RYDEX SERIES TRUST, 485BPOS, 1998-08-12

RYDEX SERIES TRUST
485BPOS, 1998-08-12

Previous: DII GROUP INC, 10-Q, 1998-08-12

Next: AUTONOMOUS TECHNOLOGIES CORP, 10-Q, 1998-08-12

<PAGE>

As Filed with the Securities and Exchange Commission On August 12, 1998

File Nos. 33-59692 and 811-7584

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)

Pre-Effective Amendment No.___( )

Post-Effective Amendment No.33 (X)
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 (X)

Amendment No. 34 (X)

RYDEX SERIES TRUST
(Exact Name of Registrant as Specified in Charter)

6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
(Address of Principal Executive Offices) (Zip Code)

(301) 468-8520
(Registrant's Telephone Number, Including Area Code)

Albert P. Viragh, Jr.
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
(Name and Address of Agent for Service of Process)

Copies to:

John H. Grady, Jr., Esq.
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036

It is proposed that this filing will become effective (check appropriate box):

X immediately upon filing pursuant to paragraph (b) of rule 485
- -----
on (date) pursuant to paragraph (b)(1)(v) of rule 485
- -----
60 days after filing pursuant to paragraph (a)(1) of rule 485
- -----
on (date) pursuant to paragraph (a)(1) of rule 485
- -----
75 days after filing pursuant to paragraph (a)(2) of rule 485
- -----
on (date) pursuant to paragraph (a)(2) of rule 485
- -----

If appropriate, check the following box:

____ This post-effective amendment designates a new effective date for a
previously-filed post-effective amendment.

<PAGE>
PROSPECTUS -- ADVISOR CLASS

<TABLE>
<C> <S>
1 INTRODUCTION
---

2 NOVA FUND
---

4 URSA FUND
---

6 OTC FUND
---

8 U.S. GOVERNMENT MONEY MARKET FUND
---

10 MORE INFORMATION ABOUT RISK
---

13 SHAREHOLDER INFORMATION
---

18 MANAGEMENT
---

19 DIVIDENDS, DISTRIBUTIONS AND TAXES
---

22 FINANCIAL HIGHLIGHTS
---

26 BENCHMARK INFORMATION
---

BC ADDITIONAL INFORMATION
---
</TABLE>

AUGUST 5, 1998

RYDEX SERIES TRUST

NOVA FUND
URSA FUND
OTC FUND
U.S. GOVERNMENT MONEY MARKET FUND

6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
1-800-820-0888 301-468-8520

Rydex Series Trust (the "Trust") is a no-load mutual fund complex with
twenty-two separate investment portfolios (the "Rydex Funds"), four of which are
described in this Prospectus (the "Funds"). Advisor Class Shares of the Funds
are sold principally through broker-dealers and other financial institutions
whose clients take part in certain strategic and tactical asset-allocation
investment programs.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
TRUST'S SHARES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>

ICON LEGEND

Fund Objective

[ICON]
The fund's particular investment goal.

Portfolio Investments

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

Risk Considerations

[ICON]
The major risk factors associated with the fund.

Fund Performance and Fee Information

[ICON]
The overall costs incurred by an investor in the fund.

Financial Highlights

[ICON]
A table showing the fund's financial performance.

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

INTRODUCTION

The Funds' objectives (except the U.S. Government Money Market Fund) are to
match, exceed or perform the opposite of the performance of a specific index or
market indicator. The benchmark used by each Fund is set forth below:

<TABLE>
<CAPTION>
FUND BENCHMARK
NOVA FUND 150% OF THE PERFORMANCE OF THE S&P 500 COMPOSITE STOCK PRICE
INDEX-TM- (SPX)
<S> <C>
URSA FUND INVERSE (OPPOSITE) OF THE PERFORMANCE OF S&P 500 COMPOSITE STOCK
PRICE INDEX-TM- (SPX)
OTC FUND 100% OF THE PERFORMANCE OF THE NASDAQ 100 INDEX-TM- (NDX)
</TABLE>

A BRIEF GUIDE TO THE BENCHMARKS.

THE S&P 500 COMPOSITE STOCK PRICE INDEX-TM- (S&P 500 INDEX). The S&P 500 Index
is a capitalization-weighted index composed of 500 common stocks, which are
chosen by the Standard & Poor's Corporation ("S&P"), on a statistical basis to
be included in the S&P 500 Index.

THE NASDAQ 100 INDEX-TM-. The NASDAQ 100 Index-TM- is a capitalization-weighted
index composed of 100 of the largest non-financial companies listed on the
National Association of Securities Dealers Automated Quotations System.

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 ANY OF THE FUNDS INVOLVES RISKS THAT MAY ADVERSELY AFFECT THE
FUNDS' NET ASSET VALUE, YIELD AND TOTAL RETURN. YOU MAY LOSE MONEY. Each Fund
(except the U.S. Government Money Market Fund) is non-diversified. Non-
diversified funds may invest in the securities of a relatively few number of
issuers. If the assets of a Fund are invested in a limited number of issuers,
the Fund may be more susceptible to a single adverse economic or regulatory
occurrence.
<PAGE>
- ------
2 PROSPECTUS

FUND INFORMATION -- NOVA FUND

FUND OBJECTIVE

[LOGO]
The Nova Fund seeks to provide investment returns that are 150% of the
S&P 500 Index.

PORTFOLIO INVESTMENTS

[LOGO]
Unlike a traditional index fund, as its primary investment strategy,
the Fund invests to a significant extent in futures contracts and
options on: securities, futures contracts, and stock indexes. On a day-to-day
basis, the Fund holds U.S. Government securities to collateralize these futures
and options contracts. Futures and options contracts, if used properly, may
enable the Fund to meet its objective without investing directly in the
securities included in the index. The Fund also may purchase equity securities
and enter into repurchase agreements.

RISK CONSIDERATIONS

[LOGO]
The Nova Fund is subject to a number of risks that will affect the
value of its shares, including:

- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
drastically from day-to-day.

- LEVERAGING RISK -- The Fund invests a percentage of its assets in
leveraged instruments, such as certain futures and options contracts. The
more the Fund invests in these leveraged instruments, the more this
leverage will magnify the Fund's gains or losses on those investments.

- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.

If the Fund meets its objective, the value of the Fund's shares will tend to
increase by 150% of the value of any increase in the S&P 500 Index. However,
when the value of the S&P 500 Index declines, the value of the Fund's shares
should also decrease by 150% of the value of any decrease in the Index.
<PAGE>
PROSPECTUS 3
--------

FUND PERFORMANCE AND FEE INFORMATION

NOVA FUND PERFORMANCE

[LOGO]

The bar chart and table below show the performance of Investor Class
Shares of the Nova Fund (which are not offered in this Prospectus) both
year-by-year and as an average over different periods of time. Since
Investor Class shares are invested in the same portfolio of securities,
returns for the Advisor Class Shares of the Fund will be substantially
similar to that of the Investor Class Shares shown here, and will
differ only to the extent that each Class has different expenses. The
variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.

* THE YEAR-TO-DATE
RETURN FOR THE PERIOD
FROM JANUARY 1, 1998
THROUGH
JUNE 30, 1998 IS
23.43%.

DURING THE PERIOD SHOWN
IN THE BAR CHART, THE HIGHEST RETURN

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FOR A QUARTER WAS 25.15%
(QUARTER ENDED JUNE 30, 1997)
AND THE LOWEST RETURN
FOR A QUARTER WAS -8.31% (QUARTER
ENDED MARCH 31, 1994).

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1997)(1)

INVESTOR CLASS
SHARES S&P 500 INDEX(2)
--------------------------------------
<S> <C> <C>
Past One Year 42.34% 31.01%
Since Inception (07/12/93) 25.64% 18.80%
</TABLE>

(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.

(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.

FEES AND EXPENSES OF THE FUND

This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Nova Fund.

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

<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees .75%
Distribution (12b-1) Fees .25%
Other Expenses .61%
---------
Total Annual Fund Operating Expenses 1.61%
</TABLE>

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

EXAMPLE
- --------------------------------------------------------------------------------

This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of Nova Fund with the cost of investing in other mutual
funds.

The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$164 $508 $876 $1,911
</TABLE>

<PAGE>
- ------
4 PROSPECTUS

FUND INFORMATION -- URSA FUND

FUND OBJECTIVE

[LOGO]
The Ursa Fund seeks to provide investment results that will inversely
correlate to the performance of the S&P 500 Index.

PORTFOLIO INVESTMENTS

[LOGO]
Unlike a traditional index fund, the Fund's benchmark is to perform
exactly opposite the S&P 500 Index, and the Fund will not own the securities
included in the Index. Instead, as its primary investment strategy, the Fund
invests to a significant extent in futures contracts and options on: securities,
futures contracts, and stock indexes. On a day-to-day basis, the Fund holds U.S.
Government securities to collateralize these futures and options contracts. The
Fund also may enter into repurchase agreements and sell securities short.

RISK CONSIDERATIONS

[LOGO]
The Ursa Fund is subject to a number of risks that will affect the
value of its shares, including:

- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
drastically from day-to-day.

- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.

If the Fund meets its objective, the value of the Fund's shares will tend to
increase during times when the value of the S&P 500 Index is decreasing. When
the value of the S&P 500 Index is increasing, however, the value of the Fund's
shares should decrease by an inversely proportionate amount (e.g., if the S&P
500 Index goes up by 10%, the value of the Fund's shares should go down by 10%).
<PAGE>
PROSPECTUS 5
--------

FUND PERFORMANCE AND FEE INFORMATION

URSA FUND PERFORMANCE

[LOGO]

The bar chart and table below show the performance of Investor Class
Shares of the Ursa Fund (which are not offered in this Prospectus) both
year-by-year and as an average over different periods of time. Since
Investor Class Shares are invested in the same portfolio of securities,
returns for the Advisor Class Shares of the Fund will be substantially
similar to that of the Investor Class Shares shown here, and will
differ only to the extent that each Class has different expenses. The
variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.

* THE YEAR-TO-DATE
RETURN FOR THE PERIOD
FROM JANUARY 1,
1998
THROUGH JUNE 30, 1998
IS -11.91%.

DURING THE PERIOD SHOWN
IN THE BAR CHART, THE HIGHEST RETURN

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FOR A QUARTER WAS 1.69%
(QUARTER ENDED DECEMBER 31,
1994) AND THE LOWEST
RETURN FOR A QUARTER WAS -14.1%
(QUARTER ENDED JUNE 30,
1997).

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1997)(1)

INVESTOR CLASS
SHARES S&P 500 INDEX(2)
--------------------------------------
<S> <C> <C>
Past One Year -20.99% 31.01%
Since Inception (01/07/94) -12.98% 19.97%
</TABLE>

(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.

(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.

FEES AND EXPENSES OF THE FUND

This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Ursa Fund.

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

<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees .90%
Distribution (12b-1) Fees .25%
Other Expenses .69%
---------
Total Annual Fund Operating Expenses 1.84%
</TABLE>

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

EXAMPLE
- --------------------------------------------------------------------------------

This Example is intended to help you compare the cost of investing in
Advisor Class Shares of the Ursa Fund with the cost of investing in other mutual
funds.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$187 $579 $995 $2,159
</TABLE>

<PAGE>
- ------
6 PROSPECTUS

FUND INFORMATION -- OTC FUND

FUND OBJECTIVE

[LOGO]
The OTC Fund seeks to provide investment results that correspond to a
benchmark for over-the-counter securities. The Fund's current benchmark is the
NASDAQ 100 Index-TM-.

PORTFOLIO INVESTMENTS

[LOGO]
The Fund invests principally in securities of companies included in
the NASDAQ 100 Index-TM-. It also may invest in other instruments whose
performance is expected to correspond to that of the Index, and may engage in
futures and options transactions. The Fund may also purchase U.S.Government
securities and enter into repurchase agreements.

RISK CONSIDERATIONS

[LOGO]
The OTC Fund is subject to a number of risks that will affect the value
of its shares, including:

- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.

- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.

If the Fund meets its objective, the value of the Fund's shares will tend to
increase by the amount of the increase in value of the NASDAQ 100 Index-TM-.
However, when the value of the NASDAQ 100 Index-TM- declines, the value of the
Fund's shares should also decrease by the amount of the decrease in value of the
Index.
<PAGE>
PROSPECTUS 7
--------

FUND PERFORMANCE AND FEE INFORMATION

OTC FUND PERFORMANCE

[LOGO]

The bar chart and table below show the performance of Investor Class
Shares of the OTC Fund (which are not offered in this Prospectus) both
year-by-year and as an average over different periods of time. Since
Investor Class Shares are invested in the same portfolio of securities,
returns for the Advisor Class Shares of the Fund will be substantially
similar to that of the Investor Class Shares shown here, and will
differ only to the extent that each Class has different expenses. The
variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.

* THE YEAR-TO-DATE
RETURN FOR THE PERIOD
FROM JANUARY 1,
1998
THROUGH JUNE 30, 1998
IS 35.96%.

DURING THE PERIOD SHOWN
IN THE BAR CHART, THE HIGHEST RETURN

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FOR A QUARTER WAS
21.65% (QUARTER ENDED JUNE 30, 1995)
AND THE LOWEST RETURN
FOR A QUARTER WAS -9.67% (QUARTER
ENDED DECEMBER 31,
1997).

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1997)(1)

INVESTOR CLASS NASDAQ 100 INDEX-TM-
SHARES (2)
--------------------------------------------
<S> <C> <C>
Past One Year 21.85% 20.63%
Since Inception (02/14/94) 26.00% 25.93%
</TABLE>

(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.

(2) THE NASDAQ 100 INDEX-TM- IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF OTC MARKET PERFORMANCE.

FEES AND EXPENSES OF THE FUND

This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the OTC Fund.

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

<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees .75%
Distribution (12b-1) Fees .25%
Other Expenses .63%
---------
Total Annual Fund Operating Expenses 1.63%
</TABLE>

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

EXAMPLE
- --------------------------------------------------------------------------------

This Example is intended to help you compare the cost of investing in
Advisor Class Shares of the OTC Fund with the cost of investing in other mutual
funds.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$166 $514 $887 $1,933
</TABLE>

<PAGE>
- ------
8 PROSPECTUS

FUND INFORMATION -- U.S. GOVERNMENT MONEY MARKET FUND

FUND OBJECTIVE

[LOGO]
The U.S. Government Money Market Fund seeks to provide security of
principal, high current income, and liquidity.

PORTFOLIO INVESTMENTS

[LOGO]
The U.S. Government Money Market 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 enters into repurchase
agreements fully collateralized by U.S. Government securities.

RISK CONSIDERATIONS

[LOGO]
The U.S. Government Money Market Fund is subject to the following risk
that will potentially affect the value of its shares:

- INTEREST RATE RISK -- The Fund's securities are subject to Interest Rate
Risk, which is the potential for decline in the price of the Fund's
securities due to rising interest rates.

In addition, the U.S. Government Money Market Fund is governed by SEC rules
which impose certain liquidity, maturity and diversification requirements. All
securities purchased by the Fund must have remaining maturities of 397 days or
less. The Fund's assets are valued using the amortized cost method, which
enables the Fund to maintain a stable price of $1.00 per share. 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, AND IT IS POSSIBLE TO
LOSE MONEY.
<PAGE>
PROSPECTUS 9
--------

FUND PERFORMANCE AND FEE INFORMATION

U.S. GOVERNMENT MONEY MARKET FUND PERFORMANCE

[LOGO]

The bar chart and table below show the performance of Investor Class
Shares of the U.S. Government Money Market Fund (which are not offered
in this Prospectus) both year-by-year and as an average over different
periods of time. Since Investor Class Shares are invested in the same
portfolio of securities, returns for the Advisor Class Shares of the
Fund will be substantially similar to that of the Investor Class Shares
shown here, and will differ only to the extent that each Class has
different expenses. The variability of performance over time provides
an indication of the risks of investing in the Fund. Of course, this
past performance does not necessarily indicate how the Fund will perform in the
future.

* THE YEAR-TO-DATE
RETURN FOR THE PERIOD
FROM JANUARY 1,
1998
THROUGH JUNE 30, 1998
IS 2.36%.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
DURING THE PERIOD SHOWN
IN THE BAR CHART, THE HIGHEST RETURN
FOR A QUARTER WAS 1.24%
(QUARTER ENDED JUNE 30, 1995)
AND THE LOWEST RETURN
FOR A QUARTER WAS .50% (QUARTER
ENDED MARCH 31, 1994).

<TABLE>
<CAPTION>
U.S. GOVERNMENT MONEY MARKET FUND
<S> <C>
1997 4.60%
1996 4.38%
1995 4.90%
</TABLE>

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1997)(1)

INVESTOR CLASS
SHARES 90-DAY TREASURY COMPOSITE(2)
--------------------------------------------------
<S> <C> <C>
Past One Year 4.60% 5.53%
Since Inception (12/03/93) 4.27% 5.28%
</TABLE>

(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE 90-DAY TREASURY COMPOSITE INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY
RECOGNIZED INDICATOR OF GENERAL MONEY MARKET PERFORMANCE.

YIELD - As of June 30, 1998, the current yield of Advisor Class Shares of the
Fund was 4.52%.

FEES AND EXPENSES OF THE FUND

This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the U.S. Government Money Market Fund.

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

<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees .50%
Distribution (12b-1) Fees .25%
Other Expenses .64%
---------
Total Annual Fund Operating Expenses 1.39%
</TABLE>

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

EXAMPLE
- --------------------------------------------------------------------------------

This Example is intended to help you compare the cost of investing in
Advisor Class Shares of the U.S. Government Money Market Fund with the cost of
investing in other mutual funds.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$142 $440 $761 $1,669
</TABLE>

<PAGE>
- ------
10 PROSPECTUS

MORE INFORMATION ABOUT RISK

As indicated below, the Funds are subject to a number of risks that may
affect the value of Fund shares.

EQUITY RISK (NOVA, URSA AND OTC FUNDS) -- The Funds may invest in public and
privately issued equity securities, including common and preferred stocks,
warrants, and rights, as well as instruments that attempt to track the price
movement of equity indices. Investments in equity securities and equity
derivatives in general are subject to market risks that may cause their prices
to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevailing
interest rates, the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which the Funds invest will
cause the net asset value of the Funds to fluctuate. An investment in the Funds
may be more suitable for long-term investors who can bear the risk of short-term
principal fluctuations.

TRACKING ERROR RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) --
While the Funds do not expect returns to deviate from their respective
benchmarks by more than ten percent, factors such as Fund expenses, imperfect
correlation between the Funds' investments and those of their benchmarks,
rounding of share prices, changes to the benchmark, regulatory policies, and
leverage, may affect their ability to achieve perfect correlation. The magnitude
of any tracking error may be affected by a higher portfolio turnover rate.

TRADING HALT RISK (NOVA AND URSA FUNDS) -- The Funds typically will hold
short-term options and futures contracts. The major exchanges on which these
contracts are traded, such as the Chicago Mercantile Exchange ("CME"), have
established limits on how much an option or futures contract may decline over
various time periods within a day. If an option or futures contract's price
declines more than the established limits, trading on the exchange is halted on
that instrument. If a trading halt occurs at the close of a trading day, a Fund
may not be able to purchase or sell options or futures contracts. In such an
event, a Fund also may be required to use a "fair-value" method to price its
outstanding contracts.

<PAGE>
PROSPECTUS 11
--------

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

- 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 Fund 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 Fund may be unable to close
out their futures or options contracts at a time which is advantageous.

- Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and
options.

In addition, the following leveraged instruments are subject to certain specific
risks:

FUTURES RISK -- Futures contracts and options on futures contracts provide
for the future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time and at a
specified price. An option on a futures contract gives the purchaser the
right, in exchange for a premium, to assume a position in a futures contract
at a specified exercise price during the term of the option. Index futures
are futures contracts for various indices that are traded on registered
securities exchanges.

The Fund may use futures contracts and related options for bona fide hedging
purposes to offset changes in the value of securities held or expected to be
acquired. They may also be used to gain exposure to a particular market or
instrument, to create a synthetic money market position, and for certain
other tax-related purposes. The Fund will only enter into futures contracts
traded on a national futures exchange or board of trade.

OPTIONS RISK -- The buyer of an option acquires the right to buy (a call
option) or sell (a put option) a certain quantity of a security (the
underlying security) or instrument at a certain price up to a specified
point in time. The seller or writer of an option is obligated to sell (a
call option) or buy (a put option) the underlying security. When writing
(selling) call options on securities, the Fund may cover its position by
owning the underlying security on which the option is written or by owning a
call option on the underlying security. Alternatively, the Fund may cover
its position by maintaining in a segregated account cash or liquid
securities equal in value to the exercise price of the call option written
by the Fund.

<PAGE>
- ------
12 PROSPECTUS

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

SHORT SALES RISK -- 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 is then obligated to
replace the security borrowed by purchasing the security at the market price
at the time of replacement. The price at such time may be more or less than
the price at which the security was sold by the Fund.

PORTFOLIO TURNOVER RATE RISK (OTC FUND) -- The Trust anticipates that investors
that are part of a tactical or strategic asset-allocation strategy will
frequently redeem or exchange shares of a Fund, which will cause that Fund to
experience high portfolio turnover. A higher portfolio turnover rate may result
in a Fund paying higher levels of transaction costs and generating greater tax
liabilities for shareholders.

EARLY CLOSING RISK (OTC FUND) -- The normal close of trading of securities
listed on the National Association of Securities Dealers Automated Quotations
system ("NASDAQ") and the New York Stock Exchange ("NYSE") is 4:00 P.M., Eastern
Time. Unanticipated early closings may result in a Fund being unable to sell or
buy securities on that day. If an exchange closes early on a day when one or
more of the Funds needs to execute a high volume of securities trades late in a
trading day, a Fund might incur substantial trading losses.

YEAR 2000 RISK (ALL FUNDS) -- The Funds depend on the smooth functioning of
computer systems in almost every aspect of their business. Like other mutual
funds, businesses and individuals around the world, the Funds could be adversely
affected if the computer systems used by its service providers do not properly
process dates on and after January 1, 2000 and distinguish between the year 2000
and the year 1900. The Trust has asked their service providers whether they
expect to have their computer systems adjusted for the year 2000 transition, and
received assurances from all that they are devoting significant resources to
prevent material adverse consequences to the Funds. The Funds and their
respective shareholders may experience losses if these assurances prove to be
incorrect or as a result of year 2000 computer difficulties experienced by
issuers of portfolio securities or third parties, such as custodians, banks,
broker-dealers or others with which the Funds do business.

<PAGE>
PROSPECTUS 13
--------

SHAREHOLDER INFORMATION

HOW TO INVEST IN THE FUNDS

PURCHASING SHARES

Advisor Class Shares are offered continuously through intermediaries and may
be purchased on any day that the NYSE is open for business (a "Business Day").
The price per share (the offering price) will be the net asset value per share
("NAV") next determined after your purchase order is received by the Trust. No
sales charges are imposed on initial or subsequent investments in a Fund. NAV is
calculated by (1) taking the current market value of a Fund's total assets, (2)
subtracting the liabilities, and (3) dividing that amount by the total number of
shares owned by shareholders. For most Funds, 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. To receive the current Business
Day's NAV, the Trust must receive your purchase order before the cutoff times
specified below for each method of investing. Intermediaries may have earlier
cutoff times.

MINIMUM INVESTMENT

If an intermediary such as a broker-dealer or other financial institution
has discretionary authority over your account, the minimum initial investment in
the Advisor Class Shares of the Funds is $25,000. This minimum also applies to
retirement plan accounts. The Trust, at its discretion, may accept lesser
amounts in certain circumstances. Intermediaries may charge fees for services
provided in connection with buying, selling or exchanging shares. Each
intermediary also may have its own rules about share transactions. For more
information about how to purchase shares through an intermediary, you should
contact that intermediary directly. If you invest in the Trust without
designating which Fund you want to invest in on your account application, your
check or your wire advice, your money will be invested in the U.S. Government
Money Market Fund until you tell us where to invest your money. There is no
minimum amount for subsequent investments in a Fund. The Trust reserves the
right to modify its minimum investment requirements at any time. The Trust also
reserves the right to reject or refuse, at the Trust's discretion, any order for
the purchase of a Fund's shares in whole or in part.

Investments in the Funds may be made only through intermediaries or
securities dealers who have the responsibility to transmit orders promptly and
who may charge a processing fee.

BY MAIL

Initial applications and investments, as well as subsequent investments, in
the 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.,
<PAGE>
- ------
14 PROSPECTUS

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 completed application, along with
a request for a shareholder account number, to the Trust at 301-468-8585. Then,
request that your bank wire transfer the purchase amount to our custodian, Star
Bank, N.A., along with the following instructions:

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

AFTER INSTRUCTING YOUR BANK TO TRANSFER MONEY BY WIRE (YOUR BANK MAY CHARGE A
FEE FOR SUCH SERVICES) FOR BOTH INITIAL AND SUBSEQUENT PURCHASES, YOU MUST CALL
THE TRUST AT 1-800-820-0888 AND INFORM THE TRUST AS TO THE AMOUNT THAT YOU HAVE
TRANSFERRED AND THE NAME OF THE BANK SENDING THE TRANSFER IN ORDER TO OBTAIN
SAME-DAY PRICING OR CREDIT. FOR INITIAL PURCHASES, YOU MUST ALSO SUPPLY THE TIME
THE WIRE WAS SENT AND THE FED WIRE REFERENCE NUMBER. 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 Funds must be received in
good form at the Trust, on any Business Day, at or prior to the cutoff time of
the Funds as outlined in the "EXCHANGES" section (1:00 p.m., Eastern Time, for
the U.S. Government Money Market Fund) 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. Intermediaries may have
earlier cutoff times for purchases. For more information about how to purchase
through an intermediary, you should contact that intermediary directly.

<PAGE>
PROSPECTUS 15
--------

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 an intermediary with
discretionary authority over the retirement plan account with the Trust, the
minimum initial investment in Advisor Class Shares of the Funds is $25,000.

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

REDEEMING FUND SHARES

GENERAL

You may redeem all or any portion of your Fund shares at the next determined
NAV after receipt of the redemption request (subject to applicable account
minimums). You may redeem your shares by letter or by telephone subject to the
procedures set forth below. Your redemption proceeds normally will be sent
within five Business Days of the Trust receiving your request. For investments
made by check, payment on redemption requests may be delayed until the Trust's
transfer agent is reasonably satisfied that payment has been collected by the
Trust (which may require up to 10 Business Days). If you invest by check, you
may not wire out any redemption proceeds for the 30 calendar days following the
purchase. You may avoid a delay in receiving redemption proceeds by purchasing
shares with a certified check. Telephone redemptions will be sent only to your
address or your bank account (as listed in the Trust's records). The Trust may
charge $15 for certain wire transfers of redemption proceeds.

The proceeds of non-telephone redemptions will be sent directly to your
address (as listed in the Trust's records). If you request payment of redemption
proceeds to a third party or to a location other than your address or your bank
account (as listed in the Trust's records), this request must be in writing and
must include a signature guarantee. You may have to transmit your redemption
request to your intermediary at an earlier time in order for your redemption to
be effective that Business Day. Please contact your intermediary to find out
their specific requirements for written and telephone requests for redemptions
and signature guarantees.

<PAGE>
- ------
16 PROSPECTUS

REDEMPTIONS FROM TAX-QUALIFIED RETIREMENT PLANS MAY HAVE ADVERSE TAX
CONSEQUENCES. YOU SHOULD CONSULT YOUR TAX ADVISOR BEFORE REDEEMING SHARES FROM
YOUR TAX-QUALIFIED ACCOUNT.

INVOLUNTARY REDEMPTIONS

Because of the administrative expense of handling small accounts, any
request for a redemption when your account balance (a) is below the currently
applicable minimum investment, or (b) would be below that minimum as a result of
the redemption, will be treated as a request for the complete redemption of that
account. If, due to withdrawals or transfers, your account balance drops below
the required minimum of $25,000, the Trust reserves the right to redeem your
remaining shares without any additional notification to you.

SUSPENSION OF REDEMPTIONS

With respect to each Fund, and as permitted by the Securities and Exchange
Commission ("Commission"), the right of redemption may be suspended, or the date
of payment postponed: (i) for any period during which the NYSE, the Federal
Reserve Bank of New York (the "New York Fed"), NASDAQ, the CME or the Chicago
Board Options Exchange ("CBOE") as appropriate, is closed (other than customary
weekend or holiday closings) or trading on the NYSE, NASDAQ, the CME or the CBOE
as appropriate, is restricted; (ii) for any period during which an emergency
exists so that disposal of Fund investments or the determination of NAV is not
reasonably practicable; or (iii) for such other periods as the Commission, by
order, may permit for protection of Fund investors. On any day that the New York
Fed or the NYSE closes early, the principal government securities and corporate
bond markets close early (such as on days in advance of holidays generally
observed by participants in these markets), or as permitted by the Commission,
the right is reserved to advance the time on that day by which purchase and
redemption orders must be received.

EXCHANGES

You may exchange Advisor Class Shares of any Fund for Advisor Class Shares
of any other Rydex Fund that currently offers shares, or for shares of any other
Rydex Fund that does not offer Advisor Class Shares, on the basis of the
respective net asset values of the shares involved. The Trust currently is
composed of twenty-two separate Funds. Advisor Class Shares of 14 Sector Funds
and Investor Class Shares of certain Funds are offered in separate prospectuses.
Exchanges may be made by letter or by telephone subject to the procedures set
forth below.

To exchange your shares, you need to provide certain information, including
the name on the account, the account number (or your taxpayer identification
number), the number or dollar value of shares (or the percentage of the total
value of your account) you want to exchange, and the names of the Rydex Funds
involved in the exchange transaction. If you are contemplating an exchange for
<PAGE>
PROSPECTUS 17
--------

shares of a Rydex Fund not described in this Prospectus, you should obtain and
review the current prospectus of that Rydex Fund before making the exchange.

Exchange orders into other Rydex Funds must be received by the time set
forth below for either the relevant Rydex Fund from which an exchange is being
made and into which an exchange is being made (whichever is earlier):

<TABLE>
<CAPTION>
FUND(S) CUT OFF TIME
- ----------------------------------------------------------------------------------------------
<S> <C>
Nova 3:45 p.m.
Ursa
OTC
Arktos
- ----------------------------------------------------------------------------------------------
Precious Metals 3:30 p.m.
Rydex Sector Funds
- ----------------------------------------------------------------------------------------------
U.S. Government Bond 2:45 p.m.
Juno
- ----------------------------------------------------------------------------------------------
</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, or by any earlier cutoff time
specified above for exchanges between Funds, on any Business Day. The Trust
reserves the right to suspend the right of redemption in accordance with this
Prospectus. The Trust's offices are open between 8:30 a.m. and 5:30 p.m.,
Eastern Time on each Business Day.

If you own shares that are registered in your intermediary's name, and you
want to transfer the registration to another intermediary or want the shares
registered in your name, then you should contact your intermediary for
instructions to make this change.

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
<PAGE>
- ------
18 PROSPECTUS

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 or your intermediary 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.

MANAGEMENT

THE ADVISOR'S INVESTMENT METHODOLOGY

In managing the Funds, the Advisor's primary objective is to match the
performance of each Fund's benchmark as closely as possible. Through the use of
quantitative analysis techniques, each Fund is structured to match the risk and
return characteristics of the appropriate benchmark, while remaining fully
invested in all market environments. The Advisor monitors each Fund on an
ongoing basis, and makes adjustments, as necessary, to minimize tracking error
and to maximize liquidity. The Advisor may utilize options contracts to leverage
a Fund's investment exposure. In addition, some Funds may require short selling
techniques designed to inversely correlate to the performance of an index or
benchmark.

MANAGEMENT OF THE FUNDS

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

The Advisor makes investment decisions for the assets of the 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 pay
the Advisor a fee at an annualized rate, based on the average daily net assets
for each Fund, as set forth below:

<TABLE>
<CAPTION>
FUND ADVISORY FEE
- ----------------------------------------------------------------------------------------------
<S> <C>
Nova .75%
Ursa .90%
OTC .75%
U.S. Government Money Market .50%
</TABLE>

<PAGE>
PROSPECTUS 19
--------

The Advisor bears all of its own costs associated with providing these
advisory services and the expenses of the Trustees who are affiliated with the
Advisor. The Advisor may make payments from its own resources to broker-dealers
and other financial institutions in connection with the sale of Fund shares.

The portfolio manager of the Ursa Fund and the OTC Fund is Michael P. Byrum,
who is the Advisor's senior portfolio manager. Prior to joining the Advisor as a
portfolio manager in July 1993, Mr. Byrum worked as an investor representative
with MMA.

The portfolio manager of the Nova Fund is Thomas Michael, who joined the
Advisor as a portfolio manager in March 1994. From 1992 to February 1994, Mr.
Michael was a financial markets analyst at Cedar Street Investment Management
Co., of Chicago, Illinois, an institutional consulting firm specializing in
developing hedging and speculative strategies in stock index futures contracts
and U.S. Treasury bond futures contracts.

DISTRIBUTION AND SHAREHOLDER SERVICES PLAN

The Funds have adopted a Distribution and Shareholder Services Plan (the
"Plan") applicable to Advisor Class Shares that allows the Funds to pay
distribution and service fees to PADCO Financial Services, Inc. (the
"Distributor") and other firms that provide distribution and shareholder
services ("Service Providers"). If a Service Provider provides distribution
services, the Funds will pay distribution 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. If a Service Provider provides shareholder services, the Funds
will pay service fees to the Distributor at an annual rate not to exceed .25% of
the average daily net assets of a Fund. The Distributor will, in turn, pay the
Service Provider out of its fees. Because the Funds pay these fees out of assets
on an ongoing basis, over time these fees may cost you more than other types of
sales charges.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

Income dividends, if any, are paid at least annually by each of the Funds,
except the U.S. Government Money Market Fund, which declares dividends daily and
pays them monthly. 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
<PAGE>
- ------
20 PROSPECTUS

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. The Trust has
not tried to present a detailed explanation of the tax treatment of the Funds,
or of the tax consequences of an investment in the Funds. MORE INFORMATION ABOUT
TAXES IS LOCATED IN THE STATEMENT OF ADDITIONAL INFORMATION (SAI). YOU ARE URGED
TO CONSULT YOUR TAX ADVISOR REGARDING SPECIFIC QUESTIONS AS TO FEDERAL, STATE
AND LOCAL INCOME TAXES.

TAX STATUS OF EACH FUND

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

TAX STATUS OF DISTRIBUTIONS

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

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

- Capital gains distributions will result from gains on the sale or exchange
of capital assets held for more than one year, and will be taxed at
different rates depending on how long the Fund held the assets.

- Distributions paid in January but declared by a Fund in October, November
or December of the previous year, may be taxable to you in the previous
year.
<PAGE>
PROSPECTUS 21
--------

TAX STATUS OF SHARE TRANSACTIONS

EACH SALE, EXCHANGE, OR REDEMPTION OF FUND SHARES IS A TAXABLE EVENT TO YOU.
YOU SHOULD CONSIDER THE TAX CONSEQUENCES OF ANY REDEMPTION OR EXCHANGE BEFORE
MAKING SUCH A REQUEST, ESPECIALLY WITH RESPECT TO REDEMPTIONS, IF YOU INVEST IN
THE 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.
<PAGE>
- ------
22 PROSPECTUS

FINANCIAL HIGHLIGHTS
NOVA FUND

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

[LOGO]

The financial highlights table is intended to help you understand the
Fund's financial performance for the period of the Fund's operations.
Certain information reflects financial results for a single Nova Fund
Investor Class Share. The total returns in the table represent the rate
that an investor would have earned (or lost) on an investment in an
Investor Class Share of the Fund (assuming reinvestment of all dividends
and distributions). This information has been audited by Deloitte &
Touche LLP, whose report, along with the financial statements and related notes,
appears in the Trust's 1998 Annual Report. Our 1998 Annual Report is available
by telephoning us at 800-820-0888 or (301) 468-8520. The Annual Report is
incorporated by reference in the SAI. THE PERFORMANCE OF THE ADVISOR CLASS
SHARES OF THE FUND WILL BE LOWER DUE TO THE RULE 12B-1 AND SHAREHOLDER SERVICING
FEES CHARGED TO THE ADVISOR CLASS SHARES.

<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, JUNE 30, JUNE 30, JUNE 30,
1998 1997* 1996 1995 1994**
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period................................ $ 17.89 $ 15.68 $ 11.81 $ 9.77 $ 10.01
--------- --------- -------- -------- --------
Net Investment Income (Loss)........................................ .59 .35 .56 .28 .01
Net Realized and Unrealized Gains (Losses) on Securities............ 11.39 2.19 3.31 2.88 (.25)
--------- --------- -------- -------- --------
Net Increase (Decrease) in Net Asset Value Resulting from
Operations......................................................... 11.98 2.54 3.87 3.16 (.24)
Dividends to Shareholders from Net Investment Income................ .00 .00 .00 (.29) .00
Distributions to Shareholders from Net Realized Capital Gain........ (.05) (.33) .00 (.83) .00
--------- --------- -------- -------- --------
Net Increase (Decrease) in Net Asset Value............................ 11.93 2.21 3.87 2.04 (.24)
--------- --------- -------- -------- --------
Net Asset Value -- End of Period...................................... $ 29.82 $ 17.89 $ 15.68 $ 11.81 $ 9.77
--------- --------- -------- -------- --------
--------- --------- -------- -------- --------
Total Investment Return............................................... 67.02% 20.92%*** 32.77% 32.65% (2.47)%
Ratios to Average Net Assets
Gross Expenses...................................................... 1.13% 1.19%***
Net Expenses........................................................ 1.11% 1.16%*** 1.31% 1.43% 1.73%***
Net Investment Income (Loss)........................................ 2.42% 2.69%*** 3.14% 2.62% 1.05%***
Supplementary Data
Portfolio Turnover Rate****......................................... 0% 0% 0% 0% 0%
Net Assets, End of Period (000's omitted)........................... $986,247 $181,930 $224,541 $62,916 $77,914
</TABLE>

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

+ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE DAILY SHARES OUTSTANDING AVERAGE FOR THE YEAR.

* ON MARCH 12, 1997, THE TRUSTEES CHANGED THE TRUST'S FISCAL YEAR END FROM
JUNE 30 TO MARCH 31.

** COMMENCEMENT OF OPERATIONS: JULY 12, 1993.

*** ANNUALIZED.

**** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SECURITIES
HAVING A MATURITY OF LESS THAN ONE YEAR. THE NOVA FUND TYPICALLY HOLDS MOST
OF ITS INVESTMENTS IN OPTIONS AND FUTURES CONTRACTS, WHICH ARE DEEMED
SHORT-TERM SECURITIES.
<PAGE>
PROSPECTUS 23
--------

FINANCIAL HIGHLIGHTS
URSA FUND

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

[LOGO]

The financial highlights table is intended to help you understand the
Fund's financial performance for the period of the Fund's operations.
Certain information reflects financial results for a single Ursa Fund
Investor Class Share. The total returns in the table represent the rate
that an investor would have earned (or lost) on an investment in an
Investor Class Share of the Fund (assuming reinvestment of all dividends
and distributions). This information has been audited by Deloitte &
Touche LLP, whose report, along with the financial statements and related notes,
appears in the Trust's 1998 Annual Report. Our 1998 Annual Report is available
by telephoning us at 800-820-0888 or (301) 468-8520. The Annual Report is
incorporated by reference in the SAI. THE PERFORMANCE OF THE ADVISOR CLASS
SHARES OF THE FUND WILL BE LOWER DUE TO THE RULE 12B-1 AND SHAREHOLDER SERVICING
FEES CHARGED TO THE ADVISOR CLASS SHARES.

<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, JUNE 30, JUNE 30, JUNE 30,
1998 1997* 1996 1995 1994**
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period................................ $ 7.02 $ 7.55 $ 8.79 $ 10.54 $ 10.00
--------- --------- -------- -------- --------
Net Investment Income (Loss)........................................ .19 .17 .30 .35 .01
Net Realized and Unrealized Gains (Losses) on Securities............ (2.23) (.68) (1.54) (1.78) .53
--------- --------- -------- -------- --------
Net Increase (Decrease) in Net Asset Value Resulting from
Operations......................................................... (2.04) (.51) (1.24) (1.43) .54
Dividends to Shareholders from Net Investment Income................ (.02) (.02) .00 (.32) .00
--------- --------- -------- -------- --------
Net Increase (Decrease) in Net Asset Value............................ (2.06) (.53) (1.24) (1.75) .54
--------- --------- -------- -------- --------
Net Asset Value -- End of Period...................................... $ 4.96 $ 7.02 $ 7.55 $ 8.79 $ 10.54
--------- --------- -------- -------- --------
--------- --------- -------- -------- --------
Total Investment Return............................................... (29.06)% (8.98)%*** (14.11)% (14.08)% 10.89%
Ratios to Average Net Assets
Gross Expenses...................................................... 1.36% 1.36%***
Net Expenses........................................................ 1.34% 1.34%*** 1.39% 1.39% 1.67%***
Net Investment Income (Loss)........................................ 3.18% 3.21%*** 3.38% 3.50% 1.43%***
Supplementary Data
Portfolio Turnover Rate****......................................... 0% 0% 0% 0% 0%
Net Assets, End of Period (000's omitted)........................... $254,225 $582,288 $192,553 $127,629 $110,899
</TABLE>

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

+ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE DAILY SHARES OUTSTANDING AVERAGE FOR THE YEAR.

* ON MARCH 12, 1997, THE TRUSTEES CHANGED THE TRUST'S FISCAL YEAR END FROM
JUNE 30 TO MARCH 31.

** COMMENCEMENT OF OPERATIONS: JANUARY 7, 1994.

*** ANNUALIZED.

**** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SECURITIES
HAVING A MATURITY OF LESS THAN ONE YEAR. THE URSA FUND TYPICALLY HOLDS MOST
OF ITS INVESTMENTS IN OPTIONS AND FUTURES CONTRACTS, WHICH ARE DEEMED
SHORT-TERM SECURITIES.
<PAGE>
- -------
24 PROSPECTUS

FINANCIAL HIGHLIGHTS
OTC FUND

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

[LOGO]

The financial highlights table is intended to help you understand the
Fund's financial performance for the period of the Fund's operations.
Certain information reflects financial results for a single OTC Fund
Investor Class Share. The total returns in the table represent the rate
that an investor would have earned (or lost) on an investment in an
Investor Class Share of the Fund (assuming reinvestment of all dividends
and distributions). This information has been audited by Deloitte &
Touche LLP, whose report, along with the financial statements and related notes,
appears in the Trust's 1998 Annual Report. Our 1998 Annual Report is available
by telephoning us at 800-820-0888 or (301) 468-8520. The Annual Report is
incorporated by reference in the SAI. THE PERFORMANCE OF THE ADVISOR CLASS
SHARES OF THE FUND WILL BE LOWER DUE TO THE RULE 12B-1 AND SHAREHOLDER SERVICING
FEES CHARGED TO THE ADVISOR CLASS SHARES.

<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, JUNE 30, JUNE 30, JUNE 30,
1998 1997* 1996 1995 1994**
--------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period................................ $ 17.93 $ 15.16 $ 12.22 $ 8.76 $ 10.00
--------- --------- -------- --------- ---------
Net Investment Income (Loss)........................................ (.14) .01 .06 .14 .01
Net Realized and Unrealized Gains (Losses) on Securities............ 9.99 2.84 3.24 4.17 (1.25)
--------- --------- -------- --------- ---------
Net Increase (Decrease) in Net Asset Value Resulting from
Operations......................................................... 9.85 2.85 3.30 4.31 (1.24)
Dividends to Shareholders from Net Investment Income................ .00 (.07) .00 (.12) .00
Distributions to Shareholders from Net Realized Capital Gain.......... (.10) (.01) (.36) (.73) .00
--------- --------- -------- --------- ---------
Net Increase (Decrease) in Net Asset Value............................ 9.75 2.77 2.94 3.46 (1.24)
--------- --------- -------- --------- ---------
Net Asset Value -- End of Period...................................... $ 27.68 $ 17.93 $ 15.16 $ 12.22 $ 8.76
--------- --------- -------- --------- ---------
--------- --------- -------- --------- ---------
Total Investment Return............................................... 55.05% 24.77%*** 26.44% 49.00% (30.17)%
Ratios to Average Net Assets
Gross Expenses...................................................... 1.13% 1.27%***
Net Expenses........................................................ 1.13% 1.27%*** 1.33% 1.41% 1.97%***
Net Investment Income (Loss)........................................ (.58)% .08%*** .44% 1.34% 1.69%***
Supplementary Data
Portfolio Turnover Rate****......................................... 971.80% 1,140.35% 2,578.56% 2,241.00% 1,171.00%
Net Assets, End of Period (000's omitted)........................... $449,794 $ 52,278 $ 48,716 $ 61,948 $ 30,695
</TABLE>

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

+ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE DAILY SHARES OUTSTANDING AVERAGE FOR THE YEAR.

* ON MARCH 12, 1997, THE TRUSTEES CHANGED THE TRUST'S FISCAL YEAR END FROM
JUNE 30 TO MARCH 31.

** COMMENCEMENT OF OPERATIONS: FEBRUARY 14, 1994.

*** ANNUALIZED.

**** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SECURITIES
HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
PROSPECTUS 25
--------

FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT MONEY MARKET FUND

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

[LOGO]

The financial highlights table is intended to help you understand the
Fund's financial performance for the period of the Fund's operations.
Certain information reflects financial results for a single U.S.
Government Money Market Fund Investor Class Share. The total returns in
the table represent the rate that an investor would have earned (or lost)
on an investment in an Investor Class Share of the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Deloitte & Touche LLP, whose report, along with the financial
statements and related notes, appears in the Trust's 1998 Annual Report. Our
1998 Annual Report is available by telephoning us at 800-820-0888 or (301)
468-8520. The Annual Report is incorporated by reference in the SAI. THE
PERFORMANCE OF THE ADVISOR CLASS SHARES OF THE FUND WILL BE LOWER DUE TO THE
RULE 12B-1 AND SHAREHOLDER SERVICING FEES CHARGED TO THE ADVISOR CLASS SHARES.

<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, JUNE 30, JUNE 30, JUNE 30,
1998 1997* 1996 1995 1994**
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- -------- -------- --------
Net Investment Income (Loss)........................................ .04 .03 .04 .04 .01
--------- --------- -------- -------- --------
Net Increase in Net Asset Value Resulting from Operations........... .04 .03 .04 .04 .01
Dividends to Shareholders from Net Investment Income................ (.04) (.03) (.04) (.04) (.01)
--------- --------- -------- -------- --------
Net Increase in Net asset Value....................................... .00 .00 .00 .00 .00
--------- --------- -------- -------- --------
Net Asset Value -- End of Period...................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- -------- -------- --------
--------- --------- -------- -------- --------
Total Investment Return............................................... 4.69% 4.39%*** 4.60% 4.43% 2.47%
Ratios to Average Net Assets
Gross Expenses...................................................... .89% .86%***
Net Expenses........................................................ .89% .86%*** .99% .89% 1.16%***
Net Investment Income (Loss)........................................ 4.37% 4.06%*** 4.18% 4.23% 2.34%***
Supplementary Data
Portfolio Turnover Rate****......................................... 0% 0% 0% 0% 0%
Net Assets, End of Period (000's omitted)........................... $253,295 $283,553 $153,925 $284,198 $88,107
</TABLE>

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

+ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE DAILY SHARES OUTSTANDING AVERAGE FOR THE YEAR.

* ON MARCH 12, 1997, THE TRUSTEES CHANGED THE TRUST'S FISCAL YEAR END FROM
JUNE 30 TO MARCH 31.

** COMMENCEMENT OF OPERATIONS: DECEMBER 3, 1993.

*** ANNUALIZED.

**** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
- -------
26 PROSPECTUS

BENCHMARK INFORMATION.

NEITHER THE NOVA FUND NOR THE URSA FUND IS SPONSORED, ENDORSED, SOLD, OR
PROMOTED BY STANDARD & POOR'S CORP. (S&P); AND THE OTC FUND IS NOT SPONSORED,
ENDORSED, SOLD, OR PROMOTED BY NASDAQ OR ANY OF NASDAQ'S AFFILIATES (NASDAQ AND
ITS AFFILIATES HEREINAFTER COLLECTIVELY REFERRED TO AS "NASDAQ").

NEITHER S&P NOR NASDAQ MAKE ANY REPRESENTATION OR WARRANTY, IMPLIED OR EXPRESS,
TO THE INVESTORS IN THE FUNDS, OR ANY MEMBER OF THE PUBLIC, REGARDING THE
ADVISABILITY OF INVESTING IN INDEX FUNDS OR THE ABILITY OF THE S&P 500 INDEX OR
THE NASDAQ 100 INDEX-TM-, RESPECTIVELY, TO TRACK GENERAL STOCK MARKET
PERFORMANCE.

NEITHER S&P NOR NASDAQ GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P 500 INDEX AND NASDAQ 100 INDEX-TM-, RESPECTIVELY, OR ANY DATA INCLUDED
THEREIN.

NEITHER S&P NOR NASDAQ MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO
BE OBTAINED BY ANY OF THE FUNDS, THE INVESTORS IN THE FUNDS, OR ANY PERSON OR
ENTITY FROM THE USE OF THE S&P 500 INDEX OR THE NASDAQ 100 INDEX-TM-,
RESPECTIVELY, OR ANY DATA INCLUDED THEREIN.

NEITHER S&P NOR NASDAQ MAKE ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE FOR USE WITH RESPECT TO THE S&P 500 INDEX OR
THE NASDAQ 100 INDEX-TM- RESPECTIVELY, OR ANY DATA INCLUDED THEREIN.

<PAGE>

Additional information about Advisor Class Shares of the Funds is included in a
Statement of Additional Information dated August 5, 1998 (the "SAI"), which
contains more detailed information about the Funds. The SAI has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated by reference
into this Prospectus and, therefore, legally forms a part of this Prospectus.
The SEC maintains a Web site ("http://www.sec.gov") that contains the SAI,
material incorporated by reference, and other information regarding registrants
that file electronically with the SEC. You may also review and copy documents at
the SEC Public Reference Room in Washington, D.C. (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon payment of
a duplication fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, D.C. 20549-6009. To help you to obtain additional
information,
the Fund's SEC registration number is 811-7584.

You may obtain a copy of the SAI or the annual or semi-annual reports, without
charge by calling 1-800-820-0888 or by writing to Rydex Series Trust, at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852. Additional
information about the Funds' investments is available in the annual and semi-
annual reports. Also, in the Funds' annual report, you will find a discussion of
the market conditions and investment strategies that significantly affected the
Funds' performance during its last fiscal year.

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

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>

STATEMENT OF ADDITIONAL INFORMATION

RYDEX SERIES TRUST

6116 EXECUTIVE BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20852
800/820-0888
301/468-8520

Rydex Series Trust (the "Trust") is a no-load mutual fund complex with
twenty-two separate investment portfolios (the "Rydex Funds"). This Statement of
Additional Information ("SAI") relates to the Advisor Class Shares of the
following four portfolios:

NOVA FUND
URSA FUND
OTC FUND

U.S. GOVERNMENT MONEY MARKET FUND

This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Trust's Prospectus, dated August 5, 1998. A copy of
the Trust's Prospectus is available, without charge, upon request to the Trust
at the address above or by telephoning the Trust at the telephone numbers above.

The date of this Statement of Additional Information is August 5, 1998.

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

TABLE OF CONTENTS

Page
----

GENERAL INFORMATION ABOUT THE TRUST. . . . . . . . . . . . . . . . . . . . . .3

DESCRIPTION OF THE MONEY MARKET FUND . . . . . . . . . . . . . . . . . . . . .3

INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . .3

INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 10

PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . 12

MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . 14

PRINCIPAL HOLDERS OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . 19

DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . 21

PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 22

CALCULATION OF RETURN QUOTATIONS . . . . . . . . . . . . . . . . . . . . . . 23

INFORMATION ON COMPUTATION OF YIELD. . . . . . . . . . . . . . . . . . . . . 24

PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . 25

DIVIDENDS, DISTRIBUTIONS, AND TAXES. . . . . . . . . . . . . . . . . . . . . 26

OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

AUDITORS AND CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

<PAGE>

GENERAL INFORMATION ABOUT THE TRUST

The Trust was organized as a Delaware business trust on February 10, 1993. The
Trust is permitted to offer separate portfolios and different classes of shares.
The Trust currently offers two separate classes of shares, Investor Class Shares
and Advisor Class Shares. Investor Class Shares are sold principally to
professional money managers and to investors who take part in certain
asset-allocation investment strategies. Advisor Class Shares are offered
through broker-dealers and other financial institutions ("intermediaries") that
have entered into arrangements with the Trust's Distributor (the "Distributor")
to sell Advisor Class Shares to their customers. Advisor Class Shares differ
from Investor Class Shares primarily in the allocation of certain shareholder
servicing and distribution expenses and in the minimum initial investment
requirement. Sales of shares of each Class are made without a sales charge at
each Fund's per share net asset value. Additional Funds and/or classes may be
created from time to time.

Currently, the Trust has twenty-two separate series. All payments received by
the Trust for shares of any fund belong to that fund. Each fund has its own
assets and liabilities. This SAI relates only to Advisor Class Shares of the
Nova Fund, the Ursa Fund, the OTC Fund, and the U.S. Government Money Market
Fund (the "Money Market Fund") (collectively the "Funds").

In addition to the Funds described in this SAI, the Trust offers Investor and
Advisor Class Shares in the following funds described in separate prospectuses:
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 Investor Class Shares of the Juno fund, Precious Metals Fund, U.S.
Government Bond Fund, and the U.S. Government Money Market Fund.

DESCRIPTION OF THE MONEY MARKET FUND

As discussed in the Prospectus, the Money Market Fund seeks to provide security
of principal, high current income, and liquidity. The Money Market 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 Money Market Fund's assets are
valued using the amortized cost method, which enables the Money Market Fund to
maintain a stable NAV. All securities purchased by the Money Market Fund must
have remaining maturities of 397 days or less. Although the Money Market 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.

<PAGE>

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

Each Fund may borrow money to facilitate management of the Fund's portfolio by
enabling the Fund to meet redemption requests when the liquidation of portfolio
instruments would be inconvenient or disadvantageous. Such borrowing is not for
investment purposes and will be repaid by the borrowing Fund promptly.

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

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

ILLIQUID SECURITIES
While none of the Funds anticipates doing so, each Fund may purchase illiquid
securities, including securities that are not readily marketable and securities
that are not registered ("restricted securities") under the Securities Act of
1933, as amended (the "1933 Act"), but which can be offered and sold to
"qualified institutional buyers" under Rule 144A under the 1933 Act. A Fund
will not invest more than 15% (10% with respect to the Money Market Fund) of the
Fund's net assets in illiquid securities. Each Fund will adhere to a more
restrictive limitation on the Fund's investment in illiquid securities as
required by the securities laws of those jurisdictions where shares of the

<PAGE>

Fund are registered for sale. The term "illiquid securities" for this purpose
means securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which the Fund has valued the
securities. Under the current guidelines of the staff of the Securities and
Exchange Commission (the "Commission"), illiquid securities also are considered
to include, among other securities, purchased over-the-counter options, certain
cover for over-the-counter options, repurchase agreements with maturities in
excess of seven days, and certain securities whose disposition is restricted
under the Federal securities laws. The Fund may not be able to sell illiquid
securities when the Advisor considers it desirable to do so or may have to sell
such securities at a price that is lower than the price that could be obtained
if the securities were more liquid. In addition, the sale of illiquid
securities also may require more time and may result in higher dealer discounts
and other selling expenses than does the sale of securities that are not
illiquid. Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.

LENDING OF PORTFOLIO SECURITIES
Subject to the investment restrictions set forth below, 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, except
that the Money Market Fund will not lend more than 10% of the value of its total
assets. Loans would be subject to termination by the lending Fund on four
business days' notice, or by the borrower on one day's notice. Borrowed
securities must be returned when the loan is terminated. Any gain or loss in
the market price of the borrowed securities which occurs during the term of the
loan inures to the lending Fund and that Fund's shareholders. A lending Fund
may pay reasonable finders, borrowers, administrative, and custodial fees in
connection with a loan.

OPTIONS TRANSACTIONS

OPTIONS ON SECURITIES. The Nova Fund and the OTC Fund may buy call options and
write (sell) put options on securities, and the Ursa Fund may buy put options
and write call options on securities for the purpose of realizing the Fund's
investment objective. By wiring 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,

<PAGE>

by doing so, gives its guarantee to the transaction.

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

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

OPTIONS ON FUTURES CONTRACTS. Under Commodities Futures Trading Commission
("CFTC") Regulations, the Funds 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 a 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
a 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 a Fund may undertake and on the potential
increase in the speculative character of a Fund's outstanding portfolio
securities. Additionally, such segregated accounts will generally assure the
availability of adequate funds to meet the obligations of a 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, a 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, a Fund

<PAGE>

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, a 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 Trust's prospectus, the Trust anticipates that investors in
the Funds, as part of an asset allocation investment strategy, will frequently
exchange shares of the Funds for shares in other Funds pursuant to the exchange
policy of the Trust as well as frequently redeem shares of the Funds (see
"Exchanges" in the Trust's Prospectus). The nature of the Funds has caused the
Funds to experience substantial portfolio turnover. Because each Fund's
portfolio turnover rate to a great extent will depend on the purchase,
redemption, and exchange activity of the Fund's investors, it is very difficult
to estimate what the Fund's actual turnover rate will be in the future.
However, the Trust expects that the portfolio turnover experienced by the Funds
will continue to be substantial.

REPURCHASE AGREEMENTS
As discussed in the Trust's Prospectus, each of the Funds may enter into
repurchase agreements with financial institutions. The Funds each follow
certain procedures designed to minimize the risks inherent in such agreements.
These procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions whose condition
will be continually monitored by the Advisor. In addition, the value of the
collateral underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, a Fund will seek to liquidate such collateral. However, the
exercising of each Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss. It is the current policy of each of the Funds, other
than the 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% with respect to
the Money Market Fund) of the Fund's total assets. The investments of each of
the Funds in repurchase agreements, at times, may be substantial when, in the
view of the Advisor, liquidity or other considerations so warrant.

REVERSE REPURCHASE AGREEMENTS
The Ursa Fund may use reverse repurchase agreements as part of its investment
strategy. Reverse repurchase agreements involve sales by a Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. Generally, the effect of such a transaction
is that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
the Fund will be able to keep the interest income associated with those
portfolio securities. Such transactions are advantageous only if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. Opportunities to achieve this advantage may not
always be available, and the Funds intend to use the reverse repurchase
technique only when this will be to the Fund's advantage to do so. Each Fund
will establish a segregated account with the Trust's custodian bank in which the
Fund will maintain cash or cash equivalents or other portfolio securities equal
in value to the Fund's

<PAGE>

obligations in respect of reverse repurchase agreements.

SHORT SALES
The Ursa Fund also may engage in short sales transactions under which the Fund
sells a security it does not own. To complete such a transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund then is obligated
to replace the security borrowed by purchasing the security at the market price
at the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Fund. Until the security is
replaced, the Fund is required to pay to the lender amounts equal to any
dividends or interest which accrue during the period of the loan. To borrow the
security, the Fund also may be required to pay a premium, which would increase
the cost of the security sold. The proceeds of the short sale will be retained
by the broker, to the extent necessary to meet the margin requirements, until
the short position is closed out.

Until the Ursa Fund closes its short position or replaces the borrowed security,
the Fund will: (a) maintain a segregated account containing cash or liquid
securities at such a level that (i) the amount deposited in the account plus the
amount deposited with the broker as collateral will equal the current value of
the security sold short and (ii) the amount deposited in the segregated account
plus the amount deposited with the broker as collateral will not be less than
the market value of the security at the time the security was sold short; or
(b) otherwise cover the Fund's short position.

The Nova Fund and the OTC Fund each may engage in short sales if, at the time of
the short sale, the Fund owns or has the right to acquire an equal amount of the
security being sold at no additional cost. These Funds may make a short sale
when the Fund wants to sell the security the Fund owns at a current attractive
price, in order to hedge or limit the exposure of the Fund's position.

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

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

8
<PAGE>

maturity.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each Fund, from time to time, in the ordinary course of business, may purchase
securities on a when-issued or delayed-delivery basis (I.E., delivery and
payment can take place between a month and 120 days after the date of the
transaction). These securities are subject to market fluctuation and no
interest accrues to the purchaser during this period. At the time a Fund makes
the commitment to purchase securities on a when-issued or delayed-delivery
basis, the Fund will record the transaction and thereafter reflect the value of
the securities, each day, of such security in determining the Fund's net asset
value. A Fund will not purchase securities on a when-issued or delayed-delivery
basis if, as a result, more than 15% (10% with respect to the Money Market Fund)
of the Fund's net assets would be so invested. At the time of delivery of the
securities, the value of the securities may be more or less than the purchase
price. The Fund will also establish a segregated account with the Fund's
custodian bank in which the Fund will maintain cash or liquid securities equal
to or greater in value than the Fund's purchase commitments for such when-issued
or delayed-delivery securities. The Trust does not believe that a Fund's net
asset value or income will be adversely affected by the Fund's purchase of
securities on a when-issued or delayed-delivery basis.

TRACKING ERROR
While the Funds do not expect that the returns over a year will deviate
adversely from their respective benchmarks by more than ten percent, several
factors may affect their ability to achieve this correlation. Among these are:
(1) Fund expenses, including brokerage (which may, be increased by high
portfolio turnover); (2) less than all of the securities in the benchmark being
held by a Fund and securities not included in the benchmark being held by a
Fund; (3) an imperfect correlation between the performance of instruments held
by a Fund, such as futures contracts and options, and the performance of the
underlying securities in the cash market; (4) bid-ask spreads (the effect of
which may be increased by portfolio turnover); (5) a Fund holds instruments
traded in a market that has become illiquid or disrupted; (6) Fund share prices
being rounded to the nearest cent; (7) changes to the benchmark index that are
not disseminated in advance; (8) the need to conform a Fund's portfolio holdings
to comply with investment restrictions or policies or regulatory or tax law
requirements; or (9) market movements that run counter to a leveraged Fund's
investments (which will cause divergence between the Fund and its benchmark over
time due to the mathematical effects of leveraging). Market movements that run
counter to a leveraged Fund's investments will cause some divergence between the
Fund and its benchmark over time due to the mathematical effects of leveraging.
The magnitude of the divergence is dependent upon the magnitude of the market
movement, its duration, and the degree to which the Fund is leveraged. The
tracking error of a leveraged Fund is generally small during a well-defined
uptrend or downtrend in the market when measured from price peak to price peak,
access a market decline and subsequent recovery, however, the deviation of the
Fund from its benchmark may be significant.

INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Funds (other than the Money Market Fund) presently may invest in the
securities of other investment companies to the extent that such an investment
would be consistent with the requirements of Section 12(d)(1) of the 1940 Act.
A Fund, therefore, may invest in the securities of another investment company
(the "acquired company") provided that the Fund, immediately after such purchase
or acquisition, does not own in the aggregate: (i) more than 3% of the total
outstanding voting stock of the acquired company; (ii) securities issued by the
acquired company having an aggregate value in excess of 5% of the value of the
total assets of the Fund; or (iii) securities issued by the acquired company and
all other investment companies (other than Treasury stock of

<PAGE>

the Fund) having an aggregate value in excess of 10% of the value of the total
assets of the Fund. The Money Market Fund may invest in the securities of other
investment companies only as part of a merger, reorganization, or acquisition,
subject to the requirements of the 1940 Act.

If a Fund invests in, and, thus, is a shareholder of, another investment
company, the Fund's shareholders will indirectly bear the Fund's proportionate
share of the fees and expenses paid by such other investment company, including
advisory fees, in addition to both the management fees payable directly by the
Fund to the Fund's own investment adviser and the other expenses that the Fund
bears directly in connection with the Fund's own operations.

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

A Fund shall not:

1. Lend any security or make any other loan if, as a result, more than
33 1/3% of the value of the Fund's total assets would be lent to other
parties, except (i) through the purchase of a portion of an issue of
debt securities in accordance with the Fund's investment objective,
policies, and limitations, or (ii) by engaging in repurchase
agreements with respect to portfolio securities, or (iii) through the
loans of portfolio securities provided the borrower maintains
collateral equal to at least 100% of the value of the borrowed
security and marked-to-market daily.

2. Underwrite securities of any other issuer.

3. Purchase, hold, or deal in real estate or oil and gas interests,
although the Fund may purchase and sell securities that are secured by
real estate or interests therein and may purchase mortgage-related
securities and may hold and sell real estate acquired for the Fund as
a result of the ownership of securities.

4. Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act) (including the amount of senior securities issued but
excluding liabilities and indebtedness not constituting senior
securities), except that the Fund may issue senior securities in
connection with transactions in options, futures, options on futures,
and other similar investments, and except as otherwise permitted
herein and in Investment Restriction Nos. 5, 7, 8, and 9, as
applicable to the Fund.

5. Pledge, mortgage, or hypothecate the Fund's assets, except to the
extent necessary to secure permitted borrowings and to the extent
related to the deposit of assets in escrow in connection with (i) the
writing of covered put and call options, (ii) the purchase of
securities on a forward-commitment or delayed-delivery basis, and
(iii) collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts,
including those relating to indexes, and options on futures contracts
or indexes.

<PAGE>

6. Invest in commodities except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies,
indexes, and options on futures contracts or indexes and currencies
underlying or related to any such futures contracts, and purchase and
sell currencies (and options thereon) or securities on a
forward-commitment or delayed-delivery basis.

7. Invest 25% or more of the value of the Fund's total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry. This limitation does not apply to
investments or obligations of the U.S. Government or any of its
agencies or instrumentalities.

8. Borrow money, except (i) as a temporary measure for extraordinary or
emergency purposes and then only in amounts not in excess of 5% of the
value of the Fund's total assets from a bank or (ii) in an amount up
to one-third of the value of the Fund's total assets, including the
amount borrowed, in order to meet redemption requests without
immediately selling portfolio instruments. This provision is not for
investment leverage but solely to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio instruments would be inconvenient or
disadvantageous.

8.1 THE NOVA FUND MAY BORROW MONEY, SUBJECT TO THE CONDITIONS OF
PARAGRAPH 8, FOR THE PURPOSE OF INVESTMENT LEVERAGE.

9. Make short sales of portfolio securities or purchase any portfolio
securities on margin, except for such short-term credits as are
necessary for the clearance of transactions. The deposit or payment
by the Fund of initial or variation margin in connection with futures
or options transactions is not considered to be a securities purchase
on margin. The Fund may engage in short sales if, at the time of the
short sale, the Fund owns or has the right to acquire an equal amount
of the security being sold at no additional cost ("selling against the
box").

9.1 THE URSA FUND MAY ENGAGE IN SHORT SALES OF PORTFOLIO SECURITIES
OR MAINTAIN A SHORT POSITION IF AT ALL TIMES WHEN A SHORT
POSITION IS OPEN (i) THE FUND MAINTAINS A SEGREGATED ACCOUNT WITH
THE FUND'S CUSTODIAN TO COVER THE SHORT POSITION IN ACCORDANCE
WITH THE POSITION OF THE SECURITIES AND EXCHANGE COMMISSION OR
(ii) THE FUND OWNS AN EQUAL AMOUNT OF SUCH SECURITIES OR
SECURITIES CONVERTIBLE INTO OR EXCHANGEABLE, WITHOUT PAYMENT OF
ANY FURTHER CONSIDERATION, FOR SECURITIES OF THE SAME ISSUE AS,
AND EQUAL IN AMOUNT TO, THE SECURITIES SOLD SHORT.

FUNDAMENTAL POLICIES APPLICABLE TO THE MONEY MARKET FUND

The Money Market Fund shall not:

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

<PAGE>

11. 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. Issue senior securities, except as permitted by the Money Market
Fund's investment objectives and policies.

13. Write or purchase put or call options.

14. 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.

15. 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.

16. 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 Fund may not:

1. Invest in warrants.

2. Invest in real estate limited partnerships.

3. Invest in mineral leases.

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

PORTFOLIO TRANSACTIONS AND BROKERAGE

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

<PAGE>

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

The policy of each Fund regarding purchases and sales of securities for the
Fund's portfolio is that primary consideration will be given to obtaining the
most favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange, each
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. Each Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Advisor from obtaining a high quality of brokerage and
research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Advisor relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily
subjective and imprecise, as in most cases an exact dollar value for those
services is not ascertainable.

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

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

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

For the fiscal periods ended June 30, 1996, March 31, 1997, and March 31, 1998
the Funds paid the following brokerage commissions:

<PAGE>

<TABLE>
<CAPTION>
Aggregate Brokerage Commissions
----------------------------------------
Fund 1996 1997* 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Nova Fund $293,000 $259,900 $836,833
- ----------------------------------------------------------------------------
Ursa Fund $669,000 $236,053 $284,054
- ----------------------------------------------------------------------------
OTC Fund $673,000 $15,491 $20,402
- ----------------------------------------------------------------------------
Money Market Fund $0 $0 $0
- ----------------------------------------------------------------------------
</TABLE>

*For the nine-month period from July 1, 1996 to March 31, 1997

MANAGEMENT OF THE TRUST

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

TRUSTEES

(*) ALBERT P. VIRAGH, JR. (57)

Chairman of the Board of Trustees and President of the Trust; Chairman of
the Board, President, and Treasurer of PADCO Advisors, Inc., investment
adviser to the Trust, 1993 to present; Chairman of the Board, President,
and Treasurer of PADCO Service Company, Inc., shareholder and transfer
agent servicer to the Trust, 1993 to present; Chairman of the Board of
Managers of The Rydex Advisor Variable Annuity Account (the "Separate
Account"), a separate account of Great American Reserve Insurance Company,
1996 to present; Chairman of the Board, President, and Treasurer of PADCO
Advisors II, Inc., investment adviser to the Separate Account, 1996 to
present; Chairman of the Board, President, and Treasurer of PADCO Financial
Services, Inc., a registered broker-dealer firm, 1996 to present; Vice
President of Rushmore Investment Advisors Ltd., a registered investment
adviser, 1985 to 1993. Address: 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.

COREY A. COLEHOUR (52)

Trustee of the Trust; Manager of the Separate Account, 1996 to present;
Senior Vice President of Marketing of Schield Management Company, a
registered investment adviser, 1985 to present. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.

- --------------------------
(*) This trustee is deemed to be an "interested person" of the Trust, within
the meaning of Section 2(a)(19) of the 1940 Act, inasmuch as this person is
affiliated with the Advisor, as described herein.

<PAGE>

J. KENNETH DALTON (57)

Trustee of the Trust; Manager of the Separate Account, 1996 to present;
Mortgage Banking Consultant and Investor, The Dalton Group, April 1995 to
present; President, CRAM Mortgage Group, Inc. 1966 to April 1995. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.

JOHN O. DEMARET (57)

Trustee of the Trust; Manager of the Separate Account, 1997 to present;
Founder and Chief Executive Officer, Health Cost Controls America, Chicago,
Illinois, 1987 to 1996; sole practitioner, Chicago, Illinois, 1984 to 1987;
General Counsel for the Chicago Transit Authority, 1981 to 1984; Senior
Partner, O'Halloran, LaVarre & Demaret, Northbrook, Illinois, 1978 to 1981.
Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.

PATRICK T. MCCARVILLE (55)

Trustee of the Trust; Manager of the Separate Account, 1997 to present;
Founder and Chief Executive Officer, Par Industries, Inc., Northbrook,
Illinois, 1977 to present; President and Chief Executive Officer, American
Health Resources, Northbrook, Illinois, 1984 to 1986. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.

ROGER SOMERS (53)

Trustee of the Trust; Manager of the Separate Account, 1996 to present;
President, Arrow Limousine, 1963 to present. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.

OFFICERS

ROBERT M. STEELE (39)

Secretary and Vice President of the Trust; Vice President of PADCO
Advisors, Inc., investment adviser to the Trust, 1994 to present; Secretary
and Vice President of the Separate Account, 1996 to present; Vice President
of PADCO Advisors II, Inc., investment adviser to the Separate Account,
1996 to present; Vice President of The Boston Company, Inc., an
institutional money management firm, 1987 to 1994. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.

CARL G. VERBONCOEUR (45)

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

MICHAEL P. BYRUM (28)

Vice President of Investments And 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

<PAGE>

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

The aggregate compensation paid by the Trust to each of its Trustees serving
during the fiscal year ended March 31, 1998, is set forth in the table below:

<TABLE>
<CAPTION>
Aggregate Pension or Retirement Estimated Annual
Name of Person, Position Compensation From Benefits Accrued as Part Benefits Upon
Trust of Trust's Expenses Retirement
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Albert P. Viragh, Jr.*, $0 $0 $0
CHAIRMAN AND PRESIDENT
- ---------------------------------------------------------------------------------------------------------------------------
Corey A. Colehour, $10,500 $0 $0
TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------
J. Kenneth Dalton, $10,500 $0 $0
TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------
Roger Somers, $10,500 $0 $0
TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------
John O. Demaret, $6,500 $0 $0
TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------
Patrick T. McCarville, $6,500 $0 $0
TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Denotes an "interested person" of the Trust.
** Messrs. Demaret and McCarville were elected to the Board of Trustees in
December 1997.

As of the date of this Statement of Additional Information, the Trustees and the
officers of the Trust, as a group, owned, of record and beneficially, less than
1.0% of the outstanding shares of each Fund.

THE ADVISORY AGREEMENT
Under an investment advisory agreement with the Advisor, dated May 14, 1993, and
amended on November 2, 1993, and also amended on December 13, 1994, March 8,
1996, and September 25, 1996, the Advisor serves as the investment adviser for
each series of the Trust and provides investment advice to the Funds and
oversees the day-to-day operations of the Funds, subject to direction and
control by the Trustees and the officers of the Trust. As of June 30, 1998, net
Trust assets under management of the Advisor were approximately $2.6 billion.
Pursuant to the advisory agreement with the Advisor, the Funds pay the Advisor
the following fees at an annual rate based on the average daily net assets for
each respective Fund, as set forth below:

For the fiscal periods ended June 30, 1996, March 31, 1997 and March 31, 1998,
the Advisor received the following investment advisory fees:

<PAGE>

<TABLE>
<CAPTION>
Advisory Fees Paid
Fund Annual 1996 1997* 1998
Advisory
Fee
Contractual
Rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nova Fund 0.75% $1,022,794 $1,812,740 $4,588,393
- ------------------------------------------------------------------------------
Ursa Fund 0.90% $1,607,706 $2,070,135 $2,956,581
- ------------------------------------------------------------------------------
OTC Fund 0.75% $541,443 $775,607 $2,529,352
- ------------------------------------------------------------------------------
Money Market Fund 0.50% $891,864 $671,957 $1,361,674
- ------------------------------------------------------------------------------
</TABLE>

*For the nine-month period from July 1, 1996 to March 31, 1997

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

The Advisor, which has its office at 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852, was incorporated in the State of Maryland on
February 5, 1993. Albert P. Viragh, Jr., the Chairman of the Board of Trustees
and the President of the Advisor, owns a controlling interest in the Advisor.

THE SERVICE AGREEMENT

General administrative, shareholder, dividend disbursement, transfer agent, and
registrar services are provided to the Trust and the Funds by PADCO Service
Company, Inc., 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
(the "Servicer"), subject to the general supervision and control of the Trustees
and the officers of the Trust, pursuant to a service agreement between the Trust
and the Servicer, dated September 19, 1995, and amended on March 8, 1996, and
also amended on September 25, 1996. The Servicer is wholly-owned by Albert P.
Viragh, Jr., who is the Chairman of the Board and the President of the Trust and
the sole controlling person and majority owner of the Advisor.

For the fiscal periods ended June 30, 1996, March 31, 1997 and March 31, 1998,
the Funds paid PADCO the following service fees:

<PAGE>

<TABLE>
<CAPTION>
Service Fees Paid
--------------------------------------------------
Fund Annual Service Fee Rate 1996 1997* 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nova Fund 0.25% $327,476 $606,411 $ 1,529,464
- ----------------------------------------------------------------------------------------------------------------------------------
Ursa Fund 0.25% $451,107 $575,038 $ 821,273
- ----------------------------------------------------------------------------------------------------------------------------------
OTC Fund 0.20% $123,358 $205,328 $ 674,494
- ----------------------------------------------------------------------------------------------------------------------------------
Money Market Fund 0.20% $403,167 $268,855 $ 544,706
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

*For the nine-month period from July 1, 1996 to March 31, 1997

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, disburses 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.

DISTRIBUTION
Pursuant to the Distribution Agreement adopted by the Trust, PADCO Financial
Services, Inc. (The "Distributor"), 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852, acts as distributor for the Advisor Class Shares of
the Trust under the general supervision and control of the Trustees and the
officers of the Trust.

Under a Distribution and Shareholder Services Plan, Service Providers may use
their fees for: (i) compensation for its services 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 may, at its discretion, retain a portion of such payments to
compensate itself for distribution services and distribution related expenses
such as the costs of preparation, printing, mailing or otherwise disseminating
sales literature, advertising, and prospectuses (other than those furnished to
current shareholders of the Fund), promotional and incentive programs, and such
other marketing expenses that the Distributor may incur.

A Service Provider also may perform some or all of the following shareholder
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 Services Provider;
- responding to inquiries from clients concerning their investment in
shares;
- assisting clients in changing dividend options, account designations
and addresses;

<PAGE>

- 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; 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 the
Advisor Class Shares of the Funds.

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.

PRINCIPAL HOLDERS OF SECURITIES

As of May 1, 1998, the following persons were the only persons who were record
owners or, to the knowledge of the Trust, beneficial owners of 5% or more of the
shares of the Funds.

<TABLE>
<CAPTION>
FUND NAME AND ADDRESS NUMBER OF SHARES % OWNERSHIP
- ----------------------------- ----------------------------------------- ---------------- -----------
<S> <C> <C> <C>
NOVA FUND - INVESTOR CLASS National Financial Services Corp. 4,314,230.693 16.35%
P.O. Box 3908
New York, NY 10008

Schwab & Company 5,704,608.722 21.62%
101 Montgomery Street
San Francisco, CA 94104

Donaldson Lufkin Jenrette 1,955,057.580 7.41%
P.O. Box 2052
Jersey City, NJ

URSA FUND - INVESTOR CLASS Schwab & Company 14,205,314.227 22.62%
101 Montgomery Street
San Francisco, CA 94104
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
FUND NAME AND ADDRESS NUMBER OF SHARES % Ownership
- ----------------------------- ----------------------------------------- ---------------- -----------
<S> <C> <C> <C>
National Financial Services Corp. 6,992,749.176 11.02%
P.O. Box 3908
New York, NY 10008

Donaldson Lufkin Jenrette 4,247,916.643 6.75%
P.O. Box 2052
Jersey City, NJ 07303

OTC FUND - INVESTOR CLASS Schwab & Company 2,578,892.330 17.26%
101 Montgomery Street
San Francisco, CA 94104

First Trust Corp. 852,951.632 5.71%
P.O. Box 173736
Denver, CO 80217

National Financial Services Group 900,439.137 6.03%
P.O. Box 3752
Church Street Station
New York, NY 10041-3299

Donaldson Lufkin Jenrette 1,439,063.751 9.63%
P.O. Box 2052
Jersey City, NJ 07303

Trust Company of America 888,100.171 5.94%
P.O. Box 6503
Englewood, CO 80155

MONEY MARKET FUND National Financial Services Group 51,729,219.560 51.23%
for the Exclusive Benefit of Customers
P.O. Box 3752
Church Street Station
New York, NY 10041-3299

Trust Company of America 26,290,129.090 26.04%
P.O. Box 6503
Englewood, CO 80155

Independent Trust Corp. 15,909,268.530 15.76%
Custodian Funds 98
15255 S 94th Avenue, Suite 303
Orland Park, IL 60462
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
FUND NAME AND ADDRESS NUMBER OF SHARES % Ownership
- ----------------------------- ----------------------------------------- ---------------- -----------
<S> <C> <C> <C>
First Trust & Co. (Datalynx) 6,615,868.065 6.55%
P.O. Box 173736
Denver, CO 80217
</TABLE>

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 Advisor based on guidelines
adopted 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.

<PAGE>

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 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
("NRSROs") 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 NRSRO has issued a
short-term rating with respect to the security, then by that NRSRO; (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
NRSRO 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

<PAGE>

by each Fund share and by the increase or decrease in value of the Fund's share
price. See "Calculation of Return Quotations."

Performance information for each of the Funds contained in reports to
shareholders or prospective shareholders, advertisements, and other promotional
literature may be compared to the record of various unmanaged indexes.
Performance information for the Nova Fund and the Ursa Fund may be compared to
various unmanaged indexes, including, but not limited to, the S&P 500 Index or
the Dow Jones Industrial Average. Performance information for the OTC Fund may
be compared to various unmanaged indexes, including, but not limited to, its
current benchmark, the NASDAQ 100 Index-TM-, and the NASDAQ Composite Index-TM-.
The OTC Fund has the ability to invest in securities not included in the
NASDAQ 100 Index-TM- or the NASDAQ Composite Index-TM-, and the OTC Fund's
investment portfolio may or may not be similar in composition to NASDAQ 100
Index-TM- or the NASDAQ Composite Index-TM-.

Such unmanaged indexes may assume the reinvestment of dividends, but generally
do not reflect deductions for operating costs and expenses. In addition, a
Fund's total return may be compared to the performance of broad groups of
comparable mutual funds with similar investment goals, as such performance is
tracked and published by such independent organizations as Lipper Analytical
Services, Inc. ("Lipper"), and CDA Investment Technologies, Inc., among others,
when Lipper's tracking results are used, the Fund will be compared to Lipper's
appropriate fund category, that is, by fund objective and portfolio holdings.
Performance figures are based on historical results and are not intended to
indicate future performance.

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

CALCULATION OF RETURN QUOTATIONS

For purposes of quoting and comparing the performance of a Fund (other than the
Money Market Fund) to that of other mutual funds and to other relevant market
indexes in advertisements or in reports to shareholders, performance for the
Fund may be stated in terms of total return. Under the rules of the Securities
and Exchange Commission ("SEC Rules"), Funds 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

<PAGE>

cover 1, 5, and 10 year periods or a shorter period dating from the
effectiveness of the Registration Statement of the Trust. In calculating the
ending redeemable value, all dividends and distributions by a Fund are assumed
to have been reinvested at net asset value as described in the Trust's
Prospectus on the reinvestment dates during the period. Total return, or 'T' in
the formula above, is computed by finding the average annual compounded rates of
return over the 1, 5, and 10 year periods (or fractional portion thereof) that
would equate the initial amount invested to the ending redeemable value.

For the one-year period ended March 31, 1998, and for the period from the
respective commencement of operations of the Funds to March 31, 1998, the
average annual compounded rate of return of Investor Class Shares of the
respective Funds (other than the Money Market Fund), assuming the reinvestment
of all dividends and distributions, was as follows:

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FROM THE
ONE YEAR COMMENCEMENT
PERIOD ENDED OF OPERATIONS TO
MARCH 31, 1998 MARCH 31, 1998
<S> <C> <C>
Nova Fund 67.02% 28.95%(1)
Ursa Fund (29.06)% (14.93)%(2)
OTC Fund 55.05% 30.87%(3)
</TABLE>

- --------------------------------
(1) Commenced operations 7/12/93
(2) Commenced operations 1/7/94
(3) Commenced operations 2/14/94

INFORMATION ON COMPUTATION OF YIELD

THE MONEY MARKET FUND
The Money Market Fund's annualized current yield, as may be quoted from time to
time in advertisements and other communications to shareholders and potential
investors, is computed by determining, for a stated seven-day period, the net
change, exclusive of capital changes and including the value of additional
shares purchased with dividends and any dividends declared therefrom (which
reflect 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.

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

<PAGE>

return by adding 1, raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.

The Money Market Fund's annualized effective yield and annualized current yield,
for the seven-day period ended March 31, 1998, were approximately 4.90% and
4.74%, respectively.

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

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

PURCHASE AND REDEMPTION OF SHARES

MINIMUM INVESTMENT REQUIREMENTS
Shareholders will be informed of any increase in the minimum investment
requirements by a new prospectus or a prospectus supplement, in which the new
minimum is disclosed. Any request for a redemption (including pursuant to check
writing privileges) by an investor whose account balance is (a) below the
currently applicable minimum investment, or (b) would be below that minimum as a
result of the redemption, will be treated as a request by the investor of a
complete redemption of that account. In addition, the Trust may redeem an
account whose balance (due in whole or in part to redemptions since the time of
last purchase) has fallen below the minimum investment amount applicable at the
time of the shareholder's most recent purchase of Fund shares (unless the
shareholder brings his or her account value up to the currently applicable
minimum investment).

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

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

HOLIDAYS
The NYSE, the Federal Reserve Bank of New York, the NASDAQ, the CME, the CBOT,
and other U.S. exchanges are closed on weekends and on the following holidays:
(i) New Year's Day, Martin Luther King Jr.'s Birthday, President's Day, Good
Friday, Memorial Day, July Fourth, Labor Day, Columbus Day, Thanksgiving Day,
and Christmas Day; and (ii) the preceding Friday if any of these holidays falls
on a Saturday, or the subsequent Monday if any of these holidays falls on a
Sunday. Although the Trust expects the same holiday schedules to be observed in
the future, each of the aforementioned exchanges may modify its holiday schedule

<PAGE>

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
Trust's Prospectus under "Dividends and Distributions." All such distributions
of a Fund normally automatically will be reinvested without charge in additional
shares of the same Fund.

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 RIC, a Fund would not be subject to Federal income taxes on the net
investment income and capital gains that the Fund distributes to the Fund's
shareholders. The distribution of net investment income and capital gains will
be taxable to Fund shareholders regardless of whether the shareholder elects to
receive these distributions in cash or in additional shares. Distributions
reported to Fund shareholders as long-term capital gains shall be taxable as
such, regardless of how long the shareholder has owned the shares. Fund
shareholders will be notified annually by the Fund as to the Federal tax status
of all distributions made by the Fund. Distributions may be subject to state
and local taxes.

Shareholders of the Money Market Fund will be subject to Federal income tax on
dividends paid from interest income 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

<PAGE>

ordinary dividend income regardless of whether the shareholder receives such
distributions in additional shares of the Money Market Fund or in cash. Since
the Money Market Fund's income is expected to be derived entirely from interest
rather than dividends, none of such distributions will be eligible for the
Federal dividends received deduction available to corporations.

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

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

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

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

TRANSACTIONS BY THE FUNDS
Each of the Nova Fund, the Ursa Fund and the OTC Fund utilize options on stock
indexes in its operations. Each of these five 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

<PAGE>

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.

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

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

OTHER INFORMATION

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.

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

<PAGE>

related information.

COUNSEL

Morgan, Lewis & Bockius LLP, 1800 M Street, N.W., Washington, D.C. 20036, serves
as counsel to the Trust.

AUDITORS AND CUSTODIAN

Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, are the
auditors and the independent certified public accountants of the Trust and each
of the Funds. Star Bank, N.A. (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.

FINANCIAL STATEMENTS

The Trust's financial statements for the fiscal year ended March 31, 1998,
including notes thereto and the report of Deloitte & Touche LLP thereon have
been filed with the SEC and are incorporated by reference into this Statement of
Additional Information. A copy of the Trust's Annual Report to Shareholders
(the "Annual Report") must accompany the delivery of this Statement of
Additional Information.

<PAGE>

APPENDIX A

BOND RATINGS

Below is a description of Standard & Poor's Ratings Group ("Standard & Poor's")
and Moody's Investors Service, Inc. ("Moody's") bond rating categories.

STANDARD & POOR'S RATINGS
GROUP CORPORATE BOND RATINGS

AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.

AA -- Bonds rated "AA" also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from "AAA" issues only in small degree.

A -- Bonds rated "A" have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

BBB -- Bonds rated "BBB" are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.

BB -- Bonds rated "BB" have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.

B -- Bonds rated "B" have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.

CCC -- Bonds rated "CCC" have a currently identifiable vulnerability to default
and are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.

MOODY'S INVESTORS SERVICE, INC.
CORPORATE BOND RATINGS
AAA -- Bonds rate "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to a "gilt-edged."
Interest payments are protected by a large or by an exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa -- Bonds rate "Aa" are judged to be of high quality by all standards.
Together with the Aaa group, they

<PAGE>

comprise what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protections may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long term risk
appear somewhat larger than in "Aaa" securities.

A -- Bonds rated "A" possess many favorable investment attributes, and are
to be considered as upper medium grade obligations. Factors giving security
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa -- Bonds rated "Baa" are considered as medium grade obligations (I.E., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba -- Bonds rated "Ba" are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B -- Bonds rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any longer period of time may be small.

Caa -- Bonds rated "Caa" are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

<PAGE>
PART C

OTHER INFORMATION

ITEM 23. EXHIBITS

(b) Exhibits

(a)(1) Certificate of Trust of Rydex Series Trust (the "Registrant" or the
"Trust") incorporated herein by reference to Exhibit 1a of
Post-Effective Amendment No. 27 to this Registration Statement filed
on October 30, 1996.
(a)(2) Declaration of Trust of the Registrant incorporated herein by
reference to Exhibit 1b of Post-Effective Amendment No. 27 to this
Registration Statement filed on October 30, 1996.
(b) By-Laws of Registrant incorporated herein by reference to Exhibit 2 of
Post-Effective Amendment No. 27 to this Registration Statement filed
on October 30, 1996.
(c) Not applicable.
(d)(1) Investment Advisory Agreement between Registrant and PADCO Advisors,
Inc. incorporated herein by reference to Exhibit 5a of Post-Effective
Amendment No. 27 to this Registration Statement filed on October 30,
1996.
(d)(2) Sub-Advisory Agreement between PADCO Advisors, Inc. and Loomis, Sayles
& Company, L.P. incorporated herein by reference to Exhibit 5b of
Post-Effective Amendment No. 27 to this Registration Statement filed
on October 30, 1996.
(d)(3) Amendment to Advisory Agreement between the Registrant and PADCO
Advisors, Inc. dated March 16, 1998 filed on May 29, 1998.
(e) Distribution Agreement between the Registrant and PADCO Financial
Services, Inc. relating to the Adviser Class Shares as filed on May
29, 1998.
(f) Not applicable.
(g) Custody Agreement between Registrant and Star Bank, N.A. incorporated
herein by reference to Post-Effective Amendment No. 27 to Exhibit 8 of
this Registration Statement filed on October 30, 1996.
(h)(1) Service Agreement between Registrant and PADCO Service Company, Inc.
incorporated herein by reference to Exhibit 9c of Post-Effective
Amendment No. 27 to this Registration Statement filed on October 30,
1996.
(h)(2) Portfolio Accounting Services Agreement between Registrant and PADCO
Service Company, Inc. incorporated herein by reference to Exhibit 9d
of Post-Effective Amendment No. 27 to this Registration Statement
filed on October 30, 1996.
(h)(3) Amendment to Service Agreement between Registrant and PADCO Service
Company dated March 16, 1998 as filed May 29, 1998.

2
<PAGE>

ITEM 23. EXHIBITS (continued)

(i) Not applicable.
(j) Not applicable.
(k) Not applicable.
(l ) Not applicable.
(m)(1) Plan of Distribution for The Rydex Institutional Money Market Fund
incorporated herein by reference to Exhibit 15a of Post-Effective
Amendment No. 24 to this Registration Statement, filed on October 27,
1995.
(m)(2) Plan of Distribution for The Rydex Institutional Money Market Fund as
revised, March 12, 1997 incorporated herein by reference to Exhibit
15b of Post-Effective Amendment No. 24 to this Registration Statement,
filed on October 27, 1995.
(m)(3) Plan of Distribution for The Rydex Institutional Money Market Fund as
revised, June 23, 1997 incorporated herein by reference to Exhibit 15c
Post-Effective Amendment No. 24 to this Registration Statement, filed
on October 27, 1995.
(m)(4) Plan of Distribution for The Rydex High Yield Fund incorporated herein
by reference to Post-Effective Amendment No. 26 to Exhibit 15d of this
Registration Statement, filed on September 11, 1996.
(m)(5) Plan of Distribution for The Rydex High Yield Fund, as revised March
12, 1995 incorporated herein by reference to Exhibit 15e of
Post-Effective Amendment No. 24 to this Registration Statement, filed
on October 27, 1995.
(m)(6) Plan of Distribution for The Rydex High Yield Fund, as revised June
23, 1997 incorporated herein by reference to Exhibit 15f of
Post-Effective Amendment No. 24 to this Registration Statement, filed
on October 27, 1995.
(m)(7) Shareholder Servicing Support Agreements between PADCO Financial
Services, Inc. and Selling Recipients in connection with the Plan of
Distribution for The Rydex Institutional Money Market Fund
incorporated herein by reference to Exhibit 15g of Post-Effective
Amendment No. 25 to this Registration Statement, filed on March 1,
1996.
(m)(8) Shareholder Servicing Support Agreement between PADCO Financial
Services, Inc. and Selling Recipients in connection with the Plan of
Distribution for The Rydex High Yield Fund incorporated herein by
reference to Exhibit 15h of Post-Effective Amendment No. 26 to this
Registration Statement, filed on September 11, 1996.
(m)(9) Distribution Plan and Shareholder Servicing Agreement for Advisor
Class Shares is incorporated by reference to Exhibit 15i of
Post-Effective Amendment No. 30.
(n) Not applicable.
(o) Rule 18f-3 Plan is incorporated by reference to Exhibit 18 of
Post-Effective Amendment No. 30.

3
<PAGE>

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

The following persons may be deemed to be directly or indirectly controlled by
or under the common control with the Registrant, a Delaware business trust:

PERCENTAGE OF VOTING
SECURITIES OWNED AND/OR
STATE OF ORGANIZATION AND CONTROLLED BY THE
RELATIONSHIP (IF ANY) TO THE CONTROLLING PERSON OR
COMPANY REGISTRANT OTHER BASIS OF COMMON
CONTROL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PADCO Advisors, Inc. (the "Advisor") a Maryland corporation, a registered 80% of the voting securities of the
investment adviser, and the Advisor are owned by Albert P. Viragh,
Registrant's investment adviser Jr., the Chairman of the Board of
Directors, the President, and the
Treasurer of the Advisor, and 100% of
the voting securities are controlled by
Albert P. Viragh, Jr.

PADCO Service Company, Inc. (the a Maryland corporation, a registered 100% of the voting securities of the
"Servicer") transfer agent, and the Registrant's Servicer are owned by Albert P. Viragh,
shareholder and transfer agent servicer Jr., the Chairman of the Board of
Directors, the President, and the
Treasurer of the Servicer

PADCO Financial Services, Inc. (the a Maryland corporation, a registered 100% of the voting securities of the
"Distributor") broker-dealer, and the distributor of Distributor are owned by Albert P.
the shares of The Rydex Institutional Viragh, Jr., the Chairman of the Board
Money Market Fund, a series of the of Directors, the President, and the
Registrant Treasurer of the Distributor

4
<PAGE>

PADCO Advisors II, Inc. a Maryland corporation and a registered 100% of the voting securities are owned
investment adviser (PADCO II is not by Albert P. Viragh, Jr., the Chairman
otherwise related to the Registrant) of the Board of Directors, the
President, and the Treasurer of PADCO II

Rydex Advisor Variable Annuity Account a managed separate account of Great the investment advisers for the Separate
(the "Separate Account") American Reserve Insurance Company, Account and the Registrant are under the
which is organized under the laws of the common control of Albert P. Viragh, Jr.,
State of Texas and is advised by PADCO II the Chairman of the Board of Trustees,
President, and Treasurer of the
Registrant
</TABLE>

* The principal business address for each of the aforementioned directors and
officers of PADCO Financial Services, Inc., is 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852.

ITEM 25. INDEMNIFICATION

The Registrant is organized as a Delaware business trust and is operated
pursuant to a Declaration of Trust, dated as of March 13, 1993 (the "Declaration
of Trust"), that permits the Registrant to indemnify its trustees and officers
under certain circumstances. Such indemnification, however, is subject to the
limitations imposed by the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended. The Declaration of Trust of the
Registrant provides that officers and trustees of the Trust shall be indemnified
by the Trust against liabilities and expenses of defense in proceedings against
them by reason of the fact that they each serve as an officer or trustee of the
Trust or as an officer or trustee of another entity at the request of the
entity. This indemnification is subject to the following conditions:

(a) no trustee or officer of the Trust is indemnified against any
liability to the Trust or its security holders which was the result of
any willful misfeasance, bad faith, gross negligence, or reckless
disregard of his duties;

(b) officers and trustees of the Trust are indemnified only for actions
taken in good faith which the officers and trustees believed were in
or not opposed to the best interests of the Trust; and

5
<PAGE>

(c) expenses of any suit or proceeding will be paid in advance only if the
persons who will benefit by such advance undertake to repay the
expenses unless it subsequently is determined that such persons are
entitled to indemnification.

The Declaration of Trust of the Registrant provides that if indemnification is
not ordered by a court, indemnification may be authorized upon determination by
shareholders, or by a majority vote of a quorum of the trustees who were not
parties to the proceedings or, if this quorum is not obtainable, if directed by
a quorum of disinterested trustees, or by independent legal counsel in a written
opinion, that the persons to be indemnified have met the applicable standard.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Each of the directors of the Trust's investment adviser, PADCO Advisors, Inc.
(the "Advisor"), Albert P. Viragh, Jr., the Chairman of the Board of Directors,
President, and Treasurer of the Advisor, and Amanda C. Viragh, the Secretary of
the Advisors, is an employee of the Advisor at 6116 Executive Boulevard, Suite
400, Rockville, Maryland 20852. Albert P. Viragh, Jr. also has served (and
continues to serve) as: (i) the Chairman of the Board of Trustees and the
President of the Trust since the Trust's organization as a Delaware business
trust on March 13, 1993; (ii) the Chairman of the Board of Directors, the
President, and the Treasurer of PADCO Service Company, Inc. (the "Servicer"),
the Trust's registered transfer agent and shareholder servicer, since the
incorporation of the Servicer in the State of Maryland on October 6, 1993; (iii)
the Chairman of the Board of Directors, the President, and the Treasurer of
PADCO Advisors II, Inc. ("PADCO II"), a registered investment adviser, since the
incorporation of PADCO II in the State of Maryland on July 5, 1994; and (iv) the
Chairman of the Board of Directors, the President, and the Treasurer of PADCO
Financial Services, Inc. (the "Distributor"), the distributor of the shares of
The Rydex High Yield Fund and The Rydex Institutional Money Market Fund, each a
series of the Trust, since the incorporation of the Distributor in the State of
Maryland on March 21, 1996. Amanda C. Viragh also has served (and continues to
serve) as the Secretary of the Advisor, the Servicer, and PADCO II, and also as
the Assistant Treasurer of the Servicer.

ITEM 27. PRINCIPAL UNDERWRITER

(a) PADCO Financial Services Inc. serves as the principal underwriter for the
securities of (i) The Rydex Institutional Money Market Fund and The Rydex
High Yield Fund, each a series of the Registrant, (ii) The Rydex Advisor
Variable Annuity Account, a managed separate account of Great American
Reserve Insurance Company that is a registered investment company advised
by PADCO Advisors II, Inc., and (iii) the Adviser Class of the Rydex Sector
Funds and U.S. Government Money Market Fund but does not currently serve as
the principal underwriter for the securities of any other investment
company.

6
<PAGE>

(b) The following information is furnished with respect to the directors and
officers of PADCO Financial Services, Inc., the principal underwriter for
The Rydex Institutional Money Market Fund and The Rydex High Yield Fund,
each a series of the Registrant:

NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS* UNDERWRITER WITH REGISTRANT
- ------------------ -------------------------- ---------------------
<S> <C> <C>
Albert P. Viragh, Jr. Chairman of the Board of Directors, Chairman of the Board
President and Treasurer of Trustees and President

Amanda C. Viragh Director None

Carl G. Verboncoeur

Michael P. Byrum Secretary Assistant Secretary
</TABLE>

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books, and records required to be maintained and preserved by
Section 31(a) of the Investment Company Act of 1940, as amended, and Rules 31a-1
and 31a-2 thereunder, will be kept by the Registrant at 6116 Executive
Boulevard, Rockville, Maryland 20852.

ITEM 29. MANAGEMENT SERVICES

There are no management-related service contracts not discussed in Parts A and
B.

ITEM 30. UNDERTAKINGS

None

7
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for the effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 33 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Rockville, State of Maryland on the
12th day of August, 1998.

RYDEX SERIES TRUST

/s/ Albert P. Viragh, Jr.
------------------------------------------------
Albert P. Viragh, Jr., Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been duly signed below by the following persons in the capacities
on the date indicated.

<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/Albert P. Viragh, Jr. Chairman of the Board of Trustees August 12, 1998
- -------------------------
Albert P. Viragh, Jr. President, and Trustee

/s/Carl G. Verboncoeur Treasurer August 12, 1998
- -------------------------
Carl G. Verboncoeur

* Trustee August 12, 1998
- -------------------------
Corey A. Colehour

* Trustee August 12, 1998
- -------------------------
J. Kenneth Dalton

* Trustee August 12, 1998
- -------------------------
Roger Somers

* Trustee August 12, 1998
- -------------------------
John O. Demaret

8
<PAGE>

* Trustee August 12, 1998
- -------------------------

Patrick T. McCarville

*By /s/Albert P. Viragh, Jr.
----------------------------
Albert P. Viragh, Jr.
Attorney-in-Fact
</TABLE>

EXHIBIT INDEX

(a)(1) Certificate of Trust of Rydex Series Trust (the "Registrant" or the
"Trust") incorporated herein by reference to Exhibit 1a of
Post-Effective Amendment No. 27 to this Registration Statement filed
on October 30, 1996.
(a)(2) Declaration of Trust of the Registrant incorporated herein by
reference to Exhibit 1b of Post-Effective Amendment No. 27 to this
Registration Statement filed on October 30, 1996.
(b) By-Laws of Registrant incorporated herein by reference to Exhibit 2 of
Post-Effective Amendment No. 27 to this Registration Statement filed
on October 30, 1996.
(c) Not applicable.
(d)(1) Investment Advisory Agreement between Registrant and PADCO Advisors,
Inc. incorporated herein by reference to Exhibit 5a of Post-Effective
Amendment No. 27 to this Registration Statement filed on October 30,
1996.
(d)(2) Sub-Advisory Agreement between PADCO Advisors, Inc. and Loomis, Sayles
& Company, L.P. incorporated herein by reference to Exhibit 5b of
Post-Effective Amendment No. 27 to this Registration Statement filed
on October 30, 1996.
(d)(3) Amendment to Advisory Agreement between the Registrant and PADCO
Advisors, Inc. dated March 16, 1998 filed on May 29, 1998.
(e) Distribution Agreement between the Registrant and PADCO Financial
Services, Inc. relating to the Adviser Class Shares filed on May 29,
1998.
(f) Not applicable.
(g) Custody Agreement between Registrant and Star Bank, N.A. incorporated
herein by reference to Post-Effective Amendment No. 27 to Exhibit 8 of
this Registration Statement filed on October 30, 1996.
(h)(1) Service Agreement between Registrant and PADCO Service Company, Inc.
incorporated herein by reference to Exhibit 9c of Post-Effective
Amendment No. 27 to this Registration Statement filed on October 30,
1996.
(h)(2) Portfolio Accounting Services Agreement between Registrant and PADCO
Service Company, Inc. incorporated herein by reference to Exhibit 9d
of Post-Effective Amendment No. 27 to this Registration Statement
filed on October 30, 1996.
(h)(3) Amendment to Service Agreement between Registrant and PADCO Service
Company dated March 16, 1998 filed on May 29, 1998.

9
<PAGE>

(i) Not applicable.
(j) Not applicable.
(k) Not applicable.
(l ) Not applicable.
(m)(1) Plan of Distribution for The Rydex Institutional Money Market Fund
incorporated herein by reference to Exhibit 15a of Post-Effective
Amendment No. 24 to this Registration Statement, filed on October 27,
1995.
(m)(2) Plan of Distribution for The Rydex Institutional Money Market Fund as
revised, March 12, 1997 incorporated herein by reference to Exhibit
15b of Post-Effective Amendment No. 24 to this Registration Statement,
filed on October 27, 1995.
(m)(3) Plan of Distribution for The Rydex Institutional Money Market Fund as
revised, June 23, 1997 incorporated herein by reference to Exhibit 15c
Post-Effective Amendment No. 24 to this Registration Statement, filed
on October 27, 1995.
(m)(4) Plan of Distribution for The Rydex High Yield Fund incorporated herein
by reference to Post-Effective Amendment No. 26 to Exhibit 15d of this
Registration Statement, filed on September 11, 1996.
(m)(5) Plan of Distribution for The Rydex High Yield Fund, as revised March
12, 1995 incorporated herein by reference to Exhibit 15e of
Post-Effective Amendment No. 24 to this Registration Statement, filed
on October 27, 1995.
(m)(6) Plan of Distribution for The Rydex High Yield Fund, as revised June
23, 1997 incorporated herein by reference to Exhibit 15f of
Post-Effective Amendment No. 24 to this Registration Statement, filed
on October 27, 1995.
(m)(7) Shareholder Servicing Support Agreements between PADCO Financial
Services, Inc. and Selling Recipients in connection with the Plan of
Distribution for The Rydex Institutional Money Market Fund
incorporated herein by reference to Exhibit 15g of Post-Effective
Amendment No. 25 to this Registration Statement, filed on March 1,
1996.
(m)(8) Shareholder Servicing Support Agreement between PADCO Financial
Services, Inc. and Selling Recipients in connection with the Plan of
Distribution for The Rydex High Yield Fund incorporated herein by
reference to Exhibit 15h of Post-Effective Amendment No. 26 to this
Registration Statement, filed on September 11, 1996.
(m)(9) Distribution Plan and Shareholder Servicing Agreement for Advisor
Class Shares is incorporated by reference to Exhibit 15i of
Post-Effective Amendment No. 10.
(n) Not applicable.
(o) Rule 18f-3 Plan is incorporated by reference to Exhibit 18 of
Post-Effective Amendment No. 30.