RYDEX SERIES TRUST, 497, 1998-03-17

RYDEX SERIES TRUST
497, 1998-03-17

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<PAGE>

SUPPLEMENT DATED MARCH 10, 1998 TO THE
PROSPECTUS DATED MARCH 1, 1998
OF
RYDEX SERIES TRUST
6116 EXECUTIVE BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20852

The Prospectus dated March 1, 1998 for the Investor Class shares of the Rydex
Sector Funds is amended and supplemented as follows:

Rydex Series Trust (the "Trust") is soliciting subscriptions for Investor Class
shares of the Rydex Sector Funds during a subscription period that commenced on
March 10, 1998, and is currently expected to end on or about April 1, 1998. To
indicate your interest in purchasing Investor Class shares of a Sector Fund,
please fill out and send an application to the Trust or call the Trust at
1-800-820-0888 (See "HOW TO INVEST IN THE FUNDS"). Payment will be due on or
about April 1, 1998.

The Trust will not commence the continuous offering of shares of any Sector Fund
unless the aggregate subscriptions for all Rydex Sector Funds equal at least
$100 million. In addition, the Trust will not commence the continuous offering
of shares of any Sector Fund unless the subscriptions for that Fund equal at
least $5 million.

The Trust may extend the subscription period for any Sector Fund that does not
have subscriptions of at least $5 million as of April 1, 1998.

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE

<PAGE>
PROSPECTUS -- INVESTOR CLASS

<TABLE>
<C> <S>
1 THE ADVISOR'S INVESTMENT METHODOLOGY
---
2 BANKING FUND
---
4 BASIC MATERIALS FUND
---
6 BIOTECHNOLOGY FUND
---
8 CONSUMER PRODUCTS FUND
---
10 ELECTRONICS FUND
---
12 ENERGY FUND
---
14 ENERGY SERVICES FUND
---
16 FINANCIAL SERVICES FUND
---
18 HEALTH CARE FUND
---
20 LEISURE FUND
---
22 RETAILING FUND
---
24 TECHNOLOGY FUND
---
26 TELECOMMUNICATIONS FUND
---
28 TRANSPORTATION FUND
---
30 RISK CONSIDERATIONS
---
31 PERFORMANCE INFORMATION
---
32 HOW TO INVEST IN THE FUNDS
---
34 REDEEMING FUND SHARES
---
35 EXCHANGES
---
36 PROCEDURES FOR REDEMPTIONS AND EXCHANGES
---
37 DIVIDENDS AND DISTRIBUTIONS
---
37 TAX INFORMATION
---
38 MANAGEMENT OF THE FUNDS
---
39 PORTFOLIO TRANSACTIONS
---
39 GENERAL INFORMATION
---
41 INFORMATION ABOUT THE FUNDS' INVESTMENTS
---
</TABLE>

MARCH 1, 1998

Rydex Series Trust (the "Trust") is a no-load mutual fund complex with
twenty-three separate investment portfolios (the "Rydex Funds"), fourteen of
which are described in this Prospectus (the "Funds" or "Rydex Sector Funds").
The Funds are sold principally to professional money managers and to investors
who take part in certain strategic and tactical asset-allocation investment
programs.

This Prospectus contains important information about the Investor Class Shares
of the Funds. Please read it before investing and keep it on file for future
reference.

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.

THE FUNDS:
- ARE NOT FEDERALLY INSURED
- ARE NOT GUARANTEED BY ANY GOVERNMENT AGENCY
- ARE NOT BANK DEPOSITS
- ARE NOT GUARANTEED TO ACHIEVE THEIR OBJECTIVES

INVESTING IN THE FUNDS INVOLVES RISK. YOU COULD LOSE MONEY.

I
<PAGE>

ICON LEGEND

Fund Objective
The fund's particular investment goal.
n

Portfolio Investments

[ICON]
The primary types of securities in which the fund invests.

Risk Considerations
The major risk factors associated with the fund.
p

Fund Expense Information
The overall costs incurred by an investor in the fund.
o

II
<PAGE>
PROSPECTUS 1
--------

THE ADVISOR'S INVESTMENT METHODOLOGY

In managing the Funds, PADCO Advisors, Inc.'s (the "Advisor") investment
team employs a quantitative model that considers a number of factors. To develop
a liquid portfolio of stocks that adequately represents a particular market
sector, the Advisor applies filters to the broad universe of stocks of issuers
that are "principally engaged" in business activities in each industry sector.
Specifically, the Advisor's investment process screens stocks primarily based on
liquidity, market capitalization, and correlation relative to the entire
industry sector. The Advisor also may consider other factors.

The Advisor monitors the Funds' portfolios on an ongoing basis, and adds or
deletes stocks from the portfolios as needed.

After constructing a portfolio for each Fund, the Advisor may utilize
futures contracts and options to leverage a Fund's exposure to the relevant
business sector. The use of leverage will result in each Fund being exposed to
its relevant business sector with more than 100% of its total assets.

Each business sector typically consists of numerous industries. For purposes
of the Advisor's investment methodology and the policies for each Fund, a
company is considered to be "principally engaged" in a designated business
activity in a particular economic sector if at least 50% of its assets, gross
income, or net profits are committed to, or derived from, that activity. If a
question exists as to whether a company meets these standards, the Advisor will
determine whether the company's primary business is within the business sector
designated for investment by that Fund.

THE INVESTMENT OBJECTIVE OF EACH FUND IS NON-FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL. THERE CAN BE NO ASSURANCE THAT A FUND WILL ACHIEVE
ITS INVESTMENT OBJECTIVE.
<PAGE>
- ------
2 PROSPECTUS

FUND INFORMATION -- BANKING FUND

FUND OBJECTIVE

[LOGO]
THE BANKING FUND seeks capital appreciation by investing in companies
that are involved in the banking sector, including commercial banks (and their
holding companies) and savings and loan institutions ("Banking Companies").

PORTFOLIO INVESTMENTS

The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.

RISK CONSIDERATIONS

[LOGO]
As the services offered by Banking Companies expand, banks are becoming
more exposed to well-established competitors such as insurance companies and
investment advisory companies. This exposure has also increased due to the
erosion of historical distinctions between banks and other financial
institutions. Increased competition may result from the broadening of regional
and national interstate banking powers, which has already reduced the number of
publicly-traded banks. Legislation is currently being considered by Congress
which would reduce the separation between commercial and investment banking
businesses. If enacted, this could significantly impact the industry and the
Fund. In addition, general economic conditions are important to Banking
Companies, which face exposure to credit losses and are dependent to a greater
or lesser extent on interest rate activity.

In addition, the Banking Fund is subject to the following types of primary
risks:

- Fund Risk;

- Sector Risk;

- Market Risk; and

- Leveraging Risk.

For a description of these and other risks, please see "RISK
CONSIDERATIONS."
<PAGE>
PROSPECTUS 3
--------

FUND EXPENSE INFORMATION

TRANSACTION AND OPERATING EXPENSES

[LOGO]
The purpose of the following table is to help you understand the
various costs and expenses that you will bear directly or indirectly
when you invest in Investor Class Shares of the BANKING FUND.

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
---------
Total Fund Operating Expenses 1.50%
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.

(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>

You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
</TABLE>

YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.

If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
<PAGE>
- ------
4 PROSPECTUS

FUND INFORMATION -- BASIC MATERIALS FUND

FUND OBJECTIVE

[LOGO]
THE BASIC MATERIALS FUND seeks capital appreciation by investing in
companies engaged in the mining, manufacture, or sale of basic materials, such
as lumber, steel, iron, aluminum, concrete, chemicals and other basic building
and manufacturing materials ("Basic Materials Companies").

PORTFOLIO INVESTMENTS

RISK CONSIDERATIONS

[LOGO]
Many Basic Materials Companies are significantly affected by the level
and volatility of commodity prices, the exchange value of the dollar,
import controls, and worldwide competition. At times, worldwide production of
industrial materials has exceeded demand as a result of over-building or
economic downturns, leading to poor investment returns or losses for Basic
Materials Companies. Other risks may include liability for environmental damage,
depletion of resources, and mandated expenditures for safety and pollution
control devices.

In addition, the Basic Materials Fund is subject to the following types of
primary risks:

- Fund Risk;

- Sector Risk;

- Market Risk; and

- Leveraging Risk.

For a description of these and other risks, please see "RISK
CONSIDERATIONS."
<PAGE>
PROSPECTUS 5
--------

FUND EXPENSE INFORMATION

TRANSACTION AND OPERATING EXPENSES

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET
ASSETS)
Management Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.

(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------------------------------------------

<S> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
</TABLE>

YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.

If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
<PAGE>
- ------
6 PROSPECTUS

FUND INFORMATION -- BIOTECHNOLOGY FUND

FUND OBJECTIVE

[LOGO]
THE BIOTECHNOLOGY FUND seeks capital appreciation by investing in
companies that are involved in the biotechnology industry, including companies
involved in research and development, genetic or other biological engineering,
and in the design, manufacture, or sale of related biotechnology products or
services ("Biotechnology Companies").

PORTFOLIO INVESTMENTS

[LOGO]
The Fund invests substantially all (80% or more) of its assets in a
portfolio of equity securities, including common stocks, preferred stock,
warrants, rights, and securities convertible into common stock, of Biotechnology
Companies that are traded in the United States, as well as in futures and
options contracts. Biotechnology Companies are engaged in the research,
development, and manufacture of various biotechnological products, services, and
processes. The Fund may invest in companies that manufacture and/or distribute
biotechnological and biomedical products, including devices and instruments, and
in companies that provide or benefit significantly from scientific and
technological advances in biotechnology, as well as in Biotechnology Companies
that provide processes or services instead of, or in addition to, products.
Biotechnology Companies also include companies involved in applications and
developments affecting such areas as human health care, pharmaceuticals,
agricultural and veterinary applications, chemicals, and medical/surgical.

RISK CONSIDERATIONS

[LOGO]
Biotechnology Companies are affected by patent considerations, intense
competition, rapid technological change and obsolescence, and regulatory
requirements of the Food and Drug Administration, the Environmental Protection
Agency, state and legal governments, and foreign regulatory authorities. In
addition, many of these companies are relatively small and have thinly traded
securities, may not yet offer products or offer a single product, and may have
persistent losses during a new product's transition from development to
production or erratic revenue patterns. Moreover, stock prices of Biotechnology
Companies are very volatile, particularly during periods where their products
are up for regulatory approval and/ or under regulatory scrutiny.

In addition, the Biotechnology Fund is subject to the following types of
primary risks:

- Fund Risk;

- Sector Risk;

- Market Risk; and

- Leveraging Risk.

For a description of these and other risks, please see "RISK
CONSIDERATIONS."
<PAGE>
PROSPECTUS 7
--------

FUND EXPENSE INFORMATION

TRANSACTION AND OPERATING EXPENSES

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET
ASSETS)
Management Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.

(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------------------------------------------

<S> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
</TABLE>

YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.

If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
<PAGE>
- ------
8 PROSPECTUS

FUND INFORMATION -- CONSUMER PRODUCTS FUND

FUND OBJECTIVE

[LOGO]
THE CONSUMER PRODUCTS FUND seeks capital appreciation by investing in
companies engaged in manufacturing finished goods and services both domestically
and internationally ("Consumer Products Companies").

PORTFOLIO INVESTMENTS

[LOGO]
The Fund invests substantially all (80% or more) of its assets in a
portfolio of equity securities, including common stocks, preferred stock,
warrants, rights, and securities convertible into common stock, of Consumer
Products Companies that are traded in the United States, as well as in futures
and options contracts. Consumer Products Companies are engaged in the
manufacture of goods and services to consumers both domestically and
internationally. Consumer Products Companies include companies that manufacture
durable goods such as major appliances and personal computers. Such companies
also include companies that manufacture, wholesale, or retail non-durable goods
such as beverages, tobacco, health care products, household and personal care
products, apparel, and entertainment products (E.G., books, magazines, TV,
cable, movies, music, gaming, sports), and companies that provide consumer
products and services such as lodging, child care, convenience stores, and car
rentals.

RISK CONSIDERATIONS

[LOGO]
The performance of Consumer Products Companies has historically been
closely tied to the performance of the overall economy, and is also affected by
interest rates, competition, and consumer confidence. The success of Consumer
Products Companies also depends heavily on relative levels of disposable
household income and seasonal consumer spending. Changes in demographics and
consumer tastes can also affect the demand for, and success of, consumer
products in the marketplace.

In addition, the Consumer Products Fund is subject to the following types of
primary risks:

- Fund Risk;

- Sector Risk;

- Market Risk; and

- Leveraging Risk.

For a description of these and other risks, please see "RISK
CONSIDERATIONS."
<PAGE>
PROSPECTUS 9
--------

FUND EXPENSE INFORMATION

TRANSACTION AND OPERATING EXPENSES

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET
ASSETS)
Management Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.

(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------------------------------------------

<S> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
</TABLE>

YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.

If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
<PAGE>
- ------
10 PROSPECTUS

FUND INFORMATION -- ELECTRONICS FUND

FUND OBJECTIVE

[LOGO]
THE ELECTRONICS FUND seeks capital appreciation by investing in
companies that are involved in the electronics sector, including
semiconductor manufacturers and distributors, and makers and vendors of other
electronic components and devices ("Electronics Companies").

PORTFOLIO INVESTMENTS

[LOGO]
The Fund invests substantially all (80% or more) of its assets in a
portfolio of equity securities, including common stocks, preferred stock,
warrants, rights, and securities convertible into common stock, of Electronics
Companies that are traded in the United States, as well as in futures and
options contracts. Electronics Companies are engaged in the design, manufacture,
or sale of electronic components. Electronics Companies include companies
involved in the manufacture and development of semiconductors, connectors,
printed circuit boards and other components; equipment vendors to electronic
component manufacturers; electronic component distributors; and electronic
instruments and electronic systems vendors. Electronics Companies also include
companies involved in all aspects of the electronics business and in new
technologies or specialty areas such as defense electronics, advanced design and
manufacturing technologies, or lasers.

RISK CONSIDERATIONS

[LOGO]
Many of the products offered by Electronics Companies are subject to
risks of rapid obsolescence and intense competition. As suppliers of many
technology companies, Electronics Companies are often subject to the fortunes of
their customers, which may vary wildly. Electronics Companies also face high
technology and research costs especially in light of decreased defense spending
by the U.S. Government, and may face competition from subsidized foreign
competitors with lower production costs.

In addition, the Electronics Fund is subject to the following types of
primary risks:

- Fund Risk;

- Sector Risk;

- Market Risk; and

- Leveraging Risk.

For a description of these and other risks, please see "RISK
CONSIDERATIONS."
<PAGE>
PROSPECTUS 11
--------

FUND EXPENSE INFORMATION

TRANSACTION AND OPERATING EXPENSES

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET
ASSETS)
Management Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.

(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------------------------------------------

<S> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
</TABLE>

YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.

If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
<PAGE>
- ------
12 PROSPECTUS

FUND INFORMATION -- ENERGY FUND

FUND OBJECTIVE

[LOGO]
THE ENERGY FUND seeks capital appreciation by investing in companies
involved in the energy field, including the exploration, production, and
development of oil, gas, coal and alternative sources of energy ("Energy
Companies").

PORTFOLIO INVESTMENTS

[LOGO]
The Fund invests substantially all (80% or more) of its assets in a
portfolio of equity securities, including common stocks, preferred stock,
warrants, rights, and securities convertible into common stock, of Energy
Companies that are traded in the United States, as well as in futures and
options contracts. Energy Companies are involved in all aspects of the energy
industry, including the conventional areas of oil, gas, electricity, and coal,
and alternative sources of energy such as nuclear, geothermal, oil shale, and
solar power. The Fund may invest in companies that produce, transmit, market,
distribute or measure energy; companies involved in providing products and
services to companies in the energy field; and companies involved in the
exploration of new sources of energy, conservation, and energy-related pollution
control.

RISK CONSIDERATIONS

[LOGO]
Securities of Energy Companies are subject to changes in value and
dividend yield which depend largely on the price and supply of energy fuels.
Swift price and supply fluctuations may be caused by events relating to
international politics, energy conservation, the success of exploration
projects, and tax and other governmental regulatory policies.

In addition, the Energy Fund is subject to the following types of primary
risks:

- Fund Risk;

- Sector Risk;

- Market Risk; and

- Leveraging Risk.

For a description of these and other risks, please see "RISK
CONSIDERATIONS."
<PAGE>
PROSPECTUS 13
--------

FUND EXPENSE INFORMATION

TRANSACTION AND OPERATING EXPENSES

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET
ASSETS)
Management Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.

(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------------------------------------------

<S> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
</TABLE>

YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.

If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
<PAGE>
- ------
14 PROSPECTUS

FUND INFORMATION -- ENERGY SERVICES FUND

FUND OBJECTIVE

[LOGO]
THE ENERGY SERVICES FUND seeks capital appreciation by investing in
companies that are involved in the energy services field, including those that
provide services and equipment in the areas of oil, coal, and gas exploration
and production ("Energy Services Companies").

PORTFOLIO INVESTMENTS

[LOGO]
The Fund invests substantially all (80% or more) of its assets in a
portfolio of equity securities, including common stocks, preferred stock,
warrants, rights, and securities convertible into common stock, of Energy
Services Companies that are traded in the United States, as well as in futures
and options contracts. Energy Services Companies are engaged in one or more
businesses in the energy service field, including those that provide services
and equipment to companies engaged in the production, refinement or distribution
of oil, gas, electricity, and coal, and to companies involved with the
production and development of newer sources of energy such as nuclear,
geothermal, oil shale, and solar power. Energy Services Companies include those
providing services such as onshore or offshore drilling; companies involved in
production and well maintenance; companies involved in exploration engineering,
data and technology; companies involved in energy transport; and companies
involved in equipment and plant design or construction. In addition, Energy
Services Companies include companies that provide products and services to these
other companies.

RISK CONSIDERATIONS

[LOGO]
Energy Services Companies are affected by the supply and demand both
for their specific products or services and for energy products in
general. The price of oil and gas, exploration and production spending,
governmental regulation and environmental issues, world events and economic
conditions will likewise affect the performance of Energy Services Companies. In
addition, Energy Services Companies may be affected by economic conditions
generally affecting energy supply companies.

In addition, the Energy Services Fund is subject to the following types of
primary risks:

- Fund Risk;

- Sector Risk;

- Market Risk; and

- Leveraging Risk.

For a description of these and other risks, please see "RISK
CONSIDERATIONS."
<PAGE>
PROSPECTUS 15
--------

FUND EXPENSE INFORMATION

TRANSACTION AND OPERATING EXPENSES

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET
ASSETS)
Management Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.

(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------------------------------------------

<S> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
</TABLE>

YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.

If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
<PAGE>
- ------
16 PROSPECTUS

FUND INFORMATION -- FINANCIAL SERVICES FUND

FUND OBJECTIVE

[LOGO]
THE FINANCIAL SERVICES FUND seeks capital appreciation by investing in
companies that are involved in the financial services sector, including
commercial banks, savings and loan associations, insurance companies, brokerage
companies, and real estate and leasing companies ("Financial Services
Companies").

PORTFOLIO INVESTMENTS

[LOGO]
The Fund invests substantially all (80% or more) of its assets in a
portfolio of equity securities, including common stocks, preferred stocks,
warrants, rights, and securities convertible into common stock, of Financial
Services Companies that are traded in the United States, as well as in futures
and options contracts. Financial Services Companies provide financial services
to consumers and industry. Financial Services Companies include commercial and
investment banks, savings and loan associations, brokerage companies, insurance
companies, real estate and leasing companies, and companies that span across
these segments. Under SEC regulations, the Fund may not invest more than 5% of
its total assets in the equity securities of any company that derives more than
15% of its revenues from brokerage or investment management activities.

RISK CONSIDERATIONS

[LOGO]
Financial Services Companies are subject to extensive governmental
regulation, which may limit both the amounts and types of loans and other
financial commitments they can make, and the interest rates and fees they can
charge. Profitability is largely dependent on the availability and cost of
capital, and can fluctuate significantly when interest rates change. Credit
losses resulting from financial difficulties of borrowers also can negatively
impact the sector. Insurance companies may be subject to severe price
competition. Legislation is currently being considered which would further
reduce the separation between commercial and investment banking businesses, and
between the banking and insurance businesses. If enacted these changes could
significantly impact the sector and the Fund.

In addition, the Financial Services Fund is subject to the following types
of primary risks:

- Fund Risk;

- Sector Risk;

- Market Risk; and

- Leveraging Risk.

For a description of these and other risks, please see "RISK
CONSIDERATIONS."
<PAGE>
PROSPECTUS 17
--------

FUND EXPENSE INFORMATION

TRANSACTION AND OPERATING EXPENSES

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET
ASSETS)
Management Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.

(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------------------------------------------

<S> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
</TABLE>

YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.

If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
<PAGE>
- ------
18 PROSPECTUS

FUND INFORMATION -- HEALTH CARE FUND

FUND OBJECTIVE

[LOGO]
THE HEALTH CARE FUND seeks capital appreciation by investing in
companies that are involved in the health care industry ("Health Care
Companies").

PORTFOLIO INVESTMENTS

[LOGO]
The Fund invests substantially all (80% or more) of its assets in a
portfolio of equity securities, including common stocks, preferred stocks,
warrants, rights and securities convertible into common stock, of Health Care
Companies that are traded in the United States, as well as in futures and
options contracts. Health Care Companies are engaged in the design, manufacture,
or sale of products or services used for or in connection with health care or
medicine. Health Care Companies include pharmaceutical companies, companies
involved in research and development of pharmaceutical products and services,
companies involved in the operation of health care facilities, and other
companies involved in the design, manufacture, or sale of health care-related
products or services.

RISK CONSIDERATIONS

[LOGO]
Health Care Companies are subject to government regulation and approval
of their products and services, which can have a significant effect on
their price and availability. Furthermore, the types of products or services
produced or provided by these companies may quickly become obsolete. Moreover,
liability for products that are later alleged to be harmful or unsafe may be
substantial, and may have a significant impact on a Health Care Company's market
value and/or share price.

In addition, the Health Care Fund is subject to the following types of
primary risks:

- Fund Risk;

- Sector Risk;

- Market Risk; and

- Leveraging Risk.

For a description of these and other risks, please see "RISK
CONSIDERATIONS."
<PAGE>
PROSPECTUS 19
--------

FUND EXPENSE INFORMATION

TRANSACTION AND OPERATING EXPENSES

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET
ASSETS)
Management Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.

(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------------------------------------------

<S> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
</TABLE>

YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.

If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
<PAGE>
- ------
20 PROSPECTUS

FUND INFORMATION -- LEISURE FUND

FUND OBJECTIVE

[LOGO]
THE LEISURE FUND seeks capital appreciation by investing in companies
engaged in leisure and entertainment businesses, including hotels and resorts,
casinos, radio and television broadcasting and advertising, motion picture
production, toys and sporting goods manufacture, musical recordings and
instruments, alcohol and tobacco, and publishing ("Leisure Companies").

PORTFOLIO INVESTMENTS

[LOGO]
The Fund invests substantially all (80% or more) of its assets in a
portfolio of equity securities, including common stocks, preferred stocks,
warrants, rights and securities convertible into common stock, of Leisure
Companies that are traded in the United States, as well as in futures and
options contracts. Leisure Companies are engaged in the design, production, or
distribution of goods or services in the leisure industries. Leisure Companies
provide, manufacture or produce goods and services such as television and radio
broadcast or manufacture (including cable television); motion pictures and
photography; recordings and musical instruments; publishing, including
newspapers and magazines; sporting goods and camping and recreational equipment;
and sports arenas. Other goods and services provided by Leisure Companies
include toys and games (including video and other electronic games), amusement
and theme parks, travel and travel-related services, hotels and motels, leisure
apparel or footwear, tobacco products and gaming casinos.

RISK CONSIDERATIONS

[LOGO]
Securities of Leisure Companies may be considered speculative, and
generally exhibit greater volatility than the overall market. Many Leisure
Companies have unpredictable earnings, due in part to changing consumer tastes
and intense competition. Leisure Companies have reacted strongly to
technological developments and to the threat of increased government regulation,
particularly in the gaming arena.

In addition, the Leisure Fund is subject to the following types of primary
risks:

- Fund Risk;

- Sector Risk;

- Market Risk; and

- Leveraging Risk.

For a description of these and other risks, please see "RISK
CONSIDERATIONS."
<PAGE>
PROSPECTUS 21
--------

FUND EXPENSE INFORMATION

TRANSACTION AND OPERATING EXPENSES

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET
ASSETS)
Management Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.

(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------------------------------------------

<S> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
</TABLE>

YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.

If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
<PAGE>
- ------
22 PROSPECTUS

FUND INFORMATION -- RETAILING FUND

FUND OBJECTIVE

[LOGO]
THE RETAILING FUND seeks capital appreciation by investing in
companies engaged in merchandising finished goods and services,
including department stores, restaurant franchises, mail order operations and
other companies involved in selling products to consumers ("Retailing
Companies").

PORTFOLIO INVESTMENTS

[LOGO]
The Fund invests substantially all (80% or more) of its assets in a
portfolio of equity securities, including common stocks, preferred stocks,
warrants, rights, and securities convertible into common stock, of Retailing
Companies that are traded in the United States, as well as in futures and
options contracts. Retailing Companies are engaged in merchandising finished
goods and services primarily to individual consumers. Retailing Companies
include drug and department stores; suppliers of goods and services for homes,
home improvements and yards; clothing, jewelry, electronics and computer
retailers; franchise restaurants; motor vehicle and marine dealers; warehouse
membership clubs; mail order operations; and companies involved in alternative
selling methods.

RISK CONSIDERATIONS

[LOGO]
The success of Retailing Companies is closely tied to consumer
spending, which is affected by general economic conditions and consumer
confidence levels. The retailing industry is highly competitive, and a Retailing
Company's success is often tied to its ability to anticipate and react to
changing consumer tastes. Many Retailing Companies are thinly capitalized, and
are dependent upon a relatively few number of business days to achieve their
overall results.

In addition, the Retailing Fund is subject to the following types of primary
risks:

- Fund Risk;

- Sector Risk;

- Market Risk; and

- Leveraging Risk.

For a description of these and other risks, please see "RISK
CONSIDERATIONS."
<PAGE>
PROSPECTUS 23
--------

FUND EXPENSE INFORMATION

TRANSACTION AND OPERATING EXPENSES

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET
ASSETS)
Management Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.

(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------------------------------------------

<S> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
</TABLE>

YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.

If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
<PAGE>
- ------
24 PROSPECTUS

FUND INFORMATION -- TECHNOLOGY FUND

FUND OBJECTIVE

[LOGO]
THE TECHNOLOGY FUND seeks capital appreciation by investing in
companies that are involved in the technology sector, including
computer software and service companies, semiconductor manufacturers, networking
and telecommunications equipment manufacturers, PC hardware and peripherals
companies ("Technology Companies").

PORTFOLIO INVESTMENTS

[LOGO]
The Fund invests substantially all (80% or more) of its assets in a
portfolio of equity securities, including common stocks, preferred stocks,
warrants, rights, and securities convertible into common stock, of Technology
Companies that are traded in the United States, as well as in futures and
options contracts. Technology Companies are companies which the Advisor believes
have, or will develop, products, processes, or services that will provide or
will benefit significantly from technological advances and improvements. These
companies may include, for example, companies that develop, produce or
distribute products or services in the computer, semiconductor, electronics,
communications, health care, and biotechnology sectors.

RISK CONSIDERATIONS

[LOGO]
Competitive pressures may have a significant effect on the financial
condition of Technology Companies. For example, if technology continues to
advance at an accelerated rate, and the number of companies and product
offerings continues to expand, these companies could become increasingly
sensitive to short product cycles and aggressive pricing. In addition, many
Technology Companies sell stock before they have a commercially viable product,
and may be acutely susceptible to problems relating to bringing their products
to market. In addition, many small Technology Companies have very high
price/earnings ratios, high price volatility, and high personnel turnover due to
severe labor shortages for skilled technology professionals.

In addition, the Technology Fund is subject to the following types of
primary risks:

- Fund Risk;

- Sector Risk;

- Market Risk; and

- Leveraging Risk.

For a description of these and other risks, please see "RISK
CONSIDERATIONS."
<PAGE>
PROSPECTUS 25
--------

FUND EXPENSE INFORMATION

TRANSACTION AND OPERATING EXPENSES

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET
ASSETS)
Management Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.

(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------------------------------------------

<S> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
</TABLE>

YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.

If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
<PAGE>
- ------
26 PROSPECTUS

FUND INFORMATION -- TELECOMMUNICATIONS FUND

FUND OBJECTIVE

[LOGO]
THE TELECOMMUNICATIONS FUND seeks capital appreciation by investing in
companies engaged in the development, manufacture, or sale of communications
services or communications equipment ("Telecommunications Companies").

PORTFOLIO INVESTMENTS

[LOGO]
The Fund invests substantially all (80% or more) of its assets in a
portfolio of equity securities, including common stocks, preferred stocks,
warrants, rights, and securities convertible into common stock, of
Telecommunications Companies that are traded in the United States, as well as in
futures and options contracts. Telecommunications Companies are engaged in the
development, manufacture, or sale of communications services or communications
equipment. Telecommunications Companies range from traditional local and
long-distance telephone services or equipment providers, to companies involved
in developing technologies such as cellular telephone or paging services,
Internet equipment and service providers, and fiber-optics.

RISK CONSIDERATIONS

[LOGO]
Telephone operating companies are subject to both federal and state
regulations governing rates of return and services that may be offered. Many
Telecommunications Companies compete fiercely for market share and,
increasingly, face competitive challenges in the U.S. from foreign competitors
engaged in strategic joint ventures with U.S. companies, and in foreign markets
from both U.S. and foreign competitors. In addition, recent industry
consolidation trends may lead to increased regulation of Telecommunications
Companies in their primary markets. Although many established Telecommunications
Companies pay an above-average dividend, the Fund's investment decisions are
primarily based on growth potential and not on income.

In addition, the Telecommunications Fund is subject to the following types
of primary risks:

- Fund Risk;

- Sector Risk;

- Market Risk; and

- Leveraging Risk.

For a description of these and other risks, please see "RISK
CONSIDERATIONS."
<PAGE>
PROSPECTUS 27
--------

FUND EXPENSE INFORMATION

TRANSACTION AND OPERATING EXPENSES

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET
ASSETS)
Management Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.

(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------------------------------------------

<S> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
</TABLE>

YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.

If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
<PAGE>
- ------
28 PROSPECTUS

FUND INFORMATION -- TRANSPORTATION FUND

FUND OBJECTIVE

[LOGO]
THE TRANSPORTATION FUND seeks capital appreciation by investing in
companies engaged in providing transportation services or companies engaged in
the design, manufacture, distribution, or sale of transportation equipment
("Transportation Companies").

PORTFOLIO INVESTMENTS

[LOGO]
The Fund invests substantially all (80% or more) of its assets in a
portfolio of equity securities, including common stocks, preferred stocks,
warrants, rights, and securities convertible into common stock, of
Transportation Companies that are traded in the United States, as well as in
futures and options contracts. Transportation Companies are engaged in providing
transportation services or engaged in the design manufacture, distribution, or
sale of transportation equipment. Transportation Companies may include, for
example, companies involved in the movement of freight or people, such as
airline, railroad, ship, truck and bus companies; equipment manufacturers
(including makers of trucks, automobiles, planes, containers, railcars or other
modes of transportation and related products); parts suppliers; and companies
involved in leasing, maintenance, and transportation-related services.

RISK CONSIDERATIONS

[LOGO]
Transportation Company stocks are cyclical and have occasional sharp
price movements which may result from changes in the economy, fuel prices, labor
agreements, and insurance costs. The United States has been deregulating these
industries, but it is uncertain whether this trend will continue and what its
effect will be. In addition, Transportation Companies, including airlines and
automobile, truck and aircraft manufacturers, are facing increased competition
from foreign companies, many of which are partially funded by foreign
governments and which may be less sensitive to short-term economic pressures.

In addition, the Transportation Fund is subject to the following types of
primary risks:

- Fund Risk;

- Sector Risk;

- Market Risk; and

- Leveraging Risk.

For a description of these and other risks, please see "RISK
CONSIDERATIONS."
<PAGE>
PROSPECTUS 29
--------

FUND EXPENSE INFORMATION

TRANSACTION AND OPERATING EXPENSES

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET
ASSETS)
Management Fees .85%
12b-1 Fees None
Other Expenses(1) .65%
-----
Total Fund Operating Expenses 1.50%
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.

(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------------------------------------------------

<S> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $15 $47
</TABLE>

YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.

If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
<PAGE>
- ------
30 PROSPECTUS

RISK CONSIDERATIONS

PRIMARY RISKS
Set forth below are the primary, broad-based risks that the Funds may
encounter:

FUND RISK -- The possibility that a Fund's performance during a specific period
may not meet or exceed that of the market as a whole.

SECTOR RISK -- The risk that the economic sector in which a Fund focuses its
investments will underperform the market as a whole. To the extent that a Fund's
investments are concentrated in issuers conducting business in the same economic
sector, the Fund is subject to the risks of investing in that sector, including
legislative or regulatory changes, adverse market conditions and/or increased
competition.

MARKET RISK -- The possibility that stock prices in general will decline over
short, or even extended, periods of time. Stock markets tend to be cyclical,
with periods when stock prices generally rise and periods when stock prices
generally decline.

LEVERAGING RISK -- Leveraging activities include, among other things, borrowing
and the use of options and futures. There are risks associated with leveraging
activities, including:

- The success of a leveraging strategy may depend on an ability to predict
movements in the prices of individual securities, fluctuations in markets,
and movements in interest rates.
- Leveraging may result in a Fund experiencing losses over certain ranges in
the market that exceed losses experienced by a non-leveraged Fund.
- There may be an imperfect or no correlation between the changes in market
value of the securities held by a Fund and the prices of futures and
options on futures.
- Although the Funds will only purchase exchange-traded futures and options,
due to market conditions, there may not be a liquid secondary market for a
futures contract or option. As a result, the Funds may be unable to close
out their futures or options contracts at a time which is advantageous to
the Funds.
- Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and
options.

SECONDARY RISKS
In addition to the primary risks set forth above, the Funds may, to varying
degrees, be subject to the following types of secondary risks:

EVENT RISK -- The possibility that corporate securities may suffer substantial
declines in market value due to corporate restructurings. While event risk may
be high for certain corporate securities held by the Fund, event risk in the
aggregate should be low because of each Fund's varied holdings.

FOREIGN COMPANY RISKS -- There are risks associated with investing in foreign
companies, including:

- VOLATILITY -- Investments in securities of foreign companies can be more
volatile than investments in U.S. companies. Diplomatic, political, or
economic developments could affect investments in foreign countries.
- REGULATORY ENVIRONMENT -- Foreign companies generally are not subject to
uniform accounting, auditing, and financial reporting standards comparable
to those applicable to U.S. domestic companies. Foreign issuers may be
subject to different accounting, auditing, reporting, and record keeping
standards than those applicable to domestic issuers. There is generally
less government regulation of listed companies abroad than in the U.S.

SMALL ISSUER RISK -- Small and medium capitalization companies may be more
vulnerable than larger, more established organizations to adverse business or
economic developments. In particular, small capitalization companies may have
limited product lines, markets, and financial resources and may be dependent
upon a relatively small management group. These securities may be traded
over-the-counter or listed on an exchange and may or may not pay dividends.
<PAGE>
PROSPECTUS 31
--------

ADDITIONAL RISK CONSIDERATIONS

PORTFOLIO TURNOVER RATE -- The Trust anticipates that investors that are part of
asset-allocation or market-timing strategies will frequently redeem or exchange
shares of a Fund, which will cause that Fund to experience high portfolio
turnover. The Trust does not expect the portfolio turnover rate to exceed 500%
for any Fund. The formula for calculating a Fund's portfolio turnover rate
disregards securities having a maturity of less than one year and options and
futures contracts. A higher portfolio turnover rate may result in a Fund paying
more brokerage commissions and generating greater tax liabilities for
shareholders.

AGGRESSIVE INVESTMENT TECHNIQUES -- Each of the Funds may, to a significant
extent, purchase futures contracts and options on securities, securities
indexes, and futures contracts. The participation in the options or futures
markets by a Fund involves distinct investment risks and transaction costs.
Risks inherent in the use of options, futures contracts, and options on futures
contracts are described more fully in the "More Information About Investments
and Leveraging Transactions" section of this Prospectus, and in the Statement of
Additional Information.

NON-DIVERSIFICATION -- Since each Fund is non-diversified, each Fund may invest
in the securities of a relatively few number of issuers. To the extent that a
Fund invests a significant percentage of its assets in a limited number of
issuers, the Fund is subject to the risks of investing in those few issuers, and
may be more susceptible to a single adverse economic or regulatory occurrence.
The Funds intend, however, to comply with the applicable diversification
requirements of the Internal Revenue Code.

PERFORMANCE INFORMATION
TOTAL RETURN CALCULATIONS

From time to time, each of the Funds may advertise its total return for
prior periods. Any such advertisement will include at least average annual total
return quotations for one, five, and ten-year periods, or for the life of the
Fund (if less). Other total return quotations over other time periods also may
be included.

The total return of a Fund refers to the average compounded rate of return
on a hypothetical investment, and is calculated by subtracting the value of the
initial investment from ending value of the investment and showing the
differences as a percentage of the initial investment. Total return calculations
assume that the entire investment is redeemed at the end of each period and that
all income dividends and capital gains distributions are reinvested. Average
annual total return quotations for periods of more than one year are computed by
finding the average annual compounded rate of return over the period that would
equal the initial amount invested relative to the ending redeemable value.
<PAGE>
- ------
32 PROSPECTUS

Please keep in mind that performance information, such as total return, is
not necessarily indicative of the future performance of a Fund.

COMPARISONS OF INVESTMENT PERFORMANCE

The performance of a Fund for a given period may be compared to the
performance of recognized, unmanaged indexes for the same period in performance
reports and promotional literature.

In addition, rankings, ratings, and comparisons of investment performance
and/or assessments of the quality of shareholder service appear in numerous
financial publications such as MONEY, FORBES, KIPLINGER'S MAGAZINE, PERSONAL
INVESTOR, MORNINGSTAR, INC., and similar sources.

Additional performance information for the Funds is contained in the
Statement of Additional Information ("SAI") and in the Trust's annual and
semi-annual reports to shareholders. Copies of the SAI and/or the annual and
semi-annual reports may be obtained, without charge, by writing to the Trust at
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852, or by calling
1-800-820-0888.

HOW TO INVEST IN THE FUNDS
PURCHASING SHARES

Shares are offered continuously, and may be purchased on any day that the
New York Stock Exchange is open for business (a "Business Day"). The price per
share (the offering price) will be the net asset value per share ("NAV") next
determined after your purchase order is received by the Trust. NAV is calculated
by (1) taking the current market value of a Fund's total assets, (2) subtracting
the liabilities, and (3) dividing that amount by the total number of shares
owned by shareholders. The NAV is calculated once each Business Day after the
close of the New York Stock Exchange (currently, 4:00 p.m., Eastern Time) and
the settlement time for the Funds' futures and options contracts, if any
(typically, 4:15 p.m., Eastern Time). If the exchange or market where a Fund's
securities or other investments are primarily traded closes early, the NAV may
be calculated earlier in accordance with the policies set forth in the Funds'
SAI. To receive the current Business Day's NAV, the Trust must receive your
purchase order before 3:30 p.m., Eastern Time. No sales charges are imposed on
initial or subsequent investments in a Fund.

MINIMUM INVESTMENT

If a registered investment advisor has discretionary authority over your
account, the minimum initial investment in the Investor Class Shares of the
Rydex Sector Funds is $15,000. For all other shareholder accounts
("Self-Directed Accounts"), the minimum initial investment in the Investor Class
Shares of the Rydex Sector Funds is $25,000. These minimums also apply to
retirement plan accounts. The Trust, at its discretion, may accept lesser
amounts in certain circumstances. If you
<PAGE>
PROSPECTUS 33
--------

invest in the Trust without designating which Fund you want to invest in on
either your account application or your check, your money will be invested in
the U.S. Government Money Market Fund until you decide where to invest your
money. There is no minimum amount for subsequent investments in a Fund. The
Trust reserves the right to modify its minimum investment requirements at any
time. The Trust also reserves the right to reject or refuse, at the Trust's
discretion, any order for the purchase of a Fund's shares in whole or in part.

Investments in the Funds may be made (i) through securities dealers who have
the responsibility to transmit orders promptly and who may charge a processing
fee, or (ii) directly with the Trust by mail or by bank wire transfer as
follows:

BY MAIL

Initial applications and investments, as well as subsequent investments, in
the Rydex Sector Funds made BY MAIL must be received in good form by the Trust,
on any Business Day, at or prior to 2:00 p.m., Eastern Time, in order to be
processed for that Business Day's NAV. Fill out an application and make a check
payable to "Rydex Series Trust." Mail the check, along with the application to:

Rydex Series Trust
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852

IN ADDITION TO CHARGES DESCRIBED ELSEWHERE IN THIS PROSPECTUS, THE TRUST ALSO
MAY CHARGE $25.00 FOR CHECKS RETURNED FOR INSUFFICIENT OR UNCOLLECTIBLE FUNDS.

BY BANK WIRE TRANSFER

First, fill out an application and fax the complete application, along with
a request for a shareholder account number, to the Trust at 301-468-8585. Then,
request that your bank wire transfer the purchase amount to the custodian, Star
Bank, N.A., along with the following instructions:

Star Bank, N.A.
Routing Number: 0420-00013
For Account of Rydex Series Trust
Trust Account Number: 48038-9030
[Your Name]
[Your Shareholder Account Number]

AFTER INSTRUCTING YOUR BANK TO TRANSFER MONEY BY WIRE FOR BOTH INITIAL AND
SUBSEQUENT PURCHASES, YOU MUST CALL THE TRUST AT 1-800-820-0888 AND INFORM THE
TRUST AS TO THE AMOUNT THAT YOU HAVE TRANSFERRED AND THE NAME OF THE BANK
SENDING THE TRANSFER IN ORDER
<PAGE>
- ------
34 PROSPECTUS

TO OBTAIN SAME-DAY PRICING OR CREDIT. FOR INITIAL PURCHASES, YOU MUST ALSO
SUPPLY THE TIME THE WIRE WAS SENT AND THE FED WIRE REFERENCE NUMBER. YOUR BANK
MAY CHARGE A FEE FOR SUCH SERVICES. IF THE PURCHASE IS CANCELED BECAUSE YOUR
WIRE TRANSFER IS NOT RECEIVED, YOU MAY BE LIABLE FOR ANY LOSS THAT THE TRUST
INCURS.

Wire transfers for both initial investments (which must be preceded by a
faxed application) and subsequent investments in the Rydex Sector Funds must be
received in good form at the Trust, on any Business Day, at or prior to 3:30
p.m., Eastern Time, in order to be processed at that Business Day's NAV. An
initial application that is faxed to the Trust does not constitute a purchase
order until the application has been processed and correct payment by check or
wire transfer has been received by the Trust.

TAX-QUALIFIED RETIREMENT PLANS

Investors may purchase shares of the Funds through any of the following
types of tax-qualified retirement plans:

Individual Retirement Accounts (IRAs) (including Roth IRAs)
Keogh Accounts -- Defined Contribution Plans (Profit Sharing Plans)
Keogh Accounts -- Pension Plans (Money Purchase Plans)
Internal Revenue Code Section 403(b) Plans

For retirement plan accounts that have engaged a registered investment
advisor with discretionary authority over the retirement plan account with the
Trust, the minimum initial investment in Investor Class Shares of the Rydex
Sector Funds is $15,000. For retirement plan accounts that are Self-Directed
Accounts, the minimum initial investment in Investor Class Shares of the Rydex
Sector Funds is $25,000.

Retirement plans are charged an annual $15.00 maintenance fee and a $15.00
per account liquidation fee. Additional information regarding these accounts,
including the annual maintenance fee, may be obtained by calling 1-800-820-0888
or 301-468-8520.

REDEEMING FUND SHARES
GENERAL

You may redeem all or any portion of your Fund shares at the next determined
NAV after receipt of the redemption request (subject to applicable account
minimums). You may redeem your shares by letter or by telephone subject to the
procedures set forth below. Your redemption proceeds normally will be sent
within five Business Days of the Trust receiving your request. For investments
made by check, payment on redemption requests may be delayed until the Trust's
transfer agent is reasonably satisfied that payment has been collected by the
Trust (which may require up to 10 Business Days). If you invest by check, you
may not wire out any redemption proceeds for the 30 calendar days
<PAGE>
PROSPECTUS 35
--------

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 RETIREMENT 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 exchanges, your account balance drops below
the required minimum of $15,000 ($25,000 for Self-Directed Accounts), you may be
required to redeem your shares.

EXCHANGES

You may exchange Investor Class Shares of any Rydex Sector Fund for Investor
Class Shares of any other Rydex Sector Fund or for shares of any other Rydex
Fund that is not a Rydex Sector Fund on the basis of the respective net asset
values of the shares involved. An exchange involving a Self-Directed Account
must be for at least the lesser of $1,000 or 100% of the account value of the
Rydex Sector Fund from which the redemption is to be made. The Trust currently
is composed of twenty-three separate Funds. Exchanges may be made by letter or
by telephone subject to the procedures set forth below.

To exchange your shares, you need to provide certain information, including
the name on the account, the account number (or your taxpayer identification
number), the number or dollar value of shares (or the percentage of the total
value of your account) you want to exchange, and the names of the Rydex Funds
involved in the exchange transaction. Exchanges may be made only between
identically registered accounts. If you are contemplating an exchange for shares
of a Rydex Fund not described in this Prospectus, you should obtain and review
the current prospectus of that Rydex Fund before making the exchange.
<PAGE>
- ------
36 PROSPECTUS

Exchange orders for exchanges into another Rydex Sector Fund must be
received by 3:30 p.m., Eastern Time. Exchange orders into other Rydex Funds must
be received by 3:30 p.m., Eastern Time, or by the time set forth below for the
relevant Rydex Fund (whichever is earlier):

<TABLE>
<S> <C>
FUND(S) CUT OFF TIME
- ----------------------------------------------------------------------------------------------
Nova 3:45 p.m.
Ursa
OTC
- ----------------------------------------------------------------------------------------------
Rydex Sector Funds 3:30 p.m.
Precious Metals
- ----------------------------------------------------------------------------------------------
U.S. Government Bond 2:45 p.m.
Juno
- ----------------------------------------------------------------------------------------------
High Yield 2:15 p.m.
</TABLE>

The exchange privilege may be modified or discontinued at any time.

PROCEDURES FOR REDEMPTIONS AND EXCHANGES

Written requests for redemptions and exchanges should be sent to Rydex
Series Trust, 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852,
and should be signed by the record owner or owners. With proper authorization,
telephone and electronic redemption and transfer requests are also permitted.
Telephone redemption and exchange requests may be made by calling 1-800-820-0888
or 301-468-8520 by 3:30 p.m., Eastern Time, on any Business Day. The Trust
reserves the right to suspend the right of redemption in accordance with the
SAI. The Trust's offices are open between 8:30 a.m. and 5:30 p.m., Eastern Time
on each Business Day.

TRANSACTIONS OVER THE TELEPHONE

Telephone redemption and exchange transactions are extremely convenient, but
are not risk-free. To ensure that your telephone transactions 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.
<PAGE>
PROSPECTUS 37
--------

DIVIDENDS AND DISTRIBUTIONS

Income dividends, if any, are paid at least annually by each of the Funds.
If you own Fund shares on a Fund's record date, you will be entitled to receive
the dividend. The Funds may declare and pay dividends on the same date. The
Funds make distributions of capital gains at least annually. The Trust, however,
may declare a special capital gains distribution if the Trustees believe that
such a distribution would be in the best interest of the shareholders of a Fund.

You will receive dividends and distributions in the form of additional Fund
shares unless you have elected to receive payment in cash. If you have not
already elected to receive cash payments on your application, you must notify
the Trust in writing prior to the date of distribution. Your election will
become effective for dividends paid after the Trust receives your written
notice. To cancel your election, simply send written notice to the Trust.

Dividends and distributions from a Fund are taxable to you whether they are
reinvested in additional shares of the Fund or are received in cash. You will
receive an account statement at least quarterly.

TAX INFORMATION

The following is a summary of some important tax issues that affect the
Funds and their Shareholders. The summary is based on current tax laws, which
may be changed by legislative, judicial or administrative action. This
Prospectus does not present a detailed explanation of the tax treatment of the
Funds, or of the tax consequences of an investment in the Funds, to the Funds'
Shareholders. MORE INFORMATION ABOUT TAXES IS LOCATED IN THE SAI. YOU SHOULD
CONSULT YOUR TAX ADVISOR REGARDING SPECIFIC QUESTIONS AS TO FEDERAL, STATE AND
LOCAL INCOME TAXES.

TAX STATUS OF EACH FUND

Each Fund is treated as a separate entity for federal tax purposes, and
intends to qualify for the special tax treatment afforded regulated investment
companies. As long as a Fund qualifies as a regulated investment company, it
pays no federal income tax on the earnings it distributes to Shareholders.

TAX STATUS OF DISTRIBUTIONS

- Each Fund will distribute substantially all of its income. THE INCOME
DIVIDENDS YOU RECEIVE FROM THE FUNDS WILL BE TAXED AS ORDINARY INCOME
WHETHER YOU RECEIVE THE DIVIDENDS IN CASH OR IN ADDITIONAL SHARES.

- Corporate shareholders may be entitled to a dividends-received deduction
for the portion of dividends they receive which are attributable to
dividends received by a Fund from U.S. corporations.
<PAGE>
- ------
38 PROSPECTUS

- Capital gains distributions will result from gains on the sale or exchange
of capital assets held for more than one year.

- Distributions paid in January but declared by a Fund in October, November
or December of the previous year, may be taxable to you in the previous
year.

TAX STATUS OF SHARE TRANSACTIONS

EACH SALE, EXCHANGE, OR REDEMPTION OF FUND SHARES IS A TAXABLE EVENT TO YOU.
YOU SHOULD CONSIDER THE TAX CONSEQUENCES OF ANY REDEMPTION OR EXCHANGE BEFORE
MAKING SUCH A REQUEST, ESPECIALLY IF YOU INVEST IN THE FUNDS THROUGH A
TAX-QUALIFIED RETIREMENT PLAN.

STATE TAX CONSIDERATIONS

A Fund is not liable for any income or franchise tax in Delaware as long as
it qualifies as a regulated investment company for Federal income tax purposes.

Distributions by the Funds may be subject to state and local taxation. You
should verify your tax liability with your tax advisor.

MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISOR

PADCO Advisors, Inc., a Maryland corporation with offices at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852 (the "Advisor"), serves as
investment advisor and manager of the Funds. Albert P. Viragh, Jr., the Chairman
of the Board and the President of the Advisor, owns a controlling interest in
the Advisor. From 1985 until the incorporation of the Advisor, Mr. Viragh was a
Vice President of Money Management Associates ("MMA"), a Maryland-based
registered investment advisor. From 1992 to June 1993, Mr. Viragh was the
portfolio manager of The Rushmore Nova Portfolio, a series of The Rushmore Fund,
Inc., an investment company managed by MMA.

The Advisor makes investment decisions for the assets of the Funds and
continuously reviews, supervises, and administers each Fund's investment
program. The Trustees of the Trust supervise the Advisor and establish policies
that the Advisor must follow in its day-to-day management activities. Under an
investment advisory agreement between the Trust and the Advisor, the Funds each
pay the Advisor a fee at an annualized rate, based on the average daily net
assets for each Fund, of .85%. The Advisor bears all of its own costs associated
with providing these advisory services and the expenses of the Trustees who are
affiliated with the Advisor. The Advisor may make payments from its own
resources to broker-dealers and other financial institutions in connection with
the sale of Fund shares.

Each Fund is managed by a team and no one person is responsible for making
investment decisions for a Fund.
<PAGE>
PROSPECTUS 39
--------

THE SERVICER

General administrative shareholder, dividend disbursement, transfer agent,
and registrar services are provided to the Trust and the Funds by PADCO Service
Company, Inc., 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
(the "Servicer"), subject to the general supervision of the Trustees and the
officers of the Trust. Under a service agreement between the Trust and the
Servicer, the Funds pay the Servicer a fee at an annualized rate, based on the
average daily net assets of each Fund, of .25%.

The Servicer provides the Trust and Funds with general administrative
services. The Servicer also maintains the shareholder records for the Funds,
pays the Funds' dividends and distributions, and produces account statements for
the Funds' Shareholders.

OTHER COSTS AND EXPENSES

Each Fund bears all costs and expenses of its operations other than those
assumed by the Advisor or the Servicer.

PORTFOLIO TRANSACTIONS

The Advisor determines which securities to purchase and sell for each Fund,
selects brokers and dealers to effect the transactions, and negotiates
commissions. In placing orders for the Funds, the Advisor's policy is to obtain
the most favorable price and efficient execution available. In certain
circumstances, the Advisor may pay higher brokerage commissions in order to
receive research services, and the receipt of research services may be a factor
in the selection of broker-dealers. Brokerage commissions are normally paid on
exchange-traded securities transactions and on options and futures transactions.

GENERAL INFORMATION
DESCRIPTION OF THE TRUST

The Trust was organized as a Delaware business trust on February 10, 1993.
The Trust is permitted to offer separate portfolios of shares and different
classes of each Fund. All payments received by the Trust for shares of any Fund
belong to that Fund. Each Fund has its own assets and liabilities. Currently,
the Trust has twenty-three separate series. In addition to the Funds described
in this Prospectus, the Trust offers shares in the following funds in separate
prospectuses: The Nova Fund, The Ursa Fund, The OTC Fund, The Precious Metals
Fund, The U.S. Government Bond Fund, The Juno Fund, The High Yield Fund, The
U.S. Government Money Market Fund, and The Institutional Money Market Fund. The
Trust also offers Advisor Class Shares of the Rydex Sector Funds in a separate
prospectus. Advisor Class Shares are identical to Investor Class Shares, except
that Advisor Class Shares are subject to additional shareholder servicing fees.
<PAGE>
- ------
40 PROSPECTUS

VOTING RIGHTS

You receive one vote for every full Fund share owned. Each Fund or class of
a Fund will vote separately on matters relating solely to that Fund or class.
All shares of the Funds are freely transferable.

As a Delaware business trust, the Trust is not required to hold annual
Shareholder meetings unless otherwise required by the Investment Company Act of
1940. However, a meeting may be called by Shareholders owning at least 10% of
the outstanding shares of the Trust. If a meeting is requested by Shareholders,
the Trust will provide appropriate assistance and information to the
Shareholders who requested the meeting. Shareholder inquiries can be made by
calling 1-800-820-0888 or 301-468-8520, or by writing to the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852.

BOARD OF TRUSTEES; OFFICERS

The Trustees supervise the management and affairs of the Trust. The Trustees
have approved contracts with certain companies that provide the Trust with
essential management services. The day-to-day operations of the Trust are the
responsibility of the Trust's officers.

REPORTING

You will receive the Trust's unaudited financial information and audited
financial statements. In addition, the Trust will send you proxy statements and
other reports. If you are a customer of a financial institution that has
purchased shares of a Fund for your account, you may, depending upon the nature
of your account, receive all or a portion of this information directly from your
financial institution.

SHAREHOLDER INQUIRIES

You may call 1-800-820-0888 or 301-468-8520 to obtain information on account
statements, procedures, and other related information.

AUDITORS

Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, are
the independent public accountants for the Trust and each of the Funds.

COUNSEL

Morgan, Lewis & Bockius LLP, 1800 M Street, N.W., Washington, D.C. 20036,
serves as counsel to the Rydex Sector Funds.
<PAGE>
PROSPECTUS 41
--------

CUSTODIAN

Star Bank, N.A. (the "Custodian"), Star Bank Center, 425 Walnut Street,
Cincinnati, Ohio 45202, serves as custodian for the Trust and the Funds under a
custody agreement between the Trust and the Custodian. Under the custody
agreement, the Custodian holds the portfolio securities of each Fund and keeps
all necessary related accounts and records.

INFORMATION ABOUT THE FUNDS' INVESTMENTS
FUND INVESTMENTS

The following table sets forth the primary investments, techniques and
strategies that each Fund will use to achieve its investment objective:

<TABLE>
<C> <C> <S>
% = Maximum percentage permissible. All percentages shown are of total assets, except for
Illiquid Securities, which is shown as a percentage of net assets.

X = No policy limitation.
</TABLE>

<TABLE>
<CAPTION>
PERCENTAGE OF EACH
FUND'S ASSETS SUBJECT
TO EACH INVESTMENT
INVESTMENTS AND INVESTMENT PRACTICES OR INVESTMENT PRACTICE
<S> <C>
- --------------------------------------------------------------------------------------------------------
PRINCIPAL INVESTMENTS
ADRs 20%
Convertible Securities X
Equity Securities 100%
Repurchase Agreements X
U.S. Treasury and Government Agency Obligations X
Warrants 10%
- --------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICES
Illiquid Securities 15%
Borrowing 33 1/3%
Securities Lending 50%
- --------------------------------------------------------------------------------------------------------
LEVERAGING AND HEDGING TRANSACTIONS
Futures and Options on Futures(1) X
Options(1) X
Short Sales 10%
Swaps, Caps, Floors, and Collars 20%
</TABLE>

(1) PERCENT WHICH MAY BE USED FOR LEVERAGING PURPOSES MAY NOT EXCEED 33 1/3%.
<PAGE>
- ------
42 PROSPECTUS

The Advisor will endeavor to ensure that each Fund remains fully invested in
its economic sector at all times. However, since the Advisor may not be able to
achieve sufficient exposure to an economic sector at low asset levels, if the
assets of any Fund fall below approximately $250,000, the Trust reserves the
right to liquidate the Fund's portfolio securities and invest the Fund's assets
in cash or other liquid, short-term obligations until such time as the assets of
the Fund exceed $250,000. Under normal market conditions, the Funds will use the
investments, practices and policies outlined above.

FUNDAMENTAL INVESTMENT RESTRICTIONS

Each Fund will concentrate its investments (i.e., invest at least 25% of its
assets) in issuers conducting business in the business sector appropriate for
that Fund. With respect to 50% of its assets, each Fund will not:

- invest more than 5% of its assets in the securities of any one issuer.

- purchase more than 10% of the outstanding voting securities of any one
issuer.

MORE INFORMATION ABOUT INVESTMENTS AND LEVERAGING TRANSACTIONS

The following is a description of some of the permitted investments for the
Funds. Further discussion of these investments and techniques is contained in
the SAI.

AMERICAN DEPOSITARY RECEIPTS (ADRs) are securities, typically issued by a
U.S. financial institution (a depositary). The institution has ownership
interests in security, or a pool of securities, issued by a foreign issuer and
deposited with the depositary. ADRs may be available through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary. An unsponsored
facility may be established by a depositary without participation by the issuer
of the underlying security.

BORROWING. The Funds may borrow money equal to 5% of their total assets for
temporary purposes to meet redemptions or to pay dividends. In addition, the
Funds may borrow to leverage their portfolios. Such borrowings may take the form
of margin accounts or conventional bank borrowings in connection with securities
purchases. Borrowing may exaggerate changes in the net asset value of a Fund's
shares and in the return on the Fund's portfolio. Although the principal of any
borrowing will be fixed, a Fund's assets may change in value during the time the
borrowing is outstanding. A Fund may be required to liquidate portfolio
securities at a time when it would be disadvantageous to do so in order to make
payments with respect to an outstanding borrowing. The Funds may be required to
segregate liquid assets in an amount sufficient to meet their obligations in
connection with such borrowings.

COMMON AND PREFERRED STOCKS represent units of ownership in a corporation.
Owners of common stock typically are entitled to vote on important matters.
Owners of preferred stock
<PAGE>
PROSPECTUS 43
--------

ordinarily do not have voting rights, but are entitled to dividends at a
specified rate. Preferred stock has a prior claim to common stock with respect
to dividends.

CONVERTIBLE SECURITIES are corporate securities that are exchangeable for a
set number of another security at a prestated price. The market value of a
convertible security tends to move with the market value of the underlying
stock. The value of a convertible security is also affected by prevailing
interest rates, the credit quality of the issuer, and any call option
provisions. The Funds will not invest in convertible securities rated below B by
S&P and/or Moody's.

EQUITY SECURITIES include common and preferred stocks, warrants, rights to
subscribe to common stock and convertible securities. These securities may be
publicly or privately issued.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS provide for the future
sale by one party and purchase by another party of a specified amount of a
specific security at a specified future time and at a specified price. An option
on a futures contract gives the purchaser the right, in exchange for a premium,
to assume a position in a futures contract at a specified exercise price during
the term of the option.

A Fund may use futures contracts, and related options, for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired. They may also be used to minimize fluctuations in foreign currencies,
to gain exposure to a particular market or instrument, to create a synthetic
money market position, and for certain other tax-related purposes. A Fund will
minimize the risk that it will be unable to close out a futures contract by only
entering into futures contracts which are traded on a national futures exchange
or board of trade.

Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An index futures contract obligates the seller
to deliver (and the purchaser to take) an amount of cash equal to a specific
dollar amount times the difference between the value of a specific index at the
close of the last trading day of the contract and the price at which the
agreement is made.

Although the Funds intend to sell futures contracts only if there is an
active market for such contracts, there is no assurance that a liquid market
will exist for any particular contract at any particular time. Many futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day, thereby preventing prompt
liquidation of future positions and potentially subjecting a Fund to substantial
losses. The risk that a Fund will be unable to close out a futures position will
be minimized by entering into such transactions on a national exchange or board
of trade with an active and liquid secondary market.

ILLIQUID SECURITIES are securities that cannot be sold within seven days at
approximately the price at which they are being carried on the Fund's books.

MONEY MARKET INSTRUMENTS are high quality, dollar-denominated, short-term
obligations, including bank obligations, U.S. Treasury obligations, U.S.
Government agency obligations, issued or
<PAGE>
- ------
44 PROSPECTUS

guaranteed by the agencies or instrumentalities of the U.S. Government, and
short-term corporate obligations.

OPTIONS. The buyer of an option acquires the right to buy (a call option) or
sell (a put option) a certain quantity of a security (the underlying security)
or instrument at a certain price up to a specified point in time. The seller or
writer of an option is obligated to sell (a call option) or buy (a put option)
the underlying security. When writing (selling) call options on securities, a
Fund may cover its position by owning the underlying security on which the
option is written. Alternatively, the Fund may cover its position by owning a
call option on the underlying security. In addition, a Fund may cover its
position by depositing and maintaining in a segregated account cash or liquid
securities equal in value to the exercise price of the call option written by
the Fund. With respect to put options written (sold) by the Fund, the Fund will
establish a segregated account with its custodian bank consisting of cash or
cash equivalents in an amount equal to the amount the Fund would be required to
pay upon exercise of the put option.

Although certain securities exchanges attempt to provide continuously liquid
markets in which holders and writers of options can close out their positions at
any time prior to the expiration of the option, there is no assurance that a
market will exist at all times for all outstanding options purchased or sold by
a Fund. If an options market were to become unavailable, a Fund would be unable
to realize its profits or limit its losses until the Fund could exercise options
it holds, and the Fund would remain obligated until options it wrote were
exercised or expired.

Because option premiums paid or received by a Fund are small in relation to
the market value of the investments underlying the options, buying and selling
put and call options can be more speculative than investing directly in common
stocks.

REPURCHASE AGREEMENTS are agreements by which a Fund obtains a security and
simultaneously agrees to return the security to the seller at an agreed upon
price on an agreed upon date within a number of days from the date of purchase.
A Fund will enter into repurchase agreements only with financial institutions
deemed to present minimal risk of bankruptcy during the term of the agreement
based on established guidelines.

RIGHTS give existing shareholders of a corporation the right, but not the
obligation, to buy shares of the corporation at a given price, usually below the
offering price, during a specified period.

SECURITIES LENDING. To generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral equal to at least 100% of the market value of
the loaned securities. A Fund continues to receive interest on the loaned
securities while simultaneously earning interest on the investment of cash
collateral.

SHORT SALES are transactions in which a Fund sells a security it does not
own. To complete the transaction, the Fund must borrow the security to make
delivery to the buyer. The Fund then is obligated to replace the security
borrowed by purchasing the security at the market price at the time of
replacement. The price at such time may be more or less than the price at which
the security was
<PAGE>
PROSPECTUS 45
--------

sold by the Fund. If, at the time of the short sale, a Fund owns or has the
right to acquire an equal amount of the security at no additional cost the
transaction is known as selling short "against the box."

SWAPS, CAPS, FLOORS, AND COLLARS are hedging tools designed to permit the
purchaser to preserve a return or spread on a particular investment or portion
of its portfolio. They are also used to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date. Swap
agreements, caps, floors and collars are sophisticated hedging instruments that
typically involve a small investment of cash relative to the magnitude of risk
assumed. As a result, swaps can be highly volatile and have a considerable
impact on a Fund's performance.

U.S. GOVERNMENT AGENCY OBLIGATIONS are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government.

U.S. TREASURY OBLIGATIONS consist of bills, notes, and bonds issued by the
U.S. Treasury.

WARRANTS give holders the right, but not the obligation, to buy shares of a
company at a given price, usually higher than the market price, during a
specified period.
<PAGE>
Additional information about the Rydex Sector Funds is included in a Statement
of Additional Information dated March 1, 1998 (the "SAI"). The SAI has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus. The SEC also maintains a Web
site ("http://www.sec.gov") that contains the SAI, material incorporated by
reference, and other information regarding registrants that file electronically
with the SEC. You may obtain a copy of the SAI, or of the annual or semi-annual
reports, without charge by calling 1-800-820-0888, or by writing to PADCO
Service Company, Inc., at 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.

- --------------------------------------------------------------------------------

NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE TRUST'S SAI IN
CONNECTION WITH THE OFFERING OF FUND SHARES. DO NOT RELY ON ANY SUCH INFORMATION
OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY THE TRUST OR PADCO ADVISORS,
INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST IN ANY
JURISDICTION WHERE SUCH AN OFFERING IS NOT LAWFUL.
<PAGE>

RYDEX SERIES TRUST
RYDEX SECTOR FUNDS
SUPPLEMENT DATED MARCH 1, 1998 TO
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1998

THIS SUPPLEMENT PROVIDES NEW AND ADDITIONAL INFORMATION BEYOND THAT CONTAINED IN
THE STATEMENT OF ADDITIONAL INFORMATION AND SHOULD BE RETAINED AND READ IN
CONJUNCTION WITH SUCH STATEMENT OF ADDITIONAL INFORMATION.

Advisor Class Shares of the Rydex Sector Funds and of the U.S. Government Money
Market Fund are not currently available to investors.

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

RYDEX SERIES TRUST

6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
(800) 820-0888
(301) 468-8520

The Rydex Series Trust (the "Trust") is a no-load mutual fund complex with
twenty-three separate investment portfolios (the "Rydex Funds"). This Statement
of Additional Information ("SAI") relates to the following fifteen portfolios
only: 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, Transportation Fund (collectively the "Sector Funds"),
and the U.S. Government Money Market Fund, Advisor Class Shares (the "Money
Market Fund") (collectively the "Funds").

The Trust 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 or market-timing investment strategies. Advisor Class Shares
are offered through broker-dealers and other financial institutions
("intermediaries") that have entered into arrangements with 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.

Each Sector Fund is intended to provide significant investment exposure with
respect to a particular sector of the securities markets. The Sector Funds may
be used independently or in combination with each other as part of an overall
investment strategy. However, none of the Sector Funds alone constitutes a
balanced investment plan, and certain Sector Funds involve special risks not
traditionally associated with investment companies. Because of the nature of
the Sector Funds, there generally will be significant portfolio turnover, which
will likely cause higher expenses and additional costs. Moreover, each Sector
Fund will utilize leverage to gain exposure to its relevant sector, to a greater
extent than 100% of its assets. The Sector Funds are not intended for investors
whose principal objective is current income or preservation of capital, and may
not be a suitable investment for long-term investors who intend to follow an
"invest and hold" strategy. See "Risk Considerations" in the Rydex Sector
Funds' Prospectuses (the "Prospectuses").

This SAI is not a prospectus and should be read in conjunction with, and is
incorporated by reference into, the Prospectus for Investor Class Shares, dated
March 1, 1998, and the Prospectus for Advisor Class Shares, dated [APRIL 1,
1998]. Copies of the Prospectuses for each of the Advisor Class Shares and
Investor Class Shares are available, without charge, upon request to the Trust
at 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852, or by
telephoning the Trust at (800) 820-0888 or (301) 468-8520.

The date of this SAI is March 1, 1998.

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

TABLE OF CONTENTS

Page
----

DESCRIPTION OF THE SECTOR FUNDS. . . . . . . . . . . . . . . . . . . . . . . .3

DESCRIPTION OF THE MONEY MARKET FUND . . . . . . . . . . . . . . . . . . . . .6

INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . .6

INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 11

PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . 14

MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . 15

DISTRIBUTION AND SHAREHOLDER SERVICES. . . . . . . . . . . . . . . . . . . . 19

DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . 20

PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 21

CALCULATION OF RETURN QUOTATIONS . . . . . . . . . . . . . . . . . . . . . . 22

INFORMATION ON COMPUTATION OF YIELD. . . . . . . . . . . . . . . . . . . . . 23

PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . 24

DIVIDENDS, DISTRIBUTIONS, AND TAXES. . . . . . . . . . . . . . . . . . . . . 25

EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

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<PAGE>

DESCRIPTION OF THE SECTOR FUNDS

BANKING FUND
As discussed in the Prospectuses, the Fund may invest in companies engaged in
accepting deposits and making commercial and principally non-mortgage consumer
loans. In addition, these companies may offer services such as merchant
banking, consumer and commercial finance, discount brokerage, leasing and
insurance. These companies may concentrate their operations within a specific
part of the country rather than operating predominantly on a national or
international scale.

BASIC MATERIALS FUND
As discussed in the Prospectuses, the Fund may invest in companies engaged in
the manufacture, mining, processing, or distribution of raw materials and
intermediate goods used in the industrial sector. The Fund may invest in
companies handling products such as chemicals, lumber, paper, cooper, iron ore,
nickel, steel, aluminum, textiles, cement, and gypsum. The Fund may also invest
in the securities of mining, processing, transportation, and distribution
companies, including equipment suppliers and railroads.

BIOTECHNOLOGY FUND
As discussed in the Prospectuses, the Fund may invest in companies engaged in
the research, development, sale, and manufacture of various biotechnological
products, services and processes. These include companies involved with
developing or experimental technologies such as generic engineering, hybridoma
and recombinant DNA techniques and monoclonal antibodies. The Fund may also
invest in companies that manufacture and/or distribute biotechnological and
biomedical products, including devices and instruments, and that provide or
benefit significantly from scientific and technological advances in
biotechnology. Some biotechnology companies may provide processes or services
instead of, or in addition to, products.

The description of the biotechnology sector may be interpreted broadly to
include applications and developments in such areas as human health care
(cancer, infectious disease, diagnostics and therapeutics); pharmaceuticals (new
drug development and production); agricultural and veterinary applications
(improved seed varieties, animal growth hormones); chemicals (enzymes, toxic
waste treatment); medical/surgical (epidermal growth factor, in vivo
imaging/therapeutics); and industry (biochips, fermentation, enhanced mineral
recovery).

CONSUMER PRODUCTS FUND
As discussed in the Prospectuses, the Fund may invest in companies engaged in
the manufacture of goods to consumers, both domestically and internationally.
The Fund may invest in companies that manufacture durable products such as
furniture, major appliances, and personal computers. The Fund also may invest
in companies that manufacture, wholesale or retail non-durable goods such as
beverages, tobacco, health care products, household and personal care products,
apparel, and entertainment products (E.G., books, magazines, TV, cable, movies,
music, gaming, and sports). In addition, the Fund may invest in consumer
products and services such as lodging, child care, convenience stores, and car
rentals.

ELECTRONICS FUND
As discussed in the Prospectuses, the Fund may invest in companies engaged in
the design, manufacture, or sale of electronic components (semiconductors,
connectors, printed circuit boards and other components); equipment vendors
to electronic component manufactures; electronic component distributors; and
electronic instruments and electronic systems vendors. In addition, the Fund
may invest in companies in the fields of defense electronics, medical
electronics, consumer electronics, advanced manufacturing technologies
(computer-aided design and computer-aided manufacturing (CAD/CAM),
computer-aided engineering, and robotics), lasers and electro-optics,
and other developing electronics technologies.

3
<PAGE>

ENERGY FUND
As discussed in the Prospectuses, the Fund may invest in companies in the energy
field, including the conventional areas of oil, gas, electricity and coal, and
alternative sources of energy such as nuclear, geothermal, oil shale and solar
power. The business activities of companies in which the Fund may invest
include production, generation, transmission, refining, marketing, control,
distribution or measurement of energy or energy fuels such as petrochemicals;
providing component parts or services to companies engaged in the above
activities; energy research or experimentation; and environmental activities
related to pollution control. Companies participating in new activities
resulting from technological advances or research discoveries in the energy
field may also be considered for this Fund.

ENERGY SERVICES FUND
As discussed in the Prospectuses, the Fund may invest in companies in the energy
service field, including those that provide services and equipment to the
conventional areas of oil, gas, electricity and coal, and alternative sources of
energy such as nuclear, geothermal, oil shale and solar power. The Fund may
invest in companies involved in providing services and equipment for drilling
processes such as offshore and onshore drilling, drill bits, drilling rig
equipment, drilling string equipment, drilling fluids, tool joints and wireline
logging. Many energy service companies are engaged in production and well
maintenance, providing such products and services as packers, perforating
equipment, pressure pumping, downhole equipment, valves, pumps, compression
equipment, and well completion equipment and service. Certain companies supply
energy providers with exploration technology such as seismic data, geological
and geophysical services, and interpretation of this data. The Fund may also
invest in companies with a variety of underwater well services, helicopter
services, geothermal plant design or construction, electric and nuclear plant
design or construction, energy related capital equipment, mining related
equipment or services, and high technology companies serving these industries.

FINANCIAL SERVICES FUND
As discussed in the Prospectuses, the Fund may invest in companies that are
involved in the financial sector, including commercial and investment banks,
savings and loan associations, consumer and industrial finance companies,
securities brokerage companies, real estate-related companies, leasing
companies, and a variety of firms in all segments of the insurance industry such
as multi-line, property and casualty, and life insurance.

The financial services sector is currently undergoing relatively rapid change as
existing distinctions between financial service segments become less clear. For
instance, recent business combinations have included insurance, finance, and
securities brokerage under single ownership. Some primarily retail corporations
have expanded into securities and insurance industries. Moreover, the federal
laws generally separating commercial and investment banking are currently being
studied by Congress.

Securities and Exchange Commission ("SEC") regulations provide that the Fund may
not invest more than 5% of its total assets in the securities of any one
company that derives more than 15% of its revenues from brokerage or investment
management activities. These companies, as well as those deriving more than 15%
of profits from brokerage and investment management activities, will be
considered to be "principally engaged" in this Fund's business activity. Rule
12d3-1 under the Investment Company Act of 1940 (the "1940 Act"), allows
investment portfolios such as this Fund, to invest in companies engaged in
securities-related activities subject to certain conditions. Purchases of
securities of a company that derived 15% or less of gross revenues during its
most recent fiscal year from securities-related activities (I.E., broker/dealer,
underwriting, or investment advisory activities) are subject only to the same
percentage limitations as would apply to any other security the Fund may
purchase. The Fund may purchase securities of an issuer that derived more than
15% of it gross revenues in its most recent fiscal year from securities-related
activities, subject to the following conditions:

4
<PAGE>

a. the purchase cannot cause more than 5% of the Fund's total assets to be
invested in securities of that issuer;

b. for any equity security, the purchase cannot result in the Fund owing
more than 5% of the issuer's outstanding securities in that class;

c. for a debt security, the purchase cannot result in the fund owing more
than 10% of the outstanding principal amount of the issuer's debt
securities.

In applying the gross revenue test, an issuer's own securities-related
activities must be combined with its ratable share of securities-related
revenues from enterprises in which it owns a 20% or greater voting or equity
interest. All of the above percentage limitations, as well as the issuer's
gross revenue test, are applicable at the time of purchase. With respect to
warrants, rights, and convertible securities, a determination of compliance with
the above limitations shall be made as though such warrant, right, or conversion
privilege had been exercised. The Fund will not be required to divest its
holding of a particular issuer when circumstances subsequent to the purchase
cause one of the above conditions to not be met. The purchase of a general
partnership interest in a securities-related business is prohibited.

HEALTH CARE FUND
As discussed in the Prospectuses, the Fund may invest in companies that are
involved in the health care industry including companies engaged in the design,
manufacture, or sale of products or services used for or in connection with
health care or medicine. Companies in the health care sector may include
pharmaceutical companies; firms that design, manufacture, sell, or supply
medical, dental, and optical products, hardware or services; companies involved
in biotechnology, medical diagnostic, and biochemical research and development,
as well as companies involved in the operation of health care facilities.

LEISURE FUND
As discussed in the Prospectuses, the Fund may invest in companies engaged in
the design, production, or distribution of goods or services in the leisure
industries including television and radio broadcasting or manufacturing
(including cable television); motion pictures and photography; recordings and
musical instruments; publishing, including newspapers and magazines; sporting
goods and camping and recreational equipment; and sports arenas. Other goods
and services may include toys and games (including video and other electronic
games), amusement and theme parks, travel and travel-related services, hotels
and motels, leisure apparel or footwear, tobacco products, and gaming casinos.

RETAILING FUND
As discussed in the Prospectuses, the Fund may invest in companies that are
involved in the retailing sector including companies engaged in merchandising
finished goods and services primarily to individual consumers. Companies in
which the Fund may invest include general merchandise retailers, department
stores, restaurant franchises, drug stores, motor vehicle and marine dealers,
and any specialty retailers selling a single category of merchandise such as
apparel, toys, jewelry, consumer electronics, or home improvement products. The
Fund may also invest in companies engaged in selling goods and services through
alternative means such as direct telephone marketing, mail order, membership
warehouse clubs, computer, or video based electronic systems.

TECHNOLOGY FUND
As discussed in the Prospectuses, the Fund may invest in companies that are
involved in the technology sector including companies which the Advisor
believes have, or will develop, products, processes or services that will
provide or will benefit significantly from technological advances and
improvements. These may include, for

5
<PAGE>

example, companies that develop, produce, or distribute products or services in
the computer, semiconductor, electronics, communications, health care, and
biotechnology sectors.

TELECOMMUNICATIONS FUND
As discussed in the Prospectuses, the Fund may invest in companies that are
involved in the telecommunications sector including companies engaged in the
development, manufacture, or sale of communications services and/or equipment.
Companies in the telecommunications field offer a variety of services and
products, including local and long-distance telephone service; cellular, paging,
local and wide-area product networks; satellite, microwave and cable television;
Internet access; and equipment used to provide these products and services.
Long-distance telephone companies may also have interests in developing
technologies, such as fiber optics and data transmission. Certain types of
companies in which the Fund may invest are engaged in fierce competition for a
share of the market for goods or services such as private and local area
networks, or are engaged in the sale of telephone set equipment.

TRANSPORTATION FUND
As discussed in the Prospectuses, the Fund may invest in companies that are
involved in the transportation sector, including companies engaged in providing
transportation services or companies engaged in the design, manufacture,
distribution, or sale of transportation equipment. Transportation services may
include companies involved in the movement of freight and/or people such as
airline, railroad, ship, truck, and bus companies. Other service companies
include those that provide leasing and maintenance for automobiles, trucks,
containers, rail cars, and planes. Equipment manufacturers include makers of
trucks, automobiles, planes, containers, rail cars, or any other mode of
transportation and their related products. In addition, the Fund may invest in
companies that sell fuel-saving devices to the transportation industries and
those that sell insurance and software developed primarily for transportation
companies.

DESCRIPTION OF THE MONEY MARKET FUND

As discussed in the Prospectus for the Advisor Class Shares, the Fund seeks to
provide security of principal, high current income, and liquidity. The Fund
invests primarily in money market instruments issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities, and may invest any remaining assets in receipts and enter
into repurchase agreements fully collateralized by U.S. Government Securities.

The Money Market Fund is governed by SEC rules which impose certain liquidity,
maturity and diversification requirements. The Fund's assets are valued using
the amortized cost method, which enables the Fund to maintain a stable NAV. All
securities purchased by the Fund must have remaining maturities of 397 days or
less. Although the Fund is managed to maintain a stable price per share of
$1.00, there is no guarantee that the price will be constantly maintained.

INVESTMENT POLICIES AND TECHNIQUES

GENERAL
Each Fund's investment objective and permitted investments are described in the
Prospectuses under the headings "FUND INFORMATION" and "INFORMATION ABOUT THE
FUNDS' INVESTMENTS." The following information supplements, and should be read
in conjunction with, those sections of the Prospectuses.

Portfolio management is provided to each Fund by the Trust's investment adviser,
PADCO Advisors, Inc., a Maryland corporation with offices at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852 (the "Advisor"). The investment
strategies of the Funds discussed below and in the Prospectuses may be used by a
Fund if, in the opinion of the Advisor, these strategies will be advantageous to
that Fund. A Fund is free to reduce

6
<PAGE>

or eliminate its activity in any of those areas without changing the Fund's
fundamental investment policies. There is no assurance that any of these
strategies or any other strategies and methods of investment available to a Fund
will result in the achievement of that Fund's objectives.

BORROWING
The Sector Funds may borrow money, including borrowing for investment purposes.
Borrowing for investment is known as leveraging. Leveraging investments by
purchasing securities with borrowed money, is a speculative technique which
increases investment risk, but also increases investment opportunity. Since
substantially all of a Sector Fund's assets will fluctuate in value, whereas the
interest obligations on borrowing may be fixed, the net asset value per share of
the Sector Fund will increase more when the Sector Fund's portfolio assets
increase in value and decrease more when the Sector Fund's portfolio assets
decrease in value than would otherwise be the case. Moreover, interest costs on
borrowing may fluctuate with changing market rates of interest and may partially
offset or exceed the returns on the borrowed funds. Under adverse conditions,
the Sector Funds might have to sell portfolio securities to meet interest or
principal payments at a time investment considerations would not favor such
sales. The Sector Funds intend to use leverage during periods when the Advisor
believes that the respective Sector Fund's investment objective would be
furthered.

Each Sector Fund may borrow money to facilitate management of the Sector Fund's
portfolio by enabling the Sector 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 Sector Fund promptly.

As required by the 1940 Act, a Sector Fund must maintain continuous asset
coverage (total assets, including assets acquired with borrowed funds, less
liabilities exclusive of borrowing) of 300% of all amounts borrowed. If, at any
time, the value of the Sector Fund's assets should fail to meet this 300%
coverage test, the Sector Fund, within three days (not including Sundays and
holidays), will reduce the amount of the Sector Fund's borrowing to the extent
necessary to meet this 300% coverage. Maintenance of this percentage limitation
may result in the sale of portfolio securities at a time when investment
considerations otherwise indicate that it would be disadvantageous to do so.

In addition to the foregoing, the Sector Funds are authorized to borrow money
from a bank as a temporary measure for extraordinary or emergency purposes in
amounts not in excess of 5% of the value of the Sector Fund's total assets.
This borrowing is not subject to the foregoing 300% asset coverage requirement
The Sector Funds are authorized to pledge portfolio securities as the Advisor
deems appropriate in connection with any borrowing.

FOREIGN ISSUERS
The Sector Funds may invest in issuers located outside the United States. This
may be achieved by purchasing American Depository Receipts ("ADRs") in the
United States. ADRs are dollar-denominated receipts representing interests in
the securities of a foreign issuer, which securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by United States banks and trust
companies which evidence ownership of underlying securities issued by a foreign
corporation. Generally, ADRs in registered form are designed for use in
domestic securities markets and are traded on exchanges or over-the-counter in
the United States. ADRs may be purchased with and sold for U.S. dollars, which
protect the Sector Funds from the foreign settlement risks described below.

Investing in foreign companies may involve risks not typically associated with
investing in United States companies. The value of securities denominated in
foreign currencies, and of dividends from such securities, can change
significantly when foreign currencies strengthen or weaken relative to the U.S.
dollar. Foreign securities markets generally have less trading volume and less
liquidity than United States markets, and prices in some

7
<PAGE>

foreign markets can be very volatile. Many foreign countries lack uniform
accounting and disclosure standards comparable to those that apply to United
States companies, and it may be more difficult to obtain reliable information
regarding a foreign issuer's financial condition and operations. In addition,
the costs of foreign investing, including withholding taxes, brokerage
commissions, and custodial fees, generally are higher than for United States
investments.

Investing in companies located abroad carries political and economic risks
distinct from those associated with investing in the United States. Foreign
investment may be affected by actions of foreign governments adverse to the
interests of United States investors, including the possibility of expropriation
or nationalization of assets, confiscatory taxation, restrictions on United
States investment, or on the ability to repatriate assets or to convert currency
into U.S. dollars. There may be a greater possibility of default by foreign
governments or foreign-government sponsored enterprises. Investments in foreign
countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.

ILLIQUID SECURITIES
The Funds may purchase illiquid securities, including securities that are not
readily marketable and securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "1933 Act"), but
which can be offered and sold to "qualified institutional buyers" under
Rule 144A under the 1933 Act. A Fund will not invest more than 15% of the
Fund's net assets in illiquid securities (10% with respect to the Money Market
Fund). The term "illiquid securities" for this purpose means securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Under the
current guidelines of the staff of the Securities and Exchange Commission (the
"Commission"), illiquid securities also are considered to include, among other
securities, purchased over-the-counter options, certain cover for
over-the-counter options, repurchase agreements with maturities in excess of
seven days, and certain securities whose disposition is restricted under the
Federal securities laws. The Fund may not be able to sell illiquid securities
when the Advisor considers it desirable to do so or may have to sell such
securities at a price that is lower than the price that could be obtained if the
securities were more liquid. In addition, the sale of illiquid securities also
may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.

Institutional markets for restricted securities have developed as a result of
Rule 144A, which provides a "safe harbor" from 1933 Act registration
requirements for qualifying sales to institutional investors. When Rule 144A
securities present an attractive investment opportunity and otherwise meet
selection criteria, a Fund may make such investments. Whether or not such
securities are "illiquid" depends on the market that exists for the particular
security. The Commission staff has taken the position that the liquidity of
Rule 144A restricted securities is a question of fact for a board of trustees to
determine, such determination to be based on a consideration of the
readily-available trading markets and the review of any contractual
restrictions. The staff also has acknowledged that, while a board of trustees
retains ultimate responsibility, the trustees may delegate this function to an
investment adviser. The trustees of the Trust (the "Trustees") have delegated
to the Advisor, the responsibility for determining the liquidity of Rule 144A
restricted securities which may be invested in by a Fund. It is not possible to
predict with assurance exactly how the market for Rule 144A restricted
securities or any other security will develop. A security which may have
enjoyed a fair degree of marketability when purchased, may subsequently become
illiquid. Accordingly, a security which was deemed to be liquid at the time of
acquisition may subsequently become illiquid. In such event, appropriate
remedies will be considered to minimize the effect on a Fund's liquidity.

8
<PAGE>

LENDING OF PORTFOLIO SECURITIES
Subject to the investment restrictions set forth below, each of the Funds may
lend portfolio securities to brokers, dealers, and financial institutions,
provided that cash equal to at least 100% of the market value of the securities
loaned is deposited by the borrower with the Fund and is maintained each
business day in a segregated account pursuant to applicable regulations. While
such securities are on loan, the borrower will pay the lending Fund any income
accruing thereon, and the Fund may invest the cash collateral in portfolio
securities, thereby earning additional income. A Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which the Fund's shares are qualified for sale, and the Funds
will not lend more than 33 1/3% of the value of the Fund's total assets (the
Money Market Fund will not lend more than 15% of the value of the its assets).
Loans would be subject to termination by the lending Fund on four business days'
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
lending Fund and that Fund's shareholders. A lending Fund may pay reasonable
finders, borrowers, administrative, and custodial fees in connection with a
loan.

OPTIONS TRANSACTIONS

OPTIONS ON SECURITIES. The Funds (other than the Money Market Fund) may buy
call options and write (sell) put options on securities, and may buy put options
and write call options on securities for the purpose of realizing the Fund's
investment objective. By writing a call option on securities, a Fund becomes
obligated during the term of the option to sell the securities underlying the
option at the exercise price if the option is exercised. By writing a put
option, a Fund becomes obligated during the term of the option to purchase the
securities underlying the option at the exercise price if the option is
exercised.

During the term of the option, the writer may be assigned an exercise notice by
the broker-dealer through whom the option was sold. The exercise notice would
require the writer to deliver (in the case of a call) or take delivery of (in
the case of a put) the underlying security against payment of the exercise
price. This obligation terminates upon expiration of the option, or at such
earlier time that the writer effects a closing purchase transaction by
purchasing an option covering the same underlying security and having the same
exercise price and expiration date as the one previously sold. Once an option
has been exercised, the writer may not execute a closing purchase transaction.
To secure the obligation to deliver the underlying security in the case of a
call option, the writer of a call option is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Option
Clearing Corporation (the "OCC"), an institution created to interpose itself
between buyers and sellers of options. The OCC assumes the other side of every
purchase and sale transaction on an exchange and, by doing so, gives its
guarantee to the transaction.

OPTIONS ON SECURITY INDEXES. The Funds (other than the Money Market Fund) may
purchase call options and write put options, and may purchase put options and
write call options, on stock indexes listed on national securities exchanges or
traded in the over-the-counter market as an investment vehicle for the purpose
of realizing the Fund's investment objective.

Options on indexes are settled in cash, not in delivery of securities. The
exercising holder of an index option receives, instead of a security, cash equal
to the difference between the closing price of the securities index and the
exercise price of the option. When a Fund writes a covered option on an index,
the Fund will be required to deposit and maintain with a custodian, cash or
liquid securities equal in value to the aggregate exercise price of a put or
call option pursuant to the requirements and the rules of the applicable
exchange. If, at the close of business on any day, the market value of the
deposited securities falls below the contract price, the Fund will deposit with
the custodian cash or liquid securities equal in value to the deficiency.

9
<PAGE>

OPTIONS ON FUTURES CONTRACTS. Under Commodities Futures Trading Commission
("CFTC") Regulations, a Fund (other than the Money Market Fund) may engage in
futures transactions, either for "bona fide hedging" purposes, as this term is
defined in the CFTC Regulations, or for non-hedging purposes to the extent that
the aggregate initial margins and option premiums required to establish such
non-hedging positions do not exceed 5% of the liquidation value of the Fund's
portfolio. In the case of an option on futures contracts that is "in-the-money"
at the time of purchase (I.E., the amount by which the exercise price of the put
option exceeds the current market value of the underlying security, or the
amount by which the current market value of the underlying security exceeds the
exercise price of the call option), the in-the-money amount may be excluded in
calculating this 5% limitation.

When a Fund purchases or sells a stock index futures contract, or sells an
option thereon, the Fund "covers" its position. To cover its position, a Fund
may maintain with its custodian bank (and marked-to-market on a daily basis), a
segregated account consisting of cash or liquid securities that, when added to
any amounts deposited with a futures commission merchant as margin, are equal to
the market value of the futures contract or otherwise "cover" its position. If
the Fund continues to engage in the described securities trading practices and
properly segregates assets, the segregated account will function as a practical
limit on the amount of leverage which the Fund may undertake and on the
potential increase in the speculative character of the Fund's outstanding
portfolio securities. Additionally, such segregated accounts will generally
assure the availability of adequate funds to meet the obligations of the Fund
arising from such investment activities.

A Fund may cover its long position in a futures contract by purchasing a put
option on the same futures contract with a strike price (I.E., an exercise
price) as high or higher than the price of the futures contract. In the
alternative, if the strike price of the put is less than the price of the
futures contract, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. A Fund may also cover its long position
in a futures contract by taking a short position in the instruments underlying
the futures contract, or by taking positions in instruments with prices which
are expected to move relatively consistently with the futures contract. A Fund
may cover its short position in a futures contract by taking a long position in
the instruments underlying the futures contracts, or by taking positions in
instruments with prices which are expected to move relatively consistently with
the futures contract.

A Fund may cover its sale of a call option on a futures contract by taking a
long position in the underlying futures contract at a price less than or equal
to the strike price of the call option. In the alternative, if the long
position in the underling futures contracts is established at a price greater
than the strike price of the written (sold) call, the Fund will maintain in a
segregated account cash or liquid securities equal in value to the difference
between the strike price of the call and the price of the futures contract. A
Fund may also cover its sale of a call option by taking positions in instruments
with prices which are expected to move relatively consistently with the call
option. A Fund may cover its sale of a put option on a futures contract by
taking a short position in the underlying futures contract at a price greater
than or equal to the strike price of the put option, or, if the short position
in the underlying futures contract is established at a price less than the
strike price of the written put, the Fund will maintain in a segregated account
cash or liquid securities equal in value to the difference between the strike
price of the put and the price of the futures contract. A Fund may also cover
its sale of a put option by taking positions in instruments with prices which
are expected to move relatively consistently with the put option.

PORTFOLIO TURNOVER
As discussed in the Prospectuses, the Trust anticipates that investors in the
Funds, as part of a market-timing or asset allocation investment strategy, will
frequently exchange shares of the Funds for shares in other Funds pursuant to
the exchange policy of the Trust as well as frequently redeem shares of the
Funds (see "Exchanges" in the Prospectuses). The nature of the Funds may cause
the Funds to experience substantial portfolio turnover. Because each Fund's
portfolio turnover rate to a great extent will depend on the purchase,
redemption, and exchange activity of the Fund's investors, it is very difficult
to estimate what the Fund's actual turnover rate will

10
<PAGE>

be in the future. However, the Trust expects that the portfolio turnover
experienced by the Funds will be substantial.

REPURCHASE AGREEMENTS
As discussed in the Prospectuses, the Funds may enter into repurchase agreements
with financial institutions. The Funds each follow certain procedures designed
to minimize the risks inherent in such agreements. These procedures include
effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions whose condition will be continually
monitored by the Advisor. In addition, the value of the collateral underlying
the repurchase agreement will always be at least equal to the repurchase price,
including any accrued interest earned on the repurchase agreement. In the event
of a default or bankruptcy by a selling financial institution, a Fund will seek
to liquidate such collateral. However, the exercising of a Fund's right to
liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss.
It is the current policy of the Funds (other than the Money Market Fund), not to
invest in repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the Fund, amounts to
more than 15% (10% for the Money Market Fund) of the Fund's total assets. The
investments of a Funds in repurchase agreements, at times, may be substantial
when, in the view of the Advisor, liquidity or other considerations so warrant.

U.S. GOVERNMENT SECURITIES
The Funds may invest in U.S. Treasury securities, which are backed by the full
faith and credit of the U.S. Treasury and which differ only in their interest
rates, maturities, and times of issuance. U.S. Treasury bills have initial
maturities of one year or less; U.S. Treasury notes have initial maturities of
one to ten years; and U.S. Treasury bonds generally have initial maturities of
greater than ten years. Certain U.S. Government Securities are issued or
guaranteed by agencies or instrumentalities of the U.S. Government including,
but not limited to, obligations of U.S. Government agencies or instrumentalities
such as Fannie Mae, the Government National Mortgage Association, the Small
Business Administration, the Federal Farm Credit Administration, the Federal
Home Loan Banks, Banks for Cooperatives (including the Central Bank for
Cooperatives), the Federal Land Banks, the Federal Intermediate Credit Banks,
the Tennessee Valley Authority, the Export-Import Bank of the United States, the
Commodity Credit Corporation, the Federal Financing Bank, the Student Loan
Marketing Association, and the National Credit Union Administration.

Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, including, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury. Other obligations issued by or guaranteed by
Federal agencies, such as those securities issued by Fannie Mae, are supported
by the discretionary authority of the U.S. Government to purchase certain
obligations of the Federal agency, while other obligations issued by or
guaranteed by Federal agencies, such as those of the Federal Home Loan Banks,
are supported by the right of the issuer to borrow from the U.S. Treasury.
While the U.S. Government provides financial support to such U.S.
Government-sponsored Federal agencies, no assurance can be given that the U.S.
Government will always do so, since the U.S. Government is not so obligated by
law. U.S. Treasury notes and bonds typically pay coupon interest semi-annually
and repay the principal at maturity. A Fund will invest in such U.S. Government
Securities only when the Advisor is satisfied that the credit risk with respect
to the issuer is minimal.

INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES
The following investment limitations (and those set forth in the Prospectuses)
are fundamental policies of the Funds which cannot be changed with respect to a
Fund without the consent of the holders of a majority of that

11
<PAGE>

Fund's outstanding shares. The term "majority of the outstanding shares" means
the vote of (i) 67% or more of a Fund's shares present at a meeting, if more
than 50% of the outstanding shares of that Fund are present or represented by
proxy, or (ii) more than 50% of that Fund's outstanding shares, whichever is
less.

A Sector Fund may not:

1. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate the Fund to purchase securities or require
that Fund to segregate assets are not considered to be borrowing. Asset
coverage of a least 300% is required for all borrowing, except where the
Fund has borrowed money for temporary purposes in amounts not exceeding 5%
of its total assets. The Fund will not purchase securities while its
borrowing exceed 5% of its total assets.

2. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that the Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii)
enter into repurchase agreements; and (iii) lend its securities.

3. Purchase or sell real estate, physical commodities, or commodities
contracts, except that the Fund may purchase (i) marketable securities
issued by companies which own or invest in real estate (including real
estate investment trusts), commodities, or commodities contracts; and (ii)
commodities contracts relating to financial instruments, such as financial
futures contracts and options on such contracts.

4. Issue senior securities (as defined in the 1940 Act) except as permitted by
rule, regulation or order of the SEC.

5. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.

6. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.

The Money Market Fund may not:

1. Borrow money, except (i) as a temporary measure for extraordinary or
emergency purposes and then only in amounts not in excess of 5% of the
value of 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.

2. Make loans to others except through the purchase of qualified debt
obligations, loans of portfolio securities and entry into repurchase
agreements.

3. Lend the Money Market Fund's portfolio securities in excess of 15% of the
Money Market Fund's total assets. Any loans of the Money Market Fund's
portfolio securities will be made according to guidelines established by
the Board of Trustees of the Trust, including maintenance of cash
collateral of the borrower equal at all times to the current market value
of the securities loaned.

12
<PAGE>

5. Write or purchase put or call options.

6. Invest in securities of other investment companies, except as these
securities may be acquired as part of a merger, consolidation, acquisition
of assets, or plan of reorganization.

7. Mortgage, pledge, or hypothecate the Money Market Fund's assets except to
secure permitted borrowings. In those cases, the Money Market Fund may
mortgage, pledge, or hypothecate assets having a market value not exceeding
the lesser of the dollar amounts borrowed or 15% of the value of total
assets of the Money Market Fund at the time of the borrowing.

8. Make short sales of portfolio securities or purchase any portfolio
securities on margin, except for such short-term credits as are necessary
for the clearance of transactions.

NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of the Funds
and may be changed with respect to any Fund by the Board of Trustees.

Each Sector Fund may not:

1. Pledge, mortgage or hypothecate assets except to secure borrowing permitted
by the Fund's fundamental limitation on borrowing.

2. Invest in companies for the purpose of exercising control.

3. Purchase securities on margin or effect short sales, except that a Fund may
(i) obtain short-term credits as necessary for the clearance of security
transactions; (ii) provide initial and variation margin payments in
connection with transactions involving futures contracts and options on
such contracts; and (iii) make short sales "against the box" or in
compliance with the SEC's position regarding the asset segregation
requirements imposed by Section 18 of the 1940 Act.

4. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act or any rule, regulation or order of the SEC.

5. Purchase or hold illiquid securities, I.E., securities that cannot be
disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing in
more than seven days) if, in the aggregate, more than 15% of its net assets
would be invested in illiquid securities.

The Money Market Fund may not:

1. Invest in warrants.

2. Invest in real estate limited partnerships.

3. Invest in mineral leases.

13
<PAGE>

In addition, the Money Market Fund does not presently intend:

1. To lend the Fund's assets. If, in the future, the Fund does lend its
assets, the Fund will adhere to all limitations on the Fund's ability to
lend its assets as required by the securities laws of those jurisdictions
where shares of the Fund are registered for sale.

2. To enter into currency transactions.

3. To purchase illiquid securities. If in the future, the Fund does purchase
illiquid securities, the Fund will not invest more than 10% of its 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.

4. To purchase and sell real property (including limited partnership
interests), to purchase and sell securities that are secured by real estate
or interests therein, to purchase mortgage-related securities, or to hold
and sell real estate acquired for the Fund as a result of the ownership of
securities.

The foregoing percentages are based on total assets (except for the limitation
on illiquid securities, which is based on net assets) and will apply at the time
of the purchase of a security and shall not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of a
purchase of such security.

The Trust and the Advisor have applied to the SEC for an exemptive order that
would permit other investment companies to invest in the Funds beyond the
limitations of the 1940 Act, as part of a "fund of funds" arrangement (the "FOF
Order"). Once the Trust receives the FOF Order, and for as long as the FOF
Order remains effective (and subject to the FOF Order being modified in the
future), none of the Funds will invest in any securities of investment
companies, except as the securities may be acquired as part of a merger,
consolidation, acquisition of assets, or plan of reorganization. There is no
assurance that the FOF Order will be issued.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to the general supervision by the Trustees, the Advisor is responsible
for decisions to buy and sell securities for each of the Funds, the selection of
brokers and dealers to effect the transactions, and the negotiation of brokerage
commissions, if any. The Advisor expects that the Funds may execute brokerage
or other agency transactions through registered broker-dealers, for a
commission, in conformity with the 1940 Act, the Securities Exchange Act of
1934, and the rules and regulations thereunder.

The Advisor may serve as an investment manager to a number of clients, including
other investment companies. It is the practice of the Advisor to cause purchase
and sale transactions to be allocated among the Funds and others whose assets
the Advisor manages in such manner as the Advisor deems equitable. The main
factors considered by the Advisor in making such allocations among the Funds and
other client accounts of the Advisor are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinions of the person or persons responsible, if any,
for managing the portfolios of the Funds and the other client accounts.

The policy of each Fund regarding purchases and sales of securities is that
primary consideration will be given to obtaining the most favorable prices and
efficient executions of transactions. Consistent with this policy, when
securities transactions are effected on a stock exchange, each Fund's policy is
to pay commissions which are considered fair and reasonable without necessarily
determining that the lowest possible commissions are paid in all circumstances.
Each Fund believes that a requirement to always seek the lowest possible
commissions could

14
<PAGE>

impede effective portfolio management and preclude the Fund and the Advisor from
obtaining high quality brokerage and research services. In seeking to determine
the reasonableness of brokerage commissions paid in any transaction, the Advisor
relies upon its experience and knowledge regarding commissions generally charged
by various brokers and on its judgment in evaluating the brokerage and research
services received from the broker effecting the transaction. Such
determinations are necessarily subjective and imprecise, as in most cases an
exact dollar value for those services is not ascertainable.

Purchases and sales of U.S. Government securities are normally transacted
through issuers, underwriters or major dealers in U.S. Government Securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased from
an underwriter usually includes a commission paid by the issuer to the
underwriters. Transactions with dealers normally reflect the spread between bid
and asked prices.

In seeking to implement a Fund's policies, the Advisor effects transactions with
those brokers and dealers who the Advisor believes provide the most favorable
prices and are capable of providing efficient executions. If the Advisor
believes such prices and executions are obtainable from more than one broker or
dealer, the Advisor may give consideration to placing portfolio transactions
with those brokers and dealers who also furnish research and other services to
the Fund or the Advisor. Such services may include, but are not limited to, any
one or more of the following: information as to the availability of securities
for purchase or sale; statistical or factual information or opinions pertaining
to investments; wire services; and appraisals or evaluations of portfolio
securities. If the broker-dealer providing these additional services is acting
as a principal for its own account, no commissions would be payable. If the
broker-dealer is not a principal, a higher commission may be justified at the
determination of the Advisor, for the additional services.

The information and services received by the Advisor from brokers and dealers
may be of benefit to the Advisor in the management of accounts of some of the
Advisor's other clients and may not in all cases benefit a Fund directly. While
the receipt of such information and services is useful in varying degrees and
would generally reduce the amount of research or services otherwise performed by
the Advisor and thereby reduce the Advisor's expenses, this information and
these services are of indeterminable value and the management fee paid to the
Advisor is not reduced by any amount that may be attributable to the value of
such information and services.

MANAGEMENT OF THE TRUST

The Trustees are responsible for the general supervision of the Trust's
business. The day-to-day operations of the Trust are the responsibilities of
the Trust's officers. The names, addresses and ages of the Trustees and the
officers of the Trust and the officers of the Advisor, together with information
as to their principal business occupations during the past five years, are set
forth below. Fees and expenses for non-interested Trustees will be paid by the
Trust.

TRUSTEES

*ALBERT P. VIRAGH, JR. (56)

Chairman of the Board of Trustees and President of the Trust; Chairman of
the Board, President, and Treasurer of PADCO Advisors, Inc., investment
adviser to the Trust, 1993 to present; Chairman of the Board, President,
and Treasurer of PADCO Service Company, Inc., shareholder and transfer
agent

- ------------------------
* This trustee is deemed to be an "interested person" of the Trust under the
1940 Act.

15
<PAGE>

servicer to the Trust, 1993 to present; Chairman of the Board of Managers
of The Rydex Advisor Variable Annuity Account (the "Separate Account"), a
separate account of Great American Reserve Insurance Company, 1996 to
present; Chairman of the Board, President, and Treasurer of PADCO
Advisors II, Inc., investment adviser to the Separate Account, 1996 to
present; Chairman of the Board, President, and Treasurer of PADCO Financial
Services, Inc., a registered broker-dealer firm and the distributor of the
Advisor Class Shares of each Sector Fund and the Money Market Fund, and all
shares of the Rydex Institutional Money Market Fund and the Rydex High
Yield Fund, each a series of the Trust, 1996 to present; Vice President of
Rushmore Investment Advisors Ltd., a registered investment adviser, 1985 to
1993. Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.

COREY A. COLEHOUR (52)

Trustee of the Trust, 1993 to the present; Manager of the Separate Account,
1996 to the present; Senior Vice President of Marketing of Schield
Management Company, a registered investment adviser, 1985 to the present.
Address: 1489 West Briarwood Avenue, Littleton, Colorado 80120.

J. KENNETH DALTON (56)

Trustee of the Trust, 1995 to present; 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 0. DEMARET (57)

Trustee of the Trust, December 1997 to the present; Manager of the
Separate Account, December 1997 to the present; Retired, 1996 to the
present; Founder and Chief Executive Officer, Health Cost Controls
America, Chicago, Illinois, 1987 to 1996; Sole practitioner, Chicago,
Illinois, 1984 to 1987; General Counsel, Chicago Transit Authority,
1981 to 1984: Senior Partner, O'Halloran, LaVarre & Demaret,
Northbrook, Illinois, 1978 to 1981. Address: 1415 Redbud Lane,
Glenview, Illinois 60025.

PATRICK T. MCCARVILLE (55)

Trustee of the Trust. December 1997 to the present; Manager of the
Separate Account, December 1997 to the present; Founder and Chief
Executive Officer, Par Industries, Inc., Northbrook, Illinois, 1977 to
the present: President and Chief Executive Officer, American Health
Resources, Northbrook, Illinois, 1984 to 1986. Address: 3069 Plum
Island Drive, Northbrook, Illinois 60062.

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.

16
<PAGE>

CARL G. VERBONCOEUR (44)

Vice President of Operations of the Trust; Vice President of Operations of
the Separate Account, 1997 to present; Senior Vice President, Crestar Bank,
1995 to 1997; Senior Vice President, Crestar Asset Management Company, a
registered investment adviser, 1993 to 1995; Vice President Perpetual
Savings Bank, 1987 to 1993. Address: 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.

MICHAEL P. BYRUM (27)

Assistant Secretary of the Trust; Employee and senior portfolio manager of
PADCO Advisors, Inc., 1993 to present; portfolio manager of The Rydex OTC
Fund (since 1997) and The Rydex U.S. Government Bond Fund (since 1997),
each a series of the Trust; Assistant Secretary of the Separate Account,
1996 to present; Employee of PADCO Advisors II Inc., investment adviser to
the Separate Account; Investment Representative, Money Management
Associates, a registered investment adviser, 1992 to 1993; Student, Miami
University of Oxford, Ohio (B.A., Business Administration, 1992).
Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.

SOTHARA CHIN (31)

Compliance Officer of the Trust; Compliance Officer of PADCO Advisors,
Inc., investment adviser of the Trust, 1996 to the present; Compliance
Officer of the Separate Account, 1996 to present; Compliance Officer of
PADCO Advisors II, Inc., investment adviser to the Separate Account, 1996
to present; Compliance Officer of PADCO Service Company, Inc., the Trust's
shareholder and transfer agent servicer to the trust, 1996 to present;
Compliance Officer of PADCO Financial Services, Inc., a registered
broker-dealer and the distributor of the shares of the Rydex Institutional
Money Market Fund and High Yield Fund, 1996 to present; Compliance Officer,
USLICO Corporation, an insurance company, 1990 to 1996. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.

THE ADVISORY AGREEMENT
Under an investment advisory agreement with the Advisor, the Advisor serves as
the investment adviser for, provides investment advice to, and oversees the
day-to-day operations of the Sector Funds, subject to direction and control by
the Trustees and the officers of the Trust. As of November 30, 1997, assets
under management of the Advisor were approximately $1.7 billion.

The Advisor manages the investment and the reinvestment of the assets of each of
the Funds, in accordance with the investment objectives, policies, and
limitations of the Fund, subject to the general supervision and control of the
Trustees and the officers of the Trust. The Advisor bears all costs associated
with providing these advisory services and the expenses of the Trustees of the
Trust who are affiliated with or interested persons of the Advisor. The
Advisor, from its own resources, including profits from advisory fees received
from the Funds, provided such fees are legitimate and not excessive, may make
payments to broker-dealers and other financial institutions for their expenses
in connection with the distribution of Fund shares, and otherwise currently pay
all distribution costs for Fund shares.

THE SERVICE AGREEMENT
General administrative, shareholder, dividend disbursement, transfer agent, and
registrar services are provided to the Trust and the Funds by PADCO Service
Company, Inc., 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
(the "Servicer"), subject to the general supervision and control of the Trustees
and the officers of the Trust, pursuant to a service agreement between the Trust
and the Servicer. The Servicer is wholly owned

17
<PAGE>

by Albert P. Viragh, Jr., who is the Chairman of the Board and the President of
the Trust and the sole controlling person and majority owner of the Advisor.

Under the service agreement, the Servicer provides the Trust and each Fund with
all required general administrative services, including, without limitation,
office space, equipment, and personnel; clerical and general back office
services; bookkeeping, internal accounting, and secretarial services; the
determination of net asset values; and the preparation and filing of all
reports, registration statements, proxy statements, and all other materials
required to be filed or furnished by the Trust and each Fund under Federal and
state securities laws. The Servicer also maintains the shareholder account
records for each Fund, distributes dividends and distributions payable by each
Fund, and produces statements with respect to account activity for each Fund and
each Fund's shareholders. The Servicer pays all fees and expenses that are
directly related to the services provided by the Servicer to each Fund. Each
Fund reimburses the Servicer for all fees and expenses incurred by the Servicer
which are not directly related to the services the Servicer provides to the Fund
under the service agreement.

COSTS AND EXPENSES
Each Fund bears all expenses of its operations other than those assumed by the
Advisor or the Servicer. Fund expenses include: the management fee; the
servicing fee (including administrative, transfer agent, and shareholder
servicing fees); custodian and accounting fees and expenses; legal and auditing
fees; securities valuation expenses; fidelity bonds and other insurance
premiums; expenses of preparing and printing prospectuses, confirmations, proxy
statements, and shareholder reports and notices; registration fees and expenses;
proxy and annual meeting expenses, if any; all Federal, state, and local taxes
(including, without limitation, stamp, excise, income, and franchise taxes);
organizational costs; non-interested Trustees' fees and expenses; the costs and
expenses of redeeming shares of the Fund; fees and expenses paid to any
securities pricing organization; dues and expenses associated with membership in
any mutual fund organization; and costs for incoming telephone WATTS lines. In
addition, each of the Funds pays an equal portion of the Trustee fees and
expenses for attendance at Trustee meetings for the Trustees of the Trust who
are not affiliated with or interested persons of the Advisor.

The aggregate compensation paid by the Trust to each of its Trustees serving
during the nine-month period ending March 31, 1997, is set forth in the table
below:

PENSION OR
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL
NAME OF PERSON, COMPENSATION ACCRUED AS PART OF THE BENEFIT UPON
POSITION FROM THE TRUST TRUST'S EXPENSES RETIREMENT
- --------------- -------------- ---------------------- ----------------
<S> <C> <C> <C>

Albert P. Viragh, Jr.* $0 $0 $0
CHAIRMAN AND
PRESIDENT

Corey A. Colehour $4,500 $0 $0
TRUSTEE

J. Kenneth Dalton $4,500 $0 $0
TRUSTEE

Roger Somers $4,500 $0 $0
TRUSTEE

</TABLE>

- ---------------------------
* Mr. Viragh is an "interested person" of the Trust.

18
<PAGE>

As of the date of this Statement of Additional Information, the Trustees and the
officers of the Trust, as a group, owned, of record and beneficially, less than
1% of the outstanding shares of each Fund.

SHAREHOLDER AND TRUSTEE LIABILITY
The Trust's Declaration of Trust disclaims liability of the shareholders of the
Trust or the Trustees of the Trust for acts or obligations of the Trust which
are binding only on the assets and property of the Trust. The Declaration of
Trust provides for indemnification out of Trust property for all loss and
expense of any Trust shareholder held personally liable for the obligations of
the Trust. The risk of a Trust shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which the Trust itself
would not be able to meet the Trust's obligations. Accordingly, this risk
should be considered remote.

DISTRIBUTION AND SHAREHOLDER SERVICES

DISTRIBUTOR
Pursuant to the Distribution and Shareholder Services Plan adopted by the Trust,
PADCO Financial Service, Inc., 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852 (the "Distributor"), provides certain distribution and
shareholder services under the general supervision and control of the Trustees
and the officers of the Trust.

DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
The Funds have adopted a Distribution and Shareholder Services Plan (the "Plan")
applicable to Advisor Class Shares, for which the Distributor and, through the
DIstributor, other firms that provide distribution and shareholder services
("Service Providers") may receive compensation. Under the Plan, the Funds will
pay fees to the Distributor at an annual rate not to exceed .25% of average
daily net assets pursuant to Rule 12b-1 of the 1940 Act. In return, the
Distributor or Service Provider may use this fee for (i) compensation for its
services (or for the services of a Service Provider) in connection with
distribution assistance; or (ii) payments to financial institutions and
intermediaries such as banks, savings and loan associations, insurance companies
and investment counselors, broker-dealers, mutual fund supermarkets and the
Distributor's affiliates and subsidiaries as compensation for services or
reimbursement of expenses incurred in connection with distribution assistance.

The Distributor or Service Proviser will also receive fees at an annual rate not
to exceed .25% of average daily net assets of a Fund for performance by the
Distributor or Service Providers of some or all of the following services:

- - maintaining accounts relating to clients that invest in shares;
- - arranging for bank wires;
- - responding to client inquiries relating to the services performed by the
Distributor or Service Provider;
- - responding to inquiries from clients concerning their investment in shares;
and
- - assisting clients in changing dividend options, account designations and
addresses.
- - providing information periodically to clients showing their position in
shares;
- - forwarding shareholder communications from the Funds such as proxies,
shareholder reports, annual reports, and dividend distribution and tax
notices to clients;
- - processing purchase exchange and redemption requests from clients and
placing orders with the Funds or its service providers;
- - providing sub-accounting with respect to shares beneficially owned by
clients; and
- - processing dividend payments from the Funds on behalf of clients.

These shareholder services are different from the distribution services
discussed above, and are not primarily intended to result in the sale of shares
of the Funds.

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<PAGE>

DETERMINATION OF NET ASSET VALUE

The net asset value of a Fund serves as the basis for the purchase and
redemption price of that Fund's shares. The net asset value per share of a Fund
is calculated by dividing the market value of the Fund's securities plus the
values of its other assets, less all liabilities, by the number of outstanding
shares of the Fund. If market quotations are not readily available, a security
will be valued at fair value by the Board of Trustees or by the Advisor using
methods established or ratified by the Board of Trustees.

For purposes of determining net asset value per share of a Fund, options and
futures contracts will be valued 15 minutes after the 4:00 P.M., Eastern Time,
close of regular trading on the NYSE, except that futures contracts traded on
the Chicago Board of Trade ("CBOT") will be valued at 3:00 P.M., Eastern Time,
the close of trading of that exchange. Options on securities and indices
purchased by a Fund generally are valued at their last bid price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter ("OTC") market, the average of the last bid price as obtained
from two or more dealers unless there is only one dealer, in which case that
dealer's price is used. The value of a futures contract equals the unrealized
gain or loss on the contract settlement price for a like contract acquired on
the day on which the futures contract is being valued. The value of options on
futures contracts is determined based upon the current settlement price for a
like option acquired on the day on which the option is being valued. A
settlement price may not be used for the foregoing purposes if the market makes
a limit move with respect to a particular commodity.

OTC securities held by a Fund shall be valued at the last sales price or, if no
sales price is reported, the mean of the last bid and asked price is used. The
portfolio securities of a Fund that are listed on national exchanges are taken
at the last sales price of such securities on such exchange; if no sales price
is reported, the mean of the last bid and asked price is used. For valuation
purposes, all assets and liabilities initially expressed in foreign currency
values will be converted into U.S. dollar values at the mean between the bid and
the offered quotations of such currencies against U.S. dollars as last quoted by
any recognized dealer. If such quotations are not available, the rate of
exchange will be determined in good faith by the Trustees. Dividend income and
other distributions are recorded on the ex-dividend date, except for certain
dividends from foreign securities which are recorded as soon as the Trust is
informed after the ex-dividend date.

Illiquid securities, securities for which reliable quotations or pricing
services are not readily available, and all other assets will be valued at their
respective fair value as determined in good faith by, or under procedures
established by, the Trustees, which procedures may include the delegation of
certain responsibilities regarding valuation to the Advisor or the officers of
the Trust. The officers of the Trust report, as necessary, to the Trustees
regarding portfolio valuation determination. The Trustees, from time to time,
will review these methods of valuation and will recommend changes which may be
necessary to assure that the investments of the Funds are valued at fair value.

The Money Market Fund will utilize the amortized cost method in valuing its
portfolio securities for purposes of determining the net asset value of its
shares even though the portfolio securities may increase or decrease in market
value, generally, in connection with changes in interest rates. The amortized
cost method of valuation involves valuing a security at its cost adjusted by a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument while
this method provides certainty in valuation, this method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Money Market Fund would receive if this Fund sold the instrument.
During such periods, the yield to investors in the Money Market Fund may differ
somewhat from that obtained in a similar company which uses mark-to-market
values for all its portfolio securities. For example, if the use of amortized
cost resulted in a lower (higher) aggregate portfolio value on a particular day,
a prospective investor in the Money Market Fund would be able to obtain a
somewhat higher (lower) yield than would result from investment in such

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<PAGE>

a similar company and existing investors would receive less (more) investment
income. The purpose of this method of calculation is to facilitate the
maintenance of a constant net asset value per share of $1.00.

The Money Market Fund's use of the amortized cost method is permitted pursuant
to Rule 2a-7 under the 1940 Act (the "Rule"). The Rule requires that the Money
Market Fund limit its investments to U.S. dollar-denominated instruments that
meet the Rule's quality, maturity and diversification requirements. The Rule
also requires the Money Market Fund to maintain a dollar-weighted average
portfolio maturity of not more than ninety days and precludes the purchase of
any instrument with a remaining maturity of more than thirteen months.

The Money Market Fund may only purchase Eligible Securities. Eligible
Securities are securities which : (a) have remaining maturities of thirteen
months or less; (b) either (i) are rated in the two highest short-term rating
categories by any two nationally-recognized statistical rating organizations
("NSROs") that have issued a short-term rating with respect to the security or
class of debt obligations of the issuer, or (ii) if only one NSRO has issued a
short-term rating with respect to the security, then by that NSRO; (c) were
long-term securities at the time of issuance whose issuers have outstanding
short-term debt obligations which are comparable in priority and security and
has a ratings as specified in (b) above; or (d) if no rating is assigned by any
NSRO as provided in (b) and (c) above, the unrated securities are determined by
the Trustees to be of comparable quality to any rated securities.

As permitted by the Rule, the Trustees have delegated to the Advisor, subject to
the Trustees' oversight pursuant to guidelines and procedures adopted by the
Trustees, the authority to determine which securities present minimal credit
risks and which unrated securities are comparable in quality to rated
securities.

If the Trustees determine that it is no longer in the best interests of the
Money Market Fund and its shareholders to maintain a stable price of $1.00 per
share, or if the Trustees believe that maintaining such price no longer reflects
a market-based net asset value per share, the Trustees have the right to change
from an amortized cost basis of valuation to valuation based on market
quotations. The Money Market Fund will notify shareholders of any such change.

PERFORMANCE INFORMATION

From time to time, each of the Funds (other than the Money market Fund) may
include the Fund's total return in advertisements or reports to shareholders or
prospective shareholders. Quotations of average annual total return for a Fund
will be expressed in terms of the average annual compounded rate of return on a
hypothetical investment in the Fund over a period of at least one, five, and ten
years, up to the life of the Fund (the ending date of the period will be
stated). Total return of a Fund is calculated from two factors: the amount of
dividends earned by each Fund share and by the increase or decrease in value of
the Fund's share price. See "Calculation of Return Quotations," below.

Performance information for each of the Funds contained in reports to
shareholders or prospective shareholders, advertisements, and other promotional
literature may be compared to the record of various unmanaged indexes. Such
indexes include, but are not limited to, ones provided by Dow Jones & Company,
Standard & Poor's Corporation, Lipper Analytical Services, Inc., Lehman
Brothers, National Association of Securities Dealers Automated Quotations, The
Frank Russell Company, Value Line Investment Survey, the American Stock
Exchange, the Philadelphia Stock Exchange, Morgan Stanley Capital International,
Wilshire Associates, the Financial Times Stock Exchange, the Nikkei Stock
Average and Deutscher Aktienindex, all of which are unmanaged market indicators.
Such comparisons can be a useful measure of the qualify of a Fund's investment
performance.

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<PAGE>

Such unmanaged indexes may assume the reinvestment of dividends, but generally
do not reflect deductions for operating costs and expenses. In addition, a
Fund's total return may be compared to the performance of broad groups of
comparable mutual funds with similar investment goals, as such performance is
tracked and published by such independent organizations as Lipper Analytical
Services, Inc. ("Lipper"), and CDA Investment Technologies, Inc., among others.
When Lipper's tracking results are used, a Fund will be compared to Lipper's
appropriate fund category, that is, by fund objective and portfolio holdings.
Rankings may be listed among one or more of the asset-size classes as determined
by Lipper. Since the assets in all mutual funds are always changing, a Fund may
be ranked within one Lipper asset-size class at one time and in another Lipper
asset-size class at some other time. Footnotes in advertisements and other
marketing literature will include the time period and Lipper asset-size class,
as applicable, for the ranking in question. Performance figures are based on
historical results and are not intended to indicate future performance.

CALCULATION OF RETURN QUOTATIONS

For purposes of quoting and comparing the performance of a Sector Fund to that
of other mutual funds and to other relevant market indexes in advertisements or
in reports to shareholders, performance for the Sector Fund may be stated in
terms of total return. Under the rules of the SEC ("SEC Rules"), a Sector
Fund's advertising performance must include total return quotes calculated
according to the following formula:

n
P(1+T) = ERV

Where: P = a hypothetical initial payment of $1,000;

T = average annual total return;

n = number of years (1, 5 or 10); and

ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1, 5 or 10 year
periods, at the end of the 1, 5, or 10 year periods (or
fractional portion thereof).

Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover 1, 5, and
10 year periods or a shorter period dating from the effectiveness of the
Registration Statement of the Trust. In calculating the ending redeemable
value, all dividends and distributions by a Sector Fund are assumed to have been
reinvested at net asset value as described in the Prospectuses on the
reinvestment dates during the period. Total return, or "T" in the formula
above, is computed by finding the average annual compounded rates of return over
the 1, 5, and 10 year periods (or fractional portion thereof) that would equate
the initial amount invested to the ending redeemable value.

From time to time, each Sector Fund also may include in such advertising a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the performance of the Sector Fund with other
measures of investment return. For example, in comparing the total return of a
Sector Fund with data published by Lipper Analytical Services, Inc., each
respective Sector Fund calculates its aggregate total return or the specified
periods of time by assuming the investment of $10,000 in Sector Fund shares and
assuming the investment of each dividend or other distribution at net asset
value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. Such alternative total return
information will be given no greater prominence in such advertising than the
information prescribed under SEC Rules.

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<PAGE>

INFORMATION ON COMPUTATION OF YIELD

In addition to the total return quotations discussed above, a Sector Fund may
advertise its yield based on a thirty-day (or one month) period ended on the
date of the most recent balance sheet included in the Trust's Registration
Statement, computed by dividing the net investment income per share of a Sector
Fund earned during the period by the maximum offering price per Sector Fund
share on the last day of the period, according to the following formula:

a - b 6
YIELD = 2[( ------ + 1) - 1]
cd

Where: a = dividends and interest earned during the period;

b = expenses accrued for the period (net of
reimbursements);

c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and

d = the maximum offering price per share on the last day of
the period.

Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (i) computing the yield to maturity of each obligation
held by a Sector Fund based on the market value of the obligation at the close
of business on the last day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued interest),
(ii) dividing that figure by 360 and multiplying the quotient by the market
value of the obligation (including actual accrued interest as referred to above)
to determine the interest income on the obligation that is in the Sector Fund's
portfolio (assuming a month of thirty days), and (iii) computing the total of
the interest earned on all debt obligations and all dividends accrued on all
equity securities during the thirty-day or one month period. In computing
dividends accrued, dividend income is recognized by accruing 1/360 of the stated
dividend rate of a security each day that the security is in the Sector Fund's
portfolio. Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price calculation required pursuant to "d" above.

A Sector Fund from time to time may also advertise its yield based on a
thirty-day period ending on a date other than the most recent balance sheet
included in the Trust's Registration Statement, computed in accordance with the
yield formula described above, as adjusted to conform with the differing period
for which the yield computation is based.

Any quotation of performance stated in terms of yield (whether based on a
thirty-day or one month period) will be given no greater prominence than the
information prescribed under SEC Rules. In addition, all advertisements
containing performance data of any kind will include a legend disclosing that
such performance data represents past performance and that the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than the original cost of such
shares.

The Money Market Fund's annualized current yield, as may be quoted from time to
time in advertisements and other communications to shareholders and potential
investors, is computed by determining, for a stated seven-day period, the net
change, exclusive of capital changes and including the value of additional
shares purchased with dividends and any dividends declared therefrom (which
reflect deductions of all expenses of the Money Market Fund such as management
fees), in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, and dividing the difference by the
value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by 365 divided by 7.

23
<PAGE>

The Money Market Fund's annualized effective yield, as may be quoted from time
to time in advertisements and other communications to shareholders and potential
investors, is computed by determining (for the same stated seven-day period as
the current yield) the net change, exclusive of capital changes and including
the value of additional shares purchased with dividends and any dividends
declared therefrom (which reflect deductions of all expenses of the Money Market
Fund such as management fees), in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then compounding the base period
return by adding 1, raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.

The yields quoted in any advertisement or other communication should not be
considered a representation of the yields of the Money Market Fund in the future
since the yield is not fixed. Actual yields will depend not only on the type,
quality, and maturities of the investments held by the Money Market Fund and
changes in interest rates on such investments, but also on changes in the Money
Market Fund's expenses during the period.

Yield information may be useful in reviewing the performance of the Money Market
Fund and for providing a basis for comparison with other investment
alternatives. However, unlike bank deposits or other investments which
typically pay a fixed yield for a stated period of time, the Money Market Fund's
yield fluctuates.

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 Rydex Sector Fund shares
(unless the shareholder brings his or her account value up to the currently
applicable minimum investment).

TAX CONSEQUENCES
Note that in the case of tax-qualified retirement plans, a redemption from such
a plan may have adverse tax consequences. A shareholder contemplating such a
redemption should consult his or her own tax advisor. Other shareholders should
consider the tax consequences of any redemption.

SUSPENSION OF THE RIGHT OF REDEMPTION
The Funds may suspend the right of redemption or the date of payment: (i) for
any period during which the NYSE, the Federal Reserve Bank of New York, the
NASDAQ, the Chicago Mercantile Exchange ("CME"), the CBOT, or any other
exchange, as appropriate, is closed (other than customary weekend or holiday
closings), or trading on the NYSE, the NASDAQ, the CME, the CBOT, or any other
exchange, as appropriate, is restricted; (ii) for any period during which an
emergency exists so that sales of a Fund's investments or the determination of
its NAV is not reasonably practicable; or (iii) for such other periods as the
SEC may permit for the protection of a Fund's investors.

HOLIDAYS
The NYSE, the Federal Reserve Bank of New York, the NASDAQ, the CME, the CBOT,
and other U.S. exchanges are closed on weekends and on the following holidays:
(i) New Year's Day, Martin Luther King Jr.'s Birthday, President's Day, Good
Friday, Memorial Day, July Fourth, Labor Day, Columbus Day, Thanksgiving

24
<PAGE>

Day, and Christmas Day; and (ii) the preceding Friday if any of these holidays
falls on a Saturday, or the subsequent Monday if any of these holidays falls on
a Sunday. Although the Trust expects the same holiday schedules to be observed
in the future, each of the aforementioned exchanges may modify its holiday
schedule at any time.

REDEMPTIONS IN-KIND
The Trust intends to pay your redemption proceeds in cash. However, under
unusual conditions that make the payment in cash unwise (and for the protection
of the remaining shareholders of the Fund) the Trust reserves the right to pay
all, or part, of your redemption proceeds in liquid securities with a market
value equal to the redemption price (redemption in-kind). Although it is
highly unlikely that your shares would ever actually be redeemed in kind, you
would probably have to pay brokerage costs to sell the securities distributed to
you.

DIVIDENDS, DISTRIBUTIONS, AND TAXES

DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and any distributions of net realized
capital gains from each of the Funds will be distributed as described in the
Prospectuses under "Dividends and Distributions." All such distributions of a
Fund normally automatically will be reinvested without charge in additional
shares of the same Fund.

The Money Market Fund intends to declare dividends daily from net investment
income (and net short-term capital gains, if any) and distribute such dividends
monthly. Net income, for dividend purposes, includes accrued interest and
accretion of original issue and market discount, plus or minus any short-term
gains or losses realized on sales of portfolio securities, less the amortization
of market premium and the estimated expenses of the Money Market Fund. Net
income will be calculated immediately prior to the determination of net asset
value per share of the Money Market Fund.

The Trustees may revise the dividend policy, or postpone the payment of
dividends, if the Money Market Fund should have or anticipate any large
unexpected expense, loss, or fluctuation in net assets which, in the opinion of
the Trustees, might have a significant adverse effect on shareholders of the
Money Market Fund. On occasion, in order to maintain a constant $1.00 per share
net asset value for the Money Market Fund, the Trustees may direct that the
number of outstanding shares of the Money Market Fund be reduced in each
shareholder's account. Such reduction may result in taxable income to a
shareholder of the Money Market Fund in excess of the net increase (I.E.,
dividends, less such reduction), if any, in the shareholder's account for a
period of time. Furthermore, such reduction may be realized as a capital loss
when the shares are liquidated.

REGULATED INVESTMENT COMPANY STATUS
As a regulated investment company (a "RIC") under Subchapter M of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), a Fund would not be
subject to Federal income taxes on the net investment income and capital gains
that the Fund distributes to the Fund's shareholders. The distribution of net
investment income and capital gains will be taxable to Fund shareholders
regardless of whether the shareholder elects to receive these distributions in
cash or in additional shares. Distributions reported to Fund shareholders as
capital gains from property held for more than 18 months, or from property held
for more than 1 year but not for more than 18 months, shall be taxable as such,
regardless of how long the shareholder has owned the shares. Fund shareholders
will be notified annually by the Fund as to the Federal tax status of all
distributions made by the Fund. Distributions may be subject to state and local
taxes. To qualify as a RIC, the Code requires that at the end of each quarter
of the taxable year, (i) at least 50% of the market value of the Fund's total
assets be invested in cash, U.S. Government Securities, the securities of other
regulated investment companies, and other securities, with such securities of
any one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of Fund's total assets and 10% of the outstanding
voting securities of any one issuer, and (ii) not more than

25
<PAGE>

25% of the value of the Fund's total assets be invested in the securities of any
one issuer (other than U.S. Government Securities or the securities of other
regulated investment companies), or of two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses, or related trades or businesses.

Shareholders of the Money Market Fund will be subject to Federal income tax on
dividends paid from interest income delved from taxable securities and on
distributions of realized net short-term capital gains. Interest and realized
net short-term capital gains distributions are taxable to a shareholder of the
Money Market Fund as ordinary dividend income regardless of whether the
shareholder receives such distributions in additional shares of the Money Market
Fund or in cash. Since the Money Market Fund's income is expected to be derived
entirely from interest rather than dividends, none of such distributions will be
eligible for the Federal dividends received deduction available to corporations.

Each of the Funds will seek to qualify for treatment as a RIC under the Code.
Provided that a Fund (i) is a RIC and (ii) distributes at least 90% of the
Fund's net investment income (including, for this purpose, net realized
short-term capital gains), the Fund itself will not be subject to Federal income
taxes to the extent the Fund's net investment income and the Fund's net realized
long and short-term capital gains, if any, are distributed to the Fund's
shareholders. To avoid an excise tax on its undistributed income, each Fund
generally must distribute at least 98% of its income, including its net
long-term capital gains. One of several requirements for RIC qualification is
that the Fund must receive at least 90% of the Fund's gross income each year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of securities or foreign currencies, or other
income derived with respect to the Fund's investments in stock, securities, and
foreign currencies (the "90% Test").

In the event of a failure by a Fund to qualify as a RIC, the Fund would be
subject to Federal income taxes on its taxable income and the Fund's
distributions, to the extent that such distributions are derived from the Fund's
current or accumulated earnings and profits, would constitute dividends that
would be taxable to the shareholders of the Fund as ordinary income and would be
eligible for the dividends received deduction for corporate shareholders. This
treatment would also apply to any portion of the distributions that might have
been treated in the shareholder's hands as long-term capital gains, as discussed
below, had the Fund qualified as a RIC.

If a Fund were to fail to qualify as a RIC for one or more taxable years, the
Fund could then qualify (or requalify) as a RIC for a subsequent taxable year
only if the Fund had distributed to the Fund's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the interest charge
mentioned below, if applicable) attributable to such period. The Fund might
also be required to pay to the U.S. Internal Revenue Service (the "IRS")
interest on 50% of such accumulated earnings and profits. In addition, pursuant
to the Code and an interpretative notice issued by the IRS, if the Fund should
fail to qualify as a RIC and should thereafter seek to requalify as a RIC, the
Fund may be subject to tax on the excess (if any) of the fair market of the
Fund's assets over the Fund's basis in such assets, as of the day immediately
before the first taxable year for which the Fund seeks to requalify as a RIC.

If a Fund determines that the Fund will not qualify as a RIC under Subchapter M
of the Code, the Fund will establish procedures to reflect the anticipated tax
liability in the Fund's net asset value.

TRANSACTIONS BY THE FUNDS
If a call option written by a Fund expires, the amount of the premium received
by the Fund for the option will be treated as a gain from the sale or exchange
of a capital asset held for not more than 1 year, I.E., short-term capital gain.
If such an option is closed by a Fund, any gain or loss realized by the Fund as
a result of the closing purchase transaction will be either short-term, mid term
or long-term capital gain or loss, depending on whether the Fund's

26
<PAGE>

holding period for the underlying security or underlying futures contract was
not for more than 1 year (short-term), for more than 1 year but not for more
than 18 months (mid-term), or for more than 18 months (long-term). If the
holder of a call option exercises the holder's right under the option, any gain
or loss realized by the Fund upon the sale of the underlying security or
underlying futures contract pursuant to such exercise will be short-term,
mid-term or long-term capital gain or loss to the Fund depending on the Fund's
holding period for the underlying security or underlying futures contract. The
amount paid to the Fund for the option will be added to the amount of the
proceeds received by the Fund.

With respect to call options purchased by a Fund, the Fund will realize
short-term, mid-term or long-term capital gain or loss if such option is sold
and will realize short-term, mid-term or long-term capital loss if the option is
allowed to expire depending on the Fund's holding period for the call option.
If such a call option is exercised, the amount paid by the Fund for the option
will be added to the basis of the stock or futures contract so acquired.

A Fund has available to it a number of elections under the Code concerning the
treatment of option transactions for tax purposes. A Fund will utilize the tax
treatment that, in the Fund's judgment, will be most favorable to a majority of
investors in the Fund. Taxation of these transactions will vary according to
the elections made by the Fund. These tax considerations may have an impact on
investment decisions made by the Fund.

Each of the Funds also may utilize options on stock indexes. Options on
"broad-based" stock indexes are classified as "nonequity options" under the
Code. Gains and losses resulting from the expiration, exercise, or closing of
such nonequity options, as well as gains and losses resulting from futures
contract transactions, will be treated as long-term capital gain or loss to the
extent of 60% thereof and short-term capital gain or loss to the extent of 40%
thereof (hereinafter, "blended gain or loss"). In addition, any nonequity
option and futures contract held by a Fund on the last day of a fiscal year will
be treated as sold for market value on that date, and gain or loss recognized as
a result of such deemed sale will be blended gain or loss.

The trading strategies of each of the Funds involving nonequity options on stock
indexes may constitute "straddle" transactions. "Straddles" may affect the
taxation of such instruments and may cause the postponement of recognition of
losses incurred in certain closing transactions. Each of the Funds will also
have available to the Fund a number of elections under the Code concerning the
treatment of option transactions for tax purposes. Each such Fund will utilize
the tax treatment that, in the Fund's judgment, will be most favorable to a
majority of investors in the Fund. Taxation of these transactions will vary
according to the elections made by the Fund. These tax considerations may have
an impact on investment decisions made by the Fund.

A Fund's transactions in options, under some circumstances, could preclude the
Fund's qualifying for the special tax treatment available to investment
companies meeting the requirements of Subchapter M of the Code. However, it is
the intention of each Fund's portfolio management to limit gains from such
investments to less than 10% of the gross income of the Fund during any fiscal
year in order to maintain this qualification.

BACK-UP WITHHOLDING
Each Fund is required to withhold and remit to the U.S. Treasury 31% of
(i) reportable taxable dividends and distributions; and (ii) the proceeds of any
redemptions of Fund shares with respect to any shareholder who is not exempt
from withholding and who fails to furnish the Trust with a correct taxpayer
identification number, who fails to report fully dividend or interest income, or
who fails to certify to the Trust that the shareholder has provided a correct
taxpayer identification number and that the shareholder is not subject to
withholding. (An individual's taxpayer identification number is the
individual's social security number.) The 31% "back-up withholding tax" is not
an additional tax and may be credited against a taxpayer's regular Federal
income tax liability.

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<PAGE>

OTHER ISSUES
Each Fund may be subject to tax or taxes in certain states where the Fund does
business. Furthermore, in those states which have income tax laws, the tax
treatment of a Fund and of Fund shareholders with respect to distributions by
the Fund may differ from Federal tax treatment.

Shareholders are urged to consult their own tax advisors regarding the
application of the provisions of tax law described in this SAI in light of the
particular tax situations of the shareholders and regarding specific questions
as to Federal, state, or local taxes.

EXPERTS

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.