<PAGE>
PROSPECTUS -- INVESTOR CLASS SHARES
<TABLE>
<C> <S>
1 RISK/RETURN INFORMATION COMMON TO THE
--- FUNDS
2 NOVA FUND
---
4 URSA FUND
---
6 OTC FUND
---
8 ARKTOS FUND
---
10 U.S. GOVERNMENT BOND FUND
---
12 JUNO FUND
---
14 BANKING FUND
---
16 BASIC MATERIALS FUND
---
18 BIOTECHNOLOGY FUND
---
20 CONSUMER PRODUCTS FUND
---
22 ELECTRONICS FUND
---
24 ENERGY FUND
---
26 ENERGY SERVICES FUND
---
28 FINANCIAL SERVICES FUND
---
30 HEALTH CARE FUND
---
32 INTERNET FUND
---
34 LEISURE FUND
---
36 PRECIOUS METALS FUND
---
38 RETAILING FUND
---
40 TECHNOLOGY FUND
---
42 TELECOMMUNICATIONS FUND
---
44 TRANSPORTATION FUND
---
46 UTILITIES FUND
---
48 U.S. GOVERNMENT MONEY MARKET FUND
---
50 MORE INFORMATION ABOUT FUND INVESTMENTS
--- AND RISK
55 SHAREHOLDER INFORMATION
---
62 MANAGEMENT OF THE FUNDS
---
63 DIVIDENDS, DISTRIBUTIONS AND TAXES
---
65 FINANCIAL HIGHLIGHTS
---
BC ADDITIONAL INFORMATION
---
</TABLE>
RYDEX SERIES FUNDS
BENCHMARK FUNDS
SECTOR FUNDS
U.S. GOVERNMENT MONEY MARKET FUND
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
1-800-820-0888 301-468-8520
www.rydexfunds.com
Rydex Series Funds (the "Trust") is a no-load mutual fund complex with thirty
separate investment portfolios (the "Funds"). This prospectus describes
twenty-four Funds, which are grouped into three categories:
- BENCHMARK FUNDS -- Nova Fund, Ursa Fund, OTC Fund, Arktos Fund, U.S.
Government Bond Fund and Juno Fund.
- SECTOR FUNDS -- Banking Fund, Basic Materials Fund, Biotechnology Fund,
Consumer Products Fund, Electronics Fund, Energy Fund, Energy Services
Fund, Financial Services Fund, Health Care Fund, Internet Fund, Leisure
Fund, Precious Metals Fund, Retailing Fund, Technology Fund,
Telecommunications Fund, Transportation Fund and Utilities Fund.
- MONEY MARKET FUND -- U.S. Government Money Market Fund
Investor Class Shares of the Funds are sold principally to professional money
managers and to investors who take part in certain strategic and tactical
asset-allocation investment programs. Investors may exchange and redeem shares
of the Funds through the Rydex web site -- www.rydexfunds.com.
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.
AUGUST 1, 1999, AS SUPPLEMENTED APRIL 1, 2000
<PAGE>
ICON LEGEND
[ICON]Fund Objective
The fund's particular investment goal.
[ICON]Portfolio Investments
The primary types of securities in which the fund invests.
[ICON]Risk Considerations
The major risk factors associated with the fund.
[ICON]Fund Performance and Fee Information
The overall costs incurred by an investor in the fund.
[ICON]Financial Highlights
A table showing the fund's financial performance.
ii
<PAGE>
PROSPECTUS 1
--------
RISK/RETURN INFORMATION COMMON TO THE FUNDS
THE FUNDS' INVESTMENT OBJECTIVES
Each Fund has a separate investment objective. A general description of the
Benchmark Funds' and Sector Funds' investment objective is set forth below:
- BENCHMARK FUNDS -- Each Benchmark Fund seeks to provide investment results
that match the performance of a specific benchmark.
- SECTOR FUNDS -- Each Sector Fund seeks capital appreciation by investing
in companies which operate in a specific economic sector. THE INVESTMENT
OBJECTIVE OF EACH SECTOR FUND IS NON-FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
- MONEY MARKET FUND -- The U.S. Government Money Market Fund seeks to
provide security of principal, high current income and liquidity.
RISKS OF INVESTING IN THE FUNDS
- The value of the Funds may fluctuate in value from day to day.
- Fund shares may decline in value, and you may lose money.
<TABLE>
<S> <C>
THE FUNDS:
- Are not federally insured - Are not bank deposits
- Are not guaranteed by any government agency - Are not guaranteed to achieve their objectives
</TABLE>
<PAGE>
- ------
2 PROSPECTUS
FUND INFORMATION -- NOVA FUND
FUND OBJECTIVE
[ICON]
The Nova Fund seeks to provide investment results that match the
performance of a specific benchmark on a daily basis. The Fund's current
benchmark is 150% of the performance of the S&P 500 Index.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase on a daily basis by 150% of the value of any increase in the S&P 500
Index. When the value of the S&P 500 Index declines, the value of the Fund's
shares should also decrease on a daily basis by 150% of the value of any
decrease in the Index (e.g., if the S&P 500 Index goes down by 5%, the value of
the Fund's shares should go down by 7.5% on that day).
PORTFOLIO INVESTMENT STRATEGY
[ICON]
Unlike a traditional index fund, as its primary investment strategy,
the Fund invests to a significant extent in leveraged instruments,
such as futures contracts and options on securities, futures contracts, and
stock indexes, as well as equity securities. Futures and options contracts
enable the Fund to pursue its objective without investing directly in the
securities included in the benchmark, or in the same proportion that those
securities are represented in that benchmark. On a day-to-day basis, the Fund
holds U.S. Government securities or cash equivalents to collateralize these
futures and options contracts. The Fund also may enter into repurchase
agreements.
RISK CONSIDERATIONS
[ICON]
The Nova Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
significantly from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- LEVERAGING RISK -- The more the Fund invests in leveraged instruments, the
more this leverage will magnify any losses on those investments.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily or
aggregate basis. Tracking Error may cause the Fund's performance to be
less than you expect.
<PAGE>
PROSPECTUS 3
--------
FUND PERFORMANCE AND FEE INFORMATION
NOVA FUND PERFORMANCE
[ICON]
The bar chart and table below show the performance of the Nova Fund
both year by year and as an average over different periods of time. The
variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does
not necessarily indicate how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NOVA FUND
<S> <C>
1998 35.13%
1997 42.34%
1996 27.29%
1995 50.42%
1994 -4.77%
</TABLE>
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH JUNE 30,
1999 IS 14.35%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
31.69% (QUARTER ENDED DEC. 31, 1998) AND THE LOWEST RETURN FOR A QUARTER WAS
(16.87)% (QUARTER ENDED SEPT. 30, 1998).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
INVESTOR CLASS S&P 500
SHARES INDEX(2)
<S> <C> <C>
------------------------------------
Past One Year 35.13 % 26.67%
Past Five Years 28.49 % 21.36%
Since Inception (07/12/93) 27.32 % 20.20%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Nova Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .75%
Distribution (12b-1) Fees None
Other Expenses .44%
-----
Total Annual Fund Operating Expenses 1.19%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Nova Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$121 $378 $654 $1,443
</TABLE>
<PAGE>
- ------
4 PROSPECTUS
FUND INFORMATION -- URSA FUND
FUND OBJECTIVE
[ICON]
The Ursa Fund seeks to provide investment results that will inversely
correlate to the performance of the S&P 500 Index.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase during times when the value of the S&P 500 Index is decreasing. When
the value of the S&P 500 Index is increasing, however, the value of the Fund's
shares should decrease on a daily basis by an inversely proportionate amount
(e.g., if the S&P 500 Index goes up by 5%, the value of the Fund's shares should
go down by 5% on that day).
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund pursues its investment objective through what is sometimes
referred to as a "master-feeder arrangement." The Fund invests all of its assets
in the Ursa Master Fund, a separate series of the Trust with an identical
investment objective.
Unlike a traditional index fund, the Ursa Master Fund's benchmark is to
perform exactly opposite the S&P 500 Index, and the Ursa Master Fund will not
own the securities included in the index. Instead, as its primary investment
strategy, the Ursa Master Fund invests to a significant extent in futures
contracts and options on securities, futures contracts, and stock indexes. On a
day-to-day basis, the Ursa Master Fund holds U.S. Government securities or cash
equivalents to collateralize these futures and options contracts. The Ursa
Master Fund also may enter into repurchase agreements and sell securities short.
RISK CONSIDERATIONS
[ICON]
The Ursa Master Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
drastically from day to day. Equity market volatility may also negatively
affect the Fund's short sales of securities. This volatility may cause the
value of your investment in the Fund to decrease.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match the performance of the Fund's benchmark, either on a
daily or aggregate basis. Tracking Error may cause the Fund's performance
to be less than you expect.
<PAGE>
PROSPECTUS 5
--------
FUND PERFORMANCE AND FEE INFORMATION
URSA FUND PERFORMANCE
[ICON]
The bar chart and table below show the performance of the Ursa Fund
both year by year and as an average over different periods of time. The
variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does
not necessarily indicate how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
URSA FUND
<S> <C>
1998 -19.01%
1997 -20.99%
1996 -12.17%
1995 -20.14%
</TABLE>
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH JUNE 30,
1999 IS (8.38)%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
(10.86)% (QUARTER ENDED SEPT. 30, 1998) AND THE LOWEST RETURN FOR A QUARTER WAS
(17.06)% (QUARTER ENDED DEC. 31, 1998).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
INVESTOR S&P 500
CLASS SHARES INDEX(2)
<S> <C> <C>
------------------------------------
Past One Year (19.01)% 26.67%
Since Inception (01/07/94) (14.22)% 21.28%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Ursa Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)**
Management Fees .90%
Distribution (12b-1) Fees None
Other Expenses .48%
-----
Total Annual Fund Operating Expenses 1.38%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
** THIS TABLE AND THE EXAMPLE INCLUDE BOTH THE FEES PAID BY THE FUND AND ITS
SHARE OF THE FEES OF THE URSA MASTER FUND.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Ursa Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
- ---------------------------------------
$141 $437 $755 $1,657
</TABLE>
<PAGE>
- ------
6 PROSPECTUS
FUND INFORMATION -- OTC FUND
FUND OBJECTIVE
[ICON]
The OTC Fund seeks to provide investment results that correspond to a
benchmark for over-the-counter securities. The Fund's current benchmark is the
NASDAQ 100 Index-TM-.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase on a daily basis by the amount of the increase in value of the NASDAQ
100 Index-TM-. However, when the value of the NASDAQ 100 Index-TM- declines, the
value of the Fund's shares should also decrease on a daily basis by the amount
of the decrease in value of the Index.
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund invests principally in securities of companies included in
the NASDAQ 100 Index-TM-. It also may invest in other instruments whose
performance is expected to correspond to that of the Index, and may engage in
futures and options transactions. The Fund may also purchase U.S. Government
securities and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The OTC Fund is subject to a number of risks that will affect the value
of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match the performance of the Fund's benchmark, either on a
daily or aggregate basis. Tracking Error may cause the Fund's performance
to be less than you expect.
<PAGE>
PROSPECTUS 7
--------
FUND PERFORMANCE AND FEE INFORMATION
OTC FUND PERFORMANCE
[ICON]
The bar chart and table below show the performance of the OTC Fund both
year by year and as an average over different periods of time. The
variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does
not necessarily indicate how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
OTC FUND
<S> <C>
1998 86.48%
1997 21.85%
1996 43.46%
1995 44.24%
</TABLE>
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH JUNE 30,
1999 IS 25.17%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
35.51% (QUARTER ENDED DEC. 31, 1998) AND THE LOWEST RETURN FOR A QUARTER WAS
(9.67)% (QUARTER ENDED DEC. 31, 1997).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
INVESTOR NASDAQ 100
CLASS SHARES INDEX-TM-(2)
<S> <C> <C>
--------------------------------------------
Past One Year 86.48 % 85.31%
Since Inception (02/14/94) 36.54 % 36.30%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE NASDAQ 100 INDEX-TM- IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF OTC MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the OTC Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .75%
Distribution (12b-1) Fees None
Other Expenses .40%
-----
Total Annual Fund Operating Expenses 1.15%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the OTC Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
- ---------------------------------------
$117 $365 $633 $1,398
</TABLE>
<PAGE>
- ------
8 PROSPECTUS
FUND INFORMATION -- ARKTOS FUND
FUND OBJECTIVE
[ICON]
The Arktos Fund seeks to provide investment results that will match
the performance of a specific benchmark. The Fund's current benchmark
is the inverse of the performance of the NASDAQ 100 Index-TM-.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase during times when the value of the NASDAQ 100 Index-TM- is decreasing.
When the value of the NASDAQ 100 Index-TM- is increasing, however, the value of
the Fund's shares should decrease on a daily basis by an inversely proportionate
amount (e.g., if the NASDAQ 100 Index-TM- goes up by 5%, the value of the Fund's
shares should go down by 5% on that day).
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund pursues its investment objective through what is sometimes
referred to as a "master-feeder arrangement." The Fund invests all of its assets
in the Arktos Master Fund, a separate series of the Trust with an identical
investment objective.
Unlike a traditional index fund, the Arktos Master Fund's benchmark is to
perform exactly opposite the NASDAQ 100 Index-TM-, and the Arktos Master Fund
will not own the securities included in the Index. Instead, as its primary
investment strategy, the Arktos Master Fund engages to a significant extent in
short sales of securities, futures contracts and options on securities, futures
contracts, and stock indexes. On a day-to-day basis, the Arktos Master Fund
holds U.S. Government securities or cash equivalents to collateralize these
futures and options contracts. The Arktos Master Fund also may enter into
repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Arktos Master Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
drastically from day to day. Equity market volatility may also negatively
affect the Fund's short sales of securities. This volatility may cause the
value of your investment in the Fund to decrease.
- TRACKING ERROR RISK --The Advisor may not be able to cause the Fund's
performance to match the performance of the Fund's benchmark, either on a
daily or aggregate basis. Tracking Error may cause the Fund's performance
to be less than you expect.
<PAGE>
PROSPECTUS 9
--------
FUND PERFORMANCE AND FEE INFORMATION
ARKTOS FUND PERFORMANCE
[ICON]
The Arktos Fund commenced operations September 3, 1998, and therefore
does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Arktos Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)**
Management Fees .90%
Distribution (12b-1) Fees None
Other Expenses*** .47%
-----
Total Annual Fund Operating Expenses 1.37%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
** THIS TABLE AND THE EXAMPLE INCLUDE BOTH THE FEES PAID BY THE FUND AND ITS
SHARE OF THE FEES OF THE ARKTOS MASTER FUND.
*** OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Arktos Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$139 $434 $750 $1,646
</TABLE>
<PAGE>
- ------
10 PROSPECTUS
FUND INFORMATION -- U.S. GOVERNMENT BOND FUND
FUND OBJECTIVE
[ICON]
The U.S. Government Bond Fund seeks to provide investment results that
correspond to a benchmark for U.S. Government securities. The Fund's current
benchmark is 120% of the price movement of the Long Treasury Bond.
If the Fund meets its objective, the value of the Fund's shares should
increase on a daily basis by 120% of any price increase by the Long Treasury
Bond. In contrast, when the price of the Long Treasury Bond declines, the value
of the Fund's shares should decline on a daily basis by 120% of any price
decline of the Long Treasury Bond.
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund invests principally in U.S. Government securities and in
leveraged instruments, such as certain futures and options contracts. Some of
the Fund's U.S. Government securities, or cash equivalents, will be used to
collateralize these futures and options. Futures and options contracts, if used
properly, may enable the Fund to meet its objective by increasing the Fund's
exposure to the securities included in its benchmark. In addition, the Fund may
enter into transactions involving zero coupon U.S. Treasury bonds and repurchase
agreements.
RISK CONSIDERATIONS
[ICON]
The U.S. Government Bond Fund is subject to a number of risks that will
affect the value of its shares, including:
- FIXED INCOME RISK -- The Fund's fixed income investments will change in
value in response to interest rate changes and other factors. In addition,
the value of securities with longer maturities will fluctuate more in
response to interest rate changes.
- LEVERAGING RISK -- The more the Fund invests in leveraged instruments, the
more this leverage will magnify any losses on those investments.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match the performance of the Fund's benchmark, either on a
daily or aggregate basis. Tracking Error may cause the Fund's performance
to be less than you expect.
<PAGE>
PROSPECTUS 11
--------
FUND PERFORMANCE AND FEE INFORMATION
U.S. GOVERNMENT BOND FUND PERFORMANCE
[ICON]
The bar chart and table below show the performance of the U.S.
Government Bond Fund both year by year and as an average over different
periods of time. The variability of performance over time provides an
indication of the risks of investing in the Fund. Of course, this past
performance does not necessarily indicate how the Fund will perform in
the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. GOVERNMENT BOND FUND
<S> <C>
1998 15.83%
1997 16.36%
1996 -7.09%
1995 36.14%
1994 -17.96%
</TABLE>
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH JUNE 30,
1999 IS (13.41)%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
13.90% (QUARTER ENDED JUNE 30, 1995) AND THE LOWEST RETURN FOR A QUARTER WAS
(10.68)% (QUARTER ENDED MARCH 31, 1996).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
INVESTOR LEHMAN LONG TREASURY
CLASS SHARES INDEX(2)
<S> <C> <C>
-------------------------------------------------
Past One Year 15.83 % 13.49 %
Past Five Years 6.95 % 9.69 %
(Inception 01/03/94)
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE LEHMAN LONG TREASURY INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY
RECOGNIZED INDICATOR OF U.S. GOVERNMENT BOND PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy or
hold Investor Class Shares of the U.S. Government Bond Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .50%
Distribution (12b-1) Fees None
Other Expenses .46%
-----
Total Annual Fund Operating Expenses .96%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the U.S. Government Bond Fund with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$98 $306 $532 $1,182
</TABLE>
<PAGE>
- ------
12 PROSPECTUS
FUND INFORMATION -- JUNO FUND
FUND OBJECTIVE
[ICON]
The Juno Fund seeks to provide total returns that will inversely
correlate to the price movements of a benchmark for U.S. Treasury debt
instruments or futures contract on a specified debt instrument. The Fund's
current benchmark is the inverse of the price movement of the Long Treasury
Bond.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase during periods when the price of the Long Treasury Bond decreases. When
the price of the Long Treasury Bond increases, however, the value of the Fund's
shares should decrease on a daily basis by an inversely proportionate amount
(e.g., if the price of the Long Treasury Bond increases by 2%, the value of the
Fund's shares should go down by 2% on that day).
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund pursues its investment objective through what is sometimes
referred to as a "master-feeder arrangement." The Fund invests all of its assets
in the Juno Master Fund, a separate series of the Trust with an identical
investment objective.
Unlike a traditional fund, the Juno Master Fund's benchmark is to perform
exactly opposite the Long Treasury Bond. As its primary investment strategy, the
Juno Master Fund enters into short sales and engages in futures and options
transactions. On a day-to-day basis, the Juno Master Fund holds U.S. Government
securities or cash equivalents to collateralize these obligations. The Juno
Master Fund also may enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Juno Master Fund is subject to a number of risks that will affect
the value of its shares, including:
- FIXED INCOME RISK -- The Fund's fixed income investments will change in
value in response to interest rate changes and other factors. In addition,
the value of securities with longer maturities will fluctuate more in
response to interest rate changes.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match the performance of the Fund's benchmark, either on a
daily or aggregate basis. Tracking Error may cause the Fund's performance
to be less than you expect.
<PAGE>
PROSPECTUS 13
--------
FUND PERFORMANCE AND FEE INFORMATION
JUNO FUND PERFORMANCE
[ICON]
The bar chart and table below show the performance of Juno Fund both
year by year and as an average over different periods of time. The
variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does
not necessarily indicate how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
JUNO FUND
<S> <C>
1998 -4.58%
1997 -5.56%
1996 8%
</TABLE>
* THE YEAR-TO-DATE PERFORMANCE FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH
JUNE 30, 1999 IS 11.23%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
8.77% (QUARTER ENDED MARCH 31, 1996) AND THE LOWEST RETURN FOR A QUARTER WAS
(7.90)% (QUARTER ENDED JUNE 30, 1995).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
INVESTOR
CLASS SHARES LEHMAN LONG TREASURY INDEX(2)
<S> <C> <C>
------------------------------------------------------
Past One Year (4.58) % 13.49 %
Since Inception (03/03/95) (4.68) % 13.38 %
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE LEHMAN LONG TREASURY INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY
RECOGNIZED INDICATOR OF U.S. GOVERNMENT BOND PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Juno Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)**
Management Fees .90%
Distribution (12b-1) Fees None
Other Expenses .66%
-----
Total Annual Fund Operating Expenses 1.56%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
** THIS TABLE AND THE EXAMPLE INCLUDE BOTH THE FEES PAID BY THE FUND AND ITS
SHARE OF THE FEES OF THE JUNO MASTER FUND.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Juno Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------
<S> <C> <C> <C>
$159 $493 $850 $1,856
</TABLE>
<PAGE>
- ------
14 PROSPECTUS
FUND INFORMATION -- BANKING FUND
FUND OBJECTIVE
[ICON]
The Banking Fund seeks to provide 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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Banking Companies that are traded in the United States. Banking
Companies are engaged in accepting deposits and making commercial and
principally non-mortgage consumer loans and include state chartered banks,
savings and loan institutions, and banks that are members of the Federal Reserve
System. The Fund may also engage in futures and options transactions, purchase
ADRs and U.S. Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Banking Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- BANKING SECTOR CONCENTRATION RISK -- The risk that the securities of
Banking Companies that the Fund purchases will underperform the market as
a whole. To the extent that the Fund's investments are concentrated in
Banking Companies, the Fund is subject to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting
Banking Companies. The prices of the securities of Banking Companies may
fluctuate widely due to the broadening of regional and national interstate
banking powers, the reduction in the number of publicly-traded Banking
Companies, and general economic conditions which could create exposure to
credit losses.
<PAGE>
PROSPECTUS 15
--------
FUND PERFORMANCE AND FEE INFORMATION
BANKING FUND PERFORMANCE
[ICON]
The Banking Fund commenced operations on April 1, 1998, and therefore
does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Banking Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses .72%
-----
Total Annual Fund Operating Expenses 1.57%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Banking Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$160 $496 $855 $1,867
</TABLE>
<PAGE>
- ------
16 PROSPECTUS
FUND INFORMATION -- BASIC MATERIALS FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Basic Materials Companies that are traded in the United States.
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, including equipment suppliers and railroads. The Fund may also engage
in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Basic Materials Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- BASIC MATERIALS SECTOR CONCENTRATION RISK -- The risk that the securities
of issuers in the basic materials sector that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
economic sector, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
economic sector. The prices of the securities of Basic Materials Companies
may fluctuate widely due to the level and volatility of commodity prices,
the exchange value of the dollar, import controls, worldwide competition,
liability for environmental damage, depletion of resources, and mandated
expenditures for safety and pollution control devices.
<PAGE>
PROSPECTUS 17
--------
FUND PERFORMANCE AND FEE INFORMATION
BASIC MATERIALS FUND PERFORMANCE
[ICON]
The Basic Materials Fund commenced operations on April 1, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Basic Materials Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses .76%
-----
Total Annual Fund Operating Expenses 1.61%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Basic Materials Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$164 $508 $876 $1,911
</TABLE>
<PAGE>
- ------
18 PROSPECTUS
FUND INFORMATION -- BIOTECHNOLOGY FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Biotechnology Companies that are traded in the United States.
Biotechnology Companies are engaged in the research, development, and
manufacture of various biotechnological products, services, and processes;
manufacture and/or distribute biotechnological and biomedical products,
including devices and instruments; provide or benefit significantly from
scientific and technological advances in biotechnology; or provide processes or
services instead of, or in addition to, products. The Fund may also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Biotechnology Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- BIOTECHNOLOGY SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the biotechnology sector that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
economic sector, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
economic sector. The prices of the securities of Biotechnology Companies
may fluctuate widely due to patent considerations, intense competition,
rapid technological change and obsolescence, and regulatory requirements
of the Food and Drug Administration, the Environmental Protection Agency,
state and local governments, and foreign regulatory authorities.
- SMALL ISSUER RISK -- Many Biotechnology Companies are relatively small and
have thinly traded equity 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.
<PAGE>
PROSPECTUS 19
--------
FUND PERFORMANCE AND FEE INFORMATION
BIOTECHNOLOGY FUND PERFORMANCE
[ICON]
The Biotechnology Fund commenced operations on April 1, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Biotechnology Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses .70%
-----
Total Annual Fund Operating Expenses 1.55%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Biotechnology Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$158 $490 $845 $1,845
</TABLE>
<PAGE>
- ------
20 PROSPECTUS
FUND INFORMATION -- CONSUMER PRODUCTS FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Consumer Products Companies that are traded in the United States.
Consumer Products Companies include companies that manufacture, wholesale or
retail durable goods such as major appliances and personal computers, or that
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), as well as
companies that provide consumer products and services such as lodging, child
care, convenience stores, and car rentals. The Fund may also engage in futures
and options transactions, purchase ADRs and U.S. Government securities, and
enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Consumer Products Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- CONSUMER PRODUCTS SECTOR CONCENTRATION RISK -- The risk that the
securities of issuers in the consumer products sector that the Fund
purchases will underperform the market as a whole. To the extent that the
Fund's investments are concentrated in issuers conducting business in the
same economic sector, the Fund is subject to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting
that economic sector. 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, consumer confidence
and 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.
<PAGE>
PROSPECTUS 21
--------
FUND PERFORMANCE AND FEE INFORMATION
CONSUMER PRODUCTS FUND PERFORMANCE
[ICON]
The Consumer Products Fund commenced operations on July 6, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Consumer Products Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses .69%
-----
Total Annual Fund Operating Expenses 1.54%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Consumer Products Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$157 $486 $839 $1,835
</TABLE>
<PAGE>
- ------
22 PROSPECTUS
FUND INFORMATION -- ELECTRONICS FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Electronics Companies that are traded in the United States.
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; electronic instruments and electronic systems vendors;
and 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 also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Electronics Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- ELECTRONICS SECTOR CONCENTRATION
RISK -- The risk that the securities of issuers in the electronics sector
that the Fund purchases will underperform the market as a whole. To the
extent that the Fund's investments are concentrated in issuers conducting
business in the same economic sector, the Fund is subject to legislative or
regulatory changes, adverse market conditions and/or increased competition
affecting that economic sector. The prices of the securities of Electronics
Companies may fluctuate widely due to risks of rapid obsolescence of
products, intense competition, the economic performance of their customers,
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.
- SMALL ISSUER RISK -- Many Electronics Companies are relatively small and
have thinly traded securities, may offer only one or a limited number of
rapidly obsolescing products, and may have persistent losses during a new
product's transition from development to production.
<PAGE>
PROSPECTUS 23
--------
FUND PERFORMANCE AND FEE INFORMATION
ELECTRONICS FUND PERFORMANCE
[ICON]
The Electronics Fund commenced operations on April 1, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Electronics Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses .71%
-----
Total Annual Fund Operating Expenses 1.56%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Electronics Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------
<S> <C> <C> <C>
$159 $493 $850 $1,856
</TABLE>
<PAGE>
- ------
24 PROSPECTUS
FUND INFORMATION -- ENERGY FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Energy Companies that are traded in the United States. 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, and include
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 also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Energy Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- ENERGY SECTOR CONCENTRATION
RISK -- The risk that the securities of issuers in the energy sector that
the Fund purchases will underperform the market as a whole. To the extent
that the Fund's investments are concentrated in issuers conducting business
in the same economic sector, the Fund is subject to legislative or
regulatory changes, adverse market conditions and/or increased competition
affecting that economic sector. The prices of the securities of Energy
Companies may fluctuate widely due to changes in value and dividend yield,
which depend largely on the price and supply of energy fuels, international
political events relating to oil producing countries, energy conservation,
the success of exploration projects, and tax and other governmental
regulatory policies.
<PAGE>
PROSPECTUS 25
--------
FUND PERFORMANCE AND FEE INFORMATION
ENERGY FUND PERFORMANCE
[ICON]
The Energy Fund commenced operations on April 21, 1998, and therefore
does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Energy Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses .77%
-----
Total Annual Fund Operating Expenses 1.62%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Energy Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------
<S> <C> <C> <C>
$165 $511 $881 $1,922
</TABLE>
<PAGE>
- ------
26 PROSPECTUS
FUND INFORMATION -- ENERGY SERVICES FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Energy Services Companies that are traded in the United States.
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; companies involved with the production and development of newer
sources of energy such as nuclear, geothermal, oil shale, and solar power;
companies involved with 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. The Fund may also engage
in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Energy Services Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- ENERGY SERVICES SECTOR CONCENTRATION RISK -- The risk that the securities
of issuers in the energy services sector that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
economic sector, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
economic sector. The prices of the securities of Energy Services Companies
may fluctuate widely due to 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, and world events and economic conditions generally
affecting energy supply companies.
<PAGE>
PROSPECTUS 27
--------
FUND PERFORMANCE AND FEE INFORMATION
ENERGY SERVICES FUND PERFORMANCE
[ICON]
The Energy Services Fund commenced operations on April 1, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Energy Services Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses .72%
-----
Total Annual Fund Operating Expenses 1.57%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Energy Services Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$160 $496 $855 $1,867
</TABLE>
<PAGE>
- ------
28 PROSPECTUS
FUND INFORMATION -- FINANCIAL SERVICES FUND
FUND OBJECTIVE
[ICON]
The Financial Services Fund seeks capital appreciation by investing in
companies that are involved in the financial services sector ("Financial
Services Companies").
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Financial Services Companies that are traded in the United States.
Financial Service Companies include commercial banks, savings and loan
associations, insurance companies and brokerage companies. The Fund may also
engage in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements. Under SEC regulations, the
Fund may not invest more than 5% of its total assets in the equity securities of
any company that derives more than 15% of its revenues from brokerage or
investment management activities.
RISK CONSIDERATIONS
[ICON]
The Financial Services Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- FINANCIAL SERVICES SECTOR CONCENTRATION RISK -- The risk that the
securities of issuers in the financial services sector that the Fund
purchases will underperform the market as a whole. To the extent that the
Fund's investments are concentrated in issuers conducting business in the
same economic sector, the Fund is subject to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting
that economic sector. 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
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.
<PAGE>
PROSPECTUS 29
--------
FUND PERFORMANCE AND FEE INFORMATION
FINANCIAL SERVICES FUND PERFORMANCE
[ICON]
The Financial Services Fund commenced operations on April 2, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Financial Services Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees 85%
Distribution (12b-1) Fees None
Other Expenses .72%
-----
Total Annual Fund Operating Expenses 1.57%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Financial Services Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------
<S> <C> <C> <C>
$160 $496 $855 $1,867
</TABLE>
<PAGE>
- ------
30 PROSPECTUS
FUND INFORMATION -- HEALTH CARE FUND
FUND OBJECTIVE
[ICON]
The Health Care Fund seeks capital appreciation by investing in
companies that are involved in the health care industry ("Health Care
Companies").
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Health Care Companies that are traded in the United States. 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 also engage in futures and options transactions, purchase ADRs and U.S.
Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Health Care Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- HEALTH CARE SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the health care sector that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
economic sector, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
economic sector. The prices of the securities of Health Care Companies may
fluctuate widely due 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.
<PAGE>
PROSPECTUS 31
--------
FUND PERFORMANCE AND FEE INFORMATION
HEALTH CARE FUND PERFORMANCE
[ICON]
The Health Care Fund commenced operations on April 17, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Health Care Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses .58%
-----
Total Annual Fund Operating Expenses 1.43%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Health Care Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
- ---------------------------------------
$146 $452 $782 $1,713
</TABLE>
<PAGE>
- ------
32 PROSPECTUS
FUND INFORMATION -- INTERNET FUND
FUND OBJECTIVE
[ICON]
The Internet Fund seeks capital appreciation by investing in companies
that provide products or services designed for or related to the Internet
("Internet Companies").
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Internet Companies that are traded in the United States. Internet
Companies are involved in all aspects of research, design development,
manufacturing or distribution of products or services for use with the Internet
or Internet-related businesses. Such companies may provide information or
entertainment services over the Internet; sell or distribute goods and services
over the Internet; provide infrastructure systems or otherwise provide hardware,
software or support which impacts Internet commerce; or provide Internet access
to consumers and businesses. Internet companies may also include companies that
provide Intranet and Extranet services. The Fund will maintain an adequate
representation of the various industries in the Internet sector. The Fund may
also engage in futures and options transactions, purchase ADRs and U.S.
Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Internet Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
significantly from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- INTERNET SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the Internet sector that the Fund purchases will underperform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that economic sector.
The prices of the securities of Internet Companies may fluctuate widely
due to competitive pressures, increased sensitivity to short product
cycles and aggressive pricing, problems relating to bringing their
products to market and rapid obsolescence of products.
- SMALLER COMPANY RISK -- Although securities of large and well-established
companies in the Internet sector will be held in the Fund's portfolio, the
Fund also will invest in medium, small and/or newly-public companies which
may be subject to greater share price fluctuations and declining growth,
particularly in the event of rapid changes in technology and/ or increased
competition. Securities of those smaller and/or less seasoned companies
may therefore expose shareholders of the Fund to above-average risk.
<PAGE>
PROSPECTUS 33
--------
FUND PERFORMANCE AND FEE INFORMATION
INTERNET FUND PERFORMANCE
[ICON]
As of December 31, 1999 the Internet Fund had not commenced operations
and therefore did not have a performance history for a full calendar
year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Internet Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses** .75%
-----
Total Annual Fund Operating Expenses 1.60%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
** OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Internet Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher of lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C>
-----------------
$163 $505
</TABLE>
<PAGE>
- ------
34 PROSPECTUS
FUND INFORMATION -- LEISURE FUND
FUND OBJECTIVE
[ICON]
The Leisure Fund seeks capital appreciation by investing in companies
engaged in leisure and entertainment businesses ("Leisure Companies").
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Leisure Companies that are traded in the United States. Leisure
Companies are engaged in the design, production, or distribution of goods or
services in the leisure industries. Leisure Companies include 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. The Fund may also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Leisure Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- LEISURE SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the leisure sector that the Fund purchases will underperform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that economic sector.
Securities of Leisure Companies may be considered speculative, and
generally exhibit greater volatility than the overall market. The prices
of the securities of Leisure Companies may fluctuate widely due to
unpredictable earnings, due in part to changing consumer tastes and
intense competition, strong reaction to technological developments and to
the threat of increased government regulation, particularly in the gaming
arena.
<PAGE>
PROSPECTUS 35
--------
FUND PERFORMANCE AND FEE INFORMATION
LEISURE FUND PERFORMANCE
[ICON]
The Leisure Fund commenced operations on April 1, 1998, and therefore
does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Leisure Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses .74%
-----
Total Annual Fund Operating Expenses 1.59%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Leisure Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$162 $502 $866 $1,889
</TABLE>
<PAGE>
- ------
36 PROSPECTUS
FUND INFORMATION -- PRECIOUS METALS FUND
FUND OBJECTIVE
[ICON]
The Precious Metals Fund seeks to provide capital appreciation by
investing in U.S. and foreign companies that are involved in the precious metals
sector, including exploration, mining, production and development, and other
precious metals-related services ("Precious Metals Companies").
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Precious Metals Companies that are traded in the United States and
foreign countries. Precious metals include gold, silver, platinum and other
precious metals. Precious Metals Companies include precious metal manufacturers;
distributors of precious metal products, such as jewelry, metal foil or bullion;
mining and geological exploration companies; and companies which provide
services to Precious Metals Companies. The Fund may also engage in futures and
options transactions, purchase ADRs and U.S. Government securities, and enter
into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Precious Metals Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's equity securities and any futures and options contracts may
fluctuate drastically from day to day. This volatility may cause the value
of your investment in the Fund to decrease.
- PRECIOUS METALS CONCENTRATION RISK -- The risk that the relatively few
securities of issuers in the mining industry that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
industry, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
industry, as well as to the volatility of global prices for precious
metals. The prices of precious metals may fluctuate widely due to changes
in inflation or inflation expectations, currency fluctuations,
speculation, worldwide demand and political developments in precious
metals producing countries.
- FOREIGN INVESTMENT RISK -- Investments in securities of foreign companies
can be more volatile than investments in U.S. companies. Diplomatic,
political, or economic developments could effect investment in foreign
countries. Foreign companies generally are not subject to uniform
accounting, auditing, and financial reporting standards comparable to
those applicable to U.S. domestic companies.
<PAGE>
PROSPECTUS 37
--------
FUND PERFORMANCE AND FEE INFORMATION
PRECIOUS METALS FUND PERFORMANCE
[ICON]
The bar chart and table below show the performance of the Precious
Metals Fund both year by year and as an average over different periods
of time. The variability of performance over time provides an
indication of the risks of investing in the Fund. Of course, this past
performance does not necessarily indicate how the Fund will perform in
the future. Prior to October 1, 1999, the Precious Metals Fund's
objective was to provide investment results that corresponded to a
benchmark for precious metals-related securities.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PRECIOUS METALS FUND
<S> <C>
1998 -14.42%
1997 -37.62%
1996 -2.62%
1995 11.54%
1994 -25.44%
</TABLE>
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH JUNE 30,
1999 IS 2.63%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
19.23% (QUARTER ENDED MARCH 31, 1996) AND THE LOWEST RETURN FOR A QUARTER WAS
(32.91)% (QUARTER ENDED DECEMBER 31, 1997).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
INVESTOR S&P 500
CLASS SHARES INDEX(2)
<S> <C> <C>
------------------------------------
Past One Year (14.42)% 26.67%
Past Five Years (15.43)% 21.36%
Since Inception (12/01/93) (14.13)% 21.23%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
(3) PRIOR TO CHANGING ITS INVESTMENT OBJECTIVE ON OCTOBER 1, 1999, THE FUND
COMPARED ITS PERFORMANCE TO THE PHILADELPHIA STOCK EXCHANGE GOLD/SILVER
INDEX(TM) WHICH IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED INDICATOR
OF PRECIOUS METALS SECTOR PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Precious Metals Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .75%
Distribution (12b-1) Fees None
Other Expenses .61%
-----
Total Annual Fund Operating Expenses 1.36%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Precious Metals Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------
<S> <C> <C> <C>
$138 $431 $745 $1,635
</TABLE>
<PAGE>
- ------
38 PROSPECTUS
FUND INFORMATION -- RETAILING FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Retailing Companies that are traded in the United States. 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 also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Retailing Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- RETAILING SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the retailing sector that the Fund purchases will underperform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that economic sector.
The prices of the securities of Retailing Companies may fluctuate widely
due 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.
<PAGE>
PROSPECTUS 39
--------
FUND PERFORMANCE AND FEE INFORMATION
RETAILING FUND PERFORMANCE
[ICON]
The Retailing Fund commenced operations on April 1, 1998, and therefore
does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Retailing Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses .57%
-----
Total Annual Fund Operating Expenses 1.42%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Retailing Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$145 $449 $776 $1,702
</TABLE>
<PAGE>
- ------
40 PROSPECTUS
FUND INFORMATION -- TECHNOLOGY FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Technology Companies that are traded in the United States.
Technology Companies are companies which the Advisor believes have, or will
develop, products, processes, or services that will provide 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 also engage in futures and options transactions, purchase
ADRs and U.S. Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Technology Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- TECHNOLOGY SECTOR CONCENTRATION
RISK -- The risk that the securities of issuers in the technology sector
that the Fund purchases will underperform the market as a whole. To the
extent that the Fund's investments are concentrated in issuers conducting
business in the same economic sector, the Fund is subject to legislative or
regulatory changes, adverse market conditions and/or increased competition
affecting that economic sector. The prices of the securities of Technology
Companies may fluctuate widely due to competitive pressures, increased
sensitivity to short product cycles and aggressive pricing, problems
relating to bringing their products to market, very high price/ earnings
ratios, and high personnel turnover due to severe labor shortages for
skilled technology professionals.
<PAGE>
PROSPECTUS 41
--------
FUND PERFORMANCE AND FEE INFORMATION
TECHNOLOGY FUND PERFORMANCE
[ICON]
The Technology Fund commenced operations on April 14, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Technology Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses .54%
-----
Total Annual Fund Operating Expenses 1.39%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Technology Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
- ----------------------------------------
$142 $440 $761 $1,669
</TABLE>
<PAGE>
- ------
42 PROSPECTUS
FUND INFORMATION -- TELECOMMUNICATIONS FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Telecommunications Companies that are traded in the United States.
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 also engage in futures and
options transactions, purchase ADRs and U.S. Government securities, and enter
into repurchase agreements. 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.
RISK CONSIDERATIONS
[ICON]
The Telecommunications Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- TELECOMMUNICATIONS SECTOR CONCENTRATION RISK -- The risk that the
securities of issuers in the telecommunications sector that the Fund
purchases will underperform the market as a whole. To the extent that the
Fund's investments are concentrated in issuers conducting business in the
same economic sector, the Fund is subject to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting
that economic sector. The prices of the securities of Telecommunications
Companies may fluctuate widely due to both federal and state regulations
governing rates of return and services that may be offered, fierce
competition for market share, and 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.
<PAGE>
PROSPECTUS 43
--------
FUND PERFORMANCE AND FEE INFORMATION
TELECOMMUNICATIONS FUND PERFORMANCE
[ICON]
The Telecommunications Fund commenced operations on April 1, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Telecommunications Fund.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER FEES* NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
<S> <C>
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses .70%
-----
Total Annual Fund Operating Expenses 1.55%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Telecommunications Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$158 $490 $845 $1,845
</TABLE>
<PAGE>
- ------
44 PROSPECTUS
FUND INFORMATION -- TRANSPORTATION FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Transportation Companies that are traded in the United States.
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 also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Transportation Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- TRANSPORTATION SECTOR CONCENTRATION
RISK -- The risk that the securities of issuers in the transportation
sector that the Fund purchases will underperform the market as a whole. To
the extent that the Fund's investments are concentrated in issuers
conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or
increased competition affecting that economic sector. The prices of the
securities of Transportation Companies may fluctuate widely due to their
cyclical nature, occasional sharp price movements which may result from
changes in the economy, fuel prices, labor agreements, and insurance costs,
the recent trend of government deregulation, and 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.
<PAGE>
PROSPECTUS 45
--------
FUND PERFORMANCE AND FEE INFORMATION
TRANSPORTATION FUND PERFORMANCE
[ICON]
The Transportation Fund commenced operations on April 2, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Transportation Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses .73%
-----
Total Annual Fund Operating Expenses 1.58%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Transportation Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
- ----------------------------------------
$161 $499 $860 $1,878
</TABLE>
<PAGE>
- ------
46 PROSPECTUS
FUND INFORMATION -- UTILITIES FUND
FUND OBJECTIVE
[ICON]
The Utilities Fund seeks capital appreciation by investing in
companies that operate public utilities ("Utilities Companies").
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Utilities Companies that are traded in the United States. Utilities
Companies may include companies involved in the manufacturing, production,
generation, transmission, distribution or sales of gas or electric energy; water
supply, waste and sewage disposal; and companies that receive a majority of
their revenues from their public utility operations. The Fund may also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Utilities Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
significantly from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- UTILITIES SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the Utilities sector that the Fund purchases will underperform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that economic sector.
The prices of the securities of Utilities Companies may fluctuate widely
due to government regulation; the effect of interest rates on capital
financing; competitive pressures due to deregulation in the utilities
industry; supply and demand for services; increased sensitivity to the
cost of natural resources required for energy production; and
environmental factors such as conservation of natural resources.
<PAGE>
PROSPECTUS 47
--------
FUND PERFORMANCE AND FEE INFORMATION
UTILITIES FUND PERFORMANCE
[ICON]
As of December 31, 1999 the Utilities Fund had not commenced operations
and therefore did not have a performance history for a full calendar
year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Utilities Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses** .75%
-----
Total Annual Fund Operating Expenses 1.60%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
** OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Utilities Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher of lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C>
-----------------
$163 $505
</TABLE>
<PAGE>
- ------
48 PROSPECTUS
FUND INFORMATION -- U.S. GOVERNMENT MONEY MARKET FUND
FUND OBJECTIVE
[ICON]
The U.S. Government Money Market Fund seeks to provide security of
principal, high current income, and liquidity.
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The U.S. Government Money Market Fund invests primarily in money
market instruments issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, and enters into repurchase
agreements fully collateralized by U.S. Government securities. The Fund operates
under SEC rules, which impose certain liquidity, maturity and diversification
requirements. All securities purchased by the Fund must have remaining
maturities of 397 days or less, and must be found by the Advisor to represent
minimal credit risk and be of eligible quality.
RISK CONSIDERATIONS
[ICON]
The U.S. Government Money Market Fund is subject to the following risks
that will potentially affect the value of its shares:
- INTEREST RATE RISK -- Interest Rate Risk involves the potential for
decline in the rate of dividends the Fund pays in the event of declining
interest rates.
- STABLE PRICE PER SHARE RISK -- The Fund's assets are valued using the
amortized cost method, which enables the Fund to maintain a stable price
of $1.00 per share. ALTHOUGH THE FUND IS MANAGED TO MAINTAIN A STABLE
PRICE PER SHARE OF $1.00, THERE IS NO GUARANTEE THAT THE PRICE WILL BE
CONSTANTLY MAINTAINED, AND IT IS POSSIBLE TO LOSE MONEY.
<PAGE>
PROSPECTUS 49
--------
FUND PERFORMANCE AND FEE INFORMATION
U.S. GOVERNMENT MONEY MARKET FUND PERFORMANCE
[ICON]
The bar chart and table below show the performance of the U.S.
Government Money Market Fund both year by year and as an average over
different periods of time. The variability of performance over time
provides an indication of the risks of investing in the Fund. Of
course, this past performance does not necessarily indicate how the
Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. GOVERNMENT MONEY MARKET FUND
<S> <C>
1998 4.72%
1997 4.59%
1996 4.49%
1995 4.93%
1994 3.23%
</TABLE>
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH JUNE 30,
1999 IS 2.00%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
1.27% (QUARTER ENDED JUNE 30, 1995) AND THE LOWEST RETURN FOR A QUARTER WAS
1.03% (QUARTER ENDED JUNE 30, 1996).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
INVESTOR 90-DAY TREASURY
CLASS SHARES COMPOSITE(2)
<S> <C> <C>
-----------------------------------------------
Past One Year 4.72% 4.78%
Past Five Years 4.39% 4.91%
Since Inception (12/03/93) 4.33% 4.88%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE 90-DAY TREASURY COMPOSITE INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY
RECOGNIZED INDICATOR OF GENERAL MONEY MARKET PERFORMANCE.
YIELD -- As of June 30, 1999, the seven-day yield of the Fund was 4.02%.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the U.S. Government Money Market Fund.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER FEES* NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
<S> <C>
Management Fees .50%
Distribution (12b-1) Fees None
Other Expenses .33%
-----
Total Annual Fund Operating Expenses .83%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the U.S. Government Money Market Fund with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------
<S> <C> <C> <C>
$85 $265 $461 $1,029
</TABLE>
<PAGE>
- ------
50 PROSPECTUS
MORE INFORMATION ABOUT FUND INVESTMENTS AND RISK
THE BENCHMARK FUNDS' INVESTMENT OBJECTIVES
Each Benchmark Fund's objective is to provide investment results that match
the performance of a specific benchmark. The current benchmark used by each Fund
is set forth below:
<TABLE>
FUND BENCHMARK
<S> <C>
Nova Fund 150% of the performance of the S&P 500 Composite Stock Price
Index-TM- (SPX)
Ursa Fund Inverse (opposite) of the performance of the S&P 500
Composite Stock Price Index-TM- (SPX)
OTC Fund 100% of the performance of the NASDAQ 100 Index-TM- (NDX)
Arktos Fund Inverse (opposite) of the performance of the NASDAQ 100
Index-TM- (NDX)
U.S. Government Bond Fund 120% of the price movement of the Long Treasury Bond
Juno Fund Inverse (opposite) of the price movement of the Long
Treasury Bond
</TABLE>
A BRIEF GUIDE TO THE BENCHMARKS
THE S&P 500 COMPOSITE STOCK PRICE INDEX-TM- (S&P 500 INDEX). The S&P 500 Index
is a capitalization-weighted index composed of 500 common stocks, which are
chosen by the Standard & Poor's Corporation ("S&P") on a statistical basis.
THE NASDAQ 100 INDEX.-TM- The NASDAQ 100 Index-TM- is a modified
capitalization-weighted index composed of 100 of the largest non-financial
companies listed on the National Association of Securities Dealers Automated
Quotations System.
THE LONG TREASURY BOND. The Long Treasury Bond is the current U.S. Treasury bond
with the longest maturity. Currently, the longest maturity of a U.S. Treasury
Bond is 30 years.
ADVISOR'S INVESTMENT STRATEGY IN MANAGING THE FUNDS
BENCHMARK FUNDS. In managing the Benchmark Funds, the Advisor uses a "passive"
investment strategy to manage each Fund's portfolio, meaning that the Advisor
does not attempt to select securities based on their individual potential to
perform better than the market. The Advisor's primary objective is to match the
performance of each Fund's benchmark as closely as possible on a daily basis.
The Advisor uses quantitative analysis techniques to structure each Fund to
obtain the highest correlation to its particular benchmark. The Advisor does not
engage in temporary defensive investing, keeping each Fund's assets fully
invested in all market environments. The Advisor monitors each Fund
<PAGE>
PROSPECTUS 51
--------
on an ongoing basis, and makes adjustments to its portfolio, as necessary, to
minimize tracking error and to maximize liquidity.
The Advisor may pursue the Funds' investment objectives by utilizing
leveraged instruments, such as futures contracts and options on securities,
futures contracts, and stock indices. In addition, the Advisor will regularly
utilize short selling techniques designed to help the Ursa Fund's, the Arktos
Fund's, and the Juno Fund's performance to inversely correlate to the
performance of the S&P 500 Index, the NASDAQ 100 Index, and the Long Treasury
Bond, respectively.
SECTOR FUNDS. In managing the Sector Funds, the Advisor's investment team
employs a quantitative model that considers a number of factors. To develop a
liquid portfolio of stocks that adequately represents a particular market
sector, the Advisor applies filters to the broad universe of stocks of issuers
that are "principally engaged" in business activities in each industry sector.
Specifically, the Advisor's investment process screens stocks primarily based on
liquidity, market capitalization, and correlation relative to the entire
industry sector. The Advisor also may consider other factors.
The Advisor monitors the Sector Funds' portfolios on an ongoing basis, and
adds or deletes stocks from the portfolios as needed.
After constructing a portfolio for each Sector 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.
MASTER-FEEDER INVESTMENT STRUCTURE. As discussed in their respective "Fund
Information" sections, the Ursa, Arktos, and Juno Funds pursue their respective
investment objectives indirectly by investing through what is sometimes referred
to as a "master-feeder arrangement." Under a master-feeder arrangement, a Fund's
investment portfolio is composed solely of shares of a "master fund," a separate
mutual fund that has an identical investment objective, e.g., the Ursa Fund
would act as a "feeder fund," holding shares of its master fund as its only
investment. As a result, the Fund has an indirect interest in all of the
securities owned by the master fund. Because of this indirect interest, the
Fund's investment returns should be the same as those of the master fund,
adjusted for Fund expenses.
The Advisor may choose to discontinue investing through the master-feeder
arrangement and manage the Fund directly if the Trust determines that doing so
is in the best interests of shareholders.
<PAGE>
- ------
52 PROSPECTUS
RISKS OF INVESTING IN THE FUNDS
As indicated below, the Funds are subject to a number of risks that may
affect the value of Fund shares.
EQUITY RISK (ALL FUNDS EXCEPT JUNO, U.S. GOVERNMENT BOND, AND U.S. GOVERNMENT
MONEY MARKET FUNDS) -- The Funds may invest in public and privately issued
equity securities, including common and preferred stocks, warrants, and rights,
as well as instruments that attempt to track the price movement of equity
indices. Investments in equity securities and equity derivatives in general are
subject to market risks that may cause their prices to fluctuate over time. The
value of securities convertible into equity securities, such as warrants or
convertible debt, is also affected by prevailing interest rates, the credit
quality of the issuer and any call provision. Fluctuations in the value of
equity securities in which the Funds invest will cause the net asset value of
the Funds to fluctuate. Historically, the equity markets have moved in cycles,
and the value of the Fund's equity securities and equity derivatives may
fluctuate drastically from day to day. Because of their link to the equity
markets, an investment in the Funds may be more suitable for long-term investors
who can bear the risk of short-term principal fluctuations.
NON-DIVERSIFICATION RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) --
Since each Fund is non-diversified, each Fund may invest in the securities of a
limited 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.
INDUSTRY CONCENTRATION RISK (SECTOR FUNDS) -- None of the Benchmark Funds will
invest 25% or more of the value of the Fund's total assets in the securities of
one or more issuers conducting their principal business activities in the same
industry; except that, to the extent the index underlying a Fund's benchmark is
concentrated in a particular industry, a Fund will necessarily be concentrated
in that industry. Currently, the index underlying the OTC Fund's and the Arktos
Fund's benchmark -- the NASDAQ 100 Index-TM- -- is concentrated in technology
companies. The Sector Funds invest in the securities of a limited number of
issuers conducting business in a specific industry and therefore are
concentrated in that industry. The risk of concentrating Fund investments in a
limited number of issuers conducting business in the same industry is that a
Fund will be more susceptible to the risks that are associated with those
issuers (or that industry) than a fund that does not concentrate its
investments.
FIXED INCOME RISK (JUNO AND U.S. GOVERNMENT BOND FUNDS) -- The market value of
fixed income investments will change in response to interest rate changes and
other factors. During periods of falling interest rates, the values of
outstanding fixed income securities generally rise. Conversely, during periods
of rising interest rates, the values of such securities generally decline.
Moreover, while
<PAGE>
PROSPECTUS 53
--------
securities with longer maturities tend to produce higher yields, the prices of
longer maturity securities are also subject to greater market fluctuations as a
result of changes in interest rates.
TRACKING ERROR RISK (BENCHMARK FUNDS) -- While the Funds do not expect returns
to deviate significantly from their respective benchmarks on a daily basis,
factors such as Fund expenses, imperfect correlation between the Funds'
investments and those of their benchmarks, rounding of share prices, changes to
the benchmark, regulatory policies, and leverage, may affect their ability to
achieve close correlation. The cumulative effect of these factors may over time
cause the Funds' returns to deviate from their respective benchmarks on an
aggregate basis. The magnitude of any tracking error may be affected by a higher
portfolio turnover rate.
TRADING HALT RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) -- The
Funds typically may hold short-term options and futures contracts. The major
exchanges on which these contracts are traded, such as the Chicago Mercantile
Exchange ("CME"), have established limits on how much an option or futures
contract may decline over various time periods within a day. If an option or
futures contract's price declines more than the established limits, trading on
the exchange is halted on that instrument. If a trading halt occurs, the Fund
may temporarily be unable to purchase or sell options or futures contracts. Such
a trading halt near the time the Fund prices its shares may limit the Fund's
ability to use leverage and may prevent the Fund from achieving its investment
objective. In such an event, a Fund also may be required to use a "fair-value"
method to price its outstanding contracts.
FUTURES AND OPTIONS RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) --
The Funds will invest a percentage of their assets in futures and options
contracts. The Funds may use futures contracts and related options for bona fide
hedging purposes to offset changes in the value of securities held or expected
to be acquired. They may also be used to gain exposure to a particular market or
instrument, to create a synthetic money market position, and for certain other
tax-related purposes. The Funds will only enter into futures contracts traded on
a national futures exchange or board of trade. Futures and options contracts are
described in more detail below:
FUTURES CONTRACTS -- Futures contracts and options on futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time and at a
specified price. An option on a futures contract gives the purchaser the
right, in exchange for a premium, to assume a position in a futures contract
at a specified exercise price during the term of the option. Index futures
are futures contracts for various indices that are traded on registered
securities exchanges.
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
<PAGE>
- ------
54 PROSPECTUS
(a put option) the underlying security. When writing (selling) call options
on securities, the Funds may cover its position by owning the underlying
security on which the option is written or by owning a call option on the
underlying security. Alternatively, the Funds may cover its position by
maintaining in a segregated account cash or liquid securities equal in value
to the exercise price of the call option written by the Funds.
The risks associated with the Funds' use of futures and options contracts
include:
- A Fund may experience losses over certain ranges in the market that exceed
losses experienced by a Fund that does not use futures contracts and
options.
- There may be an imperfect 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, due to
market conditions there may not always be a liquid secondary market for a
futures contract or option. As a result, the Funds may be unable to close
out their futures contracts at a time which is advantageous.
- Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and
options.
- Because option premiums paid or received by the Funds are small in
relation to the market value of the investments underlying the options,
buying and selling put and call options can be more speculative than
investing directly in securities.
PORTFOLIO TURNOVER RATE RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET
FUND) -- The Trust anticipates that investors that are part of a tactical
asset-allocation strategy will frequently redeem or exchange shares of a Fund,
which will cause that Fund to experience high portfolio turnover. A higher
portfolio turnover rate may result in a Fund paying higher levels of transaction
costs and generating greater tax liabilities for shareholders.
EARLY CLOSING RISK (OTC, ARKTOS, AND SECTOR FUNDS) -- The normal close of
trading of securities listed on the National Association of Securities Dealers
Automated Quotations system ("NASDAQ") and the New York Stock Exchange ("NYSE")
is 4:00 P.M., Eastern Time. Unanticipated early closings may result in a Fund
being unable to sell or buy securities on that day. If an exchange closes early
on a day when one or more of the Funds needs to execute a high volume of
securities trades late in a trading day, a Fund might incur substantial trading
losses.
SHORT SALES RISK (URSA, ARKTOS, AND JUNO FUNDS) -- Short sales are transactions
in which a Fund sells a security it does not own. To complete the transaction,
the Fund must borrow the security to make delivery to the buyer. The Fund is
then obligated to replace the security borrowed by purchasing the security at
the market price at the time of replacement. The price at such time may be
higher or lower than the price at which the security was sold by the Fund. If
the underlying security goes down in price between the time the Fund sells the
security and buys it back, the Fund will
<PAGE>
PROSPECTUS 55
--------
realize a gain on the transaction. Conversely, if the underlying security goes
up in price during the period, the Fund will realize a loss on the transaction.
The risk of such price increases is the principal risk of engaging in short
sales.
FOREIGN COMPANY RISKS (SECTOR FUNDS) -- 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. Foreign companies generally are not subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
U.S. domestic companies.
SMALL ISSUER RISK (BIOTECHNOLOGY, ELECTRONICS, AND INTERNET FUNDS) -- 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 trade over-the-counter or listed on an
exchange and may or may not pay dividends.
SHAREHOLDER INFORMATION
HOW TO INVEST IN THE FUNDS
PURCHASING SHARES
You may purchase shares of the Funds by mail or fax and, once you open an
account, make subsequent purchases by telephone. Shares are offered continuously
and Investors may purchase shares of the Funds and make exchanges on any day
that the New York Stock Exchange ("NYSE") is open for business (a "Business
Day"). Procedures for purchasing shares of the Funds by mail, telephone or fax
are discussed in more detail in the "INVESTING BY MAIL, TELEPHONE OR FAX"
section.
Initial applications and investments, as well as subsequent investments, in
the Funds must be received in good form by the transfer agent, on any Business
Day, before the cutoff time specified below in the "EXCHANGES" section, in order
to be processed at that Business Day's NAV. An initial application that is sent
to the transfer agent 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 transfer agent.
You may also make investments in the Funds through intermediaries or
securities dealers who have the responsibility to transmit orders promptly.
Intermediaries may charge fees for services provided in connection with buying,
selling or exchanging shares. Each intermediary also may have its own rules
about share transactions and may have earlier cutoff times for purchases. For
more information about how to purchase shares through an intermediary, you
should contact that intermediary directly.
<PAGE>
- ------
56 PROSPECTUS
DETERMINATION OF NET ASSET VALUE
The price per share (the offering price) will be the net asset value per
share ("NAV") next determined after your purchase order is received by the
Trust. No sales charges are imposed on initial or subsequent investments in a
Fund. NAV is calculated by (1) taking the current market value of a Fund's total
assets, (2) subtracting the liabilities, and (3) dividing that amount by the
total number of shares owned by shareholders. For most Funds, the NAV is
calculated once each Business Day after the close of the New York Stock Exchange
(currently, 4:00 p.m., Eastern Time). The NAV of the U.S. Government Bond Fund
and the Juno Fund is determined each Business day as of the close of normal
trading on the CBOT (normally 3:00 P.M., Eastern Time). The NAV of the U.S.
Government Money Market Fund is determined twice each Business Day, first at
1:00 p.m., Eastern Time and again after the close of the NYSE (currently 4:00
p.m., Eastern Time). If the exchange or market where a Fund's securities or
other investments are primarily traded closes early, the NAV may be calculated
earlier. To receive the current Business Day's NAV, the Trust must receive your
purchase order before the cutoff times specified below for each method of
investing. Intermediaries may have earlier cutoff times.
MINIMUM INVESTMENT
The minimum initial investment in Investor Class Shares of the Funds is
$25,000 for shareholder accounts that are not managed by a registered investment
advisor ("Self-Directed Accounts"). However, if a registered investment advisor
has discretionary authority over your account, the minimum initial investment in
the Investor Class Shares is $15,000. These minimums also apply to retirement
plan accounts. The Trust, at its discretion, may accept lesser amounts in
certain circumstances. If you invest in the Trust, by any method referenced
below, without designating which Fund you want to invest in, your money will be
invested in the U.S. Government Money Market Fund until you tell us where to
invest your money. There is no minimum amount for subsequent investments in a
Fund. The Trust reserves the right to modify its minimum investment requirements
at any time. The Trust also reserves the right to reject or refuse, at the
Trust's discretion, any order for the purchase of a Fund's shares in whole or in
part.
MAKING INVESTMENTS BY MAIL, TELEPHONE OR FAX
You may open an account in the Funds by mail or fax and, once you open an
account, make subsequent purchases by telephone. You may make initial
investments in the Funds by printing out the Account Application Agreement
located on the Rydex web site, completing it offline and sending it by mail or
fax to the transfer agent. You may also obtain an Account Application Agreement
by calling 800-820-0888 or 301-468-8520. Investors must also make arrangements
for payment by either bank wire transfer or check using the procedures described
below.
Investments by mail, telephone or fax for both initial investments and
subsequent investments in the Funds must be received in good form by the
transfer agent, on any Business Day, before the
<PAGE>
PROSPECTUS 57
--------
cutoff time specified below in the "EXCHANGES" section, to be processed at that
Business Day's NAV. Intermediaries may have earlier cutoff times for purchases.
For more information about how to purchase through an intermediary, you should
contact that intermediary directly.
Procedures for payment by either bank wire transfer or check are as follows:
SENDING YOUR PURCHASE PAYMENT BY BANK WIRE TRANSFER
First, fill out the Account Application Agreement and send the completed
application, along with a request for a shareholder account number, to the
transfer agent. Then, request that your bank wire transfer the purchase amount
to our custodian, along with the following instructions:
Firstar
Cincinnati, Ohio
Routing Number: 0420-00013
For Account of: Rydex Series Funds
Account Number: 48038 -9030
[Your Name]
[Your Shareholder Account Number and Fund Designation]
AFTER INSTRUCTING YOUR BANK TO TRANSFER MONEY BY WIRE FOR BOTH INITIAL AND
SUBSEQUENT PURCHASES, YOU MUST CONTACT THE TRANSFER AGENT BY TELEPHONE AT
800-820-0888 AND INFORM THE TRANSFER AGENT AS TO THE AMOUNT THAT YOU HAVE
TRANSFERRED AND THE NAME OF THE BANK SENDING THE TRANSFER IN ORDER TO OBTAIN
SAME-DAY PRICING OR CREDIT. FOR INITIAL PURCHASES, YOU MUST ALSO SUPPLY THE TIME
THE WIRE WAS SENT AND THE FED WIRE REFERENCE NUMBER. IF THE PURCHASE IS CANCELED
BECAUSE YOUR WIRE TRANSFER IS NOT RECEIVED, YOU MAY BE LIABLE FOR ANY LOSS THAT
THE TRUST INCURS.
SENDING YOUR PURCHASE PAYMENT BY MAIL
First, fill out the Account Application Agreement and send the completed
application, along with a request for a shareholder account number, to the
transfer agent. Then mail your check, along with the application to:
Rydex Series Funds
Attn: Ops. Dept.
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
The transfer agent will not process your request until it receives your check.
You may avoid a delay in processing your purchase request by purchasing shares
by wire. IN ADDITION TO CHARGES
<PAGE>
- ------
58 PROSPECTUS
DESCRIBED ELSEWHERE IN THIS PROSPECTUS, THE TRUST ALSO MAY CHARGE $50 FOR CHECKS
RETURNED FOR INSUFFICIENT OR UNCOLLECTIBLE FUNDS.
TAX-QUALIFIED RETIREMENT PLANS
Investors may purchase shares of the Funds through any of the following
types of tax-qualified retirement plans:
Individual Retirement Accounts (IRAs, including Roth IRAs)
Keogh Accounts -- Defined Contribution Plans (Profit Sharing Plans)
Keogh Accounts -- Pension Plans (Money Purchase Plans)
Internal Revenue Code Section 403(b) Plans
Retirement plans are charged an annual $15.00 maintenance fee and a $15.00
account closing fee taken at the time of closing from the proceeds. Additional
information regarding these accounts, including the annual maintenance fee, may
be obtained by calling 800-820-0888 or 301-468-8520.
EXCHANGES
You may exchange Investor Class Shares of any Fund for Investor
Class Shares of any other Rydex Fund, on the basis of the respective net asset
values of the shares involved. An exchange involving a Self-Directed Account
must be for at least the lesser of $1,000 or 100% of the account value of the
Rydex Fund from which the exchange is to be made. The Trust currently is
composed of thirty separate Funds.
SHAREHOLDERS MAY EXCHANGE SHARES OF THE FUNDS BY USING THE RYDEX WEB
SITE -- WWW.RYDEXFUNDS.COM. BY USING THIS OPTION, YOU CAN DIRECT YOUR REQUESTS
FOR EXCHANGE TRANSACTIONS TO THE TRANSFER AGENT BY FOLLOWING THE DIRECTIONS
DESCRIBED ON THE RYDEX WEB SITE. You should review the instructions on the Rydex
web site for more information regarding procedures for exchanges made by
Internet.
You may also exchange shares of the U.S. Government Money Market Fund for
any of the Rydex Dynamic Funds, which are separate mutual funds offered through
a separate prospectus. 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. You may obtain
a prospectus for any Rydex Fund not described in this prospectus from the Rydex
web site -- www.rydexfunds.com -- or by calling 800-820-0888 or 301-468-8520.
To exchange your shares, you need to provide certain information, including
the name on the account, the account number (or your taxpayer identification
number), the number or dollar value of shares (or the percentage of the total
value of your account) you want to exchange, and the names of the Rydex Funds
involved in the exchange transaction.
<PAGE>
PROSPECTUS 59
--------
Exchange requests are processed at the NAV next determined after their
receipt by the transfer agent. Exchange requests received by the transfer agent
before the cut off times specified below will be processed and communicated to
the Funds in time for that Day's determination of NAV. The exchange privilege
may be modified or discontinued at any time.
<TABLE>
<CAPTION>
FUND(S) CUT OFF TIME
<S> <C>
- --------------------------------------------------------------------------
Nova 3:45 p.m.
Ursa
OTC
Arktos
- --------------------------------------------------------------------------
Sector Funds 3:30 p.m.
- --------------------------------------------------------------------------
U.S. Government Bond 2:45 p.m.
Juno
- --------------------------------------------------------------------------
</TABLE>
Intermediaries may have earlier cutoff times.
The exchange privilege may be modified or discontinued at any time.
REDEEMING FUND SHARES
GENERAL
You may redeem all or any portion of your Fund shares at the next determined
NAV after the transfer agent receives your redemption request (subject to
applicable account minimums). The Fund may allow you to redeem shares by
Internet by following the procedures set forth on the Rydex web site. Your
redemption proceeds normally will be sent within five Business Days of the
transfer agent receiving your request. For investments made by check, payment on
redemption requests may be delayed until the transfer agent is reasonably
satisfied that payment has been collected (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 by wire. Telephone redemptions will be
sent only to your address or your bank account (as listed in the Trust's
records). The Trust may charge $15.00 for certain wire transfers of redemption
proceeds.
You may also redeem your shares by letter or by telephone subject to the
procedures and fees set forth in "PROCEDURES FOR REDEMPTIONS AND EXCHANGES."
The proceeds of redemption requests 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,
must include an original 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.
<PAGE>
- ------
60 PROSPECTUS
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.
INVOLUNTARY REDEMPTIONS
Because of the administrative expense of handling small accounts, any
request for a redemption when your account balance (a) is below the CURRENTLY
applicable minimum investment, or (b) would be below that minimum as a result of
the redemption, will be treated as a request for the complete redemption of that
account. If, due to withdrawals or transfers, your account balance across all
Funds advised by the Advisor drops below the required minimum, the Trust
reserves the right to redeem your remaining shares without ANY additional
notification to you.
SUSPENSION OF REDEMPTIONS
With respect to each Fund, and as permitted by the Securities and Exchange
Commission ("Commission"), the right of redemption may be suspended, or the date
of payment postponed: (i) for any period during which the NYSE, the Federal
Reserve Bank of New York (the "New York Fed"), NASDAQ, the CME, the Chicago
Board Options Exchange ("CBOE") or the CBOT, as appropriate, is closed (other
than customary weekend or holiday closings) or trading on the NYSE, NASDAQ, the
CME, the CBOE or the CBOT, as appropriate, is restricted; (ii) for any period
during which an emergency exists so that disposal of Fund investments or the
determination of NAV is not reasonably practicable; or (iii) for such other
periods as the Commission, by order, may permit for protection of Fund
investors. On any day that the New York Fed or the NYSE closes early, the
principal government securities and corporate bond markets close early (such as
on days in advance of holidays generally observed by participants in these
markets), or as permitted by the Commission, the right is reserved to advance
the time on that day by which purchase and redemption orders must be received.
PROCEDURES FOR EXCHANGES AND REDEMPTIONS
You should follow the procedures described on the Rydex web site for all
exchanges and redemptions made by Internet. The Trust anticipates that most
shareholders will make exchange and redemption requests by Internet through the
Rydex web site.
You may also request redemptions and exchanges by mail or telephone. Written
requests for redemptions and exchanges should be sent to Rydex Series Funds,
Attn: Ops. Dept., 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852, and should be signed by the record owner or owners. Telephone redemption
and exchange requests may be made by calling 1-800-820-0888 or 301-468-8520 by
the cutoff time specified above for exchanges between Funds, on any Business
Day.
<PAGE>
PROSPECTUS 61
--------
The Trust's offices are open between 8:30 a.m. and 5:30 p.m., Eastern Time on
each Business Day. The Trust reserves the right to suspend the right of
redemption as described in the section above.
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.
CONFIRMATION OF SHAREHOLDER TRANSACTIONS
You will receive confirmation of your investment transactions. The transfer
agent may allow you to choose to receive your confirmation either electronically
or through the mail by following the instructions made available on the Rydex
web site. If you consent to receive electronic confirmation of your
transactions, you may print a copy of the electronic confirmation you receive
for your records. SHAREHOLDERS WHO CONSENT TO RECEIVE ALL COMMUNICATIONS (SUCH
AS TRADE CONFIRMATIONS; PROSPECTUSES AND SHAREHOLDER REPORTS; ETC.) FROM THE
FUNDS THROUGH THE RYDEX WEB SITE OR OTHER ELECTRONIC MEANS MUST:
- Have and maintain access to the Rydex web site and provide the Trust with
a valid and current e-mail address.
- Notify the Trust immediately if they no longer have access to the Rydex
web site, change their e-mail address or wish to revoke their consent to
receive all communications from the Funds through the Rydex web site or
other electronic means.
YOU MAY REVOKE YOUR CONSENT TO RECEIVE ELECTRONIC CONFIRMATIONS AND OTHER
COMMUNICATIONS FROM THE FUNDS THROUGH THE RYDEX WEB SITE OR OTHER ELECTRONIC
MEANS AT ANY TIME BY INFORMING THE TRANSFER AGENT IN WRITING.
TRANSACTIONS OVER THE INTERNET OR TELEPHONE
Internet and telephone redemption and exchange transactions are extremely
convenient, but are not risk-free. To ensure that your Internet and telephone
transactions are safe, secure, and as risk-free as possible, the Trust has
instituted certain safeguards and procedures for determining the identity of web
site users (including the use of secure passwords and 128-bit encryption
technology) and telephone callers and authenticity of instructions. As a result,
neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost, or expense for following Internet, telephone or wire
instructions they REASONABLY BELIEVE to be genuine. If you or your intermediary
make exchange or redemption requests by Internet, you will generally bear the
risk of any loss. If you are unable to reach the Trust by Internet or telephone
by calling 1-800-820-0888 or 301-468-8520, you may want to try to reach the
Trust by other means.
<PAGE>
- ------
62 PROSPECTUS
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISOR -- Rydex Global Advisors (the "Advisor"), 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, serves as investment
advisor and manager of the Funds. Albert P. Viragh, Jr., the Chairman of the
Board and the President of the Advisor, owns a controlling interest in the
Advisor. From 1985 until the incorporation of the Advisor, Mr. Viragh was a Vice
President of Money Management Associates ("MMA"), a Maryland-based registered
investment advisor. From 1992 to June 1993, Mr. Viragh was the portfolio manager
of The Rushmore Nova Portfolio, a series of The Rushmore Fund, Inc., an
investment company managed by MMA.
The Advisor makes investment decisions for the assets of the Funds and
continuously reviews, supervises, and administers each Fund's investment
program. The Trustees of the Trust supervise the Advisor and establish policies
that the Advisor must follow in its day to day management activities. Under an
investment advisory agreement between the Funds and the Advisor, the Funds paid
the Advisor a fee at an annualized rate for the fiscal year period ended March
31, 1999, based on the average daily net assets for each Fund, as set forth
below:
<TABLE>
<CAPTION>
FUND ADVISORY FEE
<S> <C>
- -----------------------------------------------
Nova......................... .75%
Ursa......................... .90%
OTC.......................... .75%
Arktos....................... .90%
U.S. Government Bond......... .50%
Juno......................... .90%
Sector Funds (except Precious
Metals)...................... .85%
Precious Metals.............. .75%
U.S. Government Money
Market....................... .50%
</TABLE>
The Advisor bears all of its own costs associated with providing these
advisory services and the expenses of the Trustees which are affiliated with the
Advisor. The Advisor may make payments from its own resources to broker-dealers
and other financial institutions in connection with the sale of Fund shares.
The portfolio manager of the OTC Fund and the Arktos Fund is Michael P.
Byrum, who is the Advisor's senior portfolio manager. Prior to joining the
Advisor as a portfolio manager in July 1993, Mr. Byrum worked as an investor
representative with MMA.
The portfolio manager of the Nova Fund is Thomas Michael, who joined the
Advisor as a portfolio manager in March 1994. From 1992 to February 1994,
Mr. Michael was a financial markets analyst at Cedar Street Investment
Management Co., of Chicago, Illinois, an institutional consulting
<PAGE>
PROSPECTUS 63
--------
firm specializing in developing hedging and speculative strategies in stock
index futures contracts and U.S. Treasury bond futures contracts.
The portfolio manager of the U.S. Government Bond Fund is Anne H. Ruff, who
joined the Advisor as a portfolio manager in August 1996. From 1989 to 1995,
Ms. Ruff worked as a portfolio manager for United Services Life Insurance
Company in Arlington, Virginia, where Ms. Ruff managed $2.5 billion in
fixed-income portfolios.
The portfolio manager of the Ursa Fund and the Juno Fund is Adam V. Croll,
who joined the Advisor as an assistant portfolio manager in 1996. Mr. Croll was
promoted to portfolio manager in 1998. Prior to joining the Advisor, Mr. Croll
attended the University of Maryland.
Each Sector Fund is managed by a team and no one person is responsible for
making investment decisions for a Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Income dividends, if any, are paid at least annually by each of the Funds,
except the U.S. Government Money Market and Bond Funds, which declare dividends
daily and pay 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, if
any, at least annually. The Trust, however, may declare a special capital gains
distribution if the Trustees believe that such a distribution would be in the
best interest of the shareholders of a Fund.
You will receive dividends and distributions in the form of additional fund
shares unless you have elected to receive payment in cash. If you have not
already elected to receive cash payments on your application, you must notify
the Trust in writing prior to the date of distribution. Your election will
become effective for dividends paid after the Trust receives your written
notice. To cancel your election, simply send written notice to the Trust.
Dividends and distributions from a Fund are taxable to you whether they are
reinvested in additional shares of the Fund or are received in cash. You will
receive an account statement at least quarterly.
TAX INFORMATION
The following is a summary of some important tax issues that affect the
Funds and their shareholders. The summary is based on current tax laws, which
may be changed by legislative, judicial or administrative action. The Trust has
not tried to present a detailed explanation of the tax treatment of the Funds,
or the tax consequences of an investment in the Funds. MORE INFORMATION ABOUT
TAXES IS LOCATED IN THE STATEMENT OF ADDITIONAL INFORMATION (SAI). YOU ARE URGED
TO
<PAGE>
- ------
64 PROSPECTUS
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 WITH RESPECT TO REDEMPTIONS, IF YOU INVEST IN
THE FUNDS THROUGH A TAX-QUALIFIED RETIREMENT PLAN.
STATE TAX CONSIDERATIONS
A Fund is not liable for any income or franchise tax in Delaware as long as
it qualifies as a regulated investment company for Federal income tax purposes.
Distributions by the Funds may be subject to state and local taxation. You
should verify your tax liability with your tax advisor.
<PAGE>
PROSPECTUS 65
--------
FINANCIAL HIGHLIGHTS
NOVA FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
[ICON]
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. Certain information
reflects financial results for a single Nova Fund Investor Class Share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
Deloitte & Touche LLP, whose report, along with the financial statements and
related notes, appears in the Trust's 1999 Annual Report. Our 1999 Annual Report
is available by telephoning us at 800-820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1999 1998 1997* 1996 1995
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value -- Beginning of Period........................... $ 29.82 $ 17.89 $ 15.68 $ 11.81 $ 9.77
-------- -------- -------- -------- -------
Net Investment Income (Loss)+.................................. .45 .59 .35 .56 .28
Net Realized and Unrealized Gains (Losses) on Securities....... 5.01 11.39 2.19 3.31 2.88
-------- -------- -------- -------- -------
Net Increase (Decrease) in Net Asset Value Resulting from
Operations.................................................... 5.46 11.98 2.54 3.87 3.16
Dividends to Shareholders from Net Investment Income........... (.41) .00 .00 .00 (.29)
Distributions to Shareholders from Net Realized Capital Gain... .00 (.05) (.33) .00 (.83)
-------- -------- -------- -------- -------
Net Increase (Decrease) in Net Asset Value....................... 5.05 11.93 2.21 3.87 2.04
-------- -------- -------- -------- -------
Net Asset Value -- End of Period................................. $ 34.87 $ 29.82 $ 17.89 $ 15.68 $ 11.81
======== ======== ======== ======== =======
Total Investment Return.......................................... 18.54% 67.02% 20.92%** 32.77% 32.65%
Ratios to Average Net Assets
Gross Expenses................................................. 1.19% 1.13% 1.19%**
Net Expenses................................................... 1.19% 1.11% 1.16%** 1.31% 1.43%
Net Investment Income (Loss)................................... 1.47% 2.42% 2.69%** 3.14% 2.62%
Supplementary Data
Portfolio Turnover Rate***..................................... 445% 0% 0% 0% 0%
Net Assets, End of Period (000's omitted)...................... $655,275 $986,247 $181,930 $224,541 $62,916
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* ON MARCH 12, 1997, THE TRUSTEES CHANGED THE TRUST'S FISCAL YEAR END FROM
JUNE 30 TO MARCH 31.
** ANNUALIZED.
*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SECURITIES
HAVING A MATURITY OF LESS THAN ONE YEAR. FOR THE YEARS ENDED MARCH 31,
1998 AND PRIOR, THE NOVA FUND TYPICALLY HELD MOST OF ITS INVESTMENTS IN
OPTIONS AND FUTURES CONTRACTS, WHICH ARE DEEMED SHORT-TERM SECURITIES.
<PAGE>
- -------
66 PROSPECTUS
FINANCIAL HIGHLIGHTS
URSA FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
[ICON]
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. Certain information
reflects financial results for a single Ursa Fund Investor Class Share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
Deloitte & Touche LLP, whose report, along with the financial statements and
related notes, appears in the Trust's 1999 Annual Report. Our 1999 Annual Report
is available by telephoning us at 800-820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1999 1998 1997* 1996 1995
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:++
Net Asset Value -- Beginning of Period........................... $ 9.92 $ 14.04 $ 15.10 $ 17.58 $ 21.08
-------- -------- -------- -------- --------
Net Investment Income (Loss)+.................................. .25 .38 .34 .60 .70
Net Realized and Unrealized Gains (Losses) on Securities....... (1.48) (4.46) (1.36) (3.08) (3.56)
-------- -------- -------- -------- --------
Net Increase (Decrease) in Net Asset Value Resulting from
Operations.................................................... (1.23) (4.08) (1.02) (2.48) (2.86)
Dividends to Shareholders from Net Investment Income........... (.03) (.04) (.04) -- (.64)
-------- -------- -------- -------- --------
Net Increase (Decrease) in Net Asset Value....................... (1.26) (4.12) (1.06) (2.48) (3.50)
-------- -------- -------- -------- --------
Net Asset Value -- End of Period................................. $ 8.66 $ 9.92 $ 14.04 $ 15.10 $ 17.58
======== ======== ======== ======== ========
Total Investment Return.......................................... (12.47)% (29.06)% (8.98)%** (14.11)% (14.08)%
Ratios to Average Net Assets
Gross Expenses................................................. 1.39% 1.36% 1.36%**
Net Expenses................................................... 1.38% 1.34% 1.34%** 1.39% 1.39%
Net Investment Income (Loss)................................... 3.29% 3.18% 3.21%** 3.38% 3.50%
Supplementary Data
Portfolio Turnover Rate***..................................... 0% 0% 0% 0% 0%
Net Assets, End of Period (000's omitted)...................... $482,340 $254,225 $582,288 $192,553 $127,629
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
++ PER SHARE AMOUNTS FOR THE PERIODS ENDED JUNE 30, 1995 THROUGH MARCH 31,
1998 HAVE BEEN RESTATED TO REFLECT A 1:2 REVERSE STOCK SPLIT EFFECTIVE
AUGUST 14, 1998.
* ON MARCH 12, 1997, THE TRUSTEES CHANGED THE TRUST'S FISCAL YEAR END FROM
JUNE 30 TO MARCH 31.
** ANNUALIZED.
*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SECURITIES
HAVING A MATURITY OF LESS THAN ONE YEAR. THE URSA FUND TYPICALLY HOLDS
MOST OF ITS INVESTMENTS IN OPTIONS AND FUTURES CONTRACTS, WHICH ARE
DEEMED SHORT-TERM SECURITIES.
<PAGE>
PROSPECTUS 67
--------
FINANCIAL HIGHLIGHTS
OTC FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
[ICON]
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. Certain information
reflects financial results for a single OTC Fund Investor Class Share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
Deloitte & Touche LLP, whose report, along with the financial statements and
related notes, appears in the Trust's 1999 Annual Report. Our 1999 Annual Report
is available by telephoning us at 800-820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1999 1998 1997* 1996 1995
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value -- Beginning of Period...................... $ 27.68 $ 17.93 $ 15.16 $ 12.22 $ 8.76
---------- -------- ------- ------- -------
Net Investment Income (Loss)+............................. (.36) (.14) .01 .06 .14
Net Realized and Unrealized Gains (Losses) on
Securities............................................... 20.65 9.99 2.84 3.24 4.17
---------- -------- ------- ------- -------
Net Increase (Decrease) in Net Asset Value Resulting from
Operations............................................... 20.29 9.85 2.85 3.30 4.31
Dividends to Shareholders from Net Investment Income...... .00 .00 (.07) .00 (.12)
Distributions to Shareholders from Net Realized Capital
Gain....................................................... (.27) (.10) (.01) (.36) (.73)
---------- -------- ------- ------- -------
Net Increase (Decrease) in Net Asset Value.................. 20.02 9.75 2.77 2.94 3.46
---------- -------- ------- ------- -------
Net Asset Value -- End of Period............................ $ 47.70 $ 27.68 $ 17.93 $ 15.16 $ 12.22
========== ======== ======= ======= =======
Total Investment Return..................................... 73.73% 55.05% 24.77%** 26.44% 49.00%
Ratios to Average Net Assets
Gross Expenses............................................ 1.15% 1.13% 1.27%**
Net Expenses.............................................. 1.15% 1.13% 1.27%** 1.33% 1.41%
Net Investment Income (Loss).............................. (.97)% (.58)% .08%** .44% 1.34%
Supplementary Data
Portfolio Turnover Rate***................................ 773% 972% 1,140% 2,579% 2,241%
Net Assets, End of Period (000's omitted)................. $1,277,571 $449,794 $52,278 $48,716 $61,948
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* ON MARCH 12, 1997, THE TRUSTEES CHANGED THE TRUST'S FISCAL YEAR END FROM
JUNE 30 TO MARCH 31.
** ANNUALIZED.
*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SECURITIES
HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
- -------
68 PROSPECTUS
FINANCIAL HIGHLIGHTS
ARKTOS FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
[ICON]
The financial highlights table is intended to help you understand the
Fund's financial performance for the period of the Fund's operations.
Certain information reflects financial results for a single Arktos Fund
Investor Class Share. The total returns in the table represent the rate
that an investor would have earned (or lost) on an investment in an
Investor Class Share of the Fund (assuming reinvestment of all dividends
and distributions). This information has been audited by Deloitte &
Touche LLP, whose report, along with the financial statements and related notes,
appears in the Trust's 1999 Annual Report. Our 1999 Annual Report is available
by telephoning us at 800-820-0888 or (301) 468-8520. The Annual Report is
incorporated by reference in the SAI.
<TABLE>
<CAPTION>
PERIOD
ENDED
MARCH 31,
1999**
----------
<S> <C>
Per Share Operating Performance:
Net Asset Value -- Beginning of Period................................ $ 15.00
--------
Net Investment Income (Loss)+....................................... .13
Net Realized and Unrealized Gains (Losses) on Securities............ (7.08)
--------
Net Increase (Decrease) in Net Asset Value Resulting from
Operations......................................................... (6.95)
Dividends to Shareholders from Net Investment Income................ (.01)
--------
Net Increase (Decrease) in Net Asset Value............................ (6.96)
--------
Net Asset Value -- End of Period...................................... $ 8.04
========
Total Investment Return............................................... (46.35)%
Ratios to Average Net Assets
Gross Expenses...................................................... 1.38%***
Net Expenses........................................................ 1.37%***
Net Investment Income (Loss)........................................ 2.20%***
Supplementary Data
Portfolio Turnover Rate****......................................... 1,332%
Net Assets, End of Period (000's omitted)........................... $118,622
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
** COMMENCEMENT OF OPERATIONS: SEPTEMBER 3, 1998.
*** ANNUALIZED.
**** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SECURITIES
HAVING A MATURITY OF LESS THAN ONE YEAR. THE ARKTOS FUND TYPICALLY HOLDS
MOST OF ITS INVESTMENTS IN OPTIONS AND FUTURES CONTRACTS, WHICH ARE
DEEMED SHORT-TERM SECURITIES.
<PAGE>
PROSPECTUS 69
--------
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT BOND FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
[ICON]
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. Certain information
reflects financial results for a single U.S. Government Bond Fund
Investor Class Share. The total returns in the table represent the rate
that an investor would have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the financial statements and related notes, appears in the Trust's 1999 Annual
Report. Our 1999 Annual Report is available by telephoning us at 800-820-0888 or
(301) 468-8520. The Annual Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1999 1998 1997* 1996 1995
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value -- Beginning of Period........................ $ 10.04 $ 8.52 $ 8.97 $ 9.55 $ 8.24
------- ------- ------ ------- -------
Net Investment Income (Loss)+............................... .42 .45 .34 .46 .39
Net Realized and Unrealized Gains (Losses) on Securities.... .02 1.50 (.45) (.45) 1.17
------- ------- ------ ------- -------
Net Increase (Decrease) in Net Asset Value Resulting from
Operations................................................. .44 1.95 (.11) .01 1.56
Dividends to Shareholders from Net Investment Income........ (.42) (.43) (.34) (.46) (.25)
Distributions to Shareholders from Net Realized Capital
Gain....................................................... (.01) .00 .00 (.13) .00
------- ------- ------ ------- -------
Net Increase (Decrease) in Net Asset Value.................... .01 1.52 (.45) (.58) 1.31
------- ------- ------ ------- -------
Net Asset Value -- End of Period.............................. $ 10.05 $ 10.04 $ 8.52 $ 8.97 $ 9.55
======= ======= ====== ======= =======
Total Investment Return....................................... 4.24% 24.72% (.46)%** (1.48)% 18.97%
Ratios to Average Net Assets
Gross Expenses.............................................. 0.97% 1.13% 1.51%**
Net Expenses................................................ 0.96% 1.11% 1.49%** 1.26% 2.26%
Net Investment Income (Loss)................................ 3.88% 4.65% 5.06%** 4.73% 4.64%
Supplementary Data
Portfolio Turnover Rate***.................................. 1,339% 1,496% 962% 780% 3,453%
Net Assets, End of Period (000's omitted)................... $27,623 $20,508 $3,302 $18,331 $ 2,592
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* ON MARCH 12, 1997, THE TRUSTEES CHANGED THE TRUST'S FISCAL YEAR END FROM
JUNE 30 TO MARCH 31.
** ANNUALIZED.
*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SECURITIES
HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
- ------
70 PROSPECTUS
FINANCIAL HIGHLIGHTS
JUNO FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
[ICON]
The financial highlights table is intended to help you understand the
Fund's financial performance for the period of the Fund's operations.
Certain information reflects financial results for a single Juno Fund
Investor Class Share. The total returns in the table represent the rate
that an investor would have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report,
along with the financial statements and related notes, appears in the Trust's
1999 Annual Report. Our 1999 Annual Report is available by telephoning us at
800-820-0888 or (301) 468-8520. The Annual Report is incorporated by reference
in the SAI.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1999 1998 1997* 1996 1995**
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value -- Beginning of Period........................... $ 8.65 $ 9.69 $ 9.47 $ 9.08 $10.00
------- ------- ------- ------- ------
Net Investment Income (Loss)+.................................. .27 .16 .25 .34 .14
Net Realized and Unrealized Gains (Losses) on Securities....... (.20) (1.12) .00 .05 (1.06)
------- ------- ------- ------- ------
Net Increase (Decrease) in Net Asset Value Resulting from
Operations.................................................... .07 (.96) .25 .39 (.92)
Dividends to Shareholders from Net Investment Income........... (.02) (.08) (.03) .00 .00
------- ------- ------- ------- ------
Net Increase (Decrease) in Net Asset Value..................... .05 (1.04) .22 .39 (.92)
------- ------- ------- ------- ------
Net Asset Value -- End of Period................................. $ 8.70 $ 8.65 $ 9.69 $ 9.47 $ 9.08
======= ======= ======= ======= ======
Total Investment Return.......................................... 0.78% (9.92)% 3.75%*** 4.30% (9.20)%
Ratios to Average Net Assets
Gross Expenses................................................. 1.57% 1.61% 1.60%***
Net Expenses................................................... 1.56% 1.59% 1.58%*** 1.64% 1.50%***
Net Investment Income (Loss)................................... 3.25% 3.55% 3.51%*** 3.63% 1.32%***
Supplementary Data
Portfolio Turnover Rate****.................................... 0% 0% 0% 0% 0%
Net Assets, End of Period (000's omitted)...................... $12,789 $12,887 $32,577 $18,860 $4,301
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* ON MARCH 12, 1997, THE TRUSTEES CHANGED THE TRUST'S FISCAL YEAR END FROM
JUNE 30 TO MARCH 31.
** COMMENCEMENT OF OPERATIONS: MARCH 3, 1995.
*** ANNUALIZED.
**** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SECURITIES
HAVING A MATURITY OF LESS THAN ONE YEAR. THE JUNO FUND TYPICALLY HOLDS
MOST OF ITS INVESTMENTS IN OPTIONS AND FUTURES CONTRACTS, WHICH ARE
DEEMED SHORT-TERM SECURITIES.
<PAGE>
PROSPECTUS 71
--------
FINANCIAL HIGHLIGHTS
SECTOR FUNDS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
[ICON]
The financial highlights table is intended to help you understand the
Funds' financial performance for the period of the Funds' operations.
Certain information reflects financial results for a single Investor
Class Share. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in an Investor
Class Share of the Funds (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche, LLP
whose report, along with the financial statements and related notes, appears in
the Trust's 1999 Annual Report. Our 1999 Annual Report is available by
telephoning us at 1-800-820-0888 or (301) 468-8520. The Annual Report is
incorporated by reference in the SAI.
<TABLE>
<CAPTION>
INVESTOR CLASS
--------------------------------------------------------
FOR THE PERIOD ENDED MARCH 31, 1999*
--------------------------------------------------------
BASIC BIO- CONSUMER
BANKING MATERIALS TECHNOLOGY PRODUCTS ELECTRONICS
FUND FUND FUND FUND FUND
------- --------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period........................... $10.00 $10.00 $ 10.00 $10.00 $ 10.00
------- ------ ------- ------ -------
Net Investment Income (Loss)................................... .01 -- (.16) -- (.15)
Net Realized and Unrealized Gains (Losses) on Securities....... (1.24) (2.25) 2.97 (.29) 4.17
------- ------ ------- ------ -------
Net Increase (Decrease) in Net Asset Value Resulting from
Operations.................................................... (1.23) (2.25) 2.81 (.29) 4.02
Distributions to Shareholders.................................. -- -- -- -- --
------- ------ ------- ------ -------
Net Increase (Decrease) in Net Asset Value....................... (1.23) (2.25) 2.81 (.29) 4.02
------- ------ ------- ------ -------
Net Asset Value -- End of Period................................. $ 8.77 $ 7.75 $ 12.81 $ 9.71 $ 14.02
======= ====== ======= ====== =======
Total Investment Return.......................................... (12.30)% (22.50)% 28.10% (2.90)% 40.20%
Ratios to Average Net Assets:
Gross Expenses**............................................... 1.58% 1.62% 1.56% 1.55% 1.57%
Net Expenses**................................................. 1.57% 1.61% 1.55% 1.54% 1.56%
Net Investment Income (Loss)**................................. 0.13% (0.02)% (1.52)% (0.03)% (1.23)%
Supplementary Data:
Portfolio Turnover Rate........................................ 11,211% 5,704% 2,670% 1,255% 3,011%
Net Assets, End of Period (000's omitted)...................... $7,827 $2,179 $38,205 $1,280 $12,814
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* COMMENCEMENT OF OPERATIONS: APRIL 1, 1998 -- BANKING FUND, BASIC MATERIALS
FUND AND BIOTECHNOLOGY FUND, JULY 6, 1998 -- CONSUMER PRODUCTS FUND,
APRIL 1, 1998 -- ELECTRONICS FUND.
** ANNUALIZED
<PAGE>
- ------
72 PROSPECTUS
<TABLE>
<CAPTION>
INVESTOR CLASS
-----------------------------------------------
FOR THE PERIOD ENDED MARCH 31, 1999*
-----------------------------------------------
ENERGY FINANCIAL HEALTH
ENERGY SERVICES SERVICES CARE LEISURE
FUND FUND FUND FUND FUND
------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period................. $ 10.00 $ 10.00 $ 10.00 $ 10.00 $10.00
------- ------- ------- ------- ------
Net Investment Loss.................................. .05 (.07) (.01) (.02) (.08)
Net Realized and Unrealized Gains (Losses) on
Securities.......................................... (1.06) (3.91) -- 1.47 1.29
------- ------- ------- ------- ------
Net Increase (Decrease) in Net Asset Value Resulting
from Operations..................................... (1.01) (3.98) (.01) 1.45 1.21
Distributions to Shareholders........................ -- -- -- -- --
------- ------- ------- ------- ------
Net Increase (Decrease) in Net Asset Value............. (1.01) (3.98) (.01) 1.45 1.21
------- ------- ------- ------- ------
Net Asset Value -- End of Period....................... $ 8.99 $ 6.02 $ 9.99 $ 11.45 $11.21
======= ======= ======= ======= ======
Total Investment Return................................ (10.10)% (39.80)% (0.10)% 14.50% 12.10%
Ratios to Average Net Assets:
Gross Expenses**..................................... 1.62% 1.58% 1.58% 1.44% 1.59%
Net Expenses**....................................... 1.62% 1.57% 1.57% 1.43% 1.59%
Net Investment Income (Loss)**....................... 0.69% (1.14)% (0.07)% (0.21)% (0.76)%
Supplementary Data:
Portfolio Turnover Rate.............................. 6,070% 3,170% 7,269% 4,465% 5,581%
Net Assets, End of Period (000's omitted)............ $17,442 $74,135 $22,165 $14,016 $4,796
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: APRIL 21, 1998 -- ENERGY FUND,
APRIL 1, 1998 -- ENERGY SERVICES FUND, APRIL 2, 1998 -- FINANCIAL SERVICES
FUND, APRIL 17, 1998 -- HEALTH CARE FUND, APRIL 1, 1998 -- LEISURE FUND.
** ANNUALIZED
<PAGE>
PROSPECTUS 73
--------
<TABLE>
<CAPTION>
INVESTOR CLASS
---------------------------------------------------------
FOR THE PERIOD ENDED MARCH 31, 1999*
---------------------------------------------------------
RETAILING TECHNOLOGY TELECOMMUNICATIONS TRANSPORTATION
FUND FUND FUND FUND
--------- ---------- ------------------ --------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period................. $ 10.00 $ 10.00 $ 10.00 $10.00
------- ------- ------- ------
Net Investment Income (Loss)......................... (.10) (.16) (.04) (.03)
Net Realized and Unrealized Gains (Losses) on
Securities.......................................... 3.64 7.18 3.07 (1.98)
------- ------- ------- ------
Net Increase (Decrease) in Net Asset Value Resulting
from Operations..................................... 3.54 7.02 3.03 (2.01)
Distributions to Shareholders........................ -- -- -- --
------- ------- ------- ------
Net Increase (Decrease) in Net Asset Value............. 3.54 7.02 3.03 (2.01)
------- ------- ------- ------
Net Asset Value -- End of Period....................... $ 13.54 $ 17.02 $ 13.03 $ 7.99
======= ======= ======= ======
Total Investment Return................................ 35.40% 70.20% 30.30% (20.10)%
Ratios to Average Net Assets:
Gross Expenses**..................................... 1.42% 1.39% 1.56% 1.58%
Net Expenses**....................................... 1.42% 1.39% 1.55% 1.58%
Net Investment Income (Loss)**....................... (0.81)% (1.23)% (0.34)% (0.36)%
Supplementary Data:
Portfolio Turnover Rate.............................. 3,243% 4,598% 2,788% 7,583%
Net Assets, End of Period (000's omitted)............ $45,219 $24,400 $12,300 $3,014
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* COMMENCEMENT OF OPERATIONS: APRIL 1, 1998 -- RETAILING FUND, APRIL 14,
1998 -- TECHNOLOGY FUND, APRIL 1, 1998 -- TELECOMMUNICATIONS FUND,
APRIL 2, 1998 -- TRANSPORTATION FUND
** ANNUALIZED
<PAGE>
- ------
74 PROSPECTUS
FINANCIAL HIGHLIGHTS
PRECIOUS METALS FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
[ICON]
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. Certain information
reflects financial results for a single Precious Metals Fund Investor
Class Share. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report,
along with the financial statements and related notes, appears in the Trust's
1999 Annual Report. Our 1999 Annual Report is available by telephoning us at
800-820-0888 or (301) 468-8520. The Annual Report is incorporated by reference
in the SAI. Prior to October 1, 1999, the Precious Metals Fund's objective was
to provide investment results that corresponded to a benchmark for precious
metals-related securities.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1999 1998 1997* 1996 1995
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value -- Beginning of Period................. $ 5.82 $ 7.64 $ 9.05 $ 8.73 $ 8.29
------- ------- ------- ------- -------
Net Investment Income (Loss)+........................ (.03) .00 .00 .00 .10
Net Realized and Unrealized Gains (Losses) on
Securities.......................................... (1.60) (1.82) (1.41) .32 .43
------- ------- ------- ------- -------
Net Increase (Decrease) in Net Asset Value Resulting
from Operations..................................... (1.63) (1.82) (1.41) .32 .53
Dividends to Shareholders from Net Investment
Income.............................................. .00 .00 .00 .00 (.09)
------- ------- ------- ------- -------
Net Increase (Decrease) in Net Asset Value............. (1.63) (1.82) (1.41) .32 .44
------- ------- ------- ------- -------
Net Asset Value -- End of Period....................... $ 4.19 $ 5.82 $ 7.64 $ 9.05 $ 8.73
======= ======= ======= ======= =======
Total Investment Return................................ (28.01)% (23.82)% (20.77)%** 3.67% 6.21%
Ratios to Average Net Assets
Gross Expenses....................................... 1.37% 1.42% 1.49%**
Net Expenses......................................... 1.36% 1.41% 1.45%** 1.33% 1.38%
Net Investment Income (Loss)......................... (0.69)% .05% .00%** (.01)% 1.15%
Supplementary Data
Portfolio Turnover Rate***........................... 1,191% 752% 743% 1,036% 1,765%
Net Assets, End of Period (000's omitted).............. $26,823 $34,538 $23,680 $36,574 $40,861
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* ON MARCH 12, 1997, THE TRUSTEES CHANGED THE TRUST'S FISCAL YEAR END FROM
JUNE 30 TO MARCH 31.
** ANNUALIZED.
*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SECURITIES
HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
PROSPECTUS 75
--------
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT MONEY MARKET FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
[ICON]
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. Certain information
reflects financial results for a single U.S. Government Money Market Fund
Investor Class Share. The total returns in the table represent the rate
that an investor would have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the financial statements and related notes, appears in the Trust's 1999 Annual
Report. Our 1999 Annual Report is available by telephoning us at 800-820-0888 or
(301) 468-8520. The Annual Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1999 1998 1997* 1996 1995
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value -- Beginning of Period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Net Investment Income (Loss)+.................................. .04 .04 .03 .04 .04
-------- -------- -------- -------- --------
Net Increase in Net Asset Value Resulting from Operations...... .04 .04 .03 .04 .04
Dividends to Shareholders from Net Investment Income........... (.04) (.04) (.03) (.04) (.04)
-------- -------- -------- -------- --------
Net Increase in Net Asset Value.................................. .00 .00 .00 .00 .00
-------- -------- -------- -------- --------
Net Asset Value -- End of Period................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Investment Return.......................................... 4.55% 4.69% 4.39%** 4.60% 4.43%
Ratios to Average Net Assets
Gross Expenses................................................. .84% .89% .86%**
Net Expenses................................................... .83% .89% .86%** .99% .89%
Net Investment Income (Loss)................................... 4.37% 4.37% 4.06%** 4.18% 4.23%
Supplementary Data
Net Assets, End of Period (000's omitted)...................... $949,802 $253,295 $283,553 $153,925 $284,198
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* ON MARCH 12, 1997, THE TRUSTEES CHANGED THE TRUST'S FISCAL YEAR END FROM
JUNE 30 TO MARCH 31.
** ANNUALIZED.
<PAGE>
- ------
76 PROSPECTUS
BENCHMARK INFORMATION
NEITHER THE NOVA FUND NOR THE URSA FUND IS SPONSORED, ENDORSED, SOLD, OR
PROMOTED BY STANDARD & POOR'S CORP. (S&P); AND NEITHER THE OTC FUND NOR THE
ARKTOS FUND IS SPONSORED, ENDORSED, SOLD, OR PROMOTED BY NASDAQ OR ANY OF
NASDAQ'S AFFILIATES (NASDAQ AND ITS AFFILIATES HEREINAFTER COLLECTIVELY REFERRED
TO AS "NASDAQ").
NEITHER S&P NOR NASDAQ MAKE ANY REPRESENTATION OR WARRANTY, IMPLIED OR EXPRESS,
TO THE INVESTORS IN THE FUNDS, OR ANY MEMBER OF THE PUBLIC, REGARDING THE
ADVISABILITY OF INVESTING IN INDEX FUNDS OR THE ABILITY OF THE S&P 500 INDEX OR
THE NASDAQ 100 INDEX-TM-, RESPONSIBILITY, TO TRACK GENERAL STOCK MARKET
PERFORMANCE.
NEITHER S&P NOR NASDAQ GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P 500 INDEX AND NASDAQ 100 INDEX-TM-, RESPECTIVELY, OR ANY DATA INCLUDED
THEREIN.
NEITHER S&P NOR NASDAQ MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO
BE OBTAINED BY ANY OF THE FUNDS, THE INVESTORS IN THE FUNDS, OR ANY PERSON OR
ENTITY FROM THE USE OF THE S&P 500 INDEX OR THE NASDAQ 100 INDEX-TM-,
RESPECTIVELY, OR ANY DATA INCLUDED THEREIN.
NEITHER S&P NOR NASDAQ MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE FOR USE WITH RESPECT TO THE
S&P 500 INDEX OR THE NASDAQ 100 INDEX-TM-, RESPECTIVELY, OR ANY DATA INCLUDED
THEREIN.
<PAGE>
Additional information about the Funds is included in a Statement of Additional
Information dated August 1, 1999 (the "SAI"), which contains more detailed
information about the Funds. The SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus and, therefore, legally forms a part of this Prospectus. The SEC
maintains the EDGAR database on its web site ("http://www.sec.gov") that
contains the SAI, material incorporated by reference, and other information
regarding registrants that file electronically with the SEC. You may also review
and copy documents at the SEC Public Reference room in Washington, D.C. (for
information on the operation of the Public Reference Room, call 1-202-942-8090).
You may request documents by mail from the SEC, upon payment of a duplication
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, D.C. 20549-0102. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
[email protected].
You may obtain a copy of the SAI or the annual or semi-annual reports, without
charge by calling 800-820-0888 or by writing to Rydex Series Funds, at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852. Additional
information about the Funds' investments is available in the annual and semi-
annual reports. Also, in the Funds' annual report, you will find a discussion of
the market conditions and investment strategies that significantly affected the
Funds' performance during its last fiscal year.
- --------------------------------------------------------------------------------
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE TRUST'S SAI IN
CONNECTION WITH THE OFFERING OF FUND SHARES. DO NOT RELY ON ANY SUCH INFORMATION
OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY THE TRUST OR RYDEX GLOBAL
ADVISORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST IN ANY
JURISDICTION WHERE SUCH AN OFFERING IS NOT LAWFUL.
THE FUND'S SEC REGISTRATION NUMBER IS 811-7584.
<PAGE>
A FAMILY OF MUTUAL FUNDS
DESIGNED EXCLUSIVELY FOR
PROFESSIONAL MONEY MANAGERS
RYDEX SERIES FUNDS
6116 EXECUTIVE BLVD., SUITE 400
ROCKVILLE, MD 20852
301/468-8520 - 800/820-0888
[LOGO]
RYDEX SERIES FUNDS
PROSPECTUS
AUGUST 1, 1999
AS SUPPLEMENTED APRIL 1, 2000
INVESTOR CLASS SHARES
[GRAPHIC]
NOVA FUND
URSA FUND
OTC FUND
ARKTOS FUND
U.S. GOVERNMENT BOND fUND
JUNO FUND
BANKING FUND
BASIC MATERIALS FUND
BIOTECHNOLOGY FUND
CONSUMER PRODUCTS FUND
ELECTRONICS FUND
ENERGY FUND
ENERGY SERVICES FUND
FINANCIAL SERVICES FUND
HEALTH CARE FUND
INTERNET FUND
LEISURE FUND
PRECIOUS METALS FUND
RETAILING FUND
TECHNOLOGY FUND
TELECOMMUNICATIONS FUND
TRANSPORTATION FUND
UTILITIES FUND
U.S. GOVERNMENT MONEY MARKET FUND
<PAGE>
PROSPECTUS -- ADVISOR CLASS SHARES
<TABLE>
<C> <S>
1 RISK/RETURN INFORMATION COMMON TO THE
--- FUNDS
2 NOVA FUND
---
4 URSA FUND
---
6 OTC FUND
---
8 BANKING FUND
---
10 BASIC MATERIALS FUND
---
12 BIOTECHNOLOGY FUND
---
14 CONSUMER PRODUCTS FUND
---
16 ELECTRONICS FUND
---
18 ENERGY FUND
---
20 ENERGY SERVICES FUND
---
22 FINANCIAL SERVICES FUND
---
24 HEALTH CARE FUND
---
26 INTERNET FUND
---
28 LEISURE FUND
---
30 RETAILING FUND
---
32 TECHNOLOGY FUND
---
34 TELECOMMUNICATIONS FUND
---
36 TRANSPORTATION FUND
---
38 UTILITIES FUND
---
40 U.S. GOVERNMENT MONEY MARKET FUND
---
42 MORE INFORMATION ABOUT FUND INVESTMENTS
--- AND RISK
47 SHAREHOLDER INFORMATION
---
53 MANAGEMENT OF THE FUNDS
---
54 DIVIDENDS, DISTRIBUTIONS AND TAXES
---
57 FINANCIAL HIGHLIGHTS
---
BC ADDITIONAL INFORMATION
---
</TABLE>
RYDEX SERIES FUNDS
BENCHMARK FUNDS
SECTOR FUNDS
U.S. GOVERNMENT MONEY MARKET FUND
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
1-800-820-0888 301-468-8520
www.rydexfunds.com
Rydex Series Funds (the "Trust") is a no-load mutual fund complex with thirty
separate investment portfolios (the "Funds"). This prospectus describes twenty
Funds, which are grouped into three categories:
- BENCHMARK FUNDS -- Nova Fund, Ursa Fund, and OTC Fund.
- SECTOR FUNDS -- Banking Fund, Basic Materials Fund, Biotechnology Fund,
Consumer Products Fund, Electronics Fund, Energy Fund, Energy Services
Fund, Financial Services Fund, Health Care Fund, Internet Fund, Leisure
Fund, Retailing Fund, Technology Fund, Telecommunications Fund,
Transportation Fund and Utilities Fund.
- MONEY MARKET FUND -- U.S. Government Money Market Fund
Advisor Class Shares of the Funds are sold principally through broker-dealers
and other financial institutions whose clients take part in certain strategic
and tactical asset-allocation investment programs. Investors may exchange and
redeem shares of the Funds through the Rydex web site -- www.rydexfunds.com.
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.
AUGUST 1, 1999, AS SUPPLEMENTED APRIL 1, 2000
<PAGE>
ICON LEGEND
[ICON]Fund Objective
The fund's particular investment goal.
[ICON]Portfolio Investments
The primary types of securities in which the fund invests.
[ICON]Risk Considerations
The major risk factors associated with the fund.
[ICON]Fund Performance and Fee Information
The overall costs incurred by an investor in the fund.
[ICON]Financial Highlights
A table showing the fund's financial performance.
ii
<PAGE>
PROSPECTUS 1
--------
RISK/RETURN INFORMATION COMMON TO THE FUNDS
THE FUNDS' INVESTMENT OBJECTIVES
Each Fund has a separate investment objective. A general description of the
Benchmark Funds and Sector Funds investment objective is set forth below:
- BENCHMARK FUNDS -- Each Benchmark Fund seeks to provide investment results
that match the performance of a specific benchmark.
- SECTOR FUNDS -- Each Sector Fund seeks capital appreciation by investing
in companies which operate in a specific economic sector. THE INVESTMENT
OBJECTIVE OF EACH SECTOR FUND IS NON-FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
- MONEY MARKET FUND -- The U.S. Government Money Market Fund seeks to
provide security of principal, high current income and liquidity.
RISKS OF INVESTING IN THE FUNDS
- The value of the Funds may fluctuate in value from day to day.
- Fund shares may decline in value, and you may lose money.
<TABLE>
<S> <C>
THE FUNDS:
- Are not federally insured - Are not bank deposits
- Are not guaranteed by any government agency - Are not guaranteed to achieve their objectives
</TABLE>
<PAGE>
- ------
2 PROSPECTUS
FUND INFORMATION -- NOVA FUND
FUND OBJECTIVE
[ICON]
The Nova Fund seeks to provide investment results that match the
performance of a specific benchmark on a daily basis. The Fund's current
benchmark is 150% of the performance of the S&P 500 Index.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase on a daily basis by 150% of the value of any increase in the S&P 500
Index. When the value of the S&P 500 Index declines, the value of the Fund's
shares should also decrease on a daily basis by 150% of the value of any
decrease in the Index (e.g., if the S&P 500 Index goes down by 5%, the value of
the Fund's shares should go down by 10% on that day).
PORTFOLIO INVESTMENT STRATEGY
[ICON]
Unlike a traditional index fund, as its primary investment strategy,
the Fund invests to a significant extent in leveraged instruments,
such as futures contracts and options on securities, futures contracts, and
stock indexes, as well as equity securities. Futures and options contracts
enable the Fund to pursue its objective without investing directly in the
securities included in the benchmark, or in the same proportion that those
securities are represented in that benchmark. On a day-to-day basis, the Fund
holds U.S. Government securities or cash equivalents to collateralize these
futures and options contracts. The Fund also may enter into repurchase
agreements.
RISK CONSIDERATIONS
[ICON]
The Nova Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
significantly from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- LEVERAGING RISK -- The more the Fund invests in leveraged instruments, the
more this leverage will magnify any losses on those investments.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily or
aggregate basis. Tracking Error may cause the Fund's performance to be
less than you expect.
<PAGE>
PROSPECTUS 3
--------
FUND PERFORMANCE AND FEE INFORMATION
NOVA FUND PERFORMANCE
[ICON]
The bar chart and table below show the performance of Investor
Class Shares of the Nova Fund (which are not offered in this
Prospectus) both year by year and as an average over different periods
of time. Since Investor Class Shares are invested in the same portfolio
of securities, returns for the Advisor Class Shares of the Fund will be
substantially similar to that of the Investor Class Shares shown here,
and will differ only to the extent that each Class has different
expenses. The variability of performance over time provides an
indication of the risks of investing in the Fund. Of course, this past
performance does not necessarily indicate how the Fund will perform in
the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NOVA FUND
<S> <C>
1998 35.13%
1997 42.34%
1996 27.29%
1995 50.42%
1994 -4.77%
</TABLE>
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH JUNE 30,
1999 IS 14.08%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
31.69% (QUARTER ENDED DEC. 31, 1998) AND THE LOWEST RETURN FOR A QUARTER WAS
(16.87)% (QUARTER ENDED SEPT. 30, 1998).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
INVESTOR
CLASS SHARES S&P 500 INDEX(2)
-------------------------------------------------
<S> <C> <C>
Past One Year 35.13% 26.67%
Past Five Years 28.49% 21.36%
Since Inception (07/12/93) 27.32% 20.20%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Nova Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .75%
Distribution (12b-1) Fees .25%
Other Expenses .58%
-----
Total Annual Fund Operating Expenses 1.58%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Nova Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$161 $499 $860 $1,878
</TABLE>
<PAGE>
- ------
4 PROSPECTUS
FUND INFORMATION -- URSA FUND
FUND OBJECTIVE
[ICON]
The Ursa Fund seeks to provide investment results that will inversely
correlate to the performance of the S&P 500 Index.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase during times when the value of the S&P 500 Index is decreasing. When
the value of the S&P 500 Index is increasing, however, the value of the Fund's
shares should decrease on a daily basis by an inversely proportionate amount
(e.g., if the S&P 500 Index goes up by 5%, the value of the Fund's shares should
go down by 5% on that day).
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund pursues its investment objective through what is sometimes
referred to as a "master-feeder arrangement." The Fund invests all of its assets
in the Ursa Master Fund, a separate series of the Trust with an identical
investment objective.
Unlike a traditional index fund, the Ursa Master Fund's benchmark is to
perform exactly opposite the S&P 500 Index, and the Ursa Master Fund will not
own the securities included in the index. Instead, as its primary investment
strategy, the Ursa Master Fund invests to a significant extent in futures
contracts and options on securities, futures contracts, and stock indexes. On a
day-to-day basis, the Ursa Master Fund holds U.S. Government securities or cash
equivalents to collateralize these futures and options contracts. The Ursa
Master Fund also may enter into repurchase agreements and sell securities short.
RISK CONSIDERATIONS
[ICON]
The Ursa Master Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
drastically from day to day. Equity market volatility may also negatively
affect the Fund's short sales of securities. This volatility may cause the
value of your investment in the Fund to decrease.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match the performance of the Fund's benchmark, either on a
daily or aggregate basis. Tracking Error may cause the Fund's performance
to be less than you expect.
<PAGE>
PROSPECTUS 5
--------
FUND PERFORMANCE AND FEE INFORMATION
URSA FUND PERFORMANCE
[ICON]
The bar chart and table below show the performance of Investor
Class Shares of the Ursa Fund (which are not offered in this
Prospectus) both year by year and as an average over different periods
of time. Since Investor Class Shares are invested in the same portfolio
of securities, returns for the Advisor Class Shares of the Fund will be
substantially similar to that of the Investor Class Shares shown here,
and will differ only to the extent that each Class has different
expenses. The variability of performance over time provides an
indication of the risks of investing in the Fund. Of course, this past
performance does not necessarily indicate how the Fund will perform in the
future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
URSA FUND
<S> <C>
1998 -19.01%
1997 -20.99%
1996 -12.17%
1995 -20.14%
</TABLE>
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH JUNE 30,
1999 IS (8.74)%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
(10.86)% (QUARTER ENDED SEPT. 30, 1998) AND THE LOWEST RETURN FOR A QUARTER WAS
(17.06)% (QUARTER ENDED DEC. 31, 1998).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING
DECEMBER 31, 1998)(1)
INVESTOR S&P
CLASS 500
SHARES INDEX(2)
-----------------
<S> <C> <C>
Past One Year (19.01)% 26.67%
Since Inception (01/07/94) (14.22)% 21.28%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Ursa Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)**
Management Fees .90%
Distribution (12b-1) Fees .25%
Other Expenses .70%
-----
Total Annual Fund Operating Expenses 1.85%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
**THIS TABLE AND THE EXAMPLE INCLUDE BOTH THE FEES PAID BY THE FUND AND ITS
SHARE OF THE FEES OF THE URSA MASTER FUND.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Ursa Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$188 $582 $1,001 $2,169
</TABLE>
<PAGE>
- ------
6 PROSPECTUS
FUND INFORMATION -- OTC FUND
FUND OBJECTIVE
[ICON]
The OTC Fund seeks to provide investment results that correspond to a
benchmark for over-the-counter securities. The Fund's current benchmark is the
NASDAQ 100 Index-TM-.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase on a daily basis by the amount of the increase in value of the NASDAQ
100 Index-TM-. However, when the value of the NASDAQ 100 Index-TM- declines, the
value of the Fund's shares should also decrease on a daily basis by the amount
of the decrease in value of the Index.
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund invests principally in securities of companies included in
the NASDAQ 100 Index-TM-. It also may invest in other instruments whose
performance is expected to correspond to that of the Index, and may engage in
futures and options transactions. The Fund may also purchase U.S. Government
securities and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The OTC Fund is subject to a number of risks that will affect the value
of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match the performance of the Fund's benchmark, either on a
daily or aggregate basis. Tracking Error may cause the Fund's performance
to be less than you expect.
<PAGE>
PROSPECTUS 7
--------
FUND PERFORMANCE AND FEE INFORMATION
OTC FUND PERFORMANCE
[ICON]
The bar chart and table below show the performance of Investor
Class Shares of the OTC Fund (which are not offered in this Prospectus)
both year by year and as an average over different periods of time.
Since Investor Class Shares are invested in the same portfolio of
securities, returns for the Advisor Class Shares of the Fund will be
substantially similar to that of the Investor Class Shares shown here,
and will differ only to the extent that each Class has different
expenses. The variability of performance over time provides an
indication of the risks of investing in the Fund. Of course, this past
performance does not necessarily indicate how the Fund will perform in
the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
OTC FUND
<S> <C>
1998 86.48%
1997 21.85%
1996 43.46%
1995 44.24%
</TABLE>
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH JUNE 30,
1999 IS 24.88%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
35.51% (QUARTER ENDED DEC. 31, 1998) AND THE LOWEST RETURN FOR A QUARTER WAS
(9.67)% (QUARTER ENDED DEC. 31, 1997).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31,
1998)(1)
INVESTOR CLASS NASDAQ 100
SHARES INDEX-TM-(2)
--------------------------
<S> <C> <C>
Past One Year 86.48% 85.31%
Since Inception (02/14/94) 36.54% 36.30%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE NASDAQ 100 INDEX-TM- IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF OTC MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the OTC Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .75%
Distribution (12b-1) Fees .25%
Other Expenses .47%
-----
Total Annual Fund Operating Expenses 1.47%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the OTC Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$150 $465 $803 $1,757
</TABLE>
<PAGE>
- ------
8 PROSPECTUS
FUND INFORMATION -- BANKING FUND
FUND OBJECTIVE
[ICON]
The Banking Fund seeks to provide 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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Banking Companies that are traded in the United States. Banking
Companies are engaged in accepting deposits and making commercial and
principally non-mortgage consumer loans and include state chartered banks,
savings and loan institutions, and banks that are members of the Federal Reserve
System. The Fund may also engage in futures and options transactions, purchase
ADRs and U.S. Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Banking Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- BANKING SECTOR CONCENTRATION RISK -- The risk that the securities of
Banking Companies that the Fund purchases will under perform the market as
a whole. To the extent that the Fund's investments are concentrated in
Banking Companies, the Fund is subject to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting
Banking Companies. The prices of the securities of Banking Companies may
fluctuate widely due to the broadening of regional and national interstate
banking powers, the reduction in the number of publicly-traded Banking
Companies, and general economic conditions which could create exposure to
credit losses.
<PAGE>
PROSPECTUS 9
--------
FUND PERFORMANCE AND FEE INFORMATION
BANKING FUND PERFORMANCE
[ICON]
The Banking Fund commenced operations on April 1, 1998, and therefore
does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Banking Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses .98%
-----
Total Annual Fund Operating Expenses 2.08%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Banking Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$211 $652 $1,119 $2,410
</TABLE>
<PAGE>
- ------
10 PROSPECTUS
FUND INFORMATION -- BASIC MATERIALS FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Basic Materials Companies that are traded in the United States.
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, including equipment suppliers and railroads. The Fund may also engage
in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Basic Materials Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- BASIC MATERIALS SECTOR CONCENTRATION RISK -- The risk that the securities
of issuers in the basic materials sector that the Fund purchases will
under perform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
economic sector, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
economic sector. The prices of the securities of Basic Materials Companies
may fluctuate widely due to the level and volatility of commodity prices,
the exchange value of the dollar, import controls, worldwide competition,
liability for environmental damage, depletion of resources, and mandated
expenditures for safety and pollution control devices.
<PAGE>
PROSPECTUS 11
--------
FUND PERFORMANCE AND FEE INFORMATION
BASIC MATERIALS FUND PERFORMANCE
[ICON]
The Basic Materials Fund commenced operations on April 1, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Basic Materials Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses .85%
-----
Total Annual Fund Operating Expenses 1.95%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Basic Materials Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$198 $612 $1,052 $2,275
</TABLE>
<PAGE>
- ------
12 PROSPECTUS
FUND INFORMATION -- BIOTECHNOLOGY FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Biotechnology Companies that are traded in the United States.
Biotechnology Companies are engaged in the research, development, and
manufacture of various biotechnological products, services, and processes;
manufacture and/or distribute biotechnological and biomedical products,
including devices and instruments; provide or benefit significantly from
scientific and technological advances in biotechnology; or provide processes or
services instead of, or in addition to, products. The Fund may also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Biotechnology Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- BIOTECHNOLOGY SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the biotechnology sector that the Fund purchases will under
perform the market as a whole. To the extent that the Fund's investments
are concentrated in issuers conducting business in the same economic
sector, the Fund is subject to legislative or regulatory changes, adverse
market conditions and/or increased competition affecting that economic
sector. The prices of the securities of Biotechnology Companies may
fluctuate widely due to patent considerations, intense competition, rapid
technological change and obsolescence, and regulatory requirements of the
Food and Drug Administration, the Environmental Protection Agency, state
and local governments, and foreign regulatory authorities.
- SMALL ISSUER RISK -- Many Biotechnology Companies are relatively small and
have thinly traded equity 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.
<PAGE>
PROSPECTUS 13
--------
FUND PERFORMANCE AND FEE INFORMATION
BIOTECHNOLOGY FUND PERFORMANCE
[ICON]
The Biotechnology Fund commenced operations on April 1, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Biotechnology Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses 1.06%
-----
Total Annual Fund Operating Expenses 2.16%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Biotechnology Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$219 $676 $1,159 $2,493
</TABLE>
<PAGE>
- ------
14 PROSPECTUS
FUND INFORMATION -- CONSUMER PRODUCTS FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Consumer Products Companies that are traded in the United States.
Consumer Products Companies include companies that manufacture, wholesale or
retail durable goods such as major appliances and personal computers, or that
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), as well as
companies that provide consumer products and services such as lodging, child
care, convenience stores, and car rentals. The Fund may also engage in futures
and options transactions, purchase ADRs and U.S. Government securities, and
enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Consumer Products Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- CONSUMER PRODUCTS SECTOR CONCENTRATION RISK -- The risk that the
securities of issuers in the consumer products sector that the Fund
purchases will under perform the market as a whole. To the extent that the
Fund's investments are concentrated in issuers conducting business in the
same economic sector, the Fund is subject to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting
that economic sector. 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, consumer confidence
and 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.
<PAGE>
PROSPECTUS 15
--------
FUND PERFORMANCE AND FEE INFORMATION
CONSUMER PRODUCTS FUND PERFORMANCE
[ICON]
The Consumer Products Fund commenced operations on July 6, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Consumer Products Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses .94%
-----
Total Annual Fund Operating Expenses 2.04%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Consumer Products Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$207 $640 $1,098 $2,369
</TABLE>
<PAGE>
- ------
16 PROSPECTUS
FUND INFORMATION -- ELECTRONICS FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Electronics Companies that are traded in the United States.
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; electronic instruments and electronic systems vendors;
and 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 also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Electronics Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- ELECTRONICS SECTOR CONCENTRATION
RISK -- The risk that the securities of issuers in the electronics sector
that the Fund purchases will under perform the market as a whole. To the
extent that the Fund's investments are concentrated in issuers conducting
business in the same economic sector, the Fund is subject to legislative or
regulatory changes, adverse market conditions and/or increased competition
affecting that economic sector. The prices of the securities of Electronics
Companies may fluctuate widely due to risks of rapid obsolescence of
products, intense competition, the economic performance of their customers,
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.
- SMALL ISSUER RISK -- Many Electronics Companies are relatively small and
have thinly traded securities, may offer only one or a limited number of
rapidly obsolescing products, and may have persistent losses during a new
product's transition from development to production.
<PAGE>
PROSPECTUS 17
--------
FUND PERFORMANCE AND FEE INFORMATION
ELECTRONICS FUND PERFORMANCE
[ICON]
The Electronics Fund commenced operations on April 1, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Electronics Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses .94%
-----
Total Annual Fund Operating Expenses 2.04%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Electronics Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$207 $640 $1,098 $2,369
</TABLE>
<PAGE>
- ------
18 PROSPECTUS
FUND INFORMATION -- ENERGY FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Energy Companies that are traded in the United States. 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, and include
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 also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Energy Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- ENERGY SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the energy sector that the Fund purchases will under perform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that economic sector.
The prices of the securities of Energy Companies may fluctuate widely due
to changes in value and dividend yield, which depend largely on the price
and supply of energy fuels, international political events relating to oil
producing countries, energy conservation, the success of exploration
projects, and tax and other governmental regulatory policies.
<PAGE>
PROSPECTUS 19
--------
FUND PERFORMANCE AND FEE INFORMATION
ENERGY FUND PERFORMANCE
[ICON]
The Energy Fund commenced operations on April 21, 1998, and therefore
does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Energy Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses .88%
-----
Total Annual Fund Operating Expenses 1.98%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Energy Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$201 $621 $1,068 $2,306
</TABLE>
<PAGE>
- ------
20 PROSPECTUS
FUND INFORMATION -- ENERGY SERVICES FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Energy Services Companies that are traded in the United States.
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; companies involved with the production and development of newer
sources of energy such as nuclear, geothermal, oil shale, and solar power;
companies involved with 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. The Fund may also engage
in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Energy Services Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- ENERGY SERVICES SECTOR CONCENTRATION RISK -- The risk that the securities
of issuers in the energy services sector that the Fund purchases will
under perform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
economic sector, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
economic sector. The prices of the securities of Energy Services Companies
may fluctuate widely due to 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, and world events and economic conditions generally
affecting energy supply companies.
<PAGE>
PROSPECTUS 21
--------
FUND PERFORMANCE AND FEE INFORMATION
ENERGY SERVICES FUND PERFORMANCE
[ICON]
The Energy Services Fund commenced operations on April 1, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Energy Services Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses .94%
-----
Total Annual Fund Operating Expenses 2.04%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Energy Services Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$207 $640 $1,098 $2,369
</TABLE>
<PAGE>
- ------
22 PROSPECTUS
FUND INFORMATION -- FINANCIAL SERVICES FUND
FUND OBJECTIVE
[ICON]
The Financial Services Fund seeks capital appreciation by investing in
companies that are involved in the financial services sector ("Financial
Services Companies").
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Financial Services Companies that are traded in the United States.
Financial Service Companies include commercial banks, savings and loan
associations, insurance companies and brokerage companies. The Fund may also
engage in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements. Under SEC regulations, the
Fund may not invest more than 5% of its total assets in the equity securities of
any company that derives more than 15% of its revenues from brokerage or
investment management activities.
RISK CONSIDERATIONS
[ICON]
The Financial Services Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- FINANCIAL SERVICES SECTOR CONCENTRATION RISK -- The risk that the
securities of issuers in the financial services sector that the Fund
purchases will under perform the market as a whole. To the extent that the
Fund's investments are concentrated in issuers conducting business in the
same economic sector, the Fund is subject to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting
that economic sector. 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
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.
<PAGE>
PROSPECTUS 23
--------
FUND PERFORMANCE AND FEE INFORMATION
FINANCIAL SERVICES FUND PERFORMANCE
[ICON]
The Financial Services Fund commenced operations on April 2, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Financial Services Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses 1.02%
-----
Total Annual Fund Operating Expenses 2.12%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Financial Services Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$215 $664 $1,139 $2,452
</TABLE>
<PAGE>
- ------
24 PROSPECTUS
FUND INFORMATION -- HEALTH CARE FUND
FUND OBJECTIVE
[ICON]
The Health Care Fund seeks capital appreciation by investing in
companies that are involved in the health care industry ("Health Care
Companies").
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Health Care Companies that are traded in the United States. 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 also engage in futures and options transactions, purchase ADRs and U.S.
Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Health Care Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- HEALTH CARE SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the health care sector that the Fund purchases will under
perform the market as a whole. To the extent that the Fund's investments
are concentrated in issuers conducting business in the same economic
sector, the Fund is subject to legislative or regulatory changes, adverse
market conditions and/or increased competition affecting that economic
sector. The prices of the securities of Health Care Companies may
fluctuate widely due 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.
<PAGE>
PROSPECTUS 25
--------
FUND PERFORMANCE AND FEE INFORMATION
HEALTH CARE FUND PERFORMANCE
[ICON]
The Health Care Fund commenced operations on April 17, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Health Care Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses 1.13%
-----
Total Annual Fund Operating Expenses 2.23%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Health Care Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------
<S> <C> <C> <C>
$226 $697 $1,195 $2,565
</TABLE>
<PAGE>
- ------
26 PROSPECTUS
FUND INFORMATION -- INTERNET FUND
FUND OBJECTIVE
[ICON]
The Internet Fund seeks capital appreciation by investing in companies
that provide products or services designed for or related to the Internet
("Internet Companies").
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Internet Companies that are traded in the United States. Internet
Companies are involved in all aspects of research, design development,
manufacturing or distribution of products or services for use with the Internet
or Internet-related businesses. Such companies may provide information or
entertainment services over the Internet; sell or distribute goods and services
over the Internet; provide infrastructure systems or otherwise provide hardware,
software or support which impacts Internet commerce; or provide Internet access
to consumers and businesses. Internet companies may also include companies that
provide Intranet and Extranet services. The Fund will maintain an adequate
representation of the various industries in the Internet sector. The Fund may
also engage in futures and options transactions, purchase ADRs and U.S.
Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Internet Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
significantly from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- INTERNET SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the Internet sector that the Fund purchases will under perform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that economic sector.
The prices of the securities of Internet Companies may fluctuate widely
due to competitive pressures, increased sensitivity to short product
cycles and aggressive pricing, problems relating to bringing their
products to market and rapid obsolescence of products.
- SMALLER COMPANY RISK -- Although securities of large and well-established
companies in the Internet sector will be held in the Fund's portfolio, the
Fund also will invest in medium, small and/or newly-public companies which
may be subject to greater share price fluctuations and declining growth,
particularly in the event of rapid changes in technology and/ or increased
competition. Securities of those smaller and/or less seasoned companies
may therefore expose shareholders of the Fund to above-average risk.
<PAGE>
PROSPECTUS 27
--------
FUND PERFORMANCE AND FEE INFORMATION
INTERNET FUND PERFORMANCE
[ICON]
As of December 31, 1999, the Internet Fund had not commenced operations
and therefore did not have a performance history for a full calendar
year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Internet Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses** 1.00%
-----
Total Annual Fund Operating Expenses 2.10%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
** OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Internet Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher of lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C>
-----------------
$213 $658
</TABLE>
<PAGE>
- ------
28 PROSPECTUS
FUND INFORMATION -- LEISURE FUND
FUND OBJECTIVE
[ICON]
The Leisure Fund seeks capital appreciation by investing in companies
engaged in leisure and entertainment businesses ("Leisure Companies").
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Leisure Companies that are traded in the United States. Leisure
Companies are engaged in the design, production, or distribution of goods or
services in the leisure industries. Leisure Companies include 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. The Fund may also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Leisure Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- LEISURE SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the leisure sector that the Fund purchases will under perform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that economic sector.
Securities of Leisure Companies may be considered speculative, and
generally exhibit greater volatility than the overall market. The prices
of the securities of Leisure Companies may fluctuate widely due to
unpredictable earnings, due in part to changing consumer tastes and
intense competition, strong reaction to technological developments and to
the threat of increased government regulation, particularly in the gaming
arena.
<PAGE>
PROSPECTUS 29
--------
FUND PERFORMANCE AND FEE INFORMATION
LEISURE FUND PERFORMANCE
[ICON]
The Leisure Fund commenced operations on April 1, 1998, and therefore
does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Leisure Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses 1.12%
-----
Total Annual Fund Operating Expenses 2.22%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Leisure Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$225 $694 $1,190 $2,554
</TABLE>
<PAGE>
- ------
30 PROSPECTUS
FUND INFORMATION -- RETAILING FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Retailing Companies that are traded in the United States. 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 also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Retailing Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- RETAILING SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the retailing sector that the Fund purchases will under perform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that economic sector.
The prices of the securities of Retailing Companies may fluctuate widely
due 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.
<PAGE>
PROSPECTUS 31
--------
FUND PERFORMANCE AND FEE INFORMATION
RETAILING FUND PERFORMANCE
[ICON]
The Retailing Fund commenced operations on April 1, 1998, and therefore
does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Retailing Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses .84%
-----
Total Annual Fund Operating Expenses 1.94%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Retailing Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$197 $609 $1,047 $2,264
</TABLE>
<PAGE>
- ------
32 PROSPECTUS
FUND INFORMATION -- TECHNOLOGY FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Technology Companies that are traded in the United States.
Technology Companies are companies which the Advisor believes have, or will
develop, products, processes, or services that will provide 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 also engage in futures and options transactions, purchase
ADRs and U.S. Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Technology Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- TECHNOLOGY SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the technology sector that the Fund purchases will under
perform the market as a whole. To the extent that the Fund's investments
are concentrated in issuers conducting business in the same economic
sector, the Fund is subject to legislative or regulatory changes, adverse
market conditions and/or increased competition affecting that economic
sector. The prices of the securities of Technology Companies may fluctuate
widely due to competitive pressures, increased sensitivity to short
product cycles and aggressive pricing, problems relating to bringing their
products to market, very high price/ earnings ratios, and high personnel
turnover due to severe labor shortages for skilled technology
professionals.
<PAGE>
PROSPECTUS 33
--------
FUND PERFORMANCE AND FEE INFORMATION
TECHNOLOGY FUND PERFORMANCE
[ICON]
The Technology Fund commenced operations on April 14, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Technology Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses 1.07%
-----
Total Annual Fund Operating Expenses 2.17%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Technology Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$220 $679 $1,164 $2,503
</TABLE>
<PAGE>
- ------
34 PROSPECTUS
FUND INFORMATION -- TELECOMMUNICATIONS FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Telecommunications Companies that are traded in the United States.
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 also engage in futures and
options transactions, purchase ADRs and U.S. Government securities, and enter
into repurchase agreements. 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.
RISK CONSIDERATIONS
[ICON]
The Telecommunications Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- TELECOMMUNICATIONS SECTOR CONCENTRATION RISK -- The risk that the
securities of issuers in the telecommunications sector that the Fund
purchases will under perform the market as a whole. To the extent that the
Fund's investments are concentrated in issuers conducting business in the
same economic sector, the Fund is subject to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting
that economic sector. The prices of the securities of Telecommunications
Companies may fluctuate widely due to both federal and state regulations
governing rates of return and services that may be offered, fierce
competition for market share, and 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.
<PAGE>
PROSPECTUS 35
--------
FUND PERFORMANCE AND FEE INFORMATION
TELECOMMUNICATIONS FUND PERFORMANCE
[ICON]
The Telecommunications Fund commenced operations on April 1, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Telecommunications Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses 1.24%
-----
Total Annual Fund Operating Expenses 2.34%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Telecommunications Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$237 $730 $1,250 $2,676
</TABLE>
<PAGE>
- ------
36 PROSPECTUS
FUND INFORMATION -- TRANSPORTATION FUND
FUND OBJECTIVE
[ICON]
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 INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Transportation Companies that are traded in the United States.
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 also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Transportation Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- TRANSPORTATION SECTOR CONCENTRATION RISK -- The risk that the securities
of issuers in the transportation sector that the Fund purchases will under
perform the market as a whole. To the extent that the Fund's investments
are concentrated in issuers conducting business in the same economic
sector, the Fund is subject to legislative or regulatory changes, adverse
market conditions and/or increased competition affecting that economic
sector. The prices of the securities of Transportation Companies may
fluctuate widely due to their cyclical nature, occasional sharp price
movements which may result from changes in the economy, fuel prices, labor
agreements, and insurance costs, the recent trend of government
deregulation, and 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.
<PAGE>
PROSPECTUS 37
--------
FUND PERFORMANCE AND FEE INFORMATION
TRANSPORTATION FUND PERFORMANCE
[ICON]
The Transportation Fund commenced operations on April 2, 1998, and
therefore does not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Transportation Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses .97%
-----
Total Annual Fund Operating Expenses 2.07%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Transportation Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$210 $649 $1,114 $2,400
</TABLE>
<PAGE>
- ------
38 PROSPECTUS
FUND INFORMATION -- UTILITIES FUND
FUND OBJECTIVE
[ICON]
The Utilities Fund seeks capital appreciation by investing in
companies that operate public utilities ("Utilities Companies").
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The Fund invests substantially all of its assets in equity securities
of Utilities Companies that are traded in the United States. Utilities
Companies may include companies involved in the manufacturing, production,
generation, transmission, distribution or sales of gas or electric energy; water
supply, waste and sewage disposal; and companies that receive a majority of
their revenues from their public utility operations. The Fund may also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Utilities Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
significantly from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- UTILITIES SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the Utilities sector that the Fund purchases will under perform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that economic sector.
The prices of the securities of Utilities Companies may fluctuate widely
due to government regulation; the effect of interest rates on capital
financing; competitive pressures due to deregulation in the utilities
industry; supply and demand for services; increased sensitivity to the
cost of natural resources required for energy production; and
environmental factors such as conservation of natural resources.
<PAGE>
PROSPECTUS 39
--------
FUND PERFORMANCE AND FEE INFORMATION
UTILITIES FUND PERFORMANCE
[ICON]
As of December 31, 1999, the Utilities Fund had not commenced
operations and therefore did not have a performance history for a full
calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Utilities Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .85%
Distribution (12b-1) Fees .25%
Other Expenses** 1.00%
-----
Total Annual Fund Operating Expenses 2.10%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
** OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Utilities Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher of lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C>
-----------------
$213 $658
</TABLE>
<PAGE>
- ------
40 PROSPECTUS
FUND INFORMATION -- U.S. GOVERNMENT MONEY MARKET FUND
FUND OBJECTIVE
[ICON]
The U.S. Government Money Market Fund seeks to provide security of
principal, high current income, and liquidity.
PORTFOLIO INVESTMENT STRATEGY
[ICON]
The U.S. Government Money Market Fund invests primarily in money
market instruments issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, and enters into repurchase
agreements fully collateralized by U.S. Government securities. The Fund operates
under SEC rules which impose certain liquidity, maturity and diversification
requirements. All securities purchased by the Fund must have remaining
maturities of 397 days or less, and must be found by the Advisor to represent
minimal credit risk and be of eligible quality.
RISK CONSIDERATIONS
[ICON]
The U.S. Government Money Market Fund is subject to the following risk
that will potentially affect the value of its shares:
- INTEREST RATE RISK -- Interest Rate Risk involves the potential for
decline in the rate of dividends the Fund pays in the event of declining
interest rates.
- STABLE PRICE PER SHARE RISK -- The Fund's assets are valued using the
amortized cost method, which enables the Fund to maintain a stable price
of $1.00 per share. ALTHOUGH THE FUND IS MANAGED TO MAINTAIN A STABLE
PRICE PER SHARE OF $1.00, THERE IS NO GUARANTEE THAT THE PRICE WILL BE
CONSTANTLY MAINTAINED, AND IT IS POSSIBLE TO LOSE MONEY.
<PAGE>
PROSPECTUS 41
--------
FUND PERFORMANCE AND FEE INFORMATION
U.S. GOVERNMENT MONEY MARKET FUND PERFORMANCE
[ICON]
The bar chart and table below show the performance of the U.S.
Government Money Market Fund both year by year and as an average over
different periods of time. The variability of performance over time
provides an indication of the risks of investing in the Fund. Of
course, this past performance does not necessarily indicate how the
Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. GOVERNMENT MONEY MARKET FUND
<S> <C>
1998 4.72%
1997 4.59%
1996 4.49%
1995 4.93%
1994 3.23%
</TABLE>
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH JUNE 30,
1999 IS 2.00%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
1.27% (QUARTER ENDED JUNE 30, 1995) AND THE LOWEST RETURN FOR A QUARTER WAS
1.03% (QUARTER ENDED JUNE 30, 1996).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
INVESTOR CLASS 90-DAY TREASURY
SHARES COMPOSITE(1)
-------------------------------------------------
<S> <C> <C>
Past One Year 4.72% 4.78%
Past Five Years 4.39% 4.91%
Since Inception (12/03/93) 4.33% 4.88%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE 90-DAY TREASURY COMPOSITE INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY
RECOGNIZED INDICATOR OF GENERAL MONEY MARKET PERFORMANCE.
YIELD -- As of June 30, 1999, the seven-day yield of Advisor Class Shares of the
Fund was 3.52%.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .50%
Distribution (12b-1) Fees .25%
Other Expenses .58%
-----
Total Annual Fund Operating Expenses 1.33%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the U.S. Government Money Market Fund with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
-------------------------------------
$135 $422 $730 $1,606
</TABLE>
<PAGE>
- ------
42 PROSPECTUS
MORE INFORMATION ABOUT FUND INVESTMENTS AND RISK
THE BENCHMARK FUNDS' INVESTMENT OBJECTIVES
Each Benchmark Fund's objective is to provide investment results that match
the performance of a specific benchmark. The current benchmark used by each Fund
is set forth below:
<TABLE>
<CAPTION>
FUND BENCHMARK
<S> <C>
NOVA FUND 150% OF THE PERFORMANCE OF THE S&P 500 COMPOSITE STOCK PRICE
INDEX-TM- (SPX)
URSA FUND INVERSE (OPPOSITE) OF THE PERFORMANCE OF THE S&P 500
COMPOSITE STOCK PRICE INDEX-TM- (SPX)
OTC FUND 100% OF THE PERFORMANCE OF THE NASDAQ 100 INDEX-TM- (NDX)
</TABLE>
A BRIEF GUIDE TO THE BENCHMARKS
THE S&P 500 COMPOSITE STOCK PRICE INDEX-TM- (S&P 500 INDEX). The S&P 500 Index
is a capitalization-weighted index composed of 500 common stocks, which are
chosen by the Standard & Poor's Corporation ("S&P") on a statistical basis.
THE NASDAQ 100 INDEX.-TM- The NASDAQ 100 Index-TM- is a modified
capitalization-weighted index composed of 100 of the largest non-financial
companies listed on the National Association of Securities Dealers Automated
Quotations System.
ADVISOR'S INVESTMENT STRATEGY IN MANAGING THE FUNDS
BENCHMARK FUNDS. In managing the Benchmark Funds, the Advisor uses a "passive"
investment strategy to manage each Fund's portfolio, meaning that the Advisor
does not attempt to select securities based on their individual potential to
perform better than the market. The Advisor's primary objective is to match the
performance of each Fund's benchmark as closely as possible on a daily basis.
The Advisor uses quantitative analysis techniques to structure each Fund to
obtain the highest correlation to its particular benchmark. The Advisor does not
engage in temporary defensive investing, keeping each Fund's assets fully
invested in all market environments. The Advisor monitors each Fund on an
ongoing basis, and makes adjustments to its portfolio, as necessary, to minimize
tracking error and to maximize liquidity.
The Advisor may pursue the Funds' investment objectives by utilizing
leveraged instruments, such as futures contracts and options on securities,
futures contracts, and stock indices. In addition, the Advisor will regularly
utilize short selling techniques designed to help the Ursa Fund's performance to
inversely correlate to the performance of the S&P 500 Index.
<PAGE>
PROSPECTUS 43
--------
SECTOR FUNDS. In managing the Sector Funds, the Advisor's investment team
employs a quantitative model that considers a number of factors. To develop a
liquid portfolio of stocks that adequately represents a particular market
sector, the Advisor applies filters to the broad universe of stocks of issuers
that are "principally engaged" in business activities in each industry sector.
Specifically, the Advisor's investment process screens stocks primarily based on
liquidity, market capitalization, and correlation relative to the entire
industry sector. The Advisor also may consider other factors.
The Advisor monitors the Sector Funds' portfolios on an ongoing basis, and
adds or deletes stocks from the portfolios as needed.
After constructing a portfolio for each Sector 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.
MASTER-FEEDER INVESTMENT STRUCTURE
As discussed in its "Fund Information" section, the Ursa Fund pursues its
investment objective indirectly by investing through what is sometimes referred
to as a "master-feeder arrangement." Under a master-feeder arrangement, a Fund's
investment portfolio is composed solely of shares of a "master fund," a separate
mutual fund that has an identical investment objective, e.g., the Ursa Fund
would act as a "feeder fund," holding shares of its master fund as its only
investment. As a result, the Fund has indirect interest in all of the securities
owned by the master fund. Because of this indirect interest, the Fund's
investment returns should be the same as those of the master fund, adjusted for
Fund expenses.
The Advisor may choose to discontinue investing through the master-feeder
arrangement and manage the Fund directly if the Trust determines that doing so
would be in the best interests of the shareholders.
RISKS OF INVESTING IN THE FUNDS
As indicated below, the Funds are subject to a number of risks that may
affect the value of Fund shares.
EQUITY RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) -- The Funds
may invest in public and privately issued equity securities, including common
and preferred stocks, warrants, and rights, as well as instruments that attempt
to track the price movement of equity
<PAGE>
- ------
44 PROSPECTUS
indices. Investments in equity securities and equity derivatives in general are
subject to market risks that may cause their prices to fluctuate over time. The
value of securities convertible into equity securities, such as warrants or
convertible debt, is also affected by prevailing interest rates, the credit
quality of the issuer and any call provision. Fluctuations in the value of
equity securities in which the Funds invest will cause the net asset value of
the Funds to fluctuate. Historically, the equity markets have moved in cycles,
and the value of the Fund's equity securities and equity derivatives may
fluctuate drastically from day to day. Because of their link to the equity
markets, an investment in the Funds may be more suitable for long-term investors
who can bear the risk of short-term principal fluctuations.
NON-DIVERSIFICATION RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) --
Since each Fund is non-diversified, each Fund may invest in the securities of a
limited 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.
INDUSTRY CONCENTRATION RISK (SECTOR FUNDS) -- None of the Benchmark Funds will
invest 25% or more of the value of the Fund's total assets in the securities of
one or more issuers conducting their principal business activities in the same
industry; EXCEPT THAT, to the extent the index underlying a Fund's benchmark is
concentrated in a particular industry, a Fund will necessarily be concentrated
in that industry. Currently, the index underlying the OTC Fund's benchmark --
the NASDAQ 100 Index-TM- -- is concentrated in technology companies. The Sector
Funds invest in the securities of a limited number of issuers conducting
business in a specific industry and therefore are concentrated in that industry.
The risk of concentrating Fund investments in a limited number of issuers
conducting business in the same industry is that a Fund will be more susceptible
to the risks that are associated with those issuers (or that industry) than a
fund that does not concentrate its investments.
TRACKING ERROR RISK (BENCHMARK FUNDS) -- While the Funds do not expect returns
to deviate significantly from their respective benchmarks on a daily basis,
factors such as Fund expenses, imperfect correlation between the Funds'
investments and those of their benchmarks, rounding of share prices, changes to
the benchmark, regulatory policies, and leverage, may affect their ability to
achieve close correlation. The cumulative effect of these factors may over time
cause the Funds' returns to deviate from their respective benchmarks on an
aggregate basis. The magnitude of any tracking error may be affected by a higher
portfolio turnover rate.
TRADING HALT RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) -- The
Funds typically will hold short-term options and futures contracts. The major
exchanges on which these contracts are traded, such as the Chicago Mercantile
Exchange ("CME"), have established limits on how much an option or futures
contract may decline over various time periods within a day. If an
<PAGE>
PROSPECTUS 45
--------
option or futures contract's price declines more than the established limits,
trading on the exchange is halted on that instrument. If a trading halt occurs,
at the close of a trading day, a Fund may not be able to purchase or sell
options or futures contracts. In such an event, a Fund also may be required to
use a "fair-value" method to price its outstanding contracts.
FUTURES AND OPTIONS RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) --
The Funds may invest a percentage of their assets in leveraged instruments such
as futures and options contracts. The Funds may use futures contracts and
related options for bona fide hedging purposes to offset changes in the value of
securities held or expected to be acquired. They may also be used to gain
exposure to a particular market or instrument, to create a synthetic money
market position, and for certain other tax-related purposes. The Funds will only
enter into futures contracts traded on a national futures exchange or board of
trade. Futures and options contracts are described in more detail below:
FUTURES CONTRACTS -- Futures contracts and options on futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time and at a
specified price. An option on a futures contract gives the purchaser the
right, in exchange for a premium, to assume a position in a futures contract
at a specified exercise price during the term of the option. Index futures
are futures contracts for various indices that are traded on registered
securities exchanges.
OPTIONS -- The buyer of an option acquires the right to buy (a call option)
or sell (a put option) a certain quantity of a security (the underlying
security) or instrument at a certain price up to a specified point in time.
The seller or writer of an option is obligated to sell (a call option) or
buy (a put option) the underlying security. When writing (selling) call
options on securities, the Funds may cover its position by owning the
underlying security on which the option is written or by owning a call
option on the underlying security. Alternatively, the Funds may cover its
position by maintaining in a segregated account cash or liquid securities
equal in value to the exercise price of the call option written by the
Funds.
The risks associated with the Funds' use of futures and options contracts
include:
- A Fund may experience losses over certain ranges in the market that exceed
losses experienced by a Fund that does not use futures contracts and
options.
- There may be an imperfect 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, due to
market conditions there may not always be a liquid secondary market for a
futures contract or option. As a result, the Funds may be unable to close
out their futures contracts at a time which is advantageous.
<PAGE>
- ------
46 PROSPECTUS
- Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and
options.
- Because option premiums paid or received by the Funds are small in
relation to the market value of the investments underlying the options,
buying and selling put and call options can be more speculative than
investing directly in securities.
PORTFOLIO TURNOVER RATE RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET
FUND) -- The Trust anticipates that investors that are part of a tactical
asset-allocation strategy will frequently redeem or exchange shares of a Fund,
which will cause that Fund to experience high portfolio turnover. A higher
portfolio turnover rate may result in a Fund paying higher levels of transaction
costs and generating greater tax liabilities for shareholders.
EARLY CLOSING RISK (OTC AND SECTOR FUNDS) -- The normal close of trading of
securities listed on the National Association of Securities Dealers Automated
Quotations system ("NASDAQ") and the New York Stock Exchange ("NYSE") is 4:00
P.M., Eastern Time. Unanticipated early closings may result in a Fund being
unable to sell or buy securities on that day. If an exchange closes early on a
day when one or more of the Funds needs to execute a high volume of securities
trades late in a trading day, a Fund might incur substantial trading losses.
SHORT SALES RISK (URSA FUND) -- Short sales are transactions in which a Fund
sells a security it does not own. To complete the transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund is then obligated to
replace the security borrowed by purchasing the security at the market price at
the time of replacement. The price at such time may be higher or lower than the
price at which the security was sold by the Fund. If the underlying security
goes down in price between the time the Fund sells the security and buys it
back, the Fund will realize a gain on the transaction. Conversely, if the
underlying security goes up in price during the period, the Fund will realize a
loss on the transaction. The risk of such price increases is the principal risk
of engaging in short sales.
FOREIGN COMPANY RISKS (SECTOR FUNDS) -- 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. Foreign companies generally are not subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
U.S. domestic companies.
SMALL ISSUER RISK (BIOTECHNOLOGY, ELECTRONICS, AND INTERNET FUNDS) -- 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 trade over-the-counter or listed on an
exchange and may or may not pay dividends.
<PAGE>
PROSPECTUS 47
--------
SHAREHOLDER INFORMATION
HOW TO INVEST IN THE FUNDS
PURCHASING SHARES
Advisor Class Shares are offered continuously through intermediaries. You
may purchase shares of the Funds by mail or fax and, once you open an account,
make subsequent purchases by telephone. Investors may purchase shares of the
Funds and make exchanges on any day that the New York Stock Exchange ("NYSE") is
open for business (a "Business Day"). Procedures for purchasing shares of the
Funds by mail, telephone or fax are discussed in more detail in the "INVESTING
BY MAIL, TELEPHONE OR FAX" section.
Initial applications and investments, as well as subsequent investments, in
the Funds must be received in good form by the transfer agent, on any Business
Day, before the cutoff time specified below in the "EXCHANGES" section, in order
to be processed at that Business Day's NAV. An initial application that is sent
to the transfer agent 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 transfer agent.
Investments in the Funds may be made only through intermediaries or
securities dealers who have the responsibility to transmit orders promptly.
Intermediaries may charge fees for services provided in connection with buying,
selling or exchanging shares. Each intermediary also may have its own
rules about share transactions and may have earlier cutoff times for purchases.
For more information about how to purchase shares through an intermediary, you
should contact that intermediary directly.
DETERMINATION OF NET ASSET VALUE
The price per share (the offering price) will be the net asset value per
share ("NAV") next determined after your purchase order is received by the
Trust. No sales charges are imposed on initial or subsequent investments in a
Fund. NAV is calculated by (1) taking the current market value of a Fund's total
assets, (2) subtracting the liabilities, and (3) dividing that amount by the
total number of shares owned by shareholders. For most Funds, the NAV is
calculated once each Business Day after the close of the New York Stock Exchange
(currently, 4:00 p.m., Eastern Time). The NAV of the U.S. Government Money
Market Fund is determined twice each Business Day, first at 1:00 p.m., Eastern
Time and again after the close of the NYSE (currently, 4:00 p.m., Eastern Time).
If the exchange or market where a Fund's securities or other investments are
primarily traded closes early, the NAV may be calculated earlier. To receive the
current Business Day's NAV, the Trust must receive your purchase order before
the cutoff times specified below for each method of investing. Intermediaries
may have earlier cutoff times.
<PAGE>
- ------
48 PROSPECTUS
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 is $25,000. This minimum also applies to retirement
plan accounts. The Trust, at its discretion, may accept lesser amounts in
certain circumstances. If you invest in the Trust, by any method referenced
below, without designating which Fund you want to invest in, your money will be
invested in the U.S. Government Money Market Fund until you tell us where to
invest your money. There is no minimum amount for subsequent investments in a
Fund. The Trust reserves the right to modify its minimum investment requirements
at any time. The Trust also reserves the right to reject or refuse, at the
Trust's discretion, any order for the purchase of a Fund's shares in whole or in
part.
MAKING INVESTMENTS BY MAIL, TELEPHONE OR FAX
You may open an account in the Funds by mail or fax and, once you open an
account, make subsequent purchases by telephone. You may make initial
investments in the Funds by printing out the Account Application Agreement
located on the Rydex web site, completing it offline and sending it by mail or
fax to the transfer agent. You may also obtain an Account Application Agreement
by calling 800-820-0888 or 301-468-8520. Investors must also make arrangements
for payment by either bank wire transfer or check using the procedures described
below.
Investments by mail, telephone or fax for both initial investments and
subsequent investments in the Funds must be received in good form by the
transfer agent, on any Business Day, before the cut off time specified below in
the "EXCHANGES" section, to be processed at that Business Day's NAV.
Intermediaries may have earlier cutoff times for purchases. For more information
about how to purchase through an intermediary, you should contact that
intermediary directly.
Procedures for payment by either bank wire transfer or check are as follows:
SENDING YOUR PURCHASE PAYMENT BY BANK WIRE TRANSFER
First, fill out the Account Application Agreement and send the completed
application, along with a request for a shareholder account number, to the
transfer agent. Then, request that your bank wire transfer the purchase
amount to our custodian, along with the following instructions:
Firstar
Cincinnati, Ohio
Routing Number: 0420-00013
For Account of: Rydex Series Funds
Account Number: 48038-9030
[Your Name]
[Your Shareholder Account Number and Fund Designation]
<PAGE>
PROSPECTUS 49
--------
AFTER INSTRUCTING YOUR BANK TO TRANSFER MONEY BY WIRE FOR BOTH INITIAL AND
SUBSEQUENT PURCHASES, YOU MUST CONTACT THE TRANSFER AGENT BY TELEPHONE AT
800-820-0888 AND INFORM THE TRANSFER AGENT AS TO THE AMOUNT THAT YOU HAVE
TRANSFERRED AND THE NAME OF THE BANK SENDING THE TRANSFER IN ORDER TO OBTAIN
SAME-DAY PRICING OR CREDIT. FOR INITIAL PURCHASES, YOU MUST ALSO SUPPLY THE TIME
THE WIRE WAS SENT AND THE FED WIRE REFERENCE NUMBER. IF THE PURCHASE IS CANCELED
BECAUSE YOUR WIRE TRANSFER IS NOT RECEIVED, YOU MAY BE LIABLE FOR ANY LOSS THAT
THE TRUST INCURS.
SENDING YOUR PURCHASE PAYMENT BY MAIL
First, fill out the Account Application Agreement and send the completed
application, along with a request for a shareholder account number, to the
transfer agent. Then mail your check, along with the application to:
Rydex Series Funds
Attn: Ops. Dept.
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
The transfer agent will not process your request until it receives your
check. You may avoid a delay in processing your purchase request by purchasing
shares by wire. IN ADDITION TO CHARGES DESCRIBED ELSEWHERE IN THIS PROSPECTUS,
THE TRUST ALSO MAY CHARGE $25 FOR CHECKS RETURNED FOR INSUFFICIENT OR
UNCOLLECTIBLE FUNDS.
TAX-QUALIFIED RETIREMENT PLANS
Investors may purchase shares of the Funds through any of the following
types of tax-qualified retirement plans:
Individual Retirement Accounts (IRAs, including Roth IRAs)
Keogh Accounts -- Defined Contribution Plans (Profit Sharing Plans)
Keogh Accounts -- Pension Plans (Money Purchase Plans)
Internal Revenue Code Section 403(b) Plans
Retirement plans are charged an annual $15.00 maintenance fee and a $15.00
account closing fee taken at the time of closing from the proceeds. Additional
information regarding these accounts may be obtained by calling 800-820-0888 or
301-468-8520.
EXCHANGES
You may exchange Advisor Class Shares of any Fund for Advisor Class Shares
of any other Rydex Fund, on the basis of the respective net asset values of the
shares involved. An exchange involving a Self-Directed Account must be for at
least the lesser of $1,000 or 100% of the account
<PAGE>
- ------
50 PROSPECTUS
value of the Rydex Fund from which the exchange is to be made. The Trust
currently is composed of thirty separate Funds.
SHAREHOLDERS MAY EXCHANGE SHARES OF THE FUNDS BY USING THE RYDEX WEB
SITE -- WWW.RYDEXFUNDS.COM. BY USING THIS OPTION, YOU CAN DIRECT YOUR REQUESTS
FOR EXCHANGE TRANSACTIONS TO THE TRANSFER AGENT BY FOLLOWING THE DIRECTIONS
DESCRIBED ON THE RYDEX WEB SITE. You should review the instructions on the Rydex
web site for more information regarding procedures for exchanges made by
Internet.
You may also exchange shares of the U.S. Government Money Market Fund for
any of the Rydex Dynamic Funds, which are separate mutual funds offered through
a separate prospectus. 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. You may obtain
a prospectus for any Rydex Fund not described in this prospectus from the Rydex
web site -- www.rydexfunds.com -- or by calling 800-820-0888 or 301-468-8520.
To exchange your shares, you need to provide certain information, including
the name on the account, the account number (or your taxpayer identification
number), the number or dollar value of shares (or the percentage of the total
value of your account) you want to exchange, and the names of the Rydex Funds
involved in the exchange transaction.
Exchange requests are processed at the NAV next determined after their
receipt by the transfer agent. Exchange requests received by the transfer agent
before the cut off times specified below will be processed and communicated to
the Funds in time for that Day's determination of NAV. The exchange privilege
may be modified or discontinued at any time.
<TABLE>
<CAPTION>
FUND(S) CUT OFF TIME
<S> <C>
- --------------------------------------------------------------------------
Nova 3:45 p.m.
Ursa
OTC
Arktos
- --------------------------------------------------------------------------
Sector Funds 3:30 p.m.
- --------------------------------------------------------------------------
U.S. Government Bond 2:45 p.m.
Juno
- --------------------------------------------------------------------------
</TABLE>
Intermediaries may have earlier cutoff times.
The exchange privilege may be modified or discontinued at any time.
<PAGE>
PROSPECTUS 51
--------
REDEEMING FUND SHARES
GENERAL
You may redeem all or any portion of your Fund shares at the next determined
NAV after the transfer agent receives your redemption request (subject to
applicable account minimums). The Fund may allow you to redeem shares by
Internet by following the procedures set forth on the Rydex web site. Your
redemption proceeds normally will be sent within five Business Days of the
transfer agent receiving your request. For investments made by check, payment on
redemption requests may be delayed until the transfer agent is reasonably
satisfied that payment has been collected (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 by wire. Telephone redemptions will be
sent only to your address or your bank account (as listed in the Trust's
records). The Trust may charge $15.00 for certain wire transfers of redemption
proceeds.
You may also redeem your shares by letter or by telephone subject to the
procedures and fees set forth in "PROCEDURES FOR REDEMPTIONS AND EXCHANGES."
The proceeds of redemption requests 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,
must include an original 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.
INVOLUNTARY REDEMPTIONS
Because of the administrative expense of handling small accounts, any
request for a redemption when your account balance (a) is below the CURRENTLY
applicable minimum investment, or (b) would be below that minimum as a result of
the redemption, will be treated as a request for the complete redemption of that
account. If, due to withdrawals or transfers, your account balance across all
Funds advised by the Advisor drops below the required minimum, the Trust
reserves the right to redeem your remaining shares without ANY additional
notification to you.
<PAGE>
- ------
52 PROSPECTUS
SUSPENSION OF REDEMPTIONS
With respect to each Fund, and as permitted by the Securities and Exchange
Commission ("Commission"), the right of redemption may be suspended, or the date
of payment postponed: (i) for any period during which the NYSE, the Federal
Reserve Bank of New York (the "New York Fed"), NASDAQ, the CME, the Chicago
Board Options Exchange ("CBOE") or the CBOT, as appropriate, is closed (other
than customary weekend or holiday closings) or trading on the NYSE, NASDAQ, the
CME, the CBOE or the CBOT, as appropriate, is restricted; (ii) for any period
during which an emergency exists so that disposal of Fund investments or the
determination of NAV is not reasonably practicable; or (iii) for such other
periods as the Commission, by order, may permit for protection of Fund
investors. On any day that the New York Fed or the NYSE closes early, the
principal government securities and corporate bond markets close early (such as
on days in advance of holidays generally observed by participants in these
markets), or as permitted by the Commission, the right is reserved to advance
the time on that day by which purchase and redemption orders must be received.
PROCEDURES FOR EXCHANGES AND REDEMPTIONS
You should follow the procedures described on the Rydex web site for all
exchanges and redemptions made by Internet. The Trust anticipates that most
shareholders will make exchange and redemption requests by Internet through the
Rydex web site.
You may also request redemptions and exchanges by mail or telephone. Written
requests for redemptions and exchanges should be sent to Rydex Series Funds,
Attn: Ops. Dept., 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852, and should be signed by the record owner or owners. Telephone redemption
and exchange requests may be made by calling 1-800-820-0888 or 301-468-8520 by
the cutoff time specified above for exchanges between Funds, on any Business
Day. The Trust's offices are open between 8:30 a.m. and 5:30 p.m., Eastern Time
on each Business Day. The Trust reserves the right to suspend the right of
redemption as described in the section above.
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.
CONFIRMATION OF SHAREHOLDER TRANSACTIONS
You will receive confirmation of your investment transactions. The transfer
agent may allow you to choose to receive your confirmation either electronically
or through the mail by following the instructions made available on the Rydex
web site. If you consent to receive electronic confirmation of your
transactions, you may print a copy of the electronic confirmation you receive
for your records. SHAREHOLDERS WHO CONSENT TO RECEIVE ALL COMMUNICATIONS (SUCH
AS TRADE CONFIRMATIONS; PROSPECTUSES AND SHAREHOLDER REPORTS; ETC.) FROM THE
FUNDS THROUGH THE RYDEX WEB SITE OR OTHER ELECTRONIC MEANS MUST:
- Have and maintain access to the Rydex web site and provide the Trust with
a valid and current e-mail address.
<PAGE>
PROSPECTUS 53
--------
- Notify the Trust immediately if they no longer have access to the Rydex
web site, change their e-mail address or wish to revoke their consent to
receive all communications from the Funds through the Rydex web site or
other electronic means.
YOU MAY REVOKE YOUR CONSENT TO RECEIVE ELECTRONIC CONFIRMATIONS AND OTHER
COMMUNICATIONS FROM THE FUNDS THROUGH THE RYDEX WEB SITE OR OTHER ELECTRONIC
MEANS AT ANY TIME BY INFORMING THE TRANSFER AGENT IN WRITING.
TRANSACTIONS OVER THE INTERNET OR TELEPHONE
Internet and telephone redemption and exchange transactions are extremely
convenient, but are not risk-free. To ensure that your Internet and telephone
transactions are safe, secure, and as risk-free as possible, the Trust has
instituted certain safeguards and procedures for determining the identity of web
site users (including the use of secure passwords and 128-bit encryption
technology) and telephone callers and authenticity of instructions. As a result,
neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost, or expense for following Internet, telephone or wire
instructions they REASONABLY BELIEVE to be genuine. If you or your intermediary
make exchange or redemption requests by Internet, you will generally bear the
risk of any loss. If you are unable to reach the Trust by Internet or telephone
by calling 1-800-820-0888 or 301-468-8520, you may want to try to reach the
Trust by other means.
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISOR -- Rydex Global Advisors (the "Advisor"), 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852, serves as investment
advisor and manager of the Funds. Albert P. Viragh, Jr., the Chairman of the
Board and the President of the Advisor, owns a controlling interest in the
Advisor. From 1985 until the incorporation of the Advisor, Mr. Viragh was a Vice
President of Money Management Associates ("MMA"), a Maryland-based registered
investment advisor. From 1992 to June 1993, Mr. Viragh was the portfolio manager
of The Rushmore Nova Portfolio, a series of The Rushmore Fund, Inc., an
investment company managed by MMA.
The Advisor makes investment decisions for the assets of the Funds and
continuously reviews, supervises, and administers each Fund's investment
program. The Trustees of the Trust supervise the Advisor and establish policies
that the Advisor must follow in its day to day management activities. Under an
investment advisory agreement between the Funds and the Advisor, the Funds paid
the
<PAGE>
- ------
54 PROSPECTUS
Advisor a fee at an annualized rate for the fiscal year period ended March 31,
1999, based on the average daily net assets for each Fund, as set forth below:
<TABLE>
<CAPTION>
FUND ADVISORY FEE
- ------------------------------ ------------
<S> <C>
Nova...................... .75%
Ursa...................... .90%
OTC....................... .75%
Sector Funds.............. .85%
U.S. Government Money
Market.................... .50%
</TABLE>
The Advisor bears all of its own costs associated with providing these
advisory services and the expenses of the Trustees, which are affiliated with
the Advisor. The Advisor may make payments from its own resources to
broker-dealers and other financial institutions in connection with the sale of
Fund shares.
The portfolio manager of the OTC Fund is Michael P. Byrum, who is the
Advisor's senior portfolio manager. Prior to joining the Advisor as a portfolio
manager in July 1993, Mr. Byrum worked as an investor representative with MMA.
The portfolio manager of the Nova Fund is Thomas Michael, who joined the
Advisor as a portfolio manager in March 1994. From 1992 to February 1994,
Mr. Michael was a financial markets analyst at Cedar Street Investment
Management Co., of Chicago, Illinois, an institutional consulting firm
specializing in developing hedging and speculative strategies in stock index
futures contracts and U.S. Treasury bond futures contracts.
The portfolio manager of the Ursa Fund is Adam V. Croll, who joined the
Advisor as an assistant portfolio manager in 1996. Mr. Croll was promoted to
portfolio manager in 1998. Prior to joining the Advisor, Mr. Croll attended the
University of Maryland.
Each Sector Fund is managed by a team and no one person is responsible for
making investment decisions for a Fund.
DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
The Funds have adopted a Distribution and Shareholder Services Plan (the
"Plan") applicable to Advisor Class Shares that allows the Funds to pay
distribution and service fees to PADCO Financial Services, Inc. (the
"Distributor") and other firms that provide distribution and shareholder
services ("Service Providers"). If a Service Provider provides distribution
services, the Funds will pay distribution fees to the Distributor at an annual
rate not to exceed .25% of average daily net assets, pursuant to Rule 12b-1 of
the 1940 Act. If a Service Provider provides shareholder services, the Funds
will pay service fees to the Distributor at an annual rate not to exceed .25% of
the average daily net assets of a Fund. The Distributor will, in turn, pay the
Service Provider out of its fees. Because the
<PAGE>
PROSPECTUS 55
--------
Funds pay these fees out of assets on an ongoing basis, over time these fees may
cost you more than other types of sales charges.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Income dividends, if any, are paid at least annually by each of the Funds,
except the U.S. Government Money Market, 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, if any, at least
annually. The Trust, however, may declare a special capital gains distribution
if the Trustees believe that such a distribution would be in the best interest
of the shareholders of a Fund.
You will receive dividends and distributions in the form of additional fund
shares unless you have elected to receive payment in cash. If you have not
already elected to receive cash payments on your application, you must notify
the Trust in writing prior to the date of distribution. Your election will
become effective for dividends paid after the Trust receives your written
notice. To cancel your election, simply send written notice to the Trust.
Dividends and distributions from a Fund are taxable to you whether they are
reinvested in additional shares of the Fund or are received in cash. You will
receive an account statement at least quarterly.
TAX INFORMATION
The following is a summary of some important tax issues that affect the
Funds and their shareholders. The summary is based on current tax laws, which
may be changed by legislative, judicial or administrative action. The Trust has
not tried to present a detailed explanation of the tax treatment of the Funds,
or the tax consequences of an investment in the Funds. More information about
taxes is located in the Statement of Additional Information (SAI). You are urged
to consult your tax advisor regarding specific questions as to Federal, state
and local income taxes.
TAX STATUS OF EACH FUND
Each Fund is treated as a separate entity for federal tax purposes, and
intends to qualify for the special tax treatment afforded regulated investment
companies. As long as a Fund qualifies as a regulated investment company, it
pays no federal income tax on the earnings it distributes to Shareholders.
TAX STATUS OF DISTRIBUTIONS
- Each Fund will distribute substantially all of its income. THE INCOME
DIVIDENDS YOU RECEIVE FROM THE FUNDS WILL BE TAXED AS ORDINARY INCOME
WHETHER YOU RECEIVE THE DIVIDENDS IN CASH OR IN ADDITIONAL SHARES.
<PAGE>
- ------
56 PROSPECTUS
- 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 WITH RESPECT TO REDEMPTIONS, IF YOU INVEST IN
THE FUNDS THROUGH A TAX-QUALIFIED RETIREMENT PLAN.
STATE TAX CONSIDERATIONS
A Fund is not liable for any income or franchise tax in Delaware as long as
it qualifies as a regulated investment company for Federal income tax purposes.
Distributions by the Funds may be subject to state and local taxation. You
should verify your tax liability with your tax advisor.
<PAGE>
PROSPECTUS 57
--------
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
[ICON]
The financial highlights table is intended to help you understand the
Fund's financial performance for the period of the Fund's operations.
Certain information reflects financial results for a single Advisor Class
Share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has
been audited by Deloitte & Touche LLP, whose report, along with the financial
statements and related notes, appears in the Trust's 1999 Annual Report. Our
1999 Annual Report is available by telephoning us at 800-820-0888 or
(301) 468-8520. The Annual Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
ADVISOR CLASS
---------------------------------------
FOR THE PERIOD ENDED MARCH 31, 1999*
---------------------------------------
NOVA URSA OTC BANKING
FUND FUND FUND FUND
-------- ------- ------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value -- Beginning of Period............ $ 26.91 $10.25 $30.52 $ 10.00
------- ------ ------ -------
Net Investment Income (Loss)+................... (.11) .21 (.31) .03
Net Realized and Unrealized Gains (Losses) on
Securities..................................... 8.39 (1.81) 17.65 (1.29)
------- ------ ------ -------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations...................... 8.28 (1.60) 17.34 (1.26)
Distributions to Shareholders:
From Net Investment Income...................... .00 (0.03) .00 .00
From Net Realized Capital Gain.................. .00 .00 (.27) .00
In Excess of Current Period Net Investment
Income......................................... (.41) .00 .00 .00
------- ------ ------ -------
Net Increase (Decrease) in Net Asset Value.... 7.87 (1.63) 17.07 (1.26)
------- ------ ------ -------
Net Asset Value -- End of Period.................. $ 34.78 $ 8.62 $47.59 $ 8.74
======= ====== ====== =======
Total Investment Return........................... 31.03% (15.68)% 57.20% (12.60)%
Ratios to Average Net Assets **
Gross Expenses.................................. 1.60% 1.86% 1.49% 2.08%
Net Expenses.................................... 1.58% 1.85% 1.47% 2.08%
Net Investment Income........................... (0.70)% 2.96% (1.31)% 0.28%
Supplementary Data:
Portfolio Turnover Rate***...................... 445% 0% 773% 11,211%
Net Assets, End of Year (000's omitted)......... $36,187 $3,073 $6,893 $ 2
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* COMMENCEMENT OF OPERATIONS: OCTOBER 15, 1998 -- NOVA FUND, AUGUST 5, 1998
-- URSA FUND, SEPTEMBER 22, 1998 -- OVER-THE-COUNTER FUND, APRIL 1, 1998 --
BANKING FUND.
** ANNUALIZED.
*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. THE URSA FUND TYPICALLY
HOLDS MOST OF ITS INVESTMENTS IN OPTIONS AND FUTURES CONTRACTS WHICH ARE
DEEMED SHORT-TERM SECURITIES.
<PAGE>
- ------
58 PROSPECTUS
<TABLE>
<CAPTION>
ADVISOR CLASS
-------------------------------------------------------
FOR THE PERIOD ENDED MARCH 31, 1999*
-------------------------------------------------------
BASIC BIO- CONSUMER
MATERIALS TECHNOLOGY PRODUCTS ELECTRONICS ENERGY
FUND FUND FUND FUND FUND
--------- ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period............ $10.56 $10.00 $ 8.73 $ 9.98 $10.07
------ ------ ------- ------ ------
Net Investment Income (Loss)+................... .13 .18 (.08) (.23) (.14)
Net Realized and Unrealized Gains (Losses) on
Securities..................................... (2.97) 2.48 1.05 4.21 (.92)
------ ------ ------- ------ ------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations...................... (2.84) 2.66 .97 3.98 (1.06)
Distributions to Shareholders................... -- -- -- -- --
------ ------ ------- ------ ------
Net Increase (Decrease) in Net Asset Value...... (2.84) 2.66 .97 3.98 (1.06)
------ ------ ------- ------ ------
Net Asset Value -- End of Period.................. $ 7.72 $12.66 $ 9.70 $13.96 $ 9.01
====== ====== ======= ====== ======
Total Investment Return........................... (26.89)% 26.60% 11.11% 39.88% (10.53)%
Ratios to Average Net Assets:
Gross Expenses**................................ 1.96% 2.16% 2.05% 2.05% 1.99%
Net Expenses**.................................. 1.95% 2.16% 2.04% 2.04% 1.98%
Net Investment Income (Loss)**.................. 1.25% 1.79% (1.38)% (1.86)% (1.75)%
Supplementary Data:
Portfolio Turnover Rate......................... 5,704% 2,670% 1,255% 3,011% 6,070%
Net Assets, End of Period (000's omitted)....... $ 688 $1,838 $20,952 $4,024 $ 609
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* COMMENCEMENT OF OPERATIONS: APRIL 14, 1998 -- BASIC MATERIALS FUND,
APRIL 1, 1998 -- BIOTECHNOLOGY FUND, AUGUST 17, 1998 -- CONSUMER PRODUCTS
FUND, APRIL 2, 1998 -- ELECTRONICS FUND, MAY 5, 1998 -- ENERGY FUND.
** ANNUALIZED
<PAGE>
PROSPECTUS 59
--------
<TABLE>
<CAPTION>
ADVISOR CLASS
--------------------------------------------------
FOR THE PERIOD ENDED MARCH 31, 1999*
--------------------------------------------------
ENERGY FINANCIAL HEALTH
SERVICES SERVICES CARE LEISURE RETAILING
FUND FUND FUND FUND FUND
-------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period............ $ 9.86 $ 10.47 $ 9.93 $ 9.35 $10.01
------- ------- ------ ------ ------
Net Investment Loss............................. (.09) (.05) (.18) (.12) (.15)
Net Realized and Unrealized Gains (Losses) on
Securities..................................... (3.76) (.47) 1.62 1.93 3.64
------- ------- ------ ------ ------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations...................... (3.85) (.52) 1.44 1.81 3.49
Distributions to Shareholders................... -- -- -- -- --
------- ------- ------ ------ ------
Net Increase (Decrease) in Net Asset Value...... (3.85) (.52) 1.44 1.81 3.49
------- ------- ------ ------ ------
Net Asset Value -- End of Period.................. $ 6.01 $ 9.95 $11.37 $11.16 $13.50
======= ======= ====== ====== ======
Total Investment Return........................... (39.05)% (4.97)% 14.50% 19.36% 34.87%
Ratios to Average Net Assets:
Gross Expenses**................................ 2.05% 2.13% 2.24% 2.23% 1.95%
Net Expenses**.................................. 2.04% 2.12% 2.23% 2.22% 1.94%
Net Investment Income (Loss)**.................. (1.66)% (0.60)% (1.96)% (1.95)% (1.37)%
Supplementary Data:
Portfolio Turnover Rate......................... 3,170% 7,269% 4,465% 5,581% 3,243%
Net Assets, End of Period (000's omitted)....... $22,323 $21,387 $ 24 $ 8 $ 337
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* COMMENCEMENT OF OPERATIONS: APRIL 2, 1998 -- ENERGY SERVICES FUND,
APRIL 6, 1998 -- FINANCIAL SERVICES FUND, MAY 11, 1998 -- HEALTH CARE FUND,
JUNE 3, 1998 -- LEISURE FUND, APRIL 21, 1998 -- RETAILING FUND.
** ANNUALIZED
<PAGE>
- ------
60 PROSPECTUS
<TABLE>
<CAPTION>
ADVISOR CLASS
----------------------------------------------------
FOR THE PERIOD ENDED MARCH 31, 1999*
----------------------------------------------------
U.S.
GOVERNMENT
TELECOMMUNI- MONEY
TECHNOLOGY CATIONS TRANSPORTATION MARKET
FUND FUND FUND FUND
---------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
Per Share Operating Performance:+
Net Asset Value -- Beginning of Period $10.84 $10.00 $ 9.26 $ 1.00
------ ------ ------ --------
Net Investment Income (Loss).................... (.20) (.03) (.10) .04
Net Realized and Unrealized Gains (Losses) on
Securities..................................... 6.26 2.94 (1.21) .00
------ ------ ------ --------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations...................... 6.06 2.91 (1.31) .04
Distributions to Shareholders................... -- -- -- (.04)
------ ------ ------ --------
Net Increase (Decrease) in Net Asset Value...... 6.06 2.91 (1.31) .00
------ ------ ------ --------
Net Asset Value -- End of Period.................. $16.90 $12.91 $ 7.95 $ 1.00
====== ====== ====== ========
Total Investment Return........................... 55.90% 29.10% (14.15)% 4.02%
Ratios to Average Net Assets:
Gross Expenses**................................ 2.18% 2.35% 2.08% 1.34%
Net Expenses**.................................. 2.17% 2.34% 2.07% 1.33%
Net Investment Income (Loss)**.................. (1.78)% (0.27)% (1.38)% 3.83%
Supplementary Data:
Portfolio Turnover Rate......................... 4,598% 2,788% 7,583% 0%***
Net Assets, End of Period (000's omitted)....... $2,269 $1,929 $ 4 $321,581
</TABLE>
- ------------
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* COMMENCEMENT OF OPERATIONS: APRIL 29, 1998 -- TECHNOLOGY FUND, APRIL 1,
1998 -- TELECOMMUNICATIONS FUND, JUNE 9, 1998 -- TRANSPORTATION FUND,
APRIL 1, 1998 -- U.S. GOVERNMENT MONEY MARKET FUND.
** ANNUALIZED
<PAGE>
PROSPECTUS 61
--------
BENCHMARK INFORMATION
NEITHER THE NOVA FUND NOR THE URSA FUND IS SPONSORED, ENDORSED, SOLD, OR
PROMOTED BY STANDARD & POOR'S CORP. (S&P); AND THE OTC FUND IS NOT SPONSORED,
ENDORSED, SOLD, OR PROMOTED BY NASDAQ OR ANY OF NASDAQ'S AFFILIATES (NASDAQ AND
ITS AFFILIATES HEREINAFTER COLLECTIVELY REFERRED TO AS "NASDAQ").
NEITHER S&P NOR NASDAQ MAKE ANY REPRESENTATION OR WARRANTY, IMPLIED OR EXPRESS,
TO THE INVESTORS IN THE FUNDS, OR ANY MEMBER OF THE PUBLIC, REGARDING THE
ADVISABILITY OF INVESTING IN INDEX FUNDS OR THE ABILITY OF THE S&P 500 INDEX OR
THE NASDAQ 100 INDEX-TM-, RESPONSIBILITY, TO TRACK GENERAL STOCK MARKET
PERFORMANCE.
NEITHER S&P NOR NASDAQ GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P 500 INDEX AND NASDAQ 100 INDEX-TM-, RESPECTIVELY, OR ANY DATA INCLUDED
THEREIN.
NEITHER S&P NOR NASDAQ MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO
BE OBTAINED BY ANY OF THE FUNDS, THE INVESTORS IN THE FUNDS, OR ANY PERSON OR
ENTITY FROM THE USE OF THE S&P 500 INDEX OR THE NASDAQ 100 INDEX-TM-,
RESPECTIVELY, OR ANY DATA INCLUDED THEREIN.
NEITHER S&P NOR NASDAQ MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE FOR USE WITH RESPECT TO THE
S&P 500 INDEX OR THE NASDAQ 100 INDEX-TM-, RESPECTIVELY, OR ANY DATA INCLUDED
THEREIN.
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
Additional information about the Funds is included in a Statement of Additional
Information dated August 1, 1999 (the "SAI"), which contains more detailed
information about the Funds. The SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus and, therefore, legally forms a part of this Prospectus. The SEC
maintains the EDGAR database on its web site ("http://www.sec.gov") that
contains the SAI, material incorporated by reference, and other information
regarding registrants that file electronically with the SEC. You may also review
and copy documents at the SEC Public Reference room in Washington, D.C. (for
information on the operation of the Public Reference Room, call 1-202-942-8090).
You may request documents by mail from the SEC, upon payment of a duplication
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, D.C. 20549-0102. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
[email protected]. You may obtain a copy of the SAI or the annual or
semi-annual reports, without charge by calling 800-820-0888 or by writing to
Rydex Series Funds, at 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852. Additional information about the Funds' investments is available in the
annual and semi-annual reports. Also, in the Funds' annual report, you will find
a discussion of the market conditions and investment strategies that
significantly affected the Funds' performance during its last fiscal year.
- --------------------------------------------------------------------------------
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE TRUST'S SAI IN
CONNECTION WITH THE OFFERING OF FUND SHARES. DO NOT RELY ON ANY SUCH INFORMATION
OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY THE TRUST OR RYDEX GLOBAL
ADVISORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST IN ANY
JURISDICTION WHERE SUCH AN OFFERING IS NOT LAWFUL.
THE FUND'S SEC REGISTRATION NUMBER IS 811-7584.
<PAGE>
A FAMILY OF MUTUAL FUNDS
DESIGNED EXCLUSIVELY FOR
PROFESSIONAL MONEY MANAGERS.
RYDEX SERIES FUNDS
6116 EXECUTIVE BLVD., SUITE 400
ROCKVILLE, MD 20852
301/468-8520 - 800/820-0888
[LOGO]
RYDEX SERIES FUNDS
PROSPECTUS
AUGUST 1, 1999,
AS SUPPLEMENTAL APRIL 1, 2000
ADVISOR CLASS SHARES
[GRAPHIC]
NOVA FUND
URSA FUND
OTC FUND
BANKING FUND
BASIC MATERIALS FUND
BIOTECHNOLOGY FUND
CONSUMER PRODUCTS FUND
ELECTRONICS FUND
ENERGY FUND
ENERGY SERVICES FUND
FINANCIAL SERVICES FUND
HEALTH CARE FUND
INTERNET FUND
LEISURE FUND
RETAILING FUND
TECHNOLOGY FUND
TELECOMMUNICATIONS FUND
TRANSPORTATION FUND
UTILITIES FUND
U.S. GOVERNMENT MONEY MARKET FUND
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
RYDEX SERIES FUNDS
6116 EXECUTIVE BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20852
1-800-820-0888
301-468-8520
WWW.RYDEXFUNDS.COM
Rydex Series Funds (the "Trust") is a no-load mutual fund complex with thirty
separate investment portfolios (the "Funds"). This Statement of Additional
Information ("SAI") relates to shares of the following portfolios:
NOVA FUND
URSA FUND
OTC FUND
ARKTOS FUND
JUNO FUND
U.S. GOVERNMENT BOND FUND
URSA MASTER FUND
ARKTOS MASTER FUND
JUNO MASTER FUND
UTILITIES MASTER FUND
BANKING FUND
BASIC MATERIALS FUND
BIOTECHNOLOGY FUND
CONSUMER PRODUCTS FUND
ELECTRONICS FUND
ENERGY FUND
ENERGY SERVICES FUND
FINANCIAL SERVICES FUND
HEALTH CARE FUND
INTERNET FUND
LEISURE FUND
PRECIOUS METALS FUND
RETAILING FUND
TECHNOLOGY FUND
TELECOMMUNICATIONS FUND
TRANSPORTATION FUND
UTILITIES FUND
U.S. GOVERNMENT MONEY MARKET FUND
This SAI is not a prospectus. It should be read in conjunction with the Trust's
Prospectus, dated April 1 , 2000. A copy of the Trust's Prospectus is available,
without charge, upon request to the Trust at the address above or by telephoning
the Trust at the telephone number above.
The date of this SAI is August 1, 1999, as supplemented April 1, 2000.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION ABOUT THE TRUST.........................................3
ADDITIONAL INFORMATION ABOUT THE SECTOR FUNDS...............................3
DESCRIPTION OF THE MONEY MARKET FUND.......................................7
INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS............................8
INVESTMENT RESTRICTIONS....................................................18
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................23
MANAGEMENT OF THE TRUST....................................................25
PRINCIPAL HOLDERS OF SECURITIES............................................34
DETERMINATION OF NET ASSET VALUE...........................................48
PERFORMANCE INFORMATION....................................................50
CALCULATION OF RETURN QUOTATIONS...........................................51
INFORMATION ON COMPUTATION OF YIELD........................................55
PURCHASE AND REDEMPTION OF SHARES..........................................57
DIVIDENDS, DISTRIBUTIONS, AND TAXES........................................58
OTHER INFORMATION..........................................................62
COUNSEL....................................................................62
AUDITORS AND CUSTODIAN.....................................................62
FINANCIAL STATEMENTS.......................................................63
APPENDIX...................................................................64
2
<PAGE>
GENERAL INFORMATION ABOUT THE TRUST
The Trust was organized as a Delaware business trust on February 10, 1993. The
Trust is permitted to offer separate portfolios and different classes of shares.
The Trust currently offers two separate classes of shares, Investor Class Shares
and Advisor Class Shares. Investor Class Shares are sold principally to
professional money managers and to investors who take part in certain
asset-allocation investment strategies. Advisor Class Shares are offered through
broker-dealers and other financial institutions ("intermediaries") that have
entered into arrangements with the Trust's Distributor (the "Distributor") to
sell Advisor Class Shares to their customers. Advisor Class Shares differ from
Investor Class Shares primarily in the allocation of certain shareholder
servicing and distribution expenses and in the minimum initial investment
requirement. Sales of shares of each Class are made without a sales charge at
each Fund's per share net asset value. Additional Funds and/or classes may be
created from time to time.
Currently, the Trust has thirty separate series. The Nova, Ursa, OTC, Arktos,
U.S. Government Bond (the "Bond Fund"), and Juno Funds (collectively, the
"Benchmark Funds") are designed to provide investment results which match the
performance of a specific benchmark. The Large-Cap Europe and Large-Cap Japan
Funds (collectively, the "International Funds") are designed to provide
investment returns that correlate to the performance of a specific benchmark.
The Banking, Basic Materials, Biotechnology, Consumer Products, Electronics,
Energy, Energy Services, Financial Services, Health Care, Internet, Leisure,
Precious Metals, Retailing, Technology, Telecommunications, Transportation,
Utilities, and Utilities Master Funds (collectively, the "Sector Funds") are
designed to provide exposure to specific economic sectors. The Ursa Master,
Arktos Master, and Juno Master Funds (collectively, the "Master Funds") serve
as master funds in a master-feeder arrangement with the Ursa, Arktos, and
Juno Funds, respectively. The Utilities Master Fund is not currently offering
shares and at which time it does offer shares, it will only do so through a
master-feeder arrangement with the Utilities Fund. The Trust also offers
shares of the U.S. Government Money Market Fund (the "Money Market Fund").
All payments received by the Trust for shares of any Fund belong to that
Fund. Each Fund has its own assets and liabilities.
ADDITIONAL INFORMATION ABOUT THE SECTOR FUNDS
BANKING FUND
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
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, copper, 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
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
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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
The Fund may invest in companies engaged in the manufacture of goods to
consumers, both domestically and internationally. The Fund may invest in
companies that manufacture durable products such as furniture, major appliances,
and personal computers. The Fund also may invest in companies that manufacture,
wholesale or retail non-durable goods such as beverages, tobacco, health care
products, household and personal care products, apparel, and entertainment
products (E.G., books, magazines, TV, cable, movies, music, gaming, and sports).
In addition, the Fund may invest in consumer products and services such as
lodging, child care, convenience stores, and car rentals.
ELECTRONICS FUND
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 manufacturers;
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 electro-optics, and other developing electronics technologies.
ENERGY FUND
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
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
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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
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, 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:
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 owning
more than 5% of the issuer's outstanding securities in that class;
c. for a debt security, the purchase cannot result in the fund owning 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
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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
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.
INTERNET FUND
The Fund may invest in companies that are involved in the Internet sector
including companies which the Advisor believes should benefit from the
commercialization of technological advances, although they may not be directly
involved in research and development. Such companies may provide information or
entertainment services over the Internet; sell or distribute goods and services
over the Internet; provide infrastructure systems or otherwise provide hardware
or software which impacts Internet commerce; or provide Internet access to
consumers and businesses.
LEISURE FUND
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.
PRECIOUS METALS FUND
The Fund may invest in the equity securities of U.S. and foreign companies that
are involved in the precious metals sector ("Precious Metals Companies").
Precious Metals Companies include precious metals manufacturers; distributors of
precious metals products, such as jewelry, metal foil or bullion; mining and
geological exploration companies; and companies which provide services to
Precious Metals Companies.
RETAILING FUND
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.
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TECHNOLOGY FUND
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 example,
companies that develop, produce, or distribute products or services in the
computer, semiconductor, electronics, communications, health care, and
biotechnology sectors.
TELECOMMUNICATIONS FUND
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
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 its 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.
UTILITIES FUND
The Fund will invest primarily in companies in the public utilities industry and
companies deriving a majority of their revenues from their public utility
operations as described in the Fund's prospectus. Such companies may include
companies involved in the manufacturing, production, generation, transmission,
distribution or sales of gas or electric energy; water supply, waste and sewage
disposal; and companies involved in the public communication field, including
telephone, telegraph, satellite, microwave and other public communication
facilities.
DESCRIPTION OF THE MONEY MARKET FUND
The Money Market Fund seeks to provide security of principal, high current
income, and liquidity. The Money Market Fund invests primarily in money market
instruments issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, and may invest any remaining
assets in receipts and enter into repurchase agreements fully collateralized by
U.S. Government Securities.
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The Money Market Fund is governed by SEC rules which impose certain liquidity,
maturity and diversification requirements. The Money Market Fund's assets are
valued using the amortized cost method, which enables the Money Market Fund to
maintain a stable NAV. All securities purchased by the Money Market Fund must
have remaining maturities of 397 days or less. Although the Money Market Fund is
managed to maintain a stable price per share of $1.00, there is no guarantee
that the price will be constantly maintained.
INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS
GENERAL
Each Fund's investment objective and permitted investments are described in the
Prospectuses. The investment objective of each Fund (except the Sector Funds),
including the benchmark of the Nova Fund and Ursa Fund 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 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. PADCO Advisors, Inc. operates
under the name Rydex Global Advisors (the "Advisor"). The investment strategies
of the Funds discussed below and in the Prospectuses may be used by a Fund if,
in the opinion of the Advisor, these strategies will be advantageous to that
Fund. A Fund is free to reduce or eliminate its activity in any of those areas
without changing the Fund's fundamental investment policies. There is no
assurance that any of these strategies or any other strategies and methods of
investment available to a Fund will result in the achievement of that Fund's
objectives.
BORROWING
The Nova Fund, Bond Fund, and 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 Fund's assets will
fluctuate in value, whereas the interest obligations on borrowings may be fixed,
the net asset value per share of the Fund will increase more when the Fund's
portfolio assets increase in value and decrease more when the Fund's portfolio
assets decrease in value than would otherwise be the case. Moreover, interest
costs on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the returns on the borrowed funds. Under adverse
conditions, the Nova Fund, Bond Fund, or 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 Nova Fund, Bond Fund, and Sector
Funds intend to use leverage during periods when the Advisor believes that the
respective Fund's investment objective would be furthered.
Each Fund may also borrow money to facilitate management of the Fund's portfolio
by enabling the Fund to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or disadvantageous. Such borrowing
is not for investment purposes and will be repaid by the borrowing Fund
promptly.
As required by the 1940 Act, a Fund must maintain continuous asset coverage
(total assets, including assets acquired with borrowed funds, less liabilities
exclusive of borrowings) of 300% of all amounts
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borrowed. If, at any time, the value of the Fund's assets should fail to meet
this 300% coverage test, the Fund, within three days (not including Sundays and
holidays), will reduce the amount of the Fund's borrowings to the extent
necessary to meet this 300% coverage. Maintenance of this percentage limitation
may result in the sale of portfolio securities at a time when investment
considerations otherwise indicate that it would be disadvantageous to do so.
In addition to the foregoing, the Funds are authorized to borrow money as a
temporary measure for extraordinary or emergency purposes in amounts not in
excess of 5% of the value of the Fund's total assets. This borrowing is not
subject to the foregoing 300% asset coverage requirement The Funds are
authorized to pledge portfolio securities as the Advisor deems appropriate in
connection with any borrowings.
FOREIGN ISSUERS
The Sector Funds may invest in issuers located outside the United States. The
Sector Funds may purchase American Depositary Receipts ("ADRs"), "ordinary
shares," or "New York shares" 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. Ordinary shares
are shares of foreign issuers that are traded abroad and on a United States
exchange. New York shares are shares that a foreign issuer has allocated for
trading in the United States. ADRs, ordinary shares, and New York shares all may
be purchased with and sold for U.S. dollars, which protect the Funds from the
foreign settlement risks described below.
Investing in foreign companies may involve risks not typically associated with
investing in United States companies. The value of securities denominated in
foreign currencies, and of dividends from such securities, can change
significantly when foreign currencies strengthen or weaken relative to the U.S.
dollar. Foreign securities markets generally have less trading volume and less
liquidity than United States markets, and prices in some foreign markets can be
very volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those that apply to United States companies, and it may
be more difficult to obtain reliable information regarding a foreign issuer's
financial condition and operations. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions, and custodial fees,
generally are higher than for United States investments.
Investing in companies located abroad carries political and economic risks
distinct from those associated with investing in the United States. Foreign
investment may be affected by actions of foreign governments adverse to the
interests of United States investors, including the possibility of expropriation
or nationalization of assets, confiscatory taxation, restrictions on United
States investment, or on the ability to repatriate assets or to convert currency
into U.S. dollars. There may be a greater possibility of default by foreign
governments or foreign-government sponsored enterprises. Investments in foreign
countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
ILLIQUID SECURITIES
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While none of the Funds anticipates doing so, each Fund may purchase illiquid
securities, including securities that are not readily marketable and securities
that are not registered ("restricted securities") under the Securities Act of
1933, as amended (the "1933 Act"), but which can be offered and sold to
"qualified institutional buyers" under Rule 144A under the 1933 Act. A Fund will
not invest more than 15% (10% with respect to the Money Market Fund) of the
Fund's net assets in illiquid securities. If the percentage of a Fund's net
assets invested in illiquid securities exceeds 15% (10% for the Money Market
Fund) due to market activity, the Fund will take appropriate measures to reduce
its holdings of illiquid securities. Each Fund will adhere to a more restrictive
limitation on the Fund's investment in illiquid securities as required by the
securities laws of those jurisdictions where shares of the Fund are registered
for sale. The term "illiquid securities" for this purpose means securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Under the
current guidelines of the staff of the Securities and Exchange Commission (the
"Commission"), illiquid securities also are considered to include, among other
securities, purchased over-the-counter options, certain cover for
over-the-counter options, repurchase agreements with maturities in excess of
seven days, and certain securities whose disposition is restricted under the
Federal securities laws. The Fund may not be able to sell illiquid securities
when the Advisor considers it desirable to do so or may have to sell such
securities at a price that is lower than the price that could be obtained if the
securities were more liquid. In addition, the sale of illiquid securities also
may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.
Institutional markets for restricted securities have developed as a result of
the promulgation of Rule 144A under the 1933 Act, which provides a "safe harbor"
from 1933 Act registration requirements for qualifying sales to institutional
investors. When Rule 144A restricted securities present an attractive investment
opportunity and meet other selection criteria, a Fund may make such investments
whether or not such securities are "illiquid" depending on the market that
exists for the particular security. The trustees of the Trust (the "Trustees")
have delegated the responsibility for determining the liquidity of Rule 144A
restricted securities which may be invested in by a Fund to the Advisor.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Funds (other than the Bond Fund and Money Market Fund) presently may invest
in the securities of other investment companies to the extent that such an
investment would be consistent with the requirements of Section 12(d)(1) of the
1940 Act. A Fund, therefore, may invest in the securities of another investment
company (the "acquired company") provided that the Fund, immediately after such
purchase or acquisition, does not own in the aggregate: (i) more than 3% of the
total outstanding voting stock of the acquired company; (ii) securities issued
by the acquired company having an aggregate value in excess of 5% of the value
of the total assets of the Fund; or (iii) securities issued by the acquired
company and all other investment companies (other than Treasury stock of the
Fund) having an aggregate value in excess of 10% of the value of the total
assets of the Fund. A Fund may also invest in the securities of other investment
companies if such securities are the only investment securities held by the
Fund, such as through a master-feeder arrangement. The Ursa, Arktos and Juno
Funds pursue their respective investment goals through a master-feeder
arrangement. The Bond Fund and Money Market Fund may invest in the securities of
other investment companies only as part of a merger, reorganization, or
acquisition, subject to the requirements of the 1940 Act.
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If a Fund invests in, and, thus, is a shareholder of, another investment
company, the Fund's shareholders will indirectly bear the Fund's proportionate
share of the fees and expenses paid by such other investment company, including
advisory fees, in addition to both the management fees payable directly by the
Fund to the Fund's own investment adviser and the other expenses that the Fund
bears directly in connection with the Fund's own operations.
LENDING OF PORTFOLIO SECURITIES
Subject to the investment restrictions set forth below, each of the Funds may
lend portfolio securities to brokers, dealers, and financial institutions,
provided that cash equal to at least 100% of the market value of the securities
loaned is deposited by the borrower with the Fund and is maintained each
business day in a segregated account pursuant to applicable regulations. While
such securities are on loan, the borrower will pay the lending Fund any income
accruing thereon, and the Fund may invest the cash collateral in portfolio
securities, thereby earning additional income. A Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which the Fund's shares are qualified for sale, and the Funds
will not lend more than 33 1/3% of the value of the Fund's total assets, except
that the Money Market Fund will not lend more than 10% of the value of the Money
Market Fund's total assets. Loans would be subject to termination by the lending
Fund on four business days' notice, or by the borrower on one day's notice.
Borrowed securities must be returned when the loan is terminated. Any gain or
loss in the market price of the borrowed securities which occurs during the term
of the loan inures to the lending Fund and that Fund's shareholders. A lending
Fund may pay reasonable finders, borrowers, administrative, and custodial fees
in connection with a loan.
OPTIONS TRANSACTIONS
OPTIONS ON SECURITIES. The Sector Funds, Nova Fund, OTC Fund, and Utilities
Master Fund may buy call options and write (sell) put options on securities, and
the Ursa Fund, Ursa Master Fund, Arktos Fund, and Arktos Master Fund may buy put
options and write call options on securities for the purpose of realizing the
Fund's investment objective. By writing a call option on securities, 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.
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A Fund may purchase and write options on an exchange or over-the-counter.
Over-the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the SEC that OTC options are illiquid.
OPTIONS ON SECURITY INDICES. The Sector Funds, Nova Fund, and OTC Fund may
purchase call options and write put options, and the Ursa Fund, Ursa Master
Fund, Arktos Fund, and Arktos Master Fund may purchase put options and write
call options, on stock indices 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 indices 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 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
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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 underlying futures contract 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.
SWAP AGREEMENTS
The Funds may enter into equity index or interest rate swap agreements for
purposes of attempting to gain exposure to the stocks making up an index of
securities in a market without actually purchasing those stocks, or to hedge a
position. Swap agreements are two-party contracts entered into primarily by
institutional investors for periods ranging from a day to more than one year. In
a standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount," i.e.,
the return on or increase in value of a particular dollar amount invested in a
"basket" of securities representing a particular index. Forms of swap agreements
include interest rate caps, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap"; interest rate floors, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; and interest rate
dollars, under which a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.
Most swap agreements entered into by the Funds calculate the obligations of the
parties to the agreement on a "net basis." Consequently, a Fund's current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
A Fund's current obligations under a swap agreement will be accrued daily
(offset against any amounts owing to the Fund) and any accrued but unpaid net
amounts owed to a swap counterparty will be covered by segregating assets
determined to be liquid. Obligations under swap agreements so covered will not
be
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construed to be "senior securities" for purposes of a Fund's investment
restriction concerning senior securities. Because they are two party contracts
and because they may have terms of greater than seven days, swap agreements may
be considered to be illiquid for the Fund illiquid investment limitations. A
Fund will not enter into any swap agreement unless the Advisor believes that the
other party to the transaction is creditworthy. A Fund bears the risk of loss of
the amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty.
Each Fund may enter into swap agreements to invest in a market without owning or
taking physical custody of securities in circumstances in which direct
investment is restricted for legal reasons or is otherwise impracticable. The
counterparty to any swap agreement will typically be a bank, investment banking
firm or broker/dealer. The counterparty will generally agree to pay the Fund the
amount, if any, by which the notional amount of the swap agreement would have
increased in value had it been invested in the particular stocks, plus the
dividends that would have been received on those stocks. The Fund will agree to
pay to the counterparty a floating rate of interest on the notional amount of
the swap agreement plus the amount, if any, by which the notional amount would
have decreased in value had it been invested in such stocks. Therefore, the
return to the Fund on any swap agreement should be the gain or loss on the
notional amount plus dividends on the stocks less the interest paid by the Fund
on the notional amount.
Swap agreements typically are settled on a net basis, which means that the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. Payments may be made at the
conclusion of a swap agreement or periodically during its term. Swap agreements
do not involve the delivery of securities or other underlying assets.
Accordingly, the risk of loss with respect to swap agreements is limited to the
net amount of payments that a Fund is contractually obligated to make. If the
other party to a swap agreement defaults, a Fund's risk of loss consists of the
net amount of payments that such Fund is contractually entitled to receive, if
any. The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each equity swap will be accrued on a daily basis
and an amount of cash or liquid assets, having an aggregate net asset value at
least equal to such accrued excess will be maintained in a segregated account by
a Fund's custodian. Inasmuch as these transactions are entered into for hedging
purposes or are offset by segregated cash of liquid assets, as permitted by
applicable law, the Funds and their Advisor believe that these transactions do
not constitute senior securities under the 1940 Act and, accordingly, will not
treat them as being subject to a Fund's borrowing restrictions.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the markets for other similar
instruments which are traded in the over-the-counter market. The Advisor, under
the supervision of the Board of Trustees, is responsible for determining and
monitoring the liquidity of Fund transactions in swap agreements.
The use of equity swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions.
PORTFOLIO TURNOVER
The Trust anticipates that investors in the Funds, as part of an asset
allocation investment strategy, will frequently purchase and/or redeem shares of
the Funds. The nature of the Funds as asset allocation tools
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will cause the Funds to experience substantial portfolio turnover. (See "More
Information About Risk" in the Trust's Prospectuses). 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.
"Portfolio Turnover Rate" is defined under the rules of the SEC as the value of
the securities purchased or securities sold, excluding all securities whose
maturities at the time of acquisition were one year or less, divided by the
average monthly value of such securities owned during the year. Based on this
definition, instruments with remaining maturities of less than one year are
excluded from the calculation of the portfolio turnover rate. Instruments
excluded from the calculation of portfolio turnover generally would include the
futures contracts and option contracts in which the Funds invest since such
contracts generally have remaining maturity of less than one year.
REPURCHASE AGREEMENTS
As discussed in the Trust's Prospectus, each of the Funds may enter into
repurchase agreements with financial institutions. The Funds each follow certain
procedures designed to minimize the risks inherent in such agreements. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions whose condition
will be continually monitored by the Advisor. In addition, the value of the
collateral underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, a Fund will seek to liquidate such collateral. However, the
exercising of each Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss. It is the current policy of each of the Funds, other
than the Money Market Fund, not to invest in repurchase agreements that do not
mature within seven days if any such investment, together with any other
illiquid assets held by the Fund, amounts to more than 15% (10% with respect to
the Money Market Fund) of the Fund's total assets. The investments of each of
the Funds in repurchase agreements, at times, may be substantial when, in the
view of the Advisor, liquidity or other considerations so warrant.
REVERSE REPURCHASE AGREEMENTS
The Ursa Fund, Juno Fund, Ursa Master Fund, Juno Master Fund, and Money Market
Fund may use reverse repurchase agreements as part of that Fund's investment
strategy. Reverse repurchase agreements involve sales by a Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. Generally, the effect of such a transaction is
that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
the Fund will be able to keep the interest income associated with those
portfolio securities. Such transactions are advantageous only if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. Opportunities to achieve this advantage may not
always be available, and the Funds intend to use the reverse repurchase
technique only when this will be advantageous to the Funds. Each Fund will
establish a segregated account with the Trust's custodian bank in which the Fund
will maintain cash or cash equivalents or other portfolio securities equal in
value to the Fund's obligations in respect of reverse repurchase agreements.
SHORT SALES
The Ursa Fund, Arktos Fund, Juno Fund, Ursa Master Fund, Arktos Master Fund, and
Juno Master Fund
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also may engage in short sales transactions under which the Fund sells a
security it does not own. To complete such a transaction, the Fund must borrow
the security to make delivery to the buyer. The Fund then is obligated to
replace the security borrowed by purchasing the security at the market price at
the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Fund. Until the security is
replaced, the Fund is required to pay to the lender amounts equal to any
dividends or interest which accrue during the period of the loan. To borrow the
security, the Fund also may be required to pay a premium, which would increase
the cost of the security sold. The proceeds of the short sale will be retained
by the broker, to the extent necessary to meet the margin requirements, until
the short position is closed out.
Until the Ursa Fund, Arktos Fund, Juno Fund, Ursa Master Fund, Arktos Master
Fund, or Juno Master Fund closes its short position or replaces the borrowed
security, the Fund will: (a) maintain a segregated account containing cash or
liquid securities at such a level that (i) the amount deposited in the account
plus the amount deposited with the broker as collateral will equal the current
value of the security sold short and (ii) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will not be less
than the market value of the security at the time the security was sold short;
or (b) otherwise cover the Fund's short position. Each of the Funds may use up
to 100% of its portfolio to engage in short sales transactions and collateralize
its open short positions.
The Sector Funds, Nova Fund, and OTC Fund each may engage in short sales if, at
the time of the short sale, the Fund owns or has the right to acquire an equal
amount of the security being sold at no additional cost. These Funds may make a
short sale when the Fund wants to sell the security it owns at a current
attractive price, in order to hedge or limit the exposure of the Fund's
position.
STOCK INDEX FUTURES CONTRACTS
A Fund may buy and sell stock index futures contracts with respect to any stock
index traded on a recognized stock exchange or board of trade. A stock index
futures contract is a contract to buy or sell units of an index at a specified
future date at a price agreed upon when the contract is made. The stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract.
At the time a Fund purchases a futures contract, an amount of cash, U.S.
Government securities or other liquid securities equal to the market value of
the futures contract will be deposited in a segregated account with the Fund's
custodian. When writing a futures contract, the Fund will maintain with its
custodian liquid assets that, when added to the amounts deposited with a futures
commission merchant or broker as margin, are equal to the market value of the
instruments underlying the contract. Alternatively, a Fund may "cover" its
position by owning the instruments underlying the contract (or, in the case of
an index futures contract, a portfolio with a volatility substantially similar
to that of the index on which the futures contract is based), or holding a call
option permitting the Fund to purchase the same futures contract at a price no
higher than the price of the contract written by the Fund (or at a higher price
if the difference is maintained in liquid assets with the Fund's custodian).
TRACKING ERROR
While Funds which seek to duplicate the performance of their respective
benchmarks on a daily basis, as discussed in the Prospectus, do not expect that
the aggregate returns over a year will deviate significantly
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from their respective benchmarks. However, several factors may affect their
ability to achieve this correlation. Among these are: (1) Fund expenses,
including brokerage (which may be increased by high portfolio turnover); (2)
less than all of the securities in the benchmark being held by a Fund and
securities not included in the benchmark being held by a Fund; (3) an imperfect
correlation between the performance of instruments held by a Fund, such as
futures contracts and options, and the performance of the underlying securities
in the market; (4) bid-ask spreads (the effect of which may be increased by
portfolio turnover); (5) a Fund holds instruments traded in a market that has
become illiquid or disrupted; (6) Fund share prices being rounded to the nearest
cent; (7) changes to the benchmark index that are not disseminated in advance;
(8) the need to conform a Fund's portfolio holdings to comply with investment
restrictions or policies or regulatory or tax law requirements; or (9) market
movements that run counter to a leveraged Fund's investments. Market movements
that run counter to a leveraged Fund's investments will cause some divergence
between the Fund and its benchmark over time due to the mathematical effects of
leveraging. The magnitude of the divergence is dependent upon the magnitude of
the market movement, its duration, and the degree to which the Fund is
leveraged. The tracking error of a leveraged Fund is generally small during a
well-defined up trend or downtrend in the market when measured from price peak
to price peak, absent a market decline and subsequent recovery, however, the
deviation of the Fund from its benchmark may be significant.
U.S. GOVERNMENT SECURITIES
The Bond Fund invests primarily in U.S. Government Securities, and each of the
other Funds may invest in U.S. Government Securities. The Juno Fund and Juno
Master Fund may enter into short transactions on U.S. Government Securities.
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities, which are backed by the full
faith and credit of the U.S. Treasury and which differ only in their interest
rates, maturities, and times of issuance. U.S. Treasury bills have initial
maturities of one year or less; U.S. Treasury notes have initial maturities of
one to ten years; and U.S. Treasury bonds generally have initial maturities of
greater than ten years. Certain U.S. Government Securities are issued or
guaranteed by agencies or instrumentalities of the U.S. Government including,
but not limited to, obligations of U.S. Government agencies or instrumentalities
such as Fannie Mae, the Government National Mortgage Association, the Small
Business Administration, the Federal Farm Credit Administration, the Federal
Home Loan Banks, Banks for Cooperatives (including the Central Bank for
Cooperatives), the Federal Land Banks, the Federal Intermediate Credit Banks,
the Tennessee Valley Authority, the Export-Import Bank of the United States, the
Commodity Credit Corporation, the Federal Financing Bank, the Student Loan
Marketing Association, and the National Credit Union Administration.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, including, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury. Other obligations issued by or guaranteed by
Federal agencies, such as those securities issued by Fannie Mae, are supported
by the discretionary authority of the U.S. Government to purchase certain
obligations of the Federal agency, while other obligations issued by or
guaranteed by Federal agencies, such as those of the Federal Home Loan Banks,
are supported by the right of the issuer to borrow from the U.S. Treasury, while
the U.S. Government provides financial support to such U.S. Government-sponsored
Federal agencies, no assurance can be given that the U.S. Government will always
do so, since the U.S. Government is not so obligated by law. U.S. Treasury notes
and bonds typically pay coupon interest semi-annually and repay the principal at
maturity. The Bond 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.
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WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each Fund, from time to time, in the ordinary course of business, may purchase
securities on a when-issued or delayed-delivery basis (I.E., delivery and
payment can take place between a month and 120 days after the date of the
transaction). These securities are subject to market fluctuation and no interest
accrues to the purchaser during this period. At the time a Fund makes the
commitment to purchase securities on a when-issued or delayed-delivery basis,
the Fund will record the transaction and thereafter reflect the value of the
securities, each day, of such security in determining the Fund's net asset
value. A Fund will not purchase securities on a when-issued or delayed-delivery
basis if, as a result, more than 15% (10% with respect to the Money Market Fund)
of the Fund's net assets would be so invested. At the time of delivery of the
securities, the value of the securities may be more or less than the purchase
price. The Fund will also establish a segregated account with the Fund's
custodian bank in which the Fund will maintain cash or liquid securities equal
to or greater in value than the Fund's purchase commitments for such when-issued
or delayed-delivery securities. The Trust does not believe that a Fund's net
asset value or income will be adversely affected by the Fund's purchase of
securities on a when-issued or delayed-delivery basis.
ZERO COUPON BONDS
The Bond Fund, Juno Fund, and Juno Master Fund may invest in U.S. Treasury
zero-coupon bonds. These securities are U.S. Treasury bonds which have been
stripped of their unmatured interest coupons, the coupons themselves, and
receipts or certificates representing interests in such stripped debt
obligations and coupons. Interest is not paid in cash during the term of these
securities, but is accrued and paid at maturity. Such obligations have greater
price volatility than coupon obligations and other normal interest-paying
securities, and the value of zero coupon securities reacts more quickly to
changes in interest rates than do coupon bonds. Since dividend income is accrued
throughout the term of the zero coupon obligation, but is not actually received
until maturity, the Fund may have to sell other securities to pay said accrued
dividends prior to maturity of the zero coupon obligation. Unlike regular U.S.
Treasury bonds which pay semi-annual interest, U.S. Treasury zero coupon bonds
do not generate semi-annual coupon payments. Instead, zero coupon bonds are
purchased at a substantial discount from the maturity value of such securities,
the discount reflecting the current value of the deferred interest; this
discount is amortized as interest income over the life of the security, and is
taxable even though there is no cash return until maturity. Zero coupon U.S.
Treasury issues originally were created by government bond dealers who bought
U.S. Treasury bonds and issued receipts representing an ownership interest in
the interest coupons or in the principal portion of the bonds. Subsequently, the
U.S. Treasury began directly issuing zero coupon bonds with the introduction of
"Separate Trading of Registered Interest and Principal of Securities" (or
"STRIPS"). While zero coupon bonds eliminate the reinvestment risk of regular
coupon issues, that is, the risk of subsequently investing the periodic interest
payments at a lower rate than that of the security held, zero coupon bonds
fluctuate much more sharply than regular coupon-bearing bonds. Thus, when
interest rates rise, the value of zero coupon bonds will decrease to a greater
extent than will the value of regular bonds having the same interest rate.
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
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of that Fund are present or represented by proxy, or (ii)
more than 50% of that Fund's outstanding shares, whichever is less.
A Benchmark Fund or Master Fund shall not:
1. Lend any security or make any other loan if, as a result, more than
33 1/3% of the value of the Fund's total assets would be lent to other
parties, except (i) through the purchase of a portion of an issue of
debt securities in accordance with the Fund's investment objective,
policies, and limitations, or (ii) by engaging in repurchase
agreements with respect to portfolio securities, or (iii) through the
loans of portfolio securities provided the borrower maintains
collateral equal to at least 100% of the value of the borrowed
security and marked-to-market daily.
2. Underwrite securities of any other issuer.
3. Purchase, hold, or deal in real estate or oil and gas interests,
although the Fund may purchase and sell securities that are secured by
real estate or interests therein and may purchase mortgage-related
securities and may hold and sell real estate acquired for the Fund as
a result of the ownership of securities.
4. Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act) (including the amount of senior securities issued but
excluding liabilities and indebtedness not constituting senior
securities), except that the Fund may issue senior securities in
connection with transactions in options, futures, options on futures,
and other similar investments, and except as otherwise permitted
herein and in Investment Restriction Nos. 5, 7, 8, and 9, as
applicable to the Fund.
5. Pledge, mortgage, or hypothecate the Fund's assets, except to the
extent necessary to secure permitted borrowings and to the extent
related to the deposit of assets in escrow in connection with (i) the
writing of covered put and call options, (ii) the purchase of
securities on a forward-commitment or delayed-delivery basis, and
(iii) collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts,
including those relating to indices, and options on futures contracts
or indices.
6. Invest in commodities except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies,
indices, and options on futures contracts or indices and currencies
underlying or related to any such futures contracts, and purchase and
sell currencies (and options thereon) or securities on a
forward-commitment or delayed-delivery basis.
6.1 The Precious Metals may (a) trade in futures contracts and
options on futures contracts; or (b) invest in precious metals
and precious minerals.
7. Invest 25% or more of the value of the Fund's total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry. This
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limitation does not apply to investments or obligations of the U.S.
Government or any of its agencies or instrumentalities.
7.1 THE PRECIOUS METALS FUND WILL INVEST 25% OR MORE OF THE VALUE OF
ITS TOTAL ASSETS IN THE SECURITIES IN THE METALS-RELATED AND
MINERALS-RELATED INDUSTRIES.
8. Borrow money, except (i) as a temporary measure for extraordinary or
emergency purposes and then only in amounts not in excess of 5% of the
value of the Fund's total assets from a bank or (ii) in an amount up
to one-third of the value of the Fund's total assets, including the
amount borrowed, in order to meet redemption requests without
immediately selling portfolio instruments. This provision is not for
investment leverage but solely to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio instruments would be inconvenient or
disadvantageous.
8.1 THE NOVA FUND AND BOND FUND MAY BORROW MONEY, SUBJECT TO THE
CONDITIONS OF PARAGRAPH 8, FOR THE PURPOSE OF INVESTMENT
LEVERAGE.
8.2 THE JUNO FUND MAY BORROW MONEY, SUBJECT TO THE CONDITIONS OF
PARAGRAPH 8, BUT SHALL NOT MAKE PURCHASES WHILE BORROWING IN
EXCESS OF 5% OF THE VALUE OF ITS ASSETS. FOR PURPOSES OF THIS
SUBPARAGRAPH, FUND ASSETS INVESTED IN REVERSE REPURCHASE
AGREEMENTS ARE INCLUDED IN THE AMOUNTS BORROWED.
9. Make short sales of portfolio securities or purchase any portfolio
securities on margin, except for such short-term credits as are
necessary for the clearance of transactions. The deposit or payment by
the Fund of initial or variation margin in connection with futures or
options transactions is not considered to be a securities purchase on
margin. The Fund may engage in short sales if, at the time of the
short sale, the Fund owns or has the right to acquire an equal amount
of the security being sold at no additional cost ("selling against the
box").
9.1 THE URSA FUND, ARKTOS FUND, JUNO FUND, URSA MASTER FUND, ARKTOS
MASTER FUND, AND JUNO MASTER FUND MAY ENGAGE IN SHORT SALES OF
PORTFOLIO SECURITIES OR MAINTAIN A SHORT POSITION IF AT ALL TIMES
WHEN A SHORT POSITION IS OPEN (i) THE FUND MAINTAINS A SEGREGATED
ACCOUNT WITH THE Fund's CUSTODIAN TO COVER THE SHORT POSITION IN
ACCORDANCE WITH THE POSITION OF THE SECURITIES AND EXCHANGE
COMMISSION OR (ii) THE FUND OWNS AN EQUAL AMOUNT OF SUCH
SECURITIES OR SECURITIES CONVERTIBLE INTO OR EXCHANGEABLE,
WITHOUT PAYMENT OF ANY FURTHER CONSIDERATION, FOR SECURITIES OF
THE SAME ISSUE AS, AND EQUAL IN AMOUNT TO, THE SECURITIES SOLD
SHORT.
FUNDAMENTAL POLICIES OF THE SECTOR FUNDS
A Sector Fund shall not:
10. 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
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to purchase securities or require the 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 exceeds 5% of its total assets.
11. 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.
12. 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.
13. Issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the SEC.
14. Act as an underwriter of securities of other issuers except as
it may be deemed an underwriter in selling a portfolio
security.
15. Invest in interests in oil, gas, or other mineral exploration
or development programs and oil, gas or mineral leases.
FUNDAMENTAL POLICIES APPLICABLE TO THE MONEY MARKET FUND
The Money Market Fund shall not:
16. Make loans to others except through the purchase of qualified
debt obligations, loans of portfolio securities and entry into
repurchase agreements.
17. 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.
18. Issue senior securities, except as permitted by the Money
Market Fund's investment objectives and policies.
19. Write or purchase put or call options.
20. 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.
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21. 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.
22. Make short sales of portfolio securities or purchase any
portfolio securities on margin, except for such short-term
credits as are necessary for the clearance of transactions.
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of the Funds
and may be changed with respect to any Fund by the Board of Trustees.
Each Fund may not:
1. Invest in warrants.
2. Invest in real estate limited partnerships.
3. Invest in mineral leases.
Each Sector Fund may not:
4. Pledge, mortgage or hypothecate assets except to secure
borrowing permitted by the Fund's fundamental limitation on
borrowing.
5. Invest in companies for the purpose of exercising control.
6. 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.
7. 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.
8. Purchase or hold illiquid securities, I.E., securities that
cannot be disposed of for their approximate carrying value in
seven days or less (which term includes repurchase agreements
and time deposits maturing in more than seven days) if, in the
aggregate, more than 15% of its net assets would be invested
in illiquid securities.
The foregoing percentages: (i) are based on total assets (except for the
limitation on illiquid securities, which is based on net assets); (ii) will
apply at the time of the purchase of a security; and (iii) shall not be
22
<PAGE>
considered violated unless an excess or deficiency occurs or exists immediately
after and as a result of a purchase of such security.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, the Advisor is responsible
for decisions to buy and sell securities for each of the Funds, the selection of
brokers and dealers to effect the transactions, and the negotiation of brokerage
commissions, if any. The Advisor expects that the Funds may execute brokerage or
other agency transactions through registered broker-dealers, for a commission,
in conformity with the 1940 Act, the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
The Advisor may serve as an investment manager to a number of clients, including
other investment companies. It is the practice of the Advisor to cause purchase
and sale transactions to be allocated among the Funds and others whose assets
the Advisor manages in such manner as the Advisor deems equitable. The main
factors considered by the Advisor in making such allocations among the Funds and
other client accounts of the Advisor are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinions of the person(s) responsible, if any, for
managing the portfolios of the Funds and the other client accounts.
The policy of each Fund regarding purchases and sales of securities for the
Fund's portfolio is that primary consideration will be given to obtaining the
most favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange, each
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. Each Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Advisor from obtaining a high quality of brokerage and
research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Advisor relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily subjective
and imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
Purchases and sales of U.S. Government securities are normally transacted
through issuers, underwriters or major dealers in U.S. Government securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased from
an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between bid
and asked prices.
In managing the investment portfolios of the Funds, 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. In addition, Section 28(e) of the
Securities Exchange Act of 1934 permits the Advisor to cause a Fund to pay
commission rates in excess of those another dealer or broker would have charged
for effecting the same transaction, if the Advisor determines, in good faith,
that the commission paid is reasonable in relation to the value of brokerage and
research services provided. While the Advisor currently does not intend to pay
higher commissions to dealers and brokers who supply it with brokerage and
research services, in the
23
<PAGE>
event such higher payments would be made or are deemed to have been made, such
higher payments would be in accordance with Section 28(e).
Such research services may include information on the economy, industries,
groups of securities, individual companies, statistical information, accounting
and tax law interpretations, political developments, legal developments
affecting portfolio securities, technical market action, pricing and appraisal
services, credit analysis, risk measurement analysis, performance analysis,
analysis of corporate responsibility issues or in the form of access to various
computer-generated data, computer hardware and software. Such research may be
provided by brokers and dealers in the form of written reports, telephone
contacts and personal meetings with security analysts, corporate and industry
spokespersons, economists, academicians, and government representatives.
Brokerage services and equipment may facilitate the execution and monitoring of
securities transactions, for example, by providing rapid communications with
financial markets and brokers or dealers, or by providing real-time tracking of
orders, settlements, investment positions and relevant investment criteria and
restrictions applicable to the execution of securities transactions. In some
cases, brokerage and research services are generated by third parties but are
provided to the Advisor by or through brokers and dealers. The Advisor may
allocate brokerage for research services that are also available for cash, where
appropriate and permitted by law. The Advisor may also pay cash for certain
research services received from external sources.
In addition, the information and services received by the Advisor from brokers
and dealers may not in all cases benefit a Fund directly. For example, such
information and services received by the Advisor as a result of the brokerage
allocation of one of the Funds may be of benefit to the Advisor in the
management of other accounts of the Advisor, including other Funds of the Trust
and other investment companies advised by the Advisor. While the receipt of such
information and services is useful in varying degrees and would generally reduce
the amount of research or services otherwise performed by the Advisor and
thereby reduce the Advisor's expenses, this information and these services are
of indeterminable value and the management fee paid to the Advisor is not
reduced by any amount that may be attributable to the value of such information
and services.
For the fiscal period ended March 31, 1999, the Advisor paid no commissions on
brokerage transactions, pursuant to an agreement or understanding, to brokers in
consideration of research services.
For the fiscal periods ended March 31, 1997, March 31, 1998 and March 31, 1999
the Funds paid the following brokerage commissions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
AGGREGATE BROKERAGE COMMISSIONS
-----------------------------------------------------------------
FUND 1997* 1998 1999
- -------------------------------------------------- ---------------- ----------------------- -----------------------
<S> <C> <C> <C>
Nova Fund $259,900 $836,833 $1,950,042
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Ursa Fund $236,053 $284,054 $ 381,892
- -------------------------------------------------- ---------------- ----------------------- -----------------------
OTC Fund $ 15,491 $ 20,402 $ 4,966
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Arktos Fund n/a n/a $ 5,446
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Juno Fund $ 24,387 $ 40,740 $ 36,994
- -------------------------------------------------- ---------------- ----------------------- -----------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
AGGREGATE BROKERAGE COMMISSIONS
-----------------------------------------------------------------
FUND 1997* 1998 1999
- -------------------------------------------------- ---------------- ----------------------- -----------------------
<S> <C> <C> <C>
U.S. Government Bond Fund $ 7,829 $ 18,172 $ 34,498
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Ursa Master Fund** n/a n/a n/a
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Arktos Master Fund** n/a n/a n/a
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Juno Master Fund** n/a n/a n/a
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Utilities Master Fund** n/a n/a n/a
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Banking Fund n/a n/a $ 574,673
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Basic Materials Fund n/a n/a $ 280,569
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Biotechnology Fund n/a n/a $ 122,671
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Consumer Products Fund n/a n/a $ 110, 820
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Electronics Fund n/a n/a $ 556,126
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Energy Fund n/a n/a $ 250,391
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Energy Services Fund n/a n/a $1,024,957
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Financial Services Fund n/a n/a $1,717,650
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Health Care Fund n/a n/a $ 508,052
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Internet Fund** n/a n/a n/a
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Leisure Fund n/a n/a $ 213,807
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Precious Metals Fund $185,396 $200,264 $ 222,795
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Retailing Fund n/a n/a $ 764,655
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Technology Fund n/a n/a $ 475,721
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Telecommunications Fund n/a n/a $ 232,192
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Transportation Fund n/a n/a $ 263,982
- -------------------------------------------------- ---------------- ----------------------- -----------------------
Utilities Fund** n/a n/a n/a
- -------------------------------------------------- ---------------- ----------------------- -----------------------
U.S. Government Money Market Fund n/a n/a n/a
- -------------------------------------------------- ---------------- ----------------------- -----------------------
</TABLE>
*For the nine-month period from July 1, 1996 to March 31, 1997
**The Ursa Master Fund, Arktos Master Fund, Juno Master Fund, Utilities Master
Fund, Internet Fund, and Utilities Fund had not commenced operations as of
August 1, 1999.
MANAGEMENT OF THE TRUST
The Trustees are responsible for the general supervision of the Trust's
business. The day-to-day operations of the Trust are the responsibilities of the
Trust's officers. The names and addresses (and ages) of the Trustees and the
officers of the Trust and the officers of the Advisor, together with
25
<PAGE>
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. (58)
Chairman of the Board of Trustees and President of Rydex Series Funds,
a registered mutual fund, 1993 to present; Chairman of the Board of
Trustees and President of Rydex Variable Trust, a registered mutual
fund, 1998 to present; Chairman of the Board of Trustees and President
of Rydex Dynamic Funds, a registered mutual fund, 1999 to present;
Chairman of the Board of Directors, President, and Treasurer of PADCO
Advisors, Inc., investment adviser, 1993 to present; Chairman of the
Board of Directors, President, and Treasurer of PADCO Service Company,
Inc., shareholder and transfer agent servicer, 1993 to present;
Chairman of the Board of Directors, President, and Treasurer of PADCO
Advisors II, Inc., investment adviser, 1998 to present; Chairman of the
Board of Directors, President, and Treasurer of Rydex Distributors,
Inc., a registered broker-dealer firm, 1996 to present; Vice President
of Rushmore Investment Advisors Ltd., a registered investment adviser,
1985 to 1993. Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
COREY A. COLEHOUR (53)
Trustee of Rydex Series Funds, 1993 to present; Trustee of Rydex
Variable Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999
to present; Senior Vice President of Marketing of Schield Management
Company, a registered investment adviser, 1985 to present. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.
J. KENNETH DALTON (58)
Trustee of Rydex Series Funds, 1995 to present; Trustee of Rydex
Variable Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999
to present; Mortgage Banking Consultant and Investor, The Dalton Group,
a real estate company, 1995 to present; President, CRAM Mortgage Group,
Inc., 1966 to 1995. Address: 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.
JOHN O. DEMARET (59)
Trustee of Rydex Series Funds, 1997 to present; Trustee of Rydex
Variable Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999
to present; Founder and Chief Executive Officer, Health Cost Controls
America, Chicago, Illinois, 1987 to 1996; sole practitioner, Chicago,
Illinois, 1984 to 1987; General Counsel for the Chicago Transit
Authority, 1981 to 1984; Senior Partner, O'Halloran, LaVarre & Demaret,
Northbrook, Illinois, 1978 to 1981. Address: 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852.
- ----------
* This trustee is deemed to be an "interested person" of the Trust,
within the meaning of Section 2(a)(19) of the 1940 Act, inasmuch as
this person is affiliated with the Advisor, as described herein.
26
<PAGE>
PATRICK T. MCCARVILLE (57)
Trustee of Rydex Series Funds, 1997 to present; Trustee of Rydex
Variable Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999
to present; Founder and Chief Executive Officer, Par Industries, Inc.,
Northbrook, Illinois, 1977 to present; President and Chief Executive
Officer, American Health Resources, Northbrook, Illinois, 1984 to 1986.
Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
ROGER SOMERS (54)
Trustee of Rydex Series Funds, 1993 to present; Trustee of Rydex
Variable Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999
to present; President, Arrow Limousine, 1963 to present. Address: 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852.
OFFICERS
ROBERT M. STEELE (41)
Secretary and Vice President of Rydex Series Funds, 1994 to present;
Secretary and Vice President of Rydex Variable Trust, 1998 to present;
Secretary and Vice President of Rydex Dynamic Funds, 1999 to present;
Vice President of Rydex Distributors, Inc., 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 (47)
Vice President and Treasurer of Rydex Series Funds, 1997 to present;
Vice President and Treasurer of the Rydex Variable Trust, 1998 to
present; Vice President and Treasurer of Rydex Dynamic Funds, 1999 to
present; Vice President of Rydex Distributors, Inc., 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 of Perpetual Savings Bank, 1987
to 1993. Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
MICHAEL P. BYRUM (29)
Vice President and Assistant Secretary of Rydex Series Funds, 1997 to
present; Vice President and Assistant Secretary of the Rydex Variable
Trust, 1998 to present; Vice President and Assistant Secretary of the
Rydex Dynamic Funds, 1999 to present; Vice President and Senior
Portfolio Manager of PADCO Advisors, Inc., investment adviser, 1993 to
present; Vice President and Senior Portfolio Manager of PADCO Advisors
II Inc., investment adviser, 1996 to present; Secretary of Rydex
Distributors, Inc., 1996 to present; Investment Representative, Money
Management Associates, a registered investment adviser, 1992 to 1993.
Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
27
<PAGE>
JOHN FRANGOS (42)
Vice President of Rydex Series Funds, Rydex Variable Trust, and Rydex
Dynamic Funds from 1999 to present; Vice President of Operations of
PADCO Service Company, Inc., 1998 to present; Vice President of Rydex
Distributors, Inc., 1999 to present; Manager and Assistant Vice
President, PFPC, Inc., a mutual fund service company, 1994 to 1998.
Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
The aggregate compensation paid by the Trust to each of its Trustees serving
during the fiscal year ended March 31, 1999, is set forth in the table below:
<TABLE>
<CAPTION>
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
AGGREGATE PENSION OR ESTIMATED ANNUAL TOTAL COMPENSATION
NAME OF PERSON, POSITION COMPENSATION FROM RETIREMENT BENEFITS BENEFITS UPON FROM FUND COMPLEX
TRUST ACCRUED AS PART OF RETIREMENT FOR SERVICE ON
TRUST'S EXPENSES THREE BOARDS**
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Albert P. Viragh, Jr.*, $0 $0 $0 $0
CHAIRMAN AND PRESIDENT
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
Corey A. Colehour, TRUSTEE $20,000 $0 $0 $27,500
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
J. Kenneth Dalton, $20,000 $0 $0 $27,500
TRUSTEE
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
Roger Somers, $20,000 $0 $0 $27,500
TRUSTEE
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
John O. Demaret, $20,000 $0 $0 $27,500
TRUSTEE
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
Patrick T. McCarville, $20,000 $0 $0 $27,500
TRUSTEE
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
</TABLE>
* Denotes an "interested person" of the Trust.
** Each member of the Board of Trustees also serves as a Trustee to Rydex
Variable Trust and to Rydex Dynamic Funds.
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.
THE ADVISORY AGREEMENT
Under an investment advisory agreement the Advisor serves as the investment
adviser for each series of the Trust and provides investment advice to the Funds
and oversees the day-to-day operations of the Funds, subject to direction and
control by the Trustees and the officers of the Trust. As of June 30, 1999, net
assets under management of the Advisor were approximately $4 billion. Pursuant
to the advisory agreement with the Advisor, the Funds pay the Advisor the
following fees at an annual rate based on the average daily net assets for each
respective Fund, as set forth below:
28
<PAGE>
For the fiscal periods ended March 31, 1997, March 31, 1998 and March 31, 1999
the Advisor received the following investment advisory fees:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
ADVISORY FEES PAID
FUND
---------------------------------------------------------------------------------
ANNUAL ADVISORY FEE 1997* 1998 1999
CONTRACTUAL RATE
- ---------------------------------- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nova Fund 0.75% $1,812,740 $4,588,393 $5,775,479
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Ursa Fund 0.90% $2,070,135 $2,956,581 $4,849,228
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
OTC Fund 0.75% $ 775,607 $2,529,352 $5,142,021
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Arktos Fund 0.90% n/a n/a $ 297,921
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Juno Fund 0.90% $ 130,573 $ 160,954 $ 113,091
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
U.S. Government Bond Fund 0.50% $ 35,394 $ 91,744 $ 180,288
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Ursa Master Fund** n/a n/a n/a n/a
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Arktos Master Fund** n/a n/a n/a n/a
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Juno Master Fund** n/a n/a n/a n/a
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Utilities Master Fund** n/a n/a n/a n/a
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Banking Fund 0.85% n/a n/a $ 98,045
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Basic Materials Fund 0.85% n/a n/a $ 51,654
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Biotechnology Fund 0.85% n/a n/a $ 203,735
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Consumer Products Fund 0.85% n/a n/a $ 64,921
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Electronics Fund 0.85% n/a n/a $ 287,912
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Energy Fund 0.85% n/a n/a $ 56,392
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Energy Services Fund 0.85% n/a n/a $ 147,529
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Financial Services Fund 0.85% n/a n/a $ 224,408
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Health Care Fund 0.85% n/a n/a $ 219,227
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Internet Fund** 0.85% n/a n/a n/a
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Leisure Fund 0.85% n/a n/a $ 45,641
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Precious Metals Fund 0.75% $ 185,396 $ 200,264 $ 222,795
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Retailing Fund 0.85% n/a n/a $ 285,542
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Technology Fund 0.85% n/a n/a $ 342,246
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
ADVISORY FEES PAID
FUND
---------------------------------------------------------------------------------
ANNUAL ADVISORY FEE 1997* 1998 1999
CONTRACTUAL RATE
- ---------------------------------- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Telecommunications Fund 0.85% n/a n/a $ 118,715
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Transportation Fund 0.85% n/a n/a $ 41,446
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
Utilities Fund** 0.85% n/a n/a n/a
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
U.S. Government Money Market Fund 0.50% $ 671,957 $1,361,674 $3,913,720
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
</TABLE>
*For the nine-month period from July 1, 1996 to March 31, 1997
**The Ursa Master Fund, Arktos Master Fund, Juno Master Fund, Utilities Master
Fund, Internet Fund, and Utilities Fund had not commenced operations as of
August 1, 1999.
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.
PADCO Advisors, Inc. was incorporated in the State of Maryland on
February 5, 1993. Albert P. Viragh, Jr., the Chairman of the Board of
Trustees and President of the Advisor, owns a controlling interest in the
Advisor.
THE SERVICE AGREEMENT AND ACCOUNTING 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. (the "Servicer"), 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852, 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.
For the fiscal periods ended March 31, 1997, March 31, 1998, and March 31, 1999
the Funds paid PADCO the following service fees:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SERVICE FEES PAID
---------------------------------------------------------------------------------
ANNUAL SERVICE 1997* 1998 1999
FUND FEE RATE
- ---------------------------------- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nova Fund 0.25% $606,411 $1,529,464 $1,913,364
- ---------------------------------- ----------------------- --------------------- ---------------- ------------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
SERVICE FEES PAID
--------------------------------------------------------
ANNUAL SERVICE 1997* 1998 1999
FUND FEE RATE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ursa Fund 0.25% $575,038 $ 821,273 $1,367,076
- -------------------------------------------------------------------------------------------------------------------------
OTC Fund 0.20% $205,328 $ 674,494 $1,371,206
- -------------------------------------------------------------------------------------------------------------------------
Arktos Fund 0.25% n/a n/a $ 82,742
- -------------------------------------------------------------------------------------------------------------------------
Juno Fund 0.25% $36,374 $ 44,710 $ 31,414
- -------------------------------------------------------------------------------------------------------------------------
U.S. Government Bond Fund 0.20% $14,158 $ 36,617 $ 72,115
- -------------------------------------------------------------------------------------------------------------------------
Ursa Master Fund** n/a n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------------------
Arktos Master Fund** n/a n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------------------
Juno Master Fund** n/a n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------------------
Utilities Master Fund** n/a n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------------------
Banking Fund 0.25% n/a n/a $ 28,671
- -------------------------------------------------------------------------------------------------------------------------
Basic Materials Fund 0.25% n/a n/a $ 15,293
- -------------------------------------------------------------------------------------------------------------------------
Biotechnology Fund 0.25% n/a n/a $ 59,922
- -------------------------------------------------------------------------------------------------------------------------
Consumer Products Fund 0.25% n/a n/a $ 19,094
- -------------------------------------------------------------------------------------------------------------------------
Electronics Fund 0.25% n/a n/a $ 84,680
- -------------------------------------------------------------------------------------------------------------------------
Energy Fund 0.25% n/a n/a $ 16,586
- -------------------------------------------------------------------------------------------------------------------------
Energy Services Fund 0.25% n/a n/a $ 43,391
- -------------------------------------------------------------------------------------------------------------------------
Financial Services Fund 0.25% n/a n/a $ 66,623
- -------------------------------------------------------------------------------------------------------------------------
Health Care Fund 0.25% n/a n/a $ 64,478
- -------------------------------------------------------------------------------------------------------------------------
Internet Fund** 0.25% n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------------------
Leisure Fund 0.25% n/a n/a $ 13,424
- -------------------------------------------------------------------------------------------------------------------------
Precious Metals Fund 0.20% $49,439 $ 53,408 $ 59,123
- -------------------------------------------------------------------------------------------------------------------------
Retailing Fund 0.25% n/a n/a $ 83,983
- -------------------------------------------------------------------------------------------------------------------------
Technology Fund 0.25% n/a n/a $ 100,661
- -------------------------------------------------------------------------------------------------------------------------
Telecommunications Fund 0.25% n/a n/a $ 34,916
- -------------------------------------------------------------------------------------------------------------------------
Transportation Fund 0.25% n/a n/a $ 12,190
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
SERVICE FEES PAID
--------------------------------------------------------
ANNUAL SERVICE 1997* 1998 1999
FUND FEE RATE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities Fund** 0.25% n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------------------
U.S. Government Money Market Fund 0.20% $268,855 $544,706 $1,565,488
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*For the nine-month period from July 1, 1996 to March 31, 1997
**The Ursa Master Fund, Arktos Master Fund, Juno Master Fund, Utilities Master
Fund, Internet Fund, and Utilities Fund had not commenced operations as of
August 1, 1999.
Under the service agreement, the Servicer provides the Trust and each Fund with
all required general administrative services, including, without limitation,
office space, equipment, and personnel; clerical and general back office
services; bookkeeping, internal accounting, and secretarial services; the
determination of net asset values; and the preparation and filing of all
reports, registration statements, proxy statements, and all other materials
required to be filed or furnished by the Trust and each Fund under Federal and
state securities laws. The Servicer also maintains the shareholder account
records for each Fund, disburses dividends and distributions payable by each
Fund, and produces statements with respect to account activity for each Fund and
each Fund's shareholders. The Servicer pays all fees and expenses that are
directly related to the services provided by the Servicer to each Fund; each
Fund reimburses the Servicer for all fees and expenses incurred by the Servicer
which are not directly related to the services the Servicer provides to the Fund
under the service agreement.
Pursuant to an Accounting Service Agreement the Servicer serves as Accounting
Services Agent and performs certain record keeping and accounting functions. The
Servicer received the following fees for the fiscal period ended March 31, 1998:
Nova Fund - $205,109; Ursa Fund - $150,376; Money Market Fund - $202,742; OTC
Fund - $182,519; U.S. Government Bond Fund - $32,901; Juno Fund - $17,273;
Arktos Fund - $39,764; Ursa Master Fund* - n/a; Arktos Master Fund* - n/a; Juno
Master Fund* - n/a; Utilities Master Fund* - n/a; Banking Fund - $11,907; Basic
Materials Fund - $7,487; Biotechnology Fund - $22,396; Consumer Products Fund -
$8,750; Electronics Fund - $24,166; Energy Fund - $8,684; Energy Services Fund -
$17,085; Financial Services Fund - $22,966; Health Care Fund - $24,042; Internet
Fund* - n/a; Leisure Fund - $7,413; Precious Metals Fund - $30,681; Retailing
Fund - $27,688; Technology Fund - $32,508; Telecommunications Fund - $14,839;
Transportation Fund - $6,719; Utilities Fund* - n/a.
*The Ursa Master Fund, Arktos Master Fund, Juno Master Fund, Utilities Master
Fund, Internet Fund, and Utilities Fund had not commenced operations as of
August 1, 1999.
DISTRIBUTION
Pursuant to the Distribution Agreement adopted by the Trust, Rydex Distributors,
Inc. (the "Distributor"), 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852, acts as distributor for the Advisor Class Shares of the Trust
under the general supervision and control of the Trustees and the officers of
the Trust.
Under a Distribution and Shareholder Services Plan, Service Providers may use
their fees for: (i) compensation for its services in connection with
distribution assistance; or (ii) payments to financial
32
<PAGE>
institutions and intermediaries such as banks, savings and loan associations,
insurance companies and investment counselors, broker-dealers, mutual fund
supermarkets and the Distributor's affiliates and subsidiaries as compensation
for services or reimbursement of expenses incurred in connection with
distribution assistance. The Distributor may, at its discretion, retain a
portion of such payments to compensate itself for distribution services and
distribution related expenses such as the costs of preparation, printing,
mailing or otherwise disseminating sales literature, advertising, and
prospectuses (other than those furnished to current shareholders of the Fund),
promotional and incentive programs, and such other marketing expenses that the
Distributor may incur.
A Service Provider also may perform some or all of the following shareholder
services:
- maintaining accounts relating to clients that invest in shares;
- arranging for bank wires;
- responding to client inquiries relating to the services performed by
the Services Provider;
- responding to inquiries from clients concerning their investment in
shares;
- assisting clients in changing dividend options, account designations
and addresses;
- providing information periodically to clients showing their position
in shares;
- forwarding shareholder communications from the Funds such as proxies,
shareholder reports, annual reports, and dividend distribution and tax
notices to clients; and
- processing dividend payments from the Funds on behalf of clients.
These shareholder services are different from the distribution services
discussed above, and are not primarily intended to result in the sale of the
Advisor Class Shares of the Funds. Following are the fees paid under this plan
for the fiscal year ended March 31, 1999:
<TABLE>
<CAPTION>
FUND FEES PAID
---- ----------
<S> <C>
Banking Fund $ 13,940
Basic Materials Fund $ 11,484
Biotechnology Fund $ 47,070
Consumer Products Fund $ 28,246
Electronics Fund $ 47,564
Energy Fund $ 6,432
Energy Services Fund $ 10,760
Financial Services Fund $ 23,220
Health Care Fund $ 37,536
Internet Fund* $ n/a
Leisure Fund $ 336
Retailing Fund $ 67,216
Technology Fund $ 43,286
Telecommunications Fund $ 9,276
Transportation Fund $ 490
Utilities Fund* $ n/a
U.S. Government Money Market Fund $1,071,214
Nova $ 56, 070
Ursa $ 219, 840
OTC $ 28, 076
</TABLE>
33
<PAGE>
* The Internet Fund and Utilities Fund had not commenced operations as of August
1, 1999.
COSTS AND EXPENSES
Each Fund bears all expenses of its operations other than those assumed by the
Advisor or the Servicer. Fund expenses include: the management fee; the
servicing fee (including administrative, transfer agent, and shareholder
servicing fees); custodian and accounting fees and expenses; legal and auditing
fees; securities valuation expenses; fidelity bonds and other insurance
premiums; expenses of preparing and printing prospectuses, confirmations, proxy
statements, and shareholder reports and notices; registration fees and expenses;
proxy and annual meeting expenses, if any; all Federal, state, and local taxes
(including, without limitation, stamp, excise, income, and franchise taxes);
organizational costs; non-interested Trustees' fees and expenses; the costs and
expenses of redeeming shares of the Fund; fees and expenses paid to any
securities pricing organization; dues and expenses associated with membership in
any mutual fund organization; and costs for incoming telephone WATTS lines. In
addition, each of the Funds pays an equal portion of the Trustee fees and
expenses for attendance at Trustee meetings for the Trustees of the Trust who
are not affiliated with or interested persons of the Advisor.
PRINCIPAL HOLDERS OF SECURITIES
As of July 1, 1999, the following persons were the only persons who were record
owners or, to the knowledge of the Trust, beneficial owners of 5% or more of the
shares of the Funds.
Accounts with More than 5% Holdings in Fund as of 7/09/99
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
U.S. Government Bond Fund
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
National Investor Services Corp. For the Exclusive 161,678.230 8.22%
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For Exclusive Benefit of 146,244.910 7.44%
Customers
P.O. Box 3752 Church St. Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
Independent Trust Corporation Custodian Funds 895 105,110.702 5.34%
15255 S. 94th Avenue
Suite 303
Orland Park, IL 60462
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Donaldson Lufkin Jenrette 101,499.270 5.16%
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
Juno Fund
- --------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. 336,284.336 18.46%
For the Exclusive Benefit of our Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
FTC & Co. 286,407.796 15.72%
P.O. Box 173736
Denver, CO 80217
- --------------------------------------------------------------------------------------------------------------------
ABN AMRO Incorporated 212,848.829 11.68%
P.O. Box 6108
Chicago, IL 60680-6108
- --------------------------------------------------------------------------------------------------------------------
ABN AMRO Incorporated 158,124.776 8.68%
P.O. Box 6108
Chicago, IL 60680-6108
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For Exclusive Benefit of 127,321.256 6.99%
Customers
P.O. Box 372 Church Street Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
Nova Fund - Investor
- --------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 5,013,567.085 21.98%
Special Custody Account - REINV for Benefit of Customers
101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For Exclusive Benefit of 2,588,498.470 11.35%
Customers
P.O. Box 3752 Church Street Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
National Investor Services Corp. For the Exclusive 1,442,107.906 6.32%
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
Precious Metals Fund
- --------------------------------------------------------------------------------------------------------------------
Trust Company of America 1,644,237.840 24.65%
FBO: FPI
7103 S Revere Parkway
Englewood, CO 80112
- --------------------------------------------------------------------------------------------------------------------
FTC & Co. 552,035.596 8.28%
P.O. Box 173736
Denver, CO 80217
- --------------------------------------------------------------------------------------------------------------------
URSA Fund - Investor
- --------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 7,750,098.922 18.14%
Special Custody Account - REINV For Benefit of Customers
101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For Exclusive Benefit of 3,889,934.367 9.10%
Customers
P.O. Box 3752 Church Street Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. For the Exclusive 2,682,883.827 6.28%
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 2,418,111.232 5.66%
Special Custody Account - Cash For Benefit of Customers
101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------------------------------------------
OTC Fund - Investor
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 7,567,306.066 25.99%
Special Custody Account - REINV For Benefit of Customers
101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For Exclusive 4,437,154.531 15.24%
Benefit of Customers
P.O. Box 3752 Church St. Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. For the Exclusive 2,570,547.157 8.83%
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
Donaldson Lufkin Jenrette 1,533,396.977 5.27%
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 2,072,648.580 15.73%
Special Custody Account - REINV For Benefit of Customers
101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For Exclusive Benefit of 1,565,409.136 11.88%
Customers
P.O. Box 3752 Church St. Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. For the Exclusive 770,598.697 5.85%
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
Energy - Investor
- --------------------------------------------------------------------------------------------------------------------
RSBCO 149,768.282 20.62%
P.O. Drawer 1410
Ruston, LA 71273
- --------------------------------------------------------------------------------------------------------------------
ABN AMRO Incorporated 145,636.974 20.05%
P.O. Box 6108
Chicago, IL 60680-6108
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
National Financial Services Corp. For Exclusive Benefit of 45,713.219 6.29%
Customers
P.O. Box 3752 Church St. Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
Financial Services - Investor
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For Exclusive Benefit of 285,882.562 12.67%
Customers
P.O. Box 3752 Church St. Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
Health Care - Investor
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For Exclusive Benefit of 217,244.458 10.94%
Customers
P.O. Box 3752 Church St. Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
ABN AMRO Incorporated 132,818.525 6.69%
P.O. Box 6108
Chicago, IL 60680-6108
- --------------------------------------------------------------------------------------------------------------------
Donaldson Lufkin Jenrette 130,632.252 6.58%
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For Exclusive Benefit of 818,898.347 16.79%
Customers
P.O. Box 3752 Church St. Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
Independent Trust Corp. 354,024.174 7.26%
Custodian Funds 930
15255 S. 94th Avenue
Suite 300
Orland Park, IL 60462
- --------------------------------------------------------------------------------------------------------------------
Kinemarket Research Inc. 264,059.204 5.41%
Money Purchase Plan
70 Standish Circle
Wellesley, MA 02181
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Agawam Fund Corporation 247,402.276 5.07%
Windermere House
404 East Bay Street
P.O. Box SS 6639
Nassau, Bahamas 00000
- --------------------------------------------------------------------------------------------------------------------
Basic Materials - Investor
- --------------------------------------------------------------------------------------------------------------------
RSBCO 149,622.557 9.73%
P.O. Drawer 1410
Ruston, LA 71273
- --------------------------------------------------------------------------------------------------------------------
Independent Trust Corporation 148,194.299 9.64%
Custodian Funds 86
15255 S 94th Avenue
Suite 303
Orland Park, IL 60462
- --------------------------------------------------------------------------------------------------------------------
Independent Trust Corporation 144,248.595 9.38%
Custodian Funds 895
15255 S 94th Avenue
Suite 303
Orland Park, IL 60462
- --------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. For the Exclusive 137,383.204 8.94%
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
Independent Trust Corp. 97,581.353 6.35%
Custodian Funds 8641
15255 S 94th Avenue, Suite 303
Orland Park, IL 60462
- --------------------------------------------------------------------------------------------------------------------
Donaldson Lufkin Jenrette 89,865.820 5.85%
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
Trust Company of America 78,344.533 5.10%
Cust FBO HCM - HT
P.O. Box 6503
Englewood, CO 80155
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
Consumer Products - Investor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Independent Trust Corporation 100,744.250 63.59%
Custodian Funds 865
15255 S 94th Avenue
Suite 303
Orland Park, IL 60462
- --------------------------------------------------------------------------------------------------------------------
Leisure - Investor
- --------------------------------------------------------------------------------------------------------------------
Independent Trust Corporation 138,686.098 23.75%
Custodian Funds 965
15255 S 94th Avenue
Suite 303
Orland Park, IL 60462
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For Exclusive Benefit of 113,836.771 19.49%
Customers
P.O. Box 3752 Church St. Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
Independent Trust Corporation 97,334.419 16.67
Custodian Funds 86
15255 S 94th Avenue
Suite 303
Orland Park, IL 60462
- --------------------------------------------------------------------------------------------------------------------
Independent Trust Corporation 88,697.626 15.19%
Custodian Funds 865
15255 S 94th Avenue
Suite 303
Orland Park, IL 60462
- --------------------------------------------------------------------------------------------------------------------
Retailing - Investor
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For the Exclusive 885,342.716 38.81%
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
Independent Trust Corporation 172,696.803 7.57%
Custodian Funds 930
15255 S 94th Avenue
Suite 303
Orland Park, IL 60462
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
Telecommunications - Investor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 497,374.708 18.65%
Special Custody Account - REINV For Benefit of
Customers
101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For Exclusive Benefit of 361,499.051 13.55%
Customers
P.O. Box 3752 Church St. Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Transportation - Investor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trust Company of America 229,505.369 35.44%
Cust FBO HCM - HT
P.O. Box 6503
Englewood, CO 80155
- --------------------------------------------------------------------------------------------------------------------
Trust Company of America 88,508.881 13.67
FBO RFS
P.O. Box 6503
Englewood, CO 80155
- --------------------------------------------------------------------------------------------------------------------
Trust Company of America 79,000.164 12.20%
Cust FBO D.G.S.
P.O. Box 6503
Englewood, CO 80155
- --------------------------------------------------------------------------------------------------------------------
Canadian Commercial Workers 36,043.513 5.57%
Industry Pension Plan
135 Queens Plate Drive, Suite 220
Etobicoke
Ontario, Canada M9W 6V1 00000
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Energy Services - Investor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
National Financial Services Corp. For Exclusive Benefit of 897,381.471 22.07%
Customers
P.O. Box 3752 Church St. Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. For the Exclusive Benefit of Our 489,182.561 12.03%
Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 338,449.452 8.33%
Special Custody Account - Cash For Benefit of Customers
101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 332,862.778 8.19%
Special Custody Account - REINV For Benefit of Customers
101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For Exclusive Benefit of 71,994.962 28.56%
Customers
P.O. Box 3752 Church St. Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 64,599.750 25.63%
Special Custody Account - REINV For Benefit of Customers
101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. For the Exclusive Benefit of Our 16,322.820 6.48%
Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Biotechnology - Investor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 791,242.881 27.05%
Special Custody Account - REINV For Benefit of Customers
101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------------------------------------------
Trust Co Of America FBO AMM 284,191.904 9.71%
P.O. Box 6503
Englewood, CO 80112
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For Exclusive Benefit of 157,616.276 5.39%
Customers
P.O. Box 3752 Church St. Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S><C>
Electronics - Investor
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 948,969.609 18.07%
Special Custody Account - REINV For Benefit of Customers
101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. For Exclusive Benefit of 799,350.088 15.22%
Customers
P.O. Box 3752 Church St. Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 299,591.143 5.70%
Special Custody Account - Cash For Benefit of Customers
101 Montgomery Street
San Francisco, CA 94101
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Money Market - Advisor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
National Financial Services Corp. For Exclusive Benefit of 58,102,985.221 25.83%
Customers
P.O. Box 3752 Church St. Station
New York, NY 10008
- --------------------------------------------------------------------------------------------------------------------
Independent Trust Corporation 52,181,563.850 23.19%
Custodian Funds 92-5
15255 S 94th Avenue, Suite 303 Orland Park, IL 60462
- --------------------------------------------------------------------------------------------------------------------
Independent Trust Corporation 12,718,283.540 5.65%
Custodian Funds 965
15255 S 94th Avenue, Suite 303 Orland Park, IL 60462
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Nova Fund - Advisor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FTC & Co. 161,150.580 25.65%
P.O. Box 173736
Denver, CO 80217
- --------------------------------------------------------------------------------------------------------------------
Independent Trust Corporation 73,218.957 11.66%
Custodian Funds AMIC
15255 S 94th Avenue, Suite 303 Orland Park, IL 60462
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S><C>
URSA Fund - Advisor
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Independent Trust Corporation 113,799.743 30.67%
CFBO BCMC
15225 S 94th Avenue, Suite 303 Orland Park, IL 60462
- --------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. 60,763.498 16.38%
200 Liberty Street
One World Financial Center
New York, NY 10281
- --------------------------------------------------------------------------------------------------------------------
Demeter Charitable Annuity III 22,527.588 6.07%
3134 Lombardy Road
Pasadena, CA 91107
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
OTC Fund - Advisor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
IBEW Seventh District Retirement 180,492.730 15.04%
Benefit Trust
418 S. Polk
Suite 200
Amarillo, TX 79101
- --------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 115,685.127 9.64%
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Energy - Advisor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trust Company of America 77,173.000 58.05%
FCO: FPI
7103 S Revere Parkway
Englewood, CO 80112
- --------------------------------------------------------------------------------------------------------------------
FTC & Co. 46,672.360 35.11%
P.O. Box 173736
Denver, CO 80217
- --------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. For the Exclusive Benefit of Our 7,705.760 5.80%
Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S><C>
Financial Services - Advisor
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
National Investor Services Corp. For the Exclusive Benefit of Our 5,700.280 69.61%
Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
National Financial Services 1,527.262 18.65%
200 Liberty Street
One World Financial Center
New York, NY 10281
- --------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 951.475 11.62%
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Health Care - Advisor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trust Company of America 398,806.000 83.39%
Cust FPI
P.O. Box 6503
Englewood, CO 80155
- --------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. For the Exclusive Benefit of Our 28,940.135 6.05%
Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Technology - Advisor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Centurion Trust Co F/B/O 1,720,314.687 75.22%
Omnibus/Centurion Capital Management
2425 E Camelback Road
Suite 530
- --------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney 146,317.592 6.40%
388 Greenwich Street
New York, NY 10013
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Basic Materials - Advisor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette 31,684.194 76.31%
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
National Investor Services Corp. For the Exclusive Benefit of Our 6,592.934 15.88%
Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
National Financial Services 3,233.911 7.79%
200 Liberty Street
One World Financial Center
New York, NY 10281
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Consumer Products - Advisor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Donaldson Lufkin Jenrette 111.972 60.09%
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
National Financial Services 62.537 33.56%
200 Liberty Street
One World Financial Center
New York, NY 10281
- --------------------------------------------------------------------------------------------------------------------
PADCO Advisors Inc. 11.833 6.35%
Sector Fund Account
6116 Executive Blvd.
Rockville, MD 20852
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Leisure - Advisor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
National Investor Services Corp. For the Exclusive 849.857 98.76%
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Retailing - Advisor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Donaldson Lufkin Jenrette 4,441.155 46.79%
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. For the Exclusive 4,436.441 46.74%
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sterling Trust Company Agent for Matrix Capital Bank FBO 513.782 5.41%
Investrack
P.O. Box 2526
Waco, TX 76702
- --------------------------------------------------------------------------------------------------------------------
Centurion Trust Co F/B/O 2,185,746.815 95.48%
Omnibus/Centurion Capital Management
2425 E Camelback Road
Suite 530
- --------------------------------------------------------------------------------------------------------------------
Trust Company of America 98,719.000 99.65%
FBO: FPI
7103 S Revere Parkway
Englewood, CO 80112
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Energy Services - Advisor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investec Ernst & Company 109,318.815 44.14%
One Battery Park Plaza
New York, NY 10004
- --------------------------------------------------------------------------------------------------------------------
Investec Ernst & Company 57,048.858 23.04%
One Battery Park Plaza
New York, NY 10004
- --------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. For the Exclusive 49,253.436 19.89%
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041
- --------------------------------------------------------------------------------------------------------------------
National Financial Services 13,620.054 5.50%
200 Liberty Street
One World Financial Center
New York, NY 10281
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Banking - Advisor
- --------------------------------------------------------------------------------------------------------------------
Trust Company of America 32,511.000 93.87%
FBO: FPI
7103 S Revere Parkway
Englewood, CO 80112
- --------------------------------------------------------------------------------------------------------------------
Bear Stearns Securities Corp. 121,464.465 25.33%
1 Metrotech Center North
Brooklyn, NY 11201 -3859
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bear Stearns Securities Corp. 112,455.133 23.45%
1 Metrotech Center North
Brooklyn, NY 11201 -3859
- --------------------------------------------------------------------------------------------------------------------
Trust Company of America 56,505.000 11.78%
FBO: FPI
7103 S Revere Parkway
Englewood, CO 80112
- --------------------------------------------------------------------------------------------------------------------
Donaldson Lufkin Jenrette 55,961.512 11.67%
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
Investec Ernst & Company 53,581.721 11.18%
One Battery Park Plaza
New York, NY 10004
- --------------------------------------------------------------------------------------------------------------------
Investec Ernst & Company 27,962.363 5.83%
One Battery Park Plaza
New York, NY 10004
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Electronics - Advisor
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Centurion Trust Co F/B/O 1,981,419.457 65.15%
Omnibus/Centurion Capital Management
2425 E Camelback Road
Suite 530
- --------------------------------------------------------------------------------------------------------------------
Trust Company of America 478,251.500 15.72
FBO: FPI
7103 S Revere Parkway
Englewood, CO 80112
- --------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney 166,670.360 5.48%
388 Greenwich Street
New York, NY 10013
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
DETERMINATION OF NET ASSET VALUE
The net asset value of a Fund serves as the basis for the purchase and
redemption price of that Fund's shares. The net asset value per share of a Fund
is calculated by dividing the market value of the Fund's securities plus the
values of its other assets, less all liabilities, by the number of outstanding
shares of the Fund. If market quotations are not readily available, a security
will be valued at fair value by the Advisor using methods established or
ratified by the Board of Trustees.
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,
48
<PAGE>
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. Futures
contracts generally are valued based upon the unrealized gain or loss on the
contract determined with reference to the first price reported by established
futures exchanges after the close of a Fund pricing cycle, or alternatively,
with reference to the average price at which futures are bought and sold by a
Fund. Options on futures contracts generally are valued with reference to the
underlying futures contract. If the market makes a limit move with respect to a
particular commodity, the commodity will be valued at fair value by the Advisor
using methods established or ratified by the Board of Trustees.
On days when the CBOT is closed during its usual business hours, but the shares
of the Bond Fund, Juno Fund or Juno Master Fund have been purchased, redeemed,
and/or exchanged, the portfolio securities held by the Bond Fund, Juno Fund and
the Juno Master Fund which are traded on the CBOT are valued at the earlier of
(i) the time of the execution of the last trade of the day for the Bond Fund,
Juno Fund and Juno Master Fund in those CBOT-traded portfolio securities and
(ii) the time of the close of the CBOT Evening Session. On days when the CBOT is
closed during its usual business hours and there is no need for the Bond Fund,
Juno Fund and the Juno Master Fund to execute trades on the CBOT, the value of
the CBOT-traded portfolio securities held by the Bond Fund, Juno Fund and the
Juno Master Fund will be the mean of the bid and asked prices for those
CBOT-traded portfolio securities at the open of the CBOT Evening Session.
OTC securities held by a Fund shall be valued at the last sales price or, if no
sales price is reported, the mean of the last bid and asked price is used. The
portfolio securities of a Fund that are listed on national exchanges are taken
at the last sales price of such securities on such exchange; if no sales price
is reported, the mean of the last bid and asked price is used. For valuation
purposes, all assets and liabilities initially expressed in foreign currency
values will be converted into U.S. dollar values at the mean between the bid and
the offered quotations of such currencies against U.S. dollars as last quoted by
any recognized dealer. If such quotations are not available, the rate of
exchange will be determined in good faith by the Advisor based on guidelines
adopted by the Trustees. Dividend income and other distributions are recorded on
the ex-dividend date, except for certain dividends from foreign securities which
are recorded as soon as the Trust is informed after the ex-dividend date.
Illiquid securities, securities for which reliable quotations or pricing
services are not readily available, and all other assets will be valued at their
respective fair value as determined in good faith by, or under procedures
established by, the Trustees, which procedures may include the delegation of
certain responsibilities regarding valuation to the Advisor or the officers of
the Trust. The officers of the Trust report, as necessary, to the Trustees
regarding portfolio valuation determination. The Trustees, from time to time,
will review these methods of valuation and will recommend changes which may be
necessary to assure that the investments of the Funds are valued at fair value.
The Money Market Fund will utilize the amortized cost method in valuing its
portfolio securities for purposes of determining the net asset value of its
shares even though the portfolio securities may increase or decrease in market
value, generally, in connection with changes in interest rates. The amortized
cost method of valuation involves valuing a security at its cost adjusted by a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument while
this method provides certainty in valuation, this method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Money Market Fund would receive if this Fund sold the instrument.
During such periods, the yield
49
<PAGE>
to investors in the Money Market Fund may differ somewhat from that obtained in
a similar company which uses mark-to-market values for all its portfolio
securities. For example, if the use of amortized cost resulted in a lower
(higher) aggregate portfolio value on a particular day, a prospective investor
in the Money Market Fund would be able to obtain a somewhat higher (lower) yield
than would result from investment in such a similar company and existing
investors would receive less (more) investment income. The purpose of this
method of calculation is to facilitate the maintenance of a constant net asset
value per share of $1.00.
The Money Market Fund's use of the amortized cost method is permitted pursuant
to Rule 2a-7 under the 1940 Act (the "Rule"). The Rule requires that the Money
Market Fund limit its investments to U.S. dollar-denominated instruments that
meet the Rule's quality, maturity and diversification requirements. The Rule
also requires the Money Market Fund to maintain a dollar-weighted average
portfolio maturity of not more than ninety days and precludes the purchase of
any instrument with a remaining maturity of more than thirteen months.
The Money Market Fund may only purchase "Eligible Securities." Eligible
Securities are securities which : (a) have remaining maturities of thirteen
months or less; (b) either (i) are rated in the two highest short-term rating
categories by any two nationally-recognized statistical rating organizations
("NRSROs") that have issued a short-term rating with respect to the security or
class of debt obligations of the issuer, or (ii) if only one NRSRO has issued a
short-term rating with respect to the security, then by that NRSRO; (c) were
long-term securities at the time of issuance whose issuers have outstanding
short-term debt obligations which are comparable in priority and security and
has a ratings as specified in (b) above; or (d) if no rating is assigned by any
NRSRO as provided in (b) and (c) above, the unrated securities are determined by
the Trustees to be of comparable quality to any rated securities.
As permitted by the Rule, the Trustees have delegated to the Advisor, subject to
the Trustees' oversight pursuant to guidelines and procedures adopted by the
Trustees, the authority to determine which securities present minimal credit
risks and which unrated securities are comparable in quality to rated
securities.
If the Trustees determine that it is no longer in the best interests of the
Money Market Fund and its shareholders to maintain a stable price of $1.00 per
share, or if the Trustees believe that maintaining such price no longer reflects
a market-based net asset value per share, the Trustees have the right to change
from an amortized cost basis of valuation to valuation based on market
quotations. The Money Market Fund will notify shareholders of any such change.
PERFORMANCE INFORMATION
From time to time, each of the Funds (other than the Money Market Fund) may
include the Fund's total return in advertisements or reports to shareholders or
prospective shareholders. Quotations of average annual total return for a Fund
will be expressed in terms of the average annual compounded rate of return on a
hypothetical investment in the Fund over a period of at least one, five, and ten
years (up to the life of the Fund) (the ending date of the period will be
stated). Total return of a Fund is calculated from two factors: the amount of
dividends earned by each Fund share and by the increase or decrease in value of
the Fund's share price. See "Calculation of Return Quotations."
Performance information for each of the Funds contained in reports to
shareholders or prospective
50
<PAGE>
shareholders, advertisements, and other promotional literature may be
compared to the record of various unmanaged indices. Performance information
for the Nova Fund, Precious Metals Fund, Ursa Fund and Ursa Master Fund may
be compared to various unmanaged indices, including, but not limited to, the
S&P 500 Index or the Dow Jones Industrial Average. Performance information
for the Precious Metals Fund also may be compared to its current benchmark,
the XAU Index. Performance information for the OTC Fund may be compared to
various unmanaged indices, including, but not limited to, its current
benchmark, the NASDAQ 100 Index-TM-, and the NASDAQ Composite Index-TM-. The
OTC Fund has the ability to invest in securities not included in the NASDAQ
100 Index-TM- or the NASDAQ Composite Index-TM-, and the OTC Fund's
investment portfolio may or may not be similar in composition to NASDAQ 100
Index-TM- or the NASDAQ Composite Index-TM-. Performance information for the
Bond Fund and the Juno Fund may be compared to various unmanaged indices,
including, but not limited to, the Shearson Lehman Government (LT) Index.
Such unmanaged indices may assume the reinvestment of dividends, but generally
do not reflect deductions for operating costs and expenses. In addition, a
Fund's total return may be compared to the performance of broad groups of
comparable mutual funds with similar investment goals, as such performance is
tracked and published by such independent organizations as Lipper Analytical
Services, Inc. ("Lipper"), and CDA Investment Technologies, Inc., among others.
When Lipper's tracking results are used, the Fund will be compared to Lipper's
appropriate fund category, that is, by fund objective and portfolio holdings.
Performance figures are based on historical results and are not intended to
indicate future performance.
In addition, rankings, ratings, and comparisons of investment performance and/or
assessments of the quality of shareholder service appear in numerous financial
publications such as MONEY, FORBES, KIPLINGER'S MAGAZINE, PERSONAL INVESTOR,
MORNINGSTAR, INC., and similar sources.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of a Fund to that of other
mutual funds and to other relevant market indices in advertisements or in
reports to shareholders, performance for the Fund may be stated in terms of
total return. Under the rules of the Securities and Exchange Commission ("SEC
Rules"), Funds advertising performance must include total return quotes
calculated according to the following formula:
M
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).
51
<PAGE>
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover 1, 5, and
10 year periods or a shorter period dating from the effectiveness of the
Registration Statement of the Trust. In calculating the ending redeemable value,
all dividends and distributions by a Fund are assumed to have been reinvested at
net asset value as described in the Trust's Prospectus on the reinvestment dates
during the period. Total return, or "T" in the formula above, is computed by
finding the average annual compounded rates of return over the 1, 5, and 10 year
periods (or fractional portion thereof) that would equate the initial amount
invested to the ending redeemable value.
For the one-year period, five-year period and period from the respective
commencement of operations of the Funds ended March 31, 1999, the average annual
compounded rate of return of the respective Funds (other than the Money Market
Fund), assuming the reinvestment of all dividends and distributions, was as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FUND CLASS AVERAGE ANNUAL TOTAL RETURN FISCAL YEAR END
------------------------------------------------------------------------------
ONE YEAR THREE YEARS FIVE YEARS SINCE SINCE
INCEPTION INCEPTION
AGGREGATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nova Fund INVESTOR 18.54% 34.05% 32.02% 27.07%
CLASS
- -------------------------------------------------------------------------------------------------------------------
Ursa Fund (12.47)% (17.37)% (15.56)% (14.14)%
- -------------------------------------------------------------------------------------------------------------------
OTC Fund 73.73% 52.70% 41.24% 38.30%
- -------------------------------------------------------------------------------------------------------------------
Arktos Fund n/a n/a n/a n/a (46.35)%
- -------------------------------------------------------------------------------------------------------------------
Juno Fund 0.78% (1.68)% n/a (2.98)%
- -------------------------------------------------------------------------------------------------------------------
U.S. Government Bond 4.24% 8.46% 7.28% 4.71%
Fund
- -------------------------------------------------------------------------------------------------------------------
Ursa Master Fund* n/a n/a n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------------
Arktos Master Fund* n/a n/a n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------------
Juno Master Fund* n/a n/a n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------------
Utilities Master Fund* n/a n/a n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------------
Banking Fund (12.30)% n/a n/a n/a (12.30)%
- -------------------------------------------------------------------------------------------------------------------
52
<PAGE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FUND CLASS AVERAGE ANNUAL TOTAL RETURN FISCAL YEAR END
------------------------------------------------------------------------------
ONE YEAR THREE YEARS FIVE YEARS SINCE SINCE
INCEPTION INCEPTION
AGGREGATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Materials Fund (22.50)% n/a n/a n/a (22.50)%
- -------------------------------------------------------------------------------------------------------------------
Biotechnology Fund 28.10% n/a n/a n/a 28.10%
- -------------------------------------------------------------------------------------------------------------------
Consumer Products Fund n/a n/a n/a n/a (2.90)%
- -------------------------------------------------------------------------------------------------------------------
Electronics Fund 40.20% n/a n/a n/a 40.20%
- -------------------------------------------------------------------------------------------------------------------
Energy Fund n/a n/a n/a n/a (10.10)%
- -------------------------------------------------------------------------------------------------------------------
Energy Services Fund (39.80)% n/a n/a n/a (39.80)%
- -------------------------------------------------------------------------------------------------------------------
Financial Services n/a n/a n/a n/a (0.10)%
Fund
- -------------------------------------------------------------------------------------------------------------------
Health Care Fund n/a n/a n/a n/a 14.50%
- -------------------------------------------------------------------------------------------------------------------
Internet Fund* n/a n/a n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------------
Leisure Fund 12.10% n/a n/a n/a 12.10%
- -------------------------------------------------------------------------------------------------------------------
Precious Metals Fund (28.01)% (26.33)% (15.87)% (14.92)%
- -------------------------------------------------------------------------------------------------------------------
Retailing Fund 35.40% n/a n/a n/a 35.40%
- -------------------------------------------------------------------------------------------------------------------
Technology Fund n/a n/a n/a n/a 70.20%
- -------------------------------------------------------------------------------------------------------------------
Telecommunications 30.30% n/a n/a n/a 30.30%
Fund
- -------------------------------------------------------------------------------------------------------------------
Transportation Fund n/a n/a n/a n/a (20.10)%
- -------------------------------------------------------------------------------------------------------------------
Utilities Fund* n/a n/a n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------------
U.S. Gov't. Money 4.55% 4.56% 4.49% 4.31%
Market Fund
- -------------------------------------------------------------------------------------------------------------------
53
<PAGE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FUND CLASS AVERAGE ANNUAL TOTAL RETURN FISCAL YEAR END
------------------------------------------------------------------------------
ONE YEAR THREE YEARS FIVE YEARS SINCE SINCE
INCEPTION INCEPTION
AGGREGATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Banking Fund ADVISOR (12.60)% n/a n/a n/a (12.60)%
CLASS
- -------------------------------------------------------------------------------------------------------------------
Basic Materials Fund n/a n/a n/a n/a (26.89)%
- -------------------------------------------------------------------------------------------------------------------
Biotechnology Fund 26.60% n/a n/a n/a 26.60%
- -------------------------------------------------------------------------------------------------------------------
Consumer Products Fund n/a n/a n/a n/a 11.11%
- -------------------------------------------------------------------------------------------------------------------
Electronics Fund n/a n/a n/a n/a 39.88%
- -------------------------------------------------------------------------------------------------------------------
Energy Fund n/a n/a n/a n/a (10.53)%
- -------------------------------------------------------------------------------------------------------------------
Energy Services Fund n/a n/a n/a n/a (39.05)%
- -------------------------------------------------------------------------------------------------------------------
Financial Services n/a n/a n/a n/a (4.97)%
Fund
- -------------------------------------------------------------------------------------------------------------------
Health Care Fund n/a n/a n/a n/a 14.50%
- -------------------------------------------------------------------------------------------------------------------
Internet Fund* n/a n/a n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------------
Leisure Fund n/a n/a n/a n/a 19.36%
- -------------------------------------------------------------------------------------------------------------------
Retailing Fund n/a n/a n/a n/a 34.87%
- -------------------------------------------------------------------------------------------------------------------
Technology Fund n/a n/a n/a n/a 55.90%
- -------------------------------------------------------------------------------------------------------------------
Telecommunications Fund n/a n/a n/a n/a 29.10%
- -------------------------------------------------------------------------------------------------------------------
Transportation Fund n/a n/a n/a n/a (14.15)%
- -------------------------------------------------------------------------------------------------------------------
Utilities Fund* n/a n/a n/a n/a n/a
- -------------------------------------------------------------------------------------------------------------------
U.S. Gov't. Money 4.02% n/a n/a n/a 4.02%
Market Fund
- -------------------------------------------------------------------------------------------------------------------
54
<PAGE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FUND CLASS AVERAGE ANNUAL TOTAL RETURN FISCAL YEAR END
------------------------------------------------------------------------------
ONE YEAR THREE YEARS FIVE YEARS SINCE SINCE
INCEPTION INCEPTION
AGGREGATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nova Fund n/a n/a n/a n/a 31.03%
- -------------------------------------------------------------------------------------------------------------------
Ursa Fund n/a n/a n/a n/a (15.68)%
- -------------------------------------------------------------------------------------------------------------------
OTC Fund n/a n/a n/a n/a 57.20%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Ursa Master, Arktos Master, Juno Master, Utilities Master, Internet Fund,
and Utilities Fund had not commenced operations as of August 1, 1999.
INFORMATION ON COMPUTATION OF YIELD
THE U.S. GOVERNMENT BOND FUND
In addition to the total return quotations discussed above, the Bond Fund also
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 Trusts Registration
Statement, computed by dividing the net investment income per share of the 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 the Bond Fund based on the market value of the obligation (including
actual accrued interest) at the close of business on the last day of each month,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest), (ii) dividing that figure by 360 and multiplying
the quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation that is in the Bond 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
55
<PAGE>
principles, may be subtracted from the maximum offering price calculation
required pursuant to "d" above.
The Bond Fund from time to time may also advertise its yield based on a
thirty-day period ending on a date other than the most recent balance sheet
included in the Trust's Registration Statement, computed in accordance with the
yield formula described above, as adjusted to conform with the differing period
for which the yield computation is based.
Any quotation of performance stated in terms of yield (whether based on a
thirty-day or one month period) will be given no greater prominence than the
information prescribed under SEC Rules. In addition, all advertisements
containing performance data of any kind will include a legend disclosing that
such performance data represents past performance and that the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than the original cost of such
shares.
The Bond Fund's yield, as of March 31, 1999, based on a thirty-day base period,
was approximately 4.47%.
THE MONEY MARKET FUND
The Money Market Fund's annualized current yield, as may be quoted from time to
time in advertisements and other communications to shareholders and potential
investors, is computed by determining, for a stated seven-day period, the net
change, exclusive of capital changes and including the value of additional
shares purchased with dividends and any dividends declared therefrom (which
reflect deductions of all expenses of the Money Market Fund such as management
fees), in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, and dividing the difference by the
value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by 365 divided by 7.
The Money Market Fund's annualized effective yield, as may be quoted from time
to time in advertisements and other communications to shareholders and potential
investors, is computed by determining (for the same stated seven-day period as
the current yield) the net change, exclusive of capital changes and including
the value of additional shares purchased with dividends and any dividends
declared therefrom (which reflect deductions of all expenses of the Money Market
Fund such as management fees), in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then compounding the base period
return by adding 1, raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
The Money Market Fund's annualized effective yield and annualized current yield,
for the seven-day period ended March 31, 1999, were 4.13% and 4.05%,
respectively, for Investor Class shares and 3.62% and 3.54%, respectively, for
Advisor Class shares.
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.
56
<PAGE>
Yield information may be useful in reviewing the performance of the Money Market
Fund and for providing a basis for comparison with other investment
alternatives. However, unlike bank deposits or other investments which typically
pay a fixed yield for a stated period of time, the Money Market Fund's yield
fluctuates.
PURCHASE AND REDEMPTION OF SHARES
MINIMUM INVESTMENT REQUIREMENTS
Shareholders will be informed of any increase in the minimum investment
requirements by a new prospectus or a prospectus supplement, in which the new
minimum is disclosed. Any request for a redemption (including pursuant to check
writing privileges) by an investor whose account balance is (a) below the
currently applicable minimum investment, or (b) would be below that minimum as a
result of the redemption, will be treated as a request by the investor of a
complete redemption of that account. In addition, the Trust may redeem an
account whose balance (due in whole or in part to redemptions since the time of
last purchase) has fallen below the minimum investment amount applicable at the
time of the shareholder's most recent purchase of Fund shares (unless the
shareholder brings his or her account value up to the currently applicable
minimum investment).
TAX CONSEQUENCES
Note that in the case of tax-qualified retirement plans, a redemption from such
a plan may have adverse tax consequences. A shareholder contemplating such a
redemption should consult his or her own tax advisor. Other shareholders should
consider the tax consequences of any redemption.
SUSPENSION OF THE RIGHT OF REDEMPTION
The Funds may suspend the right of redemption or the date of payment: (i) for
any period during which the NYSE, the Federal Reserve Bank of New York, the
NASDAQ, the Chicago Mercantile Exchange ("CME"), the CBOT, or any other
exchange, as appropriate, is closed (other than customary weekend or holiday
closings), or trading on the NYSE, the NASDAQ, the CME, the CBOT, or any other
exchange, as appropriate, is restricted; (ii) for any period during which an
emergency exists so that sales of a Fund's investments or the determination of
its NAV is not reasonably practicable; or (iii) for such other periods as the
SEC may permit for the protection of a Fund's investors.
HOLIDAYS
The NYSE, the Federal Reserve Bank of New York, the NASDAQ, the CME, the CBOT,
and other U.S. exchanges are closed on weekends and on the following holidays:
(i) New Year's Day, Martin Luther King Jr.'s Birthday, President's Day, Good
Friday, Memorial Day, July Fourth, Labor Day, Columbus Day, Thanksgiving Day,
and Christmas Day; and (ii) the preceding Friday if any of these holidays falls
on a Saturday, or the subsequent Monday if any of these holidays falls on a
Sunday. Although the Trust expects the same holiday schedules to be observed in
the future, each of the aforementioned exchanges may modify its holiday schedule
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). The Trust has elected
to be governed by Rule 18f-1 of the 1940 Act under which the Trust is obligated
to redeem shares for any one shareholder in
57
<PAGE>
cash only up to the lesser of $250,000 or 1% of a Fund's net asset value during
any 90-day period. Although it is highly unlikely that your shares would ever
actually be redeemed in kind, you would probably have to pay brokerage costs to
sell the securities distributed to you.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and any distributions of net realized
capital gains from each of the Funds will be distributed as described in the
Trust's Prospectus under "Dividends and Distributions." Normally, all such
distributions of a Fund will automatically 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.
With respect to the investment by the Bond Fund in U.S. Treasury zero coupon
bonds, a portion of the difference between the issue price of zero coupon
securities and the face value of such securities (the "original issue discount")
is considered to be income to the Bond Fund each year, even though the Bond Fund
will not receive cash interest payments from these securities. This original
issue discount (imputed income) will comprise a part of the investment company
taxable income of the Bond Fund which must be distributed to shareholders of the
Bond Fund in order to maintain the qualification of the Bond Fund as a regulated
investment company (a "RIC") under Subchapter M of the U.S. Internal Revenue
Code of 1986, as amended (the "Code"), as described immediately below under
"Regulated Investment Company Status," and to avoid Federal income tax at the
level of the Bond Fund. Shareholders of the Bond Fund will be subject to income
tax on such original issue discount, whether or not such shareholders elect to
receive their distributions in cash.
REGULATED INVESTMENT COMPANY STATUS
As a RIC, a Fund would not be subject to Federal income taxes on the net
investment income and capital gains that the Fund distributes to the Fund's
shareholders. The distribution of net investment income and capital gains will
be taxable to Fund shareholders regardless of whether the shareholder elects to
receive these distributions in cash or in additional shares. Distributions
reported to Fund shareholders as long-term capital gains shall be taxable as
such, regardless of how long the shareholder has owned the shares.
58
<PAGE>
Fund shareholders will be notified annually by the Fund as to the Federal tax
status of all distributions made by the Fund. Distributions may be subject to
state and local taxes.
Shareholders of the Money Market Fund will be subject to Federal income tax on
dividends paid from interest income derived 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"). Income from investments in precious metals
and in precious minerals will not qualify as gross income from "securities" for
purposes of the 90% Test. The Precious Metals Fund, therefore, intends to
restrict its investment in precious metals and in precious minerals to avoid a
violation of the 90% Test.
In the event of a failure by a Fund to quality as an RIC, the Fund's
distributions, to the extent such distributions are derived from the Fund's
current or accumulated earnings and profits, would constitute dividends that
would be taxable to the shareholders of the fund as ordinary income and would be
eligible for the dividends received deduction for corporate shareholders. This
treatment would also apply to any portion of the distributions that might have
been treated in the shareholder's hands as long-term capital gains, as discussed
below, had the Fund qualified as an RIC.
If a Fund were to fail to qualify as an RIC for one or more taxable years, the
Fund could then qualify (or requalify) as an RIC for a subsequent taxable year
only if the Fund had distributed to the Fund's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the interest charge
mentioned below, if applicable) attributable to such period. The fund might also
be required to pay to the U.S. Internal Revenue Service (the "IRS") interest on
50% of such accumulated earnings and profits. In addition, pursuant to the Code
and an interpretative notice issued by the IRS, if the Fund should fail to
qualify as an RIC and should thereafter seek to requalify as an RIC, the Fund
may be subject to tax on the excess (if any) of the fair market of the Fund's
assets over the Fund's basis in such assets, as of the day immediately before
the first taxable year for which the Fund seeks to requalify as an RIC.
If a Fund determines that it will not qualify as an RIC under Subchapter M of
the Code, the Fund will establish procedures to reflect the anticipated tax
liability in the Fund's net asset value.
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SPECIAL TAX CONSIDERATIONS APPLICABLE TO THE SECTOR FUNDS AND THE UTILITIES
MASTER FUND
In general, with respect to the Sector Funds, gains from "foreign currencies"
and from foreign currency options, foreign currency futures, and forward foreign
exchange contracts ("forward contracts") relating to investments in stock,
securities, or foreign currencies will be qualifying income for purposes of
determining whether the Fund qualifies as a RIC. It is currently unclear,
however, who will be treated as the issuer of a foreign currency instrument or
how foreign currency options, futures, or forward contracts will be valued for
purposes of the RIC diversification requirements applicable to a Fund.
Under the Code, special rules are provided for certain transactions in a foreign
currency other than the taxpayer's functional currency (I.E., unless certain
special rules apply, currencies other than the U.S. dollar). In general, foreign
currency gains or losses from forward contracts, from futures contracts that are
not "regulated futures contracts," and from unlisted options will be treated as
ordinary income or loss under the Code. Also, certain foreign exchange gains
derived with respect to foreign fixed-income securities are also subject to
special treatment. In general, any such gains or losses will increase or
decrease the amount of the a Fund's investment company taxable income available
to be distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of a Fund's net capital gain. Additionally, if such losses
exceed other investment company taxable income during a taxable year, a Fund
would not be able to make any ordinary dividend distributions.
The Sector Funds may incur a liability for dividend withholding tax as a result
of investment in stock or securities of foreign corporations. If, at any year
end, more than 50% of the assets of a Fund are comprised of stock or securities
of foreign corporations, the Fund may elect to "pass through" to shareholders
the amount of foreign taxes paid by that Fund. The Fund will make such an
election only if that Fund deems this to be in the best interests of its
shareholders. If the Fund does not qualify to make this election or does
qualify, but does not choose to do so, the imposition of such taxes would
directly reduce the return to an investor from an investment in that Fund.
OPTIONS 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 short-term capital gain to the Fund. 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 short-term capital gain or loss. 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 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.
With respect to call options purchased by a Fund, the Fund will realize
short-term or long-term capital gain or loss if such option is sold and will
realize short-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.
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Each of the Nova Fund, Ursa Fund, Ursa Master Fund, Arktos Fund, Arktos Master
Fund, and Sector Funds in its operations also will utilize options on stock
indices. Options on "broad based" stock indices 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 Nova Fund, Ursa Fund, Ursa Master Fund,
Arktos Fund, Arktos Master Fund, and Sector Funds involving nonequity options on
stock indices 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 these Funds will also
have available to the Fund a number of elections under the Code concerning the
treatment of option transactions for tax purposes. Each such Fund will utilize
the tax treatment that, in the Fund's judgment, will be most favorable to a
majority of investors in the Fund. Taxation of these transactions will vary
according to the elections made by the Fund. These tax considerations may have
an impact on investment decisions made by the Fund.
A Fund's transactions in options, under some circumstances, could preclude the
Fund's qualifying for the special tax treatment available to investment
companies meeting the requirements of Subchapter M of the Code. However, it is
the intention of each Fund's portfolio management to limit gains from such
investments to less than 10% of the gross income of the Fund during any fiscal
year in order to maintain this qualification.
BACK-UP WITHHOLDING
Each Fund is required to withhold and remit to the U.S. Treasury 31% of (i)
reportable taxable dividends and distributions and (ii) the proceeds of any
redemptions of Fund shares with respect to any shareholder who is not exempt
from withholding and who fails to furnish the Trust with a correct taxpayer
identification number, who fails to report fully dividend or interest income, or
who fails to certify to the Trust that the shareholder has provided a correct
taxpayer identification number and that the shareholder is not subject to
withholding. (An individual's taxpayer identification number is the individual's
social security number.) The 31% "back-up withholding tax" is not an additional
tax and may be credited against a taxpayer's regular Federal income tax
liability.
OTHER ISSUES
Each Fund may be subject to tax or taxes in certain states where the Fund does
business. Furthermore, in those states which have income tax laws, the tax
treatment of a Fund and of Fund shareholders with respect to distributions by
the Fund may differ from Federal tax treatment.
Shareholders are urged to consult their own tax advisors regarding the
application of the provisions of tax law described in this Statement of
Additional Information in light of the particular tax situations of the
shareholders and regarding specific questions as to Federal, state, or local
taxes.
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OTHER INFORMATION
VOTING RIGHTS
You receive one vote for every full Fund share owned. Each Fund will vote
separately on matters relating solely to that Fund. All shares of the Funds are
freely transferable.
As a Delaware business trust, the Trust is not required to hold annual
Shareholder meetings unless otherwise required by the 1940 Act. However, a
meeting may be called by Shareholders owning at least 10% of the outstanding
shares of the Trust. If a meeting is requested by Shareholders, the Trust will
provide appropriate assistance and information to the Shareholders who requested
the meeting. Shareholder inquiries can be made by calling 1-800-820-0888 or
301-468-8520, or by writing to the Trust at 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.
CODE OF ETHICS
The Board of Trustees of the Trust has adopted a Combined Code of Ethics (the
"Code") pursuant to Rule 17j-1 under the 1940 Act. The Advisor, Servicer and
Distributor are also covered by the Code. The Code applies to the personal
investing activities of trustees, directors, officers and certain employees
("access persons"). Rule 17j-1 and the Code is designed to prevent unlawful
practices in connection with the purchase or sale of securities by access
persons. Under the Code, access persons are permitted to engage in personal
securities transactions, but are required to report their personal securities
transactions for monitoring purposes. In addition, certain access persons are
required to obtain approval before investing in initial public offerings or
private placements. The Code is on file with the Securities and Exchange
Commission, and is available to the public.
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 visit the Trust's web site at www.rydexfunds.com or call 1-800-820-0888
or 301-468-8520 to obtain information on account statements, procedures, and
other related information.
COUNSEL
Morgan, Lewis & Bockius LLP, 1800 M Street, N.W., Washington, D.C. 20036, serves
as counsel to the Trust.
AUDITORS AND CUSTODIAN
Deloitte & Touche LLP, Princeton Forrestal Village, 116-300 Village Boulevard,
Princeton, New Jersey 08540, are the auditors and the independent certified
public accountants of the Trust and each of the Funds. Firstar (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.
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FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal year ended March 31, 1999,
including notes thereto and the report of Deloitte & Touche LLP are incorporated
by reference into this SAI. A copy of the Trust's Annual Report to Shareholders
(the "Annual Report") must accompany the delivery of this Statement of
Additional Information.
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APPENDIX A
BOND RATINGS
Below is a description of Standard & Poor's Ratings Group ("Standard & Poor's")
and Moody's Investors Service, Inc. ("Moody's") bond rating categories.
STANDARD & POOR'S RATINGS
GROUP CORPORATE BOND RATINGS
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated "AA" also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from "AAA" issues only in small degree.
A - Bonds rated "A" have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated "BBB" are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated "BB" have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Bonds rated "B" have a greater vulnerability to default but currently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated "CCC" have a currently identifiable vulnerability to default
and are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
MOODY'S INVESTORS SERVICE, INC.
CORPORATE BOND RATINGS
Aaa - Bonds rate "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to a "gilt-edged."
Interest payments are protected by a large or by an exceptionally stable margin,
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
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AA - Bonds rate "Aa" are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protections may not
be as large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in "Aaa" securities.
A - Bonds rated "A" possess many favorable investment attributes, and are to be
considered as upper medium grade obligations. Factors giving security principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds rated "Baa" are considered as medium grade obligations (I.E., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated "Ba" are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated "B" generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any longer period of time may be small.
Caa - Bonds rated "Caa" are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
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