<PAGE>
As Filed with the Securities and Exchange Commission On June 20, 2000
File Nos. 33-59692 and 811-7584
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933(X)
Pre-Effective Amendment No.___( )
Post-Effective Amendment No. 38 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940(X)
Amendment No. 39 (X)
RYDEX SERIES FUNDS
(Exact Name of Registrant as Specified in Charter)
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
(Address of Principal Executive Offices) (Zip Code)
(301) 468-8520
(Registrant's Telephone Number, Including Area Code)
Albert P. Viragh, Jr.
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
(Name and Address of Agent for Service of Process)
Copies to:
W. John McGuire John H. Grady, Jr., Esq.
Morgan, Lewis & Bockius LLP Morgan, Lewis & Bockius LLP
1800 M Street, N.W. 1701 Market Street
Washington, D.C. 20036 Philadelphia, PA 19103
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of rule 485
---
on (date) pursuant to paragraph (b)(1)(v) of rule 485
---
60 days after filing pursuant to paragraph (a)(1) of rule 485
---
on (date) pursuant to paragraph (a)(1) of rule 485
---
X 75 days after filing pursuant to paragraph (a)(2) of rule 485
---
on (date) pursuant to paragraph (a)(2) of rule 485
---
If appropriate, check the following box:
___ This post-effective amendment designates a new effective date for a
previously-filed
<PAGE>
post-effective amendment.
2
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PROSPECTUS
RYDEX SERIES FUNDS
SMALL-CAP 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-one separate investment portfolios (the "Rydex Funds"), one of which is
described in this Prospectus (the "Fund"). Shares of the Fund are sold
principally to professional money managers and to private investors whose
strategy includes index-based mutual funds. Investors may exchange and redeem
shares of the Fund through the Rydex Internet 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.
_______________, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
1
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RISKS OF INVESTING IN THE FUND
The value of the Fund may fluctuate. In addition, Fund shares:
- MAY DECLINE IN VALUE, AND YOU MAY LOSE MONEY
- ARE NOT FEDERALLY INSURED
- ARE NOT BANK DEPOSITS
- ARE NOT GUARANTEED BY ANY GOVERNMENT AGENCY
- ARE NOT GUARANTEED TO ACHIEVE THEIR OBJECTIVES
2
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RISK/RETURN INFORMATION -- SMALL-CAP FUNd
FUND OBJECTIVE
The Small-Cap Fund seeks to provide investment returns that correlate to
the performance of a specific benchmark. The Fund's current benchmark is
the Russell 2000-Registered Trademark- Index (the "Russell 2000 Index").
The INVESTMENT OBJECTIVE OF THE FUND IS NON-FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
PORTFOLIO INVESTMENT STRATEGY
The Fund invests principally in securities of companies included on the
Russell 2000 Index and in leveraged instruments, such as swap agreements,
futures contracts and options on securities, futures contracts, and stock
indices. Swap Agreements and 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 or to
securities whose performance is highly correlated to its benchmark. The
Fund's investment advisor will attempt to consistently apply leverage to
increase the Fund's exposure to ___% of the Russell 2000 Index. 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
The Small-Cap Fund is subject to a number of risks that will affect the
value of its shares, including:
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to correlate to that of the Fund's benchmark, either on a
daily or an aggregate basis. The combined effects of leverage and high
portfolio turnover may prevent the Fund from achieving close
correlation to the Russell 2000 Index.
- LEVERAGING RISK -- The more the Fund invests in leveraged instruments,
the more this leverage will magnify any losses on those investments.
Since the Fund's investment strategy involves consistently applied
leverage, the value of the Fund's shares will tend to decrease by ___%
of the value of any decrease in the Russell 2000 Index. For example, if
the Russell 2000 Index goes down by ___%, the value of the Fund's
shares would be expected to go down by ___%.
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's equity securities and any futures and options contracts may
fluctuate significantly from day to day. This volatility may cause the
value of your investment in the Fund to decrease.
- SMALL-CAP RISK -- In comparison to securities of companies with large
capitalizations, securities of small-capitalization companies may have
more price volatility, greater spreads between their bid and ask
prices, significantly lower trading volumes, and cyclical or static
growth prospects. Small-capitalization companies often have limited
product lines, markets or financial resources, and may therefore be
more vulnerable to adverse developments than large-capitalization
companies.
- SWAP COUNTERPARTY RISK -- A Swap Agreement's value is based on the
amount of money that the swap counterparty is expected to pay to the
Fund. The Fund bears the risk of loss of the amount expected to be
received if a swap agreement counterparty defaults.
3
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FUND PERFORMANCE AND FEE INFORMATION
SMALL-CAP FUND PERFORMANCE
The Small-Cap Fund is new 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 shares of the Small-Cap Fund.
<TABLE>
SHAREHOLDER FEES* None
<S> <C>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees .90%
Distribution (12b-1) Fees .25%
Other Expenses** .60%
-----
Total Annual Fund Operating Expenses 1.75%
</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
Small-Cap 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>
$178 $551
</TABLE>
4
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MORE INFORMATION ABOUT FUND INVESTMENTS AND RISK
THE FUND'S INVESTMENT OBJECTIVE
The Fund's objective is to provide investment results that correlate to
the performance of a specific benchmark. The investment objective of the Fund is
non-fundamental and may be changed without shareholder approval. The current
benchmark used by the Fund is the Russell 2000 Index.
A BRIEF GUIDE TO THE BENCHMARK
RUSSELL 2000 INDEX. The Russell 2000 Index is composed of the 2,000 smallest
companies in the Russell 3000-Registered Trademark- Index, representing
approximately 11% of the Russell 3000 total market capitalization. The
Russell 3000-Registered Trademark- Index is composed of the 3,000 largest
U.S. companies ranked by total market capitalization, representing
approximately 98% of the U.S. investable equity market.
ADVISOR'S INVESTMENT METHODOLOGY
In managing the Fund, the Advisor uses a "quantitative" investment
strategy to manage the Fund's portfolio. The Advisor uses quantitative analysis
techniques to structure the Fund to obtain a high correlation to the Fund's
particular benchmark, but does not attempt to select securities based on their
individual potential to perform better than the market. The Advisor does not
engage in temporary defensive investing, keeping the Fund's assets fully
invested in all market environments. The Advisor monitors the Fund on an ongoing
basis, and makes adjustments to its portfolio, as necessary, to minimize
tracking error and to maximize liquidity. The Advisor will regularly utilize
futures and options contracts to leverage the Fund's investment exposure.
RISKS OF INVESTING IN THE FUND
As indicated below, the Fund is subject to a number of risks that may
affect the value of Fund shares.
EQUITY RISK -- The Fund invests primarily in equity securities as well as
instruments that attempt to track the price movement of equity indices.
Investments in equity securities and equity derivatives are subject to market
risks that cause their prices to fluctuate over time. Fluctuations in the value
of equity securities in which the Fund invests will cause the net asset value of
the Fund to fluctuate. Historically, the equity markets have moved in cycles,
and the value of the Fund's securities may fluctuate considerably from day to
day. This price volatility is the principal risk of investing in equity
securities. Because of its link to the equity markets, an investment in the Fund
may be more suitable for long-term investors who can bear the risk of short-term
principal fluctuations.
FUTURES AND OPTIONS RISK -- The Fund will invest a percentage of their assets in
futures and options contracts. The Fund may use futures contracts and related
options for bona fide hedging purposes to offset changes in the value of
securities held or expected to be acquired.
5
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They may also be used to gain exposure to a particular market or instrument, to
create a synthetic money market position or for certain other tax-related
purposes. The Fund may enter into futures contracts traded on a national futures
exchange or board of trade or in the over-the-counter market. Futures and
options contracts are described in more detail below:
FUTURES CONTRACTS -- Futures contracts and options on futures contracts
provide for the sale by one party and purchase by another party of a
specified amount of a security at a specified future time and 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 whose value is determined, in part, by the value of the
securities in the designated index. Index futures for various indices 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 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 selling call options on securities,
a Fund may cover its position by owning the underlying security or by
owning a call option on the underlying security. Alternatively, a Fund may
cover its position by maintaining in a segregated account cash or liquid
securities equal in value to the exercise price of the call option sold.
The risks associated with the Fund's use of futures and options contracts
include:
- There may be an imperfect correlation between the changes in market
value of the securities held by the Fund and the prices of futures and
options on futures.
- The 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 not always be a liquid secondary market for a futures
contract. As a result, the Fund may be unable to close out its futures
contracts at an advantageous time.
- 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 Fund are small in
relation to the market value of the investments underlying the options,
buying and selling put and call options can be more speculative than
investing directly in securities.
SWAPS -- The Fund may enter into equity index or interest rate swap agreements
for purposes of attempting to gain exposure to a particular group of stocks or
to an index of stocks without actually purchasing those stocks, or to hedge a
position. The Fund will use short-term swap agreements to exchange the returns
(or differentials in rates of return) earned or realized in particular
predetermined investments or instruments. The Fund will not enter into any swap
6
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agreement unless the Advisor believes that the other party to the transaction is
creditworthy. The use of equity swaps involves risks that are different from
those associated with ordinary portfolio securities transactions. Swap
agreements may be considered to be illiquid. The 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.
PORTFOLIO TURNOVER RATE RISK -- The Trust anticipates that investors who are
part of a tactical or asset-allocation strategy will frequently redeem or
exchange shares, which will cause the 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.
NON-DIVERSIFICATION RISK -- Since the Fund is non-diversified, the Fund may
invest in the securities of a limited number of issuers. To the extent that the
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.
TRACKING ERROR RISK -- While the Fund does not expect returns to deviate
significantly from its benchmark, factors such as Fund expenses, imperfect
correlation between the Fund's investments and those of its benchmark, rounding
of share prices, changes to the benchmark, regulatory policies, and leverage may
affect the ability to achieve close correlation on a daily basis. The cumulative
effect of these factors may over time cause the Fund's returns to deviate from
its respective benchmark on an aggregate basis. The magnitude of any tracking
error may be affected by a higher portfolio turnover rate.
TRADING HALT AND EARLY CLOSING RISK -- The Fund typically will hold short-term
options and futures contracts. The major exchanges on which these contracts are
traded 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. In addition, unanticipated early
closings of the equity markets may result in a Fund being unable to sell or buy
securities on that day. If an exchange closes early on a day when the Fund needs
to execute a high volume of securities trades late in a trading day, the Fund
might incur substantial trading losses.
SMALL ISSUER RISK -- Small and medium capitalization companies may be more
vulnerable than larger, more established organizations to adverse business or
economic developments. In particular, small capitalization companies may have
limited product lines, markets, and financial resources and may be dependent
upon a relatively small management group. These securities may trade
over-the-counter or be listed on an exchange and may or may not pay dividends.
7
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INVESTING WITH RYDEX: SHAREHOLDER INFORMATION
OPENING A NEW ACCOUNT
In order to open a new account, you will need to complete and sign an
account application. To obtain an application, either call Rydex at (800)
820-0888 or (301) 468-8520 or simply download an application directly from the
Rydex Web site - www.rydexfunds.com. Be sure to complete the application that
corresponds to the type of account you are opening.
CHOOSING THE CORRECT ACCOUNT APPLICATION
There are five different account applications available depending on
the type of account you would like to open. Please refer to the table below to
determine which account application you should complete.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
REGULAR ACCOUNTS RETIREMENT ACCOUNTS
----------------------------------------------------------------------------------------------------------------------
<S> <C>
ACCOUNT APPLICATION IRA ACCOUNT APPLICATION
------------------- -----------------------
Individual Regular IRA
Rollover IRA
Joint SEP IRA
Gift or Transfer to Minor (UGMA/UTMA) ROTH IRA ACCOUNT APPLICATION
----------------------------
Trust Roth IRA
Roth Conversion IRA
Trustee/Custodial 403(b) ACCOUNT APPLICATION
--------------------------
Corporation 403 (b)
Partnership QUALIFIED RETIREMENT PLAN ADOPTION AGREEMENT
--------------------------------------------
Self-Directed Retirement Plans To establish a new:
- Money Purchase Plan
To transfer an existing: - Profit Sharing Plan
- Money Purchase Plan
- Profit Sharing Plan
----------------------------------------------------------------------------------------------------------------------
</TABLE>
TIPS TO ENSURE SUCCESSFUL COMPLETION OF YOUR ACCOUNT APPLICATION
- Be sure to provide the social security number or tax ID number for the
account to avoid a delay in processing.
- Attach the title and signature page of Trust documents when establishing a
Trust account.
- When establishing an account for a Corporation, Partnership or Self-Directed
Retirement Plan, please circle the correct account type to ensure proper tax
reporting.
- Be sure to sign the application.
SPECIAL INSTRUCTIONS FOR OPENING IRA ACCOUNTS
Due to our account minimums, you will not be able to establish a new
IRA account directly with Rydex. To move your existing IRA account to Rydex, you
must transfer an existing IRA (or multiple
8
<PAGE>
IRAs, if necessary) to meet our minimum requirements. You may do so by
requesting a direct rollover, trustee-to-trustee transfer or a 60-day rollover.
AN IRA ACCOUNT APPLICATION MUST ACCOMPANY YOUR INITIAL CHECK OR THE INITIAL
ROLLOVER/TRANSFER PAPERWORK DISCUSSED BELOW.
---------------------------------------
MINIMUM INVESTMENT AMOUNT
The minimum initial investment to
open an account directly at Rydex is:
- $25,000 for all independently
managed shareholder accounts
INCLUDING IRA, Roth IRA and
other retirement accounts
- $15,000 for all accounts managed
by a registered investment advisor
The minimum requirement is an
ACCOUNT MINIMUM and may be split
among the Rydex Funds in any
manner you choose, subject to a per fund
$1,000 minimum. Rydex, at its
discretion, may accept lesser amounts
in certain circumstances.
---------------------------------------
DIRECT ROLLOVER: Converting a Qualified Retirement or
Pension Plan to an IRA account
- Complete the IRA DIRECT ROLLOVER REQUEST FORM
TRUSTEE-TO-TRUSTEE TRANSFER: Transferring an IRA
account directly from your current custodian to Rydex
- Complete the IRA TRANSFER REQUEST FORM
60-DAY ROLLOVER: Transferring an IRA account from one
custodian to another without completing the receiving
firm's transfer paperwork
- Request a redemption check from your current IRA
custodian and send a check for the entire amount to
Rydex within 60 days to avoid tax consequences
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.
TIPS TO ENSURE SUCCESSFUL COMPLETION OF YOUR IRA ACCOUNT APPLICATION
[SIDENOTE]
SIGNATURE GUARANTEES HELP TO
PROTECT YOUR ACCOUNT AGAINST
FRAUD. YOU CAN OBTAIN A
SIGNATURE GUARANTEE AT MOST
BANKS AND BROKERAGE HOUSES.
A NOTARY PUBLIC CANNOT PROVIDE
A SIGNATURE GUARANTEE.
[END SIDENOTE]
IRA ACCOUNT APPLICATION
-----------------------
- Circle the type of IRA account you are opening
- REGULAR IRA: A traditional IRA account - transferring assets from an
existing IRA
- ROLLOVER IRA: An IRA that was previously rolled into an IRA from
another type of qualified plan (403b, 401 k, etc.)
- SEP IRA: A Simplified Employee Pension Plan for self-employed
individuals
- If you are transferring assets directly from another custodian, indicate the
estimated dollar amount (to the nearest thousand) of the IRA account you are
transferring
- When selecting a Rydex Fund(s) for your initial deposit, specify the dollar
amount or percentage next to the Rydex Fund(s) that you would like to invest
in
- BE SURE TO SIGN THE APPLICATION
IRA DIRECT ROLLOVER AND IRA TRANSFER REQUEST FORMS
--------------------------------------------------
- Include all account numbers that are to be transferred to Rydex
- Provide a telephone number for your current custodian
- Indicate whether you would like a complete or partial transfer
- If you are transferring shares of a Rydex Fund in-kind from your current
custodian, please indicate the Rydex Fund name or symbol that you are
9
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transferring.
- Call your current custodian to determine if they require a signature
guarantee.
BUYING FUND SHARES
Shares of the Rydex Funds are offered continuously. Investors may buy
shares on any day that the New York Stock Exchange (" NYSE") is open for
business (a "Business Day"). You may buy shares by any of the methods described
below:
<TABLE>
<CAPTION>
<S><C>
----------------------------------------------------------------------------------------------------------------------
INITIAL PURCHASE SUBSEQUENT PURCHASES
----------------------------------------------------------------------------------------------------------------------
BY MAIL Complete the account application that Complete the "deposit ticket"
corresponds to the type of account included on your confirmation
IRA ACCOUNTS REQUIRE you are opening. statement or send a letter of
ADDITIONAL PAPERWORK. - Make sure to indicate your initial instruction that includes your name,
SEE "SPECIAL INSTRUCTIONS investment selection in your writing shareholder account number and the
FOR OPENING IRA instructions. Fund designation for your investment.
ACCOUNTS." - Make sure your investment meets - There are no minimum
the Minimum Investment requirements for subsequent
Requirement. purchases.
----------------------------------------------------------------------------------------------------------------------
Make your check payable to RYDEX SERIES FUNDS.
- Indicate the name of the fund you would like to purchase on your check. IF
YOU DO NOT CHOOSE A SPECIFIC FUND, YOUR INVESTMENT WILL BE PLACED IN THE U.S.
GOVERNMENT MONEY MARKET FUND.
----------------------------------------------------------------------------------------------------------------------
Mail your application and check to: Mail your "deposit ticket" (or other
instructions) and check to:
----------------------------------------------------------------------------------------------------------------------
Rydex Series Funds
Attn: Ops. Dept
6116 Executive Blvd, Suite 400
ROCKVILLE, MD 20852
----------------------------------------------------------------------------------------------------------------------
BY WIRE Obtain an account number by There are no minimum requirements
completing the account application for subsequent purchases. Wire funds
RYDEX'S FAX NUMBER: that corresponds to the type of account you to instructions below.
(301) 468-8560 are opening and faxing and mailing it to
Rydex. Then wire funds to the
(USE THE ADDRESS ABOVE instructions below.
FOR MAIL.) - MAKE SURE YOUR INVESTMENT MEETS
THE MINIMUM INVESTMENT
REQUIREMENT.
----------------------------------------------------------------------------------------------------------------------
10
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<CAPTION>
<S><C>
----------------------------------------------------------------------------------------------------------------------
RYDEX`S PHONE NUMBER: To obtain "same-day credit" (to get that Business Day's share price) for your
(800) 820-0888 purchase, you MUST call Rydex and provide the following information PRIOR to
the purchase cut-off time of the Fund you are purchasing:
- Account Number
- Fund Name
- Amount of Wire
- Fed Wire Reference Number (initial purchase only)
You will receive a confirmation number to verify that your purchase order has
been accepted.
IF YOU DO NOT CALL RYDEX TO NOTIFY US OF THE INCOMING WIRE, YOUR PURCHASE ORDER
CANNOT BE PROCESSED UNTIL THE NEXT BUSINESS DAY.
----------------------------------------------------------------------------------------------------------------------
WIRE INSTRUCTIONS Firstar Bank
Cincinnati, OH
Routing Number: 0420-00013
For Account of: Rydex Series Funds
Account Number: 48038-9030
[Your Name]
[Your shareholder account number & Fund choice]
- IF YOU DO NOT CHOOSE A SPECIFIC RYDEX FUND, YOUR INVESTMENT WILL BE
PLACED IN THE U.S. GOVERNMENT MONEY MARKET FUND.
- IF YOUR PURCHASE IS CANCELED BECAUSE YOUR WIRE TRANSFER IS NOT RECEIVED,
YOU MAY BE LIABLE FOR ANY LOSS THAT THE FUND INCURS.
----------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------
NET ASSET VALUE (NAV)
The price at which you
buy (and sell) shares is
the NET ASSET VALUE. NAV
is calculated by:
- Taking the current
market value of a
Fund's total assets
- Subtracting the
liabilities
- Dividing that amount
by the total number
of shares owned by
shareholders.
--------------------------
GENERAL INFORMATION ABOUT BUYING SHARES
Initial applications and investments, as well as subsequent
investments, in a Fund must be received by the Trust's transfer agent, on any
Business Day, before the below cutoff times to be processed at that Business
Day's NAV. The cutoff time allows the Trust's transfer agent to ensure that your
order request contains all necessary information; has all supporting
documentation (such as trust documents, beneficiary designations, proper
signature guarantees, IRA rollover forms, etc.); and is accompanied by
sufficient purchase proceeds. Any application that is sent to the transfer agent
does not constitute a purchase order until the transfer agent processes the
application and receives correct payment by check or wire transfer.
You may also make investments in a Fund 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.
11
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<TABLE>
<CAPTION>
FUND CUT-OFF TIME (ET)
<S> <C>
U.S. Government Money Market ..........................................1:00 p.m.
All Sector Funds ......................................................3:45 p.m.
Nova ..................................................................3:45 p.m.
Ursa ..................................................................3:45 p.m.
OTC ...................................................................3:45 p.m.
Arktos ................................................................3:45 p.m.
Small-Cap Fund ........................................................3:45 p.m.
International Funds ...................................................3:45 p.m.
Juno ..................................................................2:45 p.m.
U.S. Government Bond ..................................................2:45 p.m.
</TABLE>
SELLING FUND SHARES
Shares of the Rydex Funds are redeemed continuously. Investors may sell their
shares back to the Funds on any Business Day by any of the methods described
below:
<TABLE>
<CAPTION>
<S> <C> <C>
--------------------------------------------------------------------------------------------------------------------
HOW TO REDEEM THINGS TO KNOW
--------------------------------------------------------------------------------------------------------------------
BY LETTER Send a letter of instruction that - You may redeem all or any portion
includes: of your Fund shares at the next
- Your name determined NAV after the transfer
REDEMPTIONS FROM - Your account number agent processes and the Fund
TAX-QUALIFIED - The Fund name receives your redemption request.
RETIREMENT PLANS - The dollar amount or number of - A redemption may not reduce your
MAY HAVE ADVERSE shares you would like to sell total account balance below the
TAX CONSEQUENCES. - Method of payment (Check or Wire) minimum account requirement.
YOU SHOULD CONSULT - Signature of account owner(s) - All redemptions will be mailed to the
YOUR TAX ADVISOR IF THE REQUEST IS FOR A RETIREMENT address of record or wired to the
BEFORE REDEEMING ACCOUNT, INDICATE WHETHER OR NOT YOU account of record.
SHARES FROM YOUR WOULD LIKE TAXES WITHHELD FROM YOUR - If you request payment of
TAX-QUALIFIED ACCOUNT DISTRIBUTION redemption proceeds to a third party
or to a location other than your
address of record or bank account of
record, the redemption request must
be IN WRITING AND MUST INCLUDE A
SIGNATURE GUARANTEE.
- You may request overnight mail
service for an additional fee. If your
address of record is a P.O. Box,
overnight mail service is not allowed.
- If you send a redemption request by
fax, you should call Rydex at (800)
820-0888 to verify that your fax was
received.
--------------------------------------------------------------------------------------------------------------------
You may send a redemption request by: - REDEMPTION REQUESTS MAY ONLY BE
- Mail - MADE BY THE REGISTERED OWNER OR
Rydex Series Funds BY AN INDIVIDUAL WHO HAS BEEN
Attn: Ops. Dept GIVEN WRITTEN AUTHORIZATION (BY
</TABLE>
12
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<TABLE>
<S> <C> <C>
6116 Executive Blvd, Suite 400 THE OWNER) TO TRADE THE ACCOUNT.
Rockville, MD 20852 - Your redemption proceeds normally
- Fax - will be sent within five Business
(301) 468-8585 Days of the transfer agent receiving
your request.
FOR INVESTMENT MADE BY CHECK (NOT
WIRE PURCHASES), PAYMENT OF
REDEMPTION PROCEEDS MAY BE DELAYED
UNTIL THE TRANSFER AGENT IS REASONABLY
SATISFIED THAT YOUR CHECK HAS CLEARED.
IT MAY TAKE UP TO 15 DAYS FOR YOUR
CHECK TO CLEAR.
--------------------------------------------------------------------------------------------------------------------
BY PHONE - Call Rydex at (800) 820-0888 or
(301) 468-8520 prior to the above
Rydex hours of specified cut-off times.
operation: - Give the representative the following
information:
Each Business Day - Your name
8:30 a.m. - 5:30 - Your account number
p.m. ET - The Fund name
- The dollar amount or number of
ALL REDEMPTIONS FROM shares you would like to sell
IRA, ROTH IRA AND - Method of payment (check or
403(b) ACCOUNTS wire)
MUST BE IN WRITING. THE REPRESENTATIVE WILL PROVIDE YOU A
CONFIRMATION NUMBER FOR YOUR
REDEMPTION. PLEASE RETAIN IT FOR YOUR
RECORDS.
--------------------------------------------------------------------------------------------------------------------
</TABLE>
ADDITIONAL INFORMATION ABOUT SELLING SHARES
ELECTRONIC (WEB) TRANSACTIONS
Rydex may allow you to redeem shares by Internet by following the
procedures set forth on the Rydex Web site - www.rydexfunds.com. You should
follow the procedures described on the Rydex Web site for all redemptions made
by Internet.
REDEEMING SHARES THROUGH AN INTERMEDIARY
If you hold shares through an intermediary, you must follow your
intermediary's rules for redemptions. Each intermediary has its own rules about
share transactions and may have earlier cutoff times than those listed in this
prospectus. Intermediaries may charge fees for services provided in connection
with buying, selling or exchanging shares. For more information about how to
REDEEM shares through an intermediary, you should contact that intermediary
directly.
SUSPENSION OF REDEMPTIONS
With respect to each Fund, Rydex may suspend your right to redeem your
shares during times when trading on the NYSE is suspended or restricted, or
otherwise as permitted by the Securities and Exchange Commission.
13
<PAGE>
EXCHANGING FUND SHARES
An exchange is when you sell shares of one Rydex Fund and use the
proceeds from that sale to purchase shares of another Rydex Fund. Investors may
make exchanges on any Business Day of Shares of any Rydex Fund for Shares of any
other Rydex Fund, on the basis of the respective net asset values of the shares
involved.
To exchange your shares, you need to provide the following information to the
transfer agent by telephone, fax or mail:
- Account name.
- Account number (or your taxpayer identification number).
- Names of the Rydex Funds involved in the exchange transaction.
- Exchange amount in dollars, shares, or the percentage moving from one fund
to another.
ADDITIONAL INFORMATION ABOUT EXCHANGES
- Rydex offers unlimited trading. You may make exchanges every Business Day if
you wish.
- The minimum amount for an exchange is either $1,000 or 100% of the Fund
position from which the exchange is coming, whichever is less. If you are
exchanging the minimum amount, you may not split the proceeds between
multiple funds. If you place exchange transactions in shares or in
percentages, the minimum exchange amount still applies.
- Exchange requests are processed at the NAV next determined after their
receipt by the Funds. Exchange requests received by the transfer agent
before the cut off times specified above 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.
- 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 the Rydex Dynamic Funds or any other Rydex Fund not described in
this Prospectus, you should obtain and review the current prospectus of that
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.
- The Funds may allow shareholders to exchange shares electronically using the
Rydex Web site. You should follow the procedures described on the Rydex Web
site for all electronic exchanges. By using this option, you can transmit
your exchange requests directly to the Funds' transfer agent. You should
review the instructions on the Rydex Web site for more information regarding
procedures for and availability of electronic exchanges.
RYDEX ACCOUNT POLICIES FOR ALL SHAREHOLDERS
NAV DETERMINATION
For most Rydex Funds, NAV is calculated each Business Day after the
close of the New York Stock Exchange (NYSE) (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 Chicago Board of
Trade (CBOT) (normally 3:00 p.m., Eastern Time). The NAV of the U.S.
14
<PAGE>
Government Money Market Fund is determined twice each Business Day at 1:00 and
4:00 p.m., Eastern Time. If the exchange or market where a Fund's securities or
other investments are primarily traded closes early, (such as on days in advance
of holidays generally observed by participants in these markets), the NAV may be
calculated earlier.
EARLY FUND CUT-OFF TIMES
On any day that the NAV is calculated earlier than normal, as described
above, Rydex reserves the right to advance the time on that day by which
purchase and redemption orders must be received.
ADDITIONAL RIGHTS RESERVED BY THE TRUST
In addition to any rights that the Trust has reserved elsewhere in this
prospectus, Rydex reserves the right to do any of the following at any time,
with or without prior notice to you:
- Modify minimum account requirements.
- Reject or refuse, in whole or in part, any purchase order for Fund shares.
- Modify or discontinue the exchange privilege.
- Add or change fees charged for special services.
LOW BALANCE ACCOUNTS
Due to 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 drops below the required minimum, the Trust reserves the right to redeem
your remaining shares without any additional notification to you.
CHANGES TO YOUR ACCOUNT
For information on what is required to make changes and/or additions to
your account, please visit the Rydex Web site at www.rydexfunds.com or call
(800) 820-0888 or (301) 468-8520. 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 on how to make this change.
TRANSACTIONS OVER TELEPHONE OR INTERNET
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 (800) 820-0888 or (301) 468-8520, you may want to try to reach the
Trust by other means.
15
<PAGE>
STATEMENTS & CONFIRMATIONS
You will receive statements and trade confirmation of your investment
transactions. You may elect to suppress trade confirmations by requesting this
option in writing. The transfer agent may allow you to choose to receive your
confirmation either by mail or electronically.
ELECTRONIC COMMUNICATIONS
You may consent to receive communications (such as trade confirmations,
prospectuses and shareholder reports, etc.) from the Trust through the Rydex Web
site or other electronic means. If you consent to receive electronic
communications from Rydex, you may print a copy for your records. Shareholders
who consent to receive communications electronically must:
- Have and maintain access to the Rydex Web site.
- Provide Rydex with a valid and current e-mail address.
- Notify Rydex immediately if they no longer have access, change their e-mail
address or wish to revoke consent.
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. For
more information follow the instructions on the Rydex Web site.
SERVICE AND OTHER FEES
Rydex may charge the following administrative fees for services associated with
the following:
- $15 for wire transfers of redemption proceeds under $5,000.
- $50 on purchase checks returned for insufficient or uncollectible funds.
- $25 to stop payment of a redemption check within 10 Business Days of the
settlement date
- $15 for standard overnight packages (fee may be higher for special delivery
options)
- $25 for bounced draft checks or ACH transactions
RETIREMENT ACCOUNT FEES
Certain retirement plans such as IRA, Roth IRA and 403(b) accounts, are
charged an annual $15 maintenance fee. Upon liquidating your retirement account,
a $15 account-closing fee will be taken from the proceeds of your redemption.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") that allows the
Fund to pay distribution and service fees to Rydex Distributors, Inc. (the
"Distributor") and other firms that provide distribution services ("Service
Providers"). If a Service Provider provides distribution services, the Fund 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. The
Distributor will, in turn, pay the Service Provider out of its fees. Because the
Funds pay these fees out of assets on an ongoing basis, over time these fees may
cost you more than other types of sales charges.
DIVIDENDS, DISTRIBUTIONS & TAXES
DIVIDENDS AND DISTRIBUTIONS
Income dividends, if any, are paid at least annually by the Fund. If
you own Fund shares on the Fund's record date, you will be entitled to receive
the dividend. The Fund may declare and pay dividends on the same date. The Fund
makes distributions of capital gains, if any, at least annually.
16
<PAGE>
The Trust, however, may declare a special capital gains distribution if the
Trustees believe that such a distribution would be in the best interest of the
shareholders of the Fund.
DIVIDENDS PAYMENT OPTIONS
Dividends and distributions will be paid 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.
TAX INFORMATION
The following is a summary of some important tax issues that affect the
Fund and its shareholders. The summary is based on current tax laws, which may
be changed by legislative, judicial or administrative action. The Trust has not
tried to present a detailed explanation of the tax treatment of the Fund, or the
tax consequences of an investment in the Fund. 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 THE FUND
The Fund is treated as a separate entity for federal tax purposes, and
intends to qualify for the special tax treatment afforded regulated investment
companies. As long as 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
- The Fund will distribute substantially all of its income. THE INCOME
DIVIDENDS YOU RECEIVE FROM THE FUND WILL BE TAXED AS ORDINARY INCOME WHETHER
YOU RECEIVE THE DIVIDENDS IN CASH OR IN ADDITIONAL SHARES.
- Corporate shareholders may be entitled to a dividends-received deduction for
the portion of dividends they receive which are attributable to dividends
received by 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 Fund through a tax-qualified retirement plan.
STATE TAX CONSIDERATIONS
The Fund is not liable for any income or franchise tax in Delaware as
long as it qualifies as a regulated investment company for federal income tax
purposes. In addition to federal taxes, distributions by the Funds may be
subject to state and local taxes. You should verify your tax liability with your
tax advisor.
17
<PAGE>
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISOR
Rydex Global Advisors, 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852, serves as investment advisor and manager of the Funds. Albert P. Viragh,
Jr., the Chairman of the Board and the President of the Advisor, owns a
controlling interest in the Advisor. From 1985 until the incorporation of the
Advisor, Mr. Viragh was a Vice President of Money Management Associates ("MMA"),
a Maryland-based registered investment advisor. From 1992 to June 1993, Mr.
Viragh was the portfolio manager of The Rushmore Nova Portfolio, a series of The
Rushmore Fund, Inc., an investment company managed by MMA.
The Advisor makes investment decisions for the assets of the Fund and
continuously reviews, supervises, and administers the Fund's investment program.
The Trustees of the Trust supervise the Advisor and establish policies that the
Advisor must follow in its day to day management activities. Under an investment
advisory agreement between the Trust and the Advisor, the Fund pays the Advisor
a fee at an annualized rate based on the average daily net assets for each Fund,
as set forth below:
<TABLE>
<CAPTION>
FUND ADVISORY FEE
<S> <C>
Small-Cap ...............................................................90%
</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 Small-Cap Fund is managed by a team and no one person is
responsible for making investment decisions for the Fund.
18
<PAGE>
BENCHMARK INFORMATION
THE SMALL-CAP FUND IS NOT SPONSORED, ENDORSED, SOLD, OR PROMOTED BY THE FRANK
RUSSELL COMPANY ("RUSSELL").
RUSSELL DOES NOT MAKE ANY REPRESENTATION OR WARRANTY, IMPLIED OR EXPRESS, TO THE
INVESTORS IN THE FUND, OR ANY MEMBER OF THE PUBLIC, REGARDING THE ADVISABILITY
OF INVESTING IN INDEX FUNDS OR THE ABILITY OF THE RUSELL
2000-Registered Trademark- INDEX TO TRACK GENERAL STOCK MARKET PERFORMANCE.
RUSSELL DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE RUSSELL
2000-Registered Trademark- INDEX OR ANY DATA INCLUDED THEREIN.
RUSSELL DOES NOT MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY THE FUND, THE INVESTORS IN THE FUND, OR ANY PERSON OR ENTITY FROM
THE USE OF THE RUSSELL 2000-Registered Trademark- INDEX, OR ANY DATA INCLUDED
THEREIN.
RUSSELL DOES NOT MAKE ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE FOR USE WITH RESPECT TO THE RUSSELL
2000-Registered Trademark- INDEX, OR ANY DATA INCLUDED THEREIN.
19
<PAGE>
Additional information about the Fund is included in a Statement of
Additional Information dated , 2000 (the "SAI"), which contains more
detailed information about the Fund. The SAI has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated by reference
into this Prospectus and, therefore, legally forms a part of this Prospectus.
The SEC maintains 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 Fund's investments is available in the annual and
semi-annual reports. Also, in the Fund's annual report, you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund's 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>
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-one separate investment portfolios (the "Funds"). This Statement of
Additional Information ("SAI") relates to shares of the following portfolio:
SMALL-CAP FUND
This SAI is not a prospectus. It should be read in conjunction with the
Trust's Prospectus, dated , 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 , 2000.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GENERAL INFORMATION ABOUT THE TRUST......................................3
INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS.........................3
INVESTMENT RESTRICTIONS.................................................11
PORTFOLIO TRANSACTIONS AND BROKERAGE....................................12
MANAGEMENT OF THE TRUST.................................................14
DETERMINATION OF NET ASSET VALUE........................................18
PERFORMANCE INFORMATION.................................................19
CALCULATION OF RETURN QUOTATIONS........................................20
PURCHASE AND REDEMPTION OF SHARES.......................................20
DIVIDENDS, DISTRIBUTIONS, AND TAXES.....................................22
OTHER INFORMATION.......................................................24
COUNSEL.................................................................24
AUDITORS................................................................25
CUSTODIAN ..............................................................25
</TABLE>
2
<PAGE>
GENERAL INFORMATION ABOUT THE TRUST
The Trust was organized as a Delaware business trust on February 10, 1993.
The Trust is permitted to offer separate portfolios and different classes of
shares. Additional Funds and/or classes may be created from time to time.
This SAI relates only to shares of the Small-Cap Fund, which are offered
without class designation.
Currently, the Trust has thirty-one 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") and the Small-Cap Fund
are designed to provide investment returns which 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.
INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS
GENERAL
The Fund's investment objective and principal investment strategies are
described in the Prospectus. The following information supplements, and
should be read in conjunction with, those sections of the Prospectus.
Portfolio management is provided to the Fund by the Trust's investment
adviser, PADCO Advisors, Inc., a Maryland corporation with offices at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852. PADCO Advisors,
Inc. operates under the name Rydex Global Advisors (the "Advisor"). The
investment strategy of the Fund discussed below and in the Prospectus may be
used by the Fund if, in the opinion of the Advisor, the strategy will be
advantageous to the Fund. The Fund is free to reduce or eliminate its
activity in any of those areas without changing the Fund's fundamental
investment policies. There is no assurance that this strategy or any other
strategies and methods of investment available to the Fund will result in the
achievement of the Fund's objective.
BORROWING
The Fund may borrow money, including borrowing for investment purposes.
Borrowing for investment is known as leveraging. Leveraging investments, by
purchasing securities with borrowed money, is a speculative technique which
increases investment risk, but also increases investment opportunity. Since
substantially all of the 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 Fund might
3
<PAGE>
have to sell portfolio securities to meet interest or principal payments at a
time when investment considerations would not favor such sales. The Fund
intends to use leverage during periods when the Advisor believes that the
Fund's investment objective would be furthered.
The Fund may borrow money to facilitate management of the Fund's portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or disadvantageous. Such
borrowing is not for investment purposes and will be repaid by the Fund
promptly.
As required by the 1940 Act, the Fund must maintain continuous asset coverage
(total assets, including assets acquired with borrowed funds, less
liabilities exclusive of borrowings) of 300% of all amounts borrowed. If, at
any time, the value of the Fund's assets should fail to meet this 300%
coverage test, the Fund, within three days (not including Sundays and
holidays), will reduce the amount of the Fund's borrowings to the extent
necessary to meet this 300% coverage. Maintenance of this percentage
limitation may result in the sale of portfolio securities at a time when
investment considerations otherwise indicate that it would be disadvantageous
to do so.
In addition to the foregoing, the Fund is authorized to borrow money as a
temporary measure for extraordinary or emergency purposes in amounts not in
excess of 5% of the value of the Fund's total assets. This borrowing is not
subject to the foregoing 300% asset coverage requirement. The Fund is
authorized to pledge portfolio securities as the Advisor deems appropriate in
connection with any borrowings.
ILLIQUID SECURITIES
The Fund may purchase illiquid securities, including securities that are not
readily marketable and securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "1933 Act"),
but which can be offered and sold to "qualified institutional buyers" under
Rule 144A under the 1933 Act. The Fund will not invest more than 15% of the
Fund's net assets in illiquid securities. The Fund will adhere to a more
restrictive limitation on the Fund's investment in illiquid securities as
required by the securities laws of those jurisdictions where shares of the
Fund are registered for sale. The term "illiquid securities" for this purpose
means securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which the Fund has valued
the securities. Under the current guidelines of the staff of the Securities
and Exchange Commission (the "Commission"), illiquid securities also are
considered to include, among other securities, purchased over-the-counter
options, certain cover for over-the-counter options, repurchase agreements
with maturities in excess of seven days, and certain securities whose
disposition is restricted under the federal securities laws. The Fund may not
be able to sell illiquid securities when the Advisor considers it desirable
to do so or may have to sell such securities at a price that is lower than
the price that could be obtained if the securities were more liquid. In
addition, the sale of illiquid securities also may require more time and may
result in higher dealer discounts and other selling expenses than does the
sale of securities that are not illiquid. Illiquid securities also may be
more difficult to value due to the unavailability of reliable market
quotations for such securities, and investment in illiquid securities may
have an adverse impact on net asset value.
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
4
<PAGE>
Trust (the "Trustees") have delegated the responsibility for determining the
liquidity of Rule 144A restricted securities which may be invested in by the
Fund to the Advisor.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The 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. The Fund, therefore, may
invest in the securities of another investment company (the "acquired
company") provided that the Fund, immediately after such purchase or
acquisition, does not own in the aggregate: (i) more than 3% of the total
outstanding voting stock of the acquired company; (ii) securities issued by
the acquired company having an aggregate value in excess of 5% of the value
of the total assets of the Fund; or (iii) securities issued by the acquired
company and all other investment companies (other than Treasury stock of the
Fund) having an aggregate value in excess of 10% of the value of the total
assets of the Fund.
If the 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 Advisor 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, the Fund may lend
portfolio securities to brokers, dealers, and financial institutions,
provided that cash equal to at least 100% of the market value of the
securities loaned is deposited by the borrower with the Fund and is
maintained each business day in a segregated account pursuant to applicable
regulations. While such securities are on loan, the borrower will pay the
lending Fund any income accruing thereon, and the Fund may invest the cash
collateral in portfolio securities, thereby earning additional income. The
Fund will not lend its portfolio securities if such loans are not permitted
by the laws or regulations of any state in which the Fund's shares are
qualified for sale, and the Fund will not lend more than 33 1/3% of the value
of the Fund's total assets. Loans would be subject to termination by the
lending Fund on four business days' notice, or by the borrower on one day's
notice. Borrowed securities must be returned when the loan is terminated. Any
gain or loss in the market price of the borrowed securities which occurs
during the term of the loan inures to the lending Fund and 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 Fund may buy call options and write (sell) put
options on securities for the purpose of realizing the Fund's investment
objective. By writing a call option on securities, the Fund becomes obligated
during the term of the option to sell the securities underlying the option at
the exercise price if the option is exercised. By writing a put option, the
Fund becomes obligated during the term of the option to purchase the
securities underlying the option at the exercise price if the option is
exercised.
During the term of the option, the writer may be assigned an exercise notice
by the broker-dealer through whom the option was sold. The exercise notice
would require the writer to deliver, in the case of a call, or take delivery
of, in the case of a put, the underlying security against payment of the
exercise price. This obligation terminates upon expiration of the option, or
at such earlier time that the writer effects a closing
5
<PAGE>
purchase transaction by purchasing an option covering the same underlying
security and having the same exercise price and expiration date as the one
previously sold. Once an option has been exercised, the writer may not
execute a closing purchase transaction. To secure the obligation to deliver
the underlying security in the case of a call option, the writer of a call
option is required to deposit in escrow the underlying security or other
assets in accordance with the rules of the Option Clearing Corporation (the
"OCC"), an institution created to interpose itself between buyers and sellers
of options. The OCC assumes the other side of every purchase and sale
transaction on an exchange and, by doing so, gives its guarantee to the
transaction.
OPTIONS ON SECURITY INDICES. The Fund may purchase call options and write put
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 the Fund writes a covered option on an
index, the Fund will be required to deposit and maintain with a custodian
cash or liquid securities equal in value to the aggregate exercise price of a
put or call option pursuant to the requirements and the rules of the
applicable exchange. If, at the close of business on any day, the market
value of the deposited securities falls below the contract price, the Fund
will deposit with the custodian cash or liquid securities equal in value to
the deficiency.
OPTIONS ON FUTURES CONTRACTS. Under Commodities Futures Trading Commission
("CFTC") Regulations, the Fund may engage in futures transactions, either for
"bona fide hedging" purposes, as this term is defined in the CFTC
Regulations, or for non-hedging purposes to the extent that the aggregate
initial margins and option premiums required to establish such non-hedging
positions do not exceed 5% of the liquidation value of the Fund's portfolio.
In the case of an option on futures contracts that is "in-the-money" at the
time of purchase (I.E., the amount by which the exercise price of the put
option exceeds the current market value of the underlying security, or the
amount by which the current market value of the underlying security exceeds
the exercise price of the call option), the in-the-money amount may be
excluded in calculating this 5% limitation.
When the Fund purchases or sells a stock index futures contract, or sells an
option thereon, the Fund "covers" its position. To cover its position, the
Fund may maintain with its custodian bank (and marked-to-market on a daily
basis), a segregated account consisting of cash or liquid securities that,
when added to any amounts deposited with a futures commission merchant as
margin, are equal to the market value of the futures contract or otherwise
"cover" its position. If the Fund continues to engage in the described
securities trading practices and properly segregates assets, the segregated
account will function as a practical limit on the amount of leverage which
the Fund may undertake and on the potential increase in the speculative
character of the Fund's outstanding portfolio securities. Additionally, such
segregated accounts will generally assure the availability of adequate funds
to meet the obligations of the Fund arising from such investment activities.
The Fund may cover its long position in a futures contract by purchasing a
put option on the same futures contract with a strike price (I.E., an
exercise price) as high or higher than the price of the futures contract. In
the alternative, if the strike price of the put is less than the price of the
futures contract, the Fund will maintain in a segregated account cash or
liquid securities equal in value to the difference between the strike price
of the put and the price of the futures contract. The Fund may also cover its
long position in a futures contract by taking a short position in the
instruments underlying the futures contract, or by taking positions
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in instruments with prices which are expected to move relatively consistently
with the futures contract. The Fund may cover its short position in a futures
contract by taking a long position in the instruments underlying the futures
contracts, or by taking positions in instruments with prices which are
expected to move relatively consistently with the futures contract.
The Fund may cover its sale of a call option on a futures contract by taking
a long position in the underlying futures contract at a price less than or
equal to the strike price of the call option. In the alternative, if the long
position in the underlying futures contracts is established at a price
greater than the strike price of the written (sold) call, the Fund will
maintain in a segregated account cash or liquid securities equal in value to
the difference between the strike price of the call and the price of the
futures contract. The Fund may also cover its sale of a call option by taking
positions in instruments with prices which are expected to move relatively
consistently with the call option. The Fund may cover its sale of a put
option on a futures contract by taking a short position in the underlying
futures contract at a price greater than or equal to the strike price of the
put option, or, if the short position in the underlying futures contract is
established at a price less than the strike price of the written put, the
Fund will maintain in a segregated account cash or liquid securities equal in
value to the difference between the strike price of the put and the price of
the futures contract. The Fund may also cover its sale of a put option by
taking positions in instruments with prices which are expected to move
relatively consistently with the put option.
SWAPS
The Fund may enter into equity index or interest rate swap agreements for
purpose 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 Fund calculate the obligations of
the parties to the agreement on a "net basis." Consequently, the 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").
The Fund's current obligations under a swap agreement will be accrued daily
(offset against any amounts owing to the Fund) and any accrued by 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 construed to be "senior securities" for purposes of the 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. The
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Fund will not enter into any swap agreement unless the Advisor believes that
the other party to the transaction is creditworthy. The 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.
The 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 the 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 amounts of the excess, if
any, of the 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 the Fund's custodian.
Inasmuch as these transactions are entered into for hedging purposes or are
offset by segregated cash or liquid assets, as permitted by applicable law,
the Fund and the Advisor believe that transactions do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to the 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
As discussed in the prospectus, the Trust anticipates that investors in the
Fund, as part of an asset allocation investment strategy, will frequently
purchase and/or redeem shares of the Fund. The nature of the Fund as asset
allocation tools will cause the Fund to experience substantial portfolio
turnover. (See "More Information About Fund Investments and Risk" in the
Prospectus). Because the Fund's portfolio turnover
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rate, to a great extent, will depend on the purchase, redemption, and
exchange activity of the Fund's investors, it is very difficult to estimate
what the Fund's actual turnover rate will be in the future. However, the
Trust expects that the portfolio turnover experienced by the Fund will be
substantial.
REPURCHASE AGREEMENTS
As discussed in the Prospectus, the Fund may enter into repurchase agreements
with financial institutions. The Fund follows certain procedures designed to
minimize the risks inherent in such agreements. These procedures include
effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions whose condition will be continually
monitored by the Advisor. In addition, the value of the collateral underlying
the repurchase agreement will always be at least equal to the repurchase
price, including any accrued interest earned on the repurchase agreement. In
the event of a default or bankruptcy by a selling financial institution, the
Fund will seek to liquidate such collateral. However, the exercising of the
Fund's right to liquidate such collateral could involve certain costs or
delays and, to the extent that proceeds from any sale upon a default of the
obligation to repurchase were less than the repurchase price, the Fund could
suffer a loss. It is the current policy of the 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% of the Fund's total assets. The investments of the Fund in
repurchase agreements, at times, may be substantial when, in the view of the
Advisor, liquidity or other considerations so warrant.
STOCK INDEX FUTURES CONTRACTS
The Fund may buy and sell stock index futures contracts with respect to any
stock index traded on a recognized stock exchange, board of trade, or in the
over-the-counter market. 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 the 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, the
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 the Fund, which seeks to closely correlate its performance to that of
its benchmark, does not expect that the aggregate returns over a year will
deviate significantly, several factors may affect its ability to achieve this
correlation. Among these are: (1) Fund expenses, including brokerage (which
may be increased by high portfolio turnover); (2) less than all of the
securities in the benchmark being held by the Fund and securities not
included in the benchmark being held by the Fund;
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(3) an imperfect correlation between the performance of instruments held by
the Fund, such as futures contracts and options, and the performance of the
underlying securities in the market; (4) bid-ask spreads (the effect of which
may be increased by portfolio turnover); (5) Fund share prices being rounded
to the nearest cent; (6) changes to the benchmark index that are not
disseminated in advance; (7) the need to conform the Fund's portfolio
holdings to comply with investment restrictions or policies or regulatory or
tax law requirements; (8) 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 uptrend 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. The Fund's performance attempts to
correlate highly with the movement in its respective benchmark over time.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. Government Securities. Securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities
include U.S. Treasury securities, which are backed by the full faith and
credit of the U.S. Treasury and which differ only in their interest rates,
maturities, and times of issuance. U.S. Treasury bills have initial
maturities of one year or less; U.S. Treasury notes have initial maturities
of one to ten years; and U.S. Treasury bonds generally have initial
maturities of greater than ten years. Certain U.S. Government Securities are
issued or guaranteed by agencies or instrumentalities of the U.S. Government
including, but not limited to, obligations of U.S. Government agencies or
instrumentalities such as Fannie Mae, the Government National Mortgage
Association, the Small Business Administration, the Federal Farm Credit
Administration, the Federal Home Loan Banks, Banks for Cooperatives
(including the Central Bank for Cooperatives), the Federal Land Banks, the
Federal Intermediate Credit Banks, the Tennessee Valley Authority, the
Export-Import Bank of the United States, the Commodity Credit Corporation,
the Federal Financing Bank, the Student Loan Marketing Association, and the
National Credit Union Administration.
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 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.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Fund, from time to time, in the ordinary course of business, may purchase
securities on a when-issued or delayed-delivery basis (I.E., delivery and
payment can take place between a month and 120 days after the date of the
transaction). These securities are subject to market fluctuation and no
interest accrues to the
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purchaser during this period. At the time the Fund makes the commitment to
purchase securities on a when-issued or delayed-delivery basis, the Fund will
record the transaction and thereafter reflect the value of the securities,
each day, of such security in determining the Fund's net asset value. The
Fund will not purchase securities on a when-issued or delayed-delivery basis
if, as a result, more than 15% of the Fund's net assets would be so invested.
At the time of delivery of the securities, the value of the securities may be
more or less than the purchase price. The Fund will also establish a
segregated account with the Fund's custodian bank in which the Fund will
maintain cash or liquid securities equal to or greater in value than the
Fund's purchase commitments for such when-issued or delayed-delivery
securities. The Trust does not believe that the Fund's net asset value or
income will be adversely affected by the Fund's purchase of securities on a
when-issued or delayed-delivery basis.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
The following investment limitations (and those set forth in the Prospectus)
are fundamental policies of the Fund, which cannot be changed without the
consent of the holders of a majority of the Fund's outstanding shares. The
term "majority of the outstanding shares" means a vote of (i) 67% or more of
a Fund's shares present at a meeting, if more than 50% of the outstanding
shares of that Fund are present or represented by proxy, or (ii) more than
50% of that Fund's outstanding shares, whichever is less.
The Small-Cap Fund shall not:
1. Borrow money in an amount exceeding 33 1/3% of the value of
its total assets, provided that, for purposes of this
limitation, investment strategies which either obligate the
Fund to purchase securities or require that Fund to segregate
assets are not considered to be borrowing. Asset coverage of
a least 300% is required for all borrowing, except where the
Fund has borrowed money for temporary purposes in amounts not
exceeding 5% of its total assets. The Fund will not purchase
securities while its borrowing exceeds 5% of its total assets.
2. Make loans if, as a result, more than 33 1/3% of its total
assets would be lent to other parties, except that the Fund
may (i) purchase or hold debt instruments in accordance with
its investment objective and policies; (ii) enter into
repurchase agreements; and (iii) lend its securities.
3. Purchase or sell real estate, physical commodities, or
commodities contracts, except that the Fund may purchase (i)
marketable securities issued by companies which own or invest
in real estate (including real estate investment trusts),
commodities, or commodities contracts; and (ii) commodities
contracts relating to financial instruments, such as financial
futures contracts and options on such contracts.
4. Issue senior securities (as defined in the 1940 Act) except
as permitted by rule, regulation or order of the SEC.
5. Act as an underwriter of securities of other issuers except as
it may be deemed an underwriter in selling a portfolio
security.
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6. Invest in interests in oil, gas, or other mineral exploration
or development programs and oil, gas or mineral leases.
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; except
that, to the extent the benchmark selected for a particular
Fund is concentrated in a particular industry, the Fund will
necessarily be concentrated in that industry. This limitation
does not apply to investments or obligations of the U.S.
Government or any of its agencies or instrumentalities.
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of the Fund
and may be changed by the Board of Trustees.
The Small-Cap Fund may not:
1. Pledge, mortgage or hypothecate assets except to secure
borrowing permitted by the Fund's fundamental limitation on
borrowing.
2. Invest in companies for the purpose of exercising control.
3. Purchase securities on margin or effect short sales, except
that a Fund may (i) obtain short-term credits as necessary for
the clearance of security transactions; (ii) provide initial
and variation margin payments in connection with transactions
involving futures contracts and options on such contracts; and
(iii) make short sales "against the box" or in compliance with
the SEC's position regarding the asset segregation
requirements imposed by Section 18 of the 1940 Act.
4. Invest its assets in securities of any investment company,
except as permitted by the 1940 Act or any rule, regulation or
order of the SEC.
5. Purchase or hold illiquid securities, I.E., securities that
cannot be disposed of for their approximate carrying value in
seven days or less (which term includes repurchase agreements
and time deposits maturing in more than seven days) if, in the
aggregate, more than 15% of its net assets would be invested
in illiquid securities.
The foregoing percentages are: (i) based on total assets (except for the
limitation on illiquid securities, which is based on net assets); (ii) will
apply at the time of the purchase of a security; and (iii) shall not be
considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of a purchase of such security.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, the Advisor is
responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. The Advisor expects that the
Fund may execute brokerage or other agency
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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 Fund 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 Fund and other client accounts of the Advisor are the
respective investment objectives, the relative size of portfolio holdings of
the same or comparable securities, the availability of cash for investment,
the size of investment commitments generally held, and the opinions of the
person(s) responsible, if any, for managing the portfolio of the Fund and the
other client accounts.
The policy of the Fund regarding purchases and sales of securities for the
Fund's portfolio is that primary consideration will be given to obtaining the
most favorable prices and efficient executions of transactions. Consistent
with this policy, when securities transactions are effected on a stock
exchange, the Fund's policy is to pay commissions which are considered fair
and reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a
requirement always to seek the lowest possible commission cost could impede
effective portfolio management and preclude the Fund and the Advisor from
obtaining a high quality of brokerage and research services. In seeking to
determine the reasonableness of brokerage commissions paid in any
transaction, the Advisor relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
Purchases and sales of U.S. Government securities are normally transacted
through issuers, underwriters or major dealers in U.S. Government securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased
from an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between
bid and asked prices.
In managing the investment portfolio of the Fund, 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 the
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 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
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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 the Fund directly. For
example, such information and services received by the Advisor as a result of
the brokerage allocation of the Fund 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.
MANAGEMENT OF THE TRUST
The Trustees are responsible for the general supervision of the Trust's
business. The day-to-day operations of the Trust are the responsibilities of
the Trust's officers. The names and addresses (and ages) of the Trustees and
the officers of the Trust and the officers of the Advisor, together with
information as to their principal business occupations during the past five
years, are set forth below. Fees and expenses for non-interested Trustees
will be paid by the Trust.
TRUSTEES
*ALBERT P. VIRAGH, JR. (59)
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
------------------------
*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.
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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 (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; 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 (60)
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.
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 (55)
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.
15
<PAGE>
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 (30)
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.
The aggregate compensation paid by the Trust to each of its Trustees serving
during the fiscal year ended March 31, 2000, is set forth in the table below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Total Compensation from Fund
Aggregate Compensation Complex For Service on Three
Name of Person, Position From Trust Boards**
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Albert P. Viragh, Jr.*, CHAIRMAN AND $0 $0
PRESIDENT
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Corey A. Colehour, TRUSTEE $23,000 $34,500
------------------------------------------------------------------------------------------------------
J. Kenneth Dalton, $23,000 $34,500
TRUSTEE
------------------------------------------------------------------------------------------------------
Roger Somers, $23,000 $34,500
TRUSTEE
------------------------------------------------------------------------------------------------------
John O. Demaret, $23,000 $34,500
TRUSTEE
------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Total Compensation from Fund
Aggregate Compensation Complex For Service on Three
Name of Person, Position From Trust Boards**
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Patrick T. McCarville, $23,000 $34,500
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.
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
Fund and oversees the day-to-day operations of the Fund, subject to direction
and control by the Trustees and the officers of the Trust. As of March 31,
2000, total assets under management of the Advisor were approximately $ 8.6
billion. Pursuant to the advisory agreement with the Advisor, the Fund pays
the Advisor the following fee at an annual rate based on the average daily
net assets for the Fund, as set forth below:
<TABLE>
<CAPTION>
FUND ADVISORY FEE
<S> <C>
Small-Cap Fund .90%
</TABLE>
The Advisor manages the investment and the reinvestment of the assets of the
Fund, in accordance with the investment objectives, policies, and limitations
of the Fund, subject to the general supervision and control of the Trustees
and the officers of the Trust. The Advisor bears all costs associated with
providing these advisory services and the expenses of the Trustees of the
Trust who are affiliated with or interested persons of the Advisor. The
Advisor, from its own resources, including profits from advisory fees
received from the Fund, provided such fees are legitimate and not excessive,
may make payments to broker-dealers and other financial institutions for
their expenses in connection with the distribution of Fund shares, and
otherwise currently pay all distribution costs for Fund shares.
The Advisor's office is located at 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852. 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 the 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 by PADCO Service Company,
Inc., 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852 (the
"Servicer"), subject to the general supervision and control of the Trustees
and the officers of the Trust, pursuant to a service agreement between the
Trust and the Servicer. The Servicer is wholly-owned by Albert P. Viragh,
Jr., who is the Chairman of the Board and the President of the Trust and the
sole controlling person and majority owner of the Advisor.
Under the service agreement, the Servicer provides the Trust 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
17
<PAGE>
materials required to be filed or furnished by the Trust under federal and
state securities laws. The Servicer also maintains the shareholder account
records for the Fund, disburses dividends and distributions payable by the
Fund, and produces statements with respect to account activity for the Fund
and the Fund's shareholders. The Servicer pays all fees and expenses that are
directly related to the services provided by the Servicer to the Fund; the
Fund reimburses the Servicer for all fees and expenses incurred by the
Servicer which are not directly related to the services the Servicer provides
to the Fund under the service agreement. Pursuant to an Accounting Service
Agreement the Servicer serves as Accounting Services Agent and performs
certain record keeping and accounting functions.
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 shares of the Fund under
the general supervision and control of the Trustees and the officers of the
Trust.
Under the Distribution Plan, the Distributor may use its fees for: (i)
compensation for its services in connection with distribution assistance; or
(ii) payments to financial institutions and intermediaries such as banks,
savings and loan associations, insurance companies and investment counselors,
broker-dealers, mutual fund supermarkets and the Distributor's affiliates and
subsidiaries as compensation for services or reimbursement of expenses
incurred in connection with distribution assistance. The Distributor may, at
its discretion, retain a portion of such payments to compensate itself for
distribution services and distribution related expenses such as the costs of
preparation, printing, mailing or otherwise disseminating sales literature,
advertising, and prospectuses (other than those furnished to current
shareholders of the Fund), promotional and incentive programs, and such other
marketing expenses that the Distributor may incur.
COSTS AND EXPENSES
The Fund bears all expenses of its operations other than those assumed by the
Advisor or the Servicer. Fund expenses include: the management fee; the
servicing fee (including administrative, transfer agent, and shareholder
servicing fees); custodian and accounting fees and expenses; legal and
auditing fees; securities valuation expenses; fidelity bonds and other
insurance premiums; expenses of preparing and printing prospectuses,
confirmations, proxy statements, and shareholder reports and notices;
registration fees and expenses; proxy and annual meeting expenses, if any;
all federal, state, and local taxes (including, without limitation, stamp,
excise, income, and franchise taxes); organizational costs; non-interested
Trustees' fees and expenses; the costs and expenses of redeeming shares of
the Fund; fees and expenses paid to any securities pricing organization; dues
and expenses associated with membership in any mutual fund organization; and
costs for incoming telephone WATTS lines. In addition, the Fund pays 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.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund serves as the basis for the purchase and
redemption price of the Fund's shares. The net asset value per share of the
Fund is calculated by dividing the market value of the Fund's securities plus
the values of its other assets, less all liabilities, by the number of
outstanding shares of the Fund. If market quotations are not readily
available, a security will be valued at fair value by the Board of Trustees
or by the Advisor using methods established or ratified by the Board of
Trustees.
18
<PAGE>
Options on securities and indices purchased by the Fund generally are valued
at their last bid price in the case of exchange-traded options or, in the
case of options traded in the over-the-counter ("OTC") market, the average of
the last bid price as obtained from two or more dealers unless there is only
one dealer, in which case that dealer's price is used. 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 the 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. OTC
securities held by the Fund shall be valued at the last sales price or, if no
sales price is reported, the mean of the last bid and asked price is used.
The portfolio securities of the Fund that are listed on national and
international 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 at the time NAV is
determined. 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 Fund are
valued at fair value.
PERFORMANCE INFORMATION
From time to time, the Fund may include the Fund's total return in
advertisements or reports to shareholders or prospective shareholders.
Quotations of average annual total return for the Fund will be expressed in
terms of the average annual compounded rate of return on a hypothetical
investment in the Fund over a period of at least one, five, and ten years (up
to the life of the Fund) (the ending date of the period will be stated).
Total return of a Fund is calculated from two factors: the amount of
dividends earned by a Fund share and by the increase or decrease in value of
a Fund's share price. See "Calculation of Return Quotations."
Performance information for the Fund contained in reports to shareholders or
prospective shareholders, advertisements, and other promotional literature
may be compared to the record of various unmanaged indices. Performance
information for the Fund may be compared to various unmanaged indices.
Such unmanaged indices may assume the reinvestment of dividends, but
generally do not reflect deductions for operating costs and expenses. In
addition, the Fund's total return may be compared to the performance
19
<PAGE>
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 the 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"), a Fund advertising performance must include total return
quotes calculated according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years (1, 5, or 10); and
ERV = ending redeemable value of a hypothetical
$1,000 payment, made at the beginning of the
1, 5, or 10 year periods, at the end of the
1, 5, or 10 year periods (or fractional
portion thereof).
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and
will cover 1, 5, and 10 year periods or a shorter period dating from the
effectiveness of the Registration Statement of the Trust. In calculating the
ending redeemable value, all dividends and distributions by 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.
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
20
<PAGE>
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
With respect to the Fund, and as permitted by the Securities and Exchange
Commission ("Commission"), the right of redemption may be suspended, or the
date of payment postponed: (i) for any period during which the NYSE is closed
(other than customary weekend or holiday closings) or trading 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. In cases where NASDAQ, the CME or Chicago Board
Options Exchange, or any foreign market where the Fund's securities trade is
closed or trading is restricted, the Fund may ask the Commission to permit
the right of redemption to be suspended. On any day that any of the
securities exchanges on which the Fund's securities trade 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.
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 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 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.
21
<PAGE>
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and any distributions of net realized
capital gains from the Fund will be distributed as described in the
Prospectus under "Dividends and Distributions." All such distributions of the
Fund normally will be reinvested without charge in additional shares of the
same Fund automatically.
REGULATED INVESTMENT COMPANY ("RIC") STATUS
As a RIC, the Fund would not be subject to federal income taxes on the net
investment income and capital gains that the Fund distributes to the Fund's
shareholders. The distribution of net investment income and capital gains
will be taxable to Fund shareholders regardless of whether the shareholder
elects to receive these distributions in cash or in additional shares.
Distributions reported to Fund shareholders as long-term capital gains shall
be taxable as such, regardless of how long the shareholder has owned the
shares. Fund shareholders will be notified annually by the Fund as to the
federal tax status of all distributions made by the Fund. Distributions may
be subject to state and local taxes.
The Fund will seek to qualify for treatment as a RIC under the Code. Provided
that the Fund (i) is a RIC and (ii) distributes at least 90% of the Fund's
net investment income (including, for this purpose, net realized short-term
capital gains), the Fund itself will not be subject to federal income taxes
to the extent the Fund's net investment income and the Fund's net realized
long- and short-term capital gains, if any, are distributed to the Fund's
shareholders. To avoid an excise tax on its undistributed income, the Fund
generally must distribute at least 98% of its income, including its net
long-term capital gains. One of several requirements for RIC qualification is
that the Fund must receive at least 90% of the Fund's gross income each year
from dividends, interest, payments with respect to securities loans, gains
from the sale or other disposition of securities or foreign currencies, or
other income derived with respect to the Fund's investments in stock,
securities, and foreign currencies (the "90% Test").
In the event of a failure by the Fund to qualify as a 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 a RIC.
If the Fund were to fail to qualify as a RIC for one or more taxable years,
the Fund could then qualify (or requalify) as a RIC for a subsequent taxable
year only if the Fund had distributed to the Fund's shareholders a taxable
dividend equal to the full amount of any earnings or profits (less the
interest charge mentioned below, if applicable) attributable to such period.
The Fund might also be required to pay to the U.S. Internal Revenue Service
(the "IRS") interest on 50% of such accumulated earnings and profits. In
addition, pursuant to the Code and an interpretative notice issued by the
IRS, if the Fund should fail to qualify as a RIC and should thereafter seek
to requalify as a RIC, the Fund may be subject to tax on the excess (if any)
of the fair market of the Fund's assets over the Fund's basis in such assets,
as of the day immediately before the first taxable year for which the Fund
seeks to requalify as a RIC.
If the Fund determines that it will not qualify as a RIC under Subchapter M of
the Code, the Fund will establish procedures to reflect the anticipated tax
liability in the Fund's net asset value.
22
<PAGE>
OPTIONS TRANSACTIONS BY THE FUND
If a call option written by the 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 the 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 the 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.
The Fund will utilize options on stock indices in its operations. 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 the 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 the Fund 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. The Fund will also have
available a number of elections under the Code concerning the treatment of
option transactions for tax purposes. The Fund will utilize the tax treatment
that, in the Fund's judgment, will be most favorable to a majority of
investors in the Fund. Taxation of these transactions will vary according to
the elections made by the Fund. These tax considerations may have an impact
on investment decisions made by the Fund.
The Fund's transactions in options, under some circumstances, could preclude
the Fund's qualification for the special tax treatment available to
investment companies meeting the requirements of Subchapter M of the Code.
However, it is the intention of the Fund's portfolio management to limit
gains from such investments to less than 10% of the gross income of the Fund
during any fiscal year in order to maintain this qualification.
BACK-UP WITHHOLDING
The Fund is required to withhold and remit to the U.S. Treasury 31% of (i)
reportable taxable dividends and distributions and (ii) the proceeds of any
redemptions of Fund shares with respect to any shareholder who is not exempt
from withholding and who fails to furnish the Trust with a correct taxpayer
identification number, who fails to report fully dividend or interest income,
or who fails to certify to the Trust that the shareholder has provided a
correct taxpayer identification number and that the shareholder is not
subject to withholding. (An individual's taxpayer identification number is
the individual's social security number.) The 31% "back-up withholding tax"
is not an additional tax and may be credited against a taxpayer's regular
federal income tax liability.
23
<PAGE>
OTHER ISSUES
The Fund may be subject to tax or taxes in certain states where the Fund does
business. Furthermore, in those states which have income tax laws, the tax
treatment of a Fund and of Fund shareholders with respect to distributions by
the Fund may differ from federal tax treatment.
Shareholders are urged to consult their own tax advisors regarding the
application of the provisions of tax law described in this Statement of
Additional Information in light of the particular tax situations of the
shareholders and regarding specific questions as to federal, state, or local
taxes.
OTHER INFORMATION
VOTING RIGHTS
You receive one vote for every full Fund share owned. The Fund will vote
separately on matters relating solely to the Fund. All shares of the Fund 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 Investment Company Act of 1940. 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 Rydex 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 serves as counsel to the Trust.
24
<PAGE>
AUDITORS
Deloitte & Touche LLP, are the auditors and the independent certified public
accountants of the Trust and each of the Funds.
CUSTODIAN
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.
25
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
-------- --------
(a)(1) Certificate of Trust of Rydex Series Trust (the "Registrant" or the
"Trust") incorporated herein by reference to Exhibit 1a of
Post-Effective Amendment No. 27 to this Registration Statement, filed
on October 30, 1996.
(a)(2) Declaration of Trust of the Registrant incorporated herein by
reference to Exhibit 1b of Post-Effective Amendment No. 27 to this
Registration Statement, filed on October 30, 1996.
(b) By-Laws of the Registrant incorporated herein by reference to
Exhibit 2 of Post-Effective Amendment No. 27 to this Registration
Statement filed, on October 30, 1996.
(c) Not applicable.
(d)(1) Investment Management Agreement between Registrant and PADCO Advisors,
Inc. incorporated herein by reference to Exhibit 5a of Post-Effective
Amendment No. 27 to this Registration Statement, filed on October 30,
1996.
(d)(2) Sub-Advisory Agreement between PADCO Advisors, Inc. and Loomis, Sayles
& Company, L.P. incorporated herein by reference to Exhibit 5b of
Post-Effective Amendment No. 27 to this Registration Statement, filed
on October 30, 1996.
(d)(3) Amendment to Investment Management Agreement between the Registrant
and PADCO Advisors, Inc. dated March 16, 1998 incorporated herein by
reference to Exhibit 3d of Post-Effective Amendment No. 31 to this
Registration Statement, filed on May 29, 1998.
(e) Distribution Agreement between the Registrant and PADCO Financial
Services, Inc. relating to the Adviser Class Shares incorporated
herein by reference to Exhibit (e) of Post-Effective Amendment No. 31
to this Registration Statement, filed on May 29, 1998.
(f) Not applicable.
(g) Custody Agreement between Registrant and Star Bank, N.A. incorporated
herein by reference to Exhibit 8 of Post-Effective Amendment No. 27 to
this Registration Statement, filed on October 30, 1996.
3
<PAGE>
ITEM 23. EXHIBITS (continued)
-------- --------
(h)(1) Service Agreement between Registrant and PADCO Service Company, Inc.
incorporated herein by reference to Exhibit 9c of Post-Effective
Amendment No. 27 to this Registration Statement, filed on October 30,
1996.
(h)(2) Portfolio Accounting Services Agreement between Registrant and PADCO
Service Company, Inc. incorporated herein by reference to Exhibit 9d
of Post-Effective Amendment No. 27 to this Registration Statement,
filed on October 30, 1996.
(h)(3) Amendment to Service Agreement between Registrant and PADCO Service
Company, Inc. dated March 16, 1998 incorporated herein by reference to
Exhibit 3h of Post-Effective Amendment No. 31 to this Registration
Statement, filed on May 29, 1998.
(h)(4) Amendment to Accounting Services Agreement between Registrant and
PADCO Service Company, Inc. dated December 11, 1998 incorporated
herein by reference to Exhibit 4h of Post-Effective Amendment No. 35
to this Registration Statement, filed on July 30, 1999.
(i) Legal Opinion of Morgan, Lewis & Bockius LLP incorporated herein by
reference to Exhibit (i) of Post-Effective Amendment No. 35 to this
Registration Statement, filed on July 30, 1999.
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m)(1) Plan of Distribution for The Rydex Institutional Money Market Fund
incorporated herein by reference to Exhibit 15a of Post-Effective
Amendment No. 24 to this Registration Statement, filed on October 27,
1995.
(m)(2) Plan of Distribution for The Rydex Institutional Money Market Fund as
revised, March 12, 1997 incorporated herein by reference to Exhibit
15b of Post-Effective Amendment No. 24 to this Registration Statement,
filed on October 27, 1995.
(m)(3) Plan of Distribution for The Rydex Institutional Money Market Fund as
revised, June 23, 1997 incorporated herein by reference to Exhibit 15c
of Post-Effective Amendment No. 24 to this Registration Statement,
filed on October 27, 1995.
(m)(4) Plan of Distribution for The Rydex High Yield Fund incorporated herein
by reference to Exhibit 15d of Post-Effective Amendment No. 26 to this
Registration
4
<PAGE>
Statement, filed on September 11, 1996.
(m)(5) Plan of Distribution for The Rydex High Yield Fund, as revised
March 12, 1995 incorporated herein by reference to Exhibit 15e of
Post-Effective Amendment No. 24 to this Registration Statement, filed
on October 27, 1995.
(m)(6) Plan of Distribution for The Rydex High Yield Fund, as revised
June 23, 1997 incorporated herein by reference to Exhibit 15f of
Post-Effective Amendment No. 24 to this Registration Statement, filed
on October 27, 1995.
(m)(7) Shareholder Servicing Support Agreements between PADCO Financial
Services, Inc. and Selling Recipients in connection with the Plan of
Distribution for The Rydex Institutional Money Market Fund
incorporated herein by reference to Exhibit 15g of Post-Effective
Amendment No. 25 to this Registration Statement, filed on March 1,
1996.
(m)(8) Shareholder Servicing Support Agreement between PADCO Financial
Services, Inc. and Selling Recipients in connection with the Plan of
Distribution for The Rydex High Yield Fund incorporated herein by
reference to Exhibit 15h of Post-Effective Amendment No. 26 to this
Registration Statement, filed on September 11, 1996.
(m)(9) Distribution Plan and Shareholder Servicing Agreement for Advisor
Class Shares is incorporated by reference to Exhibit 15i of
Post-Effective Amendment No. 30 to this Registration Statement, filed
on March 2, 1998.
(n) Not applicable.
(o) Rule 18f-3 Plan is incorporated by reference to Exhibit 18 of
Post-Effective Amendment No. 30 to this Registration Statement, filed
on March 2, 1998.
(p) Combined Code of Ethics for Rydex Series Funds, Rydex Variable Trust,
Rydex Dynamic Funds, PADCO Advisors, Inc. d/b/a Rydex Global Advisors,
PADCO Advisors II, Inc. d/b/a Rydex Global Advisors, Rydex
Distributors, Inc., PADCO Service Company, Inc. is incorporated by
reference to Exhibit (p) of Post-Effective Amendment No. 3 to Rydex
Variable Trust's Registration Statement (File Nos. 333-57017 and
811-08821), filed on April 5, 2000.
(q) Powers of Attorney incorporated herein by reference to Exhibit (p) of
Post-Effective Amendment No. 35 to this Registration Statement, filed
on July 30, 1999.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
-------- -------------------------------------------------------------
Not Applicable.
5
<PAGE>
ITEM 25. INDEMNIFICATION
-------- ---------------
The Registrant is organized as a Delaware business trust and is operated
pursuant to a Declaration of Trust, dated as of March 13, 1993 (the "Declaration
of Trust"), that permits the Registrant to indemnify its trustees and officers
under certain circumstances. Such indemnification, however, is subject to the
limitations imposed by the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended. The Declaration of Trust of the
Registrant provides that officers and trustees of the Trust shall be indemnified
by the Trust against liabilities and expenses of defense in proceedings against
them by reason of the fact that they each serve as an officer or trustee of the
Trust or as an officer or trustee of another entity at the request of the
entity. This indemnification is subject to the following conditions:
(a) no trustee or officer of the Trust is indemnified against any
liability to the Trust or its security holders which was the
result of any willful misfeasance, bad faith, gross
negligence, or reckless disregard of his duties;
(b) officers and trustees of the Trust are indemnified only for
actions taken in good faith which the officers and trustees
believed were in or not opposed to the best interests of the
Trust; and
(c) expenses of any suit or proceeding will be paid in advance
only if the persons who will benefit by such advance undertake
to repay the expenses unless it subsequently is determined
that such persons are entitled to indemnification.
The Declaration of Trust of the Registrant provides that if indemnification is
not ordered by a court, indemnification may be authorized upon determination by
shareholders, or by a majority vote of a quorum of the trustees who were not
parties to the proceedings or, if this quorum is not obtainable, if directed by
a quorum of disinterested trustees, or by independent legal counsel in a written
opinion, that the persons to be indemnified have met the applicable standard.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
-------- ----------------------------------------------------
Each of the directors of the Trust's investment adviser, PADCO Advisors, Inc.
(the "Advisor"), Albert P. Viragh, Jr., the Chairman of the Board of Directors,
President, and Treasurer of the Advisor, and Amanda C. Viragh, the Secretary of
the Advisors, is an employee of the Advisor at 6116 Executive Boulevard, Suite
400, Rockville, Maryland 20852. Albert P. Viragh, Jr. also has served (and
continues to serve) as: (i) the Chairman of the Board of Trustees and the
President of the Trust since the Trust's organization as a Delaware business
trust on March 13, 1993; (ii) the Chairman of the Board of Directors, the
President, and the Treasurer of PADCO Service Company, Inc. (the "Servicer"),
the Trust's registered transfer agent and shareholder servicer, since the
incorporation of the Servicer in the State of Maryland on October 6, 1993; (iii)
the Chairman of the Board of Directors, the President, and the Treasurer of
PADCO Advisors II, Inc. ("PADCO II"), a registered investment adviser, since the
incorporation of PADCO II in the State
6
<PAGE>
of Maryland on July 5, 1994; and (iv) the Chairman of the Board of Directors,
the President, and the Treasurer of Rydex Distributors, Inc. (formerly PADCO
Financial Services, Inc.) (the "Distributor"), the distributor of the shares of
the Trust, since the incorporation of the Distributor in the State of Maryland
on March 21, 1996. Amanda C. Viragh also has served (and continues to serve) as
the Secretary of the Advisor, the Servicer, and PADCO II, and also as the
Assistant Treasurer of the Servicer.
ITEM 27. PRINCIPAL UNDERWRITER
-------- ---------------------
(a) Rydex Distributors, Inc. (formerly, PADCO Financial Services, Inc.) serves
as the principal underwriter for Advisor Class Shares, International Funds
Shares, and Small- Cap Fund Shares of the Registrant, shares of Rydex
Variable Trust, and shares of Rydex Dynamic Funds.
(b) The following information is furnished with respect to the directors and
officers of Rydex Distributors, Inc.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS* UNDERWRITER WITH REGISTRANT
------------------ -------------------------- ---------------------
<S> <C> <C>
Albert P. Viragh, Jr. Chairman of the Board of Directors, Chairman of the Board
President and Treasurer of Trustees and President
Amanda C. Viragh Director None
Carl G. Verboncoeur Vice President Vice President
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
-------- --------------------------------
All accounts, books, and records required to be maintained and preserved by
Section 31(a) of the Investment Company Act of 1940, as amended, and Rules 31a-1
and 31a-2 thereunder, will be kept by the Registrant at 6116 Executive
Boulevard, Rockville, Maryland 20852.
ITEM 29. MANAGEMENT SERVICES
-------- -------------------
There are no management-related service contracts not discussed in Parts A and
B.
ITEM 30. UNDERTAKINGS
-------- ------------
None.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 38 to the Registration Statement (File No.
811-07584) be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Rockville, State of Maryland on this 20 day of June,
2000.
Rydex Series Funds
By: /s/ Albert P. Viragh, Jr.
--------------------------
Albert P. Viragh, Jr.,
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 38 to the Registration Statement has been duly
signed below by the following persons in the capacities on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Albert P. Viragh, Jr. Chairman of the Board of Trustees, June 20, 2000
-------------------------------- Principal Executive Officer, and
Albert P. Viragh, Jr. President
* Member of the Board of Trustees June 20, 2000
--------------------------------
Corey A. Colehour
* Member of the Board of Trustees June 20, 2000
--------------------------------
J. Kenneth Dalton
* Member of the Board of Trustees June 20, 2000
--------------------------------
Roger Somers
* Member of the Board of Trustees June 20, 2000
--------------------------------
John O. Demaret
* Member of the Board of Trustees June 20, 2000
--------------------------------
Patrick T. McCarville
/s/ Carl G. Verboncoeur Vice President and Treasurer June 20, 2000
--------------------------------
Carl G. Verboncoeur
/s/ Albert P. Viragh, Jr.
--------------------------------
Albert P. Viragh, Jr., Attorney in Fact
*Powers of Attorney previously filed
</TABLE>
8
<PAGE>
EXHIBIT INDEX
(a)(1) Certificate of Trust of Rydex Series Trust (the "Registrant" or the
"Trust") incorporated herein by reference to Exhibit 1a of
Post-Effective Amendment No. 27 to this Registration Statement, filed
on October 30, 1996.
(a)(2) Declaration of Trust of the Registrant incorporated herein by
reference to Exhibit 1b of Post-Effective Amendment No. 27 to this
Registration Statement, filed on October 30, 1996.
(b) By-Laws of Registrant incorporated herein by reference to Exhibit 2 of
Post-Effective Amendment No. 27 to this Registration Statement, filed
on October 30, 1996.
(c) Not applicable.
(d)(1) Investment Advisory Agreement between Registrant and PADCO Advisors,
Inc. incorporated herein by reference to Exhibit 5a of Post-Effective
Amendment No. 27 to this Registration Statement, filed on October 30,
1996.
(d)(2) Sub-Advisory Agreement between PADCO Advisors, Inc. and Loomis, Sayles
& Company, L.P. incorporated herein by reference to Exhibit 5b of
Post-Effective Amendment No. 27 to this Registration Statement, filed
on October 30, 1996.
(d)(3) Amendment to Advisory Agreement between the Registrant and PADCO
Advisors, Inc. dated March 16, 1998 incorporated herein by reference
to Exhibit 3d of Post-Effective Amendment No. 31 to this Registration
Statement, filed on May 29, 1998.
(e) Distribution Agreement between the Registrant and PADCO Financial
Services, Inc. relating to the Adviser Class Shares incorporated
herein by reference to Exhibit (e) of Post-Effective Amendment No. 31
to this Registration Statement, filed on May 29, 1998.
(f) Not applicable.
(g) Custody Agreement between Registrant and Star Bank, N.A. incorporated
herein by reference to Exhibit 8 of Post-Effective Amendment No. 27 to
this Registration Statement, filed on October 30, 1996.
(h)(1) Service Agreement between Registrant and PADCO Service Company, Inc.
incorporated herein by reference to Exhibit 9c of Post-Effective
Amendment No. 27 to this Registration Statement, filed on October 30,
1996.
(h)(2) Portfolio Accounting Services Agreement between Registrant and PADCO
Service Company, Inc. incorporated herein by reference to Exhibit 9d
of Post- Effective Amendment No. 27 to this Registration Statement,
filed on October 30, 1996.
(h)(3) Amendment to Service Agreement between Registrant and PADCO Service
Company dated March 16, 1998 incorporated herein by reference to
Exhibit 3h of Post-Effective Amendment No. 31 to this Registration
Statement, filed on May 29, 1998.
(h)(4) Amendment to Accounting Services Agreement between Registrant and
PADCO Service Company, Inc. dated December 11, 1998 incorporated
herein by reference to Exhibit 4h of Post-Effective Amendment No. 35
to this Registration Statement, filed on July 30, 1999.
(i) Legal Opinion of Morgan, Lewis & Bockius LLP incorporated herein by
9
<PAGE>
reference to Exhibit (i) of Post-Effective Amendment No. 35 to this
Registration Statement, filed on July 30, 1999.
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m)(1) Plan of Distribution for The Rydex Institutional Money Market Fund
incorporated herein by reference to Exhibit 15a of Post-Effective
Amendment No. 24 to this Registration Statement, filed on October 27,
1995.
(m)(2) Plan of Distribution for The Rydex Institutional Money Market Fund as
revised, March 12, 1997 incorporated herein by reference to
Exhibit 15b of Post-Effective Amendment No. 24 to this Registration
Statement, filed on October 27, 1995.
(m)(3) Plan of Distribution for The Rydex Institutional Money Market Fund as
revised, June 23, 1997 incorporated herein by reference to Exhibit 15c
Post-Effective Amendment No. 24 to this Registration Statement, filed
on October 27, 1995.
(m)(4) Plan of Distribution for The Rydex High Yield Fund incorporated herein
by reference to Exhibit 15d of Post-Effective Amendment No. 26 to this
Registration Statement, filed on September 11, 1996.
(m)(5) Plan of Distribution for The Rydex High Yield Fund, as revised
March 12, 1995 incorporated herein by reference to Exhibit 15e of
Post-Effective Amendment No. 24 to this Registration Statement, filed
on October 27, 1995.
(m)(6) Plan of Distribution for The Rydex High Yield Fund, as revised
June 23, 1997 incorporated herein by reference to Exhibit 15f of
Post-Effective Amendment No. 24 to this Registration Statement, filed
on October 27, 1995.
(m)(7) Shareholder Servicing Support Agreements between PADCO Financial
Services, Inc. and Selling Recipients in connection with the Plan of
Distribution for The Rydex Institutional Money Market Fund
incorporated herein by reference to Exhibit 15g of Post-Effective
Amendment No. 25 to this Registration Statement, filed on March 1,
1996.
(m)(8) Shareholder Servicing Support Agreement between PADCO Financial
Services, Inc. and Selling Recipients in connection with the Plan of
Distribution for The Rydex High Yield Fund incorporated herein by
reference to Exhibit 15h of Post-Effective Amendment No. 26 to this
Registration Statement, filed on September 11, 1996.
(m)(9) Distribution Plan and Shareholder Servicing Agreement for Advisor
Class Shares is incorporated by reference to Exhibit 15i of
Post-Effective Amendment No. 10 to this Registration Statement, filed
on March 2, 1998.
(n) Not applicable.
(o) Rule 18f-3 Plan is incorporated by reference to Exhibit 18 of
Post-Effective Amendment No. 30 to this Registration Statement, filed
on March 2, 1998.
(p) Combined Code of Ethics for Rydex Series Funds, Rydex Variable Trust,
Rydex Dynamic Funds, PADCO Advisors, Inc. d/b/a Rydex Global Advisors,
PADCO Advisors II, Inc. d/b/a Rydex Global Advisors, Rydex
Distributors, Inc., PADCO Service Company, Inc. is incorporated by
reference to Exhibit (p) of Post-Effective Amendment No. 3 to Rydex
Variable Trust's Registration Statement (File Nos. 333-57017 and
811-08821), filed on April 5, 2000.
10
<PAGE>
(q) Powers of Attorney incorporated herein by reference to Exhibit (p) of
Post-Effective Amendment No. 35 to this Registration Statement, filed
on July 30, 1999.
11
