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As Filed with the Securities and Exchange Commission On July 2, 1998
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.32 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 (X)
Amendment No. 33 (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
- -----
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-Registered Trademark-
INVESTMENT FLEXIBILITY
FOR INSTITUTIONAL MONEY MANAGERS
RYDEX SERIES TRUST
INVESTOR CLASS
OTC SHORT 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-two separate investment portfolios (the "Rydex Funds"), one of which is
described in this Prospectus (the "Fund"). Investor Class Shares of the Fund
are sold principally to professional money managers and to investors who take
part in certain strategic and tactical asset-allocation investment programs.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
TRUST'S SHARES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
___________, 1998
PROSPECTUS
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S><C>
Risk/Return Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fund Performance and Fee Information . . . . . . . . . . . . . . . . . . . . .
OTC Short Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Risk Information . . . . . . . . . . . . . . . . . . . . . . .
Shareholder Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . . . .
Benchmark Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . . . . . . Back Cover
</TABLE>
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RISK/RETURN SUMMARY
INVESTMENT SUMMARY
The OTC SHORT FUND seeks to match the performance of a specific benchmark. The
investment objective is to provide investment results that inversely correlate
to the performance of the NASDAQ100 Index-TM- (NDX).
INVESTMENT STRATEGIES
PADCO Advisors, Inc. (the "Advisor") primarily uses statistical and quantitative
analysis to select investments. While the Advisor attempts to minimize any
"tracking error" (the difference between the investment results of the Fund and
the Fund's benchmark), the Fund's investment results may vary from that of its
benchmark. It is the policy of the Fund to pursue its investment objectives
regardless of market conditions, to remain nearly fully invested, and not to
take defensive positions.
The OTC SHORT FUND invests principally in short sales of securities,
transactions on stock index futures contracts, options on stock index futures
contracts, and options on securities and stock indexes. The Fund may purchase
other instruments consistent with achieving returns that inversely correlate
to those of the NASDAQ 100 Index-TM-.
RISK CONSIDERATIONS
The Fund is designed for professional money managers and knowledgeable investors
who intend to invest in the Fund as part of a strategic or tactical
asset-allocation investment strategy. The Fund:
- is not federally insured - is not a bank deposit
- is not guaranteed by any government - is not guaranteed to achieve
agency its objective
In addition, the Fund may be subject to the following risks:
TRACKING ERROR RISK - While the Fund does not expect returns to deviate from its
benchmark by more than ten percent, factors such as Fund expenses, imperfect
correlation between the Fund's investments and those of its benchmark, rounding
of share prices, changes to the benchmark, and regulatory policies may affect
its ability to achieve perfect correlation. The magnitude of any tracking error
may be affected by a higher portfolio turnover rate.
TRADING HALT RISK - The Fund typically will hold short-term options and
futures contracts. The major exchanges on which these contracts are traded,
such as the Chicago Mercantile Exchange ("CME"), have established limits on
how much an option or futures contract may decline over various time periods
within a day. If an option or futures contract's price declines more than
the established limits, trading on the exchange is halted on that instrument.
If a trading halt occurs before the close of a trading day, the Fund may not
be able to purchase or sell options or futures contracts. In
3
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such an event, the Fund also may be required to use a "fair-value" method to
price its outstanding contracts.
EARLY CLOSING RISK - The normal close of trading of securities listed on the
National Association of Securities Dealers Automated Quotations system
("NASDAQ") and the New York Stock Exchange ("NYSE") is 4:00 P.M., Eastern Time.
Unanticipated early closings may result in the Fund being unable to sell or buy
securities on that day. If an exchange closes early on a day when the Fund
needs to execute a high volume of securities trades late in a trading day, the
Fund might incur substantial trading losses.
PORTFOLIO TURNOVER RATE RISK - The Trust anticipates that investors that are
part of a tactical or strategic asset-allocation strategy will frequently redeem
or exchange shares of the Fund, which will cause the Fund to experience high
portfolio turnover. A higher portfolio turnover rate may result in the Fund
paying more brokerage commissions and generating greater tax liabilities for
shareholders.
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FUND PERFORMANCE AND FEE INFORMATION
FUND PERFORMANCE
As a new Fund, the OTC Short Fund does not yet have a performance history.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the OTC SHORT FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .90%
Distribution (12b-1) Fees None
Other Expenses** .60%
Total Annual Fund Operating Expenses 1.50%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
** OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE OTC
SHORT FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIOD
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE
EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE
FUND'S OPERATING EXPENSES REMAIN THE SAME. ALTHOUGH YOUR ACTUAL COSTS MAY BE
HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR COST WOULD BE:
1 YEAR 3 YEARS
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______ _______
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FUND INFORMATION
OTC SHORT FUND
FUND OBJECTIVE
The OTC SHORT FUND seeks to provide investment results that will match the
performance of a specific benchmark. The Fund's current benchmark is the
inverse of the performance of the NASDAQ 100 Index-TM-.
PORTFOLIO INVESTMENTS
The Fund invests, to a significant extent, in short sales of securities,
futures contracts, and options on securities, futures
contracts, and stock indexes. It also may invest in other instruments whose
performance is expected to correlate to the inverse of the performance of the
NASDAQ 100 Index-TM-. The Fund also may enter into repurchase agreements.
RISK CONSIDERATIONS
The OTC Short Fund is subject to Early Closing Risk, Tracking Error Risk, and
Trading Halt Risk, as described in the "RISK CONSIDERATIONS" section.
The value of the Fund's shares will tend to increase during times when the value
of the NASDAQ 100 Index-TM- is decreasing. When the value of the NASDAQ 100
Index-TM- is increasing, however, the value of the Fund's shares should
decrease by an inversely proportionate amount (E.G., if the NASDAQ 100
Index-TM- goes up by 10%, the value of the Fund's shares should go down by 10%).
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ADDITIONAL RISK INFORMATION
The Fund may enter into the following types of transactions:
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.
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 a pre-determined multiplier and 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.
The 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 gain exposure to a particular market or
instrument, to create a synthetic money market position, and for certain other
tax-related purposes. The Fund will only enter into futures contracts traded on
a national futures exchange or board of trade.
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, the
Fund may cover its position by owning the underlying security on which the
option is written or by owning a call option on the underlying security.
Alternatively, the Fund may cover its position by 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 consisting of cash or
liquid securities in an amount equal to the amount the Fund would be required to
pay upon exercise of the put option.
Because option premiums paid or received by the 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
securities.
SHORT SALES are transactions in which the 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.
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SHAREHOLDER INFORMATION
HOW TO INVEST IN THE FUNDS
PURCHASING SHARES
Shares are offered continuously, and may be purchased on any day that the NYSE
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. No sales charges are imposed on initial
or subsequent investments in a Fund. NAV is calculated by (1) taking the
current market value of the Fund's total assets, (2) subtracting the
liabilities, and (3) dividing that amount by the total number of shares owned by
shareholders. The Fund's 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 Fund's futures and options contracts, if any
(typically, 4:15 p.m., Eastern Time). If the exchange or market where the
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
Fund's Statement of Additional Information (the "SAI"). To receive the current
Business Day's NAV, the Trust must receive your purchase order before the cutoff
times specified below for each method of investing.
MINIMUM INVESTMENT
If a registered investment advisor has discretionary authority over your
account, the minimum initial investment in the Investor Class Shares of the Fund
is $15,000. For all other shareholder accounts ("Self-Directed Accounts"), the
minimum initial investment in the Investor Class Shares of the Fund is $25,000.
These minimums also apply to retirement plan accounts. The Trust, at its
discretion, may accept lesser amounts in certain circumstances. If you invest
in the Trust without designating which Fund you want to invest in on your
account application, your check or your wire advice, 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 the 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 the Fund's shares in whole or in part.
Investments in the Fund may be made (i) through securities dealers who have the
responsibility to transmit orders promptly and who may charge a processing fee,
or (ii) directly with the Trust by mail or by bank wire transfer as follows:
BY MAIL
Initial applications and investments, as well as subsequent investments, in the
Fund 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
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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 completed application, along with a
request for a shareholder account number, to the Trust at 301-468-8585. Then,
request that your bank wire transfer the purchase amount to our custodian, Star
Bank, N.A., along with the following instructions:
Star Bank, N.A.
Cincinnati, Ohio
Routing Number: 0420-00013
For Account of Rydex Series Trust
Trust Account Number: 48038-9030
[Your Name]
[Your Shareholder Account Number and Fund Designation]
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 Fund must be received in good
form at the Trust, on any Business Day, at or prior to 3:45 p.m. 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 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 Fund through any of the following types of
tax-qualified retirement plans:
Individual Retirement Accounts (IRAs) (including Roth IRAs)
Keogh Accounts -- Defined Contribution Plans (Profit Sharing Plans)
Keogh Accounts -- Pension Plans (Money Purchase Plans)
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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 Investor Class Shares of the Fund is $15,000.
For retirement plan accounts that are Self-Directed Accounts, the minimum
initial investment in Investor Class Shares of the Fund is $25,000.
Retirement plans are charged an annual $15.00 maintenance fee and a $15.00
account closing 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.
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, due to withdrawals or transfers, 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.
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SUSPENSION OF REDEMPTIONS
With respect to the Fund, and as permitted by the Securities and Exchange
Commission ("Commission"), the right of redemption may be suspended, or the date
of payment postponed: (i) for any period during which the NYSE, NASDAQ, or the
CME is closed (other than customary weekend or holiday closings) or trading on
the NYSE, NASDAQ, or the CME is restricted; (ii) for any period during which an
emergency exists so that disposal of Fund investments or the determination of
NAV is not reasonably practicable; or (iii) for such other periods as the
Commission, by order, may permit for protection of Fund investors. On any day
that the Federal Reserve Bank of New York or the NYSE closes early, the
principal government securities and corporate bond markets close early (such as
on days in advance of holidays generally observed by participants in these
markets), or as permitted by the Commission, the right is reserved to advance
the time on that day by which purchase and redemption orders must be received.
EXCHANGES
You may exchange Investor Class Shares of the Fund for Investor Class Shares of
any other Rydex 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 Fund from
which the redemption is to be made. Investor Class Shares of 21 other Rydex
Funds are offered in separate prospectuses. 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. If you are contemplating an exchange for
shares of another Rydex Fund, you should obtain and review the current
prospectus of that Rydex Fund before making the exchange.
Exchange orders into other Rydex Funds must be received by the time set forth
below for either the relevant Rydex Fund from which an exchange is being made
and into which an exchange is being made (whichever is earlier):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
FUND(s) CUT OFF TIME
- ----------------------------------------------------------------------------
<S> <C>
Nova 3:45 p.m.
Ursa
OTC
OTC Short
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Rydex Sector Funds 3:30 p.m.
Precious Metals
- ----------------------------------------------------------------------------
U.S. Government Bond 2:45 p.m.
Juno
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</TABLE>
The exchange privilege may be modified or discontinued at any time.
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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 3:45 p.m., Eastern Time, or by any earlier cutoff time
specified above for exchanges between Rydex Funds, on any Business Day. The
Trust reserves the right to suspend the right of redemption as set forth in
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 are 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.
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MANAGEMENT
THE ADVISOR'S INVESTMENT METHODOLOGY
In managing the Fund, the Advisor's primary objective is to match the
performance of the Fund's benchmark as closely as possible. Through the use of
quantitative analysis techniques, the Fund is structured to match the risk and
return characteristics of the benchmark, while remaining fully invested in all
market environments. The Advisor monitors the Fund on an ongoing basis, and
makes adjustments, as necessary, to minimize tracking error and to maximize
liquidity.
MANAGEMENT OF THE FUND
THE INVESTMENT ADVISOR
PADCO Advisors, Inc., a Maryland corporation with offices at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852, 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 Fund and
continuously reviews, supervises, and administers the 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 Fund pays
the Advisor a fee at an annualized rate, based on the average daily net assets,
of .90%.
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.
The portfolio manager of the OTC Short Fund is Michael P. Byrum, who is the
Advisor's senior portfolio manager, and who also advises the Rydex Ursa and OTC
Funds. Prior to joining the Advisor in July 1993, Mr. Byrum worked as an
investor representative with MMA.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Income dividends, if any, are paid at least annually by the Fund. If you own
Fund shares on the Fund's record date, you will be entitled to receive the
dividend. The Fund may declare and pay dividends on the same date. The Fund
makes 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 the 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 the 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 Fund and
its 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 treatment of the Fund, or of the tax
consequences of an investment in the Fund. 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 THE FUND
The 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 the Fund qualifies as a regulated investment company, it
pays no federal income tax on the earnings it distributes to Shareholders.
TAX STATUS OF DISTRIBUTIONS
- - The Fund will distribute substantially all of its income. THE INCOME
DIVIDENDS YOU RECEIVE FROM THE FUND 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 the Fund from U.S. corporations.
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- - Capital gains distributions will result from gains on the sale or exchange
of capital assets held for more than one year, and will be taxed at
different rates depending on how long the Fund held the assets.
- - Distributions paid in January but declared by the 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 WITH RESPECT TO REDEMPTIONS, IF YOU INVEST IN
THE FUND THROUGH A TAX-QUALIFIED RETIREMENT PLAN.
STATE TAX CONSIDERATIONS
The 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 Fund may be subject to state and local taxation. You should
verify your tax liability with your tax advisor.
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BENCHMARK INFORMATION
- --------------------------------------------------------------------------------
THE OTC SHORT FUND IS NOT SPONSORED, ENDORSED, SOLD, OR PROMOTED BY NASDAQ OR
ANY OF NASDAQ'S AFFILIATES (NASDAQ AND ITS AFFILIATES HEREINAFTER COLLECTIVELY
REFERRED TO AS "NASDAQ").
NASDAQ DOES NOT MAKE ANY REPRESENTATION OR WARRANTY, IMPLIED OR EXPRESS, TO THE
INVESTORS IN THE FUND, OR ANY MEMBER OF THE PUBLIC, REGARDING THE ADVISABILITY
OF INVESTING IN INDEX FUNDS OR THE ABILITY OF THE NASDAQ 100 INDEX-TM-, TO TRACK
GENERAL STOCK MARKET PERFORMANCE.
NASDAQ DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE NASDAQ 100
INDEX-TM- OR ANY DATA INCLUDED THEREIN.
NASDAQ DOES NOT MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY THE FUND, THE INVESTORS IN THE FUND, OR ANY PERSON OR ENTITY FROM
THE USE OF THE NASDAQ 100 INDEX-TM- OR ANY DATA INCLUDED THEREIN.
NASDAQ DOES NOT MAKE ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE FOR USE WITH RESPECT TO THE NASDAQ 100
INDEX-TM- OR ANY DATA INCLUDED THEREIN.
- --------------------------------------------------------------------------------
16
<PAGE>
A Statement of Additional Information dated ________, 1998 (the "SAI"), which
contains more detailed information about the Fund. The SAI has been filed
with the Securities and Exchange Commission ("SEC") and is incorporated by
reference into this Prospectus and, therefore, legally forms a part of this
Prospectus. The SEC 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 also
review and copy documents at the SEC Public Reference Room in Washington,
D.C. (for information call 1-800-SEC-0330). You may request documents by mail
from the SEC, upon payment of a duplication fee, by writing to: Securities
and Exchange Commission, Public Reference Section, Washington, D.C.
20549-6009. To help you to obtain additional information, the Fund's SEC
registration number is 811-7584.
You may obtain a copy of the SAI or the annual or semi-annual reports, without
charge by calling 1-800-820-0888 or by writing to Rydex Series Trust, 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.
RYDEX SERIES TRUST
RYDEX-Registered Trademark-
INVESTMENT FLEXIBILITY
FOR INSTITUTIONAL MONEY MANAGERS
17
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
RYDEX SERIES TRUST
6116 EXECUTIVE BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20852
800/820-0888
301/468-8520
Rydex Series Trust (the "Trust") is a no-load mutual fund complex with
twenty-two separate investment portfolios (the "Rydex Funds"). This Statement
of Additional Information ("SAI") relates to the Investor Class Shares of the
OTC SHORT FUND.
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Trust's Prospectus, dated ___________ 1, 1998. A copy
of the Trust's Prospectus is available, without charge, upon request to the
Trust at the address above or by telephoning the Trust at the telephone numbers
above.
The date of this Statement of Additional Information is _________ 1, 1998.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION ABOUT THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . .
MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . .
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CALCULATION OF RETURN QUOTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . .
INFORMATION ON COMPUTATION OF YIELD. . . . . . . . . . . . . . . . . . . . . . . . .
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . .
DIVIDENDS, DISTRIBUTIONS, AND TAXES. . . . . . . . . . . . . . . . . . . . . . . . .
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
2
<PAGE>
GENERAL INFORMATION ABOUT THE TRUST
The Trust was organized as a Delaware business trust on February 10, 1993. The
Trust is permitted to offer separate portfolios and different classes of shares.
The Trust currently offers two separate classes of shares, Investor Class Shares
and Advisor Class Shares. Investor Class Shares are sold principally to
professional money managers and to investors who take part in certain asset-
allocation investment strategies. Advisor Class Shares are offered through
broker-dealers and other financial institutions ("intermediaries") that have
entered into arrangements with the Trust's Distributor (the "Distributor") to
sell Advisor Class Shares to their customers. Advisor Class Shares differ from
Investor Class Shares primarily in the allocation of certain shareholder
servicing and distribution expenses and in the minimum initial investment
requirement. Sales of shares of each Class are made without a sales charge at
each Fund's per share net asset value. Additional Funds and/or classes may be
created from time to time.
Currently, the Trust has twenty-two separate series. All payments received by
the Trust for shares of any fund belong to that fund. Each fund has its own
assets and liabilities. This SAI relates only to Investor Class Shares of the
OTC Short Fund (the "Fund").
In addition to the Fund, the Trust offers Investor Class shares in the following
funds described in separate prospectuses: the Nova Fund, the Ursa Fund, the OTC
Fund, the Precious Metals Fund (the "Metals Fund"), the U.S. Government Bond
Fund (the "Bond Fund"),the Juno Fund, the U.S. Government Money Market Fund (the
"Money Market Fund") and fourteen "Sector Funds" (collectively the "Funds").
The Trust offers Investor and Advisor Class shares in the following Sector
Funds: Banking Fund, Basic Materials Fund, Biotechnology Fund, Consumer
Products Fund, Electronics Fund, Energy Fund, Energy Services Fund, Financial
Services Fund, Health Care Fund, Leisure Fund, Retailing Fund, Technology Fund,
Telecommunications Fund, and Transportation Fund.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL
The Fund's investment objective and permitted investments is described in the
Prospectus under the headings "FUND INFORMATION" and "INFORMATION ABOUT THE
FUND'S INVESTMENTS." The following information supplements, and should be read
in conjunction with, those sections of the Prospectus.
Portfolio management is provided to the Fund by the Trust's investment adviser,
PADCO Advisors, Inc., a Maryland corporation with offices at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852 (the "Advisor"). The investment
strategies of the Fund discussed below and in the Prospectus may be used by the
Fund if, in the opinion of the Advisor, these strategies will be advantageous to
the Fund. The Fund is free to reduce or eliminate 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 the Fund will result in the achievement of the Fund's
objectives.
BORROWING
The Fund may borrow money to facilitate management of the Fund's portfolio by
enabling the Fund to meet redemption requests when the liquidation of portfolio
instruments would be inconvenient or disadvantageous. Such borrowing is not for
investment purposes and will be repaid by the borrowing Fund promptly.
3
<PAGE>
As required by the Investment Company Act of 1940, as amended (the "1940 Act"),
the Fund must maintain continuous asset coverage (total assets, including assets
acquired with borrowed funds, less liabilities exclusive of borrowings) of 300%
of all amounts borrowed. If, at any time, the value of the Fund's assets should
fail to meet this 300% coverage test, the Fund, within three days (not including
Sundays and holidays), will reduce the amount of the Fund's borrowings to the
extent necessary to meet this 300% coverage. Maintenance of this percentage
limitation may result in the sale of portfolio securities at a time when
investment considerations otherwise indicate that it would be disadvantageous to
do so.
In addition to the foregoing, the Fund is authorized to borrow money from a bank
as a temporary measure for extraordinary or emergency purposes in amounts not in
excess of 5% of the value of the Fund's total assets. This borrowing is not
subject to the foregoing 300% asset coverage requirement The Fund is authorized
to pledge portfolio securities as the Advisor deems appropriate in connection
with any borrowings.
ILLIQUID SECURITIES
While the Fund does not anticipate doing so, the Fund may purchase illiquid
securities, including securities that are not readily marketable and securities
that are not registered ("restricted securities") under the Securities Act of
1933, as amended (the "1933 Act"), but which can be offered and sold to
"qualified institutional buyers" under Rule 144A under the 1933 Act. The Fund
will not invest more than 15% (10% with respect to the Money Market Fund) of the
Fund's net assets in illiquid securities. The Fund will adhere to a more
restrictive limitation on the Fund's investment in illiquid securities as
required by the securities laws of those jurisdictions where shares of the Fund
are registered for sale.
The term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Under the
current guidelines of the staff of the Securities and Exchange Commission (the
"Commission"), illiquid securities also are considered to include, among other
securities, purchased over-the-counter options, certain cover for
over-the-counter options, repurchase agreements with maturities in excess of
seven days, and certain securities whose disposition is restricted under the
Federal securities laws. The Fund may not be able to sell illiquid securities
when the Advisor considers it desirable to do so or may have to sell such
securities at a price that is lower than the price that could be obtained if the
securities were more liquid. In addition, the sale of illiquid securities also
may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.
LENDING OF PORTFOLIO SECURITIES
Subject to the investment restrictions set forth below, the Fund 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. The Fund will not lend its portfolio securities if
such loans are not permitted by the laws or regulations of any state in which
the Fund's shares are qualified for sale, and the Fund will not lend more than
33 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 the Fund's shareholders. The lending Fund may pay reasonable finders,
borrowers, administrative, and custodial fees in connection with a loan.
4
<PAGE>
OPTIONS TRANSACTIONS
OPTIONS ON SECURITIES. The Fund may buy put options and write call options on
securities for the purpose of realizing the Fund's investment objective. By
writing a call option on securities, the 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, the 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 Fund may purchase put options and write call
options, on stock indexes listed on national securities exchanges or traded in
the over-the-counter market as an investment vehicle for the purpose of
realizing the Fund's investment objective.
Options on indexes are settled in cash, not in delivery of securities. The
exercising holder of an index option receives, instead of a security, cash equal
to the difference 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, the Fund may engage in futures transactions, either for
"bona fide hedging" purposes, as this term is defined in the CFTC Regulations,
or for non-hedging purposes to the extent that the aggregate initial margins and
option premiums required to establish such non-hedging positions do not exceed
5% of the liquidation value of the Fund's portfolio. In the case of an option
on futures contracts that is "in-the-money" at the time of purchase (I.E., the
amount by which the exercise price of the put option exceeds the current market
value of the underlying security, or the amount by which the current market
value of the underlying security exceeds the exercise price of the call option),
the in-the-money amount may be excluded in calculating this 5% limitation.
When the Fund purchases or sells a stock index futures contract, or sells an
option thereon, the Fund "covers" its position. To cover its position, the Fund
may maintain with its custodian bank (and 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
5
<PAGE>
Fund may undertake and on the potential increase in the speculative character of
the Fund's outstanding portfolio securities. Additionally, such segregated
accounts will generally assure the availability of adequate funds to meet the
obligations of the Fund arising from such investment activities.
The Fund may cover its long position in a futures contract by purchasing a put
option on the same futures contract with a strike price (I.E., an exercise
price) as high or higher than the price of the futures contract. 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. The Fund may also cover its long
position in a futures contract by taking a short position in the instruments
underlying the futures contract, or by taking positions in instruments with
prices which are expected to move relatively consistently with the futures
contract. The Fund may cover its short position in a futures contract by taking
a long position in the instruments underlying the futures contracts, or by
taking positions in instruments with prices which are expected to move
relatively consistently with the futures contract.
The Fund may cover its sale of a call option on a futures contract by taking a
long position in the underlying futures contract at a price less than or equal
to the strike price of the call option. 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. The
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. The Fund may cover its sale of a put option on a futures contract by
taking a short position in the underlying futures contract at a price greater
than or equal to the strike price of the put option, or, if the short position
in the underlying futures contract is established at a price less than the
strike price of the written put, the Fund will maintain in a segregated account
cash or liquid securities equal in value to the difference between the strike
price of the put and the price of the futures contract. The 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 Trust's prospectus, the Trust anticipates that investors in
the Fund, as part of an asset allocation investment strategy, will frequently
exchange shares of the Fund for shares in other Rydex Funds pursuant to the
exchange policy of the Trust as well as frequently redeem shares of the Fund
(see "Exchanges" in the Trust's Prospectus). The nature of the Rydex Funds may
cause the Fund to experience substantial portfolio turnover. Because the 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 Fund
will be substantial.
REPURCHASE AGREEMENTS
As discussed in the Trust's Prospectus, the Fund may enter into repurchase
agreements with financial institutions. The Fund follows certain procedures
designed to minimize the risks inherent in such agreements. These procedures
include effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions whose condition will be continually
monitored by the Advisor. In addition, the value of the collateral underlying
the repurchase agreement will always be at least equal to the repurchase price,
including any accrued interest earned on the repurchase agreement. In the event
of a default or bankruptcy by a selling financial institution, the Fund will
seek to liquidate such collateral. However, the exercising of the Fund's right
to liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss.
It is the current policy of each of the Fund not to invest in repurchase
agreements that do not mature within seven days if any such
6
<PAGE>
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 the Fund in
repurchase agreements, at times, may be substantial when, in the view of the
Advisor, liquidity or other considerations so warrant.
REVERSE REPURCHASE AGREEMENTS
The Fund may use reverse repurchase agreements as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. Generally, the effect of such a transaction
is that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
the Fund will be able to keep the interest income associated with those
portfolio securities. Such transactions are advantageous only if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. Opportunities to achieve this advantage may not
always be available, and the Funds intend to use the reverse repurchase
technique only when this will be to the Fund's advantage to do so. The Fund
will establish a segregated account with the Trust's custodian bank in which the
Fund will maintain cash or cash equivalents or other portfolio securities equal
in value to the Fund's obligations in respect of reverse repurchase agreements.
SHORT SALES
The Fund may engage in short sales transactions under which the Fund sells a
security it does not own. To complete such a transaction, the Fund must borrow
the security to make delivery to the buyer. The Fund then is obligated to
replace the security borrowed by purchasing the security at the market price at
the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Fund. Until the security is
replaced, the Fund is required to pay to the lender amounts equal to any
dividends or interest which accrue during the period of the loan. To borrow the
security, the Fund also may be required to pay a premium, which would increase
the cost of the security sold. The proceeds of the short sale will be retained
by the broker, to the extent necessary to meet the margin requirements, until
the short position is closed out.
Until the Fund closes its short position or replaces the borrowed security, the
Fund will: (a) maintain a segregated account containing cash or liquid
securities at such a level that (i) the amount deposited in the account plus the
amount deposited with the broker as collateral will equal the current value of
the security sold short and (ii) the amount deposited in the segregated account
plus the amount deposited with the broker as collateral will not be less than
the market value of the security at the time the security was sold short; or
(b) otherwise cover the Fund's short position.
U.S. GOVERNMENT SECURITIES
The Fund also may invest in U.S. Government Securities. Securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities include
U.S. Treasury securities, which are backed by the full faith and credit of the
U.S. Treasury and which differ only in their interest rates, maturities, and
times of issuance. U.S. Treasury bills have initial maturities of one year or
less; U.S. Treasury notes have initial maturities of one to ten years; and U.S.
Treasury bonds generally have initial maturities of greater than ten years.
Certain U.S. Government Securities are issued or guaranteed by agencies or
instrumentalities of the U.S. Government including, but not limited to,
obligations of U.S. Government agencies or instrumentalities such as 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.
7
<PAGE>
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.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Fund, from time to time, in the ordinary course of business, may purchase
securities on a when-issued or delayed-delivery basis (I.E., delivery and
payment can take place between a month and 120 days after the date of the
transaction). These securities are subject to market fluctuation and no
interest accrues to the purchaser during this period. At the time the Fund
makes the commitment to purchase securities on a when-issued or delayed-delivery
basis, the Fund will record the transaction and thereafter reflect the value of
the securities, each day, of such security in determining the Fund's net asset
value. The Fund will not purchase securities on a when-issued or
delayed-delivery basis if, as a result, more than 15% of the Fund's net assets
would be so invested. At the time of delivery of the securities, the value of
the securities may be more or less than the purchase price. The Fund will also
establish a segregated account with the Fund's custodian bank in which the Fund
will maintain cash or liquid securities equal to or greater in value than the
Fund's purchase commitments for such when-issued or delayed-delivery securities.
The Trust does not believe that the Fund's net asset value or income will be
adversely affected by the Fund's purchase of securities on a when-issued or
delayed-delivery basis.
TRACKING ERROR
While the Fund does not expect that the returns over a year will deviate
adversely from its benchmark by more than ten percent, several factors may
affect its ability to achieve this correlation. Among these are: (1) Fund
expenses, including brokerage (which may, be increased by high portfolio
turnover); (2) less than all of the securities in the benchmark being held by
the Fund and securities not included in the benchmark being held by the Fund;
(3) an imperfect correlation between the performance of instruments held by the
Fund, such as futures contracts and options, and the performance of the
underlying securities in the cash market; (4) bid-ask spreads (the effect of
which may be increased by portfolio turnover); (5) the Fund holds instruments
traded in a market that has become illiquid or disrupted; (6) Fund share prices
being rounded to the nearest cent; (7) changes to the benchmark index that are
not disseminated in advance; (8) the need to conform the Fund's portfolio
holdings to comply with investment restrictions or policies or regulatory or tax
law requirements; or (9) market movements that run counter to a leveraged Fund's
investments (which will cause divergence between the Fund and its benchmark over
time due to the mathematical effects of leveraging). Market movements that run
counter to a leveraged Fund's investments will cause some divergence between the
Fund and its benchmark over time due to the mathematical effects of leveraging.
The magnitude of the divergence is dependent upon the magnitude of the market
movement, its duration, and the degree to which the Fund is leveraged. The
tracking error of a leveraged Fund is generally small during a well-defined
uptrend or downtrend in the market when measured from price peak to price peak,
access a market decline and subsequent recovery, however, the deviation of the
Fund from its benchmark may be significant.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Fund presently may invest in the securities of other investment companies to
the extent that such an
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<PAGE>
investment would be consistent with the requirements of Section 12(d)(1) of the
1940 Act. A Fund, therefore, may invest in the securities of another investment
company (the "acquired company") provided that the Fund, immediately after such
purchase or acquisition, does not own in the aggregate: (i) more than 3% of the
total outstanding voting stock of the acquired company; (ii) securities issued
by the acquired company having an aggregate value in excess of 5% of the value
of the total assets of the Fund; or (iii) securities issued by the acquired
company and all other investment companies (other than Treasury stock of the
Fund) having an aggregate value in excess of 10% of the value of the total
assets of the Fund.
If a Fund invests in, and, thus, is a shareholder of, another investment
company, the Fund's shareholders will indirectly bear the Fund's proportionate
share of the fees and expenses paid by such other investment company, including
advisory fees, in addition to both the management fees payable directly by the
Fund to the Fund's own investment adviser and the other expenses that the Fund
bears directly in connection with the Fund's own operations.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
The following investment limitations (and those set forth in the Prospectuses)
are fundamental policies of the Fund which cannot be changed with respect to the
Fund without the consent of the holders of a majority of the Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of the Fund's shares present at a meeting, if more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.
The Fund shall not:
1. Lend any security or make any other loan if, as a result, more than
33 1/3% of the value of the Fund's total assets would be lent to other
parties, except (i) through the purchase of a portion of an issue of
debt securities in accordance with the Fund's investment objective,
policies, and limitations, or (ii) by engaging in repurchase
agreements with respect to portfolio securities, or (iii) through the
loans of portfolio securities provided the borrower maintains
collateral equal to at least 100% of the value of the borrowed
security and marked-to-market daily.
2. Underwrite securities of any other issuer.
3. Purchase, hold, or deal in real estate or oil and gas interests,
although the Fund may purchase and sell securities that are secured by
real estate or interests therein and may purchase mortgage-related
securities and may hold and sell real estate acquired for the Fund as
a result of the ownership of securities.
4. Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act) (including the amount of senior securities issued but
excluding liabilities and indebtedness not constituting senior
securities), except that the Fund may issue senior securities in
connection with transactions in options, futures, options on futures,
and other similar investments, and except as otherwise permitted
herein and in Investment Restriction Nos. 5, 7, 8, and 9, as
applicable to the Fund.
5. Pledge, mortgage, or hypothecate the Fund's assets, except to the
extent necessary to secure permitted borrowings and to the extent
related to the deposit of assets in escrow in connection
9
<PAGE>
with (i) the writing of covered put and call options, (ii) the
purchase of securities on a forward-commitment or delayed-delivery
basis, and (iii) collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures
contracts, including those relating to indexes, and options on futures
contracts or indexes.
6. Invest in commodities except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies,
indexes, and options on futures contracts or indexes and currencies
underlying or related to any such futures contracts, and purchase and
sell currencies (and options thereon) or securities on a
forward-commitment or delayed-delivery basis.
7. Invest 25% or more of the value of the Fund's total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry. This limitation does not apply to
investments or obligations of the U.S. Government or any of its
agencies or instrumentalities.
8. Borrow money, except (i) as a temporary measure for extraordinary or
emergency purposes and then only in amounts not in excess of 5% of the
value of the Fund's total assets from a bank or (ii) in an amount up
to one-third of the value of the Fund's total assets, including the
amount borrowed, in order to meet redemption requests without
immediately selling portfolio instruments. This provision is not for
investment leverage but solely to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio instruments would be inconvenient or
disadvantageous.
9. Engage in short sales of portfolio securities or maintain a short
position unless at all times when a short position is open (i) the
Fund maintains a segregated account to cover the short position in
accordance with the position of the Securities and Exchange Commission
or (ii) the Fund owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in
amount to, the securities sold short.
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of the Fund
and may be changed with respect to the Fund by the Board of Trustees.
The Fund may not:
1. Invest in warrants.
2. Invest in real estate limited partnerships.
3. Invest in mineral leases.
The foregoing percentages are: (i) based on total assets (except for the
limitation on illiquid securities, which is based on net assets); (ii) will
apply at the time of the purchase of a security; and (iii) 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.
10
<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 the Fund, the selection of brokers
and dealers to effect the transactions, and the negotiation of brokerage
commissions, if any. The Advisor expects that the Fund may execute brokerage or
other agency transactions through registered broker-dealers, for a commission,
in conformity with the 1940 Act, the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
The Advisor may serve as an investment manager to a number of clients, including
other investment companies. It is the practice of the Advisor to cause purchase
and sale transactions to be allocated among the Funds and others whose assets
the Advisor manages in such manner as the Advisor deems equitable. The main
factors considered by the Advisor in making such allocations among the Rydex
Funds and other client accounts of the Advisor are the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held, and the opinions of the person(s) responsible, if
any, for managing the portfolio of the Fund and the other client accounts.
The policy of the Fund regarding purchases and sales of securities for the
Fund's portfolio is that primary consideration will be given to obtaining the
most favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange, the
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. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Advisor from obtaining a high quality of brokerage and
research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Advisor relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily
subjective and imprecise, as in most cases an exact dollar value for those
services is not ascertainable.
Purchases and sales of U.S. Government securities are normally transacted
through issuers, underwriters or major dealers in U.S. Government Securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased from
an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between bid
and asked prices.
In seeking to implement the Fund's policies, the Advisor effects transactions
with those brokers and dealers who the Advisor believes provide the most
favorable prices and are capable of providing efficient executions. If the
Advisor believes such prices and executions are obtainable from more than one
broker or dealer, the Advisor may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Advisor. Such services may include, but are not
limited to, any one or more of the following: information as to the availability
of securities for purchase or sale; statistical or factual information or
opinions pertaining to investment; wire services; and appraisals or evaluations
of portfolio securities. If the broker-dealer providing these additional
services is acting as a principal for its own account, no commissions would be
payable. If the broker-dealer is not a principal, a higher commission may be
justified, at the determination of the Advisor, for the additional services.
The information and services received by the Advisor from brokers and dealers
may be of benefit to the Advisor in the management of accounts of some of the
Advisor's other clients and may not in all cases benefit the Fund
11
<PAGE>
directly. while the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Advisor and thereby reduce the Advisor's expenses,
this information and these services are of indeterminable value and the
management fee paid to the 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 and addresses (and ages) of the Trustees and
the officers of the Trust and the officers of the Advisor, together with
information as to their principal business occupations during the past five
years, are set forth below. Fees and expenses for non-interested Trustees will
be paid by the Trust.
TRUSTEES
(*)/ALBERT P. VIRAGH, JR. (57)
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, 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 (52)
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.
JOHN O. DEMARET (57)
Trustee of the Trust; Manager of the Separate Account, 1997 to present;
Founder and Chief Executive
- -------------------------
(*)/ This trustee is deemed to be an "interested person" of the Trust, within
the meaning of Section 2(a)(19) of the 1940 Act, inasmuch as this person is
affiliated with the Advisor, as described herein.
12
<PAGE>
Officer, Health Cost Controls America, Chicago, Illinois, 1987 to 1996;
sole practitioner, Chicago, Illinois, 1984 to 1987; General Counsel for the
Chicago Transit Authority, 1981 to 1984; Senior Partner, O'Halloran,
LaVarre & Demaret, Northbrook, Illinois, 1978 to 1981. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.
PATRICK T. MCCARVILLE (55)
Trustee of the Trust; Manager of the Separate Account, 1997 to present;
Founder and Chief Executive Officer, Par Industries, Inc., Northbrook,
Illinois, 1977 to present; President and Chief Executive Officer, American
Health Resources, Northbrook, Illinois, 1984 to 1986. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.
ROGER SOMERS (53)
Trustee of the Trust; Manager of the Separate Account, 1996 to present;
President, Arrow Limousine, 1963 to present. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
OFFICERS
ROBERT M. STEELE (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 (45)
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 (28)
Assistant Secretary of the Trust; Vice President and senior portfolio
manager of PADCO Advisors, Inc., 1993 to present; portfolio manager of The
Rydex OTC Fund (since 1997) and The Rydex U.S. Government Bond Fund (since
1997), each a series of the Trust; Assistant Secretary of the Separate
Account, 1996 to present; Employee of PADCO Advisors II Inc., investment
adviser to the Separate Account; Investment Representative, Money
Management Associates, a registered investment adviser, 1992 to 1993;
Student, Miami University of Oxford, Ohio (B.A., Business Administration,
1992). Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
The aggregate compensation paid by the Trust to each of its Trustees serving
during the fiscal year ended March 31, 1998, is set forth in the table below:
13
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL
NAME OF PERSON, POSITION COMPENSATION FROM BENEFITS ACCRUED AS PART BENEFITS UPON
TRUST OF TRUST'S EXPENSES RETIREMENT
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Albert P. Viragh, Jr.*, $0 $0 $0
CHAIRMAN AND PRESIDENT
- ---------------------------------------------------------------------------------------------------------
Corey A. Colehour, $10,500 $0 $0
TRUSTEE
- ---------------------------------------------------------------------------------------------------------
J. Kenneth Dalton, $10,500 $0 $0
TRUSTEE
- ---------------------------------------------------------------------------------------------------------
Roger Somers, $10,500 $0 $0
TRUSTEE
- ---------------------------------------------------------------------------------------------------------
John O. Demaret, $6,500 $0 $0
TRUSTEE
- ---------------------------------------------------------------------------------------------------------
Patrick T. McCarville, $6,500 $0 $0
TRUSTEE
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Denotes an "interested person" of the Trust.
** Messrs. Demaret and McCarville were elected to the Board of Trustees in
December 1997.
THE ADVISORY AGREEMENT
Under an investment advisory agreement with the Advisor, dated May 14, 1993,
and amended on November 2, 1993, and also amended on December 13, 1994, March 8,
1996, and September 25, 1996, the Advisor serves as the investment adviser
for each series of the Trust and provides investment advice to the Fund and
oversees the day-to-day operations of the Fund, subject to direction and
control by the Trustees and the officers of the Trust. As of June 30, 1998,
net Trust assets under management of the Advisor were approximately $2.6
billion. Pursuant to the advisory agreement with the Advisor, the Fund pays
the Advisor the following fees at an annual rate based on the average daily
net assets of the Fund of .90%.
The Advisor manages the investment and the reinvestment of the assets of the
Fund, in accordance with the investment objectives, policies, and limitations of
the Fund, subject to the general supervision and control of the Trustees and the
officers of the Trust. The Advisor bears all costs associated with providing
these advisory services and the expenses of the Trustees of the Trust who are
affiliated with or interested persons of the Advisor. The Advisor, from its own
resources, including profits from advisory fees received from the Funds,
provided such fees are legitimate and not excessive, may make payments to
broker-dealers and other financial institutions for their expenses in connection
with the distribution of Fund shares, and otherwise currently pay all
distribution costs for Fund shares.
The Advisor, which has its office at 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852, was incorporated in the State of Maryland on
February 5, 1993. Albert P. Viragh, Jr., the Chairman of the Board of Trustees
and the President of the Advisor, owns a controlling interest in the Advisor.
THE SERVICE AGREEMENT
General administrative, shareholder, dividend disbursement, transfer agent, and
registrar services are provided to the Trust and the Funds by PADCO Service
Company, Inc., 6116 Executive Boulevard, Suite 400, Rockville,
14
<PAGE>
Maryland 20852 (the "Servicer"), subject to the general supervision and control
of the Trustees and the officers of the Trust, pursuant to a service agreement
between the Trust and the Servicer, dated September 19, 1995, and amended on
March 8, 1996 and also amended on September 25, 1996. The Servicer is
wholly-owned by Albert P. Viragh, Jr., who is the Chairman of the Board and the
President of the Trust and the sole controlling person and majority owner of the
Advisor.
Under the service agreement, the Servicer provides the Trust the Fund with
all required general administrative services, including, without limitation,
office space, equipment, and personnel; clerical and general back office
services; bookkeeping, internal accounting, and secretarial services; the
determination of net asset values; and the preparation and filing of all
reports, registration statements, proxy statements, and all other materials
required to be filed or furnished by the Trust and the Fund under Federal and
state securities laws. The Servicer also maintains the shareholder account
records for the Fund, disburses dividends and distributions payable by the
Fund, and produces statements with respect to account activity for the Fund
and the Fund's shareholders. The Servicer pays all fees and expenses that
are directly related to the services provided by the Servicer to the Fund;
the Fund reimburses the Servicer for all fees and expenses incurred by the
Servicer which are not directly related to the services the Servicer provides
to the Fund under the service agreement. For its services under the service
agreement, the Servicer is entitled to receive a fee based on the average
daily net assets of .25%.
COSTS AND EXPENSES
The Fund bears all expenses of its operations other than those assumed by the
Advisor or the Servicer. Fund expenses include: the management fee; the
servicing fee (including administrative, transfer agent, and shareholder
servicing fees); 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, the Fund pays a 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.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund serves as the basis for the purchase and
redemption price of the Fund's shares. The net asset value per share of the
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.
For purposes of determining net asset value per share of the Fund, options and
futures contracts will be valued 15 minutes after the 4:00 P.M., Eastern Time,
close of regular trading on the NYSE. Options on securities and indices
purchased by the 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
15
<PAGE>
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. Some exchanges may also adjust the current settlement
price in response to the so-called "cash" markets.
OTC securities held by the 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 the 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. Dividend income and other distributions are recorded on 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, the Fund may include the Fund's total return in
advertisements or reports to shareholders or prospective shareholders.
Quotations of average annual total return for the Fund will be expressed in
terms of the average annual compounded rate of return on a hypothetical
investment in the Fund over a period of at least one, five, and ten years (up to
the life of the Fund) (the ending date of the period will be stated). Total
return of the Fund is calculated from two factors: the amount of dividends
earned by each Fund share and by the increase or decrease in value of the Fund's
share price. See "Calculation of Return Quotations."
Performance information for the Fund contained in reports to shareholders or
prospective shareholders, advertisements, and other promotional literature may
be compared to the record of various unmanaged indexes. Performance information
for the Fund may be compared to various unmanaged indexes, including, but not
limited to the NASDAQ 100 Index-TM- and the NASDAQ Composite Index-TM-. The
Fund has the ability to invest in securities not included in the NASDAQ 100
Index-TM- or the NASDAQ Composite Index-TM-, and the Fund's investment portfolio
may or may not be similar in composition to NASDAQ 100 Index-TM- or the NASDAQ
Composite Index-TM-.
Such unmanaged indexes may assume the reinvestment of dividends, but generally
do not reflect deductions for operating costs and expenses. In addition, the
Fund's total return may be compared to the performance of broad groups of
comparable mutual funds with similar investment goals, as such performance is
tracked and published by such independent organizations as Lipper Analytical
Services, Inc. ("Lipper"), and CDA Investment Technologies, Inc., among others,
when Lipper's tracking results are used, the Fund will be compared to Lipper's
appropriate fund category, that is, by fund objective and portfolio holdings.
Performance figures are based on historical results and are not intended to
indicate future performance.
16
<PAGE>
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.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of the Fund to that of
other mutual funds and to other relevant market indexes in advertisements or in
reports to shareholders, performance for the Fund may be stated in terms of
total return. Under the rules of the Securities and Exchange Commission ("SEC
Rules"), fund 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 the Fund are assumed to have been
reinvested at net asset value as described in the Fund's Prospectus on the
reinvestment dates during the period. Total return, or 'T' in the formula
above, is computed by finding the average annual compounded rates of return over
the 1, 5, and 10 year periods (or fractional portion thereof) that would equate
the initial amount invested to the ending redeemable value.
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 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 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
17
<PAGE>
shareholders should consider the tax consequences of any redemption.
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 the Fund will be distributed as described in the Trust's
Prospectus under "Dividends and Distributions." All such distributions of the
Fund normally automatically will be reinvested without charge in additional
shares of the same Fund.
REGULATED INVESTMENT COMPANY STATUS
As a RIC, the Fund would not be subject to Federal income taxes on the net
investment income and capital gains that the Fund distributes to the Fund's
shareholders. The distribution of net investment income and capital gains will
be taxable to Fund shareholders regardless of whether the shareholder elects to
receive these distributions in cash or in additional shares. Distributions
reported to Fund shareholders as long-term capital gains shall be taxable as
such, regardless of how long the shareholder has owned the shares. Fund
shareholders will be notified annually by the Fund as to the Federal tax status
of all distributions made by the Fund. Distributions may be subject to state
and local taxes.
The Fund will seek to qualify for treatment as a RIC under the Code. Provided
that the Fund (i) is a RIC and (ii) distributes at least 90% of the Fund's net
investment income (including, for this purpose, net realized short-term capital
gains), the Fund itself will not be subject to Federal income taxes to the
extent the Fund's net investment income and the Fund's net realized long- and
short-term capital gains, if any, are distributed to the Fund's shareholders.
To avoid an excise tax on its undistributed income, the Fund generally must
distribute at least 98% of its income, 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 the Fund to quality as an RIC, the Fund's
distributions, to the extent such distributions are derived from the Fund's
current or accumulated earnings and profits, would constitute dividends that
would
18
<PAGE>
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 an RIC.
If a Fund were to fail to qualify as an RIC for one or more taxable years, the
Fund could then qualify (or requalify) as an 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 an RIC and should thereafter seek to requalify as an 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 an RIC.
If the Fund determines that it will not qualify as an 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 FUND
The Fund in its operations will utilize options on stock indexes. The Fund will
also have available to the Fund a number of elections under the Code concerning
the treatment of option transactions for tax purposes. The Fund will utilize
the tax treatment that, in the Fund's judgment, will be most favorable to a
majority of investors in the Fund. Taxation of these transactions will vary
according to the elections made by the Fund. These tax considerations may have
an impact on investment decisions made by the Fund.
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
The Fund is required to withhold and remit to the U.S. Treasury 31% of
(i) reportable taxable dividends and distributions and (ii) the proceeds of any
redemptions of Fund shares with respect to any shareholder who is not exempt
from withholding and who fails to furnish the Trust with a correct taxpayer
identification number, who fails to report fully dividend or interest income, or
who fails to certify to the Trust that the shareholder has provided a correct
taxpayer identification number and that the shareholder is not subject to
withholding. (An individual's taxpayer identification number is the
individual's social security number.) The 31% "back-up withholding tax" is not
an additional tax and may be credited against a taxpayer's regular Federal
income tax liability.
OTHER ISSUES
The Fund may be subject to tax or taxes in certain states where the Fund does
business. Furthermore, in those states which have income tax laws, the tax
treatment of the Fund and of Fund shareholders with respect to distributions by
the Fund may differ from Federal tax treatment.
Shareholders are urged to consult their own tax advisors regarding the
application of the provisions of tax law described in this Statement of
Additional Information in light of the particular tax situations of the
shareholders
19
<PAGE>
and regarding specific questions as to Federal, state, or local taxes.
OTHER INFORMATION
VOTING RIGHTS
You receive one vote for every full Fund share owned. Each Rydex Fund or class
of a Rydex 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 1940 Act. 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.
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 the 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.
COUNSEL
Morgan, Lewis & Bockius LLP, 1800 M Street, N.W., Washington, D.C. 20036, serves
as counsel to the Trust.
AUDITORS
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.
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 the Fund and keeps
all necessary related accounts and records.
20
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
- -------- --------
(b) Exhibits
(a)(1) Certificate of Trust of Rydex Series Trust (the "Registrant" or
the "Trust") incorporated herein by reference to Exhibit 1a of
Post-Effective Amendment No. 27 to this Registration Statement
filed on October 30, 1996.
(a)(2) Declaration of Trust of the Registrant incorporated herein by
reference to Exhibit 1b of Post-Effective Amendment No. 27 to
this Registration Statement filed on October 30, 1996.
(b) By-Laws of Registrant incorporated herein by reference to Exhibit
2 of Post-Effective Amendment No. 27 to this Registration
Statement filed on October 30, 1996.
(c) Not applicable.
(d)(1) Investment Advisory Agreement between Registrant and PADCO
Advisors, Inc. incorporated herein by reference to Exhibit 5a of
Post-Effective Amendment No. 27 to this Registration Statement
filed on October 30, 1996.
(d)(2) Sub-Advisory Agreement between PADCO Advisors, Inc. and Loomis,
Sayles & Company, L.P. incorporated herein by reference to
Exhibit 5b of Post-Effective Amendment No. 27 to this
Registration Statement filed on October 30, 1996.
(d)(3) Amendment to Advisory Agreement between the Registrant and PADCO
Advisors, Inc. dated March 16, 1998 filed on May 29, 1998.
(e) Distribution Agreement between the Registrant and PADCO Financial
Services, Inc. relating to the Adviser Class Shares as filed on
May 29, 1998.
(f) Not applicable.
(g) Custody Agreement between Registrant and Star Bank, N.A.
incorporated herein by reference to Post-Effective Amendment No.
27 to Exhibit 8 of this Registration Statement filed on October
30, 1996.
(h)(1) Service Agreement between Registrant and PADCO Service Company,
Inc. incorporated herein by reference to Exhibit 9c of
Post-Effective Amendment No. 27 to this Registration Statement
filed on October 30, 1996.
(h)(2) Portfolio Accounting Services Agreement between Registrant and
PADCO Service Company, Inc. incorporated herein by reference to
Exhibit 9d of Post-Effective Amendment No. 27 to this
Registration Statement filed on October 30, 1996.
(h)(3) Amendment to Service Agreement between Registrant and PADCO
Service Company dated March 16, 1998 as filed May 29, 1998.
2
<PAGE>
ITEM 23. EXHIBITS (continued)
- -------- --------
(i) Not applicable.
(j) Not applicable.
(k) Not applicable.
(l ) Not applicable.
(m)(1) Plan of Distribution for The Rydex Institutional Money Market
Fund incorporated herein by reference to Exhibit 15a of
Post-Effective Amendment No. 24 to this Registration Statement,
filed on October 27, 1995.
(m)(2) Plan of Distribution for The Rydex Institutional Money Market
Fund as revised, March 12, 1997 incorporated herein by reference
to Exhibit 15b of Post-Effective Amendment No. 24 to this
Registration Statement, filed on October 27, 1995.
(m)(3) Plan of Distribution for The Rydex Institutional Money Market
Fund as revised, June 23, 1997 incorporated herein by reference
to Exhibit 15c Post-Effective Amendment No. 24 to this
Registration Statement, filed on October 27, 1995.
(m)(4) Plan of Distribution for The Rydex High Yield Fund incorporated
herein by reference to Post-Effective Amendment No. 26 to Exhibit
15d of this Registration Statement, filed on September 11, 1996.
(m)(5) Plan of Distribution for The Rydex High Yield Fund, as revised
March 12, 1995 incorporated herein by reference to Exhibit 15e of
Post-Effective Amendment No. 24 to this Registration Statement,
filed on October 27, 1995.
(m)(6) Plan of Distribution for The Rydex High Yield Fund, as revised
June 23, 1997 incorporated herein by reference to Exhibit 15f of
Post-Effective Amendment No. 24 to this Registration Statement,
filed on October 27, 1995.
(m)(7) 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
incorporated herein by reference to Exhibit 15g of Post-Effective
Amendment No. 25 to this Registration Statement, filed on March
1, 1996.
(m)(8) 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 incorporated herein
by reference to Exhibit 15h of Post-Effective Amendment No. 26 to
this Registration Statement, filed on September 11, 1996.
(m)(9) Distribution Plan and Shareholder Servicing Agreement for Advisor
Class Shares is incorporated by reference to Exhibit 15i of
Post-Effective Amendment No. 30.
(n) Not applicable.
(o) Rule 18f-3 Plan is incorporated by reference to Exhibit 18 of
Post-Effective Amendment No. 30.
3
<PAGE>
ITEM 24. 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 business trust:
<TABLE>
<CAPTION>
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
- --------------------------------------------------------------------------------
<S> <C> <C>
PADCO Advisors, Inc. (the a Maryland corporation, 80% of the voting
"Advisor) a 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, 100% of the voting
Inc. (the "Servicer") a 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, a series of of Directors, the
the Registrant President, and the
Treasurer of the
Distributor
4
<PAGE>
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
</TABLE>
* The principal business address for each of the aforementioned directors and
officers of PADCO Financial Services, Inc., is 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852.
ITEM 25. 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
5
<PAGE>
(c) expenses of any suit or proceeding will be paid in advance only if the
persons who will benefit by such advance undertake to repay the
expenses unless it subsequently is determined that such persons are
entitled to indemnification.
The Declaration of Trust of the Registrant provides that if indemnification is
not ordered by a court, indemnification may be authorized upon determination by
shareholders, or by a majority vote of a quorum of the trustees who were not
parties to the proceedings or, if this quorum is not obtainable, if directed by
a quorum of disinterested trustees, or by independent legal counsel in a written
opinion, that the persons to be indemnified have met the applicable standard.
ITEM 26. 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 27. 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, (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., and (iii) the Adviser Class of the Rydex Sector
Funds and U.S. Government Money Market Fund but does not currently serve as
the principal underwriter for the securities of any other investment
company.
6
<PAGE>
(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:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS* UNDERWRITER WITH REGISTRANT
- ------------------- -------------------------- ----------------------
<S> <C> <C>
Albert P. Viragh, Jr. Chairman of the Board of Chairman of the Board
Directors, President and of Trustees and President
Treasurer
Amanda C. Viragh Director None
Carl G. Verboncoeur
Michael P. Byrum Secretary Assistant Secretary
</TABLE>
ITEM 28. 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 29. MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Parts A and
B.
ITEM 30. UNDERTAKINGS
None
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Rockville in the State of Maryland on the 1st day of July, 1998.
RYDEX SERIES TRUST
/s/ Albert P. Viragh, Jr.
-----------------------------------------
Albert P. Viragh, Jr., Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been duly 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 July 1, 1998
- ------------------------------- Trustees President, and
Albert P. Viragh, Jr. Trustee
/s/ Carl G. Verboncoeur Treasurer July 1, 1998
- -------------------------------
Carl G. Verboncoeur
* Trustee July 1, 1998
- -------------------------------
Corey A. Colehour
* Trustee July 1, 1998
- -------------------------------
J. Kenneth Dalton
* Trustee July 1, 1998
- -------------------------------
Roger Somers
* Trustee July 1, 1998
- -------------------------------
John O. Demaret
* Trustee July 1, 1998
- -------------------------------
Patrick T. McCarville
*By /s/ Albert P. Viragh, Jr.
---------------------------
Albert P. Viragh, Jr.
Attorney-in-Fact
8
<PAGE>
EXHIBIT INDEX
(a)(1) Certificate of Trust of Rydex Series Trust (the "Registrant" or
the "Trust") incorporated herein by reference to Exhibit 1a of
Post-Effective Amendment No. 27 to this Registration Statement
filed on October 30, 1996.
(a)(2) Declaration of Trust of the Registrant incorporated herein by
reference to Exhibit 1b of Post-Effective Amendment No. 27 to
this Registration Statement filed on October 30, 1996.
(b) By-Laws of Registrant incorporated herein by reference to Exhibit
2 of Post-Effective Amendment No. 27 to this Registration
Statement filed on October 30, 1996.
(c) Not applicable.
(d)(1) Investment Advisory Agreement between Registrant and PADCO
Advisors, Inc. incorporated herein by reference to Exhibit 5a of
Post-Effective Amendment No. 27 to this Registration Statement
filed on October 30, 1996.
(d)(2) Sub-Advisory Agreement between PADCO Advisors, Inc. and Loomis,
Sayles & Company, L.P. incorporated herein by reference to
Exhibit 5b of Post-Effective Amendment No. 27 to this
Registration Statement filed on October 30, 1996.
(d)(3) Amendment to Advisory Agreement between the Registrant and PADCO
Advisors, Inc. dated March 16, 1998 filed on May 29, 1998.
(e) Distribution Agreement between the Registrant and PADCO Financial
Services, Inc. relating to the Adviser Class Shares filed on May
29, 1998.
(f) Not applicable.
(g) Custody Agreement between Registrant and Star Bank, N.A.
incorporated herein by reference to Post-Effective Amendment No.
27 to Exhibit 8 of this Registration Statement filed on October
30, 1996.
(h)(1) Service Agreement between Registrant and PADCO Service Company,
Inc. incorporated herein by reference to Exhibit 9c of
Post-Effective Amendment No. 27 to this Registration Statement
filed on October 30, 1996.
(h)(2) Portfolio Accounting Services Agreement between Registrant and
PADCO Service Company, Inc. incorporated herein by reference to
Exhibit 9d of Post-Effective Amendment No. 27 to this
Registration Statement filed on October 30, 1996.
(h)(3) Amendment to Service Agreement between Registrant and PADCO
Service Company dated March 16, 1998 filed on May 29, 1998.
(i) Not applicable.
(j) Not applicable.
(k) Not applicable.
(l ) Not applicable.
(m)(1) Plan of Distribution for The Rydex Institutional Money Market
Fund incorporated herein by reference to Exhibit 15a of
Post-Effective Amendment No. 24 to this Registration Statement,
filed on October 27, 1995.
9
<PAGE>
(m)(2) Plan of Distribution for The Rydex Institutional Money Market
Fund as revised, March 12, 1997 incorporated herein by reference
to Exhibit 15b of Post-Effective Amendment No. 24 to this
Registration Statement, filed on October 27, 1995.
(m)(3) Plan of Distribution for The Rydex Institutional Money Market
Fund as revised, June 23, 1997 incorporated herein by reference
to Exhibit 15c Post-Effective Amendment No. 24 to this
Registration Statement, filed on October 27, 1995.
(m)(4) Plan of Distribution for The Rydex High Yield Fund incorporated
herein by reference to Post-Effective Amendment No. 26 to Exhibit
15d of this Registration Statement, filed on September 11, 1996.
(m)(5) Plan of Distribution for The Rydex High Yield Fund, as revised
March 12, 1995 incorporated herein by reference to Exhibit 15e of
Post-Effective Amendment No. 24 to this Registration Statement,
filed on October 27, 1995.
(m)(6) Plan of Distribution for The Rydex High Yield Fund, as revised
June 23, 1997 incorporated herein by reference to Exhibit 15f of
Post-Effective Amendment No. 24 to this Registration Statement,
filed on October 27, 1995.
(m)(7) 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
incorporated herein by reference to Exhibit 15g of Post-Effective
Amendment No. 25 to this Registration Statement, filed on March
1, 1996.
(m)(8) 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 incorporated herein
by reference to Exhibit 15h of Post-Effective Amendment No. 26 to
this Registration Statement, filed on September 11, 1996.
(m)(9) Distribution Plan and Shareholder Servicing Agreement for Advisor
Class Shares is incorporated by reference to Exhibit 15i of
Post-Effective Amendment No. 10.
(n) Not applicable.
(o) Rule 18f-3 Plan is incorporated by reference to Exhibit 18 of
Post-Effective Amendment No. 30.
10
