<PAGE>
As Filed with the Securities and Exchange Commission On December 15, 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. 29 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 (X)
Amendment No. 30 (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:
John H. Grady, Jr., Esq.
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of rule 485
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on (date) pursuant to paragraph (b)(1)(v) of rule 485
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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
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X 75 days after filing pursuant to paragraph (a)(2) of rule 485
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on (date) pursuant to paragraph (a)(2) of rule 485
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If appropriate, check the following box:
_____This post-effective amendment designates a new effective date for a
previously-filed post-effective amendment.
<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 Fund Expense Information
3. Condensed Financial Information N/A
4. General Description of Registrant Fund Information, Risk
Considerations, Additional
Risk Considerations
5. Management of the Fund Management of the Funds;
Portfolio Transactions;
Information About the Funds'
Investments
5A. Management's Discussion of N/A
Fund Performance
6. Capital Stock and Other Securities Dividends and Distributions;
Tax Information; General
Information
7. Purchase of Securities Being Offered How to Invest in the Funds;
Tax-Sheltered Retirement Plans
8. Redemption of Repurchase Redeeming Fund Shares;
Exchanges; Procedures for
Redemptions
9. Legal Proceedings Not Applicable
2
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N-1A LOCATION IN
ITEM NO. REGISTRATION STATEMENT
-------- ----------------------
PART B: INFORMATION REQUIRED IN
STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page
11. Table of Contents Table of Contents
12. General Information and History Outside Front Cover Page of
Statement of Additional
Information
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 the Trust
Holder of Securities
16. Investment Advisory and Other Services Management of the Trust;
Accountants
17. Brokerage Allocation Portfolio Transactions and
Brokerage
18. Capital Stock and Other Securities N/A
19. Purchase, Redemption, and Pricing of Purchase and Redemption of
Securities Being Offered Shares
20. Tax Status Dividends, Distributions, and
Taxes
21. Underwriters Management of the Trust
22. Calculation of Performance Data Performance Information;
Calculation of Return
Quotations; Information on
Computation of Yield
23. Financial Statements N/A
3
<PAGE>
N-1A LOCATION IN
ITEM NO. REGISTRATION STATEMENT
-------- ----------------------
PART C: OTHER INFORMATION
24. Financial Statements and Exhibits Exhibits
25. Persons Controlled by or Persons Controlled by or Under
Under Common Control Common Control
26. Number of Holders of Securities Number of Holders of Shares of
Beneficial Interest
27. Indemnification Indemnification
28. Business and Other Connections of Business and Other Connections
Investment Adviser 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
4
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RYDEX-Registered Trademark-
INVESTMENT FLEXIBILITY
FOR INSTITUTIONAL MONEY MANAGERS
- --------------------------------------------------------------------------------
RYDEX SERIES TRUST
SECTOR FUNDS
RYDEX BANKING FUND
RYDEX BASIC MATERIALS FUND
RYDEX BIOTECHNOLOGY FUND
RYDEX CONSUMER PRODUCTS FUND
RYDEX ELECTRONICS FUND
RYDEX ENERGY FUND
RYDEX ENERGY SERVICES FUND
RYDEX FINANCIAL SERVICES FUND
RYDEX HEALTH CARE FUND
RYDEX LEISURE FUND
RYDEX RETAILING FUND
RYDEX TECHNOLOGY FUND
RYDEX TELECOMMUNICATIONS FUND
RYDEX TRANSPORTATION FUND
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
1-800-820-0888 301-468-8520
Rydex Series Trust (the "Trust") is a no-load mutual fund complex with
twenty-three separate investment portfolios (the "Rydex Funds"), fourteen of
which are described in this Prospectus (the "Funds" or "Rydex Sector Funds").
The Funds are sold principally to professional money managers and to investors
who take part in certain asset-allocation or market-timing investment programs.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
TRUST'S SHARES. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED OR
APPROVED OF THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY STATEMENT OR
INDICATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Funds:
- are not federally insured - are not bank deposits
- are not guaranteed by any government - are not guaranteed to achieve
government agency their objectives
INVESTING IN THE FUNDS INVOLVES RISK. YOU COULD LOSE MONEY.
March 1, 1998
PROSPECTUS
<PAGE>
FUND INFORMATION
RYDEX BANKING FUND
FUND OBJECTIVE
THE RYDEX BANKING FUND seeks capital appreciation by investing in companies that
are involved in the banking sector, including commercial banks (and their
holding companies) and savings and loan institutions ("Banking Companies").
PORTFOLIO INVESTMENTS
The Fund invests primarily in a portfolio of equity securities, including common
stocks, preferred stock, warrants, rights, and securities convertible into
common stock, of Banking Companies that are traded in the United States, as well
as in futures and options contracts. Banking Companies are engaged in accepting
deposits and making commercial and principally non-mortgage consumer loans.
Banking Companies include state chartered banks, savings and loan institutions,
and banks that are members of the Federal Reserve System. The Fund may also own
securities of U.S. Banking Companies whose deposits are not insured by the
federal government.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
As the services offered by Banking Companies expand, banks are becoming more
exposed to well-established competitors such as insurance companies and
investment advisory companies. This exposure has also increased due to the
erosion of historical distinctions between banks and other financial
institutions. Increased competition may result from the broadening of regional
and national interstate banking powers, which has already reduced the number of
publicly traded banks. Legislation is currently being considered by Congress
which would reduce the separation between commercial and investment banking
businesses. If enacted, this could significantly impact the industry and the
Fund. In addition, general economic conditions are important to Banking
Companies, which face exposure to credit losses and are dependent to a greater
or lesser extent on interest rate activity.
In addition, the Banking Fund is subject to the following types of primary
risks:
- Fund Risk; - Market Risk; and
- Sector Risk; - Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
2
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in shares
of the RYDEX BANKING FUND.
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SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
----
Total Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
EXAMPLE 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
3
<PAGE>
FUND INFORMATION
RYDEX BASIC MATERIALS FUND
FUND OBJECTIVE
THE RYDEX BASIC MATERIALS FUND seeks capital appreciation by investing in
companies engaged in the mining, manufacture, or sale of basic materials, such
as lumber, steel, iron, aluminum, concrete, chemicals and other basic building
and manufacturing materials ("Basic Materials Companies").
PORTFOLIO INVESTMENTS
The Fund invests primarily in a portfolio of equity securities, including common
stocks, preferred stock, warrants, rights, and securities convertible into
common stock, of Basic Materials Companies that are traded in the United States,
as well as in futures and options contracts. Basic Materials Companies are
engaged in the manufacture, mining, processing, or distribution of raw materials
and intermediate goods used in the industrial sector, and may be involved in the
production of metals, textiles, and wood products. When seeking to invest in
Basic Materials Companies, the Fund may also invest in the equity securities of
companies operating in the mining, processing, transportation, and distribution
businesses, including equipment suppliers and railroads.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
Many Basic Materials Companies are significantly affected by the level and
volatility of commodity prices, the exchange value of the dollar, import
controls, and worldwide competition. At times, worldwide production of
industrial materials has exceeded demand as a result of over-building or
economic downturns, leading to poor investment returns or losses for Basic
Materials Companies. Other risks may include liability for environmental
damage, depletion of resources, and mandated expenditures for safety and
pollution control devices.
In addition, the Basic Materials Fund is subject to the following types of
primary risks:
- - Fund Risk; - Market Risk; and
- - Sector Risk; - Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
4
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in shares
of the RYDEX BASIC MATERIALS FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
EXAMPLE 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
5
<PAGE>
FUND INFORMATION
RYDEX BIOTECHNOLOGY FUND
FUND OBJECTIVE
THE RYDEX BIOTECHNOLOGY FUND seeks capital appreciation by investing in
companies that are involved in the biotechnology industry, including companies
involved in research and development, genetic or other biological engineering,
and in the design, manufacture, or sale of related biotechnology products or
services ("Biotechnology Companies").
PORTFOLIO INVESTMENTS
The Fund invests primarily in a portfolio of equity securities, including common
stocks, preferred stock, warrants, rights, and securities convertible into
common stock, of Biotechnology Companies that are traded in the United States,
as well as in futures and options contracts. Biotechnology Companies are
engaged in the research, development, and manufacture of various
biotechnological products, services, and processes. The Fund may invest in
companies that manufacture and/or distribute biotechnological and biomedical
products, including devices and instruments, and in companies that provide or
benefit significantly from scientific and technological advances in
biotechnology, as well as in Biotechnology Companies that provide processes or
services instead of, or in addition to, products. Biotechnology Companies also
include companies involved in applications and developments affecting such areas
as human health care, pharmaceuticals, agricultural and veterinary applications,
chemicals, and medical/surgical.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
Biotechnology Companies are affected by patent considerations, intense
competition, rapid technological change and obsolescence, and regulatory
requirements of the Food and Drug Administration, the Environmental Protection
Agency, state and legal governments, and foreign regulatory authorities. In
addition, many of these companies are relatively small and have thinly traded
securities, may not yet offer products or offer a single product, and may have
persistent losses during a new product's transition from development to
production or erratic revenue patterns. Moreover, stock prices of Biotechnology
Companies are very volatile, particularly during periods where their products
are up for regulatory approval and/or under regulatory scrutiny.
In addition, the Biotechnology Fund is subject to the following types of primary
risks:
- Fund Risk; - Market Risk; and
- Sector Risk; - Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
6
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in shares
of the RYDEX BIOTECHNOLOGY FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
EXAMPLE 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
7
<PAGE>
FUND INFORMATION
RYDEX CONSUMER PRODUCTS FUND
FUND OBJECTIVE
THE RYDEX CONSUMER PRODUCTS FUND seeks capital appreciation by investing in
companies engaged in manufacturing finished goods and services both domestically
and internationally, ("Consumer Products Companies").
PORTFOLIO INVESTMENTS
The Fund invests primarily in a portfolio of equity securities, including common
stocks, preferred stock, warrants, rights, and securities convertible into
common stock, of Consumer Products Companies that are traded in the United
States, as well as in futures and options contracts. Consumer Products
Companies are engaged in the manufacture and distribution of goods and services
to consumers both domestically and internationally. Consumer Products Companies
include companies that manufacture or sell durable goods such as homes, cars,
boats, major appliances, and personal computers. Such companies also include
companies that manufacture, wholesale, or retail non-durable goods such as food,
beverages, tobacco, health care products, household and personal care products,
apparel, and entertainment products (E.G., books, magazines, TV, cable, movies,
music, gaming, sports), and companies that provide consumer products and
services such as lodging, child care, convenience stores, and car rentals.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
The performance of Consumer Products Companies has historically been closely
tied to the performance of the overall economy, and is also affected by interest
rates, competition, and consumer confidence. The success of Consumer Products
Companies also depends heavily on relative levels of disposable household
income and seasonal consumer spending. Changes in demographics and consumer
tastes can also affect the demand for, and success of, consumer products in the
marketplace.
In addition, the Consumer Products Fund is subject to the following types of
primary risks:
- Fund Risk; - Market Risk; and
- Sector Risk; - Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
8
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in shares
of the RYDEX CONSUMER PRODUCTS FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
EXAMPLE 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
9
<PAGE>
FUND INFORMATION
RYDEX ELECTRONICS FUND
FUND OBJECTIVE
THE RYDEX ELECTRONICS FUND seeks capital appreciation by investing in companies
that are involved in the electronics sector, including semiconductor
manufacturers and distributors, networking and telecommunications equipment
manufacturers, and makers and vendors of other electronic components and devices
("Electronics Companies").
PORTFOLIO INVESTMENTS
The Fund invests primarily in a portfolio of equity securities, including common
stocks, preferred stock, warrants, rights, and securities convertible into
common stock, of Electronics Companies that are traded in the United States, as
well as in futures and options contracts. Electronics Companies are engaged in
the design, manufacture, or sale of electronic components. Electronics
Companies include companies involved in the manufacture and development of
semiconductors, connectors, printed circuit boards and other components;
equipment vendors to electronic component manufacturers; electronic component
distributors; and electronic instruments and electronic systems vendors.
Electronics Companies also include companies involved in all aspects of the
electronics business and in new technologies or specialty areas such as defense
electronics, advanced design and manufacturing technologies, or lasers.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
Many of the products offered by Electronics Companies are subject to risks of
rapid obsolescence and intense competition. As suppliers of many technology
companies, Electronics Companies are often subject to the fortunes of their
customers, which may vary wildly. Electronics Companies also face high
technology and research costs especially in light of decreased defense spending
by the U.S. Government, and may face competition from subsidized foreign
competitors with lower production costs.
In addition, the Electronics Fund is subject to the following types of primary
risks:
- Fund Risk; - Market Risk; and
- Sector Risk; - Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
10
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in shares
of the RYDEX ELECTRONICS FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
EXAMPLE 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
11
<PAGE>
FUND INFORMATION
RYDEX ENERGY FUND
FUND OBJECTIVE
THE RYDEX ENERGY FUND seeks capital appreciation by investing in companies
involved in the energy field, including the exploration, production, and
development of oil, gas, coal and alternative sources of energy ("Energy
Companies").
PORTFOLIO INVESTMENTS
The Fund invests primarily in a portfolio of equity securities, including common
stocks, preferred stock, warrants, rights, and securities convertible into
common stock, of Energy Companies that are traded in the United States, as well
as in futures and options contracts. Energy Companies are involved in all
aspects of the energy industry, including the conventional areas of oil, gas,
electricity, and coal, and alternative sources of energy such as nuclear,
geothermal, oil shale, and solar power. The Fund may invest in companies that
produce, transmit, market, distribute or measure energy; companies involved in
providing products and services to companies in the energy field; and companies
involved in the exploration of new sources of energy, conservation, and
energy-related pollution control.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
Securities of Energy Companies are subject to changes in value and dividend
yield which depend largely on the price and supply of energy fuels. Swift price
and supply fluctuations may be caused by events relating to international
politics, energy conservation, the success of exploration projects, and tax and
other governmental regulatory policies.
In addition, the Energy Fund is subject to the following types of primary risks:
- Fund Risk; - Market Risk; and
- Sector Risk; - Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
12
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in shares
of the RYDEX ENERGY FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
EXAMPLE 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
13
<PAGE>
FUND INFORMATION
RYDEX ENERGY SERVICES FUND
FUND OBJECTIVE
THE RYDEX ENERGY SERVICES FUND seeks capital appreciation by investing in
companies that are involved in the energy services field, including those that
provide services and equipment in the areas of oil, coal, and gas exploration
and production, ("Energy Services Companies").
PORTFOLIO INVESTMENTS
The Fund invests primarily in a portfolio of equity securities, including common
stocks, preferred stock, warrants, rights, and securities convertible into
common stock, of Energy Services Companies that are traded in the United States,
as well as in futures and options contracts. Energy Services Companies are
engaged in one or more businesses in the energy service field, including those
that provide services and equipment to companies engaged in the production,
refinement or distribution of oil, gas, electricity, and coal, and to companies
involved with the production and development of newer sources of energy such as
nuclear, geothermal, oil shale, and solar power. Energy Services Companies
include those providing services such as onshore or offshore drilling; companies
involved in production and well maintenance; companies involved in exploration
engineering, data and technology; companies involved in energy transport; and
companies involved in equipment and plant design or construction. In addition,
Energy Services Companies include companies that provide products and services
to these other companies.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
Energy Services Companies are affected by the supply and demand both for their
specific products or services and for energy products in general. The price of
oil and gas, exploration and production spending, governmental regulation and
environmental issues, world events and economic conditions will likewise affect
the performance of Energy Services Companies. In addition, Energy Services
Companies may be affected by economic conditions generally affecting energy
supply companies.
In addition, the Energy Services Fund is subject to the following types of
primary risks:
- Fund Risk; - Market Risk; and
- Sector Risk; - Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
14
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in shares
of the RYDEX ENERGY SERVICES FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
EXAMPLE 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
15
<PAGE>
FUND INFORMATION
RYDEX FINANCIAL SERVICES FUND
FUND OBJECTIVE
THE FINANCIAL SERVICES FUND seeks capital appreciation by investing in companies
that are involved in the financial services sector, including commercial banks,
savings and loan associations, insurance companies, brokerage companies, and
real estate and leasing companies ("Financial Services Companies").
PORTFOLIO INVESTMENTS
The Fund invests primarily in a portfolio of equity securities, including common
stocks, preferred stocks, warrants, rights, and securities convertible into
common stock, of Financial Services Companies that are traded in the United
States, as well as in futures and options contracts. Financial Services
Companies provide financial services to consumers and industry. Financial
Services Companies include commercial and investment banks, savings and loan
associations, brokerage companies, insurance companies, real estate and leasing
companies, and companies that span across these segments. Under SEC
regulations, the Fund may not invest more than 5% of its total assets in the
equity securities of any company that derives more than 15% of its revenues from
brokerage or investment management activities.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
Financial Services Companies are subject to extensive governmental regulation,
which may limit both the amounts and types of loans and other financial
commitments they can make, and the interest rates and fees they can charge.
Profitability is largely dependent on the availability and cost of capital, and
can fluctuate significantly when interest rates change. Credit losses resulting
from financial difficulties of borrowers also can negatively impact the sector.
Insurance companies may be subject to severe price competition. Legislation is
currently being considered which would further reduce the separation between
commercial and investment banking businesses, and between the banking and
insurance businesses. If enacted these changes could significantly impact the
sector and the Fund.
In addition, the Financial Services Fund is subject to the following types of
primary risks:
- Fund Risk; - Market Risk; and
- Sector Risk; - Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
16
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in shares
of the RYDEX FINANCIAL SERVICES FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
EXAMPLE 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
17
<PAGE>
FUND INFORMATION
RYDEX HEALTH CARE FUND
FUND OBJECTIVE
THE HEALTH CARE FUND seeks capital appreciation by investing in companies that
are involved in the health care industry ("Health Care Companies").
PORTFOLIO INVESTMENTS
The Fund invests primarily in a portfolio of equity securities, including common
stocks, preferred stocks, warrants, rights and securities convertible into
common stock, of Health Care Companies that are traded in the United States, as
well as in futures and options contracts. Health Care Companies are engaged in
the design, manufacture, or sale of products or services used for or in
connection with health care or medicine. Health Care Companies include
pharmaceutical companies, companies involved in research and development of
pharmaceutical products and services, companies involved in the operation of
health care facilities, and other companies involved in the design, manufacture,
or sale of health care-related products or services.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
Health Care Companies are subject to government regulation and approval of their
products and services, which can have a significant effect on their price and
availability. Furthermore, the types of products or services produced or
provided by these companies may quickly become obsolete. Moreover, liability
for products that are later alleged to be harmful or unsafe may be substantial,
and may have a significant impact on a Health Care Company's market value and/or
share price.
In addition, the Health Care Fund is subject to the following types of primary
risks:
- Fund Risk; - Market Risk; and
- Sector Risk; - Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
18
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in shares
of the RYDEX HEALTH CARE FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
EXAMPLE 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
19
<PAGE>
FUND INFORMATION
RYDEX LEISURE FUND
FUND OBJECTIVE
THE RYDEX LEISURE FUND seeks capital appreciation by investing in companies
engaged in leisure and entertainment businesses, including hotels and resorts,
casinos, radio and television broadcasting and advertising, motion picture
production, toys and sporting goods manufacture, musical recordings and
instruments, alcohol and tobacco, and publishing ("Leisure Companies").
PORTFOLIO INVESTMENTS
The Fund invests primarily in a portfolio of equity securities, including common
stocks, preferred stocks, warrants, rights and securities convertible into
common stock, of Leisure Companies that are traded in the United States, as well
as in futures and options contracts. Leisure Companies are engaged in the
design, production, or distribution of goods or services in the leisure
industries. Leisure Companies provide, manufacture or produce goods and
services such as television and radio broadcast or manufacture (including cable
television); motion pictures and photography; recordings and musical
instruments; publishing, including newspapers and magazines; sporting goods and
camping and recreational equipment; and sports arenas. Other goods and services
provided by Leisure Companies include toys and games (including video and other
electronic games), amusement and theme parks, travel and travel-related
services, hotels and motels, leisure apparel or footwear, fast food, beverages,
restaurants, tobacco products and gaming casinos.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
Securities of Leisure Companies may be considered speculative, and generally
exhibit greater volatility than the overall market. Many Leisure Companies have
unpredictable earnings, due in part to changing consumer tastes and intense
competition. Leisure Companies have reacted strongly to technological
developments and to the threat of increased government regulation, particularly
in the gaming arena.
In addition, the Leisure Fund is subject to the following types of primary
risks:
- Fund Risk; - Market Risk; and
- Sector Risk; - Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
20
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in shares
of the RYDEX LEISURE FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
EXAMPLE 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
21
<PAGE>
FUND INFORMATION
RYDEX RETAILING FUND
FUND OBJECTIVE
THE RETAILING FUND seeks capital appreciation by investing in companies engaged
in merchandising finished goods and services, including department stores,
restaurant franchises, mail order operations and other companies involved in
selling products to consumers ("Retailing Companies").
PORTFOLIO INVESTMENTS
The Fund invests primarily in a portfolio of equity securities, including common
stocks, preferred stocks, warrants, rights, and securities convertible into
common stock, of Retailing Companies that are traded in the United States, as
well as in futures and options contracts. Retailing Companies are engaged in
merchandising finished goods and services primarily to individual consumers.
Retailing Companies include drug and department stores; suppliers of goods and
services for homes, home improvements and yards; clothing, jewelry, electronics
and computer retailers; franchise restaurants; motor vehicle and marine dealers;
warehouse membership clubs; mail order operations; and companies involved in
alternative selling methods.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
The success of Retailing Companies is closely tied to consumer spending, which
is affected by general economic conditions and consumer confidence levels. The
retailing industry is highly competitive, and a Retailing Company's success is
often tied to its ability to anticipate and react to changing consumer tastes.
Many Retailing Companies are thinly capitalized, and are dependent upon a
relatively few number of business days to achieve their overall results.
In addition, the Retailing Fund is subject to the following types of primary
risks:
- Fund Risk; - Market Risk; and
- Sector Risk; - Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
22
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in shares
of the RYDEX RETAILING FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
EXAMPLE 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
23
<PAGE>
FUND INFORMATION
RYDEX TECHNOLOGY FUND
FUND OBJECTIVE
THE TECHNOLOGY FUND seeks capital appreciation by investing in companies that
are involved in the technology sector, including computer software and service
companies, semiconductor manufacturers, networking and telecommunications
equipment manufacturers, PC hardware and peripherals companies ("Technology
Companies")
PORTFOLIO INVESTMENTS
The Fund invests primarily in a portfolio of equity securities, including common
stocks, preferred stocks, warrants, rights, and securities convertible into
common stock, of Technology Companies that are traded in the United States, as
well as in futures and options contracts. Technology Companies are companies
which the Advisor believes have, or will develop, products, processes, or
ser0vices that will provide or will benefit significantly from technological
advances and improvements. These companies may include, for example, companies
that develop, produce or distribute products or services in the computer,
semiconductor, electronics, communications, health care, and biotechnology
sectors.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
Competitive pressures may have a significant effect on the financial condition
of Technology Companies. For example, if technology continues to advance at an
accelerated rate, and the number of companies and product offerings continues to
expand, these companies could become increasingly sensitive to short product
cycles and aggressive pricing. In addition, many Technology Companies sell
stock before they have a commercially viable product, and may be acutely
susceptible to problems relating to bringing their products to market. In
addition, many small Technology Companies have very high price/earnings ratios,
high price volatility, and high personnel turnover due to severe labor shortages
for skilled technology professionals.
In addition, the Technology Fund is subject to the following types of primary
risks:
- Fund Risk; - Market Risk; and
- Sector Risk; - Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
24
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in shares
of the RYDEX TECHNOLOGY FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
EXAMPLE 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
25
<PAGE>
FUND INFORMATION
RYDEX TELECOMMUNICATIONS FUND
FUND OBJECTIVE
THE TELECOMMUNICATIONS FUND seeks capital appreciation by investing in companies
engaged in the development, manufacture, or sale of communications services or
communications equipment ("Telecommunications Companies").
PORTFOLIO INVESTMENTS
The Fund invests primarily in a portfolio of equity securities, including common
stocks, preferred stocks, warrants, rights, and securities convertible into
common stock, of Telecommunications Companies that are traded in the United
States, as well as in futures and options contracts. Telecommunications
Companies are engaged in the development, manufacture, or sale of communications
services or communications equipment. Telecommunications Companies range from
traditional local and long-distance telephone services or equipment providers,
to companies involved in developing technologies such as cellular telephone or
paging services, Internet equipment and service providers, and fiber-optics.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
Telephone operating companies are subject to both federal and state regulations
governing rates of return and services that may be offered. Many
Telecommunications Companies compete fiercely for market share and,
increasingly, face competitive challenges in the U.S. from foreign competitors
engaged in strategic joint ventures with U.S. companies, and in foreign markets
from both U.S. and foreign competitors. In addition, recent industry
consolidation trends may lead to increased regulation of Telecommunications
Companies in their primary markets. Although many established
Telecommunications Companies pay an above-average dividend, the Fund's
investment decisions are primarily based on growth potential and not on income.
In addition, the Telecommunications Fund is subject to the following types of
primary risks:
- Fund Risk; - Market Risk; and
- Sector Risk; - Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
26
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in shares
of the RYDEX TELECOMMUNICATIONS FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
EXAMPLE 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
27
<PAGE>
FUND INFORMATION
RYDEX TRANSPORTATION FUND
FUND OBJECTIVE
THE TRANSPORTATION FUND seeks capital appreciation by investing in companies
engaged in providing transportation services or companies engaged in the design,
manufacture, distribution, or sale of transportation equipment ("Transportation
Companies").
PORTFOLIO INVESTMENTS
The Fund invests primarily in a portfolio of equity securities, including
common stocks, preferred stocks, warrants, rights, and securities convertible
into common stock, of Transportation Companies that are traded in the United
States, as well as in futures and options contracts. Transportation
Companies are engaged in providing transportation services or engaged in the
design manufacture, distribution, or sale of transportation equipment.
Transportation Companies may include, for example, companies involved in the
movement of freight or people, such as airline, railroad, ship, truck and bus
companies; equipment manufacturers (including makers of trucks, automobiles,
planes, containers, railcars or other modes of transportation and related
products); parts suppliers; and companies involved in leasing, maintenance,
and transportation-related services.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
Transportation Company stocks are cyclical and have occasional sharp price
movements which may result from changes in the economy, fuel prices, labor
agreements, and insurance costs. The United States has been deregulating these
industries, but it is uncertain whether this trend will continue and what its
effect will be. In addition, Transportation Companies, including airlines and
automobile, truck and aircraft manufacturers, are facing increased competition
from foreign companies, many of which are partially funded by foreign
governments and which may be less sensitive to short-term economic pressures.
In addition, the Transportation Fund is subject to the following types of
primary risks:
- Fund Risk; - Market Risk; and
- Sector Risk; - Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
28
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in shares
of the RYDEX TRANSPORTATION FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
EXAMPLE 1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
29
<PAGE>
THE INVESTMENT OBJECTIVE OF EACH FUND IS NON-FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL. THERE CAN BE NO ASSURANCE THAT A FUND WILL
ACHIEVE ITS INVESTMENT OBJECTIVE.
RISK CONSIDERATIONS
PRIMARY RISKS
Set forth below are the primary, broad-based risks that the Funds may encounter:
- --------------------------------------------------------------------------------
PRIMARY RISKS
- --------------------------------------------------------------------------------
FUND RISK - The possibility that a Fund's performance during a specific period
may not meet or exceed that of the market as a whole.
- --------------------------------------------------------------------------------
SECTOR RISK - The risk that the economic sector in which a Fund focusses its
investments will underperform the market as a whole. To the extent that a
Fund's investments are concentrated in issuers conducting business in the same
economic sector, the Fund is subject to the risks of investing in that sector,
including legislative or regulatory changes, adverse market conditions and/or
increased competition.
- --------------------------------------------------------------------------------
MARKET RISK - The possibility that stock prices in general will decline over
short, or even extended, periods of time. Stock markets tend to be cyclical,
with periods when stock prices generally rise and periods when stock prices
generally decline.
- --------------------------------------------------------------------------------
LEVERAGING RISK - Leveraging activities include, among other things, the use of
options and futures. There are risks associated with leveraging activities,
including:
- - The success of a leveraging strategy may depend on an ability to predict
movements in the prices of individual securities, fluctuations in markets,
and movements in interest rates.
- - Leveraging may result in a Fund experiencing losses that far exceed the
Fund's investment in the leveraged instrument.
- - There may be an imperfect or no correlation between the changes in market
value of the securities held by a Fund and the prices of futures and
options on futures.
- - Although the Funds will only purchase exchange-traded futures and options,
due to market conditions, there may not be a liquid secondary market for a
futures contract or option. As a result, the Funds may be unable to close
out their futures or options contracts at a time which is advantageous to
the Funds.
- - Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and
options.
- --------------------------------------------------------------------------------
SECONDARY RISKS
In addition to the primary risks set forth above, the Funds may, to varying
degrees, be subject to the following types of secondary risks:
- --------------------------------------------------------------------------------
SECONDARY RISKS
- --------------------------------------------------------------------------------
EVENT RISK - The possibility that corporate securities may suffer substantial
declines in market value due to corporate restructurings. While event risk may
be high for certain corporate securities held by the Fund, event risk in the
aggregate should be low because of each Fund's varied holdings.
- --------------------------------------------------------------------------------
FOREIGN SECURITY RISKS - There are risks associated with international
investing, including:
- - VOLATILITY - Investments in securities of foreign companies can be more
volatile than investments in U.S. companies. Diplomatic, political, or
economic developments could affect investments in foreign countries.
- - REGULATORY ENVIRONMENT - Foreign companies generally are not subject to
uniform accounting, auditing, and financial reporting standards comparable
to those applicable to U.S. domestic companies. Foreign issuers may be
subject to different accounting, auditing, reporting, and record keeping
standards than those applicable to domestic issuers. There is generally
less government regulation of listed companies abroad than in the U.S.
- --------------------------------------------------------------------------------
SMALL ISSUER RISK - Small and medium capitalization companies may be more
vulnerable than larger, more established organizations to adverse business or
economic developments. In particular, small capitalization companies may have
limited product lines, markets, and financial resources and may be dependent
upon a relatively small management group. These securities may be traded
over-the-counter or listed on an exchange and may or may not pay dividends.
- --------------------------------------------------------------------------------
30
<PAGE>
ADDITIONAL RISK CONSIDERATIONS
PORTFOLIO TURNOVER RATE - The Trust anticipates that investors that are part of
asset-allocation or market-timing strategies will frequently redeem or exchange
shares of a Fund, which will cause that Fund to experience high portfolio
turnover. The formula for calculating a Fund's portfolio turnover rate
disregards securities having a maturity of less than one year and options and
futures contracts. A higher portfolio turnover rate may result in a Fund paying
more brokerage commissions and generating greater tax liabilities for
shareholders.
AGGRESSIVE INVESTMENT TECHNIQUES - Each of the Funds may, to a significant
extent, purchase futures contracts and options on securities, securities
indexes, and futures contracts. The 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 are described more fully in the "More Information About Investments
and Leveraging Transactions" section of this Prospectus, and in the Statement of
Additional Information.
NON-DIVERSIFICATION - Since each Fund is non-diversified, each Fund may invest
in the securities of a relatively few number of issuers. To the extent that a
Fund invests a significant percentage of its assets in a limited number of
issuers, the Fund is subject to the risks of investing in those few issuers, and
may be more susceptible to a single adverse economic or regulatory occurrence.
The Funds intend, however, to comply with the applicable diversification
requirements of the Internal Revenue Code.
PERFORMANCE INFORMATION
TOTAL RETURN CALCULATIONS
From time to time, each of the Funds may advertise its total return for prior
periods. Any such advertisement will include at least average annual total
return quotations for one, five, and ten-year periods, or for the life of the
Fund (if less). Other total return quotations over other time periods also may
be included.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, and is calculated by subtracting the value of the
initial investment from ending value of the investment and showing the
differences as a percentage of the initial investment. Total return calculations
assume that the entire investment is redeemed at the end of each period and that
all income dividends and capital gains distributions are reinvested. Average
annual total return quotations for periods of more than one year are computed by
finding the average annual compounded rate of return over the period that would
equal the initial amount invested relative to the ending redeemable value.
Please keep in mind that performance information, such as total return, is not
necessarily indicative of the future performance of a Fund.
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<PAGE>
COMPARISONS OF INVESTMENT PERFORMANCE
The performance of a Fund for a given period may be compared to the performance
of recognized, unmanaged indexes for the same period in performance reports and
promotional literature.
In addition, rankings, ratings, and comparisons of investment performance and/or
assessments of the quality of shareholder service appear in numerous financial
publications such as MONEY, FORBES, KIPLINGER'S MAGAZINE, PERSONAL INVESTOR,
MORNINGSTAR, INC., and similar sources.
Additional performance information for the Funds is contained in the Statement
of Additional Information ("SAI") and in the Trust's annual and semi-annual
reports to shareholders. Copies of the SAI and/or the annual and semi-annual
reports may be obtained, without charge, by writing to the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, or by calling 1-800-
820-0888.
HOW TO INVEST IN THE FUNDS
PURCHASING SHARES
Shares are offered continuously, and may be purchased on any day that the New
York Stock Exchange is open for business (a "Business Day"). The price per
share (the offering price) will be the net asset value per share ("NAV") next
determined after your purchase order is received by the Trust. NAV is
calculated by (1) taking the current market value of a Fund's total assets, (2)
subtracting the liabilities, and (3) dividing that amount by the total number of
shares owned by shareholders. The NAV is calculated once each Business Day
after the close of the New York Stock Exchange (currently, 4:00 p.m., Eastern
Time) and the settlement time for the Funds' futures and options contracts, if
any (typically, 4:15 p.m., Eastern Time). If the exchange or market where a
Fund's securities or other investments are primarily traded closes early, the
NAV may be calculated earlier in accordance with the policies set forth in the
Funds' SAI. To receive the current Business Day's NAV, the Trust must receive
your purchase order before 3:30 p.m., Eastern Time. No sales charges are
imposed on initial or subsequent investments in a Fund.
MINIMUM INVESTMENT
If a registered investment advisor has discretionary authority over your
account, the minimum initial investment in the Rydex Sector Funds is $15,000.
For all other shareholder accounts ("Self-Directed Accounts"), the minimum
initial investment in the Rydex Sector Funds is $25,000. These minimums also
apply to retirement plan accounts. The Trust, at its discretion, may accept
lesser amounts in certain circumstances. If you invest in the Trust without
designating which Fund you want to invest in on either your account application
or your check, your money will be invested in the Rydex U.S. Government Money
Market Fund until you tell us where to invest your money. There is no minimum
amount for subsequent investments in a Fund. The Trust reserves the right to
modify its minimum investment requirements at any time. The Trust also
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.
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<PAGE>
Investments in the Funds may be made (i) through securities dealers who have the
responsibility to transmit orders promptly and who may charge a processing fee,
or (ii) directly with the Trust by mail or by bank wire transfer as follows:
BY MAIL
Initial applications and investments, as well as subsequent investments, in the
Rydex Sector Funds made BY MAIL must be received in good form by the Trust, on
any Business Day, at or prior to 2:00 p.m., Eastern Time, in order to be
processed for that Business Day's NAV. Fill out an application and make 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
IN ADDITION TO CHARGES DESCRIBED ELSEWHERE IN THIS PROSPECTUS, THE TRUST ALSO
MAY CHARGE $25.00 FOR CHECKS RETURNED FOR INSUFFICIENT OR UNCOLLECTIBLE FUNDS.
BY BANK WIRE TRANSFER
First, fill out an application and fax the complete 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 FOR BOTH INITIAL AND
SUBSEQUENT PURCHASES, YOU MUST CALL THE TRUST AT 1-800-820-0888 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. FOR INITIAL
PURCHASES, YOU MUST ALSO SUPPLY THE TIME THE WIRE WAS SENT AND THE FED WIRE
REFERENCE NUMBER. 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 INCURS.
Wire transfers for both initial investments (which must be preceded by a faxed
application) and subsequent investments in the Rydex Sector Funds must be
received in good form at the Trust, on any Business Day, at or prior to 3:30
p.m., Eastern Time, in order to be processed at that Business Day's NAV. An
initial application that is faxed to the Trust does not constitute a purchase
order
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<PAGE>
until the application has been processed and correct payment by check or wire
transfer has been received by the Trust.
TAX-QUALIFIED RETIREMENT PLANS
Investors may purchase shares of the Funds through any of the following types of
tax-qualified retirement plans:
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 advisor
with discretionary authority over the retirement plan account with the Trust,
the minimum initial investment in the Rydex Sector Funds is $15,000. For
retirement plan accounts that are Self-Directed Accounts, the minimum initial
investment in the Rydex Sector 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 calling 1-800-820-0888
or 301-468-8520.
REDEEMING FUND SHARES
GENERAL
You may redeem all or any portion of your Fund shares at the next determined
NAV after receipt of the redemption request (subject to applicable account
minimums). You may redeem your shares by letter or by telephone subject to
the procedures set forth below. Your redemption proceeds normally will be
sent within five Business Days of the Trust receiving your request. For
investments made by check, payment on redemption requests may be delayed
until the Trust's transfer agent is reasonably satisfied that payment has
been collected by the Trust (which may require up to 10 Business Days). If
you invest by check, you may not wire out any redemption proceeds for the 30
calendar days following the purchase. You may avoid a delay in receiving
redemption proceeds by purchasing shares with a certified check. Telephone
redemptions will be sent only to your address or your bank account (as listed
in the Trust's records). The Trust may charge $15 for certain wire transfers
of redemption proceeds.
The proceeds of non-telephone redemptions will be sent directly to your address
(as listed in the Trust's records). If you request payment of redemption
proceeds to a third party or to a location other than your address or your bank
account (as listed in the Trust's records), this request must be in writing and
must include a signature guarantee.
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<PAGE>
REDEMPTIONS FROM TAX-QUALIFIED RETIREMENT PLANS MAY HAVE ADVERSE TAX
CONSEQUENCES. YOU SHOULD CONSULT YOUR TAX ADVISOR BEFORE REDEEMING SHARES FROM
YOUR TAX-QUALIFIED ACCOUNT.
INVOLUNTARY REDEMPTIONS
Because of the administrative expense of handling small accounts, any request
for a redemption when your 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 for the complete redemption of that
account. If your account balance drops below the required minimum of $15,000
($25,000 for Self-Directed Accounts), you may be required to redeem your shares.
EXCHANGES
You may exchange shares of any Rydex Sector Fund for shares of any other Rydex
Fund (including any other Rydex Sector Fund) on the basis of the respective net
asset values of the shares involved. An exchange involving a Self-Directed
Account must be for at least the lesser of $1,000 or 100% of the account value
of the Rydex Sector Fund from which the redemption is to be made. The Trust
currently is composed of twenty-three separate Funds. Exchanges may be made by
letter or by telephone subject to the procedures set forth below.
To exchange your shares, you need to provide certain information, including the
name on the account, the account number (or your taxpayer identification
number), the number or dollar value of shares (or the percentage of the total
value of your account) you want to exchange, and the names of the Rydex Funds
involved in the exchange transaction. Exchanges may be made only between
identically registered accounts. If you are contemplating an exchange for
shares of a Rydex Fund not described in this Prospectus, you should obtain and
review the current prospectus of that Rydex Fund before making the exchange.
Exchange orders for exchanges into another Rydex Sector Fund must be received by
3:30 p.m., Eastern Time. Exchange orders into other Rydex Funds must be
received by 3:30 p.m., Eastern Time, or by the time set forth below for the
relevant Rydex Fund (whichever is earlier):
- --------------------------------------------------------------------------------
FUND(S) CUT OFF TIME
- --------------------------------------------------------------------------------
Nova 3:45 p.m.
Ursa
Rydex OTC
- --------------------------------------------------------------------------------
Rydex Precious Metals 3:30 p.m.
- --------------------------------------------------------------------------------
Rydex U.S. Government Bond 2:45 p.m.
Juno
- --------------------------------------------------------------------------------
Rydex High Yield 2:15 p.m.
- --------------------------------------------------------------------------------
The exchange privilege may be modified or discontinued at any time.
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<PAGE>
PROCEDURES FOR REDEMPTIONS AND EXCHANGES
Written requests for redemptions and exchanges should be sent to Rydex Series
Trust, 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852, and
should be signed by the record owner or owners. With proper authorization,
telephone and electronic redemption and transfer requests are also permitted.
Telephone redemption and exchange requests may be made by calling 1-800-820-0888
or 301-468-8520 by 3:30 p.m., Eastern Time, on any Business Day. The Trust
reserves the right to suspend the right of redemption in accordance with the
SAI. The Trust's offices are open between 8:30 a.m. and 5:30 p.m., Eastern Time
on each Business Day.
TRANSACTIONS OVER THE TELEPHONE
Telephone redemption and exchange transactions are extremely convenient, but are
not risk-free. To ensure that your telephone transactions as safe, secure, and
as risk-free as possible, the Trust has instituted certain safeguards and
procedures for determining the identity of callers and authenticity of
instructions, including recording telephone inquiries. As a result, neither the
Trust nor its transfer agent will be responsible for any loss, liability, cost,
or expense for following telephone or wire instructions they reasonably believe
to be genuine. If you make exchange or redemption requests by telephone, you
will generally bear the risk of any loss. If you are unable to reach the Trust
by telephone, you may want to try to reach the Trust by other means.
DIVIDENDS AND DISTRIBUTIONS
Income dividends, if any, are paid at least annually by each of the Funds. If
you own Fund shares on a Fund's record date, you will be entitled to receive the
dividend. The Funds may declare and pay dividends on the same date. The Funds
make distributions of capital gains at least annually. The Trust, however, may
declare a special capital gains distribution if the Trustees believe that such a
distribution would be in the best interest of the shareholders of a Fund.
You will receive dividends and distributions in the form of additional Fund
shares unless you have elected to receive payment in cash. If you have not
already elected to receive cash payments on your application, you must notify
the Trust in writing prior to the date of distribution. Your election will
become effective for dividends paid after the Trust receives your written
notice. To cancel your election, simply send written notice to the Trust.
Dividends and distributions from a Fund are taxable to you whether they are
reinvested in additional shares of the Fund or are received in cash. You will
receive an account statement at least quarterly.
TAX INFORMATION
The following is a summary of some important tax issues that affect the Funds
and their Shareholders. The summary is based on current tax laws, which may be
changed by legislative, judicial or administrative action. We have not tried to
present a detailed explanation of the tax
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<PAGE>
treatment of the Funds or their Shareholders. MORE INFORMATION ABOUT
TAXES IS LOCATED IN THE SAI. WE URGE YOU TO CONSULT YOUR TAX ADVISOR REGARDING
SPECIFIC QUESTIONS AS TO FEDERAL, STATE AND LOCAL INCOME TAXES.
TAX STATUS OF EACH FUND
Each Fund is treated as a separate entity for federal tax purposes, and intends
to qualify for the special tax treatment afforded regulated investment
companies. As long as a Fund qualifies as a regulated investment company, it
pays no federal income tax on the earnings it distributes to Shareholders.
TAX STATUS OF DISTRIBUTIONS
- - Each Fund will distribute substantially all of its income. THE INCOME
DIVIDENDS YOU RECEIVE FROM THE FUNDS WILL BE TAXED AS ORDINARY INCOME
WHETHER YOU RECEIVE THE DIVIDENDS IN CASH OR IN ADDITIONAL SHARES.
- - Corporate shareholders may be entitled to a dividends-received deduction
for the portion of dividends they receive which are attributable to
dividends received by a Fund from U.S. corporations.
- - Capital gains dividends will be treated as gain from the sale or exchange
of a capital asset held for more than one year.
- - Distributions paid in January but declared as dividends by a Fund in
October, November or December of the previous year, may be taxable to you
in the previous year.
TAX STATUS OF SHARE TRANSACTIONS
EACH SALE, EXCHANGE, OR REDEMPTION OF FUND SHARES IS A TAXABLE EVENT TO YOU.
YOU SHOULD CONSIDER THE TAX CONSEQUENCES OF ANY REDEMPTION OR EXCHANGE BEFORE
MAKING SUCH A REQUEST, ESPECIALLY IF YOU INVEST IN THE FUNDS THROUGH A
TAX-QUALIFIED RETIREMENT PLAN.
STATE TAX CONSIDERATIONS
A Fund is not liable for any income or franchise tax in Delaware as long as it
qualifies as a regulated investment company for Federal income tax purposes.
Distributions by the Funds may be subject to state and local taxation. You
should verify your tax liability with your tax advisor.
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<PAGE>
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISOR
PADCO Advisors, Inc., a Maryland corporation with offices at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852 (the "Advisor"), serves as
investment advisor and manager of the Funds. 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 advisor. 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.
The Advisor makes investment decisions for the assets of the Funds and
continuously reviews, supervises, and administers each Fund's investment
program. The Trustees of the Trust supervise the Advisor and establish policies
that the Advisor must follow in its day-to-day management activities. Under an
investment advisory agreement between the Trust and the Advisor, the Funds each
pay the Advisor a fee at an annualized rate, based on the average daily net
assets for each Fund, of .85%. The Advisor bears all of its own costs
associated with providing these advisory services and the expenses of the
Trustees who are affiliated with the Advisor. The Advisor may make payments
from its own resources to broker-dealers and other financial institutions in
connection with the sale of Fund shares.
Each Fund is managed by a team and no one person is responsible for making
investment decisions for a Fund.
THE SERVICER
General administrative shareholder, dividend disbursement, transfer agent, and
registrar services are provided to the Trust and the Funds by PADCO Services
Company, Inc., 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
(the "Servicer"), subject to the general supervision of the Trustees and the
officers of the Trust. Under a service agreement between the Trust and the
Servicer, the Funds pay the Servicer a fee at an annualized rate, based on the
average daily net assets of each Fund, of .25%.
The Servicer provides the Trust and Funds with general administrative services.
The Servicer also maintains the shareholder records for the Funds, pays the
Funds' dividends and distributions, and produces account statements for the
Funds' Shareholders.
OTHER COSTS AND EXPENSES
Each Fund bears all costs and expenses of its operations other than those
assumed by the Advisor or the Servicer.
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PORTFOLIO TRANSACTIONS
The Advisor determines which securities to purchase and sell for each Fund,
selects brokers and dealers to effect the transactions, and negotiates
commissions. In placing orders for the Funds, the Advisor's policy is to obtain
the most favorable price and efficient execution available. In certain
circumstances, the Advisor may pay higher brokerage commissions in order to
receive research services, and the receipt of research services may be a factor
in the selection of broker-dealers. Brokerage commissions are normally paid on
exchange-traded securities transactions and on options and futures transactions.
GENERAL INFORMATION
DESCRIPTION OF THE TRUST
The Trust was organized as a Delaware business trust on February 10, 1993. The
Trust is permitted to offer separate portfolios of shares and different classes
of each Fund. All payments received by the Trust for shares of any Fund belong
to that Fund. Each Fund has its own assets and liabilities. Currently, the
Trust has twenty-three separate series. In addition to the Funds described in
this Prospectus, the Trust offers shares in the following funds in separate
prospectuses: 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.
VOTING RIGHTS
You receive one vote for every full Fund share owned. Each Fund or class of a
Fund will vote separately on matters relating solely to that Fund or class. All
shares of the Funds are freely transferable.
As a Delaware business trust, the Trust is not required to hold annual
Shareholder meetings unless otherwise required by the Investment Company Act of
1940. However, a meeting may be called by Shareholders owning at least 10% of
the outstanding shares of the Trust. If a meeting is requested by Shareholders,
the Trust will provide appropriate assistance and information to the
Shareholders who requested the meeting. Shareholder inquiries can be made by
calling 1-800-820-0888 or 301-468-8520, or by writing to the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852.
BOARD OF TRUSTEES; OFFICERS
The Trustees supervise the management and affairs of the Trust. The Trustees
have approved contracts with certain companies that provide the Trust with
essential management services. The day-to-day operations of the Trust are the
responsibility of the Trust's officers.
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REPORTING
You will receive the Trust's unaudited financial information and audited
financial statements. In addition, the Trust will send you proxy statements and
other reports. If you are a customer of a financial institution that has
purchased shares of a Fund for your account, you may, depending upon the nature
of your account, receive all or a portion of this information directly from your
financial institution.
SHAREHOLDER INQUIRIES
You may call 1-800-820-0888 or 301-468-8520 to obtain information on account
statements, procedures, and other related information.
AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, are the
independent public accountants for the Trust and each of the Funds.
COUNSEL
Morgan, Lewis & Bockius LLP, 1800 M Street, N.W., Washington, D.C. 20036 serves
as counsel to the Rydex Sector Funds.
CUSTODIAN
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 a
custody agreement between the Trust and the Custodian. Under the custody
agreement, the Custodian holds the portfolio securities of each Fund and keeps
all necessary related accounts and records.
40
<PAGE>
INFORMATION ABOUT THE FUNDS' INVESTMENTS
THE ADVISOR'S INVESTMENT METHODOLOGY
In managing the Funds, the Advisor's investment team employs a quantitative
model that considers a number of factors. To develop a liquid portfolio of
stocks that adequately represent a particular market sector, the Advisor filters
to the broad universe of stocks of issuers that are "principally engaged" in
business activities in each industry sector. The Advisor's investment process
screens stocks based on liquidity, market capitalization, and correlation
relative to the entire industry sector.
The Advisor monitors the Funds' portfolios on an ongoing basis, and adds or
deletes stocks from the portfolios as needed.
After constructing a portfolio for each Fund, the Advisor will utilize futures
contracts and options to leverage a Fund's exposure to the relevant business
sector. The use of leverage will result in each Fund being exposed to its
relevant business sector with more than 100% of its total assets.
Each business sector typically consists of numerous industries. For the
purposes of the Advisor's investment methodology and the policies for each Fund,
a company is considered to be "principally engaged" in a designated business
activity in a particular economic sector if at least 50% of its assets, gross
income, or net profits are committed to, or derived from, that activity. If a
question exists as to whether a company meets these standards, the Advisor will
determine whether the company's primary business is within the business sector
designated for investment by that Fund.
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FUND INVESTMENTS
The following table sets forth the primary investments, techniques and
strategies that each Fund will use to achieve its investment objective:
% = Maximum percentage permissible. All percentages shown are of total assets,
except for Illiquid Securities, which is shown as a percentage of net assets.
X = No policy limitation.
* = Permitted, but not typically used.
- -- = Not permitted
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS AND INVESTMENT PRACTICES PERCENTAGE OF EACH FUND'S ASSETS SUBJECT TO EACH INVESTMENT OR
INVESTMENT PRACTICE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
PRINCIPAL INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------------------------
ADRs 10%
Convertible Securities X
Equity Securities 100%
Repurchase Agreements X
U.S. Treasury and Government Agency Obligations X
Warrants 10%
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ----------------------------------------------------------------------------------------------------------------------------------
Borrowing 33 1/3%
Securities Lending 33 1/3%
- ----------------------------------------------------------------------------------------------------------------------------------
LEVERAGING AND HEDGING TRANSACTIONS
- ----------------------------------------------------------------------------------------------------------------------------------
Futures and Options on Futures(1) X
Options1 X
Short Sales 10%
Swaps, Caps, Floors, and Collars 20%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Maximum percent which may be used for leveraging purposes may not exceed
33 1/3%.
The Advisor will endeavor to ensure that the Funds remain fully invested at all
times. Under normal market conditions, the Funds will use the investments,
practices and policies outlined above.
INVESTMENT RESTRICTIONS
Each Fund will concentrate its investments in issuers conducting business in the
business sector appropriate for the respective Funds. With respect to 50% of
its assets, each Fund will not:
- invest more than 5% of its assets in the securities of any one issuer.
- purchase more than 10% of the outstanding voting securities of any one
issuer.
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MORE INFORMATION ABOUT INVESTMENTS AND LEVERAGING TRANSACTIONS
The following is a description of some of the permitted investments for the
Funds. Further discussion of the investment and techniques is contained in the
SAI.
AMERICAN DEPOSITARY RECEIPTS (ADRS) are securities, typically issued by a U.S.
financial institution (a depositary). The institution has ownership interests
in security, or a pool of securities, issued by a foreign issuer and deposited
with the depositary. ADRs may be available through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary. An unsponsored facility may
be established by a depositary without participation by the issuer of the
underlying security.
BORROWING - The Funds may borrow money equal to 5% of their total assets for
temporary purposes to meet redemptions or to pay dividends. In addition, the
Funds may borrow to leverage their portfolios. Such borrowings may take the
form of margin accounts or a conventional bank borrowings in connection with
securities purchases. Borrowing may exaggerate changes in the net asset value
of a Fund's shares and in the return on the Fund's portfolio. Although the
principal of any borrowing will be fixed, a Fund's assets may change in value
during the time the borrowing is outstanding. A Fund may be required to
liquidate portfolio securities at a time when it would be disadvantageous to do
so in order to make payments with respect to an outstanding borrowing. The
Funds may be required to segregate liquid assets in an amount sufficient to meet
their obligations in connection with such borrowings.
COMMON AND PREFERRED STOCKS represent units of ownership in a corporation.
Owners of common stock typically are entitled to vote on important matters.
Owners of preferred stock ordinarily do not have voting rights, but are entitled
to dividends at a specified rate. Preferred stock has a prior claim to common
stockholders with respect to dividends.
CONVERTIBLE SECURITIES are corporate securities that are exchangeable for a set
number of another security at a prestated price. The market value of a
convertible security tends to move with the market value of the underlying
stock. The value of a convertible security is also affected by prevailing
interest rates, the credit quality of the issuer, and any call option
provisions.
EQUITY SECURITIES include common and preferred stocks, warrants, rights to
subscribe to common stock and convertible securities. These securities may be
publicly and privately issued.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS provide for the future sale
by one party and purchase by another party of a specified amount of a specific
security at a specified future time and at a specified price. An option on a
futures contract gives the purchaser the right, in exchange for a premium, to
assume a position in a futures contract at a specified exercise price during the
term of the option.
A Fund may use futures contracts, and related options, for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired. They may also be used to minimize
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<PAGE>
fluctuations in foreign currencies, to gain exposure to a particular market or
instrument, to create a synthetic money market position, and for certain other
tax-related purposes. A Fund will minimize the risk that it will be unable to
close out a futures contract by only entering into futures contracts which are
traded on a national futures exchange or board of trade.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An 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 index at the
close of the last trading day of the contract and the price at which the
agreement is made.
Although the Funds intend to sell futures contracts only if there is an active
market for such contracts, there is no assurance 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, thereby preventing prompt liquidation of
future positions and potentially subjecting a Fund to substantial losses. The
risk that a Fund will be unable to close out a futures position will be
minimized by entering into such transactions on a national exchange or board of
trade with an active and liquid secondary market.
MONEY MARKET INSTRUMENTS are high quality, dollar-denominated, short-term
obligations, including bank obligations, U.S. Treasury obligations, U.S.
Government agency obligations, issued or guaranteed by the agencies or
instrumentalities of the U.S. Government, and short-term corporate obligations.
OPTIONS -- The buyer of an option acquires the right to buy (a call option) or
sell (a put option) a certain quantity of a security (the underlying security)
or instrument at a certain price up to a specified point in time. The seller or
writer of an option is obligated to sell (a call option) or buy (a put option)
the underlying security. 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. 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. With respect to put options written (sold) by the Fund, the Fund will
establish a segregated account with its custodian bank consisting of cash or
cash equivalents in an amount equal to the amount the Fund would be required to
pay upon exercise of the put option.
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, there is no assurance 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, a 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.
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Because option premiums paid or received by a Fund are small in relation to the
market value of the investments underlying the options, buying and selling put
and call options can be more speculative than investing directly in common
stocks.
REPURCHASE AGREEMENTS are agreements by which a Fund obtains a security and
simultaneously agrees to return the security to the seller at an agreed upon
price on an agreed upon date within a number of days from the date of purchase.
A Fund will enter into repurchase agreements only with financial institutions
deemed to present minimal risk of bankruptcy during the term of the agreement
based on established guidelines.
RIGHTS give existing shareholders of a corporation the right, but not the
obligation, to buy shares of the corporation at a given price, usually below the
offering price, during a specified period.
SECURITIES LENDING To generate additional income, a Fund may lend securities
which it owns pursuant to agreements requiring that the loan be continuously
secured by collateral equal to at least 100% of the market value of the loaned
securities. A Fund continues to receive interest on the loaned securities while
simultaneously earning interest on the investment of cash collateral.
SHORT SALES are transactions which a Fund sells a security it does not own. To
complete the 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. If, at the time of the short sale, a Fund owns or has the
right to acquire an equal amount of the security at no additional cost the
transaction is known as selling short "against the box."
SWAPS, CAPS, FLOORS, AND COLLARS are hedging tools designed to permit the
purchaser to preserve a return or spread on a particular investment or portion
of its portfolio. They are also used to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date. Swap
agreements, caps, floors and collars are sophisticated hedging instruments that
typically involve a small investment of cash relative to the magnitude of risk
assumed. As a result, swaps can be highly volatile and have a considerable
impact on a Fund's performance.
U.S. GOVERNMENT AGENCY OBLIGATIONS are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government.
U.S. TREASURY OBLIGATIONS consist of bills, notes, and bonds issued by the U.S.
Treasury.
WARRANTS give holders the right, but not the obligation, to buy shares of a
company at a given price, usually higher than the market price, during a
specified period.
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Additional information about the Rydex Sector Funds is included in a Statement
of Additional Information dated March 1, 1998 (the "SAI"). The SAI has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus. The SEC also maintains a Web
site ("http://www.sec.gov") that contains the SAI, material incorporated by
reference, and other information regarding registrants that file electronically
with the SEC. You may obtain a copy of the SAI, or of the annual or semi-annual
reports, without charge by calling 1-800-820-0888, or by writing to PADCO
Services Company, Inc., at 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
- --------------------------------------------------------------------------------
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE TRUST'S SAI IN
CONNECTION WITH THE OFFERING OF FUND SHARES. DO NOT RELY ON ANY SUCH
INFORMATION OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY THE TRUST OR PADCO
ADVISORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST IN
ANY JURISDICTION WHERE SUCH AN OFFERING IS NOT LAWFUL.
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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 complex with
twenty-three separate investment portfolios (the "Rydex Funds"). This Statement
of Additional Information ("SAI") relates to the following fourteen portfolios
only: Rydex Banking Fund, Rydex Basic Materials Fund, Rydex Biotechnology Fund,
Rydex Consumer Products Fund, Rydex Electronics Fund, Rydex Energy Fund, Rydex
Energy Services Fund, Rydex Financial Services Fund, Rydex Health Care Fund,
Rydex Leisure Fund, Rydex Retailing Fund, Rydex Technology Fund, Rydex
Telecommunications Fund, and Rydex Transportation Fund (the "Funds" or "Rydex
Sector Funds"). The Funds are sold principally to professional money managers
and to investors who take part in certain asset-allocation or market-timing
investment strategies. Sales are made, without a sales charge, at each Fund's
per share net asset value. Additional Funds may be created from time to time.
Each Fund is intended to provide significant investment exposure with respect to
a particular sector of the securities markets. The Funds may be used
independently or in combination with each other as part of an overall investment
strategy. However, none of the Funds alone constitutes a balanced investment
plan, and certain Funds involve special risks not traditionally associated with
investment companies. Because of the nature of the Funds, there generally will
be 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. Moreover, each Fund
will utilize leverage to gain exposure to its relevant sector, to a greater
extent than 100% of its assets. The Funds are not intended for investors whose
principal objective is current income or preservation of capital and may not be
a suitable investment for long-term investors who intend to follow an "invest
and hold" strategy. See "Risk Considerations" in the Rydex Sector Funds'
Prospectus (the "Prospectus").
This SAI is not a prospectus and should be read in conjunction with, and is
incorporated by reference into, the Prospectus dated March 1, 1998. A copy of
the Prospectus is 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 date of this SAI is March 1, 1998.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
----
DESCRIPTION OF THE SECTOR FUNDS. . . . . . . . . . . . . . . . . . . . . . . .3
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . .6
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .11
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . .13
MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . .17
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .18
CALCULATION OF RETURN QUOTATIONS . . . . . . . . . . . . . . . . . . . . . . .19
INFORMATION ON COMPUTATION OF YIELD. . . . . . . . . . . . . . . . . . . . . .20
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . .20
DIVIDENDS, DISTRIBUTIONS, AND TAXES. . . . . . . . . . . . . . . . . . . . . .21
ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
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DESCRIPTION OF THE SECTOR FUNDS
RYDEX BANKING FUND
As discussed in the Prospectus, the Fund may invest in companies engaged in
accepting deposits and making commercial and principally non-mortgage consumer
loans. In addition, these companies may offer services such as merchant
banking, consumer and commercial finance, discount brokerage, leasing and
insurance. These companies may concentrate their operations within a specific
part of the country rather than operating predominantly on a national or
international scale.
RYDEX BASIC MATERIALS FUND
As discussed in the Prospectus, the Fund may invest in companies engaged in the
manufacture, mining, processing, or distribution of raw materials and
intermediate goods used in the industrial sector. The Fund may invest in
companies handling products such as chemicals, lumber, paper, cooper, iron ore,
nickel, steel, aluminum, textiles, cement, and gypsum. The Fund may also invest
in the securities of mining, processing, transportation, and distribution
companies, including equipment suppliers and railroads.
RYDEX BIOTECHNOLOGY FUND
As discussed in the Prospectus, the Fund may invest in companies engaged in the
research, development, sale, and manufacture of various biotechnological
products, services and processes. These include companies involved with
developing or experimental technologies such as generic engineering, hybridoma
and recombinant DNA techniques and monoclonal antibodies. The Fund may also
invest in companies that manufacture and/or distribute biotechnological and
biomedical products, including devices and instruments, and that provide or
benefit significantly from scientific and technological advances in
biotechnology. Some biotechnology companies may provide processes or services
instead of, or in addition to, products.
The description of the biotechnology sector may be interpreted broadly to
include applications and developments in such areas as human health care
(cancer, infectious disease, diagnostics and therapeutics); pharmaceuticals (new
drug development and production); agricultural and veterinary applications
(improved seed varieties, animal growth hormones); chemicals (enzymes, toxic
waste treatment); medical/surgical (epidermal growth factor, in vivo
imaging/therapeutics); and industry (biochips, fermentation, enhanced mineral
recovery).
RYDEX CONSUMER PRODUCTS FUND
As discussed in the Prospectus, the Fund may invest in companies engaged in
the manufacture and distribution of goods to consumers, both domestically and
internationally. The Fund may invest in companies that manufacture or sell
durable products such as homes, cars, boats, furniture, major appliances, and
personal computers. The Fund also may invest in companies that manufacture,
wholesale or retail non-durable goods such as food, beverages, tobacco,
health care products, household and personal care products, apparel, and
entertainment products (E.G., books, magazines, TV, cable, movies, music,
gaming, and sports). In addition, the Fund may invest in consumer products
and services such as lodging, child care, convenience stores, and car rentals.
RYDEX ELECTRONICS FUND
As discussed in the Prospectus, the Fund may invest in companies engaged in
the design, manufacture, or sale of electronic components (semiconductors,
connectors, printed circuit boards and other components); equipment vendors
to electronic component manufactures; electronic component distributors; and
electronic instruments and electronic systems vendors. In addition, the Fund
may invest in companies in the fields of defense electronics, medical
electronics, consumer electronics, advanced manufacturing technologies
(computer-aided design and computer-aided manufacturing (CAD/CAM),
computer-aided engineering, and robotics), lasers and electro-optics, and
other developing electronics technologies.
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<PAGE>
RYDEX ENERGY FUND
As discussed in the Prospectus, the Fund may invest in companies in the energy
field, including the conventional areas of oil, gas, electricity and coal, and
alternative sources of energy such as nuclear, geothermal, oil shale and solar
power. The business activities of companies in which the Fund may invest
include production, generation, transmission, refining, marketing, control,
distribution or measurement of energy or energy fuels such as petrochemicals;
providing component parts or services to companies engaged in the above
activities; energy research or experimentation; and environmental activities
related to pollution control. Companies participating in new activities
resulting from technological advances or research discoveries in the energy
field may also be considered for this Fund.
RYDEX ENERGY SERVICES FUND
As discussed in the Prospectus, the Fund may invest in companies in the energy
service field, including those that provide services and equipment to the
conventional areas of oil, gas, electricity and coal, and alternative sources of
energy such as nuclear, geothermal, oil shale and solar power. The Fund may
invest in companies involved in providing services and equipment for drilling
processes such as offshore and onshore drilling, drill bits, drilling rig
equipment, drilling string equipment, drilling fluids, tool joints and wireline
logging. Many energy service companies are engaged in production and well
maintenance, providing such products and services as packers, perforating
equipment, pressure pumping, downhole equipment, valves, pumps, compression
equipment, and well completion equipment and service. Certain companies supply
energy providers with exploration technology such as seismic data, geological
and geophysical services, and interpretation of this data. The Fund may also
invest in companies with a variety of underwater well services, helicopter
services, geothermal plant design or construction, electric and nuclear plant
design or construction, energy related capital equipment, mining related
equipment or services, and high technology companies serving these industries.
RYDEX FINANCIAL SERVICES FUND
As discussed in the Prospectus, the Fund may invest in companies that are
involved in the financial sector, including commercial and investment banks,
savings and loan associations, consumer and industrial finance companies,
securities brokerage companies, real estate-related companies, leasing
companies, and a variety of firms in all segments of the insurance industry such
as multi-line, property and casualty, and life insurance.
The financial services sector is currently undergoing relatively rapid change as
existing distinctions between financial service segments become less clear. For
instance, recent business combinations have included insurance, finance, and
securities brokerage under single ownership. Some primarily retail corporations
have expanded into securities and insurance industries. Moreover, the federal
laws generally separating commercial and investment banking are currently being
studied by Congress.
Securities and Exchange Commission ("SEC") regulations provide that the Fund may
not invest more than 5% of its total assets in the securities of any one
company that derives more than 15% of its revenues from brokerage or investment
management activities. These companies, as well as those deriving more than 15%
of profits from brokerage and investment management activities, will be
considered to be "principally engaged" in this Fund's business activity. Rule
12d3-1 under the Investment Company Act of 1940 (the "1940 Act"), allows
investment portfolios such as this Fund, to invest in companies engaged in
securities-related activities subject to certain conditions. Purchases of
securities of a company that derived 15% or less of gross revenues during its
most recent fiscal year from securities-related activities (I.E., broker/dealer,
underwriting, or investment advisory activities) are subject only to the same
percentage limitations as would apply to any other security the Fund may
purchase. The Fund may purchase securities of an issuer that derived more than
15% of it gross revenues in its most recent fiscal year from securities-related
activities, subject to the following conditions:
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a. the purchase cannot cause more than 5% of the Fund's total assets to
be invested in securities of that issuer;
b. for any equity security, the purchase cannot result in the Fund owing
more than 5% of the issuer's outstanding securities in that class;
c. for a debt security, the purchase cannot result in the fund owing more
than 10% of the outstanding principal amount of the issuer's debt
securities.
In applying the gross revenue test, an issuer's own securities-related
activities must be combined with its ratable share of securities-related
revenues from enterprises in which it owns a 20% or greater voting or equity
interest. All of the above percentage limitations, as well as the issuer's
gross revenue test, are applicable at the time of purchase. With respect to
warrants, rights, and convertible securities, a determination of compliance with
the above limitations shall be made as though such warrant, right, or conversion
privilege had been exercised. The Fund will not be required to divest its
holding of a particular issuer when circumstances subsequent to the purchase
cause one of the above conditions to not be met. The purchase of a general
partnership interest in a securities-related business is prohibited.
RYDEX HEALTH CARE FUND
As discussed in the Prospectus, the Fund may invest in companies that are
involved in the health care industry including companies engaged in the design,
manufacture, or sale of products or services used for or in connection with
health care or medicine. Companies in the health care sector may include
pharmaceutical companies; firms that design, manufacture, sell, or supply
medical, dental, and optical products, hardware or services; companies involved
in biotechnology, medical diagnostic, and biochemical research and development,
as well as companies involved in the operation of health care facilities.
RYDEX LEISURE FUND
As discussed in the Prospectus, the Fund may invest in companies engaged in the
design, production, or distribution of goods or services in the leisure
industries including television and radio broadcasting or manufacturing
(including cable television); motion pictures and photography; recordings and
musical instruments; publishing, including newspapers and magazines; sporting
goods and camping and recreational equipment; and sports arenas. Other goods
and services may include toys and games (including video and other electronic
games), amusement and theme parks, travel and travel-related services, hotels
and motels, leisure apparel or footwear, fast food, beverages, restaurants,
tobacco products, and gaming casinos.
RYDEX RETAILING FUND
As discussed in the Prospectus, the Fund may invest in companies that are
involved in the retailing sector including companies engaged in merchandising
finished goods and services primarily to individual consumers. Companies in
which the Fund may invest include general merchandise retailers, department
stores, restaurant franchises, drug stores, motor vehicle and marine dealers,
and any specialty retailers selling a single category of merchandise such as
apparel, toys, jewelry, consumer electronics, or home improvement products. The
Fund may also invest in companies engaged in selling goods and services through
alternative means such as direct telephone marketing, mail order, membership
warehouse clubs, computer, or video based electronic systems.
RYDEX TECHNOLOGY FUND
As discussed in the Prospectus, the Fund may invest in companies that are
involved in the technology sector including companies which the Advisor
believes have, or will develop, products, processes or services that will
provide or will benefit significantly from technological advances and
improvements. These may include, for
5
<PAGE>
example, companies that develop, produce, or distribute products or services in
the computer, semiconductor, electronics, communications, health care, and
biotechnology sectors.
RYDEX TELECOMMUNICATIONS FUND
As discussed in the Prospectus, the Fund may invest in companies that are
involved in the telecommunications sector including companies engaged in the
development, manufacture, or sale of communications services and/or equipment.
Companies in the telecommunications field offer a variety of services and
products, including local and long-distance telephone service; cellular, paging,
local and wide-area product networks; satellite, microwave and cable television;
Internet access; and equipment used to provide these products and services.
Long-distance telephone companies may also have interests in developing
technologies, such as fiber optics and data transmission. Certain types of
companies in which the Fund may invest are engaged in fierce competition for a
share of the market for goods or services such as private and local area
networks, or are engaged in the sale of telephone set equipment.
RYDEX TRANSPORTATION FUND
As discussed in the Prospectus, the Fund may invest in companies that are
involved in the transportation sector, including companies engaged in providing
transportation services or companies engaged in the design, manufacture,
distribution, or sale of transportation equipment. Transportation services may
include companies involved in the movement of freight and/or people such as
airline, railroad, ship, truck, and bus companies. Other service companies
include those that provide leasing and maintenance for automobiles, trucks,
containers, rail cars, and planes. Equipment manufacturers include makers of
trucks, automobiles, planes, containers, rail cars, or any other mode of
transportation and their related products. In addition, the Fund may invest in
companies that sell fuel-saving devices to the transportation industries and
those that sell insurance and software developed primarily for transportation
companies.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL
Each Fund's investment objective and permitted investments are described in the
Prospectus under the headings "FUND INFORMATION" and "INFORMATION ABOUT THE
FUNDS' INVESTMENTS." The following information supplements, and should be read
in conjunction with, those sections of the Prospectus.
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 in the Prospectus may be used by a
Fund if, in the opinion of the Advisor, these strategies will be advantageous to
that Fund. A Fund is free to reduce or eliminate its activity in any of those
areas without changing the Fund's fundamental investment policies. There is no
assurance that any of these strategies or any other strategies and methods of
investment available to a Fund will result in the achievement of that Fund's
objectives.
BORROWING
The Funds 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 borrowing 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 borrowing may fluctuate with
changing market rates of interest and may partially offset or exceed the returns
on the borrowed funds. Under adverse conditions, the Funds might have to sell
portfolio securities to meet interest
6
<PAGE>
or principal payments at a time investment considerations would not favor such
sales. The Funds 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 1940 Act, a Fund must maintain continuous asset coverage
(total assets, including assets acquired with borrowed funds, less liabilities
exclusive of borrowing) 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 borrowing 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 borrowing.
FOREIGN ISSUERS
The Funds may invest in issuers located outside the United States. This may be
achieved by purchasing American Depository Receipts ("ADRs") 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. ADRs may be purchased with and sold for U.S. dollars, which
protect the Funds 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
investment 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.
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ILLIQUID SECURITIES
The Funds 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% of the
Fund's net assets in illiquid securities. The term "illiquid securities" for
this purpose means securities that cannot be disposed of within seven days in
the ordinary course of business at approximately the amount at which the Fund
has valued the securities. Under the current guidelines of the staff of the
Securities and Exchange Commission (the "Commission"), illiquid securities also
are considered to include, among other securities, purchased over-the-counter
options, certain cover for over-the-counter options, repurchase agreements with
maturities in excess of seven days, and certain securities whose disposition is
restricted under the Federal securities laws. The Fund may not be able to sell
illiquid securities when the Advisor considers it desirable to do so or may have
to sell such securities at a price that is lower than the price that could be
obtained if the securities were more liquid. In addition, the sale of illiquid
securities also may require more time and may result in higher dealer discounts
and other selling expenses than does the sale of securities that are not
illiquid. Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.
Institutional markets for restricted securities have developed as a result of
Rule 144A, which provides a "safe harbor" from 1933 Act registration
requirements for qualifying sales to institutional investors. When Rule 144A
securities present an attractive investment opportunity and otherwise 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
to the Advisor, the responsibility for determining the liquidity of Rule 144A
restricted securities which may be invested in by a Fund. 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 may have
enjoyed a fair degree of marketability when purchased, may subsequently become
illiquid. 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 a Fund's liquidity.
LENDING OF PORTFOLIO SECURITIES
Subject to the investment restrictions set forth below, each of the Funds may
lend portfolio securities to brokers, dealers, and financial institutions,
provided that cash equal to at least 100% of the market value of the securities
loaned is deposited by the borrower with the Fund and is maintained each
business day in a segregated account pursuant to applicable regulations. While
such securities are on loan, the borrower will pay the lending Fund any income
accruing thereon, and the Fund may invest the cash collateral in portfolio
securities, thereby earning additional income. A Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which the Fund's shares are qualified for sale, and the Funds
will not lend more than 33 1/3% of the value of the Fund's total assets. 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.
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OPTIONS TRANSACTIONS
OPTIONS ON SECURITIES. The Funds may buy call options and write (sell) put
options on securities, and 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 Option
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 Funds may purchase call options and write put
options, and 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 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.
OPTIONS ON FUTURES CONTRACTS. Under Commodities Futures Trading Commission
("CFTC") Regulations, a Fund may engage in futures transactions, either for
"bona fide hedging" purposes, as this term is defined in the CFTC Regulations,
or for non-hedging purposes to the extent that the aggregate initial margins and
option premiums required to establish such non-hedging positions do not exceed
5% of the liquidation value of the Fund's portfolio. In the case of an option
on futures contracts that is "in-the-money" at the time of purchase (I.E., the
amount by which the exercise price of the put option exceeds the current market
value of the underlying security, or the amount by which the current market
value of the underlying security exceeds the exercise price of the call option),
the in-the-money amount may be excluded in calculating this 5% limitation.
When a Fund purchases or sells a stock index futures contract, or sells an
option thereon, the Fund "covers" its position. To cover its position, a Fund
may maintain with its custodian bank (and marked-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
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<PAGE>
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. In the
alternative, 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 futures contract. 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 with prices 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 contracts, or by taking positions in
instruments with prices 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. In the alternative, if the long
position in the underling futures contracts 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 futures contract. A
Fund may also cover its sale of a call option by taking positions in instruments
with prices 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 futures contract. A Fund may also cover
its sale of a put option by taking positions in instruments with prices which
are expected to move relatively consistently with the put option.
PORTFOLIO TURNOVER
As discussed in the 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 Prospectus). The nature of the Funds may cause
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, the Trust expects that the portfolio turnover experienced by the Funds
will be substantial.
REPURCHASE AGREEMENTS
As discussed in the Prospectus, 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 a 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 Funds, 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
total assets. The investments of a Funds in repurchase agreements, at times,
may be substantial when, in the view of the Advisor, liquidity or other
considerations so warrant.
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<PAGE>
U.S. GOVERNMENT SECURITIES
The Funds may invest in 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 Fannie Mae, 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. Other obligations issued by or guaranteed by
Federal agencies, such as those securities issued by Fannie Mae, 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. A 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.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
The following investment limitations (and those set forth in the Prospectus) are
fundamental policies of the Funds which cannot be changed with respect to a Fund
without the consent of the holders of a majority of that Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of a Fund's shares present at a meeting, if more than 50% of the
outstanding shares of that Fund are present or represented by proxy, or (ii)
more than 50% of that Fund's outstanding shares, whichever is less.
A Fund may not:
1. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate the Fund to purchase securities or require
that Fund to segregate assets are not considered to be borrowing. Asset
coverage of a least 300% is required for all borrowing, except where the
Fund has borrowed money for temporary purposes in amounts not exceeding 5%
of its total assets. The Fund will not purchase securities while its
borrowing exceed 5% of its total assets.
2. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that the Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii)
enter into repurchase agreements; and (iii) lend its securities.
3. Purchase or sell real estate, physical commodities, or commodities
contracts, except that the Fund may purchase (i) marketable securities
issued by companies which own or invest in real estate (including real
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<PAGE>
estate investment trusts), commodities, or commodities contracts; and
(ii) commodities contracts relating to financial instruments, such as
financial futures contracts and options on such contracts.
4. Issue senior securities (as defined in the 1940 Act) except as permitted by
rule, regulation or order of the SEC.
5. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
6. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of the Funds
and may be changed with respect to any Fund by the Board of Trustees.
Each Fund may not:
1. Pledge, mortgage or hypothecate assets except to secure borrowing permitted
by the Fund's fundamental limitation on borrowing.
2. Invest in companies for the purpose of exercising control.
3. Purchase securities on margin or effect short sales, except that a Fund may
(i) obtain short-term credits as necessary for the clearance of security
transactions; (ii) provide initial and variation margin payments in
connection with transactions involving futures contracts and options on
such contracts; and (iii) make short sales "against the box" or in
compliance with the SEC's position regarding the asset segregation
requirements imposed by Section 18 of the 1940 Act.
4. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act or any rule, regulation or order of the SEC.
5. Purchase or hold illiquid securities, I.E., securities that cannot be
disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing in
more than seven days) if, in the aggregate, more than 15% of its net assets
would be invested in illiquid securities.
The foregoing percentages are based on total assets (except for the limitation
on illiquid securities, which is based on net assets) and will apply at the time
of the purchase of a security and shall not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of a
purchase of such security.
The Trust and the Advisor have applied to the SEC for an exemptive order that
would permit other investment companies to invest in the Funds beyond the
limitations of the 1940 Act, 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 Funds will invest in any securities of investment
companies, except as the 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.
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<PAGE>
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, 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 or persons 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 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 all circumstances.
Each Fund believes that a requirement to always seek the lowest possible
commissions could impede effective portfolio management and preclude the Fund
and the Advisor from obtaining high quality 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 investments; 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
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<PAGE>
expenses, this information and these services are of indeterminable value and
the management fee paid to the Advisor is not reduced by any amount that may be
attributable to the value of such information and services.
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, 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 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.
- ---------------
* This trustee is deemed to be an "interested person" of the Trust under the
1940 Act.
14
<PAGE>
OFFICERS
ROBERT M. STEELE (39)
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 Rydex OTC
Fund (since 1997) and The Rydex U.S. Governments 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.
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 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.
THE ADVISORY AGREEMENT
Under an investment advisory agreement with the Advisor, the Advisor serves as
the investment adviser for, provides investment advice to, and oversees the
day-to-day operations of the Sector Funds, subject to direction and control by
the Trustees and the officers of the Trust. As of November 30, 1997, assets
under management of the Advisor were approximately $1.7 billion.
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
15
<PAGE>
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 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
(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. 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, 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 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.
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<PAGE>
The aggregate compensation paid by the Trust to each of its Trustees serving
during the nine-month period ending March 31, 1997, is set forth in the table
below:
<TABLE>
<CAPTION>
PENSION OR
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL
NAME OF PERSON, COMPENSATION ACCRUED AS PART OF THE BENEFIT UPON
POSITION FROM THE TRUST TRUST'S EXPENSES RETIREMENT
- --------------- -------------- ----------------------- ----------------
<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>
- -------------------------
* Mr. Viragh is an "interested person" of the Trust.
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% of the outstanding shares of each Fund.
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust's Declaration of Trust disclaims liability of the shareholders of the
Trust or the Trustees 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. Accordingly, this risk
should be considered remote.
DETERMINATION OF NET ASSET VALUE
The net asset value per share ("NAV") of each Fund is determined once each day
on which the New York Stock Exchange ("NYSE") is open for business (a "Business
Day"). NAV is calculated on each Business Day after the close of normal trading
on the NYSE (currently, 4:00 P.M., Eastern Time) and the settlement time for
Funds' futures and options contracts, if any (typically, 4:15 P.M. Eastern
time). The net asset value of a Fund serves as the basis for the purchase and
redemption price of that Fund's shares. The net asset value per share of a Fund
is calculated by dividing the market value of the Fund's securities plus the
values of its 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.
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<PAGE>
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 futures contracts traded on the
Chicago Board of Trade ("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
over-the-counter ("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 settlement price for a like contract acquired on
the day on which the futures contract is being valued. The value of options on
futures contracts is determined based upon the current settlement price for a
like option acquired on the day on which the option is being valued. A
settlement price may not be used for the foregoing purposes if the market makes
a limit move with respect to a particular commodity.
OTC securities held by a Fund shall be valued at the last sales price or, if no
sales price is reported, the mean of the last bid and asked price is used. The
portfolio securities of a Fund that are listed on national exchanges 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.
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.
PERFORMANCE INFORMATION
From time to time, each of the Funds 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," below.
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. Such indexes include, but are not limited to, ones provided by Dow
Jones & Company, Standard & Poor's Corporation, Lipper Analytical Services,
Inc., Lehman Brothers, National Association of Securities Dealers Automated
Quotations, 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, the Nikkei Stock Average and Deutscher Aktienindex, all of which
are unmanaged market indicators. Such comparisons can be a useful measure of
the qualify of a Fund's investment performance.
18
<PAGE>
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, a Fund will be compared to Lipper's
appropriate fund category, that is, by fund objective and portfolio holdings.
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 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 SEC ("SEC Rules"), a Fund's advertising
performance must include total return quotes calculated according to the
following formula:
n
P(1+T) = 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 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, 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., each
respective Fund calculates its aggregate total return or the specified
periods of time by assuming the investment of $10,000 in Fund shares and
assuming the investment of each dividend or other distribution at net asset
value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. Such alternative total return
information will be given no greater prominence in such advertising than the
information prescribed under SEC Rules.
19
<PAGE>
INFORMATION ON COMPUTATION OF YIELD
In addition to the total return quotations discussed above, a Fund 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 a 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:
a - b
------- 6
YIELD = 2[( cd + 1) - 1]
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 a 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-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.
A 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.
PURCHASE AND REDEMPTION OF SHARES
MINIMUM INVESTMENT REQUIREMENTS
Shareholders will be informed of any increase in the minimum investment
requirements by a new prospectus or a prospectus supplement, in which the new
minimum is disclosed. 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, the Trust may redeem an
account
20
<PAGE>
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 Sector Fund shares (unless
the shareholder brings his or her account value up to the currently applicable
minimum investment).
TAX CONSEQUENCES
Note that in the case of tax-qualified retirement plans, a redemption from such
a plan may have adverse tax consequences. A shareholder contemplating such a
redemption should consult his or her own tax advisor. Other shareholders should
consider the tax consequences of any redemption.
SUSPENSION OF THE RIGHT OF REDEMPTION
The Funds may suspend the right of redemption or the date of payment: (i) for
any period during which the NYSE, the Federal Reserve Bank of New York, the
NASDAQ, the Chicago Mercantile Exchange ("CME"), the CBOT, or any other
exchange, as appropriate, is closed (other than customary weekend or holiday
closings), or trading on the NYSE, the NASDAQ, the CME, the CBOT, or any
other exchange, as appropriate, is restricted; (ii) for any period during
which an emergency exists so that sales of a Fund's investments or the
determination of its NAV is not reasonably practicable; or (iii) for such
other periods as the SEC may permit for the protection of a Fund's investors.
HOLIDAYS
The NYSE, the Federal Reserve Bank of New York, the NASDAQ, the CME, the CBOT,
and other U.S. exchanges are closed on weekends and on the following holidays:
(i) New Year's Day, Martin Luther King Jr.'s Birthday, President's Day, Good
Friday, Memorial Day, July Fourth, Labor Day, Columbus Day, Thanksgiving Day,
and Christmas Day; and (ii) the preceding Friday if any of these holidays falls
on a Saturday, or the subsequent Monday if any of these holidays falls on a
Sunday. Although the Trust expects the same holiday schedules to be observed in
the future, each of the aforementioned exchanges may modify its holiday schedule
at any time.
REDEMPTIONS IN-KIND
The Trust intends to pay your redemption proceeds in cash. However, under
unusual conditions that make the payment in cash unwise (and for the protection
of the remaining shareholders of the Fund) the Trust reserves the right to pay
all, or part, of your redemption proceeds in liquid securities with a market
value equal to the redemption price (redemption in-kind). Although it is
highly unlikely that your shares would ever actually be redeemed in kind, you
would probably have to pay brokerage costs to sell the securities distributed to
you.
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
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.
REGULATED INVESTMENT COMPANY STATUS
As a regulated investment company (a "RIC") under Subchapter M of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), a Fund would not be
subject to Federal income taxes on the net investment income and capital gains
that the Fund distributes to the Fund's shareholders. The distribution of net
investment income and capital gains will be taxable to Fund shareholders
regardless of whether the shareholder elects to receive these distributions in
cash or in additional shares. Distributions reported to Fund shareholders as
capital gains from property held for more than 18 months, or from property held
for more than 1 year but not for more than 18
21
<PAGE>
months, 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. To qualify as a RIC, the Code 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 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), or of two or more issuers
which the Fund controls and which are determined to be engaged in the same or
similar trades or businesses, or related trades or businesses.
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").
In the event of a failure by a Fund to qualify as a RIC, the Fund would be
subject to Federal income taxes on its taxable income and the Fund's
distributions, to the extent that 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.
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 treated as a gain from the sale
or exchange of a capital asset held for not more than 1 year, I.E.,
short-term capital gain. 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 either short-term, mid term or long-term capital gain or loss,
depending on whether the Fund's holding period for the underlying security or
underlying futures contract was not for more than 1 year (short-term),
22
<PAGE>
for more than 1 year but not for more than 18 months (mid-term), or for more
than 18 months (long-term). 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, mid-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. The amount paid to the Fund for the
option will be added to the amount of the proceeds received by the Fund.
With respect to call options purchased by a Fund, the Fund will realize
short-term, mid-term or long-term capital gain or loss if such option is sold
and will realize short-term, mid-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 Funds also may 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 Funds 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 the
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.
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.
23
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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 SAI in light of the
particular tax situations of the shareholders and regarding specific questions
as to Federal, state, or local taxes.
ACCOUNTANTS
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.
24
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PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
Part A - Not Applicable
Part B - Not Applicable
(a) FINANCIAL STATEMENTS:
(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) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
5
<PAGE>
(14) Not applicable.
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (continued)
(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, 1995.(5)
(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) Not applicable.
(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 Incorporated herein by reference to Post-Effective Amendment No. 28 to this
Registration Statement filed on July 20, 1997.
6
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The following persons may be deemed to be directly or indirectly controlled by
or under the common control with the Registrant, a Delaware a business trust:
PERCENTAGE OF VOTING
SECURITIES OWNED AND/OR
STATE OF ORGANIZATION AND CONTROLLED BY THE
RELATIONSHIP (IF ANY) TO CONTROLLING PERSON OR
COMPANY THE REGISTRANT OTHER BASIS OF COMMON
CONTROL
- --------------------------------------------------------------------------------
PADCO Advisors, Inc. (the a Maryland corporation, a 80% of the voting
"Advisor) registered investment securities of the Advisor
adviser, and the are owned by Albert P.
Registrant's investment Viragh, Jr., the Chairman
adviser of the Board of
Directors, the President,
and the Treasurer of the
Advisor, and 100% of the
voting securities are
controlled by Albert P.
Viragh, Jr.
PADCO Service Company, a Maryland corporation, a 100% of the voting
Inc. (the "Servicer") registered transfer securities of the
agent, and the Servicer are owned by
Registrant's shareholder Albert P. Viragh, Jr.,
and transfer agent the Chairman of the Board
servicer of Directors, the
President, and the
Treasurer of the Servicer
PADCO Financial Services, a Maryland corporation, a 100% of the voting
Inc. (the "Distributor") registered broker-dealer, securities of the
and the distributor of Distributor are owned by
the shares of The Rydex Albert P. Viragh, Jr.,
Institutional Money the Chairman of the Board
Market Fund and The Rydex of Directors, the
High Yield Fund, each a President, and the
series of the Registrant Treasurer of the
Distributor
7
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PADCO Advisors II, Inc. a Maryland corporation 100% of the voting
and a registered securities are owned by
investment adviser (PADCO Albert P. Viragh, Jr.,
II is not otherwise the Chairman of the Board
related to the of Directors, the
Registrant) President, and the
Treasurer of PADCO II
Rydex Advisor Variable a managed separate the investment advisers
Annuity Account (the account of Great American for the Separate Account
"Separate Account") Reserve Insurance and the Registrant are
Company, which is under the common control
organized under the laws of Albert P. Viragh, Jr.,
of the State of Texas and the Chairman of the Board
is advised by PADCO II of Trustees, President,
and Treasurer of the
Registrant
* 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 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 November 19, 1997
- --------------------------------- -----------------------
The Nova Fund 2,908
The Rydex U.S. Government Money Market Fund 7,082
The Rydex Precious Metals Fund 824
The Ursa Fund 5,035
The Rydex U.S. Government Bond Fund 271
The Rydex OTC Fund 1,937
The Juno Fund 439
The Rydex Institutional Money Market Fund 48
The Rydex High Yield Fund 272
Rydex Banking Fund 0
Rydex Basic Materials Fund 0
Rydex Biotechnology Fund 0
Rydex Consumer Products Fund 0
8
<PAGE>
Rydex Electronics Fund 0
Rydex Energy Fund 0
Rydex Energy Services Fund 0
Rydex Financial Services Fund 0
Rydex Health Care Fund 0
Rydex Leisure Fund 0
Rydex Retailing Fund 0
Rydex Technology Fund 0
Rydex Telecommunications Fund 0
Rydex Transportation Fund 0
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 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.
9
<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 Advisors, 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:
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS* UNDERWRITER WITH REGISTRANT
- ------------------ -------------------------- ---------------------
Albert P. Viragh, Jr. Director Chairman of the Board
of Trustees and President
Amanda C. Viragh Chairman of the Board of None
Directors, President and
Treasurer
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Michael P. Byrum Secretary Assistant Secretary
Sothara Chin Compliance Officer Compliance Officer
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 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.
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(d) The Registrant undertakes to file a Post-Effective Amendment, using
financial statements which need not be certified for the Rydex Banking
Fund, Rydex Basic Materials Fund, Rydex Biotechnology Fund, Rydex Consumer
Products Fund, Rydex Electronics Fund, Rydex Energy Fund, Rydex Energy
Services Fund, Rydex Financial Services Fund, Rydex Health Care Fund, Rydex
Leisure Fund, Rydex Technology Fund, Rydex Telecommunications Fund, Rydex
Transportation Fund, and Rydex Retailing Fund, within four to six months
from the effective date of Post-Effective Amendment No. 29.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Rockville in the State of Maryland on the 12th day
of December, 1997.
RYDEX SERIES TRUST
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 on
the date indicated.
Signatures Title Date
---------- ----- ----
/s/ Albert P. Viragh, Jr. Chairman of the Board of December 12, 1997
- ------------------------- Trustees President, and
Albert P. Viragh, Jr. Trustee
/s/ Carl G. Verboncouer Treasurer December 12, 1997
- -------------------------
Corey A. Colehour* Trustee December 12, 1997
- -------------------------
Corey A. Colehour
J. Kenneth Dalton* Trustee December 12, 1997
- -------------------------
J. Kenneth Dalton
Roger Somers* Trustee December 12, 1997
- -------------------------
*By: /s/ Albert P. Viragh, Jr.
---------------------------
Albert P. Viragh, Jr.
Attorney-in-Fact
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EXHIBIT INDEX
(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) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15)(a) Plan of Distribution for The Rydex Institutional Money Market
Fund.(5)
(15)(b) Plan of Distribution for The Rydex 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, 1995.(5)
(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)
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(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) Not applicable.
(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 Incorporated herein by reference to Post-Effective Amendment No. 28 to this
Registration Statement filed on July 20, 1997.
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