institutional Money Market Fund (the "Fund"), as described
herein (the "Plan"), or in any agreements related to the Plan
(the "Rule 12b-1 Trustees"), has determined, in the exercise
of the reasonable business judgment of the Trustees and in
light of the fiduciary duties of the Trustees under state law
and under the Act, that there is a reasonable likelihood that
adoption of the Plan will benefit the Fund and the
shareholders of the Fund;
WHEREAS, a majority of the Trustees of the Trust,
including a majority of the Rule 12b-1 Trustees, has approved
the Plan by votes cast in person at a meeting called for the
purpose of voting on the Plan; and
WHEREAS, expenditures under this Plan by the Fund are
primarily intended to result in the sale of shares of the Fund
within the meaning of paragraph (a)(2) of Rule 12b-1 under the
Act.
NOW, THEREFORE, the Trust hereby adopts this Plan, on
behalf of the Fund, in accordance with Rule 12b-1 under the
Act, under the following terms and conditions.
1. Definitions. The following terms used in this
Plan shall have the following meanings:
(a) "Distributor" shall mean PADCO Financial Services,
Inc., 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
(b) "Recipient" shall mean any broker or dealer,
administrator, investment adviser, institutions, including
bank trust departments, or other person that: (i) has rendered
assistance (whether direct, administrative, or both) in the
distribution of shares of the Fund; (ii) has furnished or will
furnish the Trust s principal underwriter and distributor (the
<PAGE>
<PAGE>
Distributor ) with such information as the Distributor has
requested or may request to answer such questions as may arise
concerning the sale of shares of the Fund; and (iii) has been
selected by the Distributor to receive payments under the
Plan. Notwithstanding the foregoing, a majority of the Rule
12b-1 Trustees may remove any person or entity as a Recipient.
(c) "Qualified Holdings" shall mean, as to any
Recipient, all shares of the Fund owned beneficially or of
record by (i) such Recipient or (ii) such brokerage or other
customers, investment advisory or other clients, and/or
accounts as to which such Recipient is a fiduciary or
custodian or co-fiduciary or co-custodian (collectively, the
"Customers"), but in no event shall any such shares be deemed
owned by more than one Recipient.
2. Reimbursement for Distribution Activities.
(a) The Trust shall reimburse the Distributor monthly
for distribution expenses incurred during or prior to that
month in promoting the sale of the Fund's shares at the rate
not to exceed 0.25% per annum of the Fund's average daily net
assets attributable to shares of the Fund that were sold by or
through Recipients. The Fund shall bear its own costs of
distribution and reimbursement shall be made from the assets
of the Fund the shares of which have been sold. In no event
will any other series of the Trust be liable for the
distribution expenses of the Fund. Such expenses shall be
calculated and accrued daily and paid within forty-five (45)
days of the end of each month. In no event shall such
payments exceed the Distributor's actual distribution expenses
accumulated as of that month. The Distributor shall use such
payments received from the Fund in their entirety to reimburse
itself for the Distributor's direct distribution expenses, of
the type contemplated herein and reviewed from time to time by
the Trustees of the Trust, in promoting the sale of the Fund's
shares, including, but not limited to: (i) compensating
Recipients for providing distribution assistance and
administrative support services with respect to assets
invested in the Fund, as described below; (ii) costs of
preparation, printing, and mailing or other dissemination of
sales literature, advertising, and prospectuses (other than
those furnished to current shareholders of the Fund); and
(iii) promotional and incentive programs.
The distribution assistance and administrative support
services to be rendered by Recipients may include, but shall
not be limited to, the following: (i) distributing sales
literature and prospectuses, other than prospectuses furnished
to current shareholders; (ii) answering routine inquiries
concerning the Trust and the Fund; (iii) assisting in the
establishment and maintenance of Fund shareholder accounts and
<PAGE>
<PAGE>
in processing purchase and redemption transactions; (iv)
making the Trust's investment plans and dividend options
available; and (v) providing such other information and
services in connection with the distribution of shares of the
Fund as the Distributor or the Trust, on behalf of the Fund,
may reasonably request. It may be presumed that a Recipient
has provided such distribution assistance or administrative
support services if the Recipient has sufficient Qualified
Holdings of shares of the Fund to entitle the Recipient to
payments under the Plan. In the event that either the
Distributor or the Trustees of the Trust should have reason to
believe that, notwithstanding the level of Qualified Holdings,
a Recipient may not be rendering appropriate distribution
assistance or administrative support services in connection
with the sale of shares of the Fund, then the Distributor, at
the request of the Trustees, shall require the Recipient to
provide a written report or other information to verify that
said Recipient is providing appropriate services in this
regard.
It is recognized that the costs of distributing the
Fund's shares may exceed the reimbursements made under this
Plan by the Fund. In view of this, if and to the extent that
any investment management and administration fees paid by the
Fund might be considered as indirectly financing any activity
which is primarily intended to result in the sale of the
Fund's shares, the payment by the Fund of such fees hereby is
authorized under this Plan.
(b) The Distributor shall make payments to any Recipient
within ten (10) days of the end of each fiscal quarter of the
Trust, at an annualized rate not to exceed 0.25% of the net
asset value of Qualified Holdings owned beneficially or of
record by the Recipient or by the Recipient's Customers during
such quarter; provided, however, that no such payments shall
be made to any Recipient for any such quarter in which the
Recipient's Qualified Holdings do not equal or exceed, at the
end of such quarter, the asset minimum ("Minimum Qualified
Holdings") to be set from time to time by the Distributor with
the approval of the Rule 12b-1 Trustees. Such payments to
Recipients may be made by the Trust's investment adviser from
the adviser's own resources (which may include profits derived
from the advisory fee the adviser receives from the Fund), or
by the Distributor from the Distributor's own resources.
A majority of the Rule 12b-1 Trustees, at any time, or
from time to time, may decrease and thereafter adjust the
percentage rate payable to the Distributor not to exceed the
rate set forth above, and direct the Distributor to increase
or decrease the Minimum Qualified Holdings and/or decrease and
thereafter adjust the percentage rate being paid to any
Recipient not to exceed the rate set forth above. The
<PAGE>
<PAGE>
Distributor shall notify any and all Recipients of the Minimum
Qualified Holdings and the level of payment to such Recipient,
and shall provide each such Recipient with written notice
within thirty (30) days after any change in these
requirements. Inclusion of such change in a revised current
prospectus of the Fund shall be sufficient notice.
3. Quarterly Reports.
(a) Any agreement adopted pursuant to this Plan shall
require the Distributor to provide to the Trustees of the
Trust, and the Trustees shall review, at least quarterly, a
written report specifying in reasonable detail the amounts
expended pursuant to this Plan and the purposes for which such
expenditures were made.
(b) The Distributor shall inform the Trustees of the
Trust of commissions and account servicing fees to be paid by
the Distributor to Recipients which have agreements with the
Distributor.
4. Effectiveness; Continuation.
(a) This Plan shall not take effect until it has been
approved by a vote of at least a majority of the outstanding
voting securities (as defined in the Act) of the Fund.
(b) This Plan shall continue in effect until June 30,
1997, and from year to year thereafter; provided, that such
continuance is specifically approved at least annually by a
majority of the Trustees of the Trust and a majority of the
Rule 12b-1 Trustees by votes cast in person at a meeting
called for the purpose of voting on the Plan.
5. Termination.
This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by vote of a majority
of the outstanding voting securities of the Fund. The Plan
shall terminate automatically in the event of its assignment
(as defined in the Act).
6. Amendments.
This Plan may not be amended to increase materially the
amount of distribution expenses provided for in paragraph 2
hereof unless such amendment to this Plan shall be approved by
the vote of a majority of the outstanding voting securities of
the Fund (as defined in the Act). All material amendments
shall be approved by a majority of the Trustees of the Trust
<PAGE>
<PAGE>
and a majority of the Rule 12b-1 Trustees by vote cast in
person at a meeting, called for the purpose of voting on such
amendment to this Plan.
7. Non-Interested Trustees.
While this Plan is in effect, the selection and
nomination of the non-interested trustees of the Trust shall
be committed to the discretion of such non-interested
trustees.
8. Records.
The Trust shall preserve copies of this Plan and any
related agreements and all reports made pursuant to this Plan
for a period of not less than six years from the date of this
Plan or such agreements or reports, as the case may be, and
for at least the first two years in an easily accessible
place.
9. Related Agreements.
Any agreement related to this Plan shall be in writing
and shall provide that: (a) the agreement may be terminated at
any time upon sixty (60) days' written notice, without the
payment of any penalty, by vote of a majority of the Rule 12b-
1 Trustees, or by vote of a majority of the outstanding voting
securities of the Fund; (b) the agreement shall automatically
terminate in the event of the agreement's assignment (as
defined in the Act); and (c) the agreement shall continue in
effect for a period of more than one year from the date of the
agreement's execution or adoption only so long as such
continuance is specifically approved at least annually by a
majority of the Trustees of the Trust and a majority of the
Rule 12b-1 Trustees by votes cast in person at a meeting
called for the purpose of voting on such agreement.
IN WITNESS WHEREOF, the Trust, on behalf of the Fund, has
executed this Plan as of the day and year set forth below.
Date: March 8, 1996
Attest: RYDEX SERIES TRUST
/s/ Robert M. Steele By: /s/ Albert P. Viragh, Jr.
Name: Robert M. Steele Name: Albert P. Viragh, Jr.
Title:Vice President Title: President
<PAGE>
<PAGE>
As Revised: March 12, 1997
Attest: RYDEX SERIES TRUST
/s/ Robert M. Steele. By: /s/ Albert P. Viragh, Jr.
Name: Robert M. Steele Name: Albert P. Viragh, Jr.
Title:Vice President Title: President
<PAGE>
<PAGE>
<PAGE>
<PAGE>
Exhibit (15)(c)
Plan of Distribution for
The Rydex Institutional Money Market Fund,
as revised June 23, 1997 <PAGE>
<PAGE>
RYDEX SERIES TRUST
Rydex Institutional Money Market Fund
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
WHEREAS, Rydex Series Trust, a Delaware business trust
(the "Trust"), presently engages, and intends to continue to
engage, in business as an open-end management investment
company and is registered as such under the Investment Company
Act of 1940, as amended (the "Act");
WHEREAS, a majority of the Trustees of the Trust,
including a majority of those Trustees who are not "interested
persons" of the Trust, as defined in the Act (the "non-
interested trustees"), and who have no direct or indirect
financial interest in the operation of the Plan of
Distribution Pursuant to Rule 12b-1 on behalf of the Rydex
Institutional Money Market Fund (the "Fund"), as described
herein (the "Plan"), or in any agreements related to the Plan
(the "Rule 12b-1 Trustees"), has determined, in the exercise
of the reasonable business judgment of the Trustees and in
light of the fiduciary duties of the Trustees under state law
and under the Act, that there is a reasonable likelihood that
adoption of the Plan will benefit the Fund and the
shareholders of the Fund;
WHEREAS, a majority of the Trustees of the Trust,
including a majority of the Rule 12b-1 Trustees, has approved
the Plan by votes cast in person at a meeting called for the
purpose of voting on the Plan; and
WHEREAS, expenditures under this Plan by the Fund are
primarily intended to result in the sale of shares of the Fund
within the meaning of paragraph (a)(2) of Rule 12b-1 under the
Act.
NOW, THEREFORE, the Trust hereby adopts this Plan, on
behalf of the Fund, in accordance with Rule 12b-1 under the
Act, under the following terms and conditions.
1. Definitions. The following terms used in this
Plan shall have the following meanings:
(a) "Distributor" shall mean PADCO Financial Services,
Inc., 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
(b) "Recipient" shall mean any broker or dealer,
administrator, investment adviser, institutions, including
bank trust departments, or other person that: (i) has rendered
assistance (whether direct, administrative, or both) in the
<PAGE>
<PAGE>
distribution of shares of the Fund; (ii) has furnished or will
furnish the Trust s principal underwriter and distributor (the
Distributor ) with such information as the Distributor has
requested or may request to answer such questions as may arise
concerning the sale of shares of the Fund; and (iii) has been
selected by the Distributor to receive payments under the
Plan. Notwithstanding the foregoing, a majority of the Rule
12b-1 Trustees may remove any person or entity as a Recipient.
(c) "Qualified Holdings" shall mean, as to any
Recipient, all shares of the Fund owned beneficially or of
record by (i) such Recipient or (ii) such brokerage or other
customers, investment advisory or other clients, and/or
accounts as to which such Recipient is a fiduciary or
custodian or co-fiduciary or co-custodian (collectively, the
"Customers"), but in no event shall any such shares be deemed
owned by more than one Recipient.
2. Reimbursement for Distribution Activities.
(a) The Trust shall reimburse the Distributor for
distribution expenses incurred in promoting the sale of the
Fund's shares at the rate not to exceed 0.25% per annum of the
Fund's average daily net assets attributable to shares of the
Fund that were sold by or through Recipients. The Fund shall
bear its own costs of distribution and reimbursement shall be
made from the assets of the Fund the shares of which have been
sold. In no event will any other series of the Trust be
liable for the distribution expenses of the Fund. Such
expenses shall be calculated and accrued daily and paid within
forty-five (45) days of the end of each month. In no event
shall the sum of such payments made during a twelve (12) month
period ended December 31 exceed the Distributor's actual
distribution expenses incurred during the same twelve (12)
month period plus unreimbursed expenses incurred prior to that
twelve (12) month period. The Distributor shall use such
payments received from the Fund in their entirety to reimburse
itself for the Distributor's direct distribution expenses, of
the type contemplated herein and reviewed from time to time by
the Trustees of the Trust, in promoting the sale of the Fund's
shares, including, but not limited to: (i) compensating
Recipients for providing distribution assistance and
administrative support services with respect to assets
invested in the Fund, as described below; (ii) costs of
preparation, printing, and mailing or other dissemination of
sales literature, advertising, and prospectuses (other than
those furnished to current shareholders of the Fund); and
(iii) promotional and incentive programs.
The distribution assistance and administrative support
services to be rendered by Recipients may include, but shall
not be limited to, the following: (i) distributing sales
<PAGE>
<PAGE>
literature and prospectuses, other than prospectuses furnished
to current shareholders; (ii) answering routine inquiries
concerning the Trust and the Fund; (iii) assisting in the
establishment and maintenance of Fund shareholder accounts and
in processing purchase and redemption transactions; (iv)
making the Trust's investment plans and dividend options
available; and (v) providing such other information and
services in connection with the distribution of shares of the
Fund as the Distributor or the Trust, on behalf of the Fund,
may reasonably request. It may be presumed that a Recipient
has provided such distribution assistance or administrative
support services if the Recipient has sufficient Qualified
Holdings of shares of the Fund to entitle the Recipient to
payments under the Plan. In the event that either the
Distributor or the Trustees of the Trust should have reason to
believe that, notwithstanding the level of Qualified Holdings,
a Recipient may not be rendering appropriate distribution
assistance or administrative support services in connection
with the sale of shares of the Fund, then the Distributor, at
the request of the Trustees, shall require the Recipient to
provide a written report or other information to verify that
said Recipient is providing appropriate services in this
regard.
It is recognized that the costs of distributing the
Fund's shares may exceed the reimbursements made under this
Plan by the Fund. In view of this, if and to the extent that
any investment management and administration fees paid by the
Fund might be considered as indirectly financing any activity
which is primarily intended to result in the sale of the
Fund's shares, the payment by the Fund of such fees hereby is
authorized under this Plan.
(b) The Distributor shall make payments to any Recipient
within ten (10) days of the end of each fiscal quarter of the
Trust, at an annualized rate not to exceed 0.25% of the net
asset value of Qualified Holdings owned beneficially or of
record by the Recipient or by the Recipient's Customers during
such quarter; provided, however, that no such payments shall
be made to any Recipient for any such quarter in which the
Recipient's Qualified Holdings do not equal or exceed, at the
end of such quarter, the asset minimum ("Minimum Qualified
Holdings") to be set from time to time by the Distributor with
the approval of the Rule 12b-1 Trustees. Such payments to
Recipients may be made by the Trust's investment adviser from
the adviser's own resources (which may include profits derived
from the advisory fee the adviser receives from the Fund), or
by the Distributor from the Distributor's own resources.
A majority of the Rule 12b-1 Trustees, at any time, or
from time to time, may decrease and thereafter adjust the
percentage rate payable to the Distributor not to exceed the
<PAGE>
<PAGE>
rate set forth above, and direct the Distributor to increase
or decrease the Minimum Qualified Holdings and/or decrease and
thereafter adjust the percentage rate being paid to any
Recipient not to exceed the rate set forth above. The
Distributor shall notify any and all Recipients of the Minimum
Qualified Holdings and the level of payment to such Recipient,
and shall provide each such Recipient with written notice
within thirty (30) days after any change in these
requirements. Inclusion of such change in a revised current
prospectus of the Fund shall be sufficient notice.
3. Quarterly Reports.
(a) Any agreement adopted pursuant to this Plan shall
require the Distributor to provide to the Trustees of the
Trust, and the Trustees shall review, at least quarterly, a
written report specifying in reasonable detail the amounts
expended pursuant to this Plan and the purposes for which such
expenditures were made.
(b) The Distributor shall inform the Trustees of the
Trust of commissions and account servicing fees to be paid by
the Distributor to Recipients which have agreements with the
Distributor.
4. Effectiveness; Continuation.
(a) This Plan shall not take effect until it has been
approved by a vote of at least a majority of the outstanding
voting securities (as defined in the Act) of the Fund.
(b) This Plan shall continue in effect until June 30,
1997, and from year to year thereafter; provided, that such
continuance is specifically approved at least annually by a
majority of the Trustees of the Trust and a majority of the
Rule 12b-1 Trustees by votes cast in person at a meeting
called for the purpose of voting on the Plan.
5. Termination.
This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by vote of a majority
of the outstanding voting securities of the Fund. The Plan
shall terminate automatically in the event of its assignment
(as defined in the Act).
6. Amendments.
This Plan may not be amended to increase materially the
amount of distribution expenses provided for in paragraph 2
hereof unless such amendment to this Plan shall be approved by
<PAGE>
<PAGE>
the vote of a majority of the outstanding voting securities of
the Fund (as defined in the Act). All material amendments
shall be approved by a majority of the Trustees of the Trust
and a majority of the Rule 12b-1 Trustees by vote cast in
person at a meeting, called for the purpose of voting on such
amendment to this Plan.
7. Non-Interested Trustees.
While this Plan is in effect, the selection and
nomination of the non-interested trustees of the Trust shall
be committed to the discretion of such non-interested
trustees.
8. Records.
The Trust shall preserve copies of this Plan and any
related agreements and all reports made pursuant to this Plan
for a period of not less than six years from the date of this
Plan or such agreements or reports, as the case may be, and
for at least the first two years in an easily accessible
place.
9. Related Agreements.
Any agreement related to this Plan shall be in writing
and shall provide that: (a) the agreement may be terminated at
any time upon sixty (60) days' written notice, without the
payment of any penalty, by vote of a majority of the Rule 12b-
1 Trustees, or by vote of a majority of the outstanding voting
securities of the Fund; (b) the agreement shall automatically
terminate in the event of the agreement's assignment (as
defined in the Act); and (c) the agreement shall continue in
effect for a period of more than one year from the date of the
agreement's execution or adoption only so long as such
continuance is specifically approved at least annually by a
majority of the Trustees of the Trust and a majority of the
Rule 12b-1 Trustees by votes cast in person at a meeting
called for the purpose of voting on such agreement.
IN WITNESS WHEREOF, the Trust, on behalf of the Fund, has
executed this Plan as of the day and year set forth below.
Date: March 8, 1996
Attest: RYDEX SERIES TRUST
/s/ Robert M. Steele By: /s/ Albert P. Viragh, Jr.
<PAGE>
<PAGE>
Name: Robert M. Steele Name: Albert P. Viragh, Jr.
Title:Vice President Title: President
As Revised: March 12, 1997
Attest: RYDEX SERIES TRUST
/s/ Robert M. Steele By: /s/Albert P. Viragh, Jr.
Name: Robert M. Steele Name: Albert P. Viragh, Jr.
Title: Vice President Title: President As Further Revised:
June 23, 1997
Attest: RYDEX SERIES TRUST
/s/ Robert M. Steele By: /s/ Albert P. Viragh, Jr.
Name: Robert M. Steele Name: Albert P. Viragh, Jr.
Title:Vice President Title: President <PAGE>
<PAGE>
<PAGE>
<PAGE>
Exhibit (15)(e)
Plan of Distribution for
The Rydex High Yield Fund,
as revised March 12, 1997
<PAGE>
<PAGE>
RYDEX SERIES TRUST
Rydex High Yield Fund
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
WHEREAS, Rydex Series Trust, a Delaware business trust
(the "Trust"), presently engages, and intends to continue to
engage, in business as an open-end management investment
company and is registered as such under the Investment Company
Act of 1940, as amended (the "Act");
WHEREAS, a majority of the Trustees of the Trust,
including a majority of those Trustees who are not "interested
persons" of the Trust, as defined in the Act (the "non-
interested trustees"), and who have no direct or indirect
financial interest in the operation of the Plan of
Distribution Pursuant to Rule 12b-1 on behalf of the Rydex
High Yield Fund (the "Fund"), as described herein (the
"Plan"), or in any agreements related to the Plan (the "Rule
12b-1 Trustees"), has determined, in the exercise of the
reasonable business judgment of the Trustees and in light of
the fiduciary duties of the Trustees under state law and under
the Act, that there is a reasonable likelihood that adoption
of the Plan will benefit the Fund and the shareholders of the
Fund;
WHEREAS, a majority of the Trustees of the Trust,
including a majority of the Rule 12b-1 Trustees, has approved
the Plan by votes cast in person at a meeting called for the
purpose of voting on the Plan; and
WHEREAS, expenditures under this Plan by the Fund are
primarily intended to result in the sale of shares of the Fund
within the meaning of paragraph (a)(2) of Rule 12b-1 under the
Act.
NOW, THEREFORE, the Trust hereby adopts this Plan, on
behalf of the Fund, in accordance with Rule 12b-1 under the
Act, under the following terms and conditions.
1. Definitions. The following terms used in this
Plan shall have the following meanings:
(a) "Distributor" shall mean PADCO Financial Services,
Inc., 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852, the Trust's principal underwriter and distributor.
(b) "Recipient" shall mean any broker or dealer,
administrator, investment adviser, institutions, including
bank trust departments, or other person that: (i) has rendered
assistance (whether direct, administrative, or both) in the
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distribution of shares of the Fund; (ii) has furnished or will
furnish the Distributor with such information as the
Distributor has requested or may request to answer such
questions as may arise concerning the sale of shares of the
Fund; and (iii) has been selected by the Distributor to
receive payments under the Plan. Notwithstanding the
foregoing, a majority of the Rule 12b-1 Trustees may remove
any person or entity as a Recipient.
(c) "Qualified Holdings" shall mean, as to any
Recipient, all shares of the Fund owned beneficially or of
record by (i) such Recipient or (ii) such brokerage or other
customers, investment advisory or other clients, and/or
accounts as to which such Recipient is a fiduciary or
custodian or co-fiduciary or co-custodian (collectively, the
"Customers"), but in no event shall any such shares be deemed
owned by more than one Recipient.
2. Reimbursement for Distribution Activities.
(a) The Trust shall reimburse the Distributor monthly
for distribution expenses incurred during or prior to that
month in promoting the sale of the Fund's shares at the rate
not to exceed 0.25% per annum of the Fund's average daily net
assets attributable to shares of the Fund that were sold by or
through Recipients. The Fund shall bear its own costs of
distribution and reimbursement shall be made from the assets
of the Fund the shares of which have been sold. In no event
will any other series of the Trust be liable for the
distribution expenses of the Fund. Such expenses shall be
calculated and accrued daily and paid within forty-five (45)
days of the end of each month. In no event shall such
payments exceed the Distributor's actual distribution expenses
accumulated as of that month. The Distributor shall use such
payments received from the Fund in their entirety to reimburse
itself for the Distributor's direct distribution expenses, of
the type contemplated herein and reviewed from time to time by
the Trustees of the Trust, in promoting the sale of the Fund's
shares, including, but not limited to: (i) compensating
Recipients for providing distribution assistance and
administrative support services with respect to assets
invested in the Fund, as described below; (ii) costs of
preparation, printing, and mailing or other dissemination of
sales literature, advertising, and prospectuses (other than
those furnished to current shareholders of the Fund); and
(iii) promotional and incentive programs.
The distribution assistance and administrative support
services to be rendered by Recipients may include, but shall
not be limited to, the following: (i) distributing sales
literature and prospectuses, other than prospectuses furnished
to current shareholders; (ii) answering routine inquiries
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concerning the Trust and the Fund; (iii) assisting in the
establishment and maintenance of Fund shareholder accounts and
in processing purchase and redemption transactions; (iv)
making the Trust's investment plans and dividend options
available; and (v) providing such other information and
services in connection with the distribution of shares of the
Fund as the Distributor or the Trust, on behalf of the Fund,
may reasonably request. It may be presumed that a Recipient
has provided such distribution assistance or administrative
support services if the Recipient has sufficient Qualified
Holdings of shares of the Fund to entitle the Recipient to
payments under the Plan. In the event that either the
Distributor or the Trustees of the Trust should have reason to
believe that, notwithstanding the level of Qualified Holdings,
a Recipient may not be rendering appropriate distribution
assistance or administrative support services in connection
with the sale of shares of the Fund, then the Distributor, at
the request of the Trustees, shall require the Recipient to
provide a written report or other information to verify that
said Recipient is providing appropriate services in this
regard.
It is recognized that the costs of distributing the
Fund's shares may exceed the reimbursements made under this
Plan by the Fund. In view of this, if and to the extent that
any investment management and administration fees paid by the
Fund might be considered as indirectly financing any activity
which is primarily intended to result in the sale of the
Fund's shares, the payment by the Fund of such fees hereby is
authorized under this Plan.
(b) The Distributor shall make payments to any Recipient
within forty-five (45) days of the end of each fiscal quarter
of the Trust, at an annualized rate not to exceed 0.25% of the
net asset value of Qualified Holdings owned beneficially or of
record by the Recipient or by the Recipient's Customers during
such quarter; provided, however, that no such payments shall
be made to any Recipient for any such quarter in which the
Recipient's Qualified Holdings do not equal or exceed, at the
end of such quarter, the asset minimum ("Minimum Qualified
Holdings") to be set from time to time by the Distributor with
the approval of the Rule 12b-1 Trustees. Such payments to
Recipients may be made by the Trust's investment adviser from
the adviser's own resources (which may include profits derived
from the advisory fee the adviser receives from the Fund), or
by the Distributor from the Distributor's own resources.
A majority of the Rule 12b-1 Trustees, at any time, or
from time to time, may decrease and thereafter adjust the
percentage rate payable to the Distributor not to exceed the
rate set forth above, and direct the Distributor to increase
or decrease the Minimum Qualified Holdings and/or decrease and
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thereafter adjust the percentage rate being paid to any
Recipient not to exceed the rate set forth above. The
Distributor shall notify any and all Recipients of the Minimum
Qualified Holdings and the level of payment to such Recipient,
and shall provide each such Recipient with written notice
within thirty (30) days after any change in these
requirements. Inclusion of such change in a revised current
prospectus of the Fund shall be sufficient notice.
3. Quarterly Reports.
(a) Any agreement adopted pursuant to this Plan shall
require the Distributor to provide to the Trustees of the
Trust, and the Trustees shall review, at least quarterly, a
written report specifying in reasonable detail the amounts
expended pursuant to this Plan and the purposes for which such
expenditures were made.
(b) The Distributor shall inform the Trustees of the
Trust of commissions and account servicing fees to be paid by
the Distributor to Recipients which have agreements with the
Distributor.
4. Effectiveness; Continuation.
(a) This Plan shall not take effect until it has been
approved by a vote of at least a majority of the outstanding
voting securities (as defined in the Act) of the Fund.
(b) This Plan shall continue in effect until September
25, 1997, and from year to year thereafter; provided, that
such continuance is specifically approved at least annually by
a majority of the Trustees of the Trust and a majority of the
Rule 12b-1 Trustees by votes cast in person at a meeting
called for the purpose of voting on the Plan.
5. Termination.
This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by vote of a majority
of the outstanding voting securities of the Fund. The Plan
shall terminate automatically in the event of its assignment
(as defined in the Act).
6. Amendments.
This Plan may not be amended to increase materially the
amount of distribution expenses provided for in paragraph 2
hereof unless such amendment to this Plan shall be approved by
the vote of a majority of the outstanding voting securities of
the Fund (as defined in the Act). All material amendments
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shall be approved by a majority of the Trustees of the Trust
and a majority of the Rule 12b-1 Trustees by vote cast in
person at a meeting, called for the purpose of voting on such
amendment to this Plan.
7. Non-Interested Trustees.
While this Plan is in effect, the selection and
nomination of the non-interested trustees of the Trust shall
be committed to the discretion of such non-interested
trustees.
8. Records.
The Trust shall preserve copies of this Plan and any
related agreements and all reports made pursuant to this Plan
for a period of not less than six years from the date of this
Plan or such agreements or reports, as the case may be, and
for at least the first two years in an easily accessible
place.
9. Related Agreements.
Any agreement related to this Plan shall be in writing
and shall provide that: (a) the agreement may be terminated at
any time upon sixty (60) days' written notice, without the
payment of any penalty, by vote of a majority of the Rule 12b-
1 Trustees, or by vote of a majority of the outstanding voting
securities of the Fund; (b) the agreement shall automatically
terminate in the event of the agreement's assignment (as
defined in the Act); and (c) the agreement shall continue in
effect for a period of more than one year from the date of the
agreement's execution or adoption only so long as such
continuance is specifically approved at least annually by a
majority of the Trustees of the Trust and a majority of the
Rule 12b-1 Trustees by votes cast in person at a meeting
called for the purpose of voting on such agreement.
IN WITNESS WHEREOF, the Trust, on behalf of the Fund, has
executed this Plan as of the day and year set forth below.
Date: September 25, 1996
Attest: RYDEX SERIES TRUST
/s/ Robert M. Steele /s/ Albert P. Viragh, Jr.
Name: Robert M. Steele Name: Albert P. Viragh, Jr.
Title:Vice President Title:President
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<PAGE>
As Revised: March 12, 1997
Attest: RYDEX SERIES TRUST
/s/ Robert M. Steele /s/ Albert P. Viragh, Jr.
Name: Robert M. Steele Name: Albert P. Viragh, Jr.
Title:Vice President Title:President
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Exhibit (15)(f)
Plan of Distribution for
The Rydex High Yield Fund,
as revised June 23,1997
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RYDEX SERIES TRUST
Rydex High Yield Fund
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
WHEREAS, Rydex Series Trust, a Delaware business trust (the "Trust"),
presently engages, and intends to continue to engage, in business as an
open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "Act");
WHEREAS, a majority of the Trustees of the Trust, including a
majority of those Trustees who are not "interested persons" of the Trust,
as defined in the Act (the "non-interested trustees"), and who have no
direct or indirect financial interest in the operation of the Plan of
Distribution Pursuant to Rule 12b-1 on behalf of the Rydex High Yield Fund
(the "Fund"), as described herein (the "Plan"), or in any agreements
related to the Plan (the "Rule 12b-1 Trustees"), has determined, in the
exercise of the reasonable business judgment of the Trustees and in light
of the fiduciary duties of the Trustees under state law and under the Act,
that there is a reasonable likelihood that adoption of the Plan will
benefit the Fund and the shareholders of the Fund;
WHEREAS, a majority of the Trustees of the Trust, including a
majority of the Rule 12b-1 Trustees, has approved the Plan by votes cast in
person at a meeting called for the purpose of voting on the Plan; and
WHEREAS, expenditures under this Plan by the Fund are primarily
intended to result in the sale of shares of the Fund within the meaning of
paragraph (a)(2) of Rule 12b-1 under the Act.
NOW, THEREFORE, the Trust hereby adopts this Plan, on behalf of the
Fund, in accordance with Rule 12b-1 under the Act, under the following
terms and conditions.
1. Definitions. The following terms used in this Plan shall
have the following meanings:
(a) "Distributor" shall mean PADCO Financial Services, Inc., 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, the Trust's
principal underwriter and distributor.
(b) "Recipient" shall mean any broker or dealer, administrator,
investment adviser, institutions, including bank trust departments, or
o t h e r person that: (i) has rendered assistance (whether direct,
administrative, or both) in the distribution of shares of the Fund; (ii)
has furnished or will furnish the Distributor with such information as the
Distributor has requested or may request to answer such questions as may
arise concerning the sale of shares of the Fund; and (iii) has been
s e l ected by the Distributor to receive payments under the Plan.
Notwithstanding the foregoing, a majority of the Rule 12b-1 Trustees may
remove any person or entity as a Recipient.
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(c) "Qualified Holdings" shall mean, as to any Recipient, all
shares of the Fund owned beneficially or of record by (i) such Recipient or
(ii) such brokerage or other customers, investment advisory or other
clients, and/or accounts as to which such Recipient is a fiduciary or
custodian or co-fiduciary or co-custodian (collectively, the "Customers"),
but in no event shall any such shares be deemed owned by more than one
Recipient.
2. Reimbursement for Distribution Activities.
(a) The Trust shall reimburse the Distributor for distribution
expenses incurred in promoting the sale of the Fund's shares at the rate
not to exceed 0.25% per annum of the Fund's average daily net assets
attributable to shares of the Fund that were sold by or through Recipients.
The Fund shall bear its own costs of distribution and reimbursement shall
be made from the assets of the Fund the shares of which have been sold. In
no event will any other series of the Trust be liable for the distribution
expenses of the Fund. Such expenses shall be calculated and accrued daily
and paid within forty-five (45) days of the end of each month. In no event
shall the sum of such payments made during a twelve (12) month period ended
December 31 exceed the Distributor's actual distribution expenses incurred
during that same twelve (12) month period plus unreimbursed expenses
incurred prior to that twelve (12) month period. The Distributor shall use
such payments received from the Fund in their entirety to reimburse itself
f o r the Distributor's direct distribution expenses, of the type
contemplated herein and reviewed from time to time by the Trustees of the
Trust, in promoting the sale of the Fund's shares, including, but not
limited to: (i) compensating Recipients for providing distribution
assistance and administrative support services with respect to assets
invested in the Fund, as described below; (ii) costs of preparation,
p r inting, and mailing or other dissemination of sales literature,
advertising, and prospectuses (other than those furnished to current
shareholders of the Fund); and (iii) promotional and incentive programs.
The distribution assistance and administrative support services to be
rendered by Recipients may include, but shall not be limited to, the
following: (i) distributing sales literature and prospectuses, other than
prospectuses furnished to current shareholders; (ii) answering routine
inquiries concerning the Trust and the Fund; (iii) assisting in the
e s tablishment and maintenance of Fund shareholder accounts and in
processing purchase and redemption transactions; (iv) making the Trust's
investment plans and dividend options available; and (v) providing such
other information and services in connection with the distribution of
shares of the Fund as the Distributor or the Trust, on behalf of the Fund,
may reasonably request. It may be presumed that a Recipient has provided
such distribution assistance or administrative support services if the
Recipient has sufficient Qualified Holdings of shares of the Fund to
entitle the Recipient to payments under the Plan. In the event that either
the Distributor or the Trustees of the Trust should have reason to believe
that, notwithstanding the level of Qualified Holdings, a Recipient may not
be rendering appropriate distribution assistance or administrative support
services in connection with the sale of shares of the Fund, then the
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Distributor, at the request of the Trustees, shall require the Recipient to
provide a written report or other information to verify that said Recipient
is providing appropriate services in this regard.
It is recognized that the costs of distributing the Fund's shares may
exceed the reimbursements made under this Plan by the Fund. In view of
t h i s , if and to the extent that any investment management and
administration fees paid by the Fund might be considered as indirectly
financing any activity which is primarily intended to result in the sale of
the Fund's shares, the payment by the Fund of such fees hereby is
authorized under this Plan.
(b) The Distributor shall make payments to any Recipient within
forty-five (45) days of the end of each fiscal quarter of the Trust, at an
annualized rate not to exceed 0.25% of the net asset value of Qualified
Holdings owned beneficially or of record by the Recipient or by the
Recipient's Customers during such quarter; provided, however, that no such
payments shall be made to any Recipient for any such quarter in which the
Recipient's Qualified Holdings do not equal or exceed, at the end of such
quarter, the asset minimum ("Minimum Qualified Holdings") to be set from
time to time by the Distributor with the approval of the Rule 12b-1
Trustees. Such payments to Recipients may be made by the Trust's
investment adviser from the adviser's own resources (which may include
profits derived from the advisory fee the adviser receives from the Fund),
or by the Distributor from the Distributor's own resources.
A majority of the Rule 12b-1 Trustees, at any time, or from time to
time, may decrease and thereafter adjust the percentage rate payable to the
Distributor not to exceed the rate set forth above, and direct the
Distributor to increase or decrease the Minimum Qualified Holdings and/or
decrease and thereafter adjust the percentage rate being paid to any
Recipient not to exceed the rate set forth above. The Distributor shall
notify any and all Recipients of the Minimum Qualified Holdings and the
level of payment to such Recipient, and shall provide each such Recipient
with written notice within thirty (30) days after any change in these
requirements. Inclusion of such change in a revised current prospectus of
the Fund shall be sufficient notice.
3. Quarterly Reports.
(a) Any agreement adopted pursuant to this Plan shall require the
Distributor to provide to the Trustees of the Trust, and the Trustees shall
review, at least quarterly, a written report specifying in reasonable
detail the amounts expended pursuant to this Plan and the purposes for
which such expenditures were made.
(b) The Distributor shall inform the Trustees of the Trust of
commissions and account servicing fees to be paid by the Distributor to
Recipients which have agreements with the Distributor.
4. Effectiveness; Continuation.
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(a) This Plan shall not take effect until it has been approved by a
vote of at least a majority of the outstanding voting securities (as
defined in the Act) of the Fund.
(b) This Plan shall continue in effect until September 25, 1997,
and from year to year thereafter; provided, that such continuance is
specifically approved at least annually by a majority of the Trustees of
the Trust and a majority of the Rule 12b-1 Trustees by votes cast in person
at a meeting called for the purpose of voting on the Plan.
5. Termination.
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees or by vote of a majority of the outstanding voting
securities of the Fund. The Plan shall terminate automatically in the
event of its assignment (as defined in the Act).
6. Amendments.
This Plan may not be amended to increase materially the amount of
distribution expenses provided for in paragraph 2 hereof unless such
amendment to this Plan shall be approved by the vote of a majority of the
outstanding voting securities of the Fund (as defined in the Act). All
material amendments shall be approved by a majority of the Trustees of the
Trust and a majority of the Rule 12b-1 Trustees by vote cast in person at a
meeting, called for the purpose of voting on such amendment to this Plan.
7. Non-Interested Trustees.
While this Plan is in effect, the selection and nomination of the
non-interested trustees of the Trust shall be committed to the discretion
of such non-interested trustees.
8. Records.
The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to this Plan for a period of not
less than six years from the date of this Plan or such agreements or
reports, as the case may be, and for at least the first two years in an
easily accessible place.
9. Related Agreements.
Any agreement related to this Plan shall be in writing and shall
provide that: (a) the agreement may be terminated at any time upon sixty
(60) days' written notice, without the payment of any penalty, by vote of a
majority of the Rule 12b-1 Trustees, or by vote of a majority of the
outstanding voting securities of the Fund; (b) the agreement shall
automatically terminate in the event of the agreement's assignment (as
defined in the Act); and (c) the agreement shall continue in effect for a
period of more than one year from the date of the agreement's execution or
adoption only so long as such continuance is specifically approved at least
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annually by a majority of the Trustees of the Trust and a majority of the
Rule 12b-1 Trustees by votes cast in person at a meeting called for the
purpose of voting on such agreement.
IN WITNESS WHEREOF, the Trust, on behalf of the Fund, has executed
this Plan as of the day and year set forth below.
Date: September 25, 1996
Attest: RYDEX SERIES TRUST
/s/ Robert M. Steele By: /s/ Albert P. Viragh, Jr. Name:
Robert M. Steele Name: Albert P. Viragh, Jr.
Title: Vice President Title: President
As Revised: March 12, 1997
Attest: RYDEX SERIES TRUST
/s/ Robert M. Steele By: /s/ Albert P. Viragh, Jr. Name:
Robert M. Steele Name: Albert P. Viragh, Jr.
Title:Vice President Title: President
As Further Revised: June 23, 1997
Attest: RYDEX SERIES TRUST
/s/ Robert M. Steele By: /s/ Albert P. Viragh, Jr.
Name: Robert M. Steele Name: Albert P. Viragh, Jr.
Title:Vice President Title: President
<PAGE>
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<PAGE>
<PAGE>
Exhibit (15)(g)
Form of
Shareholder Servicing Support Agreements
Between
PADCO Financial Services, Inc.
and
Selling Recipients
In Connection With the Plan of Distribution
for
The Rydex Institutional Money Market Fund
<PAGE>
<PAGE>
VERSION A
PADCO Financial Services, Inc.
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
(301) 468-8520
SHAREHOLDER SERVICING SUPPORT AGREEMENT
Ladies and Gentlemen:
We are a party to a certain distribution agreement with Rydex Series
Trust (the "Trust"), on behalf of the Rydex Institutional Money Market Fund
(the "Fund"), a series of the Trust, under which agreement we serve as
exclusive agent for the Fund for the sale of the Fund's shares of
beneficial interest ("Shares"). You have indicated that you wish to act as
agent for your customers in connection with the purchase, sale, and
redemption of Shares of the Fund as are qualified for sale in the states in
which you have branch offices. We agree to honor your request, subject to
the terms set forth below.
1. In all sales of Shares you shall act as agent for your
customers, and in no transaction shall you have any authority to act as
agent for the Fund or for us. You agree to be responsible for opening,
approving, and monitoring customers' accounts. You also agree to be
responsible for any and all credit that you may extend to your customers,
to the extent such extension of credit is permitted under applicable rules
and regulations, and for compliance with all regulatory requirements
respecting such extension of such credit. You further agree to be
responsible for safeguarding your customers' funds and securities. We will
not have custody of your customer's funds or securities.
2. The customers in question are, for all purposes, your customers
and not customers of PADCO Financial Services, Inc. In receiving orders
from your customers who purchase Shares, PADCO Financial Services, Inc. is
not soliciting such customers, and has no responsibility for determining
whether Shares are suitable investments for such customers. This
responsibility is solely yours.
3. You will maintain all required books and records with respect
to your securities business, your customers and their transactions. You
acknowledge that the responsibility for maintenance of such books and
records is not the responsibility of PADCO Financial Services, Inc.
4. It is hereby understood that in all cases in which you place
orders with the Trust for the purchase of Shares: (a) you are acting as
agent for the customer; (b) the transactions are without recourse against
you by the customer; (c) as between you and the customer, the customer will
have full beneficial ownership of the securities; (d) each such transaction
is initiated solely upon the order of the customer; and (e) each such
transaction is for the account of the customer and not for your account.
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5. You agree that you will fulfill any and all regulatory
requirements to supervise the activities of each of your employees,
representatives, and associated persons in a manner reasonably designed to
achieve compliance with applicable securities and banking laws and
regulations. You further agree that responsibility for proper supervision
shall rest with you, and PADCO Financial Services, Inc. shall have no
responsibility in this regard.
6. Orders authorized by and received from you will be accepted by
the Trust only at the regular public offering price applicable to each
order, as established by the then-current Prospectus of the Fund, subject
to the discounts defined in such Prospectus. Following receipt from you of
any order to purchase Shares for the account of a customer, the Trust shall
confirm such order to you in writing. You shall be responsible for sending
your customer a written confirmation of the order with a copy of the Fund's
current Prospectus. You shall send the Trust a copy of such confirmation.
All orders are subject to acceptance or rejection by the Trust in the
Trust's sole discretion. Unless other instructions have been given, you
shall also be responsible for preparing and mailing all periodic statements
of ownership to your customers and/or updates showing a customer's account
balance and integrating such statements with those of other transactions
and balances in the customer's accounts serviced by you.
7. The offering Prospectus and this Agreement set forth the terms
applicable to sales of Shares of the Fund through you and all other
representations or documents are subordinate. This Agreement is in all
respects subject to statements regarding the sale and repurchase or
redemption of shares made in offering Prospectus of the Fund, which in the
event of any inconsistency between this Agreement and such Prospectus, the
Prospectus shall control.
8. Any sales charges and dealers' concessions will be as set forth
in the current Prospectus of the Fund. On each order for Shares of the
Fund that is accepted by the Trust, you will be entitled to receive the
applicable commission as set forth in the Prospectus. Any and all
commissions or concessions set forth in the Fund's Prospectus are subject
to change without notice by the Trust and will comply with any changes in
regulatory requirements.
9. We are also authorized to pay you continuing service fees with
respect to the Shares of the Fund to compensate you for providing certain
services under this Agreement for your clients such as processing purchase
a n d redemption transactions, establishing shareholder accounts, and
providing certain information and assistance with respect to the Fund,
provided you meet certain service-related criteria.
10. Where payment is due hereunder, we agree to send payment for
concessions and securities to your address as your address appears on our
records. You must notify us of address changes and promptly negotiate such
payments. Any such payments that remain outstanding for twelve (12)
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months shall be void and the obligation represented thereby shall be
extinguished.
11. Any order by you for the purchase of Shares of the Fund from
the Trust shall be accepted at the time when the order is received by the
Trust (or any clearinghouse agency that the Trust may designate from time
to time), and at the offering and sale price next determined, unless
rejected by the Trust. In addition to the right to reject any order for
the purchase of Shares of the Fund, the Trust has reserved the right to
withhold Shares from sale temporarily or permanently. The Trust will not
accept any order from you which is placed on a conditional basis or subject
to any delay or contingency prior to execution. The procedure relating to
the handling of orders shall be subject to instructions which the Trust
shall forward from time to time to you. The Shares of the Fund purchased
will be issued by the Trust only against receipt of the purchase price, in
collected clearing house funds subject to deduction of all commissions on
such sale (reallowance of any commissions to which you are entitled on
purchases at net asset value will be paid through our direct purchase
commission system). Payment for Shares of the Fund ordered from the Trust
shall be in the form of a wire transfer to Star Bank, N.A., the Fund's
custodian (the "Custodian") at 425 Walnut Street, Cincinnati, Ohio 45202.
Payment shall be made within five (5) business days after the Trust's
acceptance of the order placed on behalf of your customer, or such shorter
time period as may be required by law. If payment for the Shares purchased
is not received within such time period, the Trust reserves the right to
cancel the sale or, at the Trust's option, to sell the Shares to the Fund
at the then-prevailing net asset value. In this event, you agree to be
responsible for any loss, expense, liability, or damage, including loss of
profit suffered by the Trust and/or the Fund resulting from your delay or
failure to make payment as aforesaid.
12. You are obliged to date and time stamp all orders received by
you and promptly transmit all orders to the Trust in time to provide for
processing at the price next determined after receipt by you, in accordance
with the Prospectus. You are not to withhold placing with the Trust orders
received from any customers for the purchase of Shares so as to profit
yourself as a result of such withholding. You shall not purchase Shares
through the Trust except for the purpose of covering purchase orders
already received from your customers, or, if permitted by applicable law,
for your bona fide investment.
13. You shall be solely responsible for the accuracy, timeliness,
and completeness of any orders transmitted by you on behalf of your
customers by wire or telephone for purchases, exchanges, or redemptions,
and shall indemnify and hold the Trust harmless against all claims, damage,
liability, costs, and expenses (including attorneys fees and costs of
investigation) incurred by the Trust arising out of or based upon your
relationship with your customers through your own actions or omissions,
including, but not limited to, any claims by your customers that you failed
to transmit properly their instructions, properly service their account, or
otherwise caused them injury.
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14. If your customer's account is established without your customer
signing the application form, you represent that the instructions relating
to the registration (including the customer's tax identification number)
and selected options furnished to the Trust (whether on the application
form, in some other document, or orally) are in accordance with the
customer's instructions, and you agree to indemnify the Trust, the Trust's
transfer agent, shareholder servicing agent, and the Fund for any loss or
liability resulting from acting upon such instructions. The Trust agrees
to hold harmless and indemnify you for any loss or liability arising out of
our negligence in processing such instructions.
15. If any Share is repurchased by the Fund or is tendered thereto
for redemption within seven (7) business days after confirmation by the
Trust of the original purchase order from you for such security you shall
forthwith refund to the Trust the full commissions paid to you on the
original sale.
16. You shall not, if acting as principal, purchase any Share of
the Fund from a record holder at a price lower than the net asset value
next determined by or for the Fund's Shares. You shall, however, be
permitted to sell any Shares for the account of a shareholder of the Fund
at the net asset value currently quoted by or for the Fund's Shares, and
may charge a fair service fee for handling the transaction provided you
disclose the fee to the record owner.
17. We shall furnish you, without charge, reasonable quantities of
offering Prospectuses, with any supplements currently in effect, and copies
of current shareholder reports of the Fund, and sales materials issued by
us from time to time. You shall deliver copies of current shareholder
reports, Prospectuses, and any supplements to those of your customers whose
Shares are held in book-entry form on the books of the Fund. In the
purchase of Shares of the Fund from the Trust, you are entitled to rely
only on the information contained in the offering Prospectuses. You may not
publish any advertisement or distribute sales literature or other written
material to the public which makes reference to the Trust, the Fund, or us
(except material which we furnished to you) without our prior written
approval.
18. No person is authorized to make any representations concerning
Shares of the Fund except those contained in the applicable current
Prospectus and printed information subsequently issued by the Trust, the
Fund, or us as information supplemental to such Prospectus. You agree that
you will not make Shares available to your customers except under
circumstances that will result in compliance with applicable Federal and
state securities and banking laws. You further agree to indemnify and hold
harmless the Trust, the Fund, and us against any and all losses, claims,
damages, liabilities, expenses, or settlements to which the Trust, the
Fund, and/or we may become subject under any statute or regulation insofar
as such losses, claims, damages, liabilities, expenses, or settlements are
related to the purchase or sale of Shares by your customers and arise out
of or are based upon your statements or representations to your customers
concerning the Shares (other than statements or representations contained
<PAGE>
<PAGE>
in the applicable current Prospectus and printed information subsequently
issued by the Trust, the Fund, or us).
19. Shares sold hereunder shall be available in book-entry form on
the books of the Fund's transfer agent unless other instructions have been
given.
20. You shall make available Shares of the Fund only through us.
In no transaction (whether of purchase or sale) shall you have any
authority to act as agent for, partner of, or participant in a joint
venture with us or with the Trust or the Fund or any other entity having
either a shareholder servicing support agreement or other agreement with
us.
21. All sales will be made subject to our receipt of Shares from
the Fund. We reserve the right, in our discretion, without notice, to
modify, suspend, or withdraw entirely the offering of any Shares and, upon
notice, to change the sales charge or discount or to modify, cancel, or
change the terms of this Agreement. You agree that any order to purchase
Shares of the Fund placed by you after any notice of amendment to this
Agreement has been sent to you shall constitute your agreement to any such
amendment.
22. Sales and exchanges of Shares may be made only in those states
and jurisdictions where Shares are registered or qualified for sale to the
public. We agree to advise you currently of the identity of those states
and jurisdictions in which the Shares are registered or qualified for sale,
and you agree to indemnify us, the Trust, and/or the Fund for any claim,
liability, expense, or loss in any way arising out of sale of Shares in any
state or jurisdiction not identified by us as a state or jurisdiction in
which such Shares are so registered or qualified. We agree to indemnify
you for any claim, liability, expense, or loss attributable to such Shares
not being registered or qualified if such state or jurisdiction was
identified by us as a state or jurisdiction in which Shares are so
registered or qualified.
23. We act solely as agent for the Trust and the Fund, and are not
responsible for qualifying the Fund or the Fund's Shares for sale in any
state or jurisdiction. We also are not responsible for the issuance, form,
validity, enforceability, or value of Shares of the Fund.
24. You represent that you are (a) a properly registered or
licensed broker or dealer under applicable Federal and state securities
laws and regulations and a member in good standing of the National
Association of Securities Dealers, Inc., or (b) a "bank," as defined in
Section 3(a)(6) of the Securities Exchange Act of 1934 (the "1934 Act") (or
other financial institution), and that you are not otherwise required to
register as a broker or dealer under the 1934 Act or any state laws. You
agree to notify us immediately in writing if this representation ceases to
be true. We recognize that, in addition to applicable provisions of
Federal and state securities laws, you may be subject to the provisions of
the Glass-Steagall Act and other laws governing, among other things, the
<PAGE>
<PAGE>
conduct of activities by Federal and state chartered and supervised
financial institutions and their affiliated organizations. Because you
will be the only entity having a direct relationship with the customer in
connection with securities purchases hereunder, you will be responsible in
that relationship for insuring compliance with all laws and regulations,
including those of all applicable Federal and state regulatory authorities
and bodies having jurisdiction over you or your customers to the extent
applicable to securities purchases hereunder.
25. Either of us, upon request of the other party, shall provide
the other party with data or documents needed by the requesting party to
carry out all allocated functions herein.
26. Each of us shall cooperate with all appropriate governmental or
self regulatory authorities (including, without limitation, the Securities
and Exchange Commission, the National Association of Securities Dealers,
Inc., and state securities regulators) and shall permit such authorities
reasonable access to books and records in connection with any inspection,
inquiry, or investigation relating to this Agreement or the transactions
contemplated thereby.
27. Either of us may cancel this Agreement at any time by written
notice to the other.
28. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule, or otherwise, the remainder of
the Agreement shall not be affected thereby.
29. All communications to us should be sent to the above address.
Any notice to you shall be duly given if mailed or telegraphed to you at
the address specified by you below.
30. The names of your customers shall remain your sole property and
shall not be used by us for any purpose except for servicing and
information mailings in the normal course of business to Fund shareholders.
31. We agree to compensate you for your services provided under
this Agreement within ten (10) days of the end of each fiscal quarter of
the Trust, at an annualized rate not to exceed 0.___% of the net asset
value of all Shares of the Fund owned beneficially or of record by (i) you
or (ii) your investment advisory or other clients, and/or accounts as to
which you are a fiduciary or custodian or co-fiduciary or co-custodian,
during the quarter ("Qualified Holdings"); provided, however, that no
payments shall be made to you for any quarter in which your Qualified
Holdings do not equal or exceed, at the end of the quarter, the asset
minimum ("Minimum Qualified Holdings"), which Minimum Qualified Holdings
shall be set from time to time by us with the approval of the Trustees of
the Trust who are not "interested persons" of the Trust, as defined in the
Investment Company Act of 1940, and who have no direct or indirect
financial interest in the operation of the distribution plan adopted by the
Trust in connection with the distribution of the Shares of the Fund by us
or in any agreements related to this distribution plan; and provided,
<PAGE>
<PAGE>
further, however, that no payments shall be made to you for any quarter
unless and until PADCO Financial Services, Inc. has received the full
amount of reimbursement payments from the Trust, in connection with the
aforementioned distribution plan, for distribution expenses incurred by
PADCO Financial Services, Inc. during that quarter in promoting the sale of
Fund shares pursuant to Rule 12b-1 under the 1940 Act.
Execute this Agreement in duplicate and return one of the duplicate
originals to us for our file. This Agreement (i) may be amended by
notification from us and orders received following such notification shall
be deemed to be an acceptance of any such amendment and (ii) shall be
construed in accordance with the laws of the State of Maryland.
Accepted: Very truly yours,
Name of Selling Recipient
By: By:
Name: Name:
Title Title: Address:
Date:
<PAGE>
<PAGE>
VERSION B
PADCO Financial Services, Inc.
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
(301) 468-8520
SHAREHOLDER SERVICING SUPPORT AGREEMENT
Ladies and Gentlemen:
We are a party to a certain distribution agreement with Rydex Series
Trust (the "Trust"), on behalf of the Rydex Institutional Money Market Fund
(the "Fund"), a series of the Trust, under which agreement we serve as
exclusive agent for the Fund for the sale of the Fund's shares of
beneficial interest ("Shares"). You have indicated that you wish to act as
agent for your customers in connection with the purchase, sale, and
redemption of Shares of the Fund as are qualified for sale in the states in
which you have branch offices. We agree to honor your request, subject to
the terms set forth below.
1. In all sales of Shares you shall act as agent for your
customers, and in no transaction shall you have any authority to act as
agent for the Fund or for us. You agree to be responsible for opening,
approving, and monitoring customers' accounts. You also agree to be
responsible for any and all credit that you may extend to your customers,
to the extent such extension of credit is permitted under applicable rules
and regulations, and for compliance with all regulatory requirements
respecting such extension of such credit. You further agree to be
responsible for safeguarding your customers' funds and securities. We will
not have custody of your customer's funds or securities.
2. The customers in question are, for all purposes, your customers
and not customers of PADCO Financial Services, Inc. In receiving orders
from your customers who purchase Shares, PADCO Financial Services, Inc. is
not soliciting such customers, and has no responsibility for determining
whether Shares are suitable investments for such customers. This
responsibility is solely yours.
3. You will maintain all required books and records with respect
to your securities business, your customers and their transactions. You
acknowledge that the responsibility for maintenance of such books and
records is not the responsibility of PADCO Financial Services, Inc.
4. It is hereby understood that in all cases in which you place
orders with the Trust for the purchase of Shares: (a) you are acting as
agent for the customer; (b) the transactions are without recourse against
<PAGE>
you by the customer; (c) as between you and the customer, the customer will
have full beneficial ownership of the securities; (d) each such transaction
is initiated solely upon the order of the customer; and (e) each such
transaction is for the account of the customer and not for your account.
5. You agree that you will fulfill any and all regulatory
requirements to supervise the activities of each of your employees,
representatives, and associated persons in a manner reasonably designed to
achieve compliance with applicable securities and banking laws and
regulations. You further agree that responsibility for proper supervision
shall rest with you, and PADCO Financial Services, Inc. shall have no
responsibility in this regard.
6. Orders authorized by and received from you will be accepted by
the Trust only at the regular public offering price applicable to each
order, as established by the then-current Prospectus of the Fund, subject
to the discounts defined in such Prospectus. Following receipt from you of
any order to purchase Shares for the account of a customer, the Trust shall
confirm such order to you in writing. You shall be responsible for sending
your customer a written confirmation of the order with a copy of the Fund's
current Prospectus. You shall send the Trust a copy of such confirmation.
All orders are subject to acceptance or rejection by the Trust in the
Trust's sole discretion. Unless other instructions have been given, you
shall also be responsible for preparing and mailing all periodic statements
of ownership to your customers and/or updates showing a customer's account
balance and integrating such statements with those of other transactions
and balances in the customer's accounts serviced by you.
7. The offering Prospectus and this Agreement set forth the terms
applicable to sales of Shares of the Fund through you and all other
representations or documents are subordinate. This Agreement is in all
respects subject to statements regarding the sale and repurchase or
redemption of shares made in offering Prospectus of the Fund, which in the
event of any inconsistency between this Agreement and such Prospectus, the
Prospectus shall control.
8. Any sales charges and dealers' concessions will be as set forth
in the current Prospectus of the Fund. On each order for Shares of the
Fund that is accepted by the Trust, you will be entitled to receive the
applicable commission as set forth in the Prospectus. Any and all
commissions or concessions set forth in the Fund's Prospectus are subject
to change without notice by the Trust and will comply with any changes in
regulatory requirements.
9. We are also authorized to pay you continuing service fees with
respect to the Shares of the Fund to compensate you for providing certain
services under this Agreement for your clients such as processing purchase
a n d redemption transactions, establishing shareholder accounts, and
providing certain information and assistance with respect to the Fund,
provided you meet certain service-related criteria.
<PAGE>
<PAGE>
10. Where payment is due hereunder, we agree to send payment for
concessions and securities to your address as your address appears on our
records. You must notify us of address changes and promptly negotiate such
payments. Any such payments that remain outstanding for twelve (12)
months shall be void and the obligation represented thereby shall be
extinguished.
11. Any order by you for the purchase of Shares of the Fund from
the Trust shall be accepted at the time when the order is received by the
Trust (or any clearinghouse agency that the Trust may designate from time
to time), and at the offering and sale price next determined, unless
rejected by the Trust. In addition to the right to reject any order for
the purchase of Shares of the Fund, the Trust has reserved the right to
withhold Shares from sale temporarily or permanently. The Trust will not
accept any order from you which is placed on a conditional basis or subject
to any delay or contingency prior to execution. The procedure relating to
the handling of orders shall be subject to instructions which the Trust
shall forward from time to time to you. The Shares of the Fund purchased
will be issued by the Trust only against receipt of the purchase price, in
collected clearing house funds subject to deduction of all commissions on
such sale (reallowance of any commissions to which you are entitled on
purchases at net asset value will be paid through our direct purchase
commission system). Payment for Shares of the Fund ordered from the Trust
shall be in the form of a wire transfer to Star Bank, N.A., the Fund's
custodian (the "Custodian") at 425 Walnut Street, Cincinnati, Ohio 45202.
Payment shall be made within five (5) business days after the Trust's
acceptance of the order placed on behalf of your customer, or such shorter
time period as may be required by law. If payment for the Shares purchased
is not received within such time period, the Trust reserves the right to
cancel the sale or, at the Trust's option, to sell the Shares to the Fund
at the then-prevailing net asset value. In this event, you agree to be
responsible for any loss, expense, liability, or damage, including loss of
profit suffered by the Trust and/or the Fund resulting from your delay or
failure to make payment as aforesaid.
12. You are obliged to date and time stamp all orders received by
you and promptly transmit all orders to the Trust in time to provide for
processing at the price next determined after receipt by you, in accordance
with the Prospectus. You are not to withhold placing with the Trust orders
received from any customers for the purchase of Shares so as to profit
yourself as a result of such withholding. You shall not purchase Shares
through the Trust except for the purpose of covering purchase orders
already received from your customers, or, if permitted by applicable law,
for your bona fide investment.
13. You shall be solely responsible for the accuracy, timeliness,
and completeness of any orders transmitted by you on behalf of your
customers by wire or telephone for purchases, exchanges, or redemptions,
and shall indemnify and hold the Trust harmless against all claims, damage,
liability, costs, and expenses (including attorneys fees and costs of
investigation) incurred by the Trust arising out of or based upon your
relationship with your customers through your own actions or omissions,
<PAGE>
<PAGE>
including, but not limited to, any claims by your customers that you failed
to transmit properly their instructions, properly service their account, or
otherwise caused them injury.
14. If your customer's account is established without your customer
signing the application form, you represent that the instructions relating
to the registration (including the customer's tax identification number)
and selected options furnished to the Trust (whether on the application
form, in some other document, or orally) are in accordance with the
customer's instructions, and you agree to indemnify the Trust, the Trust's
transfer agent, shareholder servicing agent, and the Fund for any loss or
liability resulting from acting upon such instructions. The Trust agrees
to hold harmless and indemnify you for any loss or liability arising out of
our negligence in processing such instructions.
15. If any Share is repurchased by the Fund or is tendered thereto
for redemption within seven (7) business days after confirmation by the
Trust of the original purchase order from you for such security you shall
forthwith refund to the Trust the full commissions paid to you on the
original sale.
16. You shall not, if acting as principal, purchase any Share of
the Fund from a record holder at a price lower than the net asset value
next determined by or for the Fund's Shares. You shall, however, be
permitted to sell any Shares for the account of a shareholder of the Fund
at the net asset value currently quoted by or for the Fund's Shares, and
may charge a fair service fee for handling the transaction provided you
disclose the fee to the record owner.
17. We shall furnish you, without charge, reasonable quantities of
offering Prospectuses, with any supplements currently in effect, and copies
of current shareholder reports of the Fund, and sales materials issued by
us from time to time. You shall deliver copies of current shareholder
reports, Prospectuses, and any supplements to those of your customers whose
Shares are held in book-entry form on the books of the Fund. In the
purchase of Shares of the Fund from the Trust, you are entitled to rely
only on the information contained in the offering Prospectuses. You may not
publish any advertisement or distribute sales literature or other written
material to the public which makes reference to the Trust, the Fund, or us
(except material which we furnished to you) without our prior written
approval.
18. No person is authorized to make any representations concerning
Shares of the Fund except those contained in the applicable current
Prospectus and printed information subsequently issued by the Trust, the
Fund, or us as information supplemental to such Prospectus. You agree that
you will not make Shares available to your customers except under
circumstances that will result in compliance with applicable Federal and
state securities and banking laws. You further agree to indemnify and hold
harmless the Trust, the Fund, and us against any and all losses, claims,
damages, liabilities, expenses, or settlements to which the Trust, the
Fund, and/or we may become subject under any statute or regulation insofar
<PAGE>
<PAGE>
as such losses, claims, damages, liabilities, expenses, or settlements are
related to the purchase or sale of Shares by your customers and arise out
of or are based upon your statements or representations to your customers
concerning the Shares (other than statements or representations contained
in the applicable current Prospectus and printed information subsequently
issued by the Trust, the Fund, or us).
19. Shares sold hereunder shall be available in book-entry form on
the books of the Fund's transfer agent unless other instructions have been
given.
20. You shall make available Shares of the Fund only through us.
In no transaction (whether of purchase or sale) shall you have any
authority to act as agent for, partner of, or participant in a joint
venture with us or with the Trust or the Fund or any other entity having
either a shareholder servicing support agreement or other agreement with
us.
21. All sales will be made subject to our receipt of Shares from
the Fund. We reserve the right, in our discretion, without notice, to
modify, suspend, or withdraw entirely the offering of any Shares and, upon
notice, to change the sales charge or discount or to modify, cancel, or
change the terms of this Agreement. You agree that any order to purchase
Shares of the Fund placed by you after any notice of amendment to this
Agreement has been sent to you shall constitute your agreement to any such
amendment.
22. Sales and exchanges of Shares may be made only in those states
and jurisdictions where Shares are registered or qualified for sale to the
public. We agree to advise you currently of the identity of those states
and jurisdictions in which the Shares are registered or qualified for sale,
and you agree to indemnify us, the Trust, and/or the Fund for any claim,
liability, expense, or loss in any way arising out of sale of Shares in any
state or jurisdiction not identified by us as a state or jurisdiction in
which such Shares are so registered or qualified. We agree to indemnify
you for any claim, liability, expense, or loss attributable to such Shares
not being registered or qualified if such state or jurisdiction was
identified by us as a state or jurisdiction in which Shares are so
registered or qualified.
23. We act solely as agent for the Trust and the Fund, and are not
responsible for qualifying the Fund or the Fund's Shares for sale in any
state or jurisdiction. We also are not responsible for the issuance, form,
validity, enforceability, or value of Shares of the Fund.
24. You represent that you are (a) a properly registered or
licensed broker or dealer under applicable Federal and state securities
laws and regulations and a member in good standing of the National
Association of Securities Dealers, Inc., or (b) a "bank," as defined in
Section 3(a)(6) of the Securities Exchange Act of 1934 (the "1934 Act") (or
other financial institution), and that you are not otherwise required to
register as a broker or dealer under the 1934 Act or any state laws. You
<PAGE>
<PAGE>
agree to notify us immediately in writing if this representation ceases to
be true. We recognize that, in addition to applicable provisions of
Federal and state securities laws, you may be subject to the provisions of
the Glass-Steagall Act and other laws governing, among other things, the
conduct of activities by Federal and state chartered and supervised
financial institutions and their affiliated organizations. Because you
will be the only entity having a direct relationship with the customer in
connection with securities purchases hereunder, you will be responsible in
that relationship for insuring compliance with all laws and regulations,
including those of all applicable Federal and state regulatory authorities
and bodies having jurisdiction over you or your customers to the extent
applicable to securities purchases hereunder.
25. Either of us, upon request of the other party, shall provide
the other party with data or documents needed by the requesting party to
carry out all allocated functions herein.
26. Each of us shall cooperate with all appropriate governmental or
self regulatory authorities (including, without limitation, the Securities
and Exchange Commission, the National Association of Securities Dealers,
Inc., and state securities regulators) and shall permit such authorities
reasonable access to books and records in connection with any inspection,
inquiry, or investigation relating to this Agreement or the transactions
contemplated thereby.
27. Either of us may cancel this Agreement at any time by written
notice to the other.
28. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule, or otherwise, the remainder of
the Agreement shall not be affected thereby.
29. All communications to us should be sent to the above address.
Any notice to you shall be duly given if mailed or telegraphed to you at
the address specified by you below.
30. The names of your customers shall remain your sole property and
shall not be used by us for any purpose except for servicing and
information mailings in the normal course of business to Fund shareholders.
31. We agree to compensate you for your services provided under
this Agreement within forty-five (45) days of the end of each fiscal
quarter of the Trust, at an annualized rate not to exceed 0.___% of the net
asset value of all Shares of the Fund owned beneficially or of record by
(i) you or (ii) your investment advisory or other clients, and/or accounts
as to which you are a fiduciary or custodian or co-fiduciary or co-
custodian, during the quarter ("Qualified Holdings"); provided, however,
that no payments shall be made to you for any quarter in which your
Qualified Holdings do not equal or exceed, at the end of the quarter, the
asset minimum ("Minimum Qualified Holdings"), which Minimum Qualified
Holdings shall be set from time to time by us with the approval of the
Trustees of the Trust who are not "interested persons" of the Trust, as
<PAGE>
<PAGE>
defined in the Investment Company Act of 1940, and who have no direct or
indirect financial interest in the operation of the distribution plan
adopted by the Trust in connection with the distribution of the Shares of
the Fund by us or in any agreements related to this distribution plan; and
provided, further, however, that no payments shall be made to you for any
quarter unless and until PADCO Financial Services, Inc. has received the
full amount of reimbursement payments from the Trust, in connection with
the aforementioned distribution plan, for distribution expenses incurred by
PADCO Financial Services, Inc. during that quarter in promoting the sale of
Fund shares pursuant to Rule 12b-1 under the 1940 Act.
32. In addition to the compensation that we have agreed to pay you
under this Agreement pursuant to Paragraph 31, immediately above, PADCO
Advisors, Inc., the Trust's investment adviser (the "Advisor"), agrees, as
indicated by the Advisor's agreement and acceptance below, also to
compensate you from the Advisor's own resources (which may include profits
derived from the advisory fee the Advisor receives from the Fund), at an
annualized rate not to exceed 0.___% of the net asset value of your
Qualified Holdings held during a fiscal quarter of the Trust; provided,
however, that no payments shall be made to you for any quarter in which
your Qualified Holdings do not equal or exceed, at the end of the quarter,
the Minimum Qualified Holdings.
Execute this Agreement in duplicate and return one of the duplicate
originals to us for our file. This Agreement (i) may be amended by
notification from us and orders received following such notification shall
be deemed to be an acceptance of any such amendment and (ii) shall be
construed in accordance with the laws of the State of Maryland.
Accepted: Very truly yours,
Name of Selling Recipient
By: By:
Name: Name:
Title: Title:
Address:
Date:
AGREED AND ACCEPTED:
PADCO Advisors, Inc.
By:
Albert P. Viragh, Jr.
President
Date:
<PAGE>
<PAGE>
<PAGE>
EXIHIBT (16)
Schedule of Performance Quotations
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE NOVA FUND
Average Annual Total Return (As of June 30, 1997):
P (1 +T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1, 5, or 10
year periods, at the end of the periods (or
fractional portion thereof).
EXAMPLE:
For the One-Year Period Ended June 30, 1997:
P = $1,000
T = 44.7899%
n = 1.00
ERV = $1,447.90
For the Period From Commencement of Operations (July 12,
1993) to June 30, 1997:
P = $1,000
T = 25.8205%
n = 3.9699
ERV = $2,488.85
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE URSA FUND
Average Annual Total Return (As of June 30, 1997):
P (1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1, 5, or 10
year periods, at the end of the periods (or
fractional portion thereof).
EXAMPLE:
For the One-Year Period Ended June 30, 1997:
P = $1,000
T = (19.8908)%
n = 1.00
ERV = $801.09
For the Period From Commencement of Operations (January 7,
1994) to June 30, 1997:
P = $1,000
T = (12.7103)%
n = 3.4795
ERV = $623.14
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE RYDEX OTC FUND
Average Annual Total Return (As of June 30, 1997):
P (1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1, 5, or 10
year periods, at the end of the periods (or
fractional portion thereof).
EXAMPLE:
For the One-Year Period Ended June 30, 1997:
P = $1,000
T = 43.5738%
n = 1.00
ERV = $1,435.74
For the Period From Commencement of Operations (February 14,
1994) to June 30, 1997:
P = $1,000
T = 29.1204%
n = 3.3753
ERV = $2,369.44
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE RYDEX PRECIOUS METALS FUND
Average Annual Total Return (As of June 30, 1997):
P (1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1, 5, or 10
year periods, at the end of the periods (or
fractional portion thereof).
EXAMPLE:
For the One-Year Period Ended June 30, 1997:
P = $1,000
T = (22.6519)%
n = 1.00
ERV = $773.48
For the Period From Commencement of Operations (December 1,
1993) to June 30, 1997:
P = $1,000
T = (9.2648)%
n = 3.5808
ERV = $706.00
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE RYDEX U.S. GOVERNMENT BOND FUND
Average Annual Total Return (As of June 30, 1997):
P (1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1, 5, or 10
year periods, at the end of the periods (or
fractional portion thereof).
EXAMPLE:
For the One-Year Period Ended June 30, 1997:
P = $1,000
T = 6.6856%
n = 1.00
ERV = $1,066.86
For the Period From Commencement of Operations (January 3,
1994) to June 30, 1997:
P = $1,000
T = 1.3564%
n = 3.49041
ERV = $1,048.15
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE RYDEX U.S. GOVERNMENT BOND FUND
Yield (30 Days Ended March 31, 1997):
YIELD = 2[( a-b +1)6-1]
cd
Where: a = dividends and interest paid during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends; and
d = the maximum offering price per share on the last day
of the period.
Example: a = $468,977
b = $106,635
c = 1,054,364.088
d = $8.52
Yield = 5.95%
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE JUNO FUND
Average Annual Total Return (As of June 30, 1997):
P (1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1, 5, or 10
year periods, at the end of the periods (or
fractional portion thereof).
EXAMPLE:
For the One-Year Period Ended June 30, 1997:
P = $1,000
T = (0.5817)%
n = 1.00
ERV = $994.18
For the Period From Commencement of Operations (March 3,
1995) to June 30, 1997:
P = $1,000
T = (2.5557)%
n = 2.33
ERV = $941.49
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE RYDEX HIGH YIELD FUND
Average Annual Total Return (As of June 30, 1997):
P (1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1, 5, or 10
year periods, at the end of the periods (or
fractional portion thereof).
For the Period From Commencement of Operations (January 3,
1997) to June 30, 1997:
P = $1,000
T = 7.1889%
n = 0.48767
ERV = $1,034.44
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE RYDEX HIGH YIELD FUND
Yield (30 Days Ended March 31, 1997):
YIELD = 2[( a-b +1)6-1]
cd
Where: a = dividends and interest paid during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends; and
d = the maximum offering price per share on the last day
of the period.
Example: a = $158,101
b = $16,358
c = 741,443.128
d = $9.81
Yield = 8.18%
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE RYDEX U.S. GOVERNMENT MONEY MARKET FUND
The annualized current yield for The Rydex U.S. Government
Money Market Fund (the "Government Fund"), 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 Government 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 Government 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 Government Fund such as
management fees), in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the
period, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period
return, and then compounding the base period return by adding 1,
raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
The Government Fund's annualized effective yield and
annualized current yield, for the seven-day period ended March
31, 1997, were approximately 4.84% and 4.74%, respectively.
The following is an example of these yield calculations for
the Government Fund based on a seven-day period ending March 31,
1997:
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE RYDEX U.S. GOVERNMENT MONEY MARKET FUND
Assumptions:
Annualized Current Yield, for the seven-day
period ended March 31, 1997:
Sum of the Annualized Daily Rates
----------------------------------
= ACY 7
Calculations:
Where: Sum of the Annualized Daily Rates =
annualized daily rate 7 days prior
+ annualized daily rate 6 days prior
+ annualized daily rate 5 days prior
+ annualized daily rate 4 days prior
+ annualized daily rate 3 days prior
+ annualized daily rate 2 days prior
+ annualized daily rate 1 day prior; and
ACY = annualized current yield for the seven-day
period ended March 31, 1997.
EXAMPLE:
For the seven-day period ended March 31, 1997:
Sum of the Annualized Daily Rates =
4.53
+4.78
+4.71
+4.71
+4.71
+4.71
+5.02 = 33.17
ACY = 4.73857 = 4.74
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE RYDEX U.S. GOVERNMENT MONEY MARKET FUND
Assumptions:
Annualized Effectived Yield, for the seven-day
period ended March 31, 1997:
(1 + ACY) x-1 = AEY x
Calculations:
Where:ACY = annualized current yield for the seven-day
period ended March 31, 1997;
x = number of compounding periods; and
AEY = annualized effective yield.
EXAMPLE:
For the seven-day period ended March 31, 1997:
ACY = 4.74
x = 12
AEY = 4.84
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE RYDEX INSTITUTIONAL MONEY MARKET FUND
The annualized current yield for The Rydex Institutional
Money Market Fund (the "Institutional Fund"), 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 Institutional
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 Institutional 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 Institutional Fund such as
management fees), in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the
period, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period
return, and then compounding the base period return by adding 1,
raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
The Institutional Fund s annualized effective yield and
annualized current yield, for the seven-day period ended March
31, 1997, were approximately 4.53% and 4.43%, respectively.
The following is an example of these yield calculations for
the Institutional Fund based on a seven-day period ending March
31, 1997.
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE RYDEX INSTITUTIONAL MONEY MARKET FUND
Assumptions:
Annualized Current Yield for the seven-day
period ended March 31, 1997:
Sum of the Annualized Daily Rates
_________________________________ = ACY
7
Calculations:
Where: Sum of the Annualized Daily Rates =
annualized daily rate 7 days prior
+ annualized daily rate 6 days prior
+ annualized daily rate 5 days prior
+ annualized daily rate 4 days prior
+ annualized daily rate 3 days prior
+ annualized daily rate 2 days prior
+ annualized daily rate 1 day prior; and
ACY = annualized current yield for the seven-day
period ended March 31, 1997.
EXAMPLE:
For the seven-day period ended March 31, 1997:
Sum of the Annualized Daily Rates =
3.58
+4.67
+4.52
+4.52
+4.52
+4.52
+4.71 = 31.04
ACY = 4.434285 = 4.43
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
RYDEX SERIES TRUST
THE RYDEX INSTITUTIONAL MONEY MARKET FUND
Assumptions:
Annualized Effective Yield, for the seven-day
period ended March 31, 1997:
(1 + ACY) x-1 = AEY x
Calculations:
Where: ACY = annualized current yield for the seven-day
period ended March 31, 1997:
x = number of compounding periods; and
AEY = annualized effective yield.
EXAMPLE:
For the seven-day period ended March 31, 1997:
ACY = 4.43
x = 12
AEY = 4.53
<PAGE>
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<CIK> 0000899148
<NAME> RYDEX SERIES TRUST
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<NAME> Nova Fund
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<NAME> RYDEX SERIES TRUST
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<NAME> Rydex US Government Money Market Fund
<MULTIPLIER> 1
<S> <C>
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<INTEREST-INCOME> 7,080,216
<OTHER-INCOME> 0
<EXPENSES-NET> (1,236,643)
<NET-INVESTMENT-INCOME> 5,843,573
<REALIZED-GAINS-CURRENT> 0
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<NET-CHANGE-FROM-OPS> 5,843,573
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,799,436)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 3,329,494,638
<NUMBER-OF-SHARES-REDEEMED> (3,205,603,845)
<SHARES-REINVESTED> 5,678,838
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<PAGE>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000899148
<NAME> RYDEX SERIES TRUST
<SERIES>
<NUMBER> 3
<NAME> Rydex Precious Metals Fund
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 28,725,047
<INVESTMENTS-AT-VALUE> 28,450,214
<RECEIVABLES> 8,211,831
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<TOTAL-ASSETS> 36,871,030
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 47,008,940
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<NET-CHANGE-IN-ASSETS> (4,521,996)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (9,095,596)
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<PAGE>
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<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.05
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000899148
<NAME> RYDEX SERIES TRUST
<SERIES>
<NUMBER> 4
<NAME> Rydex US Government Bond Fund
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<S> <C>
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<TOTAL-LIABILITIES> 1,502,101
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<SHARES-COMMON-PRIOR> 2,043,061
<ACCUMULATED-NII-CURRENT> 16,220
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<ACCUMULATED-NET-GAINS> (776,212)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (57,355)
<NET-ASSETS> 3,301,652
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 468,977
<OTHER-INCOME> 0
<EXPENSES-NET> (106,635)
<NET-INVESTMENT-INCOME> 362,342
<REALIZED-GAINS-CURRENT> (152,481)
<APPREC-INCREASE-CURRENT> (254,243)
<NET-CHANGE-FROM-OPS> (44,382)
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<DISTRIBUTIONS-OF-INCOME> (362,881)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,919,523
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<SHARES-REINVESTED> 40,733
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<ACCUMULATED-GAINS-PRIOR> (351,994)
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<OVERDIST-NET-GAINS-PRIOR> (243,678)
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<PAGE>
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<CIK> 0000899148
<NAME> RYDEX SERIES TRUST
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<S> <C>
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<NET-INVESTMENT-INCOME> 7,372,787
<REALIZED-GAINS-CURRENT> (67,500,468)
<APPREC-INCREASE-CURRENT> 27,690,198
<NET-CHANGE-FROM-OPS> (32,437,483)
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<DISTRIBUTIONS-OF-INCOME> (752,816)
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<NET-CHANGE-IN-ASSETS> 422,924,543
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<PAGE>
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<PER-SHARE-GAIN-APPREC> (.68)
<PER-SHARE-DIVIDEND> (.02)
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000899148
<NAME> RYDEX SERIES TRUST
<SERIES>
<NUMBER> 6
<NAME> Rydex OTC Fund
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
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