<PAGE>
As Filed with the Securities and Exchange Commission On March 2, 1998
File Nos. 33-59692 and 811-7584
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No.___ ( )
Post-Effective Amendment No.30 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 (X)
Amendment No. 31 (X)
RYDEX SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
(Address of Principal Executive Offices) (Zip Code)
(301) 468-8520
(Registrant's Telephone Number, Including Area Code)
Albert P. Viragh, Jr.
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
(Name and Address of Agent for Service of Process)
Copies to:
John H. Grady, Jr., Esq.
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of rule 485
- ----
on (date) pursuant to paragraph (b)(1)(v) of rule 485
- ----
X 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>
RYDEX SERIES TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
N-1A LOCATION IN
ITEM NO. REGISTRATION STATEMENT
-------- ----------------------
PART A: INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Outside Front Cover Page of
Prospectus
2. Synopsis Fund Expense Information
3. Condensed Financial Information N/A
4. General Description of Registrant Fund Information, Risk
Considerations, Additional
Risk Considerations
5. Management of the Fund Management of the Funds;
Portfolio Transactions;
Information About the Funds'
Investments
5A. Management's Discussion of Fund Performance N/A
6. Capital Stock and Other Securities Dividends and Distributions;
Tax Information; General
Information
7. Purchase of Securities Being Offered How to Invest in the Funds;
Tax-Sheltered Retirement Plans
8. Redemption of Repurchase Redeeming Fund Shares;
Exchanges; Procedures for
Redemptions
9. Legal Proceedings Not Applicable
2
<PAGE>
N-1A LOCATION IN
ITEM NO. REGISTRATION STATEMENT
-------- ----------------------
PART B: INFORMATION REQUIRED IN
STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Outside Front Cover Page of
Statement of Additional
Information
11. Table of Contents Table of Contents
12. General Information and History The Rydex Funds
13. Investment Objectives and Policies Investment Policies and
Techniques; Investment
Restrictions
14. Management of the Registrant Management of the Trust
15. Control Persons and Principal
Holder of Securities Management of the Trust
16. Investment Advisory and Other Services Management of the Trust;
Distribution Plan; Auditors
and Custodian
17. Brokerage Allocation Portfolio Transactions and
Brokerage
18. Capital Stock and Other Securities Not Applicable
19. Purchase, Redemption, and Pricing of Purchase and Redemption of
Shares
Securities Being Offered
20. Tax Status Dividends, Distributions, and
Taxes
21. Underwriters Management of the Trust;
Distribution Plan
22. Calculation of Performance Data Performance Information;
Calculation of Return
Quotations; Information on
Computation of Yield
23. Financial Statements N/A
3
<PAGE>
N-1A LOCATION IN
ITEM NO. REGISTRATION STATEMENT
-------- ----------------------
PART C: OTHER INFORMATION
24. Financial Statements and Exhibits Exhibits
25. Persons Controlled by or Under Common Control Persons Controlled by or
Under Common Control
26. Number of Holders of Securities Number of Holders of
Shares of Beneficial
Interest
27. Indemnification Indemnification
28. Business and Other Connections of Business and Other
Investment Adviser Connections
of Investment Adviser
29. Principal Underwriters Principal Underwriter
30. Location of Accounts and Records Location of Accounts and
Records
31. Management Services Management Services
32. Undertakings Undertakings
33. Signatures Signatures
4
<PAGE>
RYDEX-Registered Trademark-
INVESTMENT FLEXIBILITY
FOR INSTITUTIONAL MONEY MANAGERS
RYDEX SERIES TRUST
SECTOR FUNDS -- ADVISOR CLASS
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
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-three separate investment portfolios (the "Rydex Funds"), fifteen of
which are described in this Prospectus (the "Funds" or, as it relates to all
Funds, except the U.S. Government Money Market Fund (the "Money Market
Fund"), the "Rydex Sector Funds"). The Funds are sold through
broker-dealers, and other financial institutions whose clients take part in
certain strategic and tactical asset-allocation investment programs.
This Prospectus contains important information about the Advisor Class Shares
of the Funds. Please read it before investing and keep it on file for future
reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
TRUST'S SHARES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Funds:
- are not federally insured -are not bank deposits
- are not guaranteed by any government agency -are not guaranteed to achieve
their objectives
INVESTING IN THE FUNDS INVOLVES RISK. YOU COULD LOSE MONEY. THE U.S.
GOVERNMENT MONEY MARKET FUND SEEKS TO MAINTAIN A CONSTANT PRICE PER SHARE OF
$1.00, BUT THERE IS NO GUARANTEE THAT THIS PRICE WILL BE MAINTAINED.
, 1998
PROSPECTUS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Advisor's Investment Methodology . . . . . . . . . . . . . . . . . . . 3
Banking Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Basic Materials Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Biotechnology Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Consumer Products Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Electronics Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Energy Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Energy Services Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Financial Services Fund. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Health Care Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Leisure Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Retailing Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Technology Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Telecommunications Fund. . . . . . . . . . . . . . . . . . . . . . . . . . 28
Transportation Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
U.S. Government Money Market Fund. . . . . . . . . . . . . . . . . . . . . 32
Risk Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . 35
How To Invest In The Funds . . . . . . . . . . . . . . . . . . . . . . . . 36
Redeeming Fund Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Exchanges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Procedures For Redemptions And Exchanges . . . . . . . . . . . . . . . . . 41
Dividends And Distributions. . . . . . . . . . . . . . . . . . . . . . . . 41
Tax Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Management Of The Funds. . . . . . . . . . . . . . . . . . . . . . . . . . 43
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 45
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Information About the Funds' Investments . . . . . . . . . . . . . . . . . 47
</TABLE>
2
<PAGE>
THE ADVISOR'S INVESTMENT METHODOLOGY
In managing the Funds (other than the Money Market Fund), PADCO Advisors,
Inc.'s (the Advisor") investment team employs a quantitative model that
considers a number of factors. To develop a liquid portfolio of stocks that
adequately represent a particular market sector, the Advisor applies filters
to the broad universe of stocks of issuers that are "principally engaged" in
business activities in each industry sector. Specifically, the Advisor's
investment process screens stocks primarily based on liquidity, market
capitalization, and correlation relative to the entire industry sector. The
Advisor also may consider other factors.
The Advisor monitors the Funds' portfolios on an ongoing basis, and adds or
deletes stocks from the portfolios as needed.
After constructing a portfolio for each Fund, the Advisor may utilize futures
contracts and options to leverage a Fund's exposure to the relevant business
sector. The use of leverage will result in each Fund being exposed to its
relevant business sector with more than 100% of its total assets.
Each business sector typically consists of numerous industries. For purposes
of the Advisor's investment methodology and the policies for each Fund, a
company is considered to be "principally engaged" in a designated business
activity in a particular economic sector if at least 50% of its assets, gross
income, or net profits are committed to, or derived from, that activity. If
a question exists as to whether a company meets these standards, the Advisor
will determine whether the company's primary business is within the business
sector designated for investment by that Fund.
3
<PAGE>
FUND INFORMATION
BANKING FUND
FUND OBJECTIVE
THE BANKING FUND seeks capital appreciation by investing in companies that are
involved in the banking sector, including commercial banks (and their holding
companies) and savings and loan institutions ("Banking Companies").
PORTFOLIO INVESTMENTS
The Fund invests substantially all (80% or more) of its assets in a portfolio of
equity securities, including common stocks, preferred stock, warrants, rights,
and securities convertible into common stock, of Banking Companies that are
traded in the United States, as well as in futures and options contracts.
Banking Companies are engaged in accepting deposits and making commercial and
principally non-mortgage consumer loans. Banking Companies include state
chartered banks, savings and loan institutions, and banks that are members of
the Federal Reserve System. The Fund may also own securities of U.S. Banking
Companies whose deposits are not insured by the federal government.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
As the services offered by Banking Companies expand, banks are becoming more
exposed to well-established competitors such as insurance companies and
investment advisory companies. This exposure has also increased due to the
erosion of historical distinctions between banks and other financial
institutions. Increased competition may result from the broadening of regional
and national interstate banking powers, which has already reduced the number of
publicly-traded banks. Legislation is currently being considered by Congress
which would reduce the separation between commercial and investment banking
businesses. If enacted, this could significantly impact the industry and the
Fund. In addition, general economic conditions are important to Banking
Companies, which face exposure to credit losses and are dependent to a greater
or lesser extent on interest rate activity.
In addition, the Banking Fund is subject to the following types of primary
risks:
- -Fund Risk; -Market Risk; and
- -Sector Risk; -Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
4
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in
Advisor Class Shares of the BANKING FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees .25%
Other Expenses(1) .90%
----
Total Fund Operating Expenses 2.00%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $20 $63
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
5
<PAGE>
FUND INFORMATION
BASIC MATERIALS FUND
FUND OBJECTIVE
THE BASIC MATERIALS FUND seeks capital appreciation by investing in companies
engaged in the mining, manufacture, or sale of basic materials, such as
lumber, steel, iron, aluminum, concrete, chemicals and other basic building
and manufacturing materials ("Basic Materials Companies").
PORTFOLIO INVESTMENTS
The Fund invests substantially all (80% or more) of its assets in a portfolio
of equity securities, including common stocks, preferred stock, warrants,
rights, and securities convertible into common stock, of Basic Materials
Companies that are traded in the United States, as well as in futures and
options contracts. Basic Materials Companies are engaged in the manufacture,
mining, processing, or distribution of raw materials and intermediate goods
used in the industrial sector, and may be involved in the production of
metals, textiles, and wood products. When seeking to invest in Basic
Materials Companies, the Fund may also invest in the equity securities of
companies operating in the mining, processing, transportation, and
distribution businesses, including equipment suppliers and railroads.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in
other securities and engage in certain investment practices, including
various leveraging strategies, as described in the "INFORMATION ABOUT THE
FUNDS' INVESTMENTS" section.
RISK CONSIDERATIONS
Many Basic Materials Companies are significantly affected by the level and
volatility of commodity prices, the exchange value of the dollar, import
controls, and worldwide competition. At times, worldwide production of
industrial materials has exceeded demand as a result of over-building or
economic downturns, leading to poor investment returns or losses for Basic
Materials Companies. Other risks may include liability for environmental
damage, depletion of resources, and mandated expenditures for safety and
pollution control devices.
In addition, the Basic Materials Fund is subject to the following types of
primary risks:
- -Fund Risk; -Market Risk; and
- -Sector Risk; -Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
6
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in
Advisor Class Shares of the BASIC MATERIALS FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees .25%
Other Expenses(1) .90%
----
Total Fund Operating Expenses 2.00%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $20 $63
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN
THE EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
7
<PAGE>
FUND INFORMATION
BIOTECHNOLOGY FUND
FUND OBJECTIVE
THE BIOTECHNOLOGY FUND seeks capital appreciation by investing in companies that
are involved in the biotechnology industry, including companies involved in
research and development, genetic or other biological engineering, and in the
design, manufacture, or sale of related biotechnology products or services
("Biotechnology Companies").
PORTFOLIO INVESTMENTS
The Fund invests substantially all (80% or more) of its assets in a portfolio of
equity securities, including common stocks, preferred stock, warrants, rights,
and securities convertible into common stock, of Biotechnology Companies that
are traded in the United States, as well as in futures and options contracts.
Biotechnology Companies are engaged in the research, development, and
manufacture of various biotechnological products, services, and processes. The
Fund may invest in companies that manufacture and/or distribute biotechnological
and biomedical products, including devices and instruments, and in companies
that provide or benefit significantly from scientific and technological advances
in biotechnology, as well as in Biotechnology Companies that provide processes
or services instead of, or in addition to, products. Biotechnology Companies
also include companies involved in applications and developments affecting such
areas as human health care, pharmaceuticals, agricultural and veterinary
applications, chemicals, and medical/surgical.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
Biotechnology Companies are affected by patent considerations, intense
competition, rapid technological change and obsolescence, and regulatory
requirements of the Food and Drug Administration, the Environmental Protection
Agency, state and legal governments, and foreign regulatory authorities. In
addition, many of these companies are relatively small and have thinly traded
securities, may not yet offer products or offer a single product, and may have
persistent losses during a new product's transition from development to
production or erratic revenue patterns. Moreover, stock prices of Biotechnology
Companies are very volatile, particularly during periods where their products
are up for regulatory approval and/or under regulatory scrutiny.
In addition, the Biotechnology Fund is subject to the following types of primary
risks:
- -Fund Risk; -Market Risk; and
- -Sector Risk; -Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
8
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in
Advisor Class Shares of the BIOTECHNOLOGY FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees .25%
Other Expenses(1) .90%
----
Total Fund Operating Expenses 2.00%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $20 $63
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
9
<PAGE>
FUND INFORMATION
CONSUMER PRODUCTS FUND
FUND OBJECTIVE
THE CONSUMER PRODUCTS FUND seeks capital appreciation by investing in companies
engaged in manufacturing finished goods and services both domestically and
internationally, ("Consumer Products Companies").
PORTFOLIO INVESTMENTS
The Fund invests substantially all (80% or more) of its assets in a portfolio
of equity securities, including common stocks, preferred stock, warrants,
rights, and securities convertible into common stock, of Consumer Products
Companies that are traded in the United States, as well as in futures and
options contracts. Consumer Products Companies are engaged in the
manufacture of goods and services to consumers both domestically and
internationally. Consumer Products Companies include companies that
manufacture durable goods such as major appliances and personal computers.
Such companies also include companies that manufacture, wholesale, or retail
non-durable goods such as beverages, tobacco, health care products, household
and personal care products, apparel, and entertainment products (E.G., books,
magazines, TV, cable, movies, music, gaming, sports), and companies that
provide consumer products and services such as lodging, child care,
convenience stores, and car rentals.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in
other securities and engage in certain investment practices, including
various leveraging strategies, as described in the "INFORMATION ABOUT THE
FUNDS' INVESTMENTS" section.
RISK CONSIDERATIONS
The performance of Consumer Products Companies has historically been closely
tied to the performance of the overall economy, and is also affected by
interest rates, competition, and consumer confidence. The success of
Consumer Products Companies also depends heavily on relative levels of
disposable household income and seasonal consumer spending. Changes in
demographics and consumer tastes can also affect the demand for, and success
of, consumer products in the marketplace.
In addition, the Consumer Products Fund is subject to the following types of
primary risks:
- -Fund Risk; -Market Risk; and
- -Sector Risk; -Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
10
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various
costs and expenses that you will bear directly or indirectly when you invest
in Advisor Class Shares of the CONSUMER PRODUCTS FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees .25%
Other Expenses(1) .90%
----
Total Fund Operating Expenses 2.00%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $20 $63
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN
THE EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
11
<PAGE>
FUND INFORMATION
ELECTRONICS FUND
FUND OBJECTIVE
THE ELECTRONICS FUND seeks capital appreciation by investing in companies
that are involved in the electronics sector, including semiconductor
manufacturers and distributors, and makers and vendors of other electronic
components and devices ("Electronics Companies").
PORTFOLIO INVESTMENTS
The Fund invests substantially all (80% or more) of its assets in a portfolio
of equity securities, including common stocks, preferred stock, warrants,
rights, and securities convertible into common stock, of Electronics
Companies that are traded in the United States, as well as in futures and
options contracts. Electronics Companies are engaged in the design,
manufacture, or sale of electronic components. Electronics Companies include
companies involved in the manufacture and development of semiconductors,
connectors, printed circuit boards and other components; equipment vendors to
electronic component manufacturers; electronic component distributors; and
electronic instruments and electronic systems vendors. Electronics Companies
also include companies involved in all aspects of the electronics business
and in new technologies or specialty areas such as defense electronics,
advanced design and manufacturing technologies, or lasers.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in
other securities and engage in certain investment practices, including
various leveraging strategies, as described in the "INFORMATION ABOUT THE
FUNDS' INVESTMENTS" section.
RISK CONSIDERATIONS
Many of the products offered by Electronics Companies are subject to risks of
rapid obsolescence and intense competition. As suppliers of many technology
companies, Electronics Companies are often subject to the fortunes of their
customers, which may vary wildly. Electronics Companies also face high
technology and research costs especially in light of decreased defense
spending by the U.S. Government, and may face competition from subsidized
foreign competitors with lower production costs.
In addition, the Electronics Fund is subject to the following types of primary
risks:
- -Fund Risk; -Market Risk; and
- -Sector Risk; -Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
12
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various
costs and expenses that you will bear directly or indirectly when you invest
in Advisor Class Shares of the ELECTRONICS FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees .25%
Other Expenses(1) .90%
----
Total Fund Operating Expenses 2.00%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $20 $63
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN
THE EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
13
<PAGE>
FUND INFORMATION
ENERGY FUND
FUND OBJECTIVE
THE ENERGY FUND seeks capital appreciation by investing in companies involved
in the energy field, including the exploration, production, and development
of oil, gas, coal and alternative sources of energy ("Energy Companies").
PORTFOLIO INVESTMENTS
The Fund invests substantially all (80% or more) of its assets in a portfolio
of equity securities, including common stocks, preferred stock, warrants,
rights, and securities convertible into common stock, of Energy Companies
that are traded in the United States, as well as in futures and options
contracts. Energy Companies are involved in all aspects of the energy
industry, including the conventional areas of oil, gas, electricity, and
coal, and alternative sources of energy such as nuclear, geothermal, oil
shale, and solar power. The Fund may invest in companies that produce,
transmit, market, distribute or measure energy; companies involved in
providing products and services to companies in the energy field; and
companies involved in the exploration of new sources of energy, conservation,
and energy-related pollution control.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in
other securities and engage in certain investment practices, including
various leveraging strategies, as described in the "INFORMATION ABOUT THE
FUNDS' INVESTMENTS" section.
RISK CONSIDERATIONS
Securities of Energy Companies are subject to changes in value and dividend
yield which depend largely on the price and supply of energy fuels. Swift
price and supply fluctuations may be caused by events relating to
international politics, energy conservation, the success of exploration
projects, and tax and other governmental regulatory policies.
In addition, the Energy Fund is subject to the following types of primary risks:
- -Fund Risk; -Market Risk; and
- -Sector Risk; -Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
14
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various
costs and expenses that you will bear directly or indirectly when you invest
in Advisor Class Shares of the ENERGY FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees .25%
Other Expenses(1) .90%
----
Total Fund Operating Expenses 2.00%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $20 $63
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN
THE EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
15
<PAGE>
FUND INFORMATION
ENERGY SERVICES FUND
FUND OBJECTIVE
THE ENERGY SERVICES FUND seeks capital appreciation by investing in companies
that are involved in the energy services field, including those that provide
services and equipment in the areas of oil, coal, and gas exploration and
production, ("Energy Services Companies").
PORTFOLIO INVESTMENTS
The Fund invests substantially all (80% or more) of its assets in a portfolio
of equity securities, including common stocks, preferred stock, warrants,
rights, and securities convertible into common stock, of Energy Services
Companies that are traded in the United States, as well as in futures and
options contracts. Energy Services Companies are engaged in one or more
businesses in the energy service field, including those that provide services
and equipment to companies engaged in the production, refinement or
distribution of oil, gas, electricity, and coal, and to companies involved
with the production and development of newer sources of energy such as
nuclear, geothermal, oil shale, and solar power. Energy Services Companies
include those providing services such as onshore or offshore drilling;
companies involved in production and well maintenance; companies involved in
exploration engineering, data and technology; companies involved in energy
transport; and companies involved in equipment and plant design or
construction. In addition, Energy Services Companies include companies that
provide products and services to these other companies.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in
other securities and engage in certain investment practices, including
various leveraging strategies, as described in the "INFORMATION ABOUT THE
FUNDS' INVESTMENTS" section.
RISK CONSIDERATIONS
Energy Services Companies are affected by the supply and demand both for
their specific products or services and for energy products in general. The
price of oil and gas, exploration and production spending, governmental
regulation and environmental issues, world events and economic conditions
will likewise affect the performance of Energy Services Companies. In
addition, Energy Services Companies may be affected by economic conditions
generally affecting energy supply companies.
In addition, the Energy Services Fund is subject to the following types of
primary risks:
- -Fund Risk; -Market Risk; and
- -Sector Risk; -Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
16
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various
costs and expenses that you will bear directly or indirectly when you invest
in Advisor Class Shares of the ENERGY SERVICES FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees .25%
Other Expenses(1) .90%
----
Total Fund Operating Expenses 2.00%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $20 $63
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN
THE EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
17
<PAGE>
FUND INFORMATION
FINANCIAL SERVICES FUND
FUND OBJECTIVE
THE FINANCIAL SERVICES FUND seeks capital appreciation by investing in
companies that are involved in the financial services sector, including
commercial banks, savings and loan associations, insurance companies,
brokerage companies, and real estate and leasing companies ("Financial
Services Companies").
PORTFOLIO INVESTMENTS
The Fund invests substantially all (80% or more) of its assets in a portfolio
of equity securities, including common stocks, preferred stocks, warrants,
rights, and securities convertible into common stock, of Financial Services
Companies that are traded in the United States, as well as in futures and
options contracts. Financial Services Companies provide financial services to
consumers and industry. Financial Services Companies include commercial and
investment banks, savings and loan associations, brokerage companies,
insurance companies, real estate and leasing companies, and companies that
span across these segments. Under SEC regulations, the Fund may not invest
more than 5% of its total assets in the equity securities of any company that
derives more than 15% of its revenues from brokerage or investment management
activities.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in
other securities and engage in certain investment practices, including
various leveraging strategies, as described in the "INFORMATION ABOUT THE
FUNDS' INVESTMENTS" section.
RISK CONSIDERATIONS
Financial Services Companies are subject to extensive governmental
regulation, which may limit both the amounts and types of loans and other
financial commitments they can make, and the interest rates and fees they can
charge. Profitability is largely dependent on the availability and cost of
capital, and can fluctuate significantly when interest rates change. Credit
losses resulting from financial difficulties of borrowers also can negatively
impact the sector. Insurance companies may be subject to severe price
competition. Legislation is currently being considered which would further
reduce the separation between commercial and investment banking businesses,
and between the banking and insurance businesses. If enacted these changes
could significantly impact the sector and the Fund.
In addition, the Financial Services Fund is subject to the following types of
primary risks:
- -Fund Risk; -Market Risk; and
- -Sector Risk; -Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
18
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various
costs and expenses that you will bear directly or indirectly when you invest
in Advisor Class Shares of the FINANCIAL SERVICES FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees .25%
Other Expenses(1) .90%
----
Total Fund Operating Expenses 2.00%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $20 $63
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN
THE EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
19
<PAGE>
FUND INFORMATION
HEALTH CARE FUND
FUND OBJECTIVE
THE HEALTH CARE FUND seeks capital appreciation by investing in companies
that are involved in the health care industry ("Health Care Companies").
PORTFOLIO INVESTMENTS
The Fund invests substantially all (80% or more) of its assets in a portfolio
of equity securities, including common stocks, preferred stocks, warrants,
rights and securities convertible into common stock, of Health Care Companies
that are traded in the United States, as well as in futures and options
contracts. Health Care Companies are engaged in the design, manufacture, or
sale of products or services used for or in connection with health care or
medicine. Health Care Companies include pharmaceutical companies, companies
involved in research and development of pharmaceutical products and services,
companies involved in the operation of health care facilities, and other
companies involved in the design, manufacture, or sale of health care-related
products or services.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in
other securities and engage in certain investment practices, including
various leveraging strategies, as described in the "INFORMATION ABOUT THE
FUNDS' INVESTMENTS" section.
RISK CONSIDERATIONS
Health Care Companies are subject to government regulation and approval of
their products and services, which can have a significant effect on their
price and availability. Furthermore, the types of products or services
produced or provided by these companies may quickly become obsolete.
Moreover, liability for products that are later alleged to be harmful or
unsafe may be substantial, and may have a significant impact on a Health Care
Company's market value and/or share price.
In addition, the Health Care Fund is subject to the following types of primary
risks:
- -Fund Risk; -Market Risk; and
- -Sector Risk; -Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
20
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various
costs and expenses that you will bear directly or indirectly when you invest
in Advisor Class Shares of the HEALTH CARE FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees .25%
Other Expenses(1) .90%
----
Total Fund Operating Expenses 2.00%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $20 $63
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN
THE EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
21
<PAGE>
FUND INFORMATION
LEISURE FUND
FUND OBJECTIVE
THE LEISURE FUND seeks capital appreciation by investing in companies engaged
in leisure and entertainment businesses, including hotels and resorts,
casinos, radio and television broadcasting and advertising, motion picture
production, toys and sporting goods manufacture, musical recordings and
instruments, alcohol and tobacco, and publishing ("Leisure Companies").
PORTFOLIO INVESTMENTS
The Fund invests substantially all (80% or more) of its assets in a portfolio
of equity securities, including common stocks, preferred stocks, warrants,
rights and securities convertible into common stock, of Leisure Companies
that are traded in the United States, as well as in futures and options
contracts. Leisure Companies are engaged in the design, production, or
distribution of goods or services in the leisure industries. Leisure
Companies provide, manufacture or produce goods and services such as
television and radio broadcast or manufacture (including cable television);
motion pictures and photography; recordings and musical instruments;
publishing, including newspapers and magazines; sporting goods and camping
and recreational equipment; and sports arenas. Other goods and services
provided by Leisure Companies include toys and games (including video and
other electronic games), amusement and theme parks, travel and travel-related
services, hotels and motels, leisure apparel or footwear, tobacco products
and gaming casinos.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in other
securities and engage in certain investment practices, including various
leveraging strategies, as described in the "INFORMATION ABOUT THE FUNDS'
INVESTMENTS" section.
RISK CONSIDERATIONS
Securities of Leisure Companies may be considered speculative, and generally
exhibit greater volatility than the overall market. Many Leisure Companies
have unpredictable earnings, due in part to changing consumer tastes and
intense competition. Leisure Companies have reacted strongly to
technological developments and to the threat of increased government
regulation, particularly in the gaming arena.
In addition, the Leisure Fund is subject to the following types of primary
risks:
- -Fund Risk; -Market Risk; and
- -Sector Risk; -Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
22
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in
Advisor Class Shares of the LEISURE FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees .25%
Other Expenses(1) .90%
----
Total Fund Operating Expenses 2.00%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $20 $63
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN
THE EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
23
<PAGE>
FUND INFORMATION
RETAILING FUND
FUND OBJECTIVE
THE RETAILING FUND seeks capital appreciation by investing in companies
engaged in merchandising finished goods and services, including department
stores, restaurant franchises, mail order operations and other companies
involved in selling products to consumers ("Retailing Companies").
PORTFOLIO INVESTMENTS
The Fund invests substantially all (80% or more) of its assets in a portfolio
of equity securities, including common stocks, preferred stocks, warrants,
rights, and securities convertible into common stock, of Retailing Companies
that are traded in the United States, as well as in futures and options
contracts. Retailing Companies are engaged in merchandising finished goods
and services primarily to individual consumers. Retailing Companies include
drug and department stores; suppliers of goods and services for homes, home
improvements and yards; clothing, jewelry, electronics and computer
retailers; franchise restaurants; motor vehicle and marine dealers; warehouse
membership clubs; mail order operations; and companies involved in
alternative selling methods.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in
other securities and engage in certain investment practices, including
various leveraging strategies, as described in the "INFORMATION ABOUT THE
FUNDS' INVESTMENTS" section.
RISK CONSIDERATIONS
The success of Retailing Companies is closely tied to consumer spending,
which is affected by general economic conditions and consumer confidence
levels. The retailing industry is highly competitive, and a Retailing
Company's success is often tied to its ability to anticipate and react to
changing consumer tastes. Many Retailing Companies are thinly capitalized,
and are dependent upon a relatively few number of business days to achieve
their overall results.
In addition, the Retailing Fund is subject to the following types of primary
risks:
- -Fund Risk; -Market Risk; and
- -Sector Risk; -Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
24
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various
costs and expenses that you will bear directly or indirectly when you invest
in Advisor Class Shares of the RETAILING FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees .25%
Other Expenses(1) .90%
----
Total Fund Operating Expenses 2.00%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $20 $63
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR OF
PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN THE
EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
25
<PAGE>
FUND INFORMATION
TECHNOLOGY FUND
FUND OBJECTIVE
THE TECHNOLOGY FUND seeks capital appreciation by investing in companies that
are involved in the technology sector, including computer software and
service companies, semiconductor manufacturers, networking and
telecommunications equipment manufacturers, PC hardware and peripherals
companies ("Technology Companies")
PORTFOLIO INVESTMENTS
The Fund invests substantially all (80% or more) of its assets in a portfolio
of equity securities, including common stocks, preferred stocks, warrants,
rights, and securities convertible into common stock, of Technology Companies
that are traded in the United States, as well as in futures and options
contracts. Technology Companies are companies which the Advisor believes
have, or will develop, products, processes, or services that will provide or
will benefit significantly from technological advances and improvements.
These companies may include, for example, companies that develop, produce or
distribute products or services in the computer, semiconductor, electronics,
communications, health care, and biotechnology sectors.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in
other securities and engage in certain investment practices, including
various leveraging strategies, as described in the "INFORMATION ABOUT THE
FUNDS' INVESTMENTS" section.
RISK CONSIDERATIONS
Competitive pressures may have a significant effect on the financial
condition of Technology Companies. For example, if technology continues to
advance at an accelerated rate, and the number of companies and product
offerings continues to expand, these companies could become increasingly
sensitive to short product cycles and aggressive pricing. In addition, many
Technology Companies sell stock before they have a commercially viable
product, and may be acutely susceptible to problems relating to bringing
their products to market. In addition, many small Technology Companies have
very high price/earnings ratios, high price volatility, and high personnel
turnover due to severe labor shortages for skilled technology professionals.
In addition, the Technology Fund is subject to the following types of primary
risks:
- -Fund Risk; -Market Risk; and
- -Sector Risk; -Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
26
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in
Advisor Class Shares of the TECHNOLOGY FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees .25%
Other Expenses(1) .90%
----
Total Fund Operating Expenses 2.00%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $20 $63
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN
THE EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
27
<PAGE>
FUND INFORMATION
TELECOMMUNICATIONS FUND
FUND OBJECTIVE
THE TELECOMMUNICATIONS FUND seeks capital appreciation by investing in
companies engaged in the development, manufacture, or sale of communications
services or communications equipment ("Telecommunications Companies").
PORTFOLIO INVESTMENTS
The Fund invests substantially all (80% or more) of its assets in a portfolio
of equity securities, including common stocks, preferred stocks, warrants,
rights, and securities convertible into common stock, of Telecommunications
Companies that are traded in the United States, as well as in futures and
options contracts. Telecommunications Companies are engaged in the
development, manufacture, or sale of communications services or
communications equipment. Telecommunications Companies range from traditional
local and long-distance telephone services or equipment providers, to
companies involved in developing technologies such as cellular telephone or
paging services, Internet equipment and service providers, and fiber-optics.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in
other securities and engage in certain investment practices, including
various leveraging strategies, as described in the "INFORMATION ABOUT THE
FUNDS' INVESTMENTS" section.
RISK CONSIDERATIONS
Telephone operating companies are subject to both federal and state
regulations governing rates of return and services that may be offered. Many
Telecommunications Companies compete fiercely for market share and,
increasingly, face competitive challenges in the U.S. from foreign
competitors engaged in strategic joint ventures with U.S. companies, and in
foreign markets from both U.S. and foreign competitors. In addition, recent
industry consolidation trends may lead to increased regulation of
Telecommunications Companies in their primary markets. Although many
established Telecommunications Companies pay an above-average dividend, the
Fund's investment decisions are primarily based on growth potential and not
on income.
In addition, the Telecommunications Fund is subject to the following types of
primary risks:
- -Fund Risk; -Market Risk; and
- -Sector Risk; -Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
28
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in
Advisor Class Shares of the TELECOMMUNICATIONS FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees .25%
Other Expenses(1) .90%
----
Total Fund Operating Expenses 2.00%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $20 $63
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN
THE EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
29
<PAGE>
FUND INFORMATION
TRANSPORTATION FUND
FUND OBJECTIVE
THE TRANSPORTATION FUND seeks capital appreciation by investing in companies
engaged in providing transportation services or companies engaged in the design,
manufacture, distribution, or sale of transportation equipment ("Transportation
Companies").
PORTFOLIO INVESTMENTS
The Fund invests substantially all (80% or more) of its assets in a portfolio
of equity securities, including common stocks, preferred stocks, warrants,
rights, and securities convertible into common stock, of Transportation
Companies that are traded in the United States, as well as in futures and
options contracts. Transportation Companies are engaged in providing
transportation services or engaged in the design manufacture, distribution,
or sale of transportation equipment. Transportation Companies may include,
for example, companies involved in the movement of freight or people, such as
airline, railroad, ship, truck and bus companies; equipment manufacturers
(including makers of trucks, automobiles, planes, containers, railcars or
other modes of transportation and related products); parts suppliers; and
companies involved in leasing, maintenance, and transportation-related
services.
The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, and purchase money market instruments. The Fund may invest in
other securities and engage in certain investment practices, including
various leveraging strategies, as described in the "INFORMATION ABOUT THE
FUNDS' INVESTMENTS" section.
RISK CONSIDERATIONS
Transportation Company stocks are cyclical and have occasional sharp price
movements which may result from changes in the economy, fuel prices, labor
agreements, and insurance costs. The United States has been deregulating
these industries, but it is uncertain whether this trend will continue and
what its effect will be. In addition, Transportation Companies, including
airlines and automobile, truck and aircraft manufacturers, are facing
increased competition from foreign companies, many of which are partially
funded by foreign governments and which may be less sensitive to short-term
economic pressures.
In addition, the Transportation Fund is subject to the following types of
primary risks:
- -Fund Risk; -Market Risk; and
- -Sector Risk; -Leveraging Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
30
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in
Advisor Class Shares of the TRANSPORTATION FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .85%
12b-1 Fees .25%
Other Expenses(1) .90%
----
Total Fund Operating Expenses 2.00%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $20 $63
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN
THE EXPENSES SHOWN.
If you purchase shares through a financial institution, you may be charged
separate fees by the financial institution.
31
<PAGE>
FUND INFORMATION
U.S. GOVERNMENT MONEY MARKET FUND
FUND OBJECTIVE
THE U.S. GOVERNMENT MONEY MARKET FUND ("Money Market Fund") seeks to provide
security of principal, high current income, and liquidity.
PORTFOLIO INVESTMENTS
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 enter into repurchase agreements fully
collateralized by U.S. Government Securities. The Fund also may invest in
other securities and engage in certain investment practices, as described in
the "INFORMATION ABOUT THE FUNDS' INVESTMENTS" section.
RISK CONSIDERATIONS
The Money Market Fund is subject to the following types of primary risks:
- -Fund Risk; and -Interest Rate Risk.
For a description of these and other risks, please see "RISK CONSIDERATIONS."
The Money Market Fund is governed by SEC rules which impose certain
liquidity, maturity and diversification requirements. The Fund's assets are
valued using the amortized cost method, which enables the Fund to maintain a
stable NAV. All securities purchased by the Fund must have remaining
maturities of 397 days or less. Although the Fund is managed to maintain a
stable price per share of $1.00, there is no guarantee that the price will be
constantly maintained.
32
<PAGE>
FUND EXPENSE INFORMATION
TRANSACTION AND OPERATING EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you will bear directly or indirectly when you invest in
Advisor Class Shares of the U.S. GOVERNMENT MONEY MARKET FUND.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases or Redemptions* None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees .50%
12b-1 Fees .25%
Other Expenses(1) .61%
----
Total Fund Operating Expenses 1.36%
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
(1) OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR.
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) a 5% annual return; and
(2) redemption at the end of each time period. $14 $44
</TABLE>
YOU SHOULD NOT USE THE INFORMATION CONTAINED IN THIS EXAMPLE AS AN INDICATOR
OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY BE MORE OR LESS THAN
THE EXPENSES SHOWN. If you purchase shares through a financial institution,
you may be charged separate fees by the financial institution.
--------------------
FINANCIAL HIGHLIGHTS OF THE FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following financial highlights of the Investor Class Shares of the U.S.
Government Money Market Fund have been audited by Deloitte & Touche LLP,
independent certified public accountants, whose report appears in the Trust's
1997 Annual Report. The Annual Report is incorporated by reference in the
SAI. Please read this information in conjunction with the financial statements
and related notes. As noted below, the Trustees changed the Trust's fiscal
year end from June 30 to March 31 on March 12, 1997. The information set
forth below for the period ended March 31, 1997, reflects nine months of
activity for the Fund. Our 1997 Annual Report is available by telephoning us
at 800-820-0888 or 301-468-8520. THE PERFORMANCE OF THE ADVISOR CLASS SHARES
OF THE FUNDS WILL BE LOWER DUE TO THE RULE 12b-1 AND SHAREHOLDER SERVICING
FEES CHARGED TO THE ADVISOR CLASS SHARES.
<TABLE>
<CAPTION>
Period Ended Year Ended Year Ended
March 31, June 30, June 30, Period Ended
1997* 1996 1995 June 30, 1994**
---- ---- ---- ---------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE - BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
Net Investment Income 0.03 0.04 0.04 0.01
Net Realized and Unrealized Gains on Securities 0.00 0.00 0.00 0.00
----- ----- ----- -----
Net Increase in Net Asset Value Resulting from
Operations 0.03 0.04 0.04 0.01
Dividends to Shareholders from Net Investment
Income (0.03) (0.04) (0.04) (0.01)
----- ----- ----- -----
Net Increase in Net asset Value 0.00 0.00 0.00 0.00
----- ----- ----- -----
NET ASSET VALUE - END OF PERIOD $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
----- ----- ----- -----
TOTAL INVESTMENT RETURN 4.39%*** 4.60% 4.43% 2.47%
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.86%***++ 0.99% 0.89% 1.16%***
Net Investment Income 4.06%*** 4.18% 4.23% 2.34%***
SUPPLEMENTARY DATA
Net Assets, End of Period (000's omitted) $283,553 $153,925 $284, 198 $88,107
</TABLE>
- ------------------------
+ The per share data of the Financial Highlights table is calculated
using the daily shares outstanding average for the year.
++ The annualized ratio of gross expenses to average net assets is 0.86%.
* 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.
33
<PAGE>
THE INVESTMENT OBJECTIVE OF EACH FUND (EXCEPT THE MONEY MARKET FUND) IS
NON-FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL. THERE CAN
BE NO ASSURANCE THAT A FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE.
RISK CONSIDERATIONS
PRIMARY RISKS
Set forth below are the primary, broad-based risks that the Funds (other than
the Money Market Fund) may encounter:
PRIMARY RISKS
FUND RISK - The possibility that a Fund's performance during a specific
period may not meet or exceed that of the market as a whole.
SECTOR RISK - The risk that the economic sector in which a Fund focuses
its investments will underperform the market as a whole. To the extent that
a Fund's investments are concentrated in issuers conducting business in the
same economic sector, the Fund is subject to the risks of investing in that
sector, including legislative or regulatory changes, adverse market
conditions and/or increased competition.
MARKET RISK - The possibility that stock prices in general will decline
over short, or even extended, periods of time. Stock markets tend to be
cyclical, with periods when stock prices generally rise and periods when
stock prices generally decline.
LEVERAGING RISK - Leveraging activities include, among other things,
borrowing and the use of options and futures. There are risks associated
with leveraging activities, including:
- - The success of a leveraging strategy may depend on an ability to predict
movements in the prices of individual securities, fluctuations in markets, and
movements in interest rates.
- - Leveraging may result in a Fund experiencing losses over certain ranges in the
market that exceed losses experienced by a non-leveraged Fund.
- - There may be an imperfect or no correlation between the changes in market
value of the securities held by a Fund and the prices of futures and options
on futures.
- - Although the Funds will only purchase exchange-traded futures and options, due
to market conditions, there may not be a liquid secondary market for a futures
contract or option. As a result, the Funds may be unable to close out their
futures or options contracts at a time which is advantageous to the Funds.
- - Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and options.
SECONDARY RISKS
In addition to the primary risks set forth above, the Funds (other than the
Money Market Fund) may, to varying degrees, be subject to the following types
of secondary risks:
SECONDARY RISKS
EVENT RISK - The possibility that corporate securities may suffer substantial
declines in market value due to corporate restructurings. While event risk
may be high for certain corporate securities held by the Fund, event risk in
the aggregate should be low because of each Fund's varied holdings.
FOREIGN COMPANY RISKS - There are risks associated with investing in foreign
companies, including:
- - VOLATILITY - Investments in securities of foreign companies can be more
volatile than investments in U.S. companies. Diplomatic, political, or
economic developments could affect investments in foreign countries.
- - REGULATORY ENVIRONMENT - Foreign companies generally are not subject to
uniform accounting, auditing, and financial reporting standards
comparable to those applicable to U.S. domestic companies. Foreign
issuers may be subject to different accounting, auditing, reporting, and
record keeping standards than those applicable to domestic issuers.
There is generally less government regulation of listed companies abroad
than in the U.S.
34
<PAGE>
SECONDARY RISKS
- - SMALL ISSUER RISK - Small and medium capitalization companies may be more
vulnerable than larger, more established organizations to adverse
business or economic developments. In particular, small capitalization
companies may have limited product lines, markets, and financial
resources and may be dependent upon a relatively small management group.
These securities may be traded over-the-counter or listed on an
exchange and may or may not pay dividends.
ADDITIONAL RISK CONSIDERATIONS
MONEY MARKET FUND - The Money Market Fund is subject to Interest Rate Risk,
which is the potential for a decline in the price of fixed income securities
due to rising interest rates. This risk will be greater for long-term
securities than for short-term securities. The Money Market Fund is also
subject to Fund Risk.
PORTFOLIO TURNOVER RATE - The Trust anticipates that investors that are part
of asset-allocation or market-timing strategies will frequently redeem or
exchange shares of a Fund, which will cause that Fund to experience high
portfolio turnover. The Trust does not expect the portfolio turnover rate to
exceed 500% for any Fund. The formula for calculating a Fund's portfolio
turnover rate disregards securities having a maturity of less than one year
and options and futures contracts. A higher portfolio turnover rate may
result in a Fund paying more brokerage commissions and generating greater tax
liabilities for shareholders.
AGGRESSIVE INVESTMENT TECHNIQUES - Each of the Funds may, to a significant
extent, purchase futures contracts and options on securities, securities
indexes, and futures contracts. The participation in the options or futures
markets by a Fund involves distinct investment risks and transaction costs.
Risks inherent in the use of options, futures contracts, and options on
futures contracts are described more fully in the "More Information About
Investments and Leveraging Transactions" section of this Prospectus, and in
the Statement of Additional Information.
NON-DIVERSIFICATION - Since each Fund is non-diversified, each Fund may
invest in the securities of a relatively few number of issuers. To the
extent that a Fund invests a significant percentage of its assets in a
limited number of issuers, the Fund is subject to the risks of investing in
those few issuers, and may be more susceptible to a single adverse economic
or regulatory occurrence. The Funds intend, however, to comply with the
applicable diversification requirements of the Internal Revenue Code.
PERFORMANCE INFORMATION
TOTAL RETURN CALCULATIONS
From time to time, each of the Funds may advertise its total return for prior
periods. Any such advertisement will include at least average annual total
return quotations for one, five, and ten-year periods, or for the life of the
Fund (if less). Other total return quotations over other time periods also
may be included.
The total return of a Fund refers to the average compounded rate of return on
a hypothetical investment, and is calculated by subtracting the value of the
initial investment from ending value of the investment and showing the
differences as a percentage of the initial investment. Total return
35
<PAGE>
calculations assume that the entire investment is redeemed at the end of each
period and that all income dividends and capital gains distributions are
reinvested. Average annual total return quotations for periods of more than
one year are computed by finding the average annual compounded rate of return
over the period that would equal the initial amount invested relative to the
ending redeemable value.
Please keep in mind that performance information, such as total return, is
not necessarily indicative of the future performance of a Fund.
YIELD CALCULATIONS
From time to time, the Money Market Fund advertises its "yield" and
"effective yield." Both yield figures are based on historical earnings and
are not intended to indicate future performance. The yield of the Money
Market Fund refers to the income generated by an investment in the Money
Market Fund over a seven-day period. This income is then "annualized." That
is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The effective yield is calculated similarly,
but, when annualized, the income earned by an investment in the Money Market
Fund is assumed to be reinvested, which results in a slightly higher yield
because of the compounding effect of this assumed reinvestment.
COMPARISONS OF INVESTMENT PERFORMANCE
The performance of a Fund for a given period may be compared to the
performance of recognized, unmanaged indexes for the same period in
performance reports and promotional literature.
In addition, rankings, ratings, and comparisons of investment performance
and/or assessments of the quality of shareholder service appear in numerous
financial publications such as MONEY, FORBES, KIPLINGER'S MAGAZINE, PERSONAL
INVESTOR, MORNINGSTAR, INC., and similar sources.
Additional performance information for the Funds is contained in the
Statement of Additional Information ("SAI") and in the Trust's annual and
semi-annual reports to shareholders. Copies of the SAI and/or the annual and
semi-annual reports may be obtained, without charge, by writing to the Trust
at 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852, or by
calling 1-800-820-0888.
HOW TO INVEST IN THE FUNDS
PURCHASING SHARES
Shares are offered continuously, and may be purchased on any day that the New
York Stock Exchange is open for business (a "Business Day"). The price per
share (the offering price) will be the net asset value per share ("NAV") next
determined after your purchase order is received by the Trust. NAV is
calculated by (1) taking the current market value of a Fund's total assets,
(2) subtracting the liabilities, and (3) dividing that amount by the total
number of shares owned by shareholders.
36
<PAGE>
The Money Market Fund utilizes the amortized cost method in valuing its
portfolio securities. The purpose of the amortized cost method is to maintain
a constant NAV of $1.00. However, there is no assurance that the $1.00 NAV
will be maintained. For further information regarding the amortized cost
method, see the SAI.
The NAV for each Sector Fund 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). The NAV for the Money Market Fund is
calculated on each Business Day at 1:00 P.M., Eastern Time. If the exchange
or market where a Sector Fund's securities or other investments are primarily
traded closes early, the NAV may be calculated earlier in accordance with the
policies set forth in the Funds' SAI. To receive the current Business Day's
NAV, the Trust must receive your purchase order before 3:30 p.m., Eastern
Time. Any purchase order received after a Fund calculates its NAV will be
priced at the next Business Day's NAV for that Fund. No sales charges are
imposed on initial or subsequent investments in a Fund.
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 Rydex Sector Funds is $25,000. Advisor
Class Shares are generally not available for purchase directly from the Fund
by individuals. 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 shares 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 either your account application or your check, your money will be
invested in the Rydex U.S. Government Money Market Fund until you tell us
where to invest your money. There is no minimum amount for subsequent
investments in a Fund. The Trust reserves the right to modify its minimum
investment requirements at any time. The Trust also reserves the right to
reject or refuse, at the Trust's discretion, any order for the purchase of a
Fund's shares in whole or in part.
Investments in the Funds may be made (i) through intermediaries or securities
dealers who have the responsibility to transmit orders promptly and who may
charge a processing fee, or (ii) directly with the Trust by mail or by bank
wire transfer as follows:
BY MAIL
Initial applications and investments, as well as subsequent investments, in the
Rydex Sector Funds made BY MAIL must be received in good form by the Trust, on
any Business Day, at or prior to 2:00
37
<PAGE>
p.m., Eastern Time, in order to be processed for that Business Day's NAV.
Fill out an application and make a check payable to "Rydex Series Trust."
Mail the check, along with the application to:
Rydex Series Trust
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
IN ADDITION TO CHARGES DESCRIBED ELSEWHERE IN THIS PROSPECTUS, THE TRUST ALSO
MAY CHARGE $25.00 FOR CHECKS RETURNED FOR INSUFFICIENT OR UNCOLLECTIBLE FUNDS.
BY BANK WIRE TRANSFER
First, fill out an application and fax the complete application, along with a
request for a shareholder account number, to the Trust at 301-468-8585.
Then, request that your bank wire transfer the purchase amount to our
custodian, Star Bank, N.A., along with the following instructions:
Star Bank, N.A.
Routing Number: 0420-00013
For Account of Rydex Series Trust
Trust Account Number: 48038-9030
[Your Name]
[Your Shareholder Account Number]
AFTER INSTRUCTING YOUR BANK TO TRANSFER MONEY BY WIRE FOR BOTH INITIAL AND
SUBSEQUENT PURCHASES, YOU MUST CALL THE TRUST AT 1-800-820-0888 AND INFORM
THE TRUST AS TO THE AMOUNT THAT YOU HAVE TRANSFERRED AND THE NAME OF THE BANK
SENDING THE TRANSFER IN ORDER TO OBTAIN SAME-DAY PRICING OR CREDIT. FOR
INITIAL PURCHASES, YOU MUST ALSO SUPPLY THE TIME THE WIRE WAS SENT AND THE
FED WIRE REFERENCE NUMBER. YOUR BANK MAY CHARGE A FEE FOR SUCH SERVICES. IF
THE PURCHASE IS CANCELED BECAUSE YOUR WIRE TRANSFER IS NOT RECEIVED, YOU MAY
BE LIABLE FOR ANY LOSS THAT THE TRUST INCURS.
Wire transfers for both initial investments (which must be preceded by a
faxed application) and subsequent investments in the Funds must be received
in good form at the Trust, on any Business Day, at or prior to 3:30 p.m.,
Eastern Time (1:00 p.m., Eastern Time, for the 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 cut-off times for
purchases. For more information about how to purchase through an
intermediary, you should contact that intermediary directly.
TAX-QUALIFIED RETIREMENT PLANS
38
<PAGE>
Investors may purchase shares of the Funds through any of the following types
of tax-qualified retirement plans:
Individual Retirement Accounts (IRAs)
Keogh Accounts -- Defined Contribution Plans (Profit Sharing Plans)
Keogh Accounts -- Pension Plans (Money Purchase Plans)
Internal Revenue Code Section 403(b) Plans
For retirement plan accounts that have engaged 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
per account liquidation fee. Additional information regarding these
accounts, including the annual maintenance fee, may be obtained by calling
1-800-820-0888 or 301-468-8520.
REDEEMING FUND SHARES
GENERAL
You may redeem all or any portion of your Fund shares at the next determined
NAV after receipt of the redemption request (subject to applicable account
minimums). You may redeem your shares by letter or by telephone subject to
the procedures set forth below. Your redemption proceeds normally will be
sent within five Business Days of the Trust receiving your request. For
investments made by check, payment on redemption requests may be delayed
until the Trust's transfer agent is reasonably satisfied that payment has
been collected by the Trust (which may require up to 10 Business Days). If
you invest by check, you may not wire out any redemption proceeds for the 30
calendar days following the purchase. You may avoid a delay in receiving
redemption proceeds by purchasing shares with a certified check. Telephone
redemptions will be sent only to your address or your bank account (as listed
in the Trust's records). The Trust may charge $15 for certain wire transfers
of redemption proceeds.
The proceeds of non-telephone redemptions will be sent directly to your
address (as listed in the Trust's records). If you request payment of
redemption proceeds to a third party or to a location other than your address
or your bank account (as listed in the Trust's records), this request must be
in writing and must include a signature guarantee. 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.
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.
39
<PAGE>
INVOLUNTARY REDEMPTIONS
Because of the administrative expense of handling small accounts, any request
for a redemption when your account balance (a) is below the currently
applicable minimum investment, or (b) would be below that minimum as a result
of the redemption, will be treated as a request for the complete redemption
of that account. If, due to withdrawals or exchanges, your account balance
drops below the required minimum of $25,000, you may be required to redeem
your shares.
EXCHANGES
You may exchange Advisor Class Shares of any Rydex Sector Fund for Advisor
Class Shares of any other Rydex Sector Fund, or of shares of any other Rydex
Fund that is not a Rydex Sector Fund, on the basis of the respective net
asset values of the shares involved. The Trust currently is composed of
twenty-three separate Funds. Exchanges may be made by letter or by telephone
subject to the procedures set forth below.
To exchange your shares, you (or your intermediary) need to provide certain
information, including the name on the account, the account number (or your
taxpayer identification number), the number or dollar value of shares (or the
percentage of the total value of your account) you want to exchange, and the
names of the Rydex Funds involved in the exchange transaction. Exchanges may
be made only between identically registered accounts. If you are
contemplating an exchange for shares of a Rydex Fund not described in this
Prospectus, you should obtain and review the current prospectus of that Rydex
Fund before making the exchange.
Exchange orders for exchanges into another Rydex Sector Fund must be received
by 3:30 p.m., Eastern Time. Exchange orders into other Rydex Funds must be
received by 3:30 p.m., Eastern Time, or by the time set forth below for the
relevant Rydex Fund (whichever is earlier):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FUND(s) CUT OFF TIME
- --------------------------------------------------------------------------------
<S> <C>
Nova 3:45 p.m.
Ursa
OTC
- --------------------------------------------------------------------------------
Rydex Sector Funds 3:30 p.m.
Precious Metals
- --------------------------------------------------------------------------------
U.S. Government Bond 2:45 p.m.
Juno
- --------------------------------------------------------------------------------
High Yield 2:15 p.m.
- --------------------------------------------------------------------------------
</TABLE>
The exchange privilege may be modified or discontinued at any time.
40
<PAGE>
PROCEDURES FOR REDEMPTIONS AND EXCHANGES
Written requests for redemptions and exchanges should be sent to Rydex Series
Trust, 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852, and
should be signed by the record owner or owners. With proper authorization,
telephone and electronic redemption and transfer requests are also permitted.
Telephone redemption and exchange requests may be made by calling
1-800-820-0888 or 301-468-8520 by 3:30 p.m., Eastern Time, on any Business
Day. The Trust reserves the right to suspend the right of redemption in
accordance with the SAI. The Trust's offices are open between 8:30 a.m. and
5:30 p.m., Eastern Time on each Business Day.
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 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.
DIVIDENDS AND DISTRIBUTIONS
Income dividends, if any, are paid at least annually by each of the Funds,
except the 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 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.
41
<PAGE>
TAX INFORMATION
The following is a summary of some important tax issues that affect the Funds
and their Shareholders. The summary is based on current tax laws, which may
be changed by legislative, judicial or administrative action. We have not
tried to present a detailed explanation of the tax treatment of the Funds or
of the tax consequences of an investment in the Funds to the Funds'
Shareholders. MORE INFORMATION ABOUT TAXES IS LOCATED IN THE SAI. WE URGE
YOU TO CONSULT YOUR TAX ADVISOR REGARDING SPECIFIC QUESTIONS AS TO FEDERAL,
STATE AND LOCAL INCOME TAXES.
TAX STATUS OF EACH FUND
Each Fund is treated as a separate entity for federal tax purposes, and
intends to qualify for the special tax treatment afforded regulated
investment companies. As long as a Fund qualifies as a regulated investment
company, it pays no federal income tax on the earnings it distributes to
Shareholders.
TAX STATUS OF DISTRIBUTIONS
- - Each Fund will distribute substantially all of its income. THE INCOME
DIVIDENDS YOU RECEIVE FROM THE FUNDS WILL BE TAXED AS ORDINARY INCOME
WHETHER YOU RECEIVE THE DIVIDENDS IN CASH OR IN ADDITIONAL SHARES.
- - Corporate shareholders may be entitled to a dividends-received deduction for
the portion of dividends they receive which are attributable to dividends
received by a Fund from U.S. corporations.
- - Capital gains distributions will result from gains on the sale or exchange of
capital assets held for more than one year.
- - Distributions paid in January but declared by a Fund in October, November or
December of the previous year, may be taxable to you in the previous year.
TAX STATUS OF SHARE TRANSACTIONS
EACH SALE, EXCHANGE, OR REDEMPTION OF FUND SHARES IS A TAXABLE EVENT TO
YOU. YOU SHOULD CONSIDER THE TAX CONSEQUENCES OF ANY REDEMPTION OR
EXCHANGE BEFORE MAKING SUCH A REQUEST, ESPECIALLY IF YOU INVEST IN THE
FUNDS THROUGH A TAX-QUALIFIED RETIREMENT PLAN.
STATE TAX CONSIDERATIONS
A Fund is not liable for any income or franchise tax in Delaware as long
as it qualifies as a regulated investment company for Federal income tax
purposes.
42
<PAGE>
Distributions by the Funds may be subject to state and local taxation. You
should verify your tax liability with your tax advisor.
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISOR
PADCO Advisors, Inc., a Maryland corporation with offices at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852 (the "Advisor"), serves as
investment advisor and manager of the Funds. Albert P. Viragh, Jr., the
Chairman of the Board and the President of the Advisor, owns a controlling
interest in the Advisor. From 1985 until the incorporation of the Advisor,
Mr. Viragh was a Vice President of Money Management Associates ("MMA"), a
Maryland-based registered investment advisor. From 1992 to June 1993, Mr.
Viragh was the portfolio manager of The Rushmore Nova Portfolio, a series of
The Rushmore Fund, Inc., an investment company managed by MMA.
The Advisor makes investment decisions for the assets of the Funds and
continuously reviews, supervises, and administers each Fund's investment
program. The Trustees of the Trust supervise the Advisor and establish
policies that the Advisor must follow in its day-to-day management
activities. Under an investment advisory agreement between the Trust and the
Advisor, the Funds each pay the Advisor a fee at an annualized rate, based on
the average daily net assets for each Fund, of .85%. The Advisor bears all
of its own costs associated with providing these advisory services and the
expenses of the Trustees who are affiliated with the Advisor. The Advisor
may make payments from its own resources to broker-dealers and other
financial institutions in connection with the sale of Fund shares.
Each Fund is managed by a team and no one person is responsible for making
investment decisions for a Fund.
THE SERVICER
General administrative, dividend disbursement, transfer agent, and registrar
services are provided to the Trust and the Funds by PADCO Service Company,
Inc., 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852 (the
"Servicer"), subject to the general supervision of the Trustees and the
officers of the Trust. Under an agreement between the Trust and the
Servicer, the Funds pay the Servicer a fee at an annualized rate, based on
the average daily net assets of each Fund, of .25%.
The Servicer provides the Trust and Funds with general administrative
services. The Servicer also maintains the shareholder records for the Funds,
pays the Funds' dividends and distributions, and produces account statements
for the Funds' Shareholders.
DISTRIBUTOR
43
<PAGE>
Pursuant to the Distribution Agreement adopted by the Trust, PADCO Financial
Services, Inc., 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852 (the "Distributor"), 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.
DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
The Funds have adopted a Distribution and Shareholder Services Plan (the
"Plan") applicable to Advisor Class Shares, for which the Distributor and
other firms that provide distribution and shareholder services ("Service
Providers") may receive compensation. If the Distributor or a Service
Provider provides distribution services, the Funds will pay service 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. The Distributor will pay the
Service Provider out of its fees. In return, the Distributor or Service
Provider may use this fee 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.
If the Distributor or a Service Provider provides shareholder services, the
Distributor will receive service fees at an annual rate not to exceed .25% of
average daily net assets of a Fund. The Distributor will pay the Service
Provider out of its fees. In return, the Distributor or Service Provider
will perform some or all of the following services:
- - maintaining accounts relating to clients that invest in shares;
- - arranging for bank wires;
- - responding to client inquiries relating to the services performed by the
Distributor or Service Provider;
- - responding to inquiries from clients concerning their investment in shares;
and
- - assisting clients in changing dividend options, account designations and
addresses.
- - providing information periodically to clients showing their position in
shares;
- - forwarding shareholder communications from the Funds such as proxies,
shareholder reports, annual reports, and dividend distribution and tax
notices to clients;
- - processing purchase exchange and redemption requests from clients and placing
orders with the Funds or its service providers;
- - providing sub-accounting with respect to shares beneficially owned by
clients; and
- - processing dividend payments from the Funds on behalf of clients.
These shareholder services are different from the distribution services
discussed above, and are not primarily intended to result in the sale of
Advisor Class Shares of the Funds.
OTHER COSTS AND EXPENSES
44
<PAGE>
Each Fund bears all costs and expenses of its operations other than those
assumed by the Advisor, the Distributor or the Servicer.
PORTFOLIO TRANSACTIONS
The Advisor determines which securities to purchase and sell for each Fund,
selects brokers and dealers to effect the transactions, and negotiates
commissions. In placing orders for the Funds, the Advisor's policy is to
obtain the most favorable price and efficient execution available. In
certain circumstances, the Advisor may pay higher brokerage commissions in
order to receive research services, and the receipt of research services may
be a factor in the selection of broker-dealers. Brokerage commissions are
normally paid on exchange-traded securities transactions and on options and
futures transactions.
GENERAL INFORMATION
DESCRIPTION OF THE TRUST
The Trust was organized as a Delaware business trust on February 10, 1993.
The Trust is permitted to offer separate portfolios of shares and different
classes of each Fund. All payments received by the Trust for shares of any
Fund belong to that Fund. Each Fund has its own assets and liabilities.
Currently, the Trust has twenty-three separate series. In addition to the
Funds described in this Prospectus, the Trust offers shares in the following
funds in separate prospectuses: The Nova Fund, The Ursa Fund, The OTC Fund,
The Precious Metals Fund, The U.S. Government Bond Fund, The Juno Fund, and
The Institutional Money Market Fund. The Trust also offers Investor Class
Shares of the Rydex Sector Funds in a separate prospectus. Investor Class
Shares are identical to Advisor Class Shares, except that Advisor Class
Shares are subject to additional shareholder servicing fees.
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.
45
<PAGE>
BOARD OF TRUSTEES; OFFICERS
The Trustees supervise the management and affairs of the Trust. The Trustees
have approved contracts with certain companies that provide the Trust with
essential management services. The day-to-day operations of the Trust are
the responsibility of the Trust's officers.
REPORTING
You will receive the Trust's unaudited financial information and audited
financial statements. In addition, the Trust will send you proxy statements
and other reports. If you are a customer of a financial institution that has
purchased shares of a Fund for your account, you may, depending upon the
nature of your account, receive all or a portion of this information directly
from your financial institution.
SHAREHOLDER INQUIRIES
You may call 1-800-820-0888 or 301-468-8520 to obtain information on account
statements, procedures, and other related information. You may also contact
your intermediary.
AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, are the
independent public accountants for the Trust and each of the Funds.
COUNSEL
Morgan, Lewis & Bockius LLP, 1800 M Street, N.W., Washington, D.C. 20036,
serves as counsel to the Rydex Sector Funds.
CUSTODIAN
Star Bank, N.A. (the "Custodian"), Star Bank Center, 425 Walnut Street,
Cincinnati, Ohio 45202, serves as custodian for the Trust and the Funds under
a custody agreement between the Trust and the Custodian. Under the custody
agreement, the Custodian holds the portfolio securities of each Fund and
keeps all necessary related accounts and records.
INFORMATION ABOUT THE FUNDS' INVESTMENTS
FUND INVESTMENTS
The following table sets forth the primary investments, techniques and
strategies that each Fund will use to achieve its investment objective:
% = Maximum percentage permissible. All percentages shown are of total assets,
except for Illiquid Securities, which is shown as a percentage of net assets.
X = No policy limitation.
46
<PAGE>
- --------------------------------------------------------------------------------
PERCENTAGE OF EACH FUND'S ASSETS SUBJECT
INVESTMENTS AND INVESTMENT TO EACH
PRACTICES INVESTMENT OR INVESTMENT PRACTICE
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENTS
- --------------------------------------------------------------------------------
ADRs 20%
- --------------------------------------------------------------------------------
Convertible Securities X
- --------------------------------------------------------------------------------
Equity Securities 100%
- --------------------------------------------------------------------------------
Repurchase Agreements X
- --------------------------------------------------------------------------------
U.S. Treasury and Government Agency Obligations X
- --------------------------------------------------------------------------------
Warrants 10%
- --------------------------------------------------------------------------------
INVESTMENT PRACTICES
- --------------------------------------------------------------------------------
Illiquid Securities 15%
- --------------------------------------------------------------------------------
Borrowing 33 1/3%
- --------------------------------------------------------------------------------
Securities Lending 50%
- --------------------------------------------------------------------------------
LEVERAGING AND HEDGING TRANSACTIONS
- --------------------------------------------------------------------------------
Futures and Options on Futures(1) X
- --------------------------------------------------------------------------------
Options(1) X
- --------------------------------------------------------------------------------
Short Sales 10%
- --------------------------------------------------------------------------------
Swaps, Caps, Floors, and Collars 20%
- --------------------------------------------------------------------------------
(1) Percent which may be used for leveraging purposes may not exceed 33 1/3%.
The Advisor will endeavor to ensure that each Fund remains fully invested in
its economic sector at all times. However, since the Advisor may not be able
to achieve sufficient exposure to an economic sector at low asset levels, if
the assets of any Fund fall below approximately $250,000, the Trust reserves
the right to liquidate the Fund's portfolio securities and invest the Fund's
assets in cash or other liquid, short-term obligations until such time as the
assets of the Fund exceed $250,000. Under normal market conditions, the
Funds will use the investments, practices and policies outlined above.
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund will concentrate its investments (I.E., invest at least 25% of its
assets) in issuers conducting business in the business sector appropriate for
that Fund. With respect to 50% of its assets, each Fund will not:
- - invest more than 5% of its assets in the securities of any one issuer.
- - purchase more than 10% of the outstanding voting securities of any one
issuer.
47
<PAGE>
MORE INFORMATION ABOUT INVESTMENTS AND LEVERAGING TRANSACTIONS
The following is a description of some of the permitted investments for the
Funds. Further discussion of the investment and techniques is contained in
the SAI.
AMERICAN DEPOSITARY RECEIPTS (ADRs) are securities, typically issued by a
U.S. financial institution (a depositary). The institution has ownership
interests in security, or a pool of securities, issued by a foreign issuer
and deposited with the depositary. ADRs may be available through "sponsored"
or "unsponsored" facilities. A sponsored facility is established jointly by
the issuer of the security underlying the receipt and a depositary. An
unsponsored facility may be established by a depositary without participation
by the issuer of the underlying security.
BORROWING. The Funds may borrow money equal to 5% of their total assets for
temporary purposes to meet redemptions or to pay dividends. In addition, the
Funds may borrow to leverage their portfolios. Such borrowings may take the
form of margin accounts or a conventional bank borrowings in connection with
securities purchases. Borrowing may exaggerate changes in the net asset
value of a Fund's shares and in the return on the Fund's portfolio. Although
the principal of any borrowing will be fixed, a Fund's assets may change in
value during the time the borrowing is outstanding. A Fund may be required
to liquidate portfolio securities at a time when it would be disadvantageous
to do so in order to make payments with respect to an outstanding borrowing.
The Funds may be required to segregate liquid assets in an amount sufficient
to meet their obligations in connection with such borrowings.
COMMON AND PREFERRED STOCKS represent units of ownership in a corporation.
Owners of common stock typically are entitled to vote on important matters.
Owners of preferred stock ordinarily do not have voting rights, but are
entitled to dividends at a specified rate. Preferred stock has a prior claim
to common stock with respect to dividends.
CONVERTIBLE SECURITIES are corporate securities that are exchangeable for a
set number of another security at a prestated price. The market value of a
convertible security tends to move with the market value of the underlying
stock. The value of a convertible security is also affected by prevailing
interest rates, the credit quality of the issuer, and any call option
provisions. The Funds will not invest in convertible securities rated below
B by S&P and/or Moody's.
EQUITY SECURITIES include common and preferred stocks, warrants, rights to
subscribe to common stock and convertible securities. These securities may
be publicly or privately issued.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS provide for the future
sale by one party and purchase by another party of a specified amount of a
specific security at a specified future time and at a specified price. An
option on a futures contract gives the purchaser the right, in exchange for a
premium, to assume a position in a futures contract at a specified exercise
price during the term of the option.
48
<PAGE>
A Fund may use futures contracts, and related options, for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired. They may also be used to minimize fluctuations in foreign
currencies, to gain exposure to a particular market or instrument, to create
a synthetic money market position, and for certain other tax-related
purposes. A Fund will minimize the risk that it will be unable to close out
a futures contract by only entering into futures contracts which are traded
on a national futures exchange or board of trade.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An index futures contract obligates the
seller to deliver (and the purchaser to take) an amount of cash equal to a
specific dollar amount times the difference between the value of a specific
index at the close of the last trading day of the contract and the price at
which the agreement is made.
Although the Funds intend to sell futures contracts only if there is an
active market for such contracts, there is no assurance that a liquid market
will exist for any particular contract at any particular time. Many futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day, thereby preventing
prompt liquidation of future positions and potentially subjecting a Fund to
substantial losses. The risk that a Fund will be unable to close out a
futures position will be minimized by entering into such transactions on a
national exchange or board of trade with an active and liquid secondary
market.
ILLIQUID SECURITIES are securities that cannot be sold within seven days at
approximately the price at which they are being carried on the Fund's books.
MONEY MARKET INSTRUMENTS are high quality, dollar-denominated, short-term
obligations, including bank obligations, U.S. Treasury obligations, U.S.
Government agency obligations, issued or guaranteed by the agencies or
instrumentalities of the U.S. Government, and short-term corporate
obligations.
OPTIONS. The buyer of an option acquires the right to buy (a call option) or
sell (a put option) a certain quantity of a security (the underlying
security) or instrument at a certain price up to a specified point in time.
The seller or writer of an option is obligated to sell (a call option) or buy
(a put option) the underlying security. When writing (selling) call options
on securities, a Fund may cover its position by owning the underlying
security on which the option is written. Alternatively, the Fund may cover
its position by owning a call option on the underlying security. In
addition, a Fund may cover its position by depositing and maintaining in a
segregated account cash or liquid securities equal in value to the exercise
price of the call option written by the Fund. With respect to put options
written (sold) by the Fund, the Fund will establish a segregated account with
its custodian bank consisting of cash or cash equivalents in an amount equal
to the amount the Fund would be required to pay upon exercise of the put
option.
Although certain securities exchanges attempt to provide continuously liquid
markets in which holders and writers of options can close out their positions
at any time prior to the expiration of the option, there is no assurance that
a market will exist at all times for all outstanding options purchased or
sold by a Fund. If an options market were to become unavailable, a Fund
would be unable to realize its profits or limit its losses until the Fund
could exercise options it holds, and the Fund would remain obligated until
options it wrote were exercised or expired.
49
<PAGE>
Because option premiums paid or received by a Fund are small in relation to
the market value of the investments underlying the options, buying and
selling put and call options can be more speculative than investing directly
in common stocks.
REPURCHASE AGREEMENTS are agreements by which a Fund obtains a security and
simultaneously agrees to return the security to the seller at an agreed upon
price on an agreed upon date within a number of days from the date of
purchase. A Fund will enter into repurchase agreements only with financial
institutions deemed to present minimal risk of bankruptcy during the term of
the agreement based on established guidelines.
RIGHTS give existing shareholders of a corporation the right, but not the
obligation, to buy shares of the corporation at a given price, usually below
the offering price, during a specified period.
SECURITIES LENDING. To generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral equal to at least 100% of the market value
of the loaned securities. A Fund continues to receive interest on the loaned
securities while simultaneously earning interest on the investment of cash
collateral.
SHORT SALES are transactions which a Fund sells a security it does not own.
To complete the transaction, the Fund must borrow the security to make
delivery to the buyer. The Fund then is obligated to replace the security
borrowed by purchasing the security at the market price at the time of
replacement. The price at such time may be more or less than the price at
which the security was sold by the Fund. If, at the time of the short sale,
a Fund owns or has the right to acquire an equal amount of the security at no
additional cost the transaction is known as selling short "against the box."
SWAPS, CAPS, FLOORS, AND COLLARS are hedging tools designed to permit the
purchaser to preserve a return or spread on a particular investment or
portion of its portfolio. They are also used to protect against any increase
in the price of securities the Fund anticipates purchasing at a later date.
Swap agreements, caps, floors and collars are sophisticated hedging
instruments that typically involve a small investment of cash relative to the
magnitude of risk assumed. As a result, swaps can be highly volatile and
have a considerable impact on a Fund's performance.
U.S. GOVERNMENT AGENCY OBLIGATIONS are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government.
U.S. TREASURY OBLIGATIONS consist of bills, notes, bonds and receipts issued by
the U.S. Treasury.
WARRANTS give holders the right, but not the obligation, to buy shares of a
company at a given price, usually higher than the market price, during a
specified period.
50
<PAGE>
Additional information about the Rydex Sector Funds is included in a
Statement of Additional Information dated March 1, 1998 (the "SAI"). The SAI
has been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus. The SEC also maintains a Web
site ("http://www.sec.gov") that contains the SAI, material incorporated by
reference, and other information regarding registrants that file
electronically with the SEC. You may obtain a copy of the SAI, or of the
annual or semi-annual reports, without charge by calling 1-800-820-0888, or
by writing to PADCO Financial Services Company, Inc., at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
- --------------------------------------------------------------------------------
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE TRUST'S SAI IN
CONNECTION WITH THE OFFERING OF FUND SHARES. DO NOT RELY ON ANY SUCH
INFORMATION OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY THE TRUST OR
PADCO ADVISORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST IN ANY JURISDICTION WHERE SUCH AN OFFERING IS NOT LAWFUL.
RYDEX SECTOR FUNDS
RYDEX-Registered Trademark-
INVESTMENT FLEXIBILITY
FOR INSTITUTIONAL MONEY MANAGERS
51
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
RYDEX SERIES TRUST
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
(800) 820-0888
(301) 468-8520
The Rydex Series Trust (the "Trust") is a no-load mutual fund complex with
twenty-three separate investment portfolios (the "Rydex Funds"). This
Statement of Additional Information ("SAI") relates to the following fifteen
portfolios only: Banking Fund, Basic Materials Fund, Biotechnology Fund,
Consumer Products Fund, Electronics Fund, Energy Fund, Energy Services Fund,
Financial Services Fund, Health Care Fund, Leisure Fund, Retailing Fund,
Technology Fund, Telecommunications Fund, Transportation Fund (collectively
the "Sector Funds"), and the U.S. Government Money Market Fund (the "Money
Market Fund") (collectively the "Funds").
The Trust offers two separate classes of shares, Investor Class Shares and
Advisor Class Shares. Investor Class Shares are sold principally to
professional money managers and to investors who take part in certain
asset-allocation or market-timing investment strategies. Advisor Class Shares
are offered through broker-dealers and other financial institutions
("intermediaries") that have entered into arrangements with the Distributor
to sell Advisor Class Shares to their customers. Advisor Class Shares differ
from Investor Class Shares primarily in the allocation of certain shareholder
servicing and distribution expenses and in the minimum initial investment
requirement. Sales of shares of each Class are made, without a sales charge,
at each Fund's per share net asset value. Additional Funds and/or classes may
be created from time to time.
Each Sector Fund is intended to provide significant investment exposure with
respect to a particular sector of the securities markets. The Sector Funds
may be used independently or in combination with each other as part of an
overall investment strategy. However, none of the Sector Funds alone
constitutes a balanced investment plan, and certain Sector Funds involve
special risks not traditionally associated with investment companies. Because
of the nature of the Sector Funds, there generally will be significant
portfolio turnover, which will likely cause higher expenses and additional
costs. Moreover, each Sector Fund will utilize leverage to gain exposure to
its relevant sector, to a greater extent than 100% of its assets. The Sector
Funds are not intended for investors whose principal objective is current
income or preservation of capital, and may not be a suitable investment for
long-term investors who intend to follow an "invest and hold" strategy. See
"Risk Considerations" in the Rydex Sector Funds' Prospectuses (the
"Prospectuses").
This SAI is not a prospectus and should be read in conjunction with, and is
incorporated by reference into, the Prospectus for Investor Class Shares, dated
March 1, 1998, and the Prospectus for Advisor Class Shares, dated [April 1,
1998.] Copies of the Prospectuses for each of the Advisor Class Shares and
Investor Class Shares are available, without charge, upon request to the Trust
at 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852, or by
telephoning the Trust at (800) 820-0888 or (301) 468-8520.
The date of this SAI is March 1, 1998.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
<S> <C>
DESCRIPTION OF THE SECTOR FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . .3
DESCRIPTION OF THE MONEY MARKET FUND . . . . . . . . . . . . . . . . . . . . . . . .6
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . .6
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . 14
MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
DISTRIBUTION AND SHAREHOLDER SERVICES. . . . . . . . . . . . . . . . . . . . . . . 19
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . 20
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CALCULATION OF RETURN QUOTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 22
INFORMATION ON COMPUTATION OF YIELD. . . . . . . . . . . . . . . . . . . . . . . . 23
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . 24
DIVIDENDS, DISTRIBUTIONS, AND TAXES. . . . . . . . . . . . . . . . . . . . . . . . 25
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
2
<PAGE>
DESCRIPTION OF THE SECTOR FUNDS
BANKING FUND
- ------------
As discussed in the Prospectuses, the Fund may invest in companies engaged in
accepting deposits and making commercial and principally non-mortgage consumer
loans. In addition, these companies may offer services such as merchant
banking, consumer and commercial finance, discount brokerage, leasing and
insurance. These companies may concentrate their operations within a specific
part of the country rather than operating predominantly on a national or
international scale.
BASIC MATERIALS FUND
- --------------------
As discussed in the Prospectuses, the Fund may invest in companies engaged in
the manufacture, mining, processing, or distribution of raw materials and
intermediate goods used in the industrial sector. The Fund may invest in
companies handling products such as chemicals, lumber, paper, cooper, iron ore,
nickel, steel, aluminum, textiles, cement, and gypsum. The Fund may also invest
in the securities of mining, processing, transportation, and distribution
companies, including equipment suppliers and railroads.
BIOTECHNOLOGY FUND
- ------------------
As discussed in the Prospectuses, the Fund may invest in companies engaged in
the research, development, sale, and manufacture of various biotechnological
products, services and processes. These include companies involved with
developing or experimental technologies such as generic engineering, hybridoma
and recombinant DNA techniques and monoclonal antibodies. The Fund may also
invest in companies that manufacture and/or distribute biotechnological and
biomedical products, including devices and instruments, and that provide or
benefit significantly from scientific and technological advances in
biotechnology. Some biotechnology companies may provide processes or services
instead of, or in addition to, products.
The description of the biotechnology sector may be interpreted broadly to
include applications and developments in such areas as human health care
(cancer, infectious disease, diagnostics and therapeutics); pharmaceuticals (new
drug development and production); agricultural and veterinary applications
(improved seed varieties, animal growth hormones); chemicals (enzymes, toxic
waste treatment); medical/surgical (epidermal growth factor, in vivo
imaging/therapeutics); and industry (biochips, fermentation, enhanced mineral
recovery).
CONSUMER PRODUCTS FUND
- ----------------------
As discussed in the Prospectuses, the Fund may invest in companies engaged in
the manufacture and distribution of goods to consumers, both domestically and
internationally. The Fund may invest in companies that manufacture durable
products such as furniture, major appliances, and personal computers. The
Fund also may invest in companies that manufacture, wholesale or retail
non-durable goods such as beverages, tobacco, health care products, household
and personal care products, apparel, and entertainment products (E.G., books,
magazines, TV, cable, movies, music, gaming, and sports). In addition, the
Fund may invest in consumer products and services such as lodging, child
care, convenience stores, and car rentals.
ELECTRONICS FUND
- ----------------
As discussed in the Prospectuses, the Fund may invest in companies engaged in
the design, manufacture, or sale of electronic components (semiconductors,
connectors, printed circuit boards and other components); equipment vendors
to electronic component manufactures; electronic component distributors; and
electronic instruments and electronic systems vendors. In addition, the Fund
may invest in companies in the fields of defense electronics, medical
electronics, consumer electronics, advanced manufacturing technologies
(computer-aided design and computer-aided manufacturing, computer-aided
engineering, and robotics), lasers and electro-optics, and other developing
electronics technologies.
3
<PAGE>
ENERGY FUND
- -----------
As discussed in the Prospectuses, the Fund may invest in companies in the energy
field, including the conventional areas of oil, gas, electricity and coal, and
alternative sources of energy such as nuclear, geothermal, oil shale and solar
power. The business activities of companies in which the Fund may invest
include production, generation, transmission, refining, marketing, control,
distribution or measurement of energy or energy fuels such as petrochemicals;
providing component parts or services to companies engaged in the above
activities; energy research or experimentation; and environmental activities
related to pollution control. Companies participating in new activities
resulting from technological advances or research discoveries in the energy
field may also be considered for this Fund.
ENERGY SERVICES FUND
- --------------------
As discussed in the Prospectuses, the Fund may invest in companies in the energy
service field, including those that provide services and equipment to the
conventional areas of oil, gas, electricity and coal, and alternative sources of
energy such as nuclear, geothermal, oil shale and solar power. The Fund may
invest in companies involved in providing services and equipment for drilling
processes such as offshore and onshore drilling, drill bits, drilling rig
equipment, drilling string equipment, drilling fluids, tool joints and wireline
logging. Many energy service companies are engaged in production and well
maintenance, providing such products and services as packers, perforating
equipment, pressure pumping, downhole equipment, valves, pumps, compression
equipment, and well completion equipment and service. Certain companies supply
energy providers with exploration technology such as seismic data, geological
and geophysical services, and interpretation of this data. The Fund may also
invest in companies with a variety of underwater well services, helicopter
services, geothermal plant design or construction, electric and nuclear plant
design or construction, energy related capital equipment, mining related
equipment or services, and high technology companies serving these industries.
FINANCIAL SERVICES FUND
- -----------------------
As discussed in the Prospectuses, the Fund may invest in companies that are
involved in the financial sector, including commercial and investment banks,
savings and loan associations, consumer and industrial finance companies,
securities brokerage companies, real estate-related companies, leasing
companies, and a variety of firms in all segments of the insurance industry such
as multi-line, property and casualty, and life insurance.
The financial services sector is currently undergoing relatively rapid change as
existing distinctions between financial service segments become less clear. For
instance, recent business combinations have included insurance, finance, and
securities brokerage under single ownership. Some primarily retail corporations
have expanded into securities and insurance industries. Moreover, the federal
laws generally separating commercial and investment banking are currently being
studied by Congress.
Securities and Exchange Commission ("SEC") regulations provide that the Fund may
not invest more than 5% of its total assets in the securities of any one
company that derives more than 15% of its revenues from brokerage or investment
management activities. These companies, as well as those deriving more than 15%
of profits from brokerage and investment management activities, will be
considered to be "principally engaged" in this Fund's business activity. Rule
12d3-1 under the Investment Company Act of 1940 (the "1940 Act"), allows
investment portfolios such as this Fund, to invest in companies engaged in
securities-related activities subject to certain conditions. Purchases of
securities of a company that derived 15% or less of gross revenues during its
most recent fiscal year from securities-related activities (I.E., broker/dealer,
underwriting, or investment advisory activities) are subject only to the same
percentage limitations as would apply to any other security the Fund may
purchase. The Fund may purchase securities of an issuer that derived more than
15% of it gross revenues in its most recent fiscal year from securities-related
activities, subject to the following conditions:
4
<PAGE>
a. the purchase cannot cause more than 5% of the Fund's total assets to
be invested in securities of that issuer;
b. for any equity security, the purchase cannot result in the Fund owing
more than 5% of the issuer's outstanding securities in that class;
c. for a debt security, the purchase cannot result in the fund owing more
than 10% of the outstanding principal amount of the issuer's debt
securities.
In applying the gross revenue test, an issuer's own securities-related
activities must be combined with its ratable share of securities-related
revenues from enterprises in which it owns a 20% or greater voting or equity
interest. All of the above percentage limitations, as well as the issuer's
gross revenue test, are applicable at the time of purchase. With respect to
warrants, rights, and convertible securities, a determination of compliance with
the above limitations shall be made as though such warrant, right, or conversion
privilege had been exercised. The Fund will not be required to divest its
holding of a particular issuer when circumstances subsequent to the purchase
cause one of the above conditions to not be met. The purchase of a general
partnership interest in a securities-related business is prohibited.
HEALTH CARE FUND
- ----------------
As discussed in the Prospectuses, the Fund may invest in companies that are
involved in the health care industry including companies engaged in the design,
manufacture, or sale of products or services used for or in connection with
health care or medicine. Companies in the health care sector may include
pharmaceutical companies; firms that design, manufacture, sell, or supply
medical, dental, and optical products, hardware or services; companies involved
in biotechnology, medical diagnostic, and biochemical research and development,
as well as companies involved in the operation of health care facilities.
LEISURE FUND
- ------------
As discussed in the Prospectuses, the Fund may invest in companies engaged in
the design, production, or distribution of goods or services in the leisure
industries including television and radio broadcasting or manufacturing
(including cable television); motion pictures and photography; recordings and
musical instruments; publishing, including newspapers and magazines; sporting
goods and camping and recreational equipment; and sports arenas. Other goods
and services may include toys and games (including video and other electronic
games), amusement and theme parks, travel and travel-related services, hotels
and motels, leisure apparel or footwear, tobacco products, and gaming casinos.
RETAILING FUND
- --------------
As discussed in the Prospectuses, the Fund may invest in companies that are
involved in the retailing sector including companies engaged in merchandising
finished goods and services primarily to individual consumers. Companies in
which the Fund may invest include general merchandise retailers, department
stores, restaurant franchises, drug stores, motor vehicle and marine dealers,
and any specialty retailers selling a single category of merchandise such as
apparel, toys, jewelry, consumer electronics, or home improvement products. The
Fund may also invest in companies engaged in selling goods and services through
alternative means such as direct telephone marketing, mail order, membership
warehouse clubs, computer, or video based electronic systems.
TECHNOLOGY FUND
- ---------------
As discussed in the Prospectuses, the Fund may invest in companies that are
involved in the technology sector including companies which the Advisor
believes have, or will develop, products, processes or services that will
provide or will benefit significantly from technological advances and
improvements. These may include, for
5
<PAGE>
example, companies that develop, produce, or distribute products or services
in the computer, semiconductor, electronics, communications, health care, and
biotechnology sectors.
TELECOMMUNICATIONS FUND
- -----------------------
As discussed in the Prospectuses, the Fund may invest in companies that are
involved in the telecommunications sector including companies engaged in the
development, manufacture, or sale of communications services and/or equipment.
Companies in the telecommunications field offer a variety of services and
products, including local and long-distance telephone service; cellular, paging,
local and wide-area product networks; satellite, microwave and cable television;
Internet access; and equipment used to provide these products and services.
Long-distance telephone companies may also have interests in developing
technologies, such as fiber optics and data transmission. Certain types of
companies in which the Fund may invest are engaged in fierce competition for a
share of the market for goods or services such as private and local area
networks, or are engaged in the sale of telephone set equipment.
TRANSPORTATION FUND
- -------------------
As discussed in the Prospectuses, the Fund may invest in companies that are
involved in the transportation sector, including companies engaged in providing
transportation services or companies engaged in the design, manufacture,
distribution, or sale of transportation equipment. Transportation services may
include companies involved in the movement of freight and/or people such as
airline, railroad, ship, truck, and bus companies. Other service companies
include those that provide leasing and maintenance for automobiles, trucks,
containers, rail cars, and planes. Equipment manufacturers include makers of
trucks, automobiles, planes, containers, rail cars, or any other mode of
transportation and their related products. In addition, the Fund may invest in
companies that sell fuel-saving devices to the transportation industries and
those that sell insurance and software developed primarily for transportation
companies.
DESCRIPTION OF THE MONEY MARKET FUND
- ------------------------------------
As discussed in the Prospectus for the Advisor Class Shares, the Fund seeks
to provide security of principal, high current income, and liquidity. The
Fund invests primarily in money market instruments issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities, and the Fund may invest any remaining assets in receipts
and enter into repurchase agreements fully collateralized by U.S. Government
Securities.
The Money Market Fund is governed by SEC rules which impose certain liquidity,
maturity and diversification requirements. The Fund's assets are valued using
the amortized cost method, which enables the Fund to maintain a stable NAV. All
securities purchased by the Fund must have remaining maturities of 397 days or
less. Although the Fund is managed to maintain a stable price per share of
$1.00, there is no guarantee that the price will be constantly maintained.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL
- -------
Each Fund's investment objective and permitted investments are described in
the Prospectuses under the headings "FUND INFORMATION" and "INFORMATION ABOUT
THE FUNDS' INVESTMENTS." The following information supplements, and should
be read in conjunction with, those sections of the Prospectuses.
Portfolio management is provided to each Fund by the Trust's investment
adviser, PADCO Advisors, Inc., a Maryland corporation with offices at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852 (the "Advisor").
The investment strategies of the Funds discussed below and in the
Prospectuses may be used by a Fund if, in the opinion of the Advisor, these
strategies will be advantageous to that Fund. A Fund is free to reduce
6
<PAGE>
or eliminate its activity in any of those areas without changing the Fund's
fundamental investment policies. There is no assurance that any of these
strategies or any other strategies and methods of investment available to a
Fund will result in the achievement of that Fund's objectives.
BORROWING
- ---------
The Sector Funds may borrow money, including borrowing for investment
purposes. Borrowing for investment is known as leveraging. Leveraging
investments by purchasing securities with borrowed money, is a speculative
technique which increases investment risk, but also increases investment
opportunity. Since substantially all of a Sector Fund's assets will fluctuate
in value, whereas the interest obligations on borrowing may be fixed, the net
asset value per share of the Sector will increase more when the Sector's
portfolio assets increase in value and decrease more when the Sector Fund's
portfolio assets decrease in value than would otherwise be the case.
Moreover, interest costs on borrowing may fluctuate with changing market
rates of interest and may partially offset or exceed the returns on the
borrowed funds. Under adverse conditions, the Sector Funds might have to sell
portfolio securities to meet interest or principal payments at a time
investment considerations would not favor such sales. The Sector Funds intend
to use leverage during periods when the Advisor believes that the respective
Fund's investment objective would be furthered.
Each Sector Fund may borrow money to facilitate management of the Sector
Fund's portfolio by enabling the Sector Fund to meet redemption requests when
the liquidation of portfolio instruments would be inconvenient or
disadvantageous. Such borrowing is not for investment purposes and will be
repaid by the borrowing Sector Fund promptly.
As required by the 1940 Act, a Sector Fund must maintain continuous asset
coverage (total assets, including assets acquired with borrowed funds, less
liabilities exclusive of borrowing) of 300% of all amounts borrowed. If, at
any time, the value of the Sector Fund's assets should fail to meet this 300%
coverage test, the Sector Fund, within three days (not including Sundays and
holidays), will reduce the amount of the Sector Fund's borrowing to the
extent necessary to meet this 300% coverage. Maintenance of this percentage
limitation may result in the sale of portfolio securities at a time when
investment considerations otherwise indicate that it would be disadvantageous
to do so.
In addition to the foregoing, the Sector Funds are authorized to borrow money
from a bank as a temporary measure for extraordinary or emergency purposes in
amounts not in excess of 5% of the value of the Sector Fund's total assets.
This borrowing is not subject to the foregoing 300% asset coverage
requirement The Sector Funds are authorized to pledge portfolio securities
as the Advisor deems appropriate in connection with any borrowing.
FOREIGN ISSUERS
- ---------------
The Sector Funds may invest in issuers located outside the United States.
This may be achieved by purchasing American Depository Receipts ("ADRs") in
the United States. ADRs are dollar-denominated receipts representing
interests in the securities of a foreign issuer, which securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs are receipts typically issued by United States
banks and trust companies which evidence ownership of underlying securities
issued by a foreign corporation. Generally, ADRs in registered form are
designed for use in domestic securities markets and are traded on exchanges
or over-the-counter in the United States. ADRs may be purchased with and sold
for U.S. dollars, which protect the Funds from the foreign settlement risks
described below.
Investing in foreign companies may involve risks not typically associated with
investing in United States companies. The value of securities denominated in
foreign currencies, and of dividends from such securities, can change
significantly when foreign currencies strengthen or weaken relative to the U.S.
dollar. Foreign securities markets generally have less trading volume and less
liquidity than United States markets, and prices in some foreign markets can be
very volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those that apply to United States companies, and it may
be more difficult to obtain reliable
7
<PAGE>
information regarding a foreign issuer's financial condition and operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions, and custodial fees, generally are higher than for
United States investments.
Investing in companies located abroad carries political and economic risks
distinct from those associated with investing in the United States. Foreign
investment may be affected by actions of foreign governments adverse to the
interests of United States investors, including the possibility of expropriation
or nationalization of assets, confiscatory taxation, restrictions on United
States investment, or on the ability to repatriate assets or to convert currency
into U.S. dollars. There may be a greater possibility of default by foreign
governments or foreign-government sponsored enterprises. Investments in foreign
countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
ILLIQUID SECURITIES
- -------------------
The Funds may purchase illiquid securities, including securities that are not
readily marketable and securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "1933 Act"),
but which can be offered and sold to "qualified institutional buyers" under
Rule 144A under the 1933 Act. A Fund will not invest more than 15% of the
Fund's net assets in illiquid securities (10% with respect to the Money
Market Fund). The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which the Fund has valued
the securities. Under the current guidelines of the staff of the Securities
and Exchange Commission (the "Commission"), illiquid securities also are
considered to include, among other securities, purchased over-the-counter
options, certain cover for over-the-counter options, repurchase agreements
with maturities in excess of seven days, and certain securities whose
disposition is restricted under the Federal securities laws. The Fund may not
be able to sell illiquid securities when the Advisor considers it desirable
to do so or may have to sell such securities at a price that is lower than
the price that could be obtained if the securities were more liquid. In
addition, the sale of illiquid securities also may require more time and may
result in higher dealer discounts and other selling expenses than does the
sale of securities that are not illiquid. Illiquid securities also may be
more difficult to value due to the unavailability of reliable market
quotations for such securities, and investment in illiquid securities may
have an adverse impact on net asset value.
Institutional markets for restricted securities have developed as a result of
Rule 144A, which provides a "safe harbor" from 1933 Act registration
requirements for qualifying sales to institutional investors. When Rule 144A
securities present an attractive investment opportunity and otherwise meet
selection criteria, a Fund may make such investments. Whether or not such
securities are "illiquid" depends on the market that exists for the
particular security. The Commission staff has taken the position that the
liquidity of Rule 144A restricted securities is a question of fact for a
board of trustees to determine, such determination to be based on a
consideration of the readily-available trading markets and the review of any
contractual restrictions. The staff also has acknowledged that, while a
board of trustees retains ultimate responsibility, the trustees may delegate
this function to an investment adviser. The trustees of the Trust (the
"Trustees") have delegated to the Advisor, the responsibility for determining
the liquidity of Rule 144A restricted securities which may be invested in by
a Fund. It is not possible to predict with assurance exactly how the market
for Rule 144A restricted securities or any other security will develop. A
security which may have enjoyed a fair degree of marketability when
purchased, may subsequently become illiquid. Accordingly, a security which
was deemed to be liquid at the time of acquisition may subsequently become
illiquid. In such event, appropriate remedies will be considered to minimize
the effect on a Fund's liquidity.
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
8
<PAGE>
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 331/3% of the value of the Fund's total
assets (the Money Market Fund will not lend more than 15% of the value of the
its assets). Loans would be subject to termination by the lending Fund on
four business days' notice, or by the borrower on one day's notice. Borrowed
securities must be returned when the loan is terminated. Any gain or loss in
the market price of the borrowed securities which occurs during the term of
the loan inures to the lending Fund and that Fund's shareholders. A lending
Fund may pay reasonable finders, borrowers, administrative, and custodial
fees in connection with a loan.
OPTIONS TRANSACTIONS
- --------------------
OPTIONS ON SECURITIES.
- ---------------------
The Funds (other than the Money Market Fund) may buy call options and write
(sell) put options on securities, and may buy put options and write call
options on securities for the purpose of realizing the Fund's investment
objective. By writing a call option on securities, a Fund becomes obligated
during the term of the option to sell the securities underlying the option at
the exercise price if the option is exercised. By writing a put option, a
Fund becomes obligated during the term of the option to purchase the
securities underlying the option at the exercise price if the option is
exercised.
During the term of the option, the writer may be assigned an exercise notice by
the broker-dealer through whom the option was sold. The exercise notice would
require the writer to deliver (in the case of a call) or take delivery of (in
the case of a put) the underlying security against payment of the exercise
price. This obligation terminates upon expiration of the option, or at such
earlier time that the writer effects a closing purchase transaction by
purchasing an option covering the same underlying security and having the same
exercise price and expiration date as the one previously sold. Once an option
has been exercised, the writer may not execute a closing purchase transaction.
To secure the obligation to deliver the underlying security in the case of a
call option, the writer of a call option is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Option
Clearing Corporation (the "OCC"), an institution created to interpose itself
between buyers and sellers of options. The OCC assumes the other side of every
purchase and sale transaction on an exchange and, by doing so, gives its
guarantee to the transaction.
OPTIONS ON SECURITY INDEXES.
- ---------------------------
The Funds (other than the Money Market Fund) may purchase call options and
write put options, and may purchase put options and write call options, on
stock indexes listed on national securities exchanges or traded in the
over-the-counter market as an investment vehicle for the purpose of realizing
the Fund's investment objective.
Options on indexes are settled in cash, not in delivery of securities. The
exercising holder of an index option receives, instead of a security, cash equal
to the difference between the closing price of the securities index and the
exercise price of the option. When a Fund writes a covered option on an index,
the Fund will be required to deposit and maintain with a custodian, cash or
liquid securities equal in value to the aggregate exercise price of a put or
call option pursuant to the requirements and the rules of the applicable
exchange. If, at the close of business on any day, the market value of the
deposited securities falls below the contract price, the Fund will deposit with
the custodian cash or liquid securities equal in value to the deficiency.
OPTIONS ON FUTURES CONTRACTS.
- ----------------------------
Under Commodities Futures Trading Commission ("CFTC") Regulations, a Fund
(other than the Money Market Fund) may engage in futures transactions, either
for "bona fide hedging" purposes, as this term is defined in the CFTC
Regulations, or for non-hedging purposes to the extent that the aggregate
initial
9
<PAGE>
margins and option premiums required to establish such non-hedging positions
do not exceed 5% of the liquidation value of the Fund's portfolio. In the
case of an option on futures contracts that is "in-the-money" at the time of
purchase (I.E., the amount by which the exercise price of the put option
exceeds the current market value of the underlying security, or the amount by
which the current market value of the underlying security exceeds the
exercise price of the call option), the in-the-money amount may be excluded
in calculating this 5% limitation.
When a Fund purchases or sells a stock index futures contract, or sells an
option thereon, the Fund "covers" its position. To cover its position, a Fund
may maintain with its custodian bank (and marked-to-market on a daily basis), a
segregated account consisting of cash or liquid securities that, when added to
any amounts deposited with a futures commission merchant as margin, are equal to
the market value of the futures contract or otherwise "cover" its position. If
the Fund continues to engage in the described securities trading practices and
properly segregates assets, the segregated account will function as a practical
limit on the amount of leverage which the Fund may undertake and on the
potential increase in the speculative character of the Fund's outstanding
portfolio securities. Additionally, such segregated accounts will generally
assure the availability of adequate funds to meet the obligations of the Fund
arising from such investment activities.
A Fund may cover its long position in a futures contract by purchasing a put
option on the same futures contract with a strike price (I.E., an exercise
price) as high or higher than the price of the futures contract. In the
alternative, if the strike price of the put is less than the price of the
futures contract, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. A Fund may also cover its long position
in a futures contract by taking a short position in the instruments underlying
the futures contract, or by taking positions in instruments with prices which
are expected to move relatively consistently with the futures contract. A Fund
may cover its short position in a futures contract by taking a long position in
the instruments underlying the futures contracts, or by taking positions in
instruments with prices which are expected to move relatively consistently with
the futures contract.
A Fund may cover its sale of a call option on a futures contract by taking a
long position in the underlying futures contract at a price less than or equal
to the strike price of the call option. In the alternative, if the long
position in the underling futures contracts is established at a price greater
than the strike price of the written (sold) call, the Fund will maintain in a
segregated account cash or liquid securities equal in value to the difference
between the strike price of the call and the price of the futures contract. A
Fund may also cover its sale of a call option by taking positions in instruments
with prices which are expected to move relatively consistently with the call
option. A Fund may cover its sale of a put option on a futures contract by
taking a short position in the underlying futures contract at a price greater
than or equal to the strike price of the put option, or, if the short position
in the underlying futures contract is established at a price less than the
strike price of the written put, the Fund will maintain in a segregated account
cash or liquid securities equal in value to the difference between the strike
price of the put and the price of the futures contract. A Fund may also cover
its sale of a put option by taking positions in instruments with prices which
are expected to move relatively consistently with the put option.
PORTFOLIO TURNOVER
- ------------------
As discussed in the Prospectuses, the Trust anticipates that investors in the
Funds, as part of a market-timing or asset allocation investment strategy, will
frequently exchange shares of the Funds for shares in other Funds pursuant to
the exchange policy of the Trust as well as frequently redeem shares of the
Funds (see "Exchanges" in the Prospectuses). The nature of the Funds may cause
the Funds to experience substantial portfolio turnover. Because each Fund's
portfolio turnover rate to a great extent will depend on the purchase,
redemption, and exchange activity of the Fund's investors, it is very difficult
to estimate what the Fund's actual turnover rate will be in the future.
However, the Trust expects that the portfolio turnover experienced by the Funds
will be substantial.
10
<PAGE>
REPURCHASE AGREEMENTS
- ---------------------
As discussed in the Prospectuses, the Funds may enter into repurchase
agreements with financial institutions. The Funds each follow certain
procedures designed to minimize the risks inherent in such agreements. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions whose condition
will be continually monitored by the Advisor. In addition, the value of the
collateral underlying the repurchase agreement will always be at least equal
to the repurchase price, including any accrued interest earned on the
repurchase agreement. In the event of a default or bankruptcy by a selling
financial institution, a Fund will seek to liquidate such collateral.
However, the exercising of a Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any
sale upon a default of the obligation to repurchase were less than the
repurchase price, the Fund could suffer a loss. It is the current policy of
the Funds (other than the Money Market Fund), not to invest in repurchase
agreements that do not mature within seven days if any such investment,
together with any other illiquid assets held by the Fund, amounts to more
than 15% (10% for the Money Market Fund) of the Fund's total assets. The
investments of a Funds in repurchase agreements, at times, may be substantial
when, in the view of the Advisor, liquidity or other considerations so
warrant.
U.S. GOVERNMENT SECURITIES
- --------------------------
The Funds may invest in U.S. Treasury securities, which are backed by the
full faith and credit of the U.S. Treasury and which differ only in their
interest rates, maturities, and times of issuance. U.S. Treasury bills have
initial maturities of one year or less; U.S. Treasury notes have initial
maturities of one to ten years; and U.S. Treasury bonds generally have
initial maturities of greater than ten years. Certain U.S. Government
Securities are issued or guaranteed by agencies or instrumentalities of the
U.S. Government including, but not limited to, obligations of U.S. Government
agencies or instrumentalities such as Fannie Mae, the Government National
Mortgage Association, the Small Business Administration, the Federal Farm
Credit Administration, the Federal Home Loan Banks, Banks for Cooperatives
(including the Central Bank for Cooperatives), the Federal Land Banks, the
Federal Intermediate Credit Banks, the Tennessee Valley Authority, the
Export-Import Bank of the United States, the Commodity Credit Corporation,
the Federal Financing Bank, the Student Loan Marketing Association, and the
National Credit Union Administration.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, including, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury. Other obligations issued by or guaranteed by
Federal agencies, such as those securities issued by Fannie Mae, are
supported by the discretionary authority of the U.S. Government to purchase
certain obligations of the Federal agency, while other obligations issued by
or guaranteed by Federal agencies, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the U.S.
Treasury. While the U.S. Government provides financial support to such U.S.
Government-sponsored Federal agencies, no assurance can be given that the
U.S. Government will always do so, since the U.S. Government is not so
obligated by law. U.S. Treasury notes and bonds typically pay coupon interest
semi-annually and repay the principal at maturity. A Fund will invest in such
U.S. Government Securities only when the Advisor is satisfied that the credit
risk with respect to the issuer is minimal.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
- --------------------
The following investment limitations (and those set forth in the
Prospectuses) are fundamental policies of the Funds which cannot be changed
with respect to a Fund without the consent of the holders of a majority of
that 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.
11
<PAGE>
A Sector Fund may not:
1. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate the Fund to purchase securities or require
that Fund to segregate assets are not considered to be borrowing. Asset
coverage of a least 300% is required for all borrowing, except where the
Fund has borrowed money for temporary purposes in amounts not exceeding 5%
of its total assets. The Fund will not purchase securities while its
borrowing exceed 5% of its total assets.
2. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that the Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii)
enter into repurchase agreements; and (iii) lend its securities.
3. Purchase or sell real estate, physical commodities, or commodities
contracts, except that the Fund may purchase (i) marketable securities
issued by companies which own or invest in real estate (including real
estate investment trusts), commodities, or commodities contracts; and (ii)
commodities contracts relating to financial instruments, such as financial
futures contracts and options on such contracts.
4. Issue senior securities (as defined in the 1940 Act) except as permitted by
rule, regulation or order of the SEC.
5. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
6. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
The Money Market Fund may not:
1. Borrow money, except (i) as a temporary measure for extraordinary or
emergency purposes and then only in amounts not in excess of 5% of the
value of the Fund's total assets from a bank or (ii) in an amount up to
one-third of the value of the Fund's total assets, including the amount
borrowed, in order to meet redemption requests without immediately selling
portfolio instruments. This provision is not for investment leverage but
solely to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio instruments
would be inconvenient or disadvantageous.
2. Make loans to others except through the purchase of qualified debt
obligations, loans of portfolio securities and entry into repurchase
agreements.
3. Lend the Money Market Fund's portfolio securities in excess of 15% of the
Money Market Fund's total assets. Any loans of the Money Market Fund's
portfolio securities will be made according to guidelines established by
the Board of Trustees of the Trust, including maintenance of cash
collateral of the borrower equal at all times to the current market value
of the securities loaned.
5. Write or purchase put or call options.
6. Invest in securities of other investment companies, except as these
securities may be acquired as part of a merger, consolidation, acquisition
of assets, or plan of reorganization.
12
<PAGE>
7. Mortgage, pledge, or hypothecate the Money Market Fund's assets except to
secure permitted borrowings. In those cases, the Money Market Fund may
mortgage, pledge, or hypothecate assets having a market value not exceeding
the lesser of the dollar amounts borrowed or 15% of the value of total
assets of the Money Market Fund at the time of the borrowing.
8. Make short sales of portfolio securities or purchase any portfolio
securities on margin, except for such short-term credits as are necessary
for the clearance of transactions.
NON-FUNDAMENTAL POLICIES
- ------------------------
The following investment limitations are non-fundamental policies of the Funds
and may be changed with respect to any Fund by the Board of Trustees.
Each Sector Fund may not:
1. Pledge, mortgage or hypothecate assets except to secure borrowing permitted
by the Fund's fundamental limitation on borrowing.
2. Invest in companies for the purpose of exercising control.
3. Purchase securities on margin or effect short sales, except that a Fund may
(i) obtain short-term credits as necessary for the clearance of security
transactions; (ii) provide initial and variation margin payments in
connection with transactions involving futures contracts and options on
such contracts; and (iii) make short sales "against the box" or in
compliance with the SEC's position regarding the asset segregation
requirements imposed by Section 18 of the 1940 Act.
4. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act or any rule, regulation or order of the SEC.
5. Purchase or hold illiquid securities, I.E., securities that cannot be
disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing in
more than seven days) if, in the aggregate, more than 15% of its net assets
would be invested in illiquid securities.
The Money Market Fund may not:
1. Invest in warrants.
2. Invest in real estate limited partnerships.
3. Invest in mineral leases.
In addition, the Money Market Fund does not presently intend:
1. To lend the Fund's assets. If, in the future, the Fund does lend its
assets, the Fund will adhere to all limitations on the Fund's ability to
lend its assets as required by the securities laws of those jurisdictions
where shares of the Fund are registered for sale.
2. To enter into currency transactions.
13
<PAGE>
3. To purchase illiquid securities. If in the future, the Fund does purchase
illiquid securities, the Fund will not invest more than 10% of its net
assets in illiquid securities. The Fund will adhere to a more restrictive
limitation on the Fund's investment in illiquid securities as required by
the securities laws of those jurisdictions where shares of the Fund are
registered for sale.
4. To purchase and sell real property (including limited partnership
interests), to purchase and sell securities that are secured by real estate
or interests therein, to purchase mortgage-related securities, or to hold
and sell real estate acquired for the Fund as a result of the ownership of
securities.
The foregoing percentages are based on total assets (except for the limitation
on illiquid securities, which is based on net assets) and will apply at the time
of the purchase of a security and shall not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of a
purchase of such security.
The Trust and the Advisor have applied to the SEC for an exemptive order that
would permit other investment companies to invest in the Funds beyond the
limitations of the 1940 Act, as part of a "fund of funds" arrangement (the "FOF
Order"). Once the Trust receives the FOF Order, and for as long as the FOF
Order remains effective (and subject to the FOF Order being modified in the
future), none of the Funds will invest in any securities of investment
companies, except as the securities may be acquired as part of a merger,
consolidation, acquisition of assets, or plan of reorganization. There is no
assurance that the FOF Order will be issued.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, the Advisor is responsible
for decisions to buy and sell securities for each of the Funds, the selection of
brokers and dealers to effect the transactions, and the negotiation of brokerage
commissions, if any. The Advisor expects that the Funds may execute brokerage
or other agency transactions through registered broker-dealers, for a
commission, in conformity with the 1940 Act, the Securities Exchange Act of
1934, and the rules and regulations thereunder.
The Advisor may serve as an investment manager to a number of clients, including
other investment companies. It is the practice of the Advisor to cause purchase
and sale transactions to be allocated among the Funds and others whose assets
the Advisor manages in such manner as the Advisor deems equitable. The main
factors considered by the Advisor in making such allocations among the Funds and
other client accounts of the Advisor are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinions of the person or persons responsible, if any,
for managing the portfolios of the Funds and the other client accounts.
The policy of each Fund regarding purchases and sales of securities is that
primary consideration will be given to obtaining the most favorable prices and
efficient executions of transactions. Consistent with this policy, when
securities transactions are effected on a stock exchange, each Fund's policy is
to pay commissions which are considered fair and reasonable without necessarily
determining that the lowest possible commissions are paid in all circumstances.
Each Fund believes that a requirement to always seek the lowest possible
commissions could impede effective portfolio management and preclude the Fund
and the Advisor from obtaining high quality brokerage and research services. In
seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Advisor relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
14
<PAGE>
Purchases and sales of U.S. Government securities are normally transacted
through issuers, underwriters or major dealers in U.S. Government Securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased from
an underwriter usually includes a commission paid by the issuer to the
underwriters. Transactions with dealers normally reflect the spread between bid
and asked prices.
In seeking to implement a Fund's policies, the Advisor effects transactions
with those brokers and dealers who the Advisor believes provide the most
favorable prices and are capable of providing efficient executions. If the
Advisor believes such prices and executions are obtainable from more than one
broker or dealer, the Advisor may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and
other services to the Fund or the Advisor. Such services may include, but are
not limited to, any one or more of the following: information as to the
availability of securities for purchase or sale; statistical or factual
information or opinions pertaining to investments; wire services; and
appraisals or evaluations of portfolio securities. If the broker-dealer
providing these additional services is acting as a principal for its own
account, no commissions would be payable. If the broker-dealer is not a
principal, a higher commission may be justified at the determination of the
Advisor, for the additional services.
The information and services received by the Advisor from brokers and dealers
may be of benefit to the Advisor in the management of accounts of some of the
Advisor's other clients and may not in all cases benefit a Fund directly.
While the receipt of such information and services is useful in varying
degrees and would generally reduce the amount of research or services
otherwise performed by the Advisor and thereby reduce the Advisor's expenses,
this information and these services are of indeterminable value and the
management fee paid to the Advisor is not reduced by any amount that may be
attributable to the value of such information and services.
MANAGEMENT OF THE TRUST
The Trustees are responsible for the general supervision of the Trust's
business. The day-to-day operations of the Trust are the responsibilities of
the Trust's officers. The names, addresses and ages of the Trustees and the
officers of the Trust and the officers of the Advisor, together with
information as to their principal business occupations during the past five
years, are set forth below. Fees and expenses for non-interested Trustees
will be paid by the Trust.
TRUSTEES
- --------
*ALBERT P. VIRAGH, JR. (56)
Chairman of the Board of Trustees and President of the Trust; Chairman of
the Board, President, and Treasurer of PADCO Advisors, Inc., investment
adviser to the Trust, 1993 to present; Chairman of the Board, President,
and Treasurer of PADCO Service Company, Inc., shareholder and transfer
agent servicer to the Trust, 1993 to present; Chairman of the Board of
Managers of The Rydex Advisor Variable Annuity Account (the "Separate
Account"), a separate account of Great American Reserve Insurance Company,
1996 to present; Chairman of the Board, President, and Treasurer of PADCO
Advisors II, Inc., investment adviser to the Separate Account, 1996 to
present; Chairman of the Board, President, and Treasurer of PADCO Financial
Services, Inc., a registered broker-dealer firm and the distributor of the
Advisor Class Shares of each Sector Fund and the Money Market Fund, and all
shares of the Institutional Money Market Fund and the Rydex High Yield
Fund, each a series of the Trust, 1996 to present; Vice President of
Rushmore Investment Advisors Ltd., a registered investment adviser, 1985
to 1993. Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
- --------------------
* This trustee is deemed to be an "interested person" of the Trust under the
1940 Act.
15
<PAGE>
COREY A. COLEHOUR (52)
Trustee of the Trust, 1993 to the present; Manager of the Separate Account,
1996 to the present; Senior Vice President of Marketing of Schield
Management Company, a registered investment adviser, 1985 to the present.
Address: 1489 West Briarwood Avenue, Littleton, Colorado 80120.
J. KENNETH DALTON (56)
Trustee of the Trust, 1995 to present; Manager of the Separate Account,
1996 to present; Mortgage Banking Consultant and Investor, The Dalton
Group, April 1995 to present; President, CRAM Mortgage Group, Inc. 1966 to
April 1995. Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
JOHN 0. DEMARET (57)
Trustee of the Trust, December 1997 to the present; Manager of the
Separate Account, December 1997 to the present; Retired, 1996 to the
present; Founder and Chief Executive Officer, Health Cost Controls
America, Chicago, Illinois, 1987 to 1996; Sole practitioner, Chicago,
Illinois, 1984 to 1987; General Counsel, Chicago Transit Authority,
1981 to 1984: Senior Partner, O'Halloran, LaVarre & Demaret,
Northbrook, Illinois, 1978 to 1981. Address: 1415 Redbud Lane,
Glenview, Illinois 60025.
PATRICK T. MCCARVILLE (55)
Trustee of the Trust. December 1997 to the present; Manager of the
Separate Account, December 1997 to the present; Founder and Chief
Executive Officer, Par Industries, Inc., Northbrook, Illinois, 1977 to
the present: President and Chief Executive Officer, American Health
Resources, Northbrook, Illinois, 1984 to 1986. Address: 3069 Plum
Island Drive, Northbrook, Illinois 60062.
OFFICERS
- --------
ROBERT M. STEELE (39)
Secretary and Vice President of the Trust; Vice President of PADCO
Advisors, Inc., investment adviser to the Trust, 1994 to present; Secretary
and Vice President of the Separate Account, 1996 to present; Vice President
of PADCO Advisors II, Inc., investment adviser to the Separate Account,
1996 to present; Vice President of The Boston Company, Inc., an
institutional money management firm, 1987 to 1994. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.
CARL G. VERBONCOEUR (44)
Vice President of Operations of the Trust; Vice President of Operations of
the Separate Account, 1997 to present; Senior Vice President, Crestar Bank,
1995 to 1997; Senior Vice President, Crestar Asset Management Company, a
registered investment adviser, 1993 to 1995; Vice President Perpetual
Savings Bank, 1987 to 1993. Address: 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.
16
<PAGE>
MICHAEL P. BYRUM (27)
Assistant Secretary of the Trust; Employee and senior portfolio manager of
PADCO Advisors, Inc., 1993 to present; portfolio manager of The Rydex OTC
Fund (since 1997) and The Rydex U.S. Governments Bond Fund (since 1997),
each a series of the Trust; Assistant Secretary of the Separate Account,
1996 to present; Employee of PADCO Advisors II Inc., investment adviser to
the Separate Account; Investment Representative, Money Management
Associates, a registered investment adviser, 1992 to 1993; Student, Miami
University of Oxford, Ohio (B.A., Business Administration, 1992).
Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.
SOTHARA CHIN (31)
Compliance Officer of the Trust; Compliance Officer of PADCO Advisors,
Inc., investment adviser of the Trust, 1996 to the present; Compliance
Officer of the Separate Account, 1996 to present; Compliance Officer of
PADCO Advisors II, Inc., investment adviser to the Separate Account, 1996
to present; Compliance Officer of PADCO Service Company, Inc., the Trust's
shareholder and transfer agent servicer to the trust, 1996 to present;
Compliance Officer of PADCO Financial Services, Inc., a registered broker-
dealer and the distributor of the shares of the Rydex Institutional Money
Market Fund and High Yield Fund, 1996 to present; Compliance Officer,
USLICO Corporation, an insurance company, 1990 to 1996. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.
THE ADVISORY AGREEMENT
- ----------------------
Under an investment advisory agreement with the Advisor, the Advisor serves
as the investment adviser for, provides investment advice to, and oversees
the day-to-day operations of the Sector Funds, subject to direction and
control by the Trustees and the officers of the Trust. As of November 30,
1997, assets under management of the Advisor were approximately $1.7 billion.
The Advisor manages the investment and the reinvestment of the assets of each of
the Funds, in accordance with the investment objectives, policies, and
limitations of the Fund, subject to the general supervision and control of the
Trustees and the officers of the Trust. The Advisor bears all costs associated
with providing these advisory services and the expenses of the Trustees of the
Trust who are affiliated with or interested persons of the Advisor. The
Advisor, from its own resources, including profits from advisory fees received
from the Funds, provided such fees are legitimate and not excessive, may make
payments to broker-dealers and other financial institutions for their expenses
in connection with the distribution of Fund shares, and otherwise currently pay
all distribution costs for Fund shares.
THE SERVICE AGREEMENT
- ---------------------
General administrative, shareholder, dividend disbursement, transfer agent,
and registrar services are provided to the Trust and the Funds by PADCO
Service Company, Inc., 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852 (the "Servicer"), subject to the general supervision and
control of the Trustees and the officers of the Trust, pursuant to a service
agreement between the Trust and the Servicer. The Servicer is wholly owned by
Albert P. Viragh, Jr., who is the Chairman of the Board and the President of
the Trust and the sole controlling person and majority owner of the Advisor.
Under the service agreement, the Servicer provides the Trust and each Fund
with all required general administrative services, including, without
limitation, office space, equipment, and personnel; clerical and general back
office services; bookkeeping, internal accounting, and secretarial services;
the determination of net asset values; and the preparation and filing of all
reports, registration statements, proxy statements, and all other materials
required to be filed or furnished by the Trust and each Fund under Federal
and state securities laws. The
17
<PAGE>
Servicer also maintains the shareholder account records for each Fund,
distributes dividends and distributions payable by each Fund, and produces
statements with respect to account activity for each Fund and each Fund's
shareholders. The Servicer pays all fees and expenses that are directly
related to the services provided by the Servicer to each Fund. Each Fund
reimburses the Servicer for all fees and expenses incurred by the Servicer
which are not directly related to the services the Servicer provides to the
Fund under the service agreement.
COSTS AND EXPENSES
- ------------------
Each Fund bears all expenses of its operations other than those assumed by
the Advisor or the Servicer. Fund expenses include: the management fee; the
servicing fee (including administrative, transfer agent, and shareholder
servicing fees); custodian and accounting fees and expenses; legal and
auditing fees; securities valuation expenses; fidelity bonds and other
insurance premiums; expenses of preparing and printing prospectuses,
confirmations, proxy statements, and shareholder reports and notices;
registration fees and expenses; proxy and annual meeting expenses, if any;
all Federal, state, and local taxes (including, without limitation, stamp,
excise, income, and franchise taxes); organizational costs; non-interested
Trustees' fees and expenses; the costs and expenses of redeeming shares of
the Fund; fees and expenses paid to any securities pricing organization; dues
and expenses associated with membership in any mutual fund organization; and
costs for incoming telephone WATTS lines. In addition, each of the Funds pays
an equal portion of the Trustee fees and expenses for attendance at Trustee
meetings for the Trustees of the Trust who are not affiliated with or
interested persons of the Advisor.
The aggregate compensation paid by the Trust to each of its Trustees serving
during the nine-month period ending March 31, 1997, is set forth in the table
below:
<TABLE>
<CAPTION>
PENSION OR
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL
NAME OF PERSON, COMPENSATION ACCRUED AS PART OF THE BENEFIT UPON
POSITION FROM THE TRUST TRUST'S EXPENSES RETIREMENT
- --------------- -------------- ---------------------- ----------------
<S> <C> <C> <C>
Albert P. Viragh, Jr.* $0 $0 $0
CHAIRMAN AND
PRESIDENT
Corey A. Colehour $4,500 $0 $0
TRUSTEE
J. Kenneth Dalton $4,500 $0 $0
TRUSTEE
Roger Somers $4,500 $0 $0
TRUSTEE
</TABLE>
- -------------------
* Mr. Viragh is an "interested person" of the Trust.
As of the date of this Statement of Additional Information, the Trustees and the
officers of the Trust, as a group, owned, of record and beneficially, less than
1% of the outstanding shares of each Fund.
18
<PAGE>
SHAREHOLDER AND TRUSTEE LIABILITY
- ---------------------------------
The Trust's Declaration of Trust disclaims liability of the shareholders of the
Trust or the Trustees of the Trust for acts or obligations of the Trust which
are binding only on the assets and property of the Trust. The Declaration of
Trust provides for indemnification out of Trust property for all loss and
expense of any Trust shareholder held personally liable for the obligations of
the Trust. The risk of a Trust shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which the Trust itself
would not be able to meet the Trust's obligations. Accordingly, this risk
should be considered remote.
DISTRIBUTION AND SHAREHOLDER SERVICES
DISTRIBUTOR
- -----------
Pursuant to the Distribution and Shareholder Services Plan adopted by the
Trust, on behalf of the Advisor Class Shares of the Sector Funds and the
Money Market Fund PADCO Financial Services, Inc., 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852 (the "Distributor"), provides certain
distribution and shareholder services under the general supervision and
control of the Trustees and the officers of the Trust.
DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
- ------------------------------------------
The Funds have adopted a Distribution and Shareholder Services Plan (the
"Plan") applicable to Advisor Class Shares, for which the Distributor and,
through the Distributor, other firms that provide distribution and
shareholder services ("Service Providers") may receive compensation. Under
the Plan, the Funds will pay fees to the Distributor at an annual rate not to
exceed .25% of average daily net assets pursuant to Rule 12b-1 of the 1940
Act. In return, the Distributor or Service Provider may use this fee for (i)
compensation for its services or for services of a Service Provider in
connection with distribution assistance; or (ii) payments to financial
institutions and intermediaries such as banks, savings and loan associations,
insurance companies and investment counselors, broker-dealers, mutual fund
supermarkets and the Distributor's affiliates and subsidiaries as
compensation for services or reimbursement of expenses incurred in connection
with distribution assistance.
The Distributor or Service Provider will also receive fees at an annual rate
not to exceed .25% of average daily net assets of a Fund for performance by
the Distributor or Service Providers of some or all of the following
services:
- - maintaining accounts relating to clients that invest in shares;
- - arranging for bank wires;
- - responding to client inquiries relating to the services performed by the
Distributor or Service Provider;
- - responding to inquiries from clients concerning their investment in shares;
and
- - assisting clients in changing dividend options, account designations and
addresses.
- - providing information periodically to clients showing their position in
shares;
- - forwarding shareholder communications from the Funds such as proxies,
shareholder reports, annual reports, and dividend distribution and tax
notices to clients;
- - processing purchase exchange and redemption requests from clients and
placing orders with the Funds or its service providers;
- - providing sub-accounting with respect to shares beneficially owned by
clients; and
- - processing dividend payments from the Funds on behalf of clients.
These shareholder services are different from the distribution services
discussed above, and are not primarily intended to result in the sale of shares
of the Funds.
19
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value of a Fund serves as the basis for the purchase and
redemption price of that Fund's shares. The net asset value per share of a
Fund is calculated by dividing the market value of the Fund's securities plus
the values of its other assets, less all liabilities, by the number of
outstanding shares of the Fund. If market quotations are not readily
available, a security will be valued at fair value by the Board of Trustees
or by the Advisor using methods established or ratified by the Board of
Trustees.
For purposes of determining net asset value per share of a Fund, options and
futures contracts will be valued 15 minutes after the 4:00 P.M., Eastern
Time, close of regular trading on the NYSE, except that futures contracts
traded on the Chicago Board of Trade ("CBOT") will be valued at 3:00 P.M.,
Eastern Time, the close of trading of that exchange. Options on securities
and indices purchased by a Fund generally are valued at their last bid price
in the case of exchange-traded options or, in the case of options traded in
the over-the-counter ("OTC") market, the average of the last bid price as
obtained from two or more dealers unless there is only one dealer, in which
case that dealer's price is used. The value of a futures contract equals the
unrealized gain or loss on the contract settlement price for a like contract
acquired on the day on which the futures contract is being valued. The value
of options on futures contracts is determined based upon the current
settlement price for a like option acquired on the day on which the option is
being valued. A settlement price may not be used for the foregoing purposes
if the market makes a limit move with respect to a particular commodity.
OTC securities held by a Fund shall be valued at the last sales price or, if no
sales price is reported, the mean of the last bid and asked price is used. The
portfolio securities of a Fund that are listed on national exchanges are taken
at the last sales price of such securities on such exchange; if no sales price
is reported, the mean of the last bid and asked price is used. For valuation
purposes, all assets and liabilities initially expressed in foreign currency
values will be converted into U.S. dollar values at the mean between the bid and
the offered quotations of such currencies against U.S. dollars as last quoted by
any recognized dealer. If such quotations are not available, the rate of
exchange will be determined in good faith by the Trustees. Dividend income and
other distributions are recorded on the ex-dividend date, except for certain
dividends from foreign securities which are recorded as soon as the Trust is
informed after the ex-dividend date.
Illiquid securities, securities for which reliable quotations or pricing
services are not readily available, and all other assets will be valued at their
respective fair value as determined in good faith by, or under procedures
established by, the Trustees, which procedures may include the delegation of
certain responsibilities regarding valuation to the Advisor or the officers of
the Trust. The officers of the Trust report, as necessary, to the Trustees
regarding portfolio valuation determination. The Trustees, from time to time,
will review these methods of valuation and will recommend changes which may be
necessary to assure that the investments of the Funds are valued at fair value.
The Money Market Fund will utilize the amortized cost method in valuing its
portfolio securities for purposes of determining the net asset value of its
shares even though the portfolio securities may increase or decrease in market
value, generally, in connection with changes in interest rates. The amortized
cost method of valuation involves valuing a security at its cost adjusted by a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument while
this method provides certainty in valuation, this method may result in periods
during which value, as determined by amortized cost, is
20
<PAGE>
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
("NSROs") that have issued a short-term rating with respect to the security or
class of debt obligations of the issuer, or (ii) if only one NSRO has issued a
short-term rating with respect to the security, then by that NSRO; (c) were
long-term securities at the time of issuance whose issuers have outstanding
short-term debt obligations which are comparable in priority and security and
has a ratings as specified in (b) above; or (d) if no rating is assigned by any
NSRO as provided in (b) and (c) above, the unrated securities are determined by
the Trustees to be of comparable quality to any rated securities.
As permitted by the Rule, the Trustees have delegated to the Advisor, subject to
the Trustees' oversight pursuant to guidelines and procedures adopted by the
Trustees, the authority to determine which securities present minimal credit
risks and which unrated securities are comparable in quality to rated
securities.
If the Trustees determine that it is no longer in the best interests of the
Money Market Fund and its shareholders to maintain a stable price of $1.00 per
share, or if the Trustees believe that maintaining such price no longer reflects
a market-based net asset value per share, the Trustees have the right to change
from an amortized cost basis of valuation to valuation based on market
quotations. The Money Market Fund will notify shareholders of any such change.
PERFORMANCE INFORMATION
From time to time, each of the Funds may include the Fund's total return in
advertisements or reports to shareholders or prospective shareholders.
Quotations of average annual total return for a Fund will be expressed in
terms of the average annual compounded rate of return on a hypothetical
investment in the Fund over a period of at least one, five, and ten years, up
to the life of the Fund (the ending date of the period will be stated). Total
return of a Fund is calculated from two factors: the amount of dividends
earned by each Fund share and by the increase or decrease in value of the
Fund's share price. See "Calculation of Return Quotations," below.
Performance information for each of the Funds contained in reports to
shareholders or prospective shareholders, advertisements, and other promotional
literature may be compared to the record of various unmanaged indexes. Such
indexes include, but are not limited to, ones provided by Dow Jones & Company,
Standard & Poor's Corporation, Lipper Analytical Services, Inc., Lehman
Brothers, National Association of Securities Dealers Automated Quotations, The
Frank Russell Company, Value Line Investment Survey, the American Stock
21
<PAGE>
Exchange, the Philadelphia Stock Exchange, Morgan Stanley Capital
International, Wilshire Associates, the Financial Times Stock Exchange, the
Nikkei Stock Average and Deutscher Aktienindex, all of which are unmanaged
market indicators. Such comparisons can be a useful measure of the qualify of
a Fund's investment performance.
Such unmanaged indexes may assume the reinvestment of dividends, but generally
do not reflect deductions for operating costs and expenses. In addition, a
Fund's total return may be compared to the performance of broad groups of
comparable mutual funds with similar investment goals, as such performance is
tracked and published by such independent organizations as Lipper Analytical
Services, Inc. ("Lipper"), and CDA Investment Technologies, Inc., among others.
When Lipper's tracking results are used, a Fund will be compared to Lipper's
appropriate fund category, that is, by fund objective and portfolio holdings.
Rankings may be listed among one or more of the asset-size classes as determined
by Lipper. Since the assets in all mutual funds are always changing, a Fund may
be ranked within one Lipper asset-size class at one time and in another Lipper
asset-size class at some other time. Footnotes in advertisements and other
marketing literature will include the time period and Lipper asset-size class,
as applicable, for the ranking in question. Performance figures are based on
historical results and are not intended to indicate future performance.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of a Sector Fund to
that of other mutual funds and to other relevant market indexes in
advertisements or in reports to shareholders, performance for the Sector Fund
may be stated in terms of total return. Under the rules of the SEC ("SEC
Rules"), a Sector Fund's advertising performance must include total return
quotes calculated according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years (1, 5 or 10); and
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1, 5 or 10 year
periods, at the end of the 1, 5, or 10 year periods (or
fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and
will cover 1, 5, and 10 year periods or a shorter period dating from the
effectiveness of the Registration Statement of the Trust. In calculating the
ending redeemable value, all dividends and distributions by a Sector Fund are
assumed to have been reinvested at net asset value as described in the
Prospectuses on the reinvestment dates during the period. Total return, or
"T" in the formula above, is computed by finding the average annual
compounded rates of return over the 1, 5, and 10 year periods (or fractional
portion thereof) that would equate the initial amount invested to the ending
redeemable value.
From time to time, each Sector Fund also may include in such advertising a
total return figure that is not calculated according to the formula set forth
above in order to compare more accurately the performance of the Fund with
other measures of investment return. For example, in comparing the total
return of a Fund with data published by Lipper Analytical Services, Inc.,
each respective Fund calculates its aggregate
22
<PAGE>
total return or the specified periods of time by assuming the investment of
$10,000 in Sector Fund shares and assuming the investment of each dividend or
other distribution at net asset value on the reinvestment date. Percentage
increases are determined by subtracting the initial value of the investment
from the ending value and by dividing the remainder by the beginning value.
Such alternative total return information will be given no greater prominence
in such advertising than the information prescribed under SEC Rules.
INFORMATION ON COMPUTATION OF YIELD
In addition to the total return quotations discussed above, a Sector Fund may
advertise its yield based on a thirty-day (or one month) period ended on the
date of the most recent balance sheet included in the Trust's Registration
Statement, computed by dividing the net investment income per share of a
Sector Fund earned during the period by the maximum offering price per Fund
share on the last day of the period, according to the following formula:
a - b 6
YIELD = 2 ----------- + 1 - 1
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of
the period.
Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (i) computing the yield to maturity of each obligation
held by a Fund based on the market value of the obligation at the close of
business on the last day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued interest),
(ii) dividing that figure by 360 and multiplying the quotient by the market
value of the obligation (including actual accrued interest as referred to above)
to determine the interest income on the obligation that is in the Fund's
portfolio (assuming a month of thirty days), and (iii) computing the total of
the interest earned on all debt obligations and all dividends accrued on all
equity securities during the thirty-day or one month period. In computing
dividends accrued, dividend income is recognized by accruing 1/360 of the stated
dividend rate of a security each day that the security is in the Fund's
portfolio. Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price calculation required pursuant to "d" above.
A Sector Fund from time to time may also advertise its yield based on a
thirty-day period ending on a date other than the most recent balance sheet
included in the Trust's Registration Statement, computed in accordance with
the yield formula described above, as adjusted to conform with the differing
period for which the yield computation is based.
Any quotation of performance stated in terms of yield (whether based on a
thirty-day or one month period) will be given no greater prominence than the
information prescribed under SEC Rules. In addition, all advertisements
containing performance data of any kind will include a legend disclosing that
such performance data represents past performance and that the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than the original cost of such
shares.
23
<PAGE>
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
return by adding 1, raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
The yields quoted in any advertisement or other communication should not be
considered a representation of the yields of the Money Market Fund in the future
since the yield is not fixed. Actual yields will depend not only on the type,
quality, and maturities of the investments held by the Money Market Fund and
changes in interest rates on such investments, but also on changes in the Money
Market Fund's expenses during the period.
Yield information may be useful in reviewing the performance of the Money Market
Fund and for providing a basis for comparison with other investment
alternatives. However, unlike bank deposits or other investments which
typically pay a fixed yield for a stated period of time, the Money Market Fund's
yield fluctuates.
PURCHASE AND REDEMPTION OF SHARES
MINIMUM INVESTMENT REQUIREMENTS
- -------------------------------
Shareholders will be informed of any increase in the minimum investment
requirements by a new prospectus or a prospectus supplement, in which the new
minimum is disclosed. Any request for a redemption (including pursuant to
check writing privileges) by an investor whose account balance is (a) below
the currently applicable minimum investment, or (b) would be below that
minimum as a result of the redemption, will be treated as a request by the
investor of a complete redemption of that account. In addition, the Trust may
redeem an account whose balance (due in whole or in part to redemptions since
the time of last purchase) has fallen below the minimum investment amount
applicable at the time of the shareholder's most recent purchase of Rydex
Sector Fund shares (unless the shareholder brings his or her account value up
to the currently applicable minimum investment).
TAX CONSEQUENCES
- ----------------
Note that in the case of tax-qualified retirement plans, a redemption from
such a plan may have adverse tax consequences. A shareholder contemplating
such a redemption should consult his or her own tax advisor. Other
shareholders should consider the tax consequences of any redemption.
SUSPENSION OF THE RIGHT OF REDEMPTION
- -------------------------------------
The Funds may suspend the right of redemption or the date of payment: (i) for
any period during which the NYSE, the Federal Reserve Bank of New York, the
NASDAQ, the Chicago Mercantile Exchange ("CME"), the CBOT, or any other
exchange, as appropriate, is closed (other than customary weekend or holiday
closings), or trading on the NYSE, the NASDAQ, the CME, the CBOT, or any
other exchange, as appropriate, is restricted; (ii) for any
24
<PAGE>
period during which an emergency exists so that sales of a Fund's investments
or the determination of its NAV is not reasonably practicable; or (iii) for
such other periods as the SEC may permit for the protection of a Fund's
investors.
HOLIDAYS
- --------
The NYSE, the Federal Reserve Bank of New York, the NASDAQ, the CME, the CBOT,
and other U.S. exchanges are closed on weekends and on the following holidays:
(i) New Year's Day, Martin Luther King Jr.'s Birthday, President's Day, Good
Friday, Memorial Day, July Fourth, Labor Day, Columbus Day, Thanksgiving Day,
and Christmas Day; and (ii) the preceding Friday if any of these holidays falls
on a Saturday, or the subsequent Monday if any of these holidays falls on a
Sunday. Although the Trust expects the same holiday schedules to be observed in
the future, each of the aforementioned exchanges may modify its holiday schedule
at any time.
REDEMPTIONS IN-KIND
The Trust intends to pay your redemption proceeds in cash. However, under
unusual conditions that make the payment in cash unwise (and for the protection
of the remaining shareholders of the Fund) the Trust reserves the right to pay
all, or part, of your redemption proceeds in liquid securities with a market
value equal to the redemption price (redemption in-kind). Although it is
highly unlikely that your shares would ever actually be redeemed in kind, you
would probably have to pay brokerage costs to sell the securities distributed to
you.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND DISTRIBUTIONS
- ---------------------------
Dividends from net investment income and any distributions of net realized
capital gains from each of the Funds will be distributed as described in the
Prospectuses under "Dividends and Distributions." All such distributions of a
Fund normally automatically will be reinvested without charge in additional
shares of the same Fund.
The Money Market Fund intends to declare dividends daily from net investment
income (and net short-term capital gains, if any) and distribute such dividends
monthly. Net income, for dividend purposes, includes accrued interest and
accretion of original issue and market discount, plus or minus any short-term
gains or losses realized on sales of portfolio securities, less the amortization
of market premium and the estimated expenses of the Money Market Fund. Net
income will be calculated immediately prior to the determination of net asset
value per share of the Money Market Fund.
The Trustees may revise the dividend policy, or postpone the payment of
dividends, if the Money Market Fund should have or anticipate any large
unexpected expense, loss, or fluctuation in net assets which, in the opinion of
the Trustees, might have a significant adverse effect on shareholders of the
Money Market Fund. On occasion, in order to maintain a constant $1.00 per share
net asset value for the Money Market Fund, the Trustees may direct that the
number of outstanding shares of the Money Market Fund be reduced in each
shareholder's account. Such reduction may result in taxable income to a
shareholder of the Money Market Fund in excess of the net increase (I.E.,
dividends, less such reduction), if any, in the shareholder's account for a
period of time. Furthermore, such reduction may be realized as a capital loss
when the shares are liquidated.
REGULATED INVESTMENT COMPANY STATUS
- -----------------------------------
As a regulated investment company (a "RIC") under Subchapter M of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), a Fund would not be
subject to Federal income taxes on the net investment income and capital gains
that the Fund distributes to the Fund's shareholders. The distribution of net
investment income and capital gains will be taxable to Fund shareholders
regardless of whether the shareholder elects to receive these distributions in
cash or in additional shares. Distributions reported to Fund shareholders as
capital gains from
25
<PAGE>
property held for more than 18 months, or from property held for more than 1
year but not for more than 18 months, shall be taxable as such, regardless of
how long the shareholder has owned the shares. Fund shareholders will be
notified annually by the Fund as to the Federal tax status of all
distributions made by the Fund. Distributions may be subject to state and
local taxes. To qualify as a RIC, the Code requires that at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the
Fund's total assets be invested in cash, U.S. Government Securities, the
securities of other regulated investment companies, and other securities,
with such securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of Fund's total
assets and 10% of the outstanding voting securities of any one issuer, and
(ii) not more than 25% of the value of the Fund's total assets be invested in
the securities of any one issuer (other than U.S. Government Securities or
the securities of other regulated investment companies), or of two or more
issuers which the Fund controls and which are determined to be engaged in the
same or similar trades or businesses, or related trades or businesses.
Shareholders of the Money Market Fund will be subject to Federal income tax on
dividends paid from interest income delved from taxable securities and on
distributions of realized net short-term capital gains. Interest and realized
net short-term capital gains distributions are taxable to a shareholder of the
Money Market Fund as ordinary dividend income regardless of whether the
shareholder receives such distributions in additional shares of the Money Market
Fund or in cash. Since the Money Market Fund's income is expected to be derived
entirely from interest rather than dividends, none of such distributions will be
eligible for the Federal dividends received deduction available to corporations.
Each of the Funds will seek to qualify for treatment as a RIC under the Code.
Provided that a Fund (i) is a RIC and (ii) distributes at least 90% of the
Fund's net investment income (including, for this purpose, net realized
short-term capital gains), the Fund itself will not be subject to Federal
income taxes to the extent the Fund's net investment income and the Fund's
net realized long and short-term capital gains, if any, are distributed to
the Fund's shareholders. To avoid an excise tax on its undistributed income,
each Fund generally must distribute at least 98% of its income, including its
net long-term capital gains. One of several requirements for RIC
qualification is that the Fund must receive at least 90% of the Fund's gross
income each year from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of securities or
foreign currencies, or other income derived with respect to the Fund's
investments in stock, securities, and foreign currencies (the "90% Test").
In the event of a failure by a Fund to qualify as a RIC, the Fund would be
subject to Federal income taxes on its taxable income and the Fund's
distributions, to the extent that such distributions are derived from the Fund's
current or accumulated earnings and profits, would constitute dividends that
would be taxable to the shareholders of the Fund as ordinary income and would be
eligible for the dividends received deduction for corporate shareholders. This
treatment would also apply to any portion of the distributions that might have
been treated in the shareholder's hands as long-term capital gains, as discussed
below, had the Fund qualified as a RIC.
If a Fund were to fail to qualify as a RIC for one or more taxable years, the
Fund could then qualify (or requalify) as a RIC for a subsequent taxable year
only if the Fund had distributed to the Fund's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the interest charge
mentioned below, if applicable) attributable to such period. The Fund might
also be required to pay to the U.S. Internal Revenue Service (the "IRS")
interest on 50% of such accumulated earnings and profits. In addition, pursuant
to the Code and an interpretative notice issued by the IRS, if the Fund should
fail to qualify as a RIC and should thereafter seek to requalify as a RIC, the
Fund may be subject to tax on the excess (if any) of the fair market of the
Fund's assets over the Fund's basis in such assets, as of the day immediately
before the first taxable year for which the Fund seeks to requalify as a RIC.
26
<PAGE>
If a Fund determines that the Fund will not qualify as a RIC under Subchapter M
of the Code, the Fund will establish procedures to reflect the anticipated tax
liability in the Fund's net asset value.
TRANSACTIONS BY THE FUNDS
- -------------------------
If a call option written by a Fund expires, the amount of the premium
received by the Fund for the option will be treated as a gain from the sale
or exchange of a capital asset held for not more than 1 year, I.E.,
short-term capital gain. If such an option is closed by a Fund, any gain or
loss realized by the Fund as a result of the closing purchase transaction
will be either short-term, mid term or long-term capital gain or loss,
depending on whether the Fund's holding period for the underlying security or
underlying futures contract was not for more than 1 year (short-term), for
more than 1 year but not for more than 18 months (mid-term), or for more than
18 months (long-term). If the holder of a call option exercises the holder's
right under the option, any gain or loss realized by the Fund upon the sale
of the underlying security or underlying futures contract pursuant to such
exercise will be short-term, mid-term or long-term capital gain or loss to
the Fund depending on the Fund's holding period for the underlying security
or underlying futures contract. The amount paid to the Fund for the option
will be added to the amount of the proceeds received by the Fund.
With respect to call options purchased by a Fund, the Fund will realize
short-term, mid-term or long-term capital gain or loss if such option is sold
and will realize short-term, mid-term or long-term capital loss if the option
is allowed to expire depending on the Fund's holding period for the call
option. If such a call option is exercised, the amount paid by the Fund for
the option will be added to the basis of the stock or futures contract so
acquired.
A Fund has available to it a number of elections under the Code concerning the
treatment of option transactions for tax purposes. A Fund will utilize the tax
treatment that, in the Fund's judgment, will be most favorable to a majority of
investors in the Fund. Taxation of these transactions will vary according to
the elections made by the Fund. These tax considerations may have an impact on
investment decisions made by the Fund.
Each of the Funds also may utilize options on stock indexes. Options on
"broad-based" stock indexes are classified as "nonequity options" under the
Code. Gains and losses resulting from the expiration, exercise, or closing of
such nonequity options, as well as gains and losses resulting from futures
contract transactions, will be treated as long-term capital gain or loss to
the extent of 60% thereof and short-term capital gain or loss to the extent
of 40% thereof (hereinafter, "blended gain or loss"). In addition, any
nonequity option and futures contract held by a Fund on the last day of a
fiscal year will be treated as sold for market value on that date, and gain
or loss recognized as a result of such deemed sale will be blended gain or
loss.
The trading strategies of each of the Funds involving nonequity options on
stock indexes may constitute "straddle" transactions. "Straddles" may affect
the taxation of such instruments and may cause the postponement of
recognition of losses incurred in certain closing transactions. Each of the
Funds will also have available to the Fund a number of elections under the
Code concerning the treatment of option transactions for tax purposes. Each
such Fund will utilize the tax treatment that, in the Fund's judgment, will
be most favorable to a majority of investors in the Fund. Taxation of these
transactions will vary according to the elections made by the Fund. These
tax considerations may have an impact on investment decisions made by the
Fund.
A Fund's transactions in options, under some circumstances, could preclude
the Fund's qualifying for the special tax treatment available to investment
companies meeting the requirements of Subchapter M of the Code. However, it
is the intention of each Fund's portfolio management to limit gains from such
investments to less than 10% of the gross income of the Fund during any
fiscal year in order to maintain this qualification.
27
<PAGE>
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 SAI in light of the
particular tax situations of the shareholders and regarding specific questions
as to Federal, state, or local taxes.
EXPERTS
- -------
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, are the
auditors and the independent certified public accountants of the Trust and each
of the Funds.
28
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
Part A - Not Applicable
Part B - Not Applicable
(a) FINANCIAL STATEMENTS:
(b) Exhibits
(1)(a) Certificate of Trust of Rydex Series Trust (the "Registrant" or
the "Trust").(4)
(1)(b) Declaration of Trust of the Registrant.(4)
(2) By-Laws of Registrant.(4)
(3) Not applicable.
(4) Specimen share certificate.(4)
(5)(a) Investment Advisory Agreement between Registrant and PADCO
Advisors, Inc.(4)
(5)(b) Sub-Advisory Agreement between PADCO Advisors, Inc. and Loomis,
Sayles & Company, L.P.(4)
(6) Distribution Agreement between the Trust and PADCO Financial
Services, Inc. relating to the Advisor Class.(6)
(7) Not applicable.
(8) Custody Agreement between Registrant and Star Bank, N.A.(4)
(9)(a) Trustees and Officers Indemnification and Liability Insurance
Policy.(1)
(9)(b) Comprehensive Blanket Fidelity Bond Insurance Policy.(1)
(9)(c) Service Agreement between Registrant and PADCO Service Company,
Inc.(4)
(9)(d) Portfolio Accounting Services Agreement between Registrant and
PADCO Service Company, Inc.(4)
(9)(e) Fidelity Bond Allocation Agreement Among Registrant, PADCO
Advisors, Inc., The Rydex Advisor Variable Annuity Account, PADCO
Advisors II, Inc., and PADCO Service Company, Inc.(4)
(9)(f) Amended and Restated Fidelity Bond Agreement Among Registrant,
PADCO Advisors, Inc., The Rydex Advisor Variable Annuity Account,
PADCO Advisors II, Inc., PADCO Service Company, Inc., and PADCO
401(k) and Profit Sharing Plan.(5)
(10) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
5
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (continued)
(15)(a) Plan of Distribution for The Rydex Institutional Money Market
Fund.(5)
(15)(b) Plan of Distribution for The Rydex Institutional Money Market
Fund as revised, March 12, 1997.(5)
(15)(c) Plan of Distribution for The Rydex Institutional Money Market
Fund as revised, June 23, 1997.(5)
(15)(d) Plan of Distribution for The Rydex High Yield Fund.(3)
(15)(e) Plan of Distribution for The Rydex High Yield Fund, as revised
March 12, 1995.(5)
(15)(f) Plan of Distribution for The Rydex High Yield Fund, as revised
June 23, 1997.(5)
(15)(g) Forms of Shareholder Servicing Support Agreements between PADCO
Financial Services, Inc. and Selling Recipients in connection
with the Plan of Distribution for The Rydex Institutional Money
Market Fund.(2)
(15)(h) Form of Shareholder Servicing Support Agreement between PADCO
Financial Services, Inc. and Selling Recipients in connection
with the Plan of Distribution for The Rydex High Yield Fund.(3)
(15)(i) Form of Distribution Plan and Shareholder Servicing Agreement for
Advisor Class Shares.(6)
(16) Schedule of Performance Quotations.(5)
(17) Not applicable.
(18) Form of Rule 18f-3 Plan.(6)
- ---------------------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 24 to this
Registration Statement, filed on October 27, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 25 to this
Registration Statement, filed on March 1, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 26 to this
Registration Statement, filed on September 11, 1996.
(4) Incorporated herein by reference to Post-Effective Amendment No. 27 to this
Registration Statement filed on October 30, 1996.
(5) Incorporated herein by reference to Post-Effective Amendment No. 28 to this
Registration Statement filed on July 20, 1997.
(6) Is filed herewith.
6
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The following persons may be deemed to be directly or indirectly controlled by
or under the common control with the Registrant, a Delaware a business trust:
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED AND/OR
STATE OF ORGANIZATION AND CONTROLLED BY THE
RELATIONSHIP (IF ANY) TO CONTROLLING PERSON OR
COMPANY THE REGISTRANT OTHER BASIS OF COMMON
CONTROL
- -----------------------------------------------------------------------------------------
<S> <C> <C>
PADCO Advisors, Inc. (the a Maryland corporation, a 80% of the voting
"Advisor") registered investment securities of the Advisor
adviser, and the are owned by Albert P.
Registrant's investment Viragh, Jr., the Chairman
adviser of the Board of
Directors, the President,
and the Treasurer of the
Advisor, and 100% of the
voting securities are
controlled by Albert P.
Viragh, Jr.
PADCO Service Company, a Maryland corporation, a 100% of the voting
Inc. (the "Servicer") registered transfer securities of the
agent, and the Servicer are owned by
Registrant's shareholder Albert P. Viragh, Jr.,
and transfer agent the Chairman of the Board
servicer of Directors, the
President, and the
Treasurer of the Servicer
PADCO Financial Services, a Maryland corporation, a 100% of the voting
Inc. (the "Distributor") registered broker-dealer, securities of the
and the distributor of Distributor are owned by
the shares of The Rydex Albert P. Viragh, Jr.,
Institutional Money the Chairman of the Board
Market Fund and The Rydex of Directors, the
High Yield Fund, each a President, and the
series of the Registrant Treasurer of the
Distributor
7
<PAGE>
PADCO Advisors II, Inc. a Maryland corporation 100% of the voting
and a registered securities are owned by
investment adviser (PADCO Albert P. Viragh, Jr.,
II is not otherwise the Chairman of the Board
related to the of Directors, the
Registrant) President, and the
Treasurer of PADCO II
Rydex Advisor Variable a managed separate the investment advisers
Annuity Account (the account of Great American for the Separate Account
"Separate Account") Reserve Insurance and the Registrant are
Company, which is under the common control
organized under the laws of Albert P. Viragh, Jr.,
of the State of Texas and the Chairman of the Board
is advised by PADCO II of Trustees, President,
and Treasurer of the
Registrant
</TABLE>
* The principal business address for each of the aforementioned directors and
officers of PADCO Financial Services, Inc., is 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following information is given as of the date indicated:
<TABLE>
<CAPTION>
Title of Class; Shares of Number of Record Holders
Beneficial Interest, no par value as of February 23, 1998
- --------------------------------- ------------------------
<S> <C>
The Nova Fund 5,114
The Rydex U.S. Government Money Market Fund 5,390
The Rydex Precious Metals Fund 887
The Ursa Fund 4,044
The Rydex U.S. Government Bond Fund 340
The Rydex OTC Fund 3,935
The Juno Fund 406
The Rydex Institutional Money Market Fund 32
The Rydex High Yield Fund 185
Rydex Banking Fund 0
Rydex Basic Materials Fund 0
Rydex Biotechnology Fund 0
Rydex Consumer Products Fund 0
Rydex Electronics Fund 0
Rydex Energy Fund 0
8
<PAGE>
Rydex Energy Services Fund 0
Rydex Financial Services Fund 0
Rydex Health Care Fund 0
Rydex Leisure Fund 0
Rydex Retailing Fund 0
Rydex Technology Fund 0
Rydex Telecommunications Fund 0
Rydex Transportation Fund 0
</TABLE>
ITEM 27. INDEMNIFICATION
The Registrant is organized as a Delaware business trust and is operated
pursuant to a Declaration of Trust, dated as of March 13, 1993 (the "Declaration
of Trust"), that permits the Registrant to indemnify its trustees and officers
under certain circumstances. Such indemnification, however, is subject to the
limitations imposed by the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended. The Declaration of Trust of the
Registrant provides that officers and trustees of the Trust shall be indemnified
by the Trust against liabilities and expenses of defense in proceedings against
them by reason of the fact that they each serve as an officer or trustee of the
Trust or as an officer or trustee of another entity at the request of the
entity. This indemnification is subject to the following conditions:
(a) no trustee or officer of the Trust is indemnified against any
liability to the Trust or its security holders which was the result of
any willful misfeasance, bad faith, gross negligence, or reckless
disregard of his duties;
(b) officers and trustees of the Trust are indemnified only for actions
taken in good faith which the officers and trustees believed were in
or not opposed to the best interests of the Trust; and
(c) expenses of any suit or proceeding will be paid in advance only if the
persons who will benefit by such advance undertake to repay the
expenses unless it subsequently is determined that such persons are
entitled to indemnification.
The Declaration of Trust of the Registrant provides that if indemnification is
not ordered by a court, indemnification may be authorized upon determination by
shareholders, or by a majority vote of a quorum of the trustees who were not
parties to the proceedings or, if this quorum is not obtainable, if directed by
a quorum of disinterested trustees, or by independent legal counsel in a written
opinion, that the persons to be indemnified have met the applicable standard.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Each of the directors of the Trust's Investment adviser, PADCO Advisors, Inc.
(the "Advisor"), Albert P. Viragh, Jr., the Chairman of the Board of Directors,
President, and Treasurer of the
9
<PAGE>
Advisor, and Amanda C. Viragh, the Secretary of the Advisors, is an employee of
the Advisor at 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.
Albert P. Viragh, Jr. also has served (and continues to serve) as: (i) the
Chairman of the Board of Trustees and the President of the Trust since the
Trust's organization as a Delaware business trust on March 13, 1993; (ii) the
Chairman of the Board of Directors, the President, and the Treasurer of PADCO
Service Company, Inc. (the "Servicer"), the Trust's registered transfer agent
and shareholder servicer, since the incorporation of the Servicer in the State
of Maryland on October 6, 1993; (iii) the Chairman of the Board of Directors,
the President, and the Treasurer of PADCO Advisors II, Inc. ("PADCO II"), a
registered investment adviser, since the incorporation of PADCO II in the State
of Maryland on July 5, 1994; and (iv) the Chairman of the Board of Directors,
the President, and the Treasurer of PADCO Financial Services, Inc. (the
"Distributor"), the distributor of the shares of The Rydex High Yield Fund and
The Rydex Institutional Money Market Fund, each a series of the Trust, since the
incorporation of the Distributor in the State of Maryland on March 21, 1996.
Amanda C. Viragh also has served (and continues to serve) as the Secretary of
the Advisor, the Servicer, and PADCO II, and also as the Assistant Treasurer of
the Servicer.
ITEM 29. PRINCIPAL UNDERWRITER
(a) PADCO Financial Services Inc. serves as the principal underwriter for the
securities of (i) The Rydex Institutional Money Market Fund and The Rydex
High Yield Fund, each a series of the Registrant, and (ii) The Rydex
Advisor Variable Annuity Account, a managed separate account of Great
American Reserve Insurance Company that is a registered investment company
advised by PADCO Advisors II, Inc., but does not currently serve as the
principal underwriter for the securities of any other investment company.
(b) The following information is furnished with respect to the directors and
officers of PADCO Financial Services, Inc., the principal underwriter for
The Rydex Institutional Money Market Fund and The Rydex High Yield Fund,
each a series of the Registrant:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS* UNDERWRITER WITH REGISTRANT
- ------------------ -------------------------- ---------------------
<S> <C> <C>
Albert P. Viragh, Jr. Director Chairman of the Board
of Trustees and President
Amanda C. Viragh Chairman of the Board of Directors, None
President and Treasurer
Carl G. Verboncouer
Michael P. Byrum Secretary Assistant Secretary
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C>
Sothara Chin Compliance Officer Compliance Officer
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and records required to be maintained and preserved by
Section 31(a) of the Investment Company Act of 1940, as amended, and Rules 31a-1
and 31a-2 thereunder, will be kept by the Registrant at 6116 Executive
Boulevard, Rockville, Maryland 20852.
ITEM 31. MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Parts A
and B.
ITEM 32. UNDERTAKINGS
(a) Insofar as indemnification for liability arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that,
in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and,
therefore, is unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a trustee, officer, or controlling person of
the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, the Registrant, unless in
the opinion of the Registrant's counsel the matter has been settled by
controlling precedent, will submit to a court of appropriate jurisdiction
the question whether such indemnification by the Registrant is against
public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
(b) The Registrant undertakes that, if requested to do so by the holders of at
least 10% of its outstanding shares of the Trust, the Registrant will call
a meeting of shareholders of the Trust for the purpose of voting upon the
question of the removal of a trustee or trustees of the Registrant and to
assist in communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940, as amended.
(c) The Registrant undertakes to furnish each person to whom a prospectus is
delivered a copy of the Trust's latest annual report to shareholders upon
request and without charge.
(d) The Registrant undertakes to file a Post-Effective Amendment, using
financial statements which need not be certified for the Rydex Banking
Fund, Rydex Basic Materials Fund, Rydex Biotechnology Fund, Rydex Consumer
Products Fund, Rydex Electronics Fund, Rydex Energy Fund, Rydex Energy
Services Fund, Rydex Financial Services Fund, Rydex Health Care Fund, Rydex
Leisure Fund, Rydex Technology Fund, Rydex
11
<PAGE>
Telecommunications Fund, Rydex Transportation Fund, and Rydex Retailing Fund,
within four to six months from the effective date of Post-Effective Amendment
No. 29.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Rockville in the State of Maryland on the 26th day of February, 1998.
RYDEX SERIES TRUST
Albert P. Viragh, Jr.
---------------------------------------------
Albert P. Viragh, Jr., Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been 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 February 26, 1998
- ----------------------------------- President, and Trustee
Albert P. Viragh, Jr.
/s/ Carl G. Verboncouer Treasurer February 26, 1998
- -----------------------------------
Corey A. Colehour* Trustee February 26, 1998
- -----------------------------------
Corey A. Colehour
J. Kenneth Dalton* Trustee February 26, 1998
- -----------------------------------
J. Kenneth Dalton
Roger Somers* Trustee February 26, 1998
- -----------------------------------
Roger Somers
Trustee February 26, 1998
- -----------------------------------
John O. Demaret
Trustee February 26, 1998
- -----------------------------------
Patrick T. McCarville
*By: /s/ Albert P. Viragh, Jr.
------------------------------
Albert P. Viragh, Jr.
Attorney-in-Fact
</TABLE>
13
<PAGE>
EXHIBIT INDEX
(1)(a) Certificate of Trust of Rydex Series Trust (the "Registrant" or
the "Trust").(4)
(1)(b) Declaration of Trust of the Registrant.(4)
(2) By-Laws of Registrant.(4)
(3) Not applicable.
(4) Specimen share certificate.(4)
(5)(a) Investment Advisory Agreement between Registrant and PADCO
Advisors, Inc.(4)
(5)(b) Sub-Advisory Agreement between PADCO Advisors, Inc. and Loomis,
Sayles & Company, L.P.(4)
(6) Distribution Agreement between the Trust and PADCO Financial
Services, Inc. relating to the Advisor Class.(6)
(7) Not applicable.
(8) Custody Agreement between Registrant and Star Bank, N.A.(4)
(9)(a) Trustees and Officers Indemnification and Liability Insurance
Policy.(1)
(9)(b) Comprehensive Blanket Fidelity Bond Insurance Policy.(1)
(9)(c) Service Agreement between Registrant and PADCO Service Company,
Inc.(4)
(9)(d) Portfolio Accounting Services Agreement between Registrant and
PADCO Service Company, Inc.(4)
(9)(e) Fidelity Bond Allocation Agreement Among Registrant, PADCO
Advisors, Inc., The Rydex Advisor Variable Annuity Account, PADCO
Advisors II, Inc., and PADCO Service Company, Inc.(4)
(9)(f) Amended and Restated Fidelity Bond Agreement Among Registrant,
PADCO Advisors, Inc., The Rydex Advisor Variable Annuity Account,
PADCO Advisors II, Inc., PADCO Service Company, Inc., and PADCO
401(k) and Profit Sharing Plan.(5)
(10) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15)(a) Plan of Distribution for The Rydex Institutional Money Market
Fund.(5)
(15)(b) Plan of Distribution for The Rydex Institutional Money Market
Fund as revised, March 12, 1997.(5)
(15)(c) Plan of Distribution for The Rydex Institutional Money Market
Fund as revised, June 23, 1997.(5)
(15)(d) Plan of Distribution for The Rydex High Yield Fund.(3)
(15)(e) Plan of Distribution for The Rydex High Yield Fund, as revised
March 12, 1995.(5)
(15)(f) Plan of Distribution for The Rydex High Yield Fund, as revised
June 23, 1997.(5)
(15)(g) Forms of Shareholder Servicing Support Agreements between PADCO
Financial Services, Inc. and Selling Recipients in connection
with the Plan of Distribution for The Rydex Institutional Money
Market Fund.(2)
(15)(h) Form of Shareholder Servicing Support Agreement between PADCO
Financial Services, Inc. and Selling Recipients in connection
with the Plan of Distribution for The Rydex High Yield Fund.(3)
(15)(i) Form of Distribution Plan and Shareholder Servicing Agreement for
Advisor Class Shares.(6)
14
<PAGE>
(16) Schedule of Performance Quotations.(5)
(17) Financial Data Schedules for Registrant.(5)
(18) Form of Rule 18f-3 Plan.(6)
- ------------------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 24 to this
Registration Statement, filed on October 27, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 25 to this
Registration Statement, filed on March 1, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 26 to this
Registration Statement, filed on September 11, 1996.
(4) Incorporated herein by reference to Post-Effective Amendment No. 27 to this
Registration Statement filed on October 30, 1996.
(5) Incorporated herein by reference to Post-Effective Amendment No. 28 to this
Registration Statement filed on July 20, 1997.
(6) Is filed herewith.
15
<PAGE>
FORM OF
DISTRIBUTION AGREEMENT
RYDEX SERIES TRUST
THIS DISTRIBUTION AND SHAREHOLDER SERVICES AGREEMENT is made as of this
____ day of ___________, 199__ (the "Agreement") by and between Rydex Series
Trust, a Delaware business trust (the "Trust"), and PADCO Financial Services,
Inc. ("PADCO"), a Maryland corporation.
WHEREAS, the Trust is registered as an open-end investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"); and its
units of beneficial interest (such units of all series are hereinafter called
the "Shares"), are registered with the Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933 (the "1933 Act"); and
WHEREAS, PADCO is registered as a broker-dealer with the SEC under the
Securities Exchange Act of 1934, and is a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, the Trust desires to retain PADCO to: (i) distribute the
Advisor Class Shares of certain investment portfolios of the Trust (the
"Funds"); (ii) provide, pursuant to the Distribution and Shareholder Services
Plan (the "Plan") as adopted by the Trust under Rule 12b-1 under the 1940
Act, for the sale and distribution of the Funds, and for such additional
classes or series as the Trust may issue; (iii) provide shareholder services
to customers of the Trust ("Clients") who purchase Shares of the Funds; and
(iv) pay PADCO certain fees pursuant to the Plan; and
WHEREAS PADCO, or such other service provider as PADCO shall determine,
is prepared to provide such services commencing on the date first written
above; and
WHEREAS, the Trust and PADCO wish to enter into an agreement with each
other with respect to the continuous offering of the Trust's Shares.
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein, PADCO and the Trust hereto agree as follows:
1. DISTRIBUTION AND SHAREHOLDER SERVICES
1.1 The Trust hereby appoints, and PADCO hereby agrees, to act as the Trust's
agent to sell and arrange for the sale of the Shares covered by the
Registration Statement under the 1933 Act.
1.2 PADCO agrees to use its best efforts in connection with the distribution of
Shares, including such advertising and promotion as it believes reasonable
in connection with such distribution. PADCO shall hold itself available to
receive orders, that PADCO reasonably believes to be in good order, for the
purchase of the Shares and shall accept such orders and will transmit such
orders as are so accepted and funds received by it in payment for such
Shares to the Trust's transfer agent or custodian, as appropriate, as
promptly as practicable. Purchase orders shall be deemed effective at the
time and in the manner set forth in the Prospectus. The offering price of
the Shares shall be the net asset value per share of the Shares plus any
applicable sales charges, determined as set forth in the Prospectus. PADCO
shall not make any short sales of Shares.
<PAGE>
PADCO shall comply with all applicable laws, rules and regulations,
including, without limitations, all rules and regulations made or adopted
by the SEC or by any securities association registered under the 1934 Act.
PADCO shall maintain the required licenses and registrations for itself as
a broker or dealer, and for its registered representatives or other
associated persons, under the 1934 Act and applicable state securities
laws.
PADCO is not authorized by the Trust to give on behalf of the Trust any
information or to make any representations in connection with the sale of
Shares other than the information and representations contained in a
Registration Statement filed with the SEC under the 1933 Act and the 1940
Act, as such Registration Statement may be amended from time to time, or
contained in shareholder reports or other material that may be prepared by
or on behalf of the Trust for PADCO's use.
1.3 PADCO will provide all office space and equipment, telephone facilities and
personnel (which may be part of the space, equipment and facilities
currently used in PADCO's business, or any personnel employed by PADCO) as
may be reasonably necessary or beneficial in order to provide the services
stated herein and in the Plan, and provide assistance to Clients.
1.4 The Trust understands that PADCO is now, or may in the future be, the
distributor of the shares of several investment companies or series
(collectively, the "Investment Entities"), including Investment Entities
having investment objectives similar to those of the Trust. The Trust
further understands that investors and potential investors in the Trust may
invest in shares of such other Investment Entities. The Trust agrees that
PADCO's duties to such Investment Entities shall not be deemed in conflict
with its duties to the Trust under this Section 1.4.
1.5 PADCO shall not utilize any materials in connection with the sale or
offering of Shares except the Trust's current prospectus and statement of
additional information ("SAI") and such other materials as the Trust shall
provide or approve.
1.6 All activities by PADCO and its employees, as distributor of the Shares,
shall comply with all applicable laws, rules and regulations, including,
without limitation, all rules and regulations made or adopted by the SEC or
the National Association of Securities Dealers.
1.7 PADCO will transmit any orders received by it for purchase or redemption of
the Shares to the transfer agent for the Trust.
1.8 Whenever in its judgment such action is warranted by unusual market,
economic or political conditions or abnormal circumstances of any kind, the
Trust may decline to accept any orders for, or make any sales of, the
Shares until such time as the Trust deems it advisable to accept such
orders and to make such sales, and the Trust advises PADCO promptly of such
determination.
1.9 The Trust agrees to pay all costs and expenses in connection with the
registration of Shares under the Securities Act of 1933, as amended, and
all expenses in connection with maintaining facilities for the issue and
transfer of Shares and for supplying information, prices and other data to
be furnished by the Funds hereunder, and all expenses in connection with
the preparation and printing of the Funds' prospectuses and SAI for
regulatory purposes and for distribution to shareholders.
2
<PAGE>
1.10 The Trust agrees at its own expense to execute any and all documents and to
furnish any and all information and otherwise to take all actions that may
be reasonably necessary in connection with the qualification of the Shares
for sale in such states as PADCO may designate. The Trust shall notify
PADCO in writing of the states in which the Shares may be sold and shall
notify PADCO in writing of any changes to the information contained in the
previous notification.
1.11 The Trust shall furnish from time to time, for use in connection with the
sale of the Shares, such information with respect to the Trust and the
Shares as PADCO may reasonably request. The Trust shall also furnish PADCO
upon request with: (a) audited annual statements and unaudited semi-annual
statements of a Fund's books and accounts prepared by the Trust,
(b) quarterly earnings statements prepared by the Trust, (c) a monthly
itemized list of the securities in the Funds, (d) monthly balance sheets as
soon as practicable after the end of each month, and (e) from time to time
such additional information regarding the financial condition of the Trust
as PADCO may reasonably request.
1.12 The Trust represents to PADCO that all Registration Statements and
prospectuses filed by the Trust with the SEC under the 1933 Act with
respect to the Shares have been prepared in conformity with the
requirements of the 1933 Act and the rules and regulations of the SEC
thereunder. As used in this Agreement, the term "Registration Statement"
shall mean any registration statement and any prospectus and any SAI
relating to the Trust filed with the SEC and any amendments or supplements
thereto at any time filed with the SEC. Except as to information included
in the Registration Statement in reliance upon information provided to the
Trust, PADCO or any affiliate of PADCO, expressly for use in the
Registration Statement, the Trust represents and warrants to PADCO that any
Registration Statement, when such Registration Statement becomes effective,
will contain statements required to be stated therein in conformity with
the 1933 Act and the rules and regulations of the SEC; that all statements
of fact contained in any such Registration Statement will be true and
correct when such Registration Statement becomes effective, and that no
Registration Statement when such Registration Statement becomes
effective will include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading to a purchaser of the Shares.
PADCO may, but shall not be obligated to, propose from time to time such
amendment or amendments to any Registration Statement and such
supplement or supplements to any prospectus as, in the light of future
developments, may, in the opinion of the Trust's counsel, be necessary
or advisable. The Trust shall promptly notify PADCO of any advice given
to it by its counsel regarding the necessity or advisability of amending
or supplementing such Registration Statement. The Trust shall not file
any amendment to any Registration Statement or supplement to any
prospectus without giving PADCO reasonable notice thereof in advance;
provided, however, that nothing contained in this Agreement shall in any
way limit the Trust's right to file at any time such amendments to any
Registration Statements and/or supplements to any prospectus, of
whatever character, as the Trust may deem advisable, such right being in
all respects absolute and unconditional.
1.13 The Trust agrees to indemnify and hold harmless PADCO, its officers,
directors, and employees, and any person who controls PADCO within the
meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, costs, expenses (including reasonable attorneys' fees)
losses, damages, charges, payments an liabilities of any sort or kind which
PADCO, its officers, directors, employees or any such controlling person
may incur under the 1933 Act, under any other statute, at common law or
otherwise, but only to the extent that such liability or expense incurred
3
<PAGE>
by PADCO, its officers, directors, employees or any controlling person
resulting from such claims or demands arises out of the acquisition of
Shares by any person which is based upon: (i) any untrue statement, or
alleged untrue statement, of a material fact contained in the Trust's
Registration Statement, prospectus, SAI, or sales literature (including
amendments and supplements thereto), or (ii) any omission, or alleged
omission, to state a material fact required to be stated in the Trust's
Registration Statement, prospectus, SAI or sales literature (including
amendments or supplements thereto), necessary to make the statements
therein not misleading.
Notwithstanding the foregoing, the Trust shall not be obligated to
indemnify any entity or person pursuant to this paragraph 1.13 against any
losses, claims, costs, charges, payments, damages, liabilities or expenses
(including attorneys' fees) of any sort or kind arising (i) out of the
acquisition of Shares by any person which is based upon any untrue
statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information furnished to the Trust by
PADCO or its affiliated persons for use in the Trust's Registration
Statement, prospectus, or SAI or sales literature (including amendments or
supplements thereto); (ii) by reason of PADCO's willful misfeasance, bad
faith or negligence in the performance of PADCO's duties hereunder; (iii)
by reason of reckless disregard of PADCO's obligations or duties hereunder,
from reliance on information furnished to the Trust by PADCO or its
affiliates; or (iv)by reason of PADCO's refusal or failure to comply with
the terms or conditions of this Agreement.
1.14 PADCO agrees to indemnify and hold harmless the Trust, its several officers
and Trustees and each person, if any, who controls a Fund or Funds within
the meaning of Section 15 of the 1933 Act against any and all claims,
costs, expenses (including reasonable attorneys' fees), losses, damages,
charges, payments and liabilities of any sort or kind which the Trust, its
officers or Trustees, or any such controlling person may incur under the
1933 Act, under any other statute, at common law or otherwise, but only to
the extent that such liability or expense incurred by the Trust, its
officers or Trustees, or any controlling person resulting from such claims
or demands arose (i) out of the acquisition of any Shares by any person
which may be based upon any untrue statement, or alleged untrue statement,
of a material fact contained in the Trust's Registration Statement,
prospectus, SAI (including amendments and supplements thereto) or sales
literature alleged omission, to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished or
confirmed in writing to the Trust by PADCO or its affiliated persons (as
defined in the 1940 Act); (ii) by reason of PADCO's willful misfeasance,
bad faith or negligence in performance of PADCO's duties or obligations
hereunder or by reason of reckless disregard of its duties or obligations
hereunder; (iii) from reliance on information furnished to the Trust by
PADCO or its affiliates; or (iv) from PADCO's refusal or failure to comply
with the terms or conditions of this Agreement.
1.15 In any case in which one party hereto (the "Indemnifying Party") may be
asked to indemnify or hold the other party hereto (the "Indemnified Party")
harmless, the Indemnified Party will notify the Indemnifying Party promptly
after identifying any situation which it believes presents or appears
likely to present a claim for indemnification (an "Indemnification Claim")
against the Indemnifying Party, although the failure to do so shall not
prevent recovery by the Indemnified Party, and shall keep the Indemnifying
Party advised with respect to all developments concerning such situation.
The Indemnifying Party shall have the option to defend the Indemnified
Party against any Indemnification Claim which may be the subject of this
indemnification, and, in the event that the Indemnifying Party so elects,
such defense shall be conducted by counsel chosen by the
4
<PAGE>
Indemnifying Party and satisfactory to the Indemnified Party, whose
approval shall not be unreasonably withheld. In the event that the
Indemnifying Party elects to assume the defense of any Indemnification
Claim and retains legal counsel, the Indemnified Party shall bear the
fees and expenses of any additional legal counsel retained by it. The
Indemnified Party will not confess any Indemnification Claim or make any
compromise in any case in which the Indemnifying Party will be asked to
provide indemnification, except with the Indemnifying Party's prior
written consent. The obligations of the parties hereto under this
Section 1.15 shall survive the termination of this Agreement.
In the event that the Indemnifying Party does not elect to assume the
defense of any such suit, or in case the Indemnified Party reasonably does
not approve of counsel chosen by the Indemnified Party, or in case there is
a conflict of interest between the Trust and PADCO, the Indemnifying Party
will reimburse the Indemnified Party, its officers, trustees, directors and
employees, or the controlling person or persons named as defendant or
defendants in such suit, for the reasonable fees and expenses of any
counsel retained by the Indemnified Party or such defendants. The
Indemnifying Party's indemnification agreement contained in this
Section 1.15 and the Indemnifying Party's representations and warranties in
this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Indemnified
Party, its officers, directors, trustees or employees, or any controlling
persons, and shall survive the delivery of any Shares. This agreement of
indemnity will inure exclusively to the Indemnified Party's benefit, to the
benefit of its several officers, trustees, directors and employees, and
their respective estates and to the benefit of the controlling person(s)
and their successors. The Indemnifying Party agrees promptly to notify the
Indemnified Party of the commencement of any litigation or proceedings
against the Indemnifying Party or any of its officers, trustees or
directors in connection with the issue and sale of any Shares.
1.16 No Shares shall be offered by either PADCO or the Trust under any of the
provisions of this Agreement and no orders for the purchase or sale of
Shares hereunder shall be accepted by the Trust if and so long as
effectiveness of the Registration Statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
1933 Act, or if and so long as a current prospectus as required by
Section 5(b)(2) of the 1933 Act is not on file with the SEC; provided,
however, that nothing contained in this Section 1.16 shall in any way
restrict or have any application to or bearing upon the Trust's obligation
to redeem Shares tendered for redemption by any shareholder in accordance
with the provisions of the Trust's Registration Statement, Declaration of
Trust, or bylaws.
1.17 The Trust agrees to advise PADCO as soon as reasonably practical by a
notice in writing delivered to PADCO:
(i) in the event of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement, prospectus or SAI then in
effect or the initiation by service of process on the Trust of any
proceeding for that purpose;
(ii) of any happening of any event that makes untrue any statement of a
material fact made in the Registration Statement, prospectus or SAI then in
effect or that requires the making of a change in such Registration
Statement, prospectus or SAI in order to make the statements therein not
misleading, and
5
<PAGE>
(iii) of all actions of the SEC with respect to any amendments to any
Registration Statement, prospectus or SAI which may from time to time be
filed with the SEC.
For purposes of this section, informal requests by or acts of the Staff of
the SEC shall not be deemed actions of the SEC.
2. TERM
2.1 This Agreement shall become effective on the date first written above and,
unless sooner terminated as provided herein, shall continue for an initial
two-year term and thereafter shall be renewed for successive one-year terms
in accordance with the requirements of the 1940 Act. This Agreement is
terminable without penalty, on at least sixty days' written notice, by
either party. This Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act and the rules
thereunder).
2.2 In the event a termination notice is given by the Trust, all reasonable
expenses associated with movement of records and materials and conversion
thereof will be borne by the Trust.
3. LIMITATION OF LIABILITY
3.1 PADCO shall at all times act in good faith and agrees to use its best
efforts, within commercially reasonable limits, to ensure the accuracy of
all services performed under this Agreement. PADCO shall not be liable to
the Trust for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the performance of its obligations
and duties under this Agreement, except a loss resulting from: (1) PADCO's
willful misfeasance, bad faith or negligence in the performance of such
obligations and duties, or by reason of its reckless disregard thereof;
(ii) reliance on information furnished to the Trust by PADCO or its
affiliates; or (iii) PADCO's refusal or failure to comply with the terms
or conditions of this Agreement.
3.2 The Trust shall not be liable to PADCO for any error of judgment or mistake
of law or for any loss suffered by PADCO, except a loss resulting from the
Trust's willful misfeasance, bad faith or negligence in the performance of
its duties and obligations hereunder, or by reason of reckless disregard
thereof.
3.3 Each party shall have the duty to mitigate damages for which the other
party may become responsible.
4. EXCLUSION OF WARRANTIES
THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, PADCO DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS
OR IMPLIED, MADE TO THE TRUST, THE FUNDS OR ANY OTHER PERSON, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE
(IRRESPECTIVE OF ANY COURSE OF DEALING, CUSTOM OR USAGE OF TRADE) OF ANY
SERVICES OR ANY GOODS PROVIDED INCIDENTAL TO SERVICES
6
<PAGE>
PROVIDED UNDER THIS AGREEMENT. PADCO DISCLAIMS ANY WARRANTY OF TITLE OR
NON-INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT.
5. MODIFICATIONS AND WAIVERS
No change, termination, modification, or waiver of any term or condition of
the Agreement shall be valid unless made in writing signed by each party.
No such writing shall be effective as against PADCO unless said writing is
executed by a Senior Vice President, Executive Vice President or President
of PADCO. A party's waiver of a breach of any term or condition in the
Agreement shall not be deemed a waiver of any subsequent breach of the same
or another term or condition.
6. NO PRESUMPTION AGAINST DRAFTER
PADCO and the Trust have jointly participated in the negotiation and
drafting of this Agreement. The Agreement shall be construed as if drafted
jointly by the Trust and PADCO, and no presumptions arise favoring any
party by virtue of the authorship of any provision of this Agreement.
7. PUBLICITY
Neither PADCO nor the Trust shall release or publish news releases, public
announcements, advertising or other publicity relating to this Agreement or
to the transactions contemplated by it without prior review and written
approval of the other party; provided, however, that either party may make
such disclosures as are required by legal, accounting or regulatory
requirements after making reasonable efforts in the circumstances to
consult in advance with the other party.
8. SEVERABILITY
The parties intend every provision of this Agreement to be severable. If a
court of competent jurisdiction determines that any term or provision is
illegal or invalid for any reason, the illegality or invalidity shall not
affect the validity of the remainder of this Agreement. In such case, the
parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality
of this paragraph, if a court determines that any remedy stated in this
Agreement has failed of its essential purpose, then all other provisions of
this Agreement, including the limitations on liability, shall remain fully
effective.
9. FORCE MAJEURE
No party shall be liable for any default or delay in the performance of its
obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature
or other acts of God; (ii) any outbreak or escalation of hostilities, war,
riots or civil disorders in any country, (iii) any act or omission of the
other party or any governmental authority; (iv) any labor disputes (whether
or not the employees' demands are reasonable or within the party's power to
satisfy); or (v) nonperformance by a third party or any similar cause
beyond the reasonable control of such party, including without limitation,
failures or fluctuations in telecommunications or other equipment. In any
such event, the non-performing party shall be excused from any further
performance and observance of the obligations so affected only for so long
7
<PAGE>
as such circumstances prevail and such party continues to use commercially
reasonable efforts to recommence performance or observance as soon as
practicable.
EQUIPMENT FAILURES. Notwithstanding any other provision in this Agreement,
in the event of equipment failures or the occurrence of events beyond
PADCO's control which render its performance under this Agreement
impossible, PADCO shall at no additional expense to the Trust take
reasonable steps to minimize service interruptions. PADCO shall develop
and maintain a plan for recovery from equipment failures which may include
contractual arrangements with appropriate third parties making reasonable
provisions for emergency use of electronic data processing equipment.
10. MISCELLANEOUS
10.1 Any notice or other instrument authorized or required by this Agreement to
be given in writing to the Trust or PADCO shall be sufficiently given if
addressed to the party and received by it at its office set forth below or
at such other place as it may from time to time designate in writing.
To the Trust:
Rydex Series Trust
6116 Executive Boulevard
Suite 400
Rockville, MD 20852
Attn:____________________
To PADCO:
PADCO Financial Services, Inc.
6116 Executive Boulevard
Suite 400
Rockville, MD 20852
Attn:____________________
11. GOVERNING LAW/VENUE. The laws of the State of Maryland, excluding the laws
on conflicts of laws, and the applicable provision of the 1940 Act shall
govern the interpretation, validity, and enforcement of this Agreement. To
the extent the provisions of Maryland law or the provisions hereof conflict
with the 1940 Act, the 1940 Act shall control. All actions arising from or
related to this Agreement shall be brought in the state and federal courts
within the State of Maryland, and PADCO and the Trust hereby submit
themselves to the exclusive jurisdiction of those courts.
12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and which
collectively shall be deemed to constitute only one instrument.
13. CAPTIONS. The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
8
<PAGE>
14. SUCCESSORS. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and is not
intended to confer upon any other person any rights or remedies hereunder.
15. ARBITRATION. Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered
by the American Arbitration Association in accordance with its applicable
rules, except that the Federal Rules of Evidence and the Federal Rules of
Civil Procedure with respect to the discovery process shall apply. The
parties hereby agree that judgment upon the aware rendered by the
arbitrator may be entered in any court having jurisdiction.
The parties acknowledge and agree that the performance of the obligations
under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law
provisions in this Agreement, the parties agree that the Federal
Arbitration Act shall govern and control with respect to the provision of
this Article.
16. OBLIGATIONS OF THE TRUST
The Trust and PADCO agree that the obligations of the Trust under the
Agreement shall not be binding upon any of the trustees, shareholders,
nominees, officers, employees or agents, whether past, present or future,
of the trust individually, but are binding only upon the assets and
property of the Trust, as provided in the Trust's Declaration of Trust.
The execution and delivery of this agreement have been authorized by the
Directors of the Trust, and signed by an authorized officer of the Trust,
acting as such, and neither such authorization by such trustees nor such
execution and delivery by such officer shall be deemed to have been made by
any of them or any shareholder of the Trust individually or to impose any
liability on any of them or any shareholder of the Trust personally, but
shall bind only the assets and property of the Trust as provided in the
Trust's Declaration of Trust.
17. ENTIRE AGREEMENT
This Agreement, including all Schedules hereto, constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous proposals, agreements, contracts,
representations, and understandings, whether written or oral, between the
parties with respect to the subject matter hereof.
9
<PAGE>
IN WITNESS WHEREOF, THE parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
RYDEX SERIES TRUST
BY:
Name:
Title:
PADCO FINANCIAL SERVICES, INC.
By:
Name:
Title:
10
<PAGE>
FORM OF
DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
RYDEX SERIES TRUST
ADVISOR CLASS SHARES
WHEREAS, Rydex Series Trust (the "Trust") is engaged in business as an
open-end investment company registered under the Investment Company Act of 1940
(the "1940 Act") and the Trust desires to compensate Service Providers who
provide, the services described herein to clients (the "Clients") who from time
to time beneficially own Advisor Class shares (the "Shares") of any of the
Trust's Funds (the "Funds") listed on Exhibit A hereto; and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that the following Plan will benefit the Funds of the
Trust and the Clients of the Shares of such Funds; and
WHEREAS, pursuant to Rule 12b-1 under the 1940 Act, the Trustees of the
Trust adopt the Plan under which Service Providers will provide, pursuant to a
Distribution Agreement, the distribution services stated in Section 2 herein;
and
WHEREAS, the Trustees of the Trust adopt the Plan under which Service
Providers will provide to Clients some or all of the shareholder services stated
in Section 3 herein;
NOW, THEREFORE, the Trustees of the Trust hereby adopt this Plan.
SECTION 1. The Trust has adopted this Plan to enable the Trust to directly
or indirectly bear expenses relating to the distribution of the Shares of the
Trust and for providing shareholder services.
SECTION 2. The Trust will pay Service Providers a fee on the Shares of the
Funds up to the amount set forth on Exhibit A for distribution services.
Service Providers may use this fee 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 Service Providers's affiliates and subsidiaries as
compensation for services or reimbursement of expenses incurred in connection
with distribution assistance.
SECTION 3. The Trust will pay Service Providers a fee on the Shares of the
Funds up to the amount set forth on Exhibit A for shareholder services. Service
Providers may use this fee for (i) maintaining accounts relating to Clients that
invest in Shares; (ii) arranging for bank wires; (iii) responding to Client
inquiries relating to the services performed by Service Providers; (iv)
responding to inquiries from Clients concerning their investment in Shares; (v)
assisting Clients in changing dividend options, account designations and
addresses; (vi) providing information periodically to Clients showing their
position in Shares; (vii) forwarding shareholder communications from the Funds
such as proxies, shareholder reports, annual reports, and dividend distribution
and tax notices to Clients; (viii) processing purchase exchange and redemption
requests from Clients and placing orders with the Funds or its service
providers; (ix) providing sub-accounting with respect to Shares beneficially
owned by Clients; and (x) processing dividend payments from the Funds on behalf
of Clients.
<PAGE>
SECTION 4. This Plan shall not take effect with respect to any Fund until
it has been approved (a) by a vote of at least a majority of the outstanding
voting securities of the Shares of such Fund; and (b) together with any related
agreements, by votes of the majority of both (i) the Trustees of the Trust and
(ii) the Qualified Trustees (as defined in Section 10 herein), cast in person at
a Board of Trustees meeting called for the purpose of voting on this Plan or
such agreement.
SECTION 5. This Plan shall continue in effect for a period of more than
one year after it takes effect, only for so long as such continuance is
specifically approved at least annually in the manner provided in Part (b) of
Section 4 herein for the approval of this Plan.
SECTION 6. Any person authorized to direct the disposition of monies paid
or payable by the Trust pursuant to this Plan or any related agreement shall
provide to the Trustees of the Trust, at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures were made.
SECTION 7. This Plan may be terminated at any time by the vote of a
majority of the Qualified Trustees or by vote of a majority of the outstanding
voting securities of the Shares of the Funds.
SECTION 8. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide (a) that such agreement may be terminated at any time, without payment
of any penalty, by the vote of a majority of the Qualified Trustees or by the
vote of a majority of the outstanding voting securities of the Shares of the
Funds, on not more than 60 days written notice to any other party to the
agreement; and (b) that such agreement shall terminate automatically in the
event of its assignment.
SECTION 9. This Plan may not be amended to increase materially the amount
of distribution expenses permitted pursuant to Section 2 hereof without the
approval of Shareholders holding a majority of the outstanding voting securities
of the Shares of the Funds, and all material amendments to this Plan shall be
approved in the manner provided in Part (b) of Section 4 herein for the approval
of this Plan.
SECTION 10. As used in this Plan, (a) the term "Qualified Trustees" shall
mean those Trustees of the Trust who are not interested persons of the Trust,
and have no direct or indirect financial interest in the operation of this Plan
or any agreements related to it, and (b) the terms "assignment" and "interested
person" shall have the respective meanings specified in the 1940 Act and the
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission.
SECTION 11. While this Plan is in effect, the selection and nomination of
those Trustees who are not interested persons of the Trust within the meaning of
Section 2(a)(19) of the 1940 Act shall be committed to the discretion of the
Trustees then in office who are not interested persons of the Trust.
SECTION 12. This Plan shall not obligate the Trust or any other party to
enter into an agreement with any particular person.
_____________________, 1998.
<PAGE>
EXHIBIT A
RYDEX SECTOR FUNDS - ADVISOR CLASS
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
RYDEX SECTOR FUNDS - ADVISOR CLASS
Rydex Banking Fund
Rydex Basic Materials Fund
Rydex Biotechnology Fund
Rydex Consumer Products Fund
Rydex Electronics Fund
Rydex Energy Fund
Rydex Energy Services Fund
Rydex Financial Services Fund
Rydex Health Care Fund
Rydex Leisure Fund
Rydex Retailing Fund
Rydex Technology Fund
Rydex Telecommunications Fund
Rydex Transportation Fund
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Distribution Services.......Twenty-Five basis points (.25%)
Shareholder Services........Twenty-Five basis points (.25%)
<PAGE>
FORM OF
RYDEX SERIES TRUST
RULE 18F-3
MULTIPLE CLASS PLAN
__________, 1997
Rydex Series Trust (the "Trust"), a registered investment company that
currently consists of a number of separately managed funds, has elected to rely
on Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940
Act"), in offering multiple classes of shares in each fund listed on Schedule A
hereto (each a "Fund" and together the "Funds").
A. ATTRIBUTES OF SHARE CLASSES
1. The rights of each class of shares of the Funds shall be as set
forth in the respective Certificate of Class Designation for each class (each a
"Certificate") as each such Certificate is approved by the Trust's Board of
Trustees and as attached hereto as Exhibits.
2. With respect to each class of shares created hereunder, each share
of a Fund will represent an equal PRO RATA interest in the Fund and will have
identical terms and conditions, except that: (i) each new class will have a
different class name (or other designation) that identifies the class as
separate from any other class; (ii) each class will be offered and sold only to
investors meeting the qualifications set forth in the Certificate and disclosed
in the Trust's Prospectuses; (iii) each class will separately bear any
distribution fees that are payable in connection with a distribution plan
adopted pursuant to Rule 12b-1 under the 1940 Act (a "Distribution Plan"), and
separately bear any other service fees ("service fees") that are payable under
any service agreement entered into with respect to that class which are not
contemplated by or within the scope of the Distribution Plan; (iv) each class
may bear, consistent with rulings and other published statements of position by
the Internal Revenue Service, the expenses of the Fund's operations which are
directly attributable to such class ("Class Expenses"); and (v) shareholders of
each class will have exclusive voting rights regarding any matter (such as a
Distribution Plan or service agreement relating to a class) submitted to
shareholders that relates solely to such class, and will have separate voting
rights on any matter submitted to shareholders in which the interests of that
class differ from the interests of any other class.
B. EXPENSE ALLOCATIONS
With respect to each Fund, the expenses of each class shall be
allocated as follows: (i) any Rule 12b-1 fees relating to a particular class of
shares associated with a Distribution Plan or service fees relating to a
particular class of shares are (or will be) borne
<PAGE>
exclusively by that class; (ii) any incremental transfer agency fees relating
to a particular class are (or will be) borne exclusively by that class; and
(iii) Class Expenses relating to a particular class are (or will be) borne
exclusively by that class.
Non-class specific expenses shall be allocated in accordance with Rule
18f-3(c).
C. AMENDMENT OF PLAN; PERIODIC REVIEW
This Multiple Class Plan must be amended to properly describe (through
additional exhibits hereto) each new class of shares upon its approval by the
Board.
The Board of Trustees of the Trust, including a majority of the
Trustees who are not "interested persons" of the Trust as defined in the 1940
Act, must periodically review this Multiple Class Plan for its continued
appropriateness, and must approve any material amendment of the Multiple Class
Plan as it relates to any class of any Fund covered by the Multiple Class Plan.
In approving any material amendment to the Multiple Class Plan, the Trustees,
including a majority of the Trustees who are not interested persons of the
Trust, must find that the amendment is in the best interests of each class
individually and the Trust as a whole.
<PAGE>
SCHEDULE A
RYDEX SERIES TRUST
FUND
The Rydex U.S. Government Money Market Fund
The Nova Fund
The Ursa Fund
Rydex OTC Fund
Rydex Precious Metals Fund
Rydex U.S. Government Bond Fund
The Juno Fund
Rydex Banking Fund
Rydex Basic Materials Fund
Rydex Biotechnology Fund
Rydex Consumer Products Fund
Rydex Electronics Fund
Rydex Energy Fund
Rydex Energy Services Fund
Rydex Financial Services Fund
Rydex Health Care Fund
Rydex Leisure Fund
Rydex Retailing Fund
Rydex Technology Fund
Rydex Telecommunications Fund
Rydex Transportation Fund
<PAGE>
Exhibit A
RYDEX SERIES TRUST
CERTIFICATE OF CLASS DESIGNATION
ADVISOR SHARES
1. CLASS-SPECIFIC DISTRIBUTION ARRANGEMENTS; OTHER EXPENSES.
Advisor Shares are subject to asset-based fees under a Distribution and
Shareholder Services Plan (the "Plan"). Pursuant to Rule 12b-1, The Trust, on
behalf of the applicable Fund, will make monthly payments to the Distributor for
providing distribution services under the Plan approved by the Board of
Trustees, at an annual rate of up to .25% of each Fund's average daily net
assets attributable to the Advisor Shares. The Distributor will use this fee to
compensate service providers for providing distribution-related services,
ongoing account maintenance and other services to Institutional shareholders
(including, when applicable, any underlying beneficial owners) including, but
not limited to, answering routine customer inquiries concerning their
investments. The Trust, on behalf of the applicable Fund, will make monthly
payments to the Servicer for providing shareholder services under the Plan
approved by the Board of Trustees at an annual rate of .25% of each Fund's
average daily net assets attributable to the Advisor Shares, as compensation for
providing some or all of the following shareholder services including: (i)
maintaining accounts relating to Clients that invest in Advisor Shares; (ii)
arranging for bank wires; (iii) responding to Client inquiries relating to the
services performed by PADCO Financial Services, Inc. or any service provider;
(iv) responding to inquiries from Clients concerning their investment in Advisor
Shares; (v) assisting Clients in changing dividend options, account designations
and addresses; (vi) providing information periodically to Clients showing their
position in Advisor Shares; (vii) forwarding shareholder communications from the
Funds such as proxies, shareholder reports, annual reports, and dividend
distribution and tax notices to Clients; (viii) processing purchase exchange and
redemption requests from Clients and placing orders with the Funds or its
service providers; (ix) providing sub-accounting with respect to Advisor Shares
beneficially owned by Clients; and (x) processing dividend payments from the
Funds on behalf of Clients.
2. ELIGIBILITY OF PURCHASERS
Advisor Shares generally require a minimum initial investment of $25,000.
Advisor Shares are only sold through a third party financial intermediary or
mutual fund supermarket.
3. EXCHANGE PRIVILEGES
Advisor Shares of each Fund may be exchanged for Advisor Shares of each
other Fund of the Trust in accordance with the procedures disclosed in the
Trust's Prospectuses, and subject to any applicable limitations resulting from
the closing of Funds to new investors.
<PAGE>
4. VOTING RIGHTS
Each Advisor Shareholder will have one vote for each full Advisor Share
held and a fractional vote for each fractional Advisor Share held. Advisor
Shareholders will have exclusive voting rights regarding any matter submitted to
shareholders that relates solely to Advisor (such as a distribution plan or
service agreement relating to Advisor), and will have separate voting rights on
any other matter submitted to shareholders in which the interests of the Advisor
Shareholders differ from the interests of holders of any other class.
5. CONVERSION RIGHTS
Advisor Shares do not have a conversion feature.
<PAGE>
Exhibit B
RYDEX SERIES TRUST
CERTIFICATE OF CLASS DESIGNATION
INVESTOR SHARES
1. CLASS-SPECIFIC DISTRIBUTION ARRANGEMENTS; OTHER EXPENSES.
Investor Shares are sold without a sales charge or asset-based distribution
or shareholder servicing fee.
2. ELIGIBILITY OF PURCHASERS
Investor Shares generally require a minimum initial investment of $25,000.
3. EXCHANGE PRIVILEGES
Investor Shares of a Trust's Fund may be exchanged for Investor Shares of
each other Fund of the Trust in accordance with the procedures disclosed in the
Trust's Prospectuses, and subject to any applicable limitations resulting from
the closing of Funds to new investors.
4. VOTING RIGHTS
Each Investor Shareholder will have one vote for each full Investor Share
held and a fractional vote for each fractional Investor Share held. Investor
Shareholders will have exclusive voting rights regarding any matter submitted to
Shareholders that relates solely to Investor Shares and will have separate
voting rights on any other matter submitted to Shareholders in which the
interests of Investor Shareholders differ from the interests of holders of any
other class.
5. CONVERSION RIGHTS
Investor Shares do not have a conversion feature.